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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2015

Commission File Number: 033-47040

 

 

CINEMARK USA, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Texas   75-2206284

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

3900 Dallas Parkway

Suite 500

Plano, Texas

  75093
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code: (972) 665-1000

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨    Accelerated filer    ¨
Non-accelerated filer   x  (Do not check if a smaller reporting company)    Smaller reporting company    ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of July 31, 2015, 1,500 shares of Class A and 182,648 shares of Class B common stock were issued and outstanding.

 

 

 


Table of Contents

CINEMARK USA, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

 

             Page  

PART I.        FINANCIAL INFORMATION

  
 

Item 1.

  Financial Statements   
    Condensed Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014 (unaudited)      4   
   

Condensed Consolidated Statements of Income for the three and six months ended June 30, 2015 and 2014 (unaudited)

     5   
   

Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2015 and 2014 (unaudited)

     6   
   

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014 (unaudited)

     7   
    Notes to Condensed Consolidated Financial Statements (unaudited)      8   
 

Item 2.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations      36   
 

Item 3.

  Quantitative and Qualitative Disclosures About Market Risk      45   
 

Item 4.

  Controls and Procedures      46   

PART II.        OTHER INFORMATION

  
 

Item 1.

  Legal Proceedings      47   
 

Item 1A.

  Risk Factors      47   
 

Item 5.

  Other Information      47   
 

Item 6.

  Exhibits      52   

SIGNATURES

     53   

 

 

2


Table of Contents

Cautionary Statement Regarding Forward-Looking Statements

Certain matters within this Quarterly Report on Form 10Q include “forward–looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The “forward-looking statements” may include our current expectations, assumptions, estimates and projections about our business and our industry. They may include statements relating to future revenues, expenses and profitability, the future development and expected growth of our business, projected capital expenditures, attendance at movies generally or in any of the markets in which we operate, the number or diversity of popular movies released and our ability to successfully license and exhibit popular films, national and international growth in our industry, competition from other exhibitors and alternative forms of entertainment and determinations in lawsuits in which we are defendants. Forward-looking statements can be identified by the use of words such as “may,” “should,” “could,” “estimates,” “predicts,” “potential,” “continue,” “anticipates,” “believes,” “plans,” “expects,” “future” and “intends” and similar expressions. Forward-looking statements may involve known and unknown risks, uncertainties and other factors that may cause the actual results or performance to differ from those projected in the forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. For a description of the risk factors, please review the “Risk Factors” section or other sections in the Company’s Annual Report on Form 10-K filed March 6, 2015 and quarterly reports on Form 10-Q, filed with the Securities and Exchange Commission. All forward-looking statements are expressly qualified in their entirety by such risk factors. We undertake no obligation, other than as required by law, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 

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Table of Contents

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

CINEMARK USA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data, unaudited)

 

     June 30,     December 31,  
     2015     2014  

Assets

    

Current assets

    

Cash and cash equivalents

   $ 576,192      $ 638,841   

Inventories

     13,969        13,419   

Accounts receivable

     96,921        47,917   

Current income tax receivable

     1,805        19,350   

Current deferred tax asset

     9,981        10,518   

Prepaid expenses and other

     15,309        10,882   

Accounts receivable from parent

     746        12,638   
  

 

 

   

 

 

 

Total current assets

     714,923        753,565   

Theatre properties and equipment

     2,630,597        2,549,092   

Less accumulated depreciation and amortization

     1,146,208        1,098,280   
  

 

 

   

 

 

 

Theatre properties and equipment, net

     1,484,389        1,450,812   

Other assets

    

Goodwill

     1,266,155        1,277,383   

Intangible assets - net

     343,954        348,024   

Investment in NCM

     184,771        178,939   

Investments in and advances to affiliates

     87,731        77,658   

Long-term deferred tax asset

     164        164   

Deferred charges and other assets - net

     82,625        77,990   
  

 

 

   

 

 

 

Total other assets

     1,965,400        1,960,158   
  

 

 

   

 

 

 

Total assets

   $ 4,164,712      $ 4,164,535   
  

 

 

   

 

 

 

Liabilities and equity

    

Current liabilities

    

Current portion of long-term debt

   $ 8,423      $ 8,423   

Current portion of capital lease obligations

     17,917        16,494   

Current income tax payable

     15,896        6,396   

Current liability for uncertain tax positions

     8,431        7,283   

Accounts payable and accrued expenses

     368,029        375,287   
  

 

 

   

 

 

 

Total current liabilities

     418,696        413,883   

Long-term liabilities

    

Long-term debt, less current portion

     1,811,056        1,814,574   

Capital lease obligations, less current portion

     201,493        201,978   

Long-term deferred tax liability

     132,104        140,973   

Long-term liability for uncertain tax positions

     8,523        8,410   

Deferred lease expenses

     44,038        46,003   

Deferred revenue - NCM

     346,491        335,219   

Other long-term liabilities

     65,342        66,772   
  

 

 

   

 

 

 

Total long-term liabilities

     2,609,047        2,613,929   

Commitments and contingencies (see Note 16)

    

Equity

    

Cinemark USA, Inc.’s stockholder’s equity:

    

Class A common stock, $0.01 par value: 10,000,000 shares authorized, 1,500 shares issued and outstanding

     —          —     

Class B common stock, no par value: 1,000,000 shares authorized, 239,893 shares issued and 182,648 shares outstanding

     49,543        49,543   

Treasury stock, 57,245 Class B shares at cost

     (24,233     (24,233

Additional paid-in-capital

     1,229,504        1,221,179   

Retained Earnings

     62,839        24,677   

Accumulated other comprehensive loss

     (191,732     (144,772
  

 

 

   

 

 

 

Total Cinemark USA, Inc.’s stockholder’s equity

     1,125,921        1,126,394   

Noncontrolling interests

     11,048        10,329   
  

 

 

   

 

 

 

Total equity

     1,136,969        1,136,723   
  

 

 

   

 

 

 

Total liabilities and equity

   $ 4,164,712      $ 4,164,535   
  

 

 

   

 

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

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Table of Contents

CINEMARK USA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data, unaudited)

 

     Three months ended June 30,     Six months ended June 30,  
     2015     2014     2015     2014  

Revenues

        

Admissions

   $ 502,963      $ 455,726      $ 903,625      $ 836,640   

Concession

     259,530        226,417        473,957        419,440   

Other

     37,439        35,720        67,748        64,063   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     799,932        717,863        1,445,330        1,320,143   

Cost of operations

        

Film rentals and advertising

     285,303        249,198        500,962        449,855   

Concession supplies

     40,903        35,336        73,406        65,389   

Salaries and wages

     76,528        69,942        145,751        134,293   

Facility lease expense

     82,391        80,647        162,008        159,004   

Utilities and other

     85,138        78,570        160,495        154,502   

General and administrative expenses

     38,449        38,752        75,763        77,492   

Depreciation and amortization

     46,569        43,881        91,901        86,377   

Impairment of long-lived assets

     3,528        430        4,322        784   

Loss on sale of assets and other

     5,802        3,276        4,352        6,129   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of operations

     664,611        600,032        1,218,960        1,133,825   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     135,321        117,831        226,370        186,318   

Other income (expense)

        

Interest expense

     (28,304     (28,286     (56,511     (56,766

Interest income

     2,875        1,030        4,394        2,044   

Foreign currency exchange gain (loss)

     1,439        1,825        (6,767     4,877   

Loss on amendment to debt agreement

     (925     —          (925     —     

Distributions from NCM

     —          1,180        8,499        10,677   

Equity in income of affiliates

     4,086        3,600        9,325        7,220   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense

     (20,829     (20,651     (41,985     (31,948
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     114,492        97,180        184,385        154,370   

Income taxes

     43,089        24,446        69,700        45,549   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 71,403      $ 72,734      $ 114,685      $ 108,821   

Less: Net income attributable to noncontrolling interests

     632        403        1,013        656   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Cinemark USA, Inc.

   $ 70,771      $ 72,331      $ 113,672      $ 108,165   
  

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

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CINEMARK USA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands, unaudited)

 

     Three months ended June 30,     Six months ended June 30,  
     2015     2014     2015     2014  

Net income

   $ 71,403      $ 72,734      $ 114,685      $ 108,821   

Other comprehensive income (loss), net of tax

        

Unrealized gain due to fair value adjustments on interest rate swap agreements, net of settlements, net of taxes of $504, $391, $958 and $759

     855        661        1,612        1,158   

Unrealized gain (loss) due to fair value adjustments on available-for-sale securities, net of taxes of $(209), $724, $236 and $1,916

     (354     1,221        412        3,244   

Other comprehensive income (loss) in equity method investments

     (3,322     134        (2,938     396   

Foreign currency translation adjustments

     628        8,346        (46,047     (843
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income (loss), net of tax

     (2,193     10,362        (46,961     3,955   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income, net of tax

     69,210        83,096        67,724        112,776   

Comprehensive income attributable to noncontrolling interests

     (626     (405     (1,013     (664
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to Cinemark USA, Inc.

   $ 68,584      $ 82,691      $ 66,711      $ 112,112   
  

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

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CINEMARK USA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, unaudited)

 

     Six months ended June 30,  
     2015     2014  

Operating activities

    

Net income

   $ 114,685      $ 108,821   

Adjustments to reconcile net income to cash provided by operating activities:

    

Depreciation

     90,707        85,032   

Amortization of intangible and other assets and favorable/unfavorable leases

     1,194        1,345   

Amortization of long-term prepaid rents

     1,382        785   

Amortization of debt issue costs

     2,600        2,623   

Amortization of deferred revenues, deferred lease incentives and other

     (6,759     (6,732

Impairment of long-lived assets

     4,322        784   

Share based awards compensation expense

     6,082        6,058   

Loss on sale of assets and other

     4,352        6,129   

Deferred lease expenses

     (1,288     1,848   

Equity in income of affiliates

     (9,325     (7,220

Deferred income tax expense

     (7,942     (22,003

Distributions from equity investees

     8,309        8,352   

Changes in assets and liabilities and other

     (27,911     (26,304
  

 

 

   

 

 

 

Net cash provided by operating activities

     180,408        159,518   

Investing activities

    

Additions to theatre properties and equipment and other

     (155,712     (102,563

Acquisition of theatre in Brazil

     (2,651     —     

Proceeds from sale of theatre properties and equipment and other

     4,973        1,547   

Investment in joint ventures and other

     (1,777     (1,896
  

 

 

   

 

 

 

Net cash used for investing activities

     (155,167     (102,912

Financing activities

    

Dividends paid to parent

     (57,575     (57,500

Payroll taxes paid as a result of restricted stock withholdings

     (4,748     (9,776

Repayments of long-term debt

     (3,516     (4,952

Payment of debt issue costs

     (6,957     —     

Payments on capital leases

     (7,959     (6,827

Other

     1,950        3,340   
  

 

 

   

 

 

 

Net cash used for financing activities

     (78,805     (75,715

Effect of exchange rate changes on cash and cash equivalents

     (9,085     (2,748
  

 

 

   

 

 

 

Decrease in cash and cash equivalents

     (62,649     (21,857

Cash and cash equivalents:

    

Beginning of period

     638,841        599,894   
  

 

 

   

 

 

 

End of period

   $ 576,192      $ 578,037   
  

 

 

   

 

 

 
Supplemental information (see Note 13)     

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

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CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

1. The Company and Basis of Presentation

Cinemark USA, Inc. and subsidiaries (the “Company”), a wholly-owned subsidiary of Cinemark Holdings, Inc., operates in the motion picture exhibition industry, with theatres in the United States (“U.S.”), Brazil, Argentina, Chile, Colombia, Peru, Ecuador, Honduras, El Salvador, Nicaragua, Costa Rica, Panama, Guatemala, Bolivia and Curacao.

The accompanying condensed consolidated balance sheet as of December 31, 2014, which was derived from audited financial statements, and the unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete consolidated financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation have been included. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from these estimates. Majority-owned subsidiaries that the Company has control of are consolidated while those affiliates of which the Company owns between 20% and 50% and does not control are accounted for under the equity method. Those affiliates of which the Company owns less than 20% are generally accounted for under the cost method, unless the Company is deemed to have the ability to exercise significant influence over the affiliate, in which case the Company would account for its investment under the equity method. The results of these subsidiaries and affiliates are included in the condensed consolidated financial statements effective with their formation or from their dates of acquisition. Intercompany balances and transactions are eliminated in consolidation.

These condensed consolidated financial statements should be read in conjunction with the audited annual consolidated financial statements and the notes thereto for the year ended December 31, 2014, included in the Annual Report on Form 10-K filed March 6, 2015 by the Company under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Operating results for the six months ended June 30, 2015 are not necessarily indicative of the results to be achieved for the full year.

2. New Accounting Pronouncements

In January 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2015-01, Income Statement – Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items, (“ASU 2015-01”). ASU 2015-01 eliminates the concept of an extraordinary item from GAAP. With this update, there is no longer a need to segregate extraordinary items from the results of ordinary operations, separately present an extraordinary item on its income statement, net of tax, after income from continuing operations or disclose income taxes and earnings-per-share data applicable to an extraordinary item. However, presentation and disclosure requirements for items that are unusual in nature and occur infrequently still apply. ASU 2015-01 is effective for fiscal years beginning after December 15, 2015. Early adoption is permitted. The Company has elected to early adopt ASU 2015-01. There is no impact of adoption on the condensed consolidated financial statements.

In February 2015, the FASB issued Accounting Standards Update 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis, (“ASU 2015-02”). ASU 2015-02 affects reporting entities that are required to evaluate whether they should consolidate certain legal entities. Specifically, ASU 2015-02 modifies the evaluation of whether limited partnerships and similar legal entities are variable interest entities (VIEs) or voting interest entities, eliminates the presumption that a general partner should consolidate a limited partnership and affects the consolidation analysis of reporting entities that are involved with certain VIEs. ASU 2015-02 also provides a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. ASU 2015-02 is effective for fiscal years beginning after December 15, 2015. Early adoption is permitted. The Company is currently evaluating the impact of ASU 2015-02 on its condensed consolidated financial statements.

In April 2015, the FASB issued Accounting Standards Update 2015-03, Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, (“ASU 2015-03”). ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction

 

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CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in ASU 2015-03. ASU 2015-03 is effective for fiscal years beginning after December 15, 2015. Early adoption is permitted. The Company plans to adopt this ASU effective January 1, 2016 and will revise its presentation of debt issue costs at that time.

In April 2015, the FASB issued Accounting Standards Update 2015-05, Intangibles – Goodwill and Other – Internal Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in Cloud Computing Arrangement, (“ASU 2015-05”). ASU 2015-05 provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The guidance will not change GAAP for a customer’s accounting for service contracts. In addition, the guidance in this Update supersedes paragraph 350-40-25-16. Consequently, all software licenses within the scope of Subtopic 350-40 will be accounted for consistent with other licenses of intangible assets. ASU 2015-05 is effective for fiscal years beginning after December 15, 2015. Early adoption is permitted. The Company has elected to early adopt ASU 2015-05. There is no impact of adoption on the condensed consolidated financial statements.

In July 2015, the FASB issued Accounting Standards Update 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory, (“ASU 2015-11”). ASU 2015-11 affects reporting entities that measure inventory using first-in, first-out (FIFO) or average cost. Specifically, ASU 2015-11 requires that inventory be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method. ASU 2015-11 is effective for fiscal years beginning after December 15, 2016. Early adoption is permitted. The Company does not expect ASU 2015-11 to have an impact on its condensed consolidated financial statements.

3. Long Term Debt Activity

Amended Senior Secured Credit Facility

On May 8, 2015, the Company amended its senior secured credit facility (“Amended and Restated Credit Agreement”), to extend the maturity of the $700,000 term loan from December 2019 to May 2022. Quarterly principal payments in the amount of $1,750 are due on the term loan through March 31, 2022, with the remaining principal of $635,250 due on May 8, 2022. The Company incurred debt issue costs of approximately $6,875 in connection with the amendment, which are reflected in deferred charges and other assets-net on the condensed consolidated balance sheet as of June 30, 2015. In addition, the Company incurred approximately $925 in legal and other fees that are reflected as loss on amendment to debt agreement on the condensed consolidated statements of income for the three and six months ended June 30, 2015.

Fair Value of Long-Term Debt

The Company estimates the fair value of its long-term debt using the market approach, which utilizes quoted market prices that fall under Level 2 of the U.S. GAAP fair value hierarchy as defined by FASB Accounting Standards Codification (“ASC”) Topic 820-10-35, Fair Value Measurement. The carrying value of the Company’s long-term debt was $1,819,479 and $1,822,997 as of June 30, 2015 and December 31, 2014, respectively. The fair value of the Company’s long-term debt was $1,809,866 and $1,790,987 as of June 30, 2015 and December 31, 2014, respectively.

 

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CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

4. Equity

Below is a summary of changes in stockholder’s equity attributable to Cinemark USA, Inc., noncontrolling interests and total equity for the six months ended June 30, 2015 and 2014:

 

     Cinemark                
     USA, Inc.                
     Stockholder’s      Noncontrolling      Total  
     Equity      Interests      Equity  

Balance at January 1, 2015

   $ 1,126,394       $ 10,329       $ 1,136,723   

Share based awards compensation expense

     6,082         —           6,082   

Tax benefit related to share based awards vesting

     2,244         —           2,244   

Cash and noncash dividends paid to parent

     (75,510      —           (75,510

Dividends paid to noncontrolling interests

     —           (294      (294

Net income

     113,672         1,013         114,685   

Fair value adjustments on interest rate swap agreements designated as hedges, net of settlements, net of taxes of $958

     1,612         —           1,612   

Fair value adjustments on available-for-sale securities, net of taxes of $236

     412         —           412   

Other comprehensive loss in equity method investees

     (2,938      —           (2,938

Foreign currency translation adjustments

     (46,047      —           (46,047
  

 

 

    

 

 

    

 

 

 

Balance at June 30, 2015

   $ 1,125,921       $ 11,048       $ 1,136,969   
  

 

 

    

 

 

    

 

 

 
     Cinemark                
     USA, Inc.                
     Stockholder’s      Noncontrolling      Total  
     Equity      Interests      Equity  

Balance at January 1, 2014

   $ 1,095,286       $ 8,995       $ 1,104,281   

Share based awards compensation expense

     6,058         —           6,058   

Tax benefit related to share based awards vesting

     3,561         —           3,561   

Dividends paid to parent

     (57,500      —           (57,500

Dividends paid to noncontrolling interests

     —           (221      (221

Net income

     108,165         656         108,821   

Fair value adjustments on interest rate swap agreements designated as hedges, net of settlements, net of taxes of $759

     1,158         —           1,158   

Fair value adjustments on available-for-sale securities, net of taxes of $1,916

     3,244         —           3,244   

Other comprehensive income in equity method investments

     396         —           396   

Foreign currency translation adjustments

     (851      8         (843
  

 

 

    

 

 

    

 

 

 

Balance at June 30, 2014

   $ 1,159,517       $ 9,438       $ 1,168,955   
  

 

 

    

 

 

    

 

 

 

5. Investment in National CineMedia

The Company has an investment in National CineMedia, LLC (“NCM”). NCM operates a digital in-theatre network in the U.S. for providing cinema advertising. Upon joining NCM, the Company entered into an Exhibitor Services Agreement with NCM (“ESA”), pursuant to which NCM provides advertising, promotion and event services to our theatres. As described further in Note 4 to the Company’s financial statements as included in its 2014 Annual Report on Form 10-K, on February 13, 2007, National CineMedia, Inc. (“NCM, Inc.”), an entity that serves as the sole manager of NCM, completed an initial public offering (“IPO”) of its common stock. In connection with the NCM Inc. initial public offering, the Company amended its operating agreement and the ESA. Following the NCM, Inc. IPO, the Company does not recognize undistributed equity in the earnings on its original NCM membership units (referred to herein as the Company’s Tranche 1 Investment) until NCM’s future net earnings, less distributions received, surpass the amount of the excess distribution. The Company recognizes equity in earnings on its Tranche 1 Investment only to the extent it receives cash distributions from NCM. The Company recognizes cash distributions it receives from NCM on its Tranche 1 Investment as a component of earnings as Distributions from NCM. The Company believes that the accounting model provided by ASC 323-10-35-22 for recognition of equity investee losses in excess of an investor’s basis is analogous to the accounting for equity income subsequent to recognizing an excess distribution.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

Below is a summary of activity with NCM included in the Company’s condensed consolidated financial statements:

 

                Distributions                 Other        
    Investment     Deferred     from     Equity in     Other     Comprehensive     Cash  
    in NCM     Revenue     NCM     Earnings     Revenue     Income     Received  

Balance as of January 1, 2015

  $ 178,939      $ (335,219          

Receipt of common units due to annual common unit adjustment

    15,421        (15,421   $ —        $ —        $ —        $ —        $ —     

Revenues earned under ESA (1)

    —          —          —          —          (5,681     —          5,681   

Receipt of excess cash distributions

    (5,393     —          (6,258     —          —          —          11,651   

Receipt under tax receivable agreement

    (1,871     —          (2,241     —          —          —          4,112   

Equity in earnings

    409        —          —          (409     —          —          —     

Equity in other comprehensive income

    (2,734     —          —          —          —          2,734        —     

Amortization of deferred revenue

    —          4,149        —          —          (4,149     —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of and for the period ended June 30, 2015

  $ 184,771      $ (346,491   $ (8,499   $ (409   $ (9,830   $ 2,734      $ 21,444   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)  Amount includes the per patron and per digital screen theatre access fees due to the Company, net of amounts due to NCM for on-screen advertising time provided to the Company’s beverage concessionaire of approximately $4,980.

On May 5, 2014, NCM, Inc. announced that it had entered into a merger agreement to acquire Screenvision, LLC. On November 3, 2014, the U.S. Department of Justice (“DOJ”) filed an antitrust lawsuit seeking to enjoin the proposed merger between NCM, Inc. and Screenvision, LLC. On March 16, 2015, NCM, Inc. announced that it had agreed with Screenvision, LLC to terminate the merger agreement. The termination of the merger agreement resulted in a $26.8 million termination payment to Screenvision by NCM, Inc. NCM indemnified NCM, Inc. for the termination fee. The impact of the termination payment and related merger costs resulted in NCM not making an excess cash distribution to its shareholders during the second quarter of 2015.

During the three months ended June 30, 2015 and 2014, the Company recorded equity in loss of approximately $386 and $75, respectively. During the six months ended June 30, 2015 and 2014, the Company recorded equity in earnings of approximately $409 and $357, respectively

Pursuant to a Common Unit Adjustment Agreement dated as of February 13, 2007 between NCM, Inc. and the Company, AMC Entertainment, Inc. (“AMC”) and Regal Entertainment Group (“Regal”), annual adjustments to the common membership units are made primarily based on increases or decreases in the number of theatre screens operated and theatre attendance generated by each Founding Member. As further discussed in Note 4 to the Company’s financial statements as included in its 2014 Annual Report on Form 10-K, the common units received are recorded at fair value as an increase in the Company’s investment in NCM with an offset to deferred revenue. The deferred revenue is amortized over the remaining term of the ESA. During March 2015, NCM performed its annual common unit adjustment calculation under the Common Unit Adjustment Agreement. As a result of the calculation, the Company received an additional 1,074,910 common units of NCM, each of which is convertible into one share of NCM, Inc. common stock. The Company recorded the additional common units received at fair value with a corresponding adjustment to deferred revenue of approximately $15,421. The deferred revenue will be recognized over the remaining term of the ESA, which is approximately 21 years.

As of June 30, 2015, the Company owned a total of 25,631,046 common units of NCM, representing an ownership interest of approximately 20%.

Below is summary financial information for NCM for the three and six months ended June 26, 2014 and the three months ended April 2, 2015 (the financial information for the period ended June 25, 2015 is not yet available):

 

     Three Months
Ended
     Three Months
Ended
     Six Months
Ended
 
     April 2, 2015      June 26, 2014      June 26, 2014  

Gross revenues

   $ 76,867       $ 99,958       $ 170,173   

Operating income

   $ 14,618       $ 42,131       $ 54,898   

Net earnings (loss)

   $ (38,729    $ 26,467       $ 23,703   

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

6. Other Investments

The Company had the following other investments at June 30, 2015:

 

Digital Cinema Implementation Partners (“DCIP”), equity method investment

   $ 59,622   

RealD, Inc. (“RealD”), investment in marketable security

     15,077   

AC JV, LLC, equity method investment

     8,874   

Digital Cinema Distribution Coalition (“DCDC”), equity method investment

     2,562   

Other

     1,596   
  

 

 

 

Total

   $ 87,731   
  

 

 

 

Below is a summary of activity for each of the investments for the three months ended June 30, 2015:

 

     DCIP     RealD      AC JV,
LLC
     DCDC      Other     Total  

Balance at January 1, 2015

   $ 51,277     $ 14,429      $ 7,899       $ 2,438      $ 1,615     $ 77,658  

Cash contributions, net of cash distributions received

     732        —           —           —           —          732   

Equity in income

     7,817        —           975         124         —          8,916   

Equity in comprehensive loss

     (204     —           —           —           —          (204

Unrealized holding gain

     —          648         —           —           —          648   

Other

     —          —           —           —           (19     (19
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Balance at June 30, 2015

   $ 59,622      $ 15,077       $ 8,874       $ 2,562       $ 1,596      $ 87,731   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Digital Cinema Implementation Partners LLC

On February 12, 2007, the Company, AMC and Regal entered into a joint venture known as Digital Cinema Implementation Partners LLC to facilitate the implementation of digital cinema in the Company’s theatres and to establish agreements with major motion picture studios for the financing of digital cinema. On March 10, 2010, the Company signed a master equipment lease agreement and other related agreements (collectively the “Agreements”) with Kasima LLC (“Kasima”), which is an indirect subsidiary of DCIP and a related party to the Company. Upon signing the Agreements, the Company contributed the majority of its U.S. digital projection systems to DCIP, which DCIP then contributed to Kasima. The Company has a variable interest in Kasima through the terms of its master equipment lease agreement; however, the Company has determined that it is not the primary beneficiary of Kasima, as the Company does not have the ability to direct the activities of Kasima that most significantly impact Kasima’s economic performance. As of June 30, 2015, the Company had a 33% voting interest in DCIP and a 24.3% economic interest in DCIP. The Company accounts for its investment in DCIP and its subsidiaries under the equity method of accounting.

Below is summary financial information for DCIP for the three and six months ended June 30, 2015 and 2014.

 

     Three Months Ended      Six Months Ended  
     June 30, 2015      June 30, 2014      June 30, 2015      June 30, 2014  

Revenues

   $ 39,852       $ 43,396       $ 80,593       $ 86,084   

Operating income

   $ 22,996       $ 26,700       $ 46,760       $ 51,004   

Net income

   $ 16,521       $ 19,065       $ 33,965       $ 24,593   

As of June 30, 2015, the Company had 3,714 digital projection systems being leased under the master equipment lease agreement with Kasima. The Company made equipment lease payments of approximately $2,049 and $2,000 during the six months ended June 30, 2015 and 2014, respectively, which are included in utilities and other costs on the condensed consolidated statements of income.

RealD, Inc.

The Company licenses 3-D systems from RealD. The Company owns 1,222,780 shares of RealD and accounts for its investment in RealD as a marketable security. The Company has determined that its RealD shares are available-for-sale securities in accordance with ASC Topic 320-10-35-1, therefore unrealized holding gains and losses are reported as a component of accumulated other comprehensive loss until realized.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

As of June 30, 2015, the estimated fair value of the Company’s investment in RealD was $15,077, which is based on the closing price of RealD’s common stock on June 30, 2015, and falls under Level 1 of the U.S. GAAP fair value hierarchy as defined by ASC Topic 820-10-35. The Company paid licensing fees of $7,881 and $8,822 during the six months ended June 30, 2015 and 2014, respectively, which are included in utilities and other costs on the condensed consolidated statements of income.

AC JV, LLC

During December 2013, the Company, Regal, AMC and NCM entered into a series of agreements that resulted in the formation of a new joint venture that now owns the “Fathom Events” division (consisting of Fathom Events and Fathom Consumer Events) formerly operated by NCM. The Fathom Events business focuses on the marketing and distribution of live and pre-recorded entertainment programming to various theatre operators to provide additional programs to augment their feature film schedule. The Fathom Consumer Events business includes live and pre-recorded concerts featuring contemporary music, opera and symphony, DVD product releases and marketing events, theatrical premieres, Broadway plays, live sporting events and other special events. The Company paid event fees of $5,970 and $0 for the six months ended June 30, 2015 and 2014, respectively, which are included in film rentals and advertising costs on the condensed consolidated statements of income.

The joint venture, AC JV, LLC (“AC”), was formed by the Founding Members and NCM. NCM, under a contribution agreement, contributed the assets associated with its Fathom Events division to AC in exchange for 97% ownership of the Class A Units of AC. Under a separate contribution agreement, the Founding Members each contributed cash of approximately $268 to AC in exchange for 1% of the Class A Units of AC. Subsequently, NCM and the Founding Members entered into a Membership Interest Purchase Agreement, under which NCM sold each of the Founding Members 31% of its Class A Units in AC, the aggregate value of which was determined to be $25,000, in exchange for a six-year Promissory Note. Each of the Founding Members’ Promissory Notes were originally for $8,333, bear interest at 5% per annum and require annual principal and interest payments, with the first of such payments made during December 2014.

Digital Cinema Distribution Coalition

The Company is a party to a joint venture with certain exhibitors and distributors called DCDC, which operates a satellite distribution network that distributes all digital content to U.S. theatres via satellite. The Company has an approximate 14.6% ownership in DCDC. The Company paid approximately $390 and $382 during the six months ended June 30, 2015 and 2014, respectively, related to content delivery services provided by DCDC. These fees are included in film rentals and advertising costs on the condensed consolidated statements of income.

7. Share Based Awards

Restricted Stock – During the six months ended June 30, 2015, Cinemark Holdings, Inc. granted 223,976 shares of restricted stock to its directors and employees of the Company. The fair value of the restricted stock granted was determined based on the market value of Cinemark Holdings, Inc.’s common stock on the dates of grant, which ranged from $40.75 to $43.28 per share. The Company assumed forfeiture rates ranging from 0% to 10% for the restricted stock awards. Restricted stock granted to Cinemark Holdings, Inc.’s directors vests over one year. Restricted stock granted to employees vests over service periods that range from one year to four years. The recipients of restricted stock are entitled to receive dividends and to vote their respective shares, however, the sale and transfer of the restricted shares is prohibited during the restriction period.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

Below is a summary of restricted stock activity for the six months ended June 30, 2015:

 

     Shares of      Weighted Average  
     Restricted      Grant Date  
     Stock      Fair Value  

Outstanding at January 1, 2015

     878,897       $ 24.92   

Granted

     223,976       $ 42.80   

Vested

     (326,168    $ 23.62   

Forfeited

     (11,937    $ 25.98   
  

 

 

    

Outstanding at June 30, 2015

     764,768       $ 30.71   
  

 

 

    

Unvested restricted stock at June 30, 2015

     764,768       $ 30.71   
  

 

 

    

 

     Six Months Ended June 30,  
     2015      2014  

Compensation expense recognized during the period (1)

   $ 4,343       $ 4,455   

Fair value of restricted shares held by Company employees that vested during the period

   $ 13,161       $ 17,490   

Fair value of restricted shares held by Cinemark Holdings, Inc.’s directors that vested during period

   $ 1,147       $ 1,081   

Income tax deduction upon vesting of restricted stock awards (2)

   $ 3,305       $ 6,655   

 

(1)  Cinemark Holdings, Inc. recorded an additional $393 and $531 of compensation expense related to these restricted stock awards during the quarters ended June 30, 2015 and 2014, respectively.
(2)  Cinemark Holdings, Inc. recognized an additional $483 and $454 in income tax deductions during the six months ended June 30, 2015 and 2014, respectively.

As of June 30, 2015, the estimated remaining unrecognized compensation expense related to restricted stock awards was $16,667, of which $15,824 will be recognized by the Company and an additional $843 of which will be recognized by Cinemark Holdings, Inc. The weighted average period over which this remaining compensation expense will be recognized is approximately two years.

Restricted Stock Units – During the six months ended June 30, 2015, Cinemark Holdings, Inc. granted restricted stock units representing 142,922 hypothetical shares of its common stock to employees of the Company. The restricted stock units vest based on a combination of financial performance factors and continued service. The financial performance factors are based on an implied equity value concept that determines an internal rate of return (“IRR”) during the two fiscal year periods ending December 31, 2016 based on a formula utilizing a multiple of Adjusted EBITDA subject to certain specified adjustments as specified by the Compensation Committee of Cinemark Holdings, Inc.’s board of directors prior to the grant date. The financial performance factors for the restricted stock units have a threshold, target and maximum level of payment opportunity and vest on a prorata basis according to the IRR achieved by the Company during the performance period. If the IRR for the two-year period is at least 7.5%, which is the threshold, one-third of the restricted stock units vest. If the IRR for the two-year period is at least 9.5%, which is the target, two-thirds of the restricted stock units vest. If the IRR for the two-year period is at least 11.5%, which is the maximum, 100% of the restricted stock units vest. Grantees are eligible to receive a ratable portion of the common stock issuable if the IRR is within the targets previously noted. All payouts of restricted stock units that vest will be subject to an additional two-year service requirement and will be paid in the form of Cinemark Holdings, Inc.’s common stock if the participant continues to provide services through March 2019, which is the fourth anniversary of the grant date. Restricted stock unit award participants are eligible to receive dividend equivalent payments from the grant date if, and at the time that, the restricted stock unit awards vest.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

Below is a table summarizing the potential number of shares that could vest under restricted stock unit awards granted during the six months ended June 30, 2015 at each of the three target levels of financial performance (excluding forfeiture assumptions):

 

     Number of         
     Shares      Value at  
     Vesting      Grant  

at IRR of at least 7.5%

     47,640       $ 2,057   

at IRR of at least 9.5%

     95,282       $ 4,115   

at IRR of at least 11.5%

     142,922       $ 6,173   

Due to the fact that the IRR for the two-year performance period could not be determined at the time of grant, the Company estimated that the most likely outcome is the achievement of the mid-point IRR level. The fair value of the restricted stock unit awards was determined based on the market value of Cinemark Holdings, Inc.’s common stock on the dates of grant, which ranged from $40.75 to $43.28 per share. The Company assumed forfeiture rates ranging from 0% to 5% for the restricted stock unit awards. If during the service period, additional information becomes available to lead the Company to believe a different IRR level will be achieved for the two-year performance period, the Company will reassess the number of units that will vest for the grant and adjust its compensation expense accordingly on a prospective basis over the remaining service period.

 

     Six Months Ended June 30,  
     2015      2014  

Number of restricted stock unit awards that vested during the period

     123,769         392,238   

Fair value of restricted stock unit awards that vested during the period

   $ 5,483       $ 11,312   

Accumulated dividends paid by Cinemark Holdings, Inc. upon vesting of restricted stock unit awards

   $ 442       $ 1,341   

Income tax benefit recognized upon vesting of restricted stock unit awards

   $ 2,303       $ 4,751   

Compensation expense recognized during the period

   $ 1,739       $ 1,603   

As of June 30, 2015, the estimated remaining unrecognized compensation expense related to the outstanding restricted stock unit awards was $7,008. The weighted average period over which this remaining compensation expense will be recognized is approximately two years. As of June 30, 2015, the Company had restricted stock units outstanding that represented a total of 544,081 hypothetical shares of common stock, net of actual cumulative forfeitures of 19,934 units, assuming an IRR of 11.1% was reached for the 2012 grant and the maximum IRR level is achieved for each of the 2013, 2014, and 2015 grants.

8. Interest Rate Swap Agreements

The Company is currently a party to three interest rate swap agreements that are used to hedge interest rate risk associated with the variable interest rates on the Company’s term loan debt and qualify for cash flow hedge accounting. The fair values of the interest rate swaps are recorded on the Company’s condensed consolidated balance sheet as an asset or liability with the effective portion of the interest rate swaps’ gains or losses reported as a component of accumulated other comprehensive loss and the ineffective portion reported in earnings. The changes in fair values are reclassified from accumulated other comprehensive loss into earnings in the same period that the hedged items affect earnings.

The valuation technique used to determine fair value is the income approach and under this approach, the Company uses projected future interest rates as provided by counterparties to the interest rate swap agreements and the fixed rates that the Company is obligated to pay under these agreements. Therefore, the Company’s measurements use significant unobservable inputs, which fall in Level 3 of the U.S. GAAP hierarchy as defined by FASB ASC Topic 820-10-35. There were no changes in valuation techniques during the period and no transfers in or out of Level 3. See Note 11 for a summary of unrealized gains or losses recorded in accumulated other comprehensive loss and earnings.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

Below is a summary of the Company’s current interest rate swap agreements designated as cash flow hedges as of June 30, 2015:

 

Nominal

Amount

  

Effective

Date

  

Pay Rate

   

Receive Rate

  

Expiration

Date

  

Estimated Total

Fair Value at

June 30, 2015(1)

 
$    175,000    December 2010      1.3975   1-Month LIBOR    September 2015    $ 439   
$    175,000    December 2010      1.4000   1-Month LIBOR    September 2015      446   
$    100,000    November 2011      1.7150   1-Month LIBOR    April 2016      1,117   

 

             

 

 

 
$    450,000               $ 2,002   

 

             

 

 

 

 

(1)  Included in accounts payable and accrued expenses on the condensed consolidated balance sheet as of June 30, 2015.

The changes in accumulated other comprehensive loss, net of taxes, related to the Company’s interest rate swap agreements for the three and six months ended June 30, 2015 and 2014 were as follows:

 

     Interest Rate Swaps  
     2015      2014  

Beginning balances – April 1

   $ (2,113    $ (5,219
  

 

 

    

 

 

 

Other comprehensive loss before reclassifications, net of taxes

     (646      (848

Amounts reclassified from accumulated other comprehensive loss to interest expense, net of taxes

     1,501         1,509   
  

 

 

    

 

 

 

Net other comprehensive income

     855         661   
  

 

 

    

 

 

 

Ending balances - June 30

   $ (1,258    $ (4,558
  

 

 

    

 

 

 
     Interest Rate Swaps  
     2015      2014  

Beginning balances – January 1

   $ (2,870    $ (5,716
  

 

 

    

 

 

 

Other comprehensive loss before reclassifications, net of taxes

     (1,335      (1,827

Amounts reclassified from accumulated other comprehensive loss to interest expense, net of taxes

     2,947         2,985   
  

 

 

    

 

 

 

Net other comprehensive income

     1,612         1,158   
  

 

 

    

 

 

 

Ending balances – June 30

   $ (1,258    $ (4,558
  

 

 

    

 

 

 

9. Goodwill and Other Intangible Assets

The Company’s goodwill was as follows:

 

     U.S.
Operating
Segment
     International
Operating
Segment
     Total  

Balance at January 1, 2015 (1)

   $ 1,156,556       $ 120,827       $ 1,277,383   

Acquisition of Brazil theatre

     —           356         356   

Foreign currency translation adjustments

     —           (11,584      (11,584
  

 

 

    

 

 

    

 

 

 

Balance at June 30, 2015 (1)

   $ 1,156,556       $ 109,599       $ 1,266,155   
  

 

 

    

 

 

    

 

 

 

 

(1)  Balances are presented net of accumulated impairment losses of $214,031 for the U.S. operating segment and $27,622 for the international operating segment.

The Company evaluates goodwill for impairment on an annual basis during the fourth quarter or whenever events or changes in circumstances indicate the carrying value of goodwill might exceed its estimated fair value. The Company evaluates goodwill for impairment at the reporting unit level and has allocated goodwill to the reporting unit based on an estimate of its relative fair value. The Company considers the reporting unit to be each of its eighteen regions in the U.S. and each of its nine countries internationally (Honduras, El Salvador, Nicaragua, Costa Rica,

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

Panama and Guatemala are considered one reporting unit). Goodwill impairment is evaluated using a two-step approach requiring the Company to compute the fair value of a reporting unit and compare it with its carrying value. If the carrying value of the reporting unit exceeds the estimated fair value, a second step is performed to measure the potential goodwill impairment. Significant judgment is involved in estimating cash flows and fair value. Management’s estimates, which fall under Level 3 of the U.S. GAAP fair value hierarchy as defined by FASB ASC Topic 820-10-35, are based on historical and projected operating performance, recent market transactions and current industry trading multiples. Fair value is determined based on a multiple of cash flows, which was eight times for the evaluation performed during the fourth quarter of 2014.

No events or changes in circumstances occurred during the six months ended June 30, 2015 that indicated the carrying value of goodwill might exceed its estimated fair value.

Intangible assets consisted of the following:

 

     Balance at
January 1,
                   Balance at
June 30,
 
     2015      Amortization      Other (1)      2015  

Intangible assets with finite lives:

           

Gross carrying amount

   $ 99,922       $ —         $ 1,054       $ 100,976   

Accumulated amortization

     (52,232      (2,909      (1,785      (56,926
  

 

 

    

 

 

    

 

 

    

 

 

 

Total net intangible assets with finite lives

   $ 47,690         (2,909      (731    $ 44,050   

Intangible assets with indefinite lives:

           

Tradename

     300,334         —           (430      299,904   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total intangible assets — net

   $ 348,024       $ (2,909    $ (1,161    $ 343,954   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)  Includes write-off of intangible assets for closed theatres, impairment of a favorable lease and foreign currency translation adjustments.

Estimated aggregate future amortization expense for intangible assets is as follows:

 

For the six months ended December 31, 2015

   $ 2,810   

For the twelve months ended December 31, 2016

     5,585   

For the twelve months ended December 31, 2017

     5,052   

For the twelve months ended December 31, 2018

     4,925   

For the twelve months ended December 31, 2019

     4,016   

Thereafter

     21,662   
  

 

 

 

Total

   $ 44,050   
  

 

 

 

10. Impairment of Long-Lived Assets

The Company reviews long-lived assets for impairment indicators on a quarterly basis or whenever events or changes in circumstances indicate the carrying amount of the assets may not be fully recoverable.

The Company considers actual theatre level cash flows, budgeted theatre level cash flows, theatre property and equipment carrying values, amortizing intangible asset carrying values, the age of a recently built theatre, competitive theatres in the marketplace, the impact of recent ticket price changes, available lease renewal options and other factors considered relevant in its assessment of impairment of individual theatre assets. Long-lived assets are evaluated for impairment on an individual theatre basis, which the Company believes is the lowest applicable level for which there are identifiable cash flows. The impairment evaluation is based on the estimated undiscounted cash flows from continuing use through the remainder of the theatre’s useful life. The remainder of the theatre’s useful life correlates with the available remaining lease period, which includes the probability of renewal periods, for leased properties and the lesser of twenty years or the building’s remaining useful life for fee owned properties. If the estimated undiscounted cash flows are not sufficient to recover a long-lived asset’s carrying value, the Company then compares the carrying value of the asset group with its estimated fair value. When estimated fair value is determined to be lower than the carrying value of the asset group, the asset group is written down to its estimated fair value. Significant

 

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CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

judgment is involved in estimating cash flows and fair value. Management’s estimates, which fall under Level 3 of the U.S. GAAP fair value hierarchy as defined by FASB ASC Topic 820-10-35, are based on historical and projected operating performance, recent market transactions and current industry trading multiples. Fair value is determined based on a multiple of cash flows, which was six and a half times for the evaluations performed during the six months ended June 30, 2015 and 2014. As of June 30, 2015, the estimated aggregate fair value of the long-lived assets impaired during the six months ended June 30, 2015 was approximately $1,649.

The long-lived asset impairment charges recorded during each of the periods presented are specific to theatres that were directly and individually impacted by increased competition, adverse changes in market demographics or adverse changes in the development or the conditions of the areas surrounding the theatre.

 

     Three Months Ended      Six Months Ended  
     June 30,      June 30,  
     2015      2014      2015      2014  

U.S. theatre properties

   $ 2,536       $ 430       $ 3,330       $ 784   

U.S. intangible assets

     992         —           992         —     

International theatre properties

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Impairment of long-lived assets

   $ 3,528       $ 430       $ 4,322       $ 784   
  

 

 

    

 

 

    

 

 

    

 

 

 

11. Fair Value Measurements

The Company determines fair value measurements in accordance with FASB ASC Topic 820, which establishes a fair value hierarchy under which an asset or liability is categorized based on the lowest level of input significant to its fair value measurement. The levels of input defined by FASB ASC Topic 820 are as follows:

Level 1 – quoted market prices in active markets for identical assets or liabilities that are accessible at the measurement date;

Level 2 – other than quoted market prices included in Level 1 that are observable for the asset or liability, either directly or indirectly; and

Level 3 – unobservable and should be used to measure fair value to the extent that observable inputs are not available.

Below is a summary of assets and liabilities measured at fair value on a recurring basis by the Company under FASB ASC Topic 820 as of June 30, 2015:

 

     Carrying      Fair Value  

Description

   Value      Level 1      Level 2      Level 3  

Interest rate swap liabilities – current (see Note 8)

   $ (2,002    $ —         $ —         $ (2,002

Investment in RealD (see Note 6)

   $ 15,077       $ 15,077       $ —         $ —     

Below is a summary of assets and liabilities measured at fair value on a recurring basis by the Company under FASB ASC Topic 820 as of December 31, 2014:

 

     Carrying      Fair Value  

Description

   Value      Level 1      Level 2      Level 3  

Interest rate swap liabilities – current (see Note 8)

   $ (4,255    $ —         $ —         $ (4,255

Interest rate swap liabilities – long term (see Note 8)

   $ (317    $ —         $ —         $ (317

Investment in RealD (see Note 6)

   $ 14,429       $ 14,429       $ —         $ —     

 

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CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

Below is a reconciliation of the beginning and ending balance for liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3):

 

     Liabilities  
     2015      2014  

Beginning balances - January 1

   $ 4,572       $ 9,176   

Total loss included in accumulated other comprehensive loss

     377         1,068   

Settlements

     (2,947      (2,985
  

 

 

    

 

 

 

Ending balances – June 30

   $ 2,002       $ 7,259   
  

 

 

    

 

 

 

The Company also uses the market approach for fair value measurements on a nonrecurring basis in the impairment evaluations of its long-lived assets (see Note 9 and Note 10). Additionally, the Company uses the market approach to estimate the fair value of its long-term debt (see Note 3). There were no changes in valuation techniques and there were no transfers in or out of Level 1, Level 2 or Level 3 during the six months ended June 30, 2015.

12. Foreign Currency Translation

The accumulated other comprehensive loss account in stockholder’s equity of $191,732 and $144,772 at June 30, 2015 and December 31, 2014, respectively, includes cumulative foreign currency adjustments of $193,977 and $147,930, respectively, from translating the financial statements of the Company’s international subsidiaries, and also includes the change in fair values of the Company’s interest rate swap agreements that are designated as hedges and the change in fair value of the Company’s available-for-sale securities.

All foreign countries where the Company has operations are non-highly inflationary, and the local currency is the same as the functional currency in all of the locations. Thus, any fluctuation in the currency results in a cumulative foreign currency translation adjustment recorded to accumulated other comprehensive loss.

Below is a summary of the impact of translating the June 30, 2015 financial statements of the Company’s international subsidiaries:

 

                   Other  
                   Comprehensive  
                   Loss for The  
     Exchange Rate as of      Six Months Ended  

Country

   June 30, 2015      December 31, 2014      June 30, 2015  

Brazil

     3.16         2.69       $ (33,827

Argentina

     9.15         8.55         (5,057

Peru

     3.26         3.05         (2,514

Colombia

     2,585.1         2,392.4         (2,423

All other

           (2,226
        

 

 

 
         $ (46,047
        

 

 

 

 

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CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

13. Supplemental Cash Flow Information

The following is provided as supplemental information to the condensed consolidated statements of cash flows:

 

     Six Months Ended  
     June 30,  
     2015     2014  

Cash paid for interest

   $ 53,667      $ 53,890   

Cash paid for income taxes, net of refunds received

   $ 44,701      $ 64,540   

Noncash investing and financing activities:

    

Change in accounts payable and accrued expenses for the acquisition of theatre properties and equipment (1)

   $ (4,701   $ (4,617

Theatre properties acquired under capital lease

   $ 13,726      $ 4,012   

Investment in NCM – receipt of common units (see Note 5)

   $ 15,421      $ 8,216   

Noncash dividend to Cinemark Holdings, Inc.

   $ 17,935      $ —     

 

(1)  Additions to theatre properties and equipment included in accounts payable as of June 30, 2015 and December 31, 2014 were $17,936 and $13,235, respectively.

14. Segments

The Company manages its international market and its U.S. market as separate reportable operating segments, with the international segment consisting of operations in Brazil, Argentina, Chile, Colombia, Peru, Ecuador, Honduras, El Salvador, Nicaragua, Costa Rica, Panama, Guatemala, Bolivia and Curacao. Each segment’s revenue is derived from admissions and concession sales and other ancillary revenues, primarily screen advertising. The measure of segment profit and loss the Company uses to evaluate performance and allocate its resources is Adjusted EBITDA, as defined in the reconciliation table below. The Company does not report asset information by segment because that information is not used to evaluate the performance of or allocate resources between segments.

Below is a breakdown of selected financial information by reportable operating segment:

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2015      2014      2015      2014  

Revenues

           

U.S.

   $ 592,482       $ 524,485       $ 1,066,777       $ 969,405   

International

     211,505         196,881         385,838         357,073   

Eliminations

     (4,055      (3,503      (7,285      (6,335
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenues

   $ 799,932       $ 717,863       $ 1,445,330       $ 1,320,143   
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA(1)

           

U.S.

   $ 144,264       $ 121,542       $ 251,757       $ 215,477   

International

     49,849         48,484         89,863         83,499   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Adjusted EBITDA

   $ 194,113       $ 170,026       $ 341,620       $ 298,976   
  

 

 

    

 

 

    

 

 

    

 

 

 

Capital expenditures

           

U.S.

   $ 43,947       $ 30,483       $ 118,214       $ 60,795   

International

     26,018         19,274         37,498         41,768   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total capital expenditures

   $ 69,965       $ 49,757       $ 155,712       $ 102,563   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)  Distributions from NCM are reported entirely within the U.S. operating segment.

 

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CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

The following table sets forth a reconciliation of net income to Adjusted EBITDA:

 

     Three Months Ended      Six Months Ended  
   June 30,      June 30,  
     2015      2014      2015      2014  

Net income

   $ 71,403       $ 72,734       $ 114,685       $ 108,821   

Add (deduct):

           

Income taxes

     43,089         24,446         69,700         45,549   

Interest expense (1)

     28,304         28,286         56,511         56,766   

Loss on amendment to debt agreement

     925         —           925         —     

Other income (2)

     (8,400      (6,455      (6,952      (14,141

Depreciation and amortization

     46,569         43,881         91,901         86,377   

Impairment of long-lived assets

     3,528         430         4,322         784   

Loss on sale of assets and other

     5,802         3,276         4,352         6,129   

Deferred lease expenses

     (585      249         (1,288      1,848   

Amortization of long-term prepaid rents

     669         407         1,382         785   

Share based awards compensation expense

     2,809         2,772         6,082         6,058   
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

   $ 194,113       $ 170,026       $ 341,620       $ 298,976   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)  Includes amortization of debt issue costs.
(2)  Includes interest income, foreign currency exchange gain (loss) and equity in income of affiliates and excludes distributions from NCM.

Financial Information About Geographic Areas

Below is a breakdown of selected financial information by geographic area:

 

     Three Months Ended      Six Months Ended  
     June 30,      June 30,  

Revenues

   2015      2014      2015      2014  

U.S.

   $ 592,482       $ 524,485       $ 1,066,777       $ 969,405   

Brazil

     84,320         97,501         162,613         172,900   

Other international countries

     127,185         99,380         223,225         184,173   

Eliminations

     (4,055      (3,503      (7,285      (6,335
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 799,932       $ 717,863       $ 1,445,330       $ 1,320,143   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

Theatre Properties and Equipment-net

   June 30,
2015
     December 31,
2014
 

U.S.

   $ 1,142,382       $ 1,094,076   

Brazil

     188,667         204,107   

Other international countries

     153,340         152,629   
  

 

 

    

 

 

 

Total

   $ 1,484,389       $ 1,450,812   
  

 

 

    

 

 

 

15. Related Party Transactions

The Company manages theatres for Laredo Theatre, Ltd. (“Laredo”). The Company is the sole general partner and owns 75% of the limited partnership interests of Laredo. Lone Star Theatres, Inc. owns the remaining 25% of the limited partnership interests in Laredo and is 100% owned by Mr. David Roberts, Lee Roy Mitchell’s son-in-law. Lee Roy Mitchell is Cinemark Holdings, Inc.’s Chairman of the Board of Directors and directly and indirectly owns approximately 9% of Cinemark Holdings, Inc.’s common stock. Under the agreement, management fees are paid by Laredo to the Company at a rate of 5% of annual theatre revenues. The Company recorded $313 and $279 of management fee revenues during the six months ended June 30, 2015 and 2014, respectively. All such amounts are included in the Company’s condensed consolidated financial statements with the intercompany amounts eliminated in consolidation.

 

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CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

The Company leases 15 theatres and one parking facility from Syufy Enterprises, LP (“Syufy”) or affiliates of Syufy. Raymond Syufy is one of Cinemark Holdings, Inc.’s directors and is an officer of the general partner of Syufy. Of these 16 leases, 14 have fixed minimum annual rent. The two leases without minimum annual rent have rent based upon a specified percentage of gross sales as defined in the lease. For the six months ended June 30, 2015 and 2014, the Company paid total rent of approximately $11,036 and $11,643, respectively, to Syufy.

The Company has paid certain fees on behalf of its parent, Cinemark Holdings, Inc. and Cinemark Holdings, Inc. has paid income taxes and other items on behalf of the Company. The net receivable from Cinemark Holdings, Inc. as of June 30, 2015 and December 31, 2014 was $746 and $12,638, respectively.

16. Commitments and Contingencies

Joseph Amey, et al. v. Cinemark USA, Inc., Case No. 3:13cv05669, In the United States District Court for the Northern District of California, San Francisco Division. The case presents putative class action claims for damages and attorney’s fees arising from employee wage and hour claims under California law for alleged meal period, rest break, reporting time pay, unpaid wages, pay upon termination, and wage statements violations. The claims are also asserted as a representative action under the California Private Attorney General Act (“PAGA”). The Company denies the claims, denies that class certification is appropriate and denies that a PAGA representative action is appropriate, and is vigorously defending against the claims. The case is in pretrial discovery, no class action has been certified, and no representative action has been quantified or recognized. The Company denies any violation of law and plans to vigorously defend against all claims. The Company is unable to predict the outcome of the litigation or the range of potential loss, if any; however, the Company believes that its potential liability with respect to such proceeding is not material, in the aggregate, to its financial position, results of operations and cash flows. Accordingly, the Company has not established a reserve for loss in connection with this proceeding.

The Company received a Civil Investigative Demand (“CID”) from the Antitrust Division of the United States Department of Justice. The CID relates to an investigation under Sections 1 and 2 of the Sherman Act. The Company also received CIDs from the Antitrust Section of the Office of the Attorney General of the State of Ohio and later from other states regarding similar inquiries under state antitrust laws. The CIDs request the Company to answer interrogatories, and produce documents, or both, related to the investigation of matters including film clearances, potential coordination and/or communication with other major theatre circuits and related joint ventures. The Company intends to fully cooperate with all federal and state government agencies. Although the Company does not believe that it has violated any federal or state antitrust or competition laws, it cannot predict the ultimate scope, duration or outcome of these investigations.

From time to time, the Company is involved in various legal proceedings arising from the ordinary course of its business operations, such as personal injury claims, employment matters, landlord-tenant disputes, patent claims and contractual disputes, some of which are covered by insurance. The Company believes its potential liability with respect to proceedings currently pending is not material, individually or in the aggregate, to the Company’s financial position, results of operations and cash flows.

 

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CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

17. Condensed Consolidating Financial Information of Subsidiary Guarantors

As of June 30, 2015, the Company had outstanding $400,000 aggregate principal amount of 5.125% senior notes due 2022, or the 5.125% Senior Notes, $530,000 aggregate principal amount of 4.875% senior notes due 2023, or the 4.875% Senior Notes, and $200,000 aggregate principal amount of 7.375% senior subordinated notes due 2021, or the Senior Subordinated Notes (collectively the “Notes”). The condensed consolidating financial statement information for the year ended December 31, 2014 has been recast to reflect the subsidiary guarantors as of June 30, 2015. These Notes are fully and unconditionally guaranteed on a joint and several senior unsecured basis by the following subsidiaries of Cinemark USA, Inc.:

Sunnymead Cinema Corp., Cinemark Properties, Inc., Greeley Holdings, Inc., Cinemark Partners I, Inc., CNMK Investments, Inc., CNMK Texas Properties, LLC., Cinemark Concessions LLC, Century Theatres, Inc., Marin Theatre Management, LLC, Century Theatres NG, LLC, Cinearts LLC, Cinearts Sacramento, LLC, Corte Madera Theatres, LLC, Novato Theatres, LLC, San Rafael Theatres, LLC, Northbay Theatres, LLC, Century Theatres Summit Sierra, LLC and Century Theatres Seattle, LLC.

The following supplemental condensed consolidating financial information presents:

 

  a. Condensed consolidating balance sheet information as of December 31, 2014 and June 30, 2015, condensed consolidating statements of income information for the three and six months ended June 30, 2014 and 2015, condensed consolidating statements of comprehensive income (loss) information for the three and six months ended June 30, 2014 and 2015 and condensed consolidating statements of cash flows information for the six months ended June 30, 2014 and 2015.

 

  b. Cinemark USA, Inc. (the “Parent” and “Issuer”), combined Guarantor Subsidiaries and combined Non-Guarantor Subsidiaries with their investments in subsidiaries accounted for using the equity method of accounting and therefore, the Parent column reflects the equity income of its Guarantor Subsidiaries and Non-Guarantor Subsidiaries, which are also separately reflected in the stand-alone Guarantor Subsidiaries and Non-Guarantor Subsidiaries column. Additionally, the Guarantor Subsidiaries column reflects the equity income (loss) of its Non-Guarantor Subsidiaries, which are also separately reflected in the stand-alone Non-Guarantor Subsidiaries column.

 

  c. Elimination entries necessary to consolidate the Parent and all of its Subsidiaries

 

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CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION

DECEMBER 31, 2014

 

     Parent
Company
     Subsidiary
Guarantors
     Subsidiary
Non-Guarantors
     Eliminations     Consolidated  
     (In thousands)  

Assets

             

Current assets

             

Cash and cash equivalents

   $ 129,505       $ 74,643       $ 434,693       $ —        $ 638,841   

Other current assets

     126,091         18,471         67,826         (110,302     102,086   

Accounts receivable from parent or subsidiaries

     277,823         —           —           (265,185     12,638   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

     533,419         93,114         502,519         (375,487     753,565   

Theatre properties and equipment - net

     498,446         575,652         376,714         —          1,450,812   

Investment in subsidiaries

     1,260,333         380,365         —           (1,640,698     —     

Other assets

     1,421,331         140,320         401,783         (3,276     1,960,158   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

   $ 3,713,529       $ 1,189,451       $ 1,281,016       $ (2,019,461   $ 4,164,535   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Liabilities and equity

             

Current liabilities

             

Current portion of long-term debt

   $ 7,000       $ —         $ 1,423       $ —        $ 8,423   

Current portion of capital lease obligations

     5,411         9,125         1,958         —          16,494   

Accounts payable and accrued expenses

     259,973         105,761         125,638         (102,406     388,966   

Accounts payable to parent or subsidiaries

     —           84,555         180,630         (265,185     —     
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current liabilities

     272,384         199,441         309,649         (367,591     413,883   

Long-term liabilities

             

Long-term debt, less current portion

     1,809,000         —           7,442         (1,868     1,814,574   

Capital lease obligations, less current portion

     103,786         75,416         22,776         —          201,978   

Other long-term liabilities and deferrals

     401,965         79,116         125,600         (9,304     597,377   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total long-term liabilities

     2,314,751         154,532         155,818         (11,172     2,613,929   

Commitments and contingencies

             

Equity

             

Cinemark USA, Inc.’s stockholder’s equity:

             

Common stock

     49,543         457,369         10,219         (467,588     49,543   

Other stockholder’s equity

     1,076,851         378,109         795,001         (1,173,110     1,076,851   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total Cinemark USA, Inc. stockholder’s equity

     1,126,394         835,478         805,220         (1,640,698     1,126,394   

Noncontrolling interests

     —           —           10,329         —          10,329   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total equity

     1,126,394         835,478         815,549         (1,640,698     1,136,723   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities and equity

   $ 3,713,529       $ 1,189,451       $ 1,281,016       $ (2,019,461   $ 4,164,535   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

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CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION

JUNE 30, 2015

 

     Parent
Company
     Subsidiary
Guarantors
     Subsidiary
Non-Guarantors
     Eliminations     Consolidated  
     (In thousands)  

Assets

             

Current assets

             

Cash and cash equivalents

   $ 64,724       $ 52,439       $ 459,029       $ —        $ 576,192   

Other current assets

     107,490         28,964         70,125         (68,594     137,985   

Accounts receivable from parent or subsidiaries

     253,238         —           —           (252,492     746   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

     425,452         81,403         529,154         (321,086     714,923   

Theatre properties and equipment - net

     510,265         610,725         363,399         —          1,484,389   

Investment in subsidiaries

     1,303,838         354,538         —           (1,658,376     —     

Other assets

     1,441,380         137,837         394,172         (7,989     1,965,400   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

   $ 3,680,935       $ 1,184,503       $ 1,286,725       $ (1,987,451   $ 4,164,712   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Liabilities and equity

             

Current liabilities

             

Current portion of long-term debt

   $ 7,000       $ —         $ 1,423       $ —        $ 8,423   

Current portion of capital lease obligations

     5,651         9,909         2,357         —          17,917   

Accounts payable and accrued expenses

     233,515         100,571         114,111         (55,841     392,356   

Accounts payable to parent or subsidiaries

     —           69,058         183,434         (252,492     —     
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current liabilities

     246,166         179,538         301,325         (308,333     418,696   

Long-term liabilities

             

Long-term debt, less current portion

     1,805,500         —           9,923         (4,367     1,811,056   

Capital lease obligations, less current portion

     100,760         72,248         28,485         —          201,493   

Other long-term liabilities and deferrals

     402,588         77,571         132,714         (16,375     596,498   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total long-term liabilities

     2,308,848         149,819         171,122         (20,742     2,609,047   

Commitments and contingencies

             

Equity

             

Cinemark USA, Inc.’s stockholder’s equity:

             

Common stock

     49,543         457,368         10,221         (467,589     49,543   

Other stockholder’s equity

     1,076,378         397,778         793,009         (1,190,787     1,076,378   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total Cinemark USA, Inc. stockholder’s equity

     1,125,921         855,146         803,230         (1,658,376     1,125,921   

Noncontrolling interests

     —           —           11,048         —          11,048   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total equity

     1,125,921         855,146         814,278         (1,658,376     1,136,969   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities and equity

   $ 3,680,935       $ 1,184,503       $ 1,286,725       $ (1,987,451   $ 4,164,712   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

25


Table of Contents

CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENT OF INCOME INFORMATION

THREE MONTHS ENDED JUNE 30, 2014

 

     Parent
Company
    Subsidiary
Guarantors
    Subsidiary
Non-Guarantors
    Eliminations     Consolidated  
     (In thousands)  

Revenues

   $ 227,655      $ 299,984      $ 203,803      $ (13,579   $ 717,863   

Cost of operations

          

Theatre operating expenses

     184,745        199,622        142,905        (13,579     513,693   

General and administrative expenses

     5,298        19,108        14,346        —          38,752   

Depreciation and amortization

     12,258        16,851        14,772        —          43,881   

Impairment of long-lived assets

     360        70        —          —          430   

Loss on sale of assets and other

     1,728        767        781        —          3,276   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of operations

     204,389        236,418        172,804        (13,579     600,032   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     23,266        63,566        30,999        —          117,831   

Other income (expense)

          

Interest expense

     (25,053     (2,308     (925     —          (28,286

Distributions from NCM

     —          —          1,180        —          1,180   

Equity in income of affiliates

     75,552        23,607        3,603        (99,162     3,600   

Other income

     6        2        2,847        —          2,855   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income

     50,505        21,301        6,705        (99,162     (20,651
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     73,771        84,867        37,704        (99,162     97,180   

Income taxes

     1,440        23,728        (722     —          24,446   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     72,331        61,139        38,426        (99,162     72,734   

Less: Net income attributable to noncontrolling interests

     —          —          403        —          403   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Cinemark USA, Inc.

   $ 72,331      $ 61,139      $ 38,023      $ (99,162   $ 72,331   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

26


Table of Contents

CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENT OF INCOME INFORMATION

THREE MONTHS ENDED JUNE 30, 2015

 

     Parent
Company
    Subsidiary
Guarantors
    Subsidiary
Non-Guarantors
    Eliminations     Consolidated  
     (In thousands)  

Revenues

   $ 263,609      $ 326,730      $ 224,213      $ (14,620   $ 799,932   

Cost of operations

          

Theatre operating expenses

     207,522        217,881        159,480        (14,620     570,263   

General and administrative expenses

     5,248        18,672        14,529        —          38,449   

Depreciation and amortization

     14,568        18,166        13,835        —          46,569   

Impairment of long-lived assets

     2,843        685        —          —          3,528   

Loss on sale of assets and other

     1,475        3,984        343        —          5,802   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of operations

     231,656        259,388        188,187        (14,620     664,611   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     31,953        67,342        36,026        —          135,321   

Other income (expense)

          

Interest expense

     (25,085     (2,135     (1,126     42        (28,304

Distributions from NCM

     —          —          —          —          —     

Equity in income of affiliates

     67,478        24,353        4,320        (92,065     4,086   

Other income (expense)

     (867     10        4,288        (42     3,389   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income

     41,526        22,228        7,482        (92,065     (20,829
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     73,479        89,570        43,508        (92,065     114,492   

Income taxes

     2,708        25,171        15,210        —          43,089   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     70,771        64,399        28,298        (92,065     71,403   

Less: Net income attributable to noncontrolling interests

     —          —          632        —          632   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Cinemark USA, Inc.

   $ 70,771      $ 64,399      $ 27,666      $ (92,065   $ 70,771   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

27


Table of Contents

CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENT OF INCOME INFORMATION

SIX MONTHS ENDED JUNE 30, 2014

 

     Parent
Company
    Subsidiary
Guarantors
    Subsidiary
Non-Guarantors
    Eliminations     Consolidated  
     (In thousands)  

Revenues

   $ 423,910      $ 549,820        369,264        (22,851   $ 1,320,143   

Cost of operations

          

Theatre operating expenses

     349,327        373,540        263,027        (22,851     963,043   

General and administrative expenses

     10,643        40,188        26,661        —          77,492   

Depreciation and amortization

     24,592        33,421        28,364        —          86,377   

Impairment of long-lived assets

     689        95        —          —          784   

Loss on sale of assets and other

     3,622        1,543        964        —          6,129   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of operations

     388,873        448,787        319,016        (22,851     1,133,825   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     35,037        101,033        50,248        —          186,318   

Other income (expense)

          

Interest expense

     (50,304     (4,668     (1,794     —          (56,766

Distributions from NCM

     2,207        —          8,470        —          10,677   

Equity in income of affiliates

     119,906        37,898        7,223        (157,807     7,220   

Other income (expense)

     25        (1     6,897        —          6,921   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income

     71,834        33,229        20,796        (157,807     (31,948
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     106,871        134,262        71,044        (157,807     154,370   

Income taxes

     (1,294     35,684        11,159        —          45,549   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     108,165        98,578        59,885        (157,807     108,821   

Less: Net income attributable to noncontrolling interests

     —          —          656        —          656   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Cinemark USA, Inc.

   $ 108,165      $ 98,578      $ 59,229      $ (157,807   $ 108,165   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

28


Table of Contents

CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENT OF INCOME INFORMATION

SIX MONTHS ENDED JUNE 30, 2015

 

     Parent
Company
    Subsidiary
Guarantors
    Subsidiary
Non-Guarantors
    Eliminations     Consolidated  
     (In thousands)  

Revenues

   $ 480,182      $ 585,693      $ 404,420      $ (24,965   $ 1,445,330   

Cost of operations

          

Theatre operating expenses

     383,804        396,115        287,668        (24,965     1,042,622   

General and administrative expenses

     9,437        37,663        28,663        —          75,763   

Depreciation and amortization

     28,689        35,673        27,539        —          91,901   

Impairment of long-lived assets

     2,904        1,418        —          —          4,322   

(Gain) loss on sale of assets and other

     2,890        2,402        (940     —          4,352   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of operations

     427,724        473,271        342,930        (24,965     1,218,960   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     52,458        112,422        61,490        —          226,370   

Other income (expense)

          

Interest expense

     (50,334     (4,334     (1,901     58        (56,511

Distributions from NCM

     1,724        —          6,775        —          8,499   

Equity in income of affiliates

     112,563        35,968        9,520        (148,726     9,325   

Other income (expense)

     (821     21        (2,440     (58     (3,298
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income

     63,132        31,655        11,954        (148,726     (41,985
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     115,590        144,077        73,444        (148,726     184,385   

Income taxes

     1,918        41,969        25,813        —          69,700   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     113,672        102,108        47,631        (148,726     114,685   

Less: Net income attributable to noncontrolling interests

     —          —          1,013        —          1,013   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Cinemark USA, Inc.

   $ 113,672      $ 102,108      $ 46,618      $ (148,726   $ 113,672   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

29


Table of Contents

CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME INFORMATION

THREE MONTHS ENDED JUNE 30, 2014

 

     Parent
Company
     Subsidiary
Guarantors
     Subsidiary
Non-Guarantors
    Eliminations     Consolidated  
     (In thousands)  

Net income

   $ 72,331       $ 61,139       $ 38,426      $ (99,162   $ 72,734   

Other comprehensive income, net of tax

            

Unrealized gain due to fair value adjustments on interest rate swap agreements, net of settlements, net of taxes of $391

     661         —           —          —          661   

Unrealized gain due to fair value adjustments on available-for-sale securities, net of taxes of $724

     1,221         —           —          —          1,221   

Other comprehensive income of equity method investments

     134         —           123        (123     134   

Foreign currency translation adjustments

     8,344         —           8,346        (8,344     8,346   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total other comprehensive income, net of tax

     10,360         —           8,469        (8,467     10,362   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total comprehensive income, net of tax

   $ 82,691       $ 61,139       $ 46,895      $ (107,629   $ 83,096   

Comprehensive income attributable to noncontrolling interests

     —           —           (405     —          (405
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to Cinemark USA, Inc.

   $ 82,691       $ 61,139       $ 46,490      $ (107,629   $ 82,691   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

30


Table of Contents

CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS) INFORMATION

THREE MONTHS ENDED JUNE 30, 2015

 

     Parent
Company
    Subsidiary
Guarantors
     Subsidiary
Non-Guarantors
    Eliminations     Consolidated  
     (In thousands)  

Net income

   $ 70,771      $ 64,399       $ 28,298      $ (92,065   $ 71,403   

Other comprehensive income (loss), net of tax

           

Unrealized gain due to fair value adjustments on interest rate swap agreements, net of settlements, net of taxes of $504

     855        —           —          —          855   

Unrealized loss due to fair value adjustments on available-for-sale securities, net of taxes of $(209)

     (354     —           —          —          (354

Other comprehensive loss of equity method investments

     (3,322     —           (3,272     3,272        (3,322

Foreign currency translation adjustments

     634        —           628        (634     628   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total other comprehensive loss, net of tax

     (2,187     —           (2,644     2,638        (2,193
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total comprehensive income, net of tax

   $ 68,584      $ 64,399       $ 25,654      $ (89,427   $ 69,210   

Comprehensive income attributable to noncontrolling interests

     —          —           (626     —          (626
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to Cinemark USA, Inc.

   $ 68,584      $ 64,399       $ 25,028      $ (89,427   $ 68,584   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

31


Table of Contents

CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME INFORMATION

SIX MONTHS ENDED JUNE 30, 2014

 

     Parent
Company
    Subsidiary
Guarantors
     Subsidiary
Non-Guarantors
    Eliminations     Consolidated  
     (In thousands)  

Net income

   $ 108,165      $ 98,578       $ 59,885      $ (157,807   $ 108,821   

Other comprehensive income (loss), net of tax

           

Unrealized gain due to fair value adjustments on interest rate swap agreements, net of settlements, net of taxes of $759

     1,158        —           —          —          1,158   

Unrealized gain due to fair value adjustments on available-for-sale securities, net of taxes of $1,916

     3,244        —           —          —          3,244   

Other comprehensive income of equity method investments

     396        —           385        (385     396   

Foreign currency translation adjustments

     (851     —           (843     851        (843
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total other comprehensive income (loss), net of tax

     3,947        —           (458     466        3,955   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total comprehensive income, net of tax

   $ 112,112      $ 98,578       $ 59,427      $ (157,341   $ 112,776   

Comprehensive income attributable to noncontrolling interests

     —          —           (664     —          (664
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to Cinemark USA, Inc.

   $ 112,112      $ 98,578       $ 58,763      $ (157,341   $ 112,112   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

32


Table of Contents

CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS) INFORMATION

SIX MONTHS ENDED JUNE 30, 2015

 

     Parent
Company
    Subsidiary
Guarantors
     Subsidiary
Non-Guarantors
    Eliminations     Consolidated  
     (In thousands)  

Net income

   $ 113,672      $ 102,108       $ 47,631      $ (148,726   $ 114,685   

Other comprehensive income (loss), net of tax

           

Unrealized gain due to fair value adjustments on interest rate swap agreements, net of settlements, net of taxes of $958

     1,612        —           —          —          1,612   

Unrealized gain due to fair value adjustments on available-for-sale securities, net of taxes of $236

     412        —           —          —          412   

Other comprehensive loss of equity method investments

     (2,938     —           (2,905     2,905        (2,938

Foreign currency translation adjustments

     (46,047     —           (46,047     46,047        (46,047
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total other comprehensive loss, net of tax

     (46,961     —           (48,952     48,952        (46,961
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss), net of tax

   $ 66,711      $ 102,108       $ (1,321   $ (99,774   $ 67,724   

Comprehensive income attributable to noncontrolling interests

     —          —           (1,013     —          (1,013
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to Cinemark USA, Inc.

   $ 66,711      $ 102,108       $ (2,334   $ (99,774   $ 66,711   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

33


Table of Contents

CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION

SIX MONTHS ENDED JUNE 30, 2014

 

     Parent
Company
    Subsidiary
Guarantors
    Subsidiary
Non-Guarantors
    Eliminations     Consolidated  
     (In thousands)  

Operating activities

          

Net income

   $ 108,165      $ 98,578      $ 59,885      $ (157,807   $ 108,821   

Adjustments to reconcile net income to cash provided by (used for) operating activities

     (109,780     2,499        26,475        157,807        77,001   

Changes in assets and liabilities and other

     107,181        (136,760     3,275        —          (26,304
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used for) operating activities

     105,566        (35,683     89,635        —          159,518   

Investing activities

          

Additions to theatre properties and equipment and other

     (40,591     (19,960     (42,012     —          (102,563

Proceeds from sale of theatre properties and equipment and other

     1,032        26        489        —          1,547   

Dividends received from subsidiaries

     925        —          —          (925     —     

Investment in joint ventures and other

     —          —          (1,896     —          (1,896
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used for investing activities

     (38,634     (19,934     (43,419     (925     (102,912

Financing activities

          

Dividends paid to parent

     (57,500     —          (925     925        (57,500

Repayments of long-term debt

     (3,500     —          (1,452     —          (4,952

Payments on capital leases

     (1,989     (3,863     (975     —          (6,827

Other

     3,340        (9,776     —          —          (6,436
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used for financing activities

     (59,649     (13,639     (3,352     925        (75,715

Effect of exchange rate changes on cash and cash equivalents

     —          —          (2,748     —          (2,748
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Increase (decrease) in cash and cash equivalents

     7,283        (69,256     40,116        —          (21,857

Cash and cash equivalents:

          

Beginning of year

     62,065        175,758        362,071        —          599,894   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

End of year

   $ 69,348      $ 106,502      $ 402,187      $ —        $ 578,037   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION

SIX MONTHS ENDED JUNE 30, 2015

 

     Parent
Company
    Subsidiary
Guarantors
    Subsidiary
Non-Guarantors
    Eliminations     Consolidated  
     (In thousands)  

Operating activities

          

Net income

   $ 113,672      $ 102,108      $ 47,631      $ (148,726   $ 114,685   

Adjustments to reconcile net income to cash provided by operating activities

     (91,036     8,498        27,446        148,726        93,634   

Changes in assets and liabilities and other

     23,093        (50,866     (138     —          (27,911
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     45,729        59,740        74,939        —          180,408   

Investing activities

          

Additions to theatre properties and equipment and other

     (42,263     (73,545     (39,904     —          (155,712

Acquisition of theatre in Brazil

     —          —          (2,651     —          (2,651

Proceeds from sale of theatre properties and equipment and other

     2,367        1,014        1,592        —          4,973   

Intercompany note issuances

     (2,500     —          —          2,500        —     

Investment in joint ventures and other

     —          —          (1,777     —          (1,777

Dividends received from subsidiaries

     300        6        —          (306     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used for investing activities

     (42,096     (72,525     (42,740     2,194        (155,167

Financing activities

          

Dividends paid to parent

     (57,575     (306     —          306        (57,575

Repayments of long-term debt

     (3,500     —          (16     —          (3,516

Payment of debt issue costs

     (6,957     —          —          —          (6,957

Payments on capital leases

     (2,626     (4,365     (968     —          (7,959

Loan from parent

     —          —          2,500        (2,500     —     

Other

     2,244        (4,748     (294     —          (2,798
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used for) financing activities

     (68,414     (9,419     1,222        (2,194     (78,805

Effect of exchange rate changes on cash and cash equivalents

     —          —          (9,085     —          (9,085
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Increase (decrease) in cash and cash equivalents

     (64,781     (22,204     24,336        —          (62,649

Cash and cash equivalents:

          

Beginning of year

     129,505        74,643        434,693        —          638,841   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

End of year

   $ 64,724      $ 52,439      $ 459,029      $ —        $ 576,192   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and related notes and schedules included elsewhere in this report.

We are a leader in the motion picture exhibition industry, with theatres in the U.S., Brazil, Argentina, Chile, Colombia, Peru, Ecuador, Honduras, El Salvador, Nicaragua, Costa Rica, Panama, Guatemala, Bolivia and Curacao. As of June 30, 2015, we managed our business under two reportable operating segments — U.S. markets and international markets. See Note 14 to our condensed consolidated financial statements.

We generate revenues primarily from box office receipts and concession sales with additional revenues from screen advertising sales and other revenue streams, such as vendor marketing promotions, meeting rentals and electronic video games located in some of our theatres. Our relationship with NCM has assisted us in expanding our offerings to domestic advertisers and broadening ancillary revenue sources such as digital video monitor advertising. Our Flix Media initiative has allowed us to expand screen advertising within our international circuit and to other international exhibitors. We also offer alternative entertainment, such as live and pre-recorded sports programs, concert events, the Metropolitan Opera, in-theatre gaming and other special events in our theatres through our recently formed Fathom joint venture, AC JV, LLC.

Films leading the box office for the six months ended June 30, 2015 included Jurassic World, Avengers: Age of Ultron, Furious 7, American Sniper, Home, Pitch Perfect 2, 50 Shades of Grey, The Spongebob Movie: Sponge Out of Water, Mad Max: Fury Road, Kingsman: The Secret Service, San Andreas, Cinderella, The Divergent Series: Insurgent, and Inside Out. Films currently scheduled for wide-release during the remainder of 2015 include Ant-Man, Star Wars: The Force Awakens, Hunger Games: Mockingjay Part II, Minions, the 24th James Bond film Spectre, The Good Dinosaur and Mission: Impossible 5, among other films.

Film rental costs are variable in nature and fluctuate with our admissions revenues. Film rental costs as a percentage of revenues are generally higher for periods in which more blockbuster films are released. Film rental costs can also vary based on the length of a film’s run. Advertising costs, which are expensed as incurred, are primarily fixed at the theatre level as daily movie directories placed in newspapers represent the largest component of advertising costs. The monthly cost of these advertisements is based on, among other things, the size of the directory and the frequency and size of the newspaper’s circulation.

Concession supplies expense is variable in nature and fluctuates with our concession revenues. We purchase concession supplies to replace units sold. We negotiate prices for concession supplies directly with concession vendors and manufacturers to obtain volume rates.

Although salaries and wages include a fixed cost component (i.e. the minimum staffing costs to operate a theatre facility during non-peak periods), salaries and wages move in relation to revenues as theatre staffing is adjusted to respond to changes in attendance. In some international locations, staffing levels are also subject to local regulations.

Facility lease expense is primarily a fixed cost at the theatre level as most of our facility leases require a fixed monthly minimum rent payment. Certain of our leases are subject to percentage rent only while others are subject to percentage rent in addition to their fixed monthly rent if a target annual revenue level is achieved. Facility lease expense as a percentage of revenues is also affected by the number of theatres under operating leases, the number of theatres under capital leases and the number of fee-owned theatres.

Utilities and other costs include certain costs that have both fixed and variable components such as utilities, property taxes, janitorial costs, repairs and maintenance and security services.

 

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Results of Operations

The following table sets forth, for the periods indicated, certain operating data and the percentage of revenues represented by certain items reflected in our condensed consolidated statements of income.

 

     Three Months Ended     Six Months Ended  
     June 30,     June 30,  
     2015     2014     2015     2014  

Operating data (in millions):

        

Revenues

        

Admissions

   $ 502.9      $ 455.7      $ 903.6      $ 836.6   

Concession

     259.6        226.5        474.0        419.5   

Other

     37.4        35.7        67.7        64.1   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

   $ 799.9      $ 717.9      $ 1,445.3      $ 1,320.2   

Cost of operations

        

Film rentals and advertising

     285.3        249.2        501.0        449.9   

Concession supplies

     40.9        35.4        73.4        65.4   

Salaries and wages

     76.5        69.9        145.7        134.3   

Facility lease expense

     82.4        80.6        162.0        159.0   

Utilities and other

     85.1        78.6        160.5        154.5   

General and administrative expenses

     38.5        38.8        75.7        77.5   

Depreciation and amortization

     46.6        43.9        91.9        86.4   

Impairment of long-lived assets

     3.5        0.4        4.3        0.8   

Loss on sale of assets and other

     5.8        3.3        4.4        6.1   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of operations

     664.6        600.1        1,218.9        1,133.9   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

   $ 135.3      $ 117.8      $ 226.4      $ 186.3   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating data as a percentage of total revenues:

        

Revenues

        

Admissions

     62.9     63.5     62.5     63.4

Concession

     32.4     31.5     32.8     31.8

Other

     4.7     5.0     4.7     4.8
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     100.0     100.0     100.0     100.0
  

 

 

   

 

 

   

 

 

   

 

 

 

Cost of operations (1)

        

Film rentals and advertising

     56.7     54.7     55.4     53.8

Concession supplies

     15.8     15.6     15.5     15.6

Salaries and wages

     9.6     9.7     10.1     10.2

Facility lease expense

     10.3     11.2     11.2     12.0

Utilities and other

     10.6     10.9     11.1     11.7

General and administrative expenses

     4.8     5.4     5.2     5.9

Depreciation and amortization

     5.8     6.1     6.4     6.5

Impairment of long-lived assets

     0.4     0.1     0.3     0.1

Loss on sale of assets and other

     0.7     0.5     0.3     0.5

Total cost of operations

     83.1     83.6     84.3     85.9

Operating income

     16.9     16.4     15.7     14.1
  

 

 

   

 

 

   

 

 

   

 

 

 

Average screen count (month end average)

     5,707        5,597        5,693        5,590   
  

 

 

   

 

 

   

 

 

   

 

 

 

Revenues per average screen (dollars)

   $ 140,167      $ 128,259      $ 253,878      $ 236,162   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)  All costs are expressed as a percentage of total revenues, except film rentals and advertising, which are expressed as a percentage of admissions revenues and concession supplies, which are expressed as a percentage of concession revenues.

 

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Three months ended June 30, 2015 versus June 30, 2014

Revenues. Total revenues increased $82.0 million to $799.9 million for the three months ended June 30, 2015 (“second quarter of 2015”) from $717.9 million for the three months ended June 30, 2014 (“second quarter of 2014”), representing an 11.4% increase. The table below, presented by reportable operating segment, summarizes our year-over-year revenue performance and certain key performance indicators that impact our revenues.

 

     U.S. Operating Segment     International Operating Segment     Consolidated  
     Three Months Ended     Three Months Ended     Three Months Ended  
     June 30,     June 30,     June 30,  
                   %                   %                   %  
     2015      2014      Change     2015      2014      Change     2015      2014      Change  

Admissions revenues(1)

   $ 375.6       $ 334.7         12.2   $ 127.3       $ 121.0         5.2   $ 502.9       $ 455.7         10.4

Concession revenues(1)

   $ 195.0       $ 170.6         14.3   $ 64.6       $ 55.9         15.6   $ 259.6       $ 226.5         14.6

Other revenues(1)(2)

   $ 17.8       $ 15.7         13.4   $ 19.6       $ 20.0         (2.0 )%    $ 37.4       $ 35.7         4.8

Total revenues (1)(2)

   $ 588.4       $ 521.0         12.9   $ 211.5       $ 196.9         7.4   $ 799.9       $ 717.9         11.4

Attendance(1)

     49.0         46.5         5.4     27.7         24.0         15.4     76.7         70.5         8.8

 

(1)  Amounts in millions.
(2)  U.S. operating segment revenues include eliminations of intercompany transactions with the international operating segment. See Note 14 of our condensed consolidated financial statements.

 

    U.S. Admissions revenues increased $40.9 million due to a 5.4% increase in attendance and a 6.5% increase in average ticket price from $7.20 for the second quarter of 2014 to $7.67 for the second quarter of 2015. The increase in concession revenues of $24.4 million was attributable to an 8.4% increase in concession revenues per patron from $3.67 for the second quarter of 2014 to $3.98 for the second quarter of 2015 and the 5.4% increase in attendance. The increase in attendance was due to the solid slate of films released during the second quarter of 2015. The increase in average ticket price was primarily due to price increases and increased sales for premium concepts, such as 3-D and XD. The increase in concession revenues per patron was primarily due to incremental sales and price increases. Other revenues increased primarily due to increases in screen advertising revenues.

 

    International. Admissions revenues increased $6.3 million due to a 15.4% increase in attendance, partially offset by an 8.7% decrease in average ticket price from $5.04 for the second quarter of 2014 to $4.60 for the second quarter of 2015. The increase in concession revenues of $8.7 million was primarily attributable to the 15.4% increase in attendance. Concession revenues per patron were consistent at $2.33 for the second quarter of 2014 and the second quarter of 2015. The increase in attendance was due to the solid slate of films released during the second quarter of 2015 and new theatres. The decrease in average ticket price was primarily due to the unfavorable impact of foreign currency exchange rates in certain countries in which we operate, partially offset by price increases and increased sales for premium concepts, such as 3-D and XD. Concession revenues per patron increased due to price increases, offset by the unfavorable impact of foreign currency exchange rates in certain countries in which we operate.

Cost of Operations. The table below summarizes certain of our year-over-year theatre operating costs by reportable operating segment (in millions).

 

     U.S. Operating Segment      International Operating
Segment
     Consolidated  
     Three Months Ended
June 30,
     Three Months Ended
June 30,
     Three Months Ended
June 30,
 
     2015      2014      2015      2014      2015      2014  

Film rentals and advertising

   $ 221.5       $ 190.4       $ 63.8       $ 58.8       $ 285.3       $ 249.2   

Concession supplies

     26.4         23.3         14.5         12.1         40.9         35.4   

Salaries and wages

     56.8         51.9         19.7         18.0         76.5         69.9   

Facility lease expense

     59.6         58.5         22.8         22.1         82.4         80.6   

Utilities and other

     58.1         55.1         27.0         23.5         85.1         78.6   

 

   

U.S. Film rentals and advertising costs were $221.5 million, or 59.0% of admissions revenues, for the second quarter of 2015 compared to $190.4 million, or 56.9% of admissions revenues, for the second quarter of 2014. The increase in the film rentals and advertising rate was primarily due to the higher concentration of blockbuster films and higher box office performance during the second quarter of 2015. The second quarter of 2015 included such blockbuster releases as Jurassic World, The Avengers: Age of Ultron, Furious 7, and Inside Out, which grossed in excess of $500 million, $450 million, $350 million, and $200 million, respectively, and all of which had higher film rental rates due to their box office performance. Concession supplies expense was $26.4 million, or 13.5% of

 

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concession revenues, for the second quarter of 2015 compared to $23.3 million, or 13.7% of concession revenues, for the second quarter of 2014. The decrease in the concession supplies rate was primarily due to the impact of sales price increases.

Salaries and wages increased to $56.8 million for the second quarter of 2015 from $51.9 million for the second quarter of 2014 primarily due to new theatres, increased staffing levels due to increased attendance and increases in minimum wages. Facility lease expense increased to $59.6 million for the second quarter of 2015 from $58.5 million for the second quarter of 2014 due to new theatres. Utilities and other costs increased to $58.1 million for the second quarter of 2015 from $55.1 million for the second quarter of 2014 due to new theatres and increases in property taxes, insurance costs and security expenses.

 

    International. Film rentals and advertising costs were $63.8 million, or 50.1% of admissions revenues, for the second quarter of 2015 compared to $58.8 million, or 48.6% of admissions revenues, for the second quarter of 2014. The increase in the film rentals and advertising rate was due to the higher concentration of blockbuster films and higher box office performance during the second quarter of 2015. Concession supplies expense was $14.5 million, or 22.4% of concession revenues, for the second quarter of 2015 compared to $12.1 million, or 21.6% of concession revenues, for the second quarter of 2014.

Salaries and wages increased to $19.7 million for the second quarter of 2015 from $18.0 million for the second quarter of 2014 primarily due to increased staffing levels, new theatres and increased wage rates. Facility lease expense increased to $22.8 million for the second quarter of 2015 from $22.1 million for the second quarter of 2014 as a result of increased percentage rent expense due to increased revenues and new theatres. Utilities and other costs increased to $27.0 million for the second quarter of 2015 from $23.5 million for the second quarter of 2014, primarily due to increases in utility costs, 3-D presentation and other costs and new theatres. All of the above-mentioned theatre operating costs were also impacted by changes in foreign currency exchanges rates in certain countries in which we operate.

General and Administrative Expenses. General and administrative expenses decreased to $38.5 million for the second quarter of 2015 from $38.8 million for the second quarter of 2014. The decrease was primarily due to the impact of changes in foreign currency exchange rates in certain countries in which we operate and decreases in professional fees, partially offset by increased salaries and incentive compensation expense.

Depreciation and Amortization. Depreciation and amortization expense was $46.6 million during the second quarter of 2015 compared to $43.9 million during the second quarter of 2014. The increase was primarily due to new theatres.

Impairment of Long-Lived Assets. We recorded asset impairment charges on assets held and used of $3.5 million during the second quarter of 2015 compared to $0.4 million during the second quarter of 2014. The long-lived asset impairment charges recorded during each of the periods presented were specific to theatres that were directly and individually impacted by increased competition, adverse changes in market demographics or adverse changes in the development or the conditions of the areas surrounding the theatre. Impairment charges for the second quarter of 2015 consisted of U.S. theatre properties, impacting four of our twenty-seven reporting units, and certain intangible assets associated with these theatres. See Note 10 to our condensed consolidated financial statements.

Loss on Sale of Assets and Other. We recorded a loss on sale of assets and other of $5.8 million during the second quarter of 2015 compared to $3.3 million during the second quarter of 2014. The loss recorded during the second quarter of 2015 included lease termination costs and retirement of assets due to theatre remodels and closures. The loss recorded during the second quarter of 2014 was primarily due to the replacement of certain theatre assets.

Interest Expense. Interest costs incurred, including amortization of debt issue costs, were $28.3 million during the second quarter of 2015, consistent with the second quarter of 2014.

Distributions from NCM. We recorded a distribution from NCM of $1.2 million during the second quarter of 2014, which was in excess of the carrying value of our Tranche 1 investment. NCM did not distribute any excess cash during the second quarter of 2015 due to expenses incurred as the result of the termination of a proposed merger. See Note 5 to our condensed consolidated financial statements.

 

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Equity in Income of Affiliates. We recorded equity in income of affiliates of $4.1 million during the second quarter of 2015 compared to $3.6 million during the second quarter of 2014. See Notes 5 and 6 to our condensed consolidated financial statements for information about our equity investments.

Income Taxes. Income tax expense of $43.1 million was recorded for the second quarter of 2015 compared to $24.4 million recorded for the second quarter of 2014. The effective tax rate was approximately 37.6% for the second quarter of 2015 compared to 25.2% for the second quarter of 2014. The effective tax rate for the second quarter of 2014 reflects the impact of items related to our Mexican subsidiaries. Income tax provisions for interim (quarterly) periods are based on estimated annual income tax rates and are adjusted for the effects of significant, infrequent or unusual items (i.e. discrete items) occurring during the interim period. As a result, the interim rate may vary significantly from the normalized annual rate.

Six months ended June 30, 2015 versus June 30, 2014

Revenues. Total revenues increased $125.1 million to $1,445.3 million for the six months ended June 30, 2015 (“the 2015 period”) from $1,320.2 million for the six months ended June 30, 2014 (“the 2014 period”), representing a 9.5% increase. The table below, presented by reportable operating segment, summarizes our year-over-year revenue performance and certain key performance indicators that impact our revenues.

 

     U.S. Operating Segment     International Operating Segment     Consolidated  
     Six Months Ended     Six Months Ended     Six Months Ended  
     June 30,     June 30,     June 30,  
                   %                   %                   %  
     2015      2014      Change     2015      2014      Change     2015      2014      Change  

Admissions revenues (1)

   $ 671.4       $ 617.4         8.7   $ 232.2       $ 219.2         5.9   $ 903.6       $ 836.6         8.0

Concession revenues (1)

   $ 354.6       $ 316.1         12.2   $ 119.4       $ 103.4         15.5   $ 474.0       $ 419.5         13.0

Other revenues (1) (2)

   $ 33.5       $ 29.6         13.2   $ 34.2       $ 34.5         (0.9 )%    $ 67.7       $ 64.1         5.6

Total revenues (1) (2)

   $ 1,059.5       $ 963.1         10.0   $ 385.8       $ 357.1         8.0   $ 1,445.3       $ 1,320.2         9.5

Attendance (1)

     90.5         87.1         3.9     51.7         44.9         15.1     142.2         132.0         7.7

 

(1)  Amounts in millions.
(2)  U.S. operating segment revenues include eliminations of intercompany transactions with the international operating segment. See Note 14 of our condensed consolidated financial statements.

 

    U.S. The increase in admissions revenues of $54.0 million was attributable to a 3.9% increase in attendance and a 4.7% increase in average ticket price from $7.09 for the 2014 period to $7.42 for the 2015 period. The increase in concession revenues of $38.5 million was attributable to the 3.9% increase in attendance and an 8.0% increase in concession revenues per patron from $3.63 for the 2014 period to $3.92 for the 2015 period. The increase in attendance was due to the solid slate of films released during the 2015 period. The increase in average ticket price was primarily due to price increases. The increase in concession revenues per patron was primarily due to incremental sales and price increases. Other revenues increased primarily due to increases in screen advertising revenues.

 

    International. Admissions revenues increased $13.0 million as a result of a 15.1% increase in attendance, partially offset by an 8.0% decrease in average ticket price from $4.88 for the 2014 period to $4.49 for the 2015 period. Concession revenues increased $16.0 million as a result of the 15.1% increase in attendance and a 0.4% increase in concession revenues per patron from $2.30 for the 2014 period to $2.31 for the 2015 period. The increase in attendance was due to the solid slate of films released during the 2015 period and new theatres. The decrease in average ticket price was primarily due to the unfavorable impact of foreign currency exchange rates in certain countries in which we operate. Concession revenues per patron increased primarily due to price increases, the impact of which was almost entirely offset by the unfavorable impact of foreign currency exchange rates in certain countries in which we operate.

 

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Cost of Operations. The table below summarizes certain of our year-over-year theatre operating costs by reportable operating segment (in millions).

 

     U.S. Operating Segment      International Operating
Segment
     Consolidated  
     Six Months Ended
June 30,
     Six Months Ended
June 30,
     Six Months Ended
June 30,
 
     2015      2014      2015      2014      2015      2014  

Film rentals and advertising

   $ 387.4       $ 344.4       $ 113.6       $ 105.5       $ 501.0       $ 449.9   

Concession supplies

     47.4         43.5         26.0         21.9         73.4         65.4   

Salaries and wages

     108.3         100.5         37.4         33.8         145.7         134.3   

Facility lease expense

     119.3         117.8         42.7         41.2         162.0         159.0   

Utilities and other

     111.5         108.9         49.0         45.6         160.5         154.5   

 

    U.S. Film rentals and advertising costs were $387.4 million, or 57.7% of admissions revenues for the 2015 period compared to $344.4 million, or 55.8% of admissions revenues for the 2014 period. The increase in the film rentals and advertising rate was primarily due to the higher concentration of blockbuster films and higher box office performance during the 2015 period and increased film presentation costs. The 2015 period included such blockbuster releases as Jurassic World, The Avengers: Age of Ultron, Furious 7, American Sniper and Inside Out, which grossed in excess of $500 million, $450 million, $350 million, $350 million, and $200 million, respectively, and all of which had higher film rental rates due to their box office performance. Concession supplies expense was $47.4 million, or 13.4% of concession revenues, for the 2015 period compared to $43.5 million, or 13.8% of concession revenues, for the 2014 period. The decrease in the concession supplies rate was primarily due to the impact of sales price increases.

Salaries and wages increased to $108.3 million for the 2015 period from $100.5 million for the 2014 period primarily due to new theatres, increased staffing levels due to increased attendance and increases in minimum wages. Facility lease expense increased to $119.3 million for the 2015 period from $117.8 million for the 2014 period primarily due to new theatres. Utilities and other costs increased to $111.5 million for the 2015 period from $108.9 million for the 2014 period due to new theatres and increases in property taxes, insurance costs and security expenses.

 

    International. Film rentals and advertising costs were $113.6 million, or 48.9% of admissions revenues, for the 2015 period compared to $105.5 million, or 48.1% of admissions revenues, for the 2014 period. The increase in the film rentals and advertising rate was due to the higher concentration of blockbuster films and higher box office performance during the 2015 period. Concession supplies expense was $26.0 million, or 21.8% of concession revenues, for the 2015 period compared to $21.9 million, or 21.2% of concession revenues, for the 2014 period.

Salaries and wages increased to $37.4 million for the 2015 period from $33.8 million for the 2014 period due to new theatres and increased staffing levels and wage rates. Facility lease expense increased to $42.7 million for the 2015 period from $41.2 million for the 2014 period as a result of increased percentage rent expense due to increased revenues and new theatres. Utilities and other costs increased to $49.0 million for the 2015 period from $45.6 million for the 2014 period due to increases in utility costs and repairs and maintenance expenses and new theatres. All of the above-mentioned theatre operating costs were also impacted by changes in foreign currency exchanges rates in certain countries in which we operate.

General and Administrative Expenses. General and administrative expenses decreased to $75.7 million for the 2015 period from $77.5 million for the 2014 period. The decrease was primarily due to the impact of changes in foreign currency exchange rates in certain countries in which we operate and decreases in professional fees, partially offset by increases in salaries and incentive compensation expense.

Depreciation and Amortization. Depreciation and amortization expense was $91.9 million for the 2015 period compared to $86.4 million for the 2014 period. The increase was primarily due to new theatres.

Impairment of Long-Lived Assets. We recorded asset impairment charges on assets held and used of $4.3 million for the 2015 period compared to $0.8 million for the 2014 period. The long-lived asset impairment charges recorded during each of the periods presented were specific to theatres that were directly and individually impacted by increased competition, adverse changes in market demographics or adverse changes in the development or the conditions of the areas surrounding the theatre. Impairment charges for the 2015 period consisted of U.S. theatre properties, impacting four of our twenty-seven reporting units, and intangible assets associated with these theatres. See Note 10 to our condensed consolidated financial statements.

 

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Loss on Sale of Assets and Other. We recorded a loss on sale of assets and other of $4.4 million during the 2015 period compared to $6.1 million during the 2014 period. The loss recorded during the 2015 period included lease termination costs, contract termination costs and the retirement of assets due to theatre remodels and closures, partially offset by a gain related to lease amendments that resulted in a reduction of certain capital lease liabilities. The loss recorded during the 2014 period was primarily due to the replacement of certain theatre assets.

Interest Expense. Interest costs incurred, including amortization of debt issue costs, were $56.5 million for the 2015 period compared to $56.8 million for the 2014 period.

Distributions from NCM. We recorded distributions from NCM of $8.5 million during the 2015 period and $10.7 million during the 2014 period, which were in excess of the carrying value of our Tranche 1 investment. NCM did not distribute any excess cash during the second quarter of 2015 due to expenses incurred as the result of the termination of a proposed merger. See Note 5 to our condensed consolidated financial statements.

Equity in Income of Affiliates. We recorded equity in income of affiliates of $9.3 million during the 2015 period compared to $7.2 million during the 2014 period. See notes 5 and 6 for information about the equity investments to our condensed consolidated financial statements.

Income Taxes. Income tax expense of $69.7 million was recorded for the 2015 period compared to $45.5 million recorded for the 2014 period. The effective tax rate was 37.8% for the 2015 period compared to 29.5% for the 2014 period. The effective tax rate for the 2014 period reflects the impact of items related to our Mexican subsidiaries. Income tax provisions for interim (quarterly) periods are based on estimated annual income tax rates and are adjusted for the effects of significant, infrequent or unusual items (i.e. discrete items) occurring during the interim period. As a result, the interim rate may vary significantly from the normalized annual rate.

Liquidity and Capital Resources

Operating Activities

We primarily collect our revenues in cash, mainly through box office receipts and the sale of concessions. In addition, nearly all of our theatres provide the patron a choice of using a credit card, debit card or advanced-sale type certificates such as a gift card, in place of cash. Because our revenues are received in cash prior to the payment of related expenses, we have an operating “float” and historically have not required traditional working capital financing. Cash provided by operating activities was $180.4 million for the six months ended June 30, 2015 compared to $159.5 million for the six months ended June 30, 2014.

Investing Activities

Our investing activities have been principally related to the development and acquisition of theatres. New theatre openings and acquisitions historically have been financed with internally generated cash and by debt financing, including borrowings under our senior secured credit facility. Cash used for investing activities was $155.2 million for the six months ended June 30, 2015 compared to $102.9 million for the six months ended June 30, 2014.

Capital expenditures for the six months ended June 30, 2015 and 2014 were as follows (in millions):

 

Period

   New
Theatres
     Existing
Theatres
    Total  

Six Months Ended June 30, 2015

   $ 56.0       $  99.7 (a)    $ 155.7   

Six Months Ended June 30, 2014

   $ 47.0       $ 55.6      $ 102.6  

 

(a)  Includes approximately $26.3 million for the purchase of our corporate headquarters building in Plano, TX.

 

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Our U.S. theatre circuit consisted of 4,491 screens at June 30, 2015. During the six months ended June 30, 2015, we built two new theatres with 22 screens and closed three theatres with 30 screens. At June 30, 2015, we had signed commitments to open seven new theatres with 77 screens in domestic markets during the remainder of 2015 and open nine new theatres with 98 screens subsequent to 2015. We estimate the remaining capital expenditures for the development of these 175 domestic screens will be approximately $93 million. Actual expenditures for continued theatre development and acquisitions are subject to change based upon the availability of attractive opportunities.

Our international theatre circuit consisted of 1,229 screens at June 30, 2015. During the six months ended June 30, 2015, we built eight new theatres with 48 screens, acquired one theatre with 5 screens and closed one screen. At June 30, 2015, we had signed commitments to open four new theatres and 34 screens in international markets during the remainder of 2015 and open three new theatres and 25 screens subsequent to 2015. We estimate the remaining capital expenditures for the development of these 59 international screens will be approximately $43 million. Actual expenditures for continued theatre development and acquisitions are subject to change based upon the availability of attractive opportunities.

We plan to fund capital expenditures for our continued development with cash flow from operations, borrowings under our senior secured credit facility, and proceeds from debt issuances, sale leaseback transactions and/or sales of excess real estate.

Financing Activities

Cash used for financing activities was $78.8 million for the six months ended June 30, 2015 compared to $75.7 million for the six months ended June 30, 2014.

We may from time to time, subject to compliance with our debt instruments, purchase our debt securities on the open market depending upon the availability and prices of such securities. Long-term debt consisted of the following as of June 30, 2015 (in millions):

 

Cinemark, USA, Inc. term loan

   $ 682.5   

Cinemark USA, Inc. 4.875% senior notes due 2023

     530.0   

Cinemark USA, Inc. 5.125% senior notes due 2022

     400.0   

Cinemark USA, Inc. 7.375% senior subordinated notes due 2021

     200.0   

Other

     7.0   
  

 

 

 

Total long-term debt

   $ 1,819.5   

Less current portion

     8.4   
  

 

 

 

Long-term debt, less current portion

   $ 1,811.1   
  

 

 

 

As of June 30, 2015, Cinemark USA, Inc. had $100.0 million in available borrowing capacity on our revolving credit line.

Contractual Obligations

Due to the recent amendment to our Senior Secured Credit Facility, which extended the maturity of our outstanding term loan debt (see Note 3 to our condensed consolidated financial statements), we have included below our long-term debt and related estimated scheduled interest payments as of June 30, 2015.

 

     Payments Due by Period  
     (in millions)  
            Less Than                    After  
     Total      One Year      1 - 3 Years      3 - 5 Years      5 Years  

Long-term debt

   $ 1,819.5       $ 8.4       $ 16.8       $ 16.8       $ 1,777.5   

Scheduled interest payments on long-term debt (1)

   $ 592.2       $ 84.5       $ 165.3       $ 164.1       $ 178.3   

 

(1)  Amounts include scheduled interest payments on fixed rate and variable rate debt agreements. Estimates for the variable rate interest payments were based on interest rates currently in effect. The average interest rates currently in effect on our fixed rate and variable rate debt are 5.1% and 3.2%, respectively.

 

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Other than the changes in our long term debt obligations discussed above, there have been no material changes in our contractual obligations previously disclosed in “Liquidity and Capital Resources” in our Annual Report on Form 10-K for the year ended December 31, 2014 filed March 6, 2015.

Off-Balance Sheet Arrangements

Other than the operating leases and purchase commitments disclosed in our Annual Report on Form 10-K for the year ended December 31, 2014 filed March 6, 2015, we do not have any off-balance sheet arrangements.

Cinemark USA, Inc. 4.875% Senior Notes

On May 24, 2013, Cinemark USA, Inc. issued $530.0 million aggregate principal amount of 4.875% senior notes due 2023, at par value, (the “4.875% Senior Notes”). Interest on the 4.875% Senior Notes is payable on June 1 and December 1 of each year. The 4.875% Senior Notes mature on June 1, 2023.

The indenture to the 4.875% Senior Notes contains covenants that include limitations on the amount of dividends that Cinemark USA, Inc. can pay. As of June 30, 2015, Cinemark USA, Inc. could have distributed up to approximately $1,906.3 million to its parent company and sole stockholder, Cinemark Holdings, Inc., under the terms of the indenture to the 4.875% Senior Notes, subject to its available cash and other borrowing restrictions outlined in the indenture. The indenture allows Cinemark USA, Inc. to incur additional indebtedness if it satisfies the coverage ratio specified in the indenture, after giving effect to the incurrence of the additional indebtedness, and in certain other circumstances. The required minimum coverage ratio is 2 to 1 and our actual ratio as of June 30, 2015 was approximately 7.0 to 1.

Senior Secured Credit Facility

Cinemark USA, Inc. has a senior secured credit facility that includes a seven year $700.0 million term loan and a five year $100.0 million revolving credit line (the “Senior Secured Credit Facility”). On May 8, 2015, Cinemark USA, Inc. amended the Senior Secured Credit Facility to extend the maturity of the term loan from December 2019 to May 2022. Quarterly principal payments in the amount of $1.75 million are due on the term loan through March 31, 2022, with the remaining principal of $635.3 million due on May 8, 2022. The maturity date of December 2017 for the revolving credit line did not change.

Interest on the term loan accrues at Cinemark USA, Inc.’s option at: (A) the base rate equal to the higher of (1) the prime lending rate as set forth on the British Banking Association Telerate page 5, or (2) the federal funds effective rate from time to time plus 0.50%, plus a margin of 2.0% per annum, or (B) a “eurodollar rate” plus a margin of 3.0% per annum. Interest on the revolving credit line accrues, at Cinemark USA, Inc.’s option, at: (A) a base rate equal to the higher of (1) the prime lending rate as set forth on the British Banking Association Telerate page 5 and (2) the federal funds effective rate from time to time plus 0.50%, plus a margin that ranges from 1.00% to 1.75% per annum, or (B) a “eurodollar rate” plus a margin that ranges from 2.00% to 2.75% per annum. The margin of the revolving credit line is determined by the consolidated net senior secured leverage ratio as defined in the credit agreement.

The Senior Secured Credit Facility contains usual and customary negative covenants for agreements of this type, including restrictions on Cinemark USA, Inc.’s ability to pay dividends. In addition, if Cinemark USA, Inc. has borrowings outstanding on the revolving credit line, it is required to satisfy a consolidated net senior secured leverage ratio covenant as determined in accordance with the Senior Secured Credit Facility. Under the restrictions outlined in the agreements, as of June 30, 2015, Cinemark USA, Inc. could have distributed up to approximately $1,806.7 million to its parent company and sole stockholder, Cinemark Holdings, Inc., under the terms of the Senior Secured Credit Facility, subject to its available cash and other borrowing restrictions outlined in the agreement.

At June 30, 2015, there was $682.5 million outstanding under the term loan and no borrowings outstanding under the revolving credit line. Cinemark USA, Inc. had $100.0 million in available borrowing capacity on the revolving credit line. The average interest rate on outstanding term loan borrowings under the Senior Secured Credit Facility at June 30, 2015 was approximately 4.0% per annum.

 

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Cinemark USA, Inc. 5.125% Senior Notes

On December 18, 2012, Cinemark USA, Inc. issued $400.0 million aggregate principal amount of 5.125% senior notes due 2022, at par value (the “5.125% Senior Notes”). Interest on the 5.125% Senior Notes is payable on June 15 and December 15 of each year. The 5.125% Senior Notes mature on December 15, 2022.

The indenture to the 5.125% Senior Notes contains covenants including limitations on the amount of dividends that could be paid by Cinemark USA, Inc. As of June 30, 2015, Cinemark USA, Inc. could have distributed up to approximately $1,911.9 million to its parent company and sole stockholder, Cinemark Holdings, Inc., under the terms of the indenture to the 5.125% Senior Notes, subject to its available cash and other borrowing restrictions outlined in the indenture. The indenture allows Cinemark USA, Inc. to incur additional indebtedness if it satisfies the coverage ratio specified in the indenture, after giving effect to the incurrence of the additional indebtedness, and in certain other circumstances. The required minimum coverage ratio is 2 to 1 and our actual ratio as of June 30, 2015 was approximately 7.2 to 1.

Cinemark USA, Inc. 7.375% Senior Subordinated Notes

On June 3, 2011, Cinemark USA, Inc. issued $200.0 million aggregate principal amount of 7.375% senior subordinated notes due 2021, at par value (the “Senior Subordinated Notes”). Interest on the Senior Subordinated Notes is payable on June 15 and December 15 of each year. The Senior Subordinated Notes mature on June 15, 2021.

The indenture to the Senior Subordinated Notes contains covenants including limitations on the amount of dividends that could be paid by Cinemark USA, Inc. As of June 30, 2015, Cinemark USA, Inc. could have distributed up to approximately $1,899.6 million to its parent company and sole stockholder, Cinemark Holdings, Inc., under the terms of the indenture to the Senior Subordinated Notes, subject to its available cash and other borrowing restrictions outlined in the indenture governing the Senior Subordinated Notes. The indenture allows Cinemark USA, Inc. to incur additional indebtedness if it satisfies the coverage ratio specified in the indenture, after giving effect to the incurrence of the additional indebtedness, and in certain other circumstances. The required minimum coverage ratio is 2 to 1, and our actual ratio as of June 30, 2015 was approximately 6.9 to 1.

Covenant Compliance

As of June 30, 2015, we believe we were in full compliance with all agreements, including all related covenants, governing our outstanding debt.

Seasonality

Our revenues have historically been seasonal, coinciding with the timing of releases of motion pictures by the major distributors. Generally, the most successful motion pictures have been released during the summer, extending from May to July, and during the holiday season, extending from early November through year-end. The unexpected emergence of a hit film during other periods can alter this seasonality trend. The timing of such film releases can have a significant effect on our results of operations, and the results of one quarter are not necessarily indicative of results for the next quarter or for the same period in the following year.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We have exposure to financial market risks, including changes in interest rates, foreign currency exchange rates and other relevant market prices.

Interest Rate Risk

We are currently party to variable rate debt facilities. An increase or decrease in interest rates would affect our interest expense relating to our variable rate debt facilities. At June 30, 2015, there was an aggregate of approximately $232.5 million of variable rate debt outstanding under these facilities, which excludes $450.0 million of Cinemark USA, Inc.’s term loan debt that is hedged with the Company’s interest rate swap agreements in effect as of June 30, 2015 as discussed below. Based on the interest rates in effect on the variable rate debt outstanding at June 30, 2015, a 100 basis point increase in market interest rates would increase our annual interest expense by approximately $2.3 million.

 

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Our interest rate swap agreements qualify for cash flow hedge accounting. The fair values of the interest rate swaps are recorded on our condensed consolidated balance sheet as an asset or liability with the effective portion of the interest rate swaps’ gains or losses reported as a component of accumulated other comprehensive loss and the ineffective portion reported in earnings.

Below is a summary of our interest rate swap agreements as of June 30, 2015:

 

Nominal

Amount

(in millions)

    

Effective Date

   Pay Rate    

Receive Rate

  

Expiration Date

$ 175.0       December 2010      1.3975   1-month LIBOR    September 2015
$ 175.0       December 2010      1.4000   1-month LIBOR    September 2015
$ 100.0       November 2011      1.7150   1-month LIBOR    April 2016        

 

 

            
$ 450.0              

 

 

            

The table below provides information about our fixed rate and variable rate long-term debt agreements as of June 30, 2015:

 

     Expected Maturity for the Twelve-Month Periods Ending June 30,
(in millions)
     Average
Interest
 
     2016      2017      2018      2019      2020      Thereafter      Total      Fair Value      Rate  

Fixed rate (1)

   $ 1.4       $ 1.4       $ 1.4       $ 1.4       $ 1.4       $ 1,580.0       $ 1,587.0       $ 1,576.2         5.1

Variable rate

     7.0         7.0         7.0         7.0         7.0         197.5         232.5         233.7         3.2
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

Total debt

   $ 8.4       $ 8.4       $ 8.4       $ 8.4       $ 8.4       $ 1,777.5       $ 1,819.5       $ 1,809.9      
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

(1)  Includes $450.0 million of the Cinemark USA, Inc. term loan, which represents the debt hedged with the Company’s interest rate swap agreements in effect as of June 30, 2015 discussed above.

Foreign Currency Exchange Rate Risk

There have been no material changes in foreign currency exchange rate risk previously disclosed in “Quantitative and Qualitative Disclosures About Market Risk” in the Company’s Annual Report on Form 10-K filed March 6, 2015.

 

Item 4. Controls and Procedures

Evaluation of the Effectiveness of Disclosure Controls and Procedures

As of June 30, 2015, we carried out an evaluation required by the Securities Exchange Act of 1934, as amended (the “Exchange Act”), under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a-15(e) of the Exchange Act. Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of June 30, 2015, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and were effective to provide reasonable assurance that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 that occurred during the quarter ended June 30, 2015 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings

There have been no material changes from legal proceedings previously reported under “Business – Legal Proceedings” in the Company’s Annual Report on Form 10-K filed March 6, 2015, other than those disclosed in Note 16 to the financial statements included herein.

 

Item 1A. Risk Factors

There have been no material changes from risk factors previously disclosed in “Risk Factors” in the Company’s Annual Report on Form 10-K filed March 6, 2015.

 

Item 5. Other Information

As required by the indentures governing the Company’s 5.125% Senior Notes, 4.875% Senior Notes and Senior Subordinated Notes, the Company has included in this filing, interim financial information for its subsidiaries that have been designated as unrestricted subsidiaries, as defined by the indentures. As required by these indentures, the Company has included an unaudited condensed consolidating balance sheet and unaudited condensed consolidating statements of income, comprehensive income and cash flows for the Company and its subsidiaries. These supplementary schedules separately identify the Company’s restricted subsidiaries and unrestricted subsidiaries as required by the indentures.

Supplemental Schedules Specified by the Senior Notes Indentures and the Senior Subordinated Notes Indenture:

 

     Page  

Unaudited Condensed Consolidating Balance Sheet Information as of June 30, 2015

     48   

Unaudited Condensed Consolidating Statement of Income Information for the six months ended June 30, 2015

     49   

Unaudited Condensed Consolidating Statement of Comprehensive Income Information for the six months ended June 30, 2015

     50   

Unaudited Condensed Consolidating Statement of Cash Flows Information for the six months ended June 30, 2015

     51   

 

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CINEMARK USA, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION

JUNE 30, 2015

(In thousands)

 

     Restricted
Group
     Unrestricted
Group
    Eliminations     Consolidated  

Assets

         

Current assets

         

Cash and cash equivalents

   $ 397,794       $ 178,398      $ —        $ 576,192   

Other current assets

     210,906         (72,175     —          138,731   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total current assets

     608,700         106,223        —          714,923   

Theatre properties and equipment, net

     1,484,389         —          —          1,484,389   

Other assets

     1,839,585         232,834        (107,019     1,965,400   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total assets

   $ 3,932,674       $ 339,057      $ (107,019   $ 4,164,712   
  

 

 

    

 

 

   

 

 

   

 

 

 

Liabilities and equity

         

Current liabilities

         

Current portion of long-term debt

   $ 7,034       $ 1,389      $ —        $ 8,423   

Current portion of capital lease obligations

     17,917         —          —          17,917   

Accounts payable and accrued expenses

     392,152         204        —          392,356   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total current liabilities

     417,103         1,593        —          418,696   

Long-term liabilities

         

Long-term debt, less current portion

     1,805,500         5,556        —          1,811,056   

Capital lease obligations, less current portion

     201,493         —          —          201,493   

Other long-term liabilities and deferrals

     492,421         104,077        —          596,498   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total long-term liabilities

     2,499,414         109,633        —          2,609,047   

Commitments and contingencies

         

Equity

     1,016,157         227,831        (107,019     1,136,969   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total liabilities and equity

   $ 3,932,674       $ 339,057      $ (107,019   $ 4,164,712   
  

 

 

    

 

 

   

 

 

   

 

 

 

Note: “Restricted Group” and “Unrestricted Group” are defined in the indentures for the senior notes and senior subordinated notes.

 

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CINEMARK USA, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF INCOME INFORMATION

SIX MONTHS ENDED JUNE 30, 2015

(In thousands)

 

     Restricted
Group
    Unrestricted
Group
    Eliminations      Consolidated  

Revenues

   $ 1,445,330      $ —        $ —         $ 1,445,330   

Cost of operations

         

Theatre operating costs

     1,042,622        —          —           1,042,622   

General and administrative expenses

     75,762        1        —           75,763   

Depreciation and amortization

     91,901        —          —           91,901   

Impairment of long-lived assets

     4,322        —          —           4,322   

Loss on sale of assets and other

     4,352        —          —           4,352   
  

 

 

   

 

 

   

 

 

    

 

 

 

Total cost of operations

     1,218,959        1        —           1,218,960   
  

 

 

   

 

 

   

 

 

    

 

 

 

Operating income (loss)

     226,371        (1     —           226,370   

Other income (expense)

     (58,106     16,121        —           (41,985
  

 

 

   

 

 

   

 

 

    

 

 

 

Income before income taxes

     168,265        16,120        —           184,385   

Income taxes

     63,510        6,190        —           69,700   
  

 

 

   

 

 

   

 

 

    

 

 

 

Net income

     104,755        9,930        —           114,685   

Less: Net income attributable to noncontrolling interests

     1,013        —          —           1,013   
  

 

 

   

 

 

   

 

 

    

 

 

 

Net income attributable to Cinemark USA, Inc.

   $ 103,742      $ 9,930      $ —         $ 113,672   
  

 

 

   

 

 

   

 

 

    

 

 

 

Note: “Restricted Group” and “Unrestricted Group” are defined in the indentures for the senior notes and senior subordinated notes.

 

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CINEMARK USA, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME INFORMATION

SIX MONTHS ENDED JUNE 30, 2015

(In thousands)

 

     Restricted     Unrestricted               
     Group     Group     Eliminations      Consolidated  

Net income

   $ 104,755      $ 9,930      $ —         $ 114,685   

Other comprehensive income (loss), net of tax

         

Unrealized gain due to fair value adjustments on interest rate swap agreements, net of settlements, net of taxes of $958

     1,612        —          —           1,612   

Unrealized gain due to fair value adjustments on available-for-sale securities, net of taxes of $236

     412        —          —           412   

Other comprehensive loss in equity method investments

     (33     (2,905     —           (2,938

Foreign currency translation adjustments

     (46,047     —          —           (46,047
  

 

 

   

 

 

   

 

 

    

 

 

 

Total other comprehensive loss, net of tax