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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 September 30, 2016

Commission File Number: 033-47040

 

 

CINEMARK USA, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Texas   75-2206284
(State or other jurisdiction   (I.R.S. Employer
of incorporation or organization)   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  ☒    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  ☒    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   ☒  (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  ☒

As of October 31, 2016, 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 September 30, 2016 and December 31, 2015 (unaudited)

     4   
 

Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2016 and 2015 (unaudited)

     5   
 

Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2016 and 2015 (unaudited)

     6   
 

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and 2015 (unaudited)

     7   
 

Notes to Condensed Consolidated Financial Statements (unaudited)

     8   

Item 2.

 

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

     38   

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

     50   

Item 4.

 

Controls and Procedures

     50   

PART II. OTHER INFORMATION

  

Item 1.

  Legal Proceedings      51   

Item 1A.

  Risk Factors      51   

Item 5.

  Other Information      51   

Item 6.

  Exhibits      57   

SIGNATURES

     58   

 

 

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 4, 2016 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)

 

     September 30,     December 31,  
     2016     2015  

Assets

    

Current assets

    

Cash and cash equivalents

   $ 527,012      $ 588,503   

Inventories

     15,482        15,954   

Accounts receivable

     62,480        74,287   

Current income tax receivable

     3,800        22,877   

Prepaid expenses and other

     18,040        13,494   

Accounts receivable from parent

     9,831        1,171   
  

 

 

   

 

 

 

Total current assets

     636,645        716,286   

Theatre properties and equipment

     2,935,199        2,687,391   

Less accumulated depreciation and amortization

     1,322,090        1,182,322   
  

 

 

   

 

 

 

Theatre properties and equipment, net

     1,613,109        1,505,069   

Other assets

    

Goodwill

     1,262,445        1,247,548   

Intangible assets—net

     336,207        339,644   

Investment in NCM

     192,866        183,755   

Investments in and advances to affiliates

     100,621        94,973   

Long-term deferred tax asset

     2,127        2,114   

Deferred charges and other assets—net

     42,324        38,243   
  

 

 

   

 

 

 

Total other assets

     1,936,590        1,906,277   
  

 

 

   

 

 

 

Total assets

   $ 4,186,344      $ 4,127,632   
  

 

 

   

 

 

 

Liabilities and equity

    

Current liabilities

    

Current portion of long-term debt

   $ 4,244      $ 8,405   

Current portion of capital lease obligations

     19,562        18,780   

Current income tax payable

     9,244        7,332   

Current liability for uncertain tax positions

     10,064        9,155   

Accounts payable and accrued expenses

     303,725        395,497   
  

 

 

   

 

 

 

Total current liabilities

     346,839        439,169   

Long-term liabilities

    

Long-term debt, less current portion

     1,786,549        1,772,930   

Capital lease obligations, less current portion

     209,020        208,952   

Long-term deferred tax liability

     156,941        139,905   

Long-term liability for uncertain tax positions

     7,825        7,853   

Deferred lease expenses

     42,579        43,333   

Deferred revenue—NCM

     346,292        342,134   

Other long-term liabilities

     46,042        60,105   
  

 

 

   

 

 

 

Total long-term liabilities

     2,595,248        2,575,212   

Commitments and contingencies (see Note 15)

    

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

     1,249,728        1,238,473   

Retained Earnings

     195,823        110,049   

Accumulated other comprehensive loss

     (238,672     (271,686
  

 

 

   

 

 

 

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

     1,232,189        1,102,146   

Noncontrolling interests

     12,068        11,105   
  

 

 

   

 

 

 

Total equity

     1,244,257        1,113,251   
  

 

 

   

 

 

 

Total liabilities and equity

   $ 4,186,344      $ 4,127,632   
  

 

 

   

 

 

 

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 September 30,     Nine months ended September 30,  
     2016     2015     2016     2015  

Revenues

        

Admissions

   $ 472,842      $ 432,136      $ 1,364,737      $ 1,335,761   

Concession

     261,391        230,233        752,798        704,190   

Other

     34,341        37,687        100,312        105,435   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     768,574        700,056        2,217,847        2,145,386   

Cost of operations

        

Film rentals and advertising

     249,766        227,571        733,101        713,306   

Concession supplies

     41,888        36,039        116,999        109,445   

Salaries and wages

     84,460        76,510        243,833        222,261   

Facility lease expense

     82,848        80,604        241,904        242,612   

Utilities and other

     94,999        93,430        265,506        269,152   

General and administrative expenses

     34,660        38,491        106,986        114,254   

Depreciation and amortization

     54,187        47,543        155,874        139,444   

Impairment of long-lived assets

     406        633        2,323        4,955   

(Gain) loss on sale of assets and other

     6,940        (500     10,985        3,852   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of operations

     650,154        600,321        1,877,511        1,819,281   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     118,420        99,735        340,336        326,105   

Other income (expense)

        

Interest expense

     (26,659     (28,419     (81,980     (84,930

Loss on debt amendments and refinancing

     —          —          (13,284     (925

Interest income

     1,665        2,389        5,030        6,783   

Foreign currency exchange gain (loss)

     485        (11,935     2,883        (18,702

Distributions from NCM

     1,381        4,601        10,117        13,100   

Equity in income of affiliates

     12,390        11,047        24,597        20,372   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense

     (10,738     (22,317     (52,637     (64,302
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     107,682        77,418        287,699        261,803   

Income taxes

     41,165        30,341        106,821        100,041   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 66,517      $ 47,077      $ 180,878      $ 161,762   

Less: Net income attributable to noncontrolling interests

     471        362        1,454        1,375   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Cinemark USA, Inc.

   $ 66,046      $ 46,715      $ 179,424      $ 160,387   
  

 

 

   

 

 

   

 

 

   

 

 

 

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 COMPREHENSIVE INCOME (LOSS)

(In thousands, unaudited)

 

     Three months ended September 30,     Nine months ended September 30,  
     2016     2015     2016     2015  

Net income

   $ 66,517      $ 47,077      $ 180,878      $ 161,762   

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 $0, $454, $138 and $1,412

     —          767        234        2,379   

Unrealized loss due to fair value adjustments on available-for-sale securities, net of taxes of $0, $1,234, $0 and $998

     —          (2,092     —          (1,680

Other comprehensive loss in equity method investments

     (7     (72     (183     (3,010

Foreign currency translation adjustments

     (3,669     (59,181     34,998        (105,228
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income (loss), net of tax

     (3,676     (60,578     35,049        (107,539
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss), net of tax

     62,841        (13,501     215,927        54,223   

Comprehensive income attributable to noncontrolling interests

     (475     (327     (1,478     (1,340
  

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ 62,366      $ (13,828   $ 214,449      $ 52,883   
  

 

 

   

 

 

   

 

 

   

 

 

 

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)

 

     Nine months ended September 30,  
     2016     2015  

Operating activities

    

Net income

   $ 180,878      $ 161,762   

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

    

Depreciation

     154,308        137,683   

Amortization of intangible and other assets and favorable/unfavorable leases

     1,566        1,761   

Amortization of long-term prepaid rents

     1,357        1,901   

Amortization of debt issue costs

     4,068        3,876   

Amortization of deferred revenues, deferred lease incentives and other

     (13,017     (11,959

Impairment of long-lived assets

     2,323        4,955   

Share based awards compensation expense

     9,458        9,213   

Loss on sale of assets and other

     10,985        3,852   

Write-off of unamortized debt issue costs associated with early retirement of debt

     2,369        —     

Deferred lease expenses

     (809     (1,809

Equity in income of affiliates

     (24,597     (20,372

Deferred income tax expense

     16,382        (9,570

Distributions from equity investees

     9,660        12,679   

Changes in assets and liabilities and other

     (77,181     (68,256
  

 

 

   

 

 

 

Net cash provided by operating activities

     277,750        225,716   

Investing activities

    

Additions to theatre properties and equipment and other

     (230,346     (232,351

Acquisition of theatre in Brazil

     —          (2,651

Acquisition of theatres in the U.S.

     (15,300     —     

Proceeds from sale of theatre properties and equipment and other

     3,398        6,283   

Proceeds from sale of marketable securities

     13,451        —     

Investment in joint ventures and other

     (1,703     (3,180
  

 

 

   

 

 

 

Net cash used for investing activities

     (230,500     (231,899

Financing activities

    

Dividends paid to parent

     (93,650     (86,400

Payroll taxes paid as a result of restricted stock withholdings

     (6,828     (4,770

Proceeds from issuance of Senior Notes, net of discount

     222,750        —     

Retirement of Senior Subordinated Notes

     (200,000     —     

Repayments of long-term debt

     (15,217     (5,274

Payment of debt issue costs

     (4,504     (6,957

Payments on capital leases

     (14,655     (12,201

Other

     1,282        2,123   
  

 

 

   

 

 

 

Net cash used for financing activities

     (110,822     (113,479

Effect of exchange rate changes on cash and cash equivalents

     2,081        (16,432
  

 

 

   

 

 

 

Decrease in cash and cash equivalents

     (61,491     (136,094

Cash and cash equivalents:

    

Beginning of period

     588,503        638,841   
  

 

 

   

 

 

 

End of period

   $ 527,012      $ 502,747   
  

 

 

   

 

 

 

Supplemental information (see Note 12)

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, Curacao and Paraguay.

The accompanying condensed consolidated balance sheet as of December 31, 2015, 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, 2015, included in the Annual Report on Form 10-K filed March 4, 2016 by the Company under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Operating results for the three and nine months ended September 30, 2016 are not necessarily indicative of the results to be achieved for the full year.

Accounting Reclassifications

The Company has reclassified $8,844 and $24,071 in expenses from film rentals and advertising costs to utilities and other costs on the condensed consolidated statement of income for the three and nine months ended September 30, 2015, respectively, to be consistent with the presentation for the three and nine months ended September 30, 2016. During the nine months ended September 30, 2016, the Company determined that reclassifying the expenses, which are related to the maintenance and monitoring of projection and sound equipment, results in a more clear presentation of film rentals and advertising costs.

2. New Accounting Pronouncements

In February 2015, the Financial Accounting Standards Board (“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. Effective January 1, 2016, the Company adopted ASU 2015-02, which had no impact on its condensed consolidated financial statements.

In February 2016, the FASB issued Accounting Standards Update 2016-02, Leases (Topic 842), (“ASU 2016-02”). The purpose of ASU 2016-02 is to provide financial statement users a better understanding of the amount, timing, and uncertainty of cash flows arising from leases. The adoption of ASU 2016-02 will result in the recognition of a right-of-use asset and a lease liability for most operating leases. New disclosure requirements include qualitative

 

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CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

and quantitative information about the amounts recorded in the financial statements. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018. ASU 2016-02 requires a modified retrospective transition by means of a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year in which the guidance is effective with the option to elect certain practical expedients. Early adoption is permitted. The Company is currently evaluating the impact of ASU 2016-02 on its condensed consolidated financial statements.

In March 2016, the FASB issued Accounting Standards Update 2016-04, Liabilities – Extinguishment of Liabilities (Subtopic 405-20), (“ASU 2016-04”). The purpose of ASU 2016-04 is to provide a narrow scope exception to the guidance in Accounting Standards Codification (“ASC”) Subtopic 405-20 to require that breakage of liabilities associated with prepaid stored-value products be accounted for consistent with the breakage guidance in ASC Topic 606. ASU 2016-04 is effective for fiscal years beginning after December 15, 2017. The amendments in ASU 2016-04 may be applied either using a modified retrospective transition method by means of a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year in which the guidance is effective or retrospectively to each period presented. Early adoption is permitted. The Company is currently evaluating the impact of ASU 2016-04 on its condensed consolidated financial statements.

In March 2016, the FASB issued Accounting Standards Update 2016-07, Investments – Equity Method and Joint Ventures (Topic 323), (“ASU 2016-07”). The purpose of ASU 2016-07 is to eliminate the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment was held. ASU 2016-07 is effective for fiscal years beginning after December 15, 2016. The amendments in ASU 2016-07 should be applied prospectively. Early adoption is permitted. The Company does not expect ASU 2016-07 to have an impact on its condensed consolidated financial statements.

In March 2016, the FASB issued Accounting Standards Update 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenues Gross versus Net), (“ASU 2016-08”). The purpose of ASU 2016-08 is to clarify the implementation of revenue recognition guidance related to principal versus agent considerations. ASU 2016-08 is effective for fiscal years beginning after December 15, 2017, including interim periods within that year, concurrent with Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606). The amendments in ASU 2016-08 may be applied either using a modified retrospective transition method by means of a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year in which the guidance is effective or retrospectively to each period presented. Early adoption is permitted. The Company is currently evaluating the impact of ASU 2016-08 on its condensed consolidated financial statements.

In March 2016, the FASB issued Accounting Standards Update 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, (“ASU 2016-09”). The purpose of ASU 2016-09 is to simplify the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification of such activity on the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, including interim periods within that year. Prospective, retrospective, or modified retrospective application may be used dependent on the specific requirements of the amendments within ASU 2016-09. Early adoption is permitted. The Company is currently evaluating the impact of ASU 2016-09 on its condensed consolidated financial statements.

In May 2016, the FASB issued Accounting Standards Update 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, (“ASU 2016-12”). The purpose of ASU 2016-12 is to address certain narrow aspects of ASC Topic 606 including assessing collectability, presentation of sales and other similar taxes, noncash considerations, contract modifications and completed contracts at transition. ASU 2016-12 is effective for fiscal years beginning after December 15, 2017, including interim periods within that year, concurrent with Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606). The amendments in ASU 2016-12 may be applied either using a modified retrospective transition method by means of a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year in which the guidance is effective or retrospectively to each period presented. Early adoption is permitted. The Company is currently evaluating the impact of ASU 2016-12 on its 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

 

In August 2016, the FASB issued Accounting Standards Update 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments – a consensus of the FASB Emerging Issues Task Force, (“ASU 2016-15”). The purpose of ASU 2016-15 is to reduce the diversity in practice regarding how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, including interim periods within that year. A retrospective transition method should be used in the application of the amendments within ASU 2016-15. If retrospective application is considered impracticable, retrospective application may be used as of the earliest date practicable. Early adoption is permitted. The Company is currently evaluating the impact of ASU 2016-15 on its condensed consolidated financial statements.

In October 2016, the FASB issued Accounting Standards Update 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, (“ASU 2016-16”). The purpose of ASU 2016-16 is to improve the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. ASU 2016-16 is effective for fiscal years beginning after December 15, 2017, including interim periods within that year. A modified retrospective transition method should be used in the application of the amendments within ASU 2016-16 with a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. Early adoption is permitted. The Company is currently evaluating the impact of ASU 2016-16 on its condensed consolidated financial statements.

3. Long Term Debt Activity

Senior Secured Credit Facility

On May 16, 2016, the Company made a pre-payment of $13,451 on its term loan using the net proceeds received from the sale of shares of RealD (see Note 6). In accordance with the terms of the senior secured credit facility agreement, the pre-payment was applied first to the next four principal installments, and second, to the remaining installments pro-rata based on the remaining outstanding principal amount of such installments. Therefore, quarterly payments in the amount of $1,427 are due on the term loan beginning June 30, 2017 through March 31, 2022, with the remaining principal of $635,250 due on May 8, 2022. The Company did not incur any fees as a result of the pre-payment.

On June 13, 2016, the Company amended its senior secured credit facility to reduce the rate at which the term loan bears interest by 0.25%. The Company incurred debt issue costs of approximately $802 in connection with the amendment, which are reflected as a reduction of long term debt on the condensed consolidated balance sheet as of September 30, 2016. In addition, the Company incurred approximately $249 in legal and other fees that are reflected as loss on debt amendments and refinancing on the condensed consolidated statements of income for the nine months ended September 30, 2016.

Issuance of Additional 4.875% Senior Notes

On March 21, 2016, Cinemark USA, Inc. issued an additional $225,000 aggregate principal amount of 4.875% senior notes due 2023 (the “4.875% Senior Notes”), at 99.0% of the principal amount plus accrued and unpaid interest from December 1, 2015. Proceeds, after payment of fees, were used to finance the redemption of Cinemark, USA, Inc.’s $200,000 7.375% senior subordinated notes due 2021 (the “7.375% Senior Subordinated Notes”), as discussed below. These additional notes have identical terms, other than the issue date, the issue price and the first interest payment date, and constitute part of the same series as Cinemark USA, Inc.’s existing 4.875% Senior Notes. The aggregate principal amount of $755,000 of 4.875% Senior Notes mature on June 1, 2023. The Company incurred debt issue costs of approximately $3,702 in connection with the issuance of the additional notes, which, along with the discount of $2,250, are reflected as a reduction of long term debt, net of accumulated amortization, as of September 30, 2016.

On April 5, 2016, Cinemark USA, Inc. and its guarantor subsidiaries filed a registration statement with the Securities and Exchange Commission (the “Commission”), pursuant to which Cinemark USA, Inc. offered to exchange the additional 4.875% Senior Notes for substantially identical notes registered under the Securities Act of 1933, as amended, that do not contain terms restricting the transfer thereof or providing for registration rights. The registration statement was declared effective April 18, 2016, and the notes were exchanged on May 17, 2016.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

Redemption of 7.375% Senior Subordinated Notes

On March 21, 2016, Cinemark USA, Inc. redeemed its $200,000 7.375% Senior Subordinated Notes at a make-whole premium of approximately 104% plus accrued and unpaid interest, utilizing the proceeds from the issuance of the additional $225,000 Cinemark USA, Inc. 4.875% Senior Notes discussed above. As a result of the redemption, the Company wrote-off approximately $2,369 in unamortized debt issue costs, paid the make-whole premium of $9,444 and paid other fees of $1,222, all of which are reflected in loss on debt amendments and refinancing during the nine months ended September 30, 2016.

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 ASC Topic 820-10-35, Fair Value Measurement. The carrying value of the Company’s long-term debt was $1,824,355 and $1,814,572 as of September 30, 2016 and December 31, 2015, respectively, excluding unamortized debt discounts and debt issue costs. The fair value of the Company’s long-term debt was $1,839,380 and $1,806,276 as of September 30, 2016 and December 31, 2015, respectively.

4. Equity

Below is a summary of changes in stockholder’s equity attributable to Cinemark USA, Inc., noncontrolling interests and total equity for the nine months ended September 30, 2016 and 2015:

 

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

Balance at January 1, 2016

   $ 1,102,146       $ 11,105       $ 1,113,251   

Share based awards compensation expense

     9,458         —           9,458   

Tax benefit related to share based awards vesting

     1,797         —           1,797   

Cash dividends paid to parent

     (93,650      —           (93,650

Dividends paid to noncontrolling interests

     —           (515      (515

Net income

     179,424         1,454         180,878   

Fair value adjustments on interest rate swap agreements designated as hedges, net of settlements, net of taxes of $138

     234         —           234   

Gain realized on available-for-sale securities, net of taxes of $1,180

     (2,011      —           (2,011

Other comprehensive loss in equity method investees

     (183      —           (183

Foreign currency translation adjustments

     34,974         24         34,998   
  

 

 

    

 

 

    

 

 

 

Balance at September 30, 2016

   $ 1,232,189       $ 12,068       $ 1,244,257   
  

 

 

    

 

 

    

 

 

 

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

     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

     9,213         —           9,213   

Tax benefit related to share based awards vesting and dividends paid on unvested stock

     2,417         —           2,417   

Cash and noncash dividends paid to parent

     (104,335      —           (104,335

Dividends paid to noncontrolling interests

     —           (294      (294

Net income

     160,387         1,375         161,762   

Fair value adjustments on interest rate swap agreements designated as hedges, net of settlements, net of taxes of $1,412

     2,379         —           2,379   

Fair value adjustments on available-for-sale securities, net of taxes of $998

     (1,680      —           (1,680

Other comprehensive loss in equity method investees

     (3,010      —           (3,010

Foreign currency translation adjustments

     (105,193      (35      (105,228
  

 

 

    

 

 

    

 

 

 

Balance at September 30, 2015

   $ 1,086,572       $ 11,375       $ 1,097,947   
  

 

 

    

 

 

    

 

 

 

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 2015 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                    
     Investment     Deferred     from     Equity in     Other     Cash  
     in NCM     Revenue     NCM     Income     Revenue     Received  

Balance as of January 1, 2016

   $ 183,755      $ (342,134        

Receipt of common units due to annual common unit adjustment

     11,111        (11,111   $ —        $ —        $ —        $ —     

Revenues earned under ESA (1)

     —          —          —          —          (8,345     8,345   

Receipt of excess cash distributions

     (6,895     —          (7,176     —          —          14,071   

Receipt under tax receivable agreement

     (2,765     —          (2,941     —          —          5,706   

Equity in earnings

     7,660        —          —          (7,660     —          —     

Amortization of deferred revenue

     —          6,953        —          —          (6,953     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of and for the nine month period ended September 30, 2016

   $ 192,866      $ (346,292   $ (10,117   $ (7,660   $ (15,298   $ 28,122   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(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 $8,002.

During the three months ended September 30, 2016 and 2015, the Company recorded equity in earnings of approximately $5,815 and $6,263, respectively. During the nine months ended September 30, 2016 and 2015, the Company recorded equity in earnings of approximately $7,660 and $6,672, respectively.

The Company made payments to NCM of approximately $41 and $39 during the nine months ended September 30, 2016 and 2015, respectively, related to installation of certain equipment used for digital advertising, which is included in theatre properties and equipment on the condensed consolidated balance sheets.

On March 16, 2015, NCM, Inc. announced that it had agreed with Screenvision, LLC (“Screenvision”) to terminate a merger agreement under which it would have acquired Screenvision. 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 paying reduced excess cash distributions to its shareholders for the first quarter of 2015 and the second quarter of 2016, as required by NCM’s Amended and Restated Operating Agreement.

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 2015 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 2016, 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 753,598 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 $11,111. The deferred revenue will be recognized over the remaining term of the ESA, which is approximately 20 years.

As of September 30, 2016, the Company owned a total of 26,384,644 common units of NCM, representing an ownership interest of approximately 19%. The estimated fair value of the Company’s investment in NCM was approximately $388,382 as of September 30, 2016, using NCMI’s stock price as of September 30, 2016 of $14.72 per share.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

Below is summary financial information for NCM for the three and six months ended June 30, 2016 (the financial information for the three and nine months ended September 29, 2016 is not yet available) and the three and nine months ended October 1, 2015:

 

     Three Months
Ended
     Six Months
Ended
     Three Months
Ended
     Nine Months
Ended
 
     June 30, 2016      June 30, 2016      October 1, 2015      October 1, 2015  

Gross revenues

   $ 115,383       $ 191,625       $ 111,662       $ 310,061   

Operating income

   $ 46,679       $ 52,430       $ 47,685       $ 78,961   

Net earnings (loss)

   $ 33,220       $ 25,710       $ 34,844       $ 38,519   

6. Other Investments

The Company had the following other investments at September 30, 2016:

 

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

   $ 88,108   

AC JV, LLC, equity method investment

     7,389   

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

     3,373   

Other

     1,751   
  

 

 

 

Total

   $ 100,621   
  

 

 

 

Below is a summary of activity for each of the investments for the nine months ended September 30, 2016:

 

     DCIP     RealD     AC JV,
LLC
     DCDC      Other      Total  

Balance at January 1, 2016

   $ 71,579      $ 12,900     $ 7,269       $ 2,562      $ 663      $ 94,973   

Cash contributions

     706        —          —           —           1,000         1,706   

Equity in income

     16,006        —          120         811         —           16,937   

Equity in comprehensive loss

     (183     —          —           —           —           (183

Sale of investment (1)

     —          (12,900     —           —           —           (12,900

Other

     —          —          —           —           88         88   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Balance at September 30, 2016

   $ 88,108      $ —        $ 7,389       $ 3,373       $ 1,751       $ 100,621   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)  See further discussion of the sale of the investment held by the Company under RealD, Inc. below.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

Digital Cinema Implementation Partners LLC

On February 12, 2007, the Company, AMC and Regal entered into a joint venture known as DCIP 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 September 30, 2016, 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 nine months ended September 30, 2016 and 2015.

 

     Three Months Ended      Nine Months Ended  
     September 30, 2016      September 30, 2015      September 30, 2016      September 30, 2015  

Revenues

   $ 48,274       $ 43,129       $ 133,675       $ 123,731   

Operating income

   $ 31,180       $ 26,178       $ 82,369       $ 72,945   

Net income

   $ 26,949       $ 20,189       $ 67,728       $ 54,153   

As of September 30, 2016, the Company had 3,788 digital projection systems being leased under the master equipment lease agreement with Kasima. The Company had the following transactions, recorded in utilities and other on the condensed consolidated statements of income, with DCIP during the three and nine months ended September 30, 2016 and 2015:

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2016      2015      2016      2015  

Equipment lease payments

   $ 1,333       $ 1,084       $ 3,864       $ 3,133   

Warranty reimbursements from DCIP

   $ (1,608    $ (1,137    $ (4,367    $ (3,124

Management services fees

   $ 207       $ 205       $ 619       $ 619   

RealD, Inc.

The Company licenses 3-D systems from RealD. Under its license agreement with RealD, the Company earned options to purchase shares of RealD common stock as it installed a certain number of 3-D systems as outlined in the license agreement. During 2010 and 2011, the Company vested in a total of 1,222,780 RealD options. Upon vesting in these options, the Company recorded an investment in RealD and a deferred lease incentive liability using the estimated fair value of the RealD options at the time of vesting. During March 2011, the Company exercised all of its options to purchase shares of common stock in RealD for $0.00667 per share.

On March 22, 2016, an affiliate of Rizvi Traverse Management, LLC acquired RealD for $11.00 per share. As a result of the transaction, the Company sold its shares for approximately $13,451 and recognized a gain of $3,742, which included the recognition of a cumulative unrealized holding gain of $3,191 previously recorded in accumulated other comprehensive loss. The gain is reflected as gain on sale of assets and other on the condensed consolidated statement of income for the nine months ended September 30, 2016. The Company used the proceeds to make a pre-payment on its term loan in accordance with the terms of its senior secured credit facility (see Note 3).

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

AC JV, LLC

During December 2013, the Company, Regal, AMC (the “AC Founding Members”) and NCM entered into a series of agreements that resulted in the formation of AC JV, LLC (“AC”), a new joint venture that now owns “Fathom Events” (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 $7,808 and $9,031 for the nine months ended September 30, 2016 and 2015, respectively, which are included in film rentals and advertising costs on the condensed consolidated statements of income.

AC was formed by the AC 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. The remaining outstanding balance of the note payable from the Company to AC as of September 30, 2016 was $5,555.

Digital Cinema Distribution Coalition

Digital Cinema Distribution Coalition (“DCDC”) is a joint venture among the Company, Universal, Warner Bros., AMC and Regal. DCDC 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 $707 and $542 during the nine months ended September 30, 2016 and 2015, 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 nine months ended September 30, 2016, Cinemark Holdings, Inc. granted 322,700 shares of restricted stock to employees of the Company and to directors of Cinemark Holdings, Inc. 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 $29.83 to $36.46 per share. The Company assumed forfeiture rates ranging from 0% to 10% for the restricted stock awards. Restricted stock granted to employees vests over service periods that range from approximately one month to four years. Restricted stock granted to Cinemark Holdings, Inc.’s directors vests over a one-year service period. 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.

Below is a summary of restricted stock activity for the nine months ended September 30, 2016:

 

     Shares of      Weighted Average  
     Restricted      Grant Date  
     Stock      Fair Value  

Outstanding at January 1, 2016

     757,775       $ 30.73   

Granted

     322,700       $ 30.68   

Vested

     (430,056    $ 26.60   

Forfeited

     (54,210    $ 33.83   
  

 

 

    

Outstanding at September 30, 2016

     596,209       $ 33.41   
  

 

 

    

Unvested restricted stock at September 30, 2016

     596,209       $ 33.41   
  

 

 

    

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

    

Nine Months Ended

September 30,

 
     2016      2015  

Compensation expense recognized during the period (1)

   $ 5,762       $ 6,505   

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

   $ 13,739       $ 9,143   

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

   $ 923       $ 1,148   

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

   $ 5,167       $ 3,341   

 

(1)  Cinemark Holdings, Inc. recorded an additional $789 and $637 of compensation expense related to these restricted stock awards during the nine months ended September 30, 2016 and 2015, respectively.
(2)  Cinemark Holdings, Inc. recognized an additional $388 and $482 in income tax deductions during the nine months ended September 30, 2016 and 2015, respectively.

As of September 30, 2016, the estimated remaining unrecognized compensation expense related to restricted stock awards was $13,648, of which $13,103 will be recognized by the Company and $545 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 nine months ended September 30, 2016, Cinemark Holdings, Inc. granted restricted stock units representing 253,661 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, 2017 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 (“Compensation Committee”) 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 pro-rata basis according to the IRR achieved by the Company during the performance period. If the IRR for the two-year period is at least 6.0%, which is the threshold, one-third of the maximum restricted stock units vest. If the IRR for the two-year period is at least 8.0%, which is the target, two-thirds of the maximum restricted stock units vest. If the IRR for the two-year period is at least 10.0%, which is the maximum, 100% of the maximum 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. Further, as an example, if the Company achieves an IRR equal to 9.0%, the number of restricted stock units that shall vest will be greater than the target but less than the maximum number that would have vested had the Company achieved the highest IRR. In accordance with their respective employment agreements, the awards granted to the Company’s former Chief Executive Officer and former President and Chief Operating Officer will vest upon the certification of the IRR for the 2016 award by the Compensation Committee. All other restricted stock units granted during 2016 will vest 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 February 2020, 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.

Below is a table summarizing the potential number of shares that could vest under restricted stock unit awards granted during the nine months ended September 30, 2016 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 6.0%

     84,554       $ 2,522   

at IRR of at least 8.0%

     169,107       $ 5,044   

at IRR of at least 10.0%

     253,661       $ 7,568   

Due to the fact that the IRR for the two-year performance period could not be determined at the time of the 2016 grant, the Company estimated that the most likely outcome is the achievement of the target IRR level. The fair value of the restricted stock unit awards was determined based on the closing price of Cinemark Holdings, Inc.’s common

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

stock on the date of grant, which was $29.83 per share. The Company assumed forfeiture rates ranging from 0% to 10% 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.

 

     Nine Months Ended
September 30,
 
     2016      2015  

Number of restricted stock unit awards that vested during the period

     213,984         123,769   

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

   $ 7,260       $ 5,483   

Accumulated dividends paid upon vesting of restricted stock unit awards

   $ 662       $ 442   

Income tax benefit recognized upon vesting of restricted stock unit awards

   $ 3,049       $ 2,303   

Compensation expense recognized during the period

   $ 3,696       $ 2,708   

As of September 30, 2016, the estimated remaining unrecognized compensation expense related to the outstanding restricted stock unit awards was $7,354. The weighted average period over which this remaining compensation expense will be recognized is approximately two years. As of September 30, 2016, the Company had restricted stock units outstanding that represented a total of 557,077 hypothetical shares of Cinemark Holdings, Inc.’s common stock, net of actual cumulative forfeitures of 30,598 units, assuming the maximum IRR level is achieved for all grants outstanding.

Effective March 4, 2016, the Company’s former President and Chief Operating Officer resigned with good reason as defined within his employment agreement. As a result, certain of his restricted stock and restricted stock unit awards vested upon his resignation. The accelerated vesting of these awards were considered a modification of such awards, therefore the Company revalued the vested awards at their fair value upon modification. The revaluation of these awards resulted in incremental share based award compensation expense of approximately $994, which is included in general and administrative expenses for the nine months ended September 30, 2016.

8. Goodwill and Other Intangible Assets

The Company’s goodwill was as follows:

 

     U.S.
Operating
Segment
     International
Operating
Segment
     Total  

Balance at January 1, 2016 (1)

   $ 1,156,556       $ 90,992       $ 1,247,548   

Acquisition of U.S. theatres

     7,607         —           7,607   

Foreign currency translation adjustments

     —           7,290         7,290   
  

 

 

    

 

 

    

 

 

 

Balance at September 30, 2016 (1)

   $ 1,164,163       $ 98,282       $ 1,262,445   
  

 

 

    

 

 

    

 

 

 

 

(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 annually during the fourth quarter or whenever events or changes in circumstances indicate the carrying value of the goodwill may not be fully recoverable. 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. Management considers the reporting unit to be each of its nineteen regions in the U.S. and seven countries internationally with Honduras, El Salvador, Nicaragua, Costa Rica, Panama and Guatemala being considered one reporting unit (the Company does not have goodwill recorded for all of its international locations).

For the year ended December 31, 2015, the Company performed a qualitative goodwill impairment assessment on all reporting units except one, in accordance with ASU 2011-08 Testing Goodwill for Impairment (“ASU 2011-08”). The qualitative assessment included consideration of historical and expected future industry performance, estimated future performance of the Company, current industry trading multiples and other economic factors. Based on the qualitative assessment performed, the Company determined that it was not more likely than not that the fair value of the reporting units were less than their carrying values. The Company performed a quantitative two-step approach on

 

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CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

a new U.S. region that had not previously been assessed for goodwill impairment. The two-step approach requires 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 its 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. The fair value for the new reporting unit was determined based on a multiple of estimated cash flows, which was eight times, and exceeded its carrying value by more than 10%.

No events or changes in circumstances occurred during the nine months ended September 30, 2016 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
September 30,
 
   2016     Additions (1)      Amortization     Other (2)     2016  

Intangible assets with finite lives:

           

Gross carrying amount

   $ 99,968      $ 503       $ —        $ (739   $ 99,732   

Accumulated amortization

     (59,706     —           (4,086     541        (63,251
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total net intangible assets with finite lives

   $ 40,262        503         (4,086     (198   $ 36,481   

Intangible assets with indefinite lives:

           

Tradename

     299,382        —           —          344        299,726   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total intangible assets — net

   $ 339,644      $ 503       $ (4,086   $ 146      $ 336,207   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

(1)  Reflects addition of non-compete agreement and favorable lease associated with theatres acquired in the U.S. during the nine months ended September 30, 2016.
(2)  Includes write-off of intangible assets for closed theatres and foreign currency translation adjustments.

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

 

For the three months ended December 31, 2016

   $ 1,220   

For the twelve months ended December 31, 2017

     4,987   

For the twelve months ended December 31, 2018

     4,912   

For the twelve months ended December 31, 2019

     4,007   

For the twelve months ended December 31, 2020

     4,282   

Thereafter

     17,073   
  

 

 

 

Total

   $ 36,481   
  

 

 

 

9. 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 (theatre) with its estimated fair value. When estimated fair value is determined to be lower than the carrying value of the asset group (theatre), the asset group (theatre) is written down to its estimated

 

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CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

fair value. 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 six and a half times for the evaluations performed during the nine months ended September 30, 2016 and 2015. As of September 30, 2016, the estimated aggregate fair value of the long-lived assets impaired during the nine months ended September 30, 2016 was approximately $294.

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      Nine Months Ended  
     September 30,      September 30,  
     2016      2015      2016      2015  

U.S. theatre properties

   $ 406       $ 633       $ 1,500       $ 3,963   

U.S. intangible assets

     —           —           —           992   

International theatre properties

     —           —           823         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Impairment of long-lived assets

   $ 406       $ 633       $ 2,323       $ 4,955   
  

 

 

    

 

 

    

 

 

    

 

 

 

10. 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.

There were no assets or liabilities measured at fair value on a recurring basis by the Company under FASB ASC Topic 820 as of September 30, 2016.

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, 2015:

 

     Carrying
Value
     Fair Value  

Description

      Level 1      Level 2      Level 3  

Interest rate swap liabilities – current

   $ (373    $ —         $ —         $ (373

Investment in RealD (see Note 6)

   $ 12,900       $ 12,900       $ —         $ —     

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  
     2016      2015  

Beginning balances —January 1

   $ 373       $ 4,572   

Total loss included in accumulated other comprehensive loss

     71         616   

Settlements

     (444      (4,407
  

 

 

    

 

 

 

Ending balances – September 30

   $ —         $ 781   
  

 

 

    

 

 

 

 

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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 uses the market approach for fair value measurements on a nonrecurring basis in the impairment evaluations of its long-lived assets (see Note 8 and Note 9). 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 nine months ended September 30, 2016.

11. Foreign Currency Translation

The accumulated other comprehensive loss account in stockholder’s equity of $238,672 and $271,686 at September 30, 2016 and December 31, 2015, respectively, includes cumulative foreign currency adjustments of $238,430 and $273,404, 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 September 30, 2016 financial statements of the Company’s international subsidiaries:

 

                   Other  
                   Comprehensive  
                   Income (Loss) for The  
     Exchange Rate as of      Nine Months Ended  

Country

   September 30, 2016      December 31, 2015      September 30, 2016  

Brazil

     3.26         3.96       $ 40,331   

Argentina

     15.33         12.95         (10,452

Colombia

     2,879.95         3,149.47         2,544   

Chile

     664.91         709.16         2,958   

All other

           (407
        

 

 

 
         $ 34,974   
        

 

 

 

12. Supplemental Cash Flow Information

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

 

     Nine Months Ended  
     September 30,  
     2016      2015  

Cash paid for interest

   $ 68,552       $ 65,439   

Cash paid for income taxes, net of refunds received

   $ 66,757       $ 80,723   

Noncash investing and financing activities:

     

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

   $ 132       $ (1,072

Theatre properties acquired under capital lease

   $ 11,292       $ 20,914   

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

   $ 11,111       $ 15,421   

Noncash dividends to Cinemark Holdings, Inc.

   $ —         $ 17,935   

 

(1)  Additions to theatre properties and equipment included in accounts payable as of September 30, 2016 and December 31, 2015 were $11,022 and $11,154, respectively.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

13. 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, Curacao and Paraguay. Each segment’s revenue is derived from admissions and concession sales and other ancillary revenues. The Company uses Adjusted EBITDA, as shown in the reconciliation table below, as the primary measure of segment profit and loss to evaluate performance and allocate its resources. 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
September 30,
     Nine Months Ended
September 30,
 
     2016      2015      2016      2015  

Revenues

           

U.S.

   $ 572,916       $ 509,330       $ 1,677,365       $ 1,576,107   

International

     199,476         194,497         551,212         580,335   

Eliminations

     (3,818      (3,771      (10,730      (11,056
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenues

   $ 768,574       $ 700,056       $ 2,217,847       $ 2,145,386   
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA(1)

           

U.S.

   $ 137,872       $ 113,426       $ 410,386       $ 373,489   

International

     47,351         46,088         128,915         135,951   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Adjusted EBITDA

   $ 185,223       $ 159,514       $ 539,301       $ 509,440   
  

 

 

    

 

 

    

 

 

    

 

 

 

Capital expenditures

           

U.S.

   $ 75,839       $ 48,868       $ 175,218       $ 167,082   

International

     22,984         27,771         55,128         65,269   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total capital expenditures

   $ 98,823       $ 76,639       $ 230,346       $ 232,351   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)  Distributions from NCM and other cash distributions from equity investees 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      Nine Months Ended  
   September 30,      September 30,  
     2016      2015      2016      2015  

Net income

   $ 66,517       $ 47,077       $ 180,878       $ 161,762   

Add (deduct):

           

Income taxes

     41,165         30,341         106,821         100,041   

Interest expense (1)

     26,659         28,419         81,980         84,930   

Other income (2)

     (14,540      (1,501      (32,510      (8,453

Loss on debt amendments and refinancing

     —           —           13,284         925   

Other cash distributions from equity investees (3)

     1,391         4,370         9,660         12,679   

Depreciation and amortization

     54,187         47,543         155,874         139,444   

Impairment of long-lived assets

     406         633         2,323         4,955   

(Gain) loss on sale of assets and other

     6,940         (500      10,985         3,852   

Deferred lease expenses

     (162      (521      (809      (1,809

Amortization of long-term prepaid rents

     371         519         1,357         1,901   

Share based awards compensation expense

     2,289         3,134         9,458         9,213   
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

   $ 185,223       $ 159,514       $ 539,301       $ 509,440   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(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.
(3)  Includes cash distributions received from equity investees that were recorded as a reduction of the respective investment balances. In an effort to more closely align our reported Adjusted EBITDA with our operating cash flow, which provides our chief operating decision maker with more comprehensive cash flow information, and for consistency with our peers, beginning with the three months ended March 31, 2016, Adjusted EBITDA now includes total cash distributions received from equity investees, including the cash distributions recorded as a reduction of the respective investment balance. Adjusted EBITDA for the three and nine months ended September 30, 2015 has been adjusted to reflect comparable presentations.

Financial Information About Geographic Areas

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

 

     Three Months Ended      Nine Months Ended  
     September 30,      September 30,  

Revenues

   2016      2015      2016      2015  

U.S.

   $ 572,916       $ 509,330       $ 1,677,365       $ 1,576,107   

Brazil

     85,051         68,340         231,556         230,953   

Other international countries

     114,425         126,157         319,656         349,382   

Eliminations

     (3,818      (3,771      (10,730      (11,056
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 768,574       $ 700,056       $ 2,217,847       $ 2,145,386   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

Theatre Properties and Equipment-net

   September 30,
2016
     December 31,
2015
 

U.S.

   $ 1,235,180       $ 1,175,535   

Brazil

     195,447         163,505   

Other international countries

     182,482         166,029   
  

 

 

    

 

 

 

Total

   $ 1,613,109       $ 1,505,069   
  

 

 

    

 

 

 

 

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CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

14. 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 up to $50,000 and 3% of annual theatre revenues in excess of $50,000. The Company recorded $410 and $448 of management fee revenues during the nine months ended September 30, 2016 and 2015, respectively. All such amounts are included in the Company’s condensed consolidated financial statements with the intercompany amounts eliminated in consolidation.

The Company has an Aircraft Time Sharing Agreement with Copper Beech Capital, LLC to use, on occasion, a private aircraft owned by Copper Beech Capital, LLC. Copper Beech Capital, LLC is owned by Mr. Mitchell and his wife, Tandy Mitchell. The private aircraft is used by Mr. Mitchell and other executives who accompany Mr. Mitchell to business meetings for the Company. The Company reimburses Copper Beech Capital, LLC for the actual costs of fuel usage and the expenses of the pilots, landing fees, storage fees and similar expenses incurred during the trip. For the nine months ended September 30, 2016 and 2015, the aggregate amounts paid to Copper Beech Capital, LLC for the use of the aircraft was $94 and $407, respectively.

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, 15 have fixed minimum annual rent. The one lease without minimum annual rent has rent based upon a specified percentage of gross sales as defined in the lease. For the nine months ended September 30, 2016 and 2015, the Company paid total rent of approximately $17,806 and $16,708, respectively, to Syufy. Additionally, the Company had a receivable from Syufy of approximately $521 as of September 30, 2016, which was related to costs associated with the construction of a new theatre for which Syufy will be the landlord.

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 September 30, 2016 and December 31, 2015 was $9,831 and $1,171, respectively. The Company recorded divideds to Cinemark Holdings, Inc. of $93,650 and $104,335 during the nine months ended September 30, 2016 and 2015, respectively. Of the dividends recorded during the nine months ended September 30, 2015, $17,935 was noncash.

15. Commitments and Contingencies

Effective March 4, 2016, the Company’s former President and Chief Operating Officer Robert Copple resigned with good reason as defined within his employment agreement. The Company paid Mr. Copple the payments and benefits pursuant to the terms set forth in his employment agreement. The Company’s post-termination obligations, such as providing continued participation in the Company’s welfare benefit plans and insurance programs, remain in effect for a limited period of time under the employment agreement. All expenses incurred by the Company in relation to the resignation are reflected in general and administrative expenses for the nine months ended September 30, 2016.

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 Company denies any violation of law and plans to vigorously defend against all claims. The Court recently determined that class certification is not appropriate and determined that a PAGA representative action is not appropriate. The plaintiff has appealed these rulings. The Company is unable to predict the outcome of the litigation or the range of potential loss.

 

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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 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 other 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.

16. Condensed Consolidating Financial Information of Subsidiary Guarantors

As of September 30, 2016, the Company had outstanding $400,000 aggregate principal amount of 5.125% senior notes due 2022, or the 5.125% Senior Notes, and $755,000 aggregate principal amount of 4.875% senior notes due 2023, or the 4.875% Senior Notes, (collectively the “Notes”). 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, 2015 and September 30, 2016, condensed consolidating statements of income information for the three and nine months ended September 30, 2015 and 2016, condensed consolidating statements of comprehensive income (loss) information for the three and nine months ended September 30, 2015 and 2016 and condensed consolidating statements of cash flows information for the nine months ended September 30, 2015 and 2016.

 

  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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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION

DECEMBER 31, 2015

 

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

Assets

             

Current assets

             

Cash and cash equivalents

   $ 141,364       $ 95,865       $ 351,274       $ —        $ 588,503   

Other current assets

     78,797         18,407         61,432         (32,024     126,612   

Accounts receivable from parent or subsidiaries

     212,299         —           —           (211,128     1,171   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

     432,460         114,272         412,706         (243,152     716,286   

Theatre properties and equipment—net

     539,082         614,821         351,166         —          1,505,069   

Investment in subsidiaries

     1,326,790         293,900         —           (1,620,690     —     

Other assets

     1,402,062         135,022         475,187         (105,994     1,906,277   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

   $ 3,700,394       $ 1,158,015       $ 1,239,059       $ (1,969,836   $ 4,127,632   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Liabilities and equity

             

Current liabilities

             

Current portion of long-term debt

   $ 7,000       $ —         $ 1,405       $ —        $ 8,405   

Current portion of capital lease obligations

     6,426         9,962         2,392         —          18,780   

Accounts payable and accrued expenses

     197,268         123,759         116,353         (25,396     411,984   

Accounts payable to parent or subsidiaries

     —           23,965         187,163         (211,128     —     
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current liabilities

     210,694         157,686         307,313         (236,524     439,169   

Long-term liabilities

             

Long-term debt, less current portion

     1,868,763         —           9,534         (105,367     1,772,930   

Capital lease obligations, less current portion

     114,513         67,440         26,999         —          208,952   

Other long-term liabilities and deferrals

     404,278         77,774         118,533         (7,255     593,330   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total long-term liabilities

     2,387,554         145,214         155,066         (112,622     2,575,212   

Commitments and contingencies

     —           —           —           —          —     

Equity

             

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

             

Common stock

     49,543         457,369         10,240         (467,609     49,543   

Other stockholder’s equity

     1,052,603         397,746         755,335         (1,153,081     1,052,603   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total Cinemark USA, Inc. stockholder’s equity

     1,102,146         855,115         765,575         (1,620,690     1,102,146   

Noncontrolling interests

     —           —           11,105         —          11,105   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total equity

     1,102,146         855,115         776,680         (1,620,690     1,113,251   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities and equity

   $ 3,700,394       $ 1,158,015       $ 1,239,059       $ (1,969,836   $ 4,127,632   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

26


Table of Contents

CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION

SEPTEMBER 30, 2016

 

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

Assets

             

Current assets

             

Cash and cash equivalents

   $ 86,490       $ 88,260       $ 352,262       $ —        $ 527,012   

Other current assets

     104,605         19,931         67,643         (92,377     99,802   

Accounts receivable from parent or subsidiaries

     185,776         15,047            (190,992     9,831   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

     376,871         123,238         419,905         (283,369     636,645   

Theatre properties and equipment—net

     580,178         633,442         399,489           1,613,109   

Investment in subsidiaries

     1,507,794         360,445         —           (1,868,239     —     

Other assets

     1,411,444         134,598         496,590         (106,042     1,936,590   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

   $ 3,876,287       $ 1,251,723       $ 1,315,984       $ (2,257,650   $ 4,186,344   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Liabilities and equity

             

Current liabilities

             

Current portion of long-term debt

   $ 2,855       $ —         $ 1,389       $ —        $ 4,244   

Current portion of capital lease obligations

     7,685         8,790         3,087           19,562   

Accounts payable and accrued expenses

     214,420         79,462         104,196         (75,045     323,033   

Accounts payable to parent or subsidiaries

     —           —           190,992         (190,992     —     
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current liabilities

     224,960         88,252         299,664         (266,037     346,839   

Long-term liabilities

             

Long-term debt, less current portion

     1,882,382         —           13,989         (109,822     1,786,549   

Capital lease obligations, less current portion

     118,126         60,783         30,111         —          209,020   

Other long-term liabilities and deferrals

     418,630         75,363         119,238         (13,552     599,679   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total long-term liabilities

     2,419,138         136,146         163,338         (123,374     2,595,248   

Commitments and contingencies

     —           —           —           —          —     

Equity

             

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

             

Common stock

     49,543         457,368         10,239         (467,607     49,543   

Other stockholder’s equity

     1,182,646         569,957         830,675         (1,400,632     1,182,646   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total Cinemark USA, Inc. stockholder’s equity

     1,232,189         1,027,325         840,914         (1,868,239     1,232,189   

Noncontrolling interests

     —           —           12,068         —          12,068   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total equity

     1,232,189         1,027,325         852,982         (1,868,239     1,244,257   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities and equity

   $ 3,876,287       $ 1,251,723       $ 1,315,984       $ (2,257,650   $ 4,186,344   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

27


Table of Contents

CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENT OF INCOME INFORMATION

THREE MONTHS ENDED SEPTEMBER 30, 2015

 

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

Revenues

   $ 223,094      $ 283,256      $ 203,128      $ (9,422   $ 700,056   

Cost of operations

          

Theatre operating expenses

     181,084        197,942        144,550        (9,422     514,154   

General and administrative expenses

     3,798        20,779        13,914        —          38,491   

Depreciation and amortization

     15,201        18,719        13,623        —          47,543   

Impairment of long-lived assets

     633        —          —          —          633   

(Gain) loss on sale of assets and other

     792        (295     (997     —          (500
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of operations

     201,508        237,145        171,090        (9,422     600,321   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     21,586        46,111        32,038        —          99,735   

Other income (expense)

          

Interest expense

     (25,334     (2,091     (1,069     75        (28,419

Distributions from NCM

     —          —          4,601        —          4,601   

Equity in income of affiliates

     50,380        16,024        10,228        (65,585     11,047   

Other income (expense)

     49        (3     (9,517     (75     (9,546
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income

     25,095        13,930        4,243        (65,585     (22,317
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     46,681        60,041        36,281        (65,585     77,418   

Income taxes

     (34     17,190        13,185        —          30,341   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     46,715        42,851        23,096        (65,585     47,077   

Less: Net income attributable to noncontrolling interests

     —          —          362        —          362   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Cinemark USA, Inc.

   $ 46,715      $ 42,851      $ 22,734      $ (65,585   $ 46,715   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

28


Table of Contents

CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENT OF INCOME INFORMATION

THREE MONTHS ENDED SEPTEMBER 30, 2016

 

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

Revenues

   $ 260,296      $ 312,447      $ 208,654      $ (12,823   $ 768,574   

Cost of operations

          

Theatre operating expenses

     204,521        211,283        150,980        (12,823     553,961   

General and administrative expenses

     3,094        20,125        11,441        —          34,660   

Depreciation and amortization

     17,690        20,891        15,606        —          54,187   

Impairment of long-lived assets

     406        —          —          —          406   

Loss on sale of assets and other

     2,047        4,660        233        —          6,940   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of operations

     227,758        256,959        178,260        (12,823     650,154   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     32,538        55,488        30,394        —          118,420   

Other income (expense)

          

Interest expense

     (23,552     (1,847     (1,607     347        (26,659

Distributions from NCM

     —          —          1,381        —          1,381   

Equity in income of affiliates

     60,972        20,481        11,341        (80,404     12,390   

Other income (expense)

     104        (4     2,397        (347     2,150   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income

     37,524        18,630        13,512        (80,404     (10,738
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     70,062        74,118        43,906        (80,404     107,682   

Income taxes

     4,016        20,903        16,246        —          41,165   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     66,046        53,215        27,660        (80,404     66,517   

Less: Net income attributable to noncontrolling interests

     —          —          471        —          471   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Cinemark USA, Inc.

   $ 66,046      $ 53,215      $ 27,189      $ (80,404   $ 66,046   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

29


Table of Contents

CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENT OF INCOME INFORMATION

NINE MONTHS ENDED SEPTEMBER 30, 2015

 

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

Revenues

   $ 703,276      $ 868,949      $ 607,548      $ (34,387   $ 2,145,386   

Cost of operations

          

Theatre operating expenses

     564,888        594,057        432,218        (34,387     1,556,776   

General and administrative expenses

     13,235        58,442        42,577        —          114,254   

Depreciation and amortization

     43,890        54,392        41,162        —          139,444   

Impairment of long-lived assets

     3,537        1,418        —          —          4,955   

(Gain) loss on sale of assets and other

     3,682        2,107        (1,937     —          3,852   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of operations

     629,232        710,416        514,020        (34,387     1,819,281   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     74,044        158,533        93,528        —          326,105   

Other income (expense)

          

Interest expense

     (75,668     (6,425     (2,970     133        (84,930

Distributions from NCM

     1,724        —          11,376        —          13,100   

Equity in income of affiliates

     162,943        51,992        19,748        (214,311     20,372   

Other income (expense)

     (772     18        (11,957     (133     (12,844
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income

     88,227        45,585        16,197        (214,311     (64,302
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     162,271        204,118        109,725        (214,311     261,803   

Income taxes

     1,884        59,159        38,998        —          100,041   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     160,387        144,959        70,727        (214,311     161,762   

Less: Net income attributable to noncontrolling interests

     —          —          1,375        —          1,375   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Cinemark USA, Inc.

   $ 160,387      $ 144,959      $ 69,352      $ (214,311   $ 160,387   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

30


Table of Contents

CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENT OF INCOME INFORMATION

NINE MONTHS ENDED SEPTEMBER 30, 2016

 

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

Revenues

   $ 758,952      $ 919,705      $ 579,483      $ (40,293   $ 2,217,847   

Cost of operations

          

Theatre operating expenses

     600,225        620,886        420,525        (40,293     1,601,343   

General and administrative expenses

     10,727        63,816        32,443          106,986   

Depreciation and amortization

     51,687        60,782        43,405          155,874   

Impairment of long-lived assets

     1,501        —          822          2,323   

Loss on sale of assets and other

     1,623        8,598        764          10,985   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of operations

     665,763        754,082        497,959        (40,293     1,877,511   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     93,189        165,623        81,524        —          340,336   

Other income (expense)

          

Interest expense

     (72,667     (5,720     (4,543     950        (81,980

Loss on debt amendments and refinancing

     (13,284     —          —          —          (13,284

Distributions from NCM

     1,310        —          8,807        —          10,117   

Equity in income of affiliates

     173,232        55,812        23,309        (227,756     24,597   

Other income

     237        24        8,602        (950     7,913   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income

     88,828        50,116        36,175        (227,756     (52,637
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     182,017        215,739        117,699        (227,756     287,699   

Income taxes

     2,593        62,281        41,947        —          106,821   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     179,424        153,458        75,752        (227,756     180,878   

Less: Net income attributable to noncontrolling interests

     —          —          1,454        —          1,454   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Cinemark USA, Inc.

   $ 179,424      $ 153,458      $ 74,298      $ (227,756   $ 179,424   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

31


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 SEPTEMBER 30, 2015

 

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

Net income

   $ 46,715      $ 42,851       $ 23,096      $ (65,585   $ 47,077   

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 $454

     767        —           —          —          767   

Unrealized loss due to fair value adjustments on available-for-sale securities, net of taxes of $1,234

     (2,092     —           —          —          (2,092

Other comprehensive loss in equity method investments

     (72     —           (72     72        (72

Foreign currency translation adjustments

     (59,146     —           (59,181     59,146        (59,181
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total other comprehensive loss, net of tax

     (60,543     —           (59,253     59,218        (60,578
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss), net of tax

   $ (13,828   $ 42,851       $ (36,157   $ (6,367   $ (13,501

Comprehensive income attributable to noncontrolling interests

     —          —           (327     —          (327
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

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

   $ (13,828   $ 42,851       $ (36,484   $ (6,367   $ (13,828
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

32


Table of Contents

CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME INFORMATION

THREE MONTHS ENDED SEPTEMBER 30, 2016

 

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

Net income

   $ 66,046      $ 53,215       $ 27,660      $ (80,404   $ 66,517   

Other comprehensive loss, net of tax

           

Other comprehensive loss in equity method investments

     (7     —           —          —          (7

Foreign currency translation adjustments

     (3,673     —           (3,669     3,673        (3,669
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total other comprehensive loss, net of tax

     (3,680     —           (3,669     3,673        (3,676
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total comprehensive income, net of tax

   $ 62,366      $ 53,215       $ 23,991      $ (76,731   $ 62,841   

Comprehensive income attributable to noncontrolling interests

     —          —           (475     —          (475
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to Cinemark USA, Inc.

   $ 62,366      $ 53,215       $ 23,516      $ (76,731   $ 62,366   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

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CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS) INFORMATION

NINE MONTHS ENDED SEPTEMBER 30, 2015

 

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

Net income

   $ 160,387      $ 144,959       $ 70,727      $ (214,311   $ 161,762   

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 $1,412

     2,379        —           —          —          2,379   

Unrealized loss due to fair value adjustments on available-for-sale securities, net of taxes of $998

     (1,680     —           —          —          (1,680

Other comprehensive loss in equity method investments

     (3,010     —           (2,977     2,977        (3,010

Foreign currency translation adjustments

     (105,193     —           (105,228     105,193        (105,228
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total other comprehensive loss, net of tax

     (107,504     —           (108,205     108,170        (107,539
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss), net of tax

   $ 52,883      $ 144,959       $ (37,478   $ (106,141   $ 54,223   

Comprehensive income attributable to noncontrolling interests

     —          —           (1,340     —          (1,340
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

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

   $ 52,883      $ 144,959       $ (38,818   $ (106,141   $ 52,883   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

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CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME INFORMATION

NINE MONTHS ENDED SEPTEMBER 30, 2016

 

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

Net income

   $ 179,424      $ 153,458       $ 75,752      $ (227,756   $ 180,878   

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 $138

     234        —           —          —          234   

Other comprehensive loss in equity method investments

     (183     —           —          —          (183

Foreign currency translation adjustments

     34,974        —           34,998        (34,974     34,998   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total other comprehensive income, net of tax

     35,025        —           34,998        (34,974     35,049   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total comprehensive income, net of tax

   $ 214,449      $ 153,458       $ 110,750      $ (262,730   $ 215,927   

Comprehensive income attributable to noncontrolling interests

     —          —           (1,478     —          (1,478
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to Cinemark USA, Inc.

   $ 214,449      $ 153,458       $ 109,272      $ (262,730   $ 214,449   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

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CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION

NINE MONTHS ENDED SEPTEMBER 30, 2015

 

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

Operating activities

          

Net income

   $ 160,387      $ 144,959      $ 70,727      $ (214,311   $ 161,762   

Adjustments to reconcile net income to cash provided by operating activities

     (125,558     13,474        29,983        214,311        132,210   

Changes in assets and liabilities and other

     12,107        (79,620     (743     —          (68,256
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     46,936        78,813        99,967        —          225,716   

Investing activities

          

Additions to theatre properties and equipment and other

     (66,337     (97,694     (68,320     —          (232,351

Acquisition of theatre in Brazil

     —          —          (2,651     —          (2,651

Proceeds from sale of theatre properties and equipment and other

     2,457        1,862        1,964        —          6,283   

Intercompany note issuances

     (2,500     —          (75,000     77,500        —     

Investment in joint ventures and other

     —          —          (3,180     —          (3,180

Dividends received from subsidiaries

     300        6        —          (306     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used for investing activities

     (66,080     (95,826     (147,187     77,194        (231,899

Financing activities

          

Dividends paid to parent

     (86,400     (306     —          306        (86,400

Repayments of long-term debt

     (5,250     —          (24     —          (5,274

Payment of debt issue costs

     (6,957     —          —          —          (6,957

Payments on capital leases

     (4,033     (6,683     (1,485     —          (12,201

Intercompany loan proceeds

     75,000        —          2,500        (77,500     —     

Other

     2,417        (4,770     (294     —          (2,647
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used for) financing activities

     (25,223     (11,759     697        (77,194     (113,479

Effect of exchange rate changes on cash and cash equivalents

     —          —          (16,432     —          (16,432
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Decrease in cash and cash equivalents

     (44,367     (28,772     (62,955     —          (136,094

Cash and cash equivalents:

          

Beginning of year

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

End of year

   $ 85,138      $ 45,871      $ 371,738      $ —        $ 502,747   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION

NINE MONTHS ENDED SEPTEMBER 30, 2016

 

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

Operating activities

          

Net income

   $ 179,424      $ 153,458      $ 75,752      $ (227,756   $ 180,878   

Adjustments to reconcile net income to cash provided by operating activities

     (106,960     21,970        31,287        227,756        174,053   

Changes in assets and liabilities

     29,668        (87,172     (19,677     —          (77,181
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     102,132        88,256        87,362        —          277,750   

Investing activities

          

Additions to theatre properties and equipment

     (84,633     (89,554     (56,159     —          (230,346

Acquisition of theatres in the US

     (15,300     —          —          —          (15,300

Proceeds from sale of theatre properties and equipment and other

     2,912        339        147        —          3,398   

Proceeds from sale of marketable securities

     13,451        —          —          —          13,451   

Intercompany note issuances

     (4,455     —          —          4,455        —     

Dividends received from subsidiaries

     25,733        8,011        —          (33,744     —     

Investment in joint ventures and other

     (1,000     —          (703     —          (1,703
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used for investing activities

     (63,292     (81,204     (56,715     (29,289     (230,500

Financing activities

          

Dividends paid to parent

     (93,650     —          (33,744     33,744        (93,650

Proceeds from issuance of Senior Notes, net of discount

     222,750        —          —          —          222,750   

Retirement of Senior Subordinated Notes

     (200,000     —          —          —          (200,000

Repayments of long-term debt

     (15,201     —          (16     —          (15,217

Payments of debt issue costs

     (4,504     —          —          —          (4,504

Intercompany loan proceeds

     —          —          4,455        (4,455     —     

Payments on capital leases

     (4,906     (7,829     (1,920     —          (14,655

Other

     1,797        (6,828     (515     —          (5,546
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used for financing activities

     (93,714     (14,657     (31,740     29,289        (110,822

Effect of exchange rate changes on cash and cash equivalents

     —          —          2,081        —          2,081   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Increase (decrease) in cash and cash equivalents

     (54,874     (7,605     988        —          (61,491

Cash and cash equivalents:

          

Beginning of year

     141,364        95,865        351,274        —          588,503   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

End of year

   $ 86,490      $ 88,260      $ 352,262      $ —        $ 527,012   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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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, Curacao and Paraguay. As of September 30, 2016, 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 filmed entertainment 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. 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 joint venture, AC JV, LLC. Our Flix Media initiative has also allowed us to expand our screen advertising and alternative content within our international circuit and to other international exhibitors.

Films leading the box office during the nine months ended September 30, 2016 included the carryover of Star Wars: The Force Awakens and The Revenant; and new releases such as Deadpool, Batman V Superman: Dawn Of Justice, Zootopia, Suicide Squad, The Jungle Book, Captain America: Civil War, Finding Dory, Jason Bourne, The Secret Life of Pets and other films. Films scheduled for release during the remainder of 2016 include Dr. Strange, Moana, Passengers, Sing, and spin-off films Rogue One: A Star Wars Story and Fantastic Beasts And Where To Find Them, 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. Advertising costs, which are expensed as incurred, are primarily fixed at the theatre level.

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 both fixed and variable costs and primarily includes utilities, expenses for projection and sound equipment maintenance and monitoring, 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     Nine Months Ended  
     September 30,     September 30,  
     2016     2015     2016     2015  

Operating data (in millions):

        

Revenues

        

Admissions

   $ 472.9      $ 432.2      $ 1,364.8      $ 1,335.8   

Concession

     261.4        230.2        752.8        704.2   

Other

     34.3        37.7        100.3        105.4   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

   $ 768.6      $ 700.1      $ 2,217.9      $ 2,145.4   

Cost of operations

        

Film rentals and advertising (1)

     249.8        227.5        733.1        713.3   

Concession supplies

     41.9        36.0        117.0        109.4   

Salaries and wages

     84.4        76.6        243.8        222.3   

Facility lease expense

     82.8        80.6        241.9        242.6   

Utilities and other (1)

     95.0        93.5        265.5        269.2   

General and administrative expenses

     34.7        38.6        107.0        114.3   

Depreciation and amortization

     54.2        47.5        155.9        139.4   

Impairment of long-lived assets

     0.4        0.6        2.3        4.9   

(Gain) loss on sale of assets and other

     7.0        (0.5     11.0        3.9   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of operations

     650.2        600.4        1,877.5        1,819.3   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

   $ 118.4      $ 99.7      $ 340.4      $ 326.1   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating data as a percentage of total revenues:

        

Revenues

        

Admissions

     61.5     61.7     61.5     62.3

Concession

     34.0     32.9     33.9     32.8

Other

     4.5     5.4     4.6     4.9
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     100.0     100.0     100.0     100.0
  

 

 

   

 

 

   

 

 

   

 

 

 

Cost of operations (2)

        

Film rentals and advertising (1)

     52.8     52.6     53.7     53.4

Concession supplies

     16.0     15.6     15.5     15.5

Salaries and wages

     11.0     10.9     11.0     10.4

Facility lease expense

     10.8     11.5     10.9     11.3

Utilities and other (1)

     12.4     13.4     12.0     12.5

General and administrative expenses

     4.5     5.5     4.8     5.3

Depreciation and amortization

     7.1     6.8     7.0     6.5

Impairment of long-lived assets

     0.1     0.1     0.1     0.2

(Gain) loss on sale of assets and other

     0.9     (0.1 )%      0.5     0.2

Total cost of operations

     84.6     85.8     84.7     84.8

Operating income

     15.4     14.2     15.3     15.2
  

 

 

   

 

 

   

 

 

   

 

 

 

Average screen count (month end average)

     5,880        5,743        5,846        5,710   
  

 

 

   

 

 

   

 

 

   

 

 

 

Revenues per average screen (dollars)

   $ 130,710      $ 121,066      $ 379,379      $ 375,724   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)  We have reclassified approximately $8.9 million and $24.1 million of expenses from film rentals and advertising to utilities and other for the three and nine months ended September 30, 2015, respectively, to be consistent with the presentation for the three and nine months ended September 30, 2016.
(2)  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 September 30, 2016 versus September 30, 2015

Revenues. Total revenues increased $68.5 million to $768.6 million for the three months ended September 30, 2016 (“third quarter of 2016”) from $700.1 million for the three months ended September 30, 2015 (“third quarter of 2015”), representing a 9.8% increase. The table below, presented by reportable operating segment, summarizes our revenue performance and certain key performance indicators that impact our revenues for the three months ended September 30, 2016 and 2015.

 

    U.S. Operating Segment     International Operating Segment     Consolidated  
                                        Constant Currency(3)                    
                %                 %           %                 %  
    2016     2015     Change     2016     2015     Change     2016     Change     2016     2015     Change  

Admissions revenues(1)

  $ 354.9      $ 318.6        11.4   $ 118.0      $ 113.6        3.9   $ 132.7        16.8   $ 472.9      $ 432.2        9.4.

Concession revenues(1)

  $ 197.5      $ 168.5        17.2   $ 63.9      $ 61.7        3.6   $ 71.3        15.6   $ 261.4      $ 230.2        13.6

Other revenues(1)(2)

  $ 16.7      $ 18.5        (9.7 )%    $ 17.6      $ 19.2        (8.3 )%    $ 19.6        2.1   $ 34.3      $ 37.7        (9.0 )% 

Total revenues (1)(2)

  $ 569.1      $ 505.6        12.6   $ 199.5      $ 194.5        2.6   $ 223.6        15.0   $ 768.6      $ 700.1        9.8

Attendance(1)

    48.0        43.8        9.6     28.2        27.2        3.7         76.2        71.0        7.3

Average ticket price(1)

  $ 7.39      $ 7.27        1.7   $ 4.18      $ 4.18        0.0   $ 4.71        12.7   $ 6.21      $ 6.09        2.0

Concession revenues per patron(1)

  $ 4.11      $ 3.85        6.8   $ 2.27      $ 2.27        0.0   $ 2.53        11.5   $ 3.43      $ 3.24        5.9

 

(1)  Revenue and attendance amounts in millions. Average ticket price is calculated as admissions revenues divided by attendance. Concession revenues per patron is calculated as concession revenues divided by attendance.
(2)  U.S. operating segment revenues include eliminations of intercompany transactions with the international operating segment. See Note 13 of our condensed consolidated financial statements.
(3)  Constant currency revenue amounts, which are non-GAAP measurements, were calculated using the average exchange rates for the corresponding months for 2015. We translate the results of our international operating segment from local currencies into U.S. dollars using currency rates in effect at different points in time. Significant changes in foreign exchange rates from one period to the next can result in meaningful variations in reported results. We are providing constant currency amounts for our international operating segment to present a period-to-period comparison of business performance without the impact of foreign currency fluctuations.

 

    U.S. Admissions revenues increased $36.3 million due to a 9.6% increase in attendance and a 1.7% increase in average ticket price from $7.27 for the third quarter of 2015 to $7.39 for the third quarter of 2016. The increase in concession revenues of $29.0 million was attributable to the 9.6% increase in attendance and a 6.8% increase in concession revenues per patron from $3.85 for the third quarter of 2015 to $4.11 for the third quarter of 2016. The increase in attendance was due to the solid slate of films during the third quarter of 2016 and new theatres. 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 incidence and price increases.

 

    International. Admissions revenues increased $4.4 million as reported, and increased $19.1 million in constant currency. The constant currency increase is a result of a 12.7% increase in constant currency average ticket price from $4.18 for the third quarter of 2015 to $4.71 for the third quarter of 2016 and a 3.7% increase in attendance. Concession revenues increased $2.2 million as reported, and increased $9.6 million in constant currency. The constant currency increase is a result of an 11.5% increase in constant currency concession revenues per patron from $2.27 for the third quarter of 2015 to $2.53 for the third quarter of 2016 and the 3.7% increase in attendance. The increase in attendance was primarily due to new theatres. Average ticket price and concession revenues per patron increased primarily driven by price increases, which was primarily due to local inflation.

 

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Table of Contents

Cost of Operations. The table below summarizes our theatre operating costs (in millions) by reportable operating segment for the three months ended September 30, 2016 and 2015.

 

     U.S. Operating Segment      International Operating Segment      Consolidated  
     2016      2015      2016      2015      Constant
Currency
2016 (2)
     2016      2015  

Film rentals and advertising (1)

   $ 193.6       $ 172.9       $ 56.2       $ 54.6       $ 63.5       $ 249.8       $ 227.5   

Concession supplies

     28.2         22.9         13.7         13.1         15.1         41.9         36.0   

Salaries and wages

     63.2         57.1         21.2         19.5         24.3         84.4         76.6   

Facility lease expense

     60.5         59.8         22.3         20.8         24.1         82.8         80.6   

Utilities and other (1)

     66.9         66.3         28.1         27.2         31.6         95.0         93.5   

 

(1)  We made certain reclassifications from film rentals and advertising to utilities and other for the three months ended September 30, 2015 related to the maintenance and monitoring of projection and sound equipment, which results in a more clear presentation of film rental and advertising costs. Such expenses, which totaled $7.2 million and $1.7 million for the U.S. operating segment and the international operating segment, respectively, are now presented as utilities and other for all periods presented.
(2)  Constant currency expense amounts, which are non-GAAP measurements, were calculated using the average exchange rates for the corresponding months for 2015. We translate the results of our international operating segment from local currencies into U.S. dollars using currency rates in effect at different points in time. Significant changes in foreign exchange rates from one period to the next can result in meaningful variations in reported results. We are providing constant currency amounts for our international operating segment to present a period-to-period comparison of business performance without the impact of foreign currency fluctuations.

 

    U.S. Film rentals and advertising costs were $193.6 million, or 54.6% of admissions revenues, for the third quarter of 2016 compared to $172.9 million, or 54.3% of admissions revenues, for the third quarter of 2015. Concession supplies expense was $28.2 million, or 14.3% of concession revenues, for the third quarter of 2016 compared to $22.9 million, or 13.6% of concession revenues, for the third quarter of 2015. The increase in the concession supplies rate was primarily due to the impact of expanded concession offerings.

Salaries and wages increased to $63.2 million for the third quarter of 2016 from $57.1 million for the third quarter of 2015 primarily due to new theatres and increases in minimum wages. Facility lease expense increased to $60.5 million for the third quarter of 2016 from $59.8 million for the third quarter of 2015 primarily due to new theatres. Utilities and other costs increased to $66.9 million for the third quarter of 2016 from $66.3 million for the third quarter of 2015 due to increased repairs and maintenance expenses and security expense, partially offset by decreases in projection and sound equipment maintenance and monitoring expenses.

 

    International. Film rentals and advertising costs were $56.2 million ($63.5 million in constant currency), or 47.6% of admissions revenues, for the third quarter of 2016 compared to $54.6 million, or 48.1% of admissions revenues, for the third quarter of 2015. The decrease in the film rentals and advertising rate was primarily due to the mix of films during the third quarter of 2016. Concession supplies expense was $13.7 million ($15.1 million in constant currency), or 21.4% of concession revenues, for the third quarter of 2016 compared to $13.1 million, or 21.2% of concession revenues, for the third quarter of 2015.

Salaries and wages were $21.2 million as reported, or $24.3 million in constant currency, for the third quarter of 2016 compared to $19.5 million for the third quarter of 2015. The increase was due to increased wage rates and new theatres, partially offset by the impact of changes in foreign currency exchange rates in certain countries in which we operate. Facility lease expense was $22.3 million as reported, or $24.1 million in constant currency, for the third quarter of 2016 compared to $20.8 million for the third quarter of 2015. The increase was primarily due to new theatres, partially offset by the impact of changes in foreign currency exchange rates in certain countries in which we operate. Utilities and other costs were $28.1 million as reported, or $31.6 million in constant currency, for the third quarter of 2016 compared to $27.2 million for the third quarter of 2015. The increase was primarily due to increased projection and sound equipment and monitoring expenses, partially offset by the impact of changes in foreign currency exchange rates in certain countries in which we operate.

General and Administrative Expenses. General and administrative expenses decreased to $34.7 million for the third quarter of 2016 from $38.6 million for the third quarter of 2015. The decrease was primarily due to decreases in net credit card fees and the impact of changes in foreign currency exchange rates in certain countries in which we operate, partially offset by increased salaries and incentive compensation expense.

 

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Depreciation and Amortization. Depreciation and amortization expense was $54.2 million during the third quarter of 2016 compared to $47.5 million during the third quarter of 2015. The increase was primarily due to new theatres and theatre remodels.

Impairment of Long-Lived Assets. We recorded asset impairment charges on assets held and used of $0.4 million during the third quarter of 2016 compared to $0.6 million during the third quarter of 2015. 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 third quarter of 2016 impacted four of our twenty-seven reporting units. See Note 10 to our condensed consolidated financial statements.

(Gain) Loss on Sale of Assets and Other. We recorded a loss on sale of assets and other of $7.0 million during the third quarter of 2016 compared to a gain of $0.5 million during the third quarter of 2015. The loss recorded during the third quarter of 2016 was primarily due to the retirement of assets due to theatre remodels partially offset by a gain on the sale of a land parcel. The gain recorded during the third quarter of 2015 was primarily due to a gain on the sale of an investment in a Taiwan joint venture and a gain on the sale of a land parcel in the U.S., partially offset by costs resulting from the replacement of certain theatre assets.

Interest Expense. Interest costs incurred, including amortization of debt issue costs, were $26.7 million during the third quarter of 2016 compared to $28.4 million during the third quarter of 2015. The decrease was due to the redemption of our previously outstanding $200.0 million 7.375% senior subordinated notes (the “7.375% Senior Subordinated Notes”) funded by a $225.0 million add-on to our 4.875% senior notes (the “4.875% Senior Notes), which occurred on March 21, 2016. See Note 3 to our condensed consolidated financial statements for discussions of changes in long-term debt.

Foreign Currency Exchange Gain (Loss). We recorded a foreign currency exchange gain of approximately $0.5 million during the third quarter of 2016 compared to a foreign currency exchange loss of $11.9 million during the third quarter of 2015. These amounts primarily represent the impact of changes in foreign currency exchange rates on intercompany transactions between our domestic subsidiaries and our international subsidiaries.

Distributions from NCM. We recorded a distribution from NCM of $1.4 million during the third quarter of 2016 compared to a distribution of $4.6 million during the third quarter of 2015, each of which was in excess of the carrying value of our Tranche 1 investment. See Note 5 to our condensed consolidated financial statements.

Equity in Income of Affiliates. We recorded equity in income of affiliates of $12.4 million during the third quarter of 2016 compared to $11.1 million during the third quarter of 2015. See Notes 5 and 6 to our condensed consolidated financial statements for information about our equity investments.

Income Taxes. Income tax expense of $41.2 million was recorded for the third quarter of 2016 compared to $30.3 million recorded for the third quarter of 2015. The effective tax rate was approximately 38.2% for the third quarter of 2016 compared to 39.2% for the third quarter of 2015. 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.

 

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Nine months ended September 30, 2016 versus September 30, 2015

Revenues. Total revenues increased $72.5 million to $2,217.9 million for the nine months ended September 30, 2016 (“the 2016 period”) from $2,145.4 million for the nine months ended September 30, 2015 (“the 2015 period”), representing a 3.4% increase. The table below, presented by reportable operating segment, summarizes our revenue performance and certain key performance indicators that impact our revenues for the nine months ended September 30, 2016 and 2015.

 

    U.S. Operating Segment     International Operating Segment     Consolidated  
                                        Constant Currency(3)                    
    2016     2015     %
Change
    2016     2015     %
Change
    2016     % Change     2016     2015     %
Change
 

Admissions revenues(1)

  $ 1,037.7      $ 990.0        4.8   $ 327.1      $ 345.8        (5.4 )%    $ 399.6        15.6   $ 1,364.8      $ 1,335.8        2.2

Concession revenues(1)

  $ 575.3      $ 523.1        10.0   $ 177.5      $ 181.1        (2.0 )%    $ 214.6        18.5   $ 752.8      $ 704.2        6.9

Other revenues(1)(2)

  $ 53.6      $ 52.0        3.1   $ 46.7      $ 53.4        (12.5 )%    $ 56.4        5.6   $ 100.3      $ 105.4        (4.8 )% 

Total revenues (1)(2)

  $ 1,666.6      $ 1,565.1        6.5   $ 551.3      $ 580.3        (5.0 )%    $ 670.6        15.6   $ 2,217.9      $ 2,145.4        3.4

Attendance(1)

    138.0        134.3        2.8     83.7        78.9        6.1         221.7        213.2        4.0

Average ticket price(1)

  $ 7.52      $ 7.37        2.0   $ 3.91      $ 4.38        (10.7 )%    $ 4.77        8.9   $ 6.16      $ 6.27        (1.8 )% 

Concession revenues per patron(1)

  $ 4.17      $ 3.90        6.9   $ 2.12      $ 2.30        (7.8 )%    $ 2.56        11.3   $ 3.40      $ 3.30        3.0

 

(1)  Revenue and attendance amounts in millions. Average ticket price is calculated as admissions revenues divided by attendance. Concession revenues per patron is calculated as concession revenues divided by attendance.
(2)  U.S. operating segment revenues include eliminations of intercompany transactions with the international operating segment. See Note 13 of our condensed consolidated financial statements.
(3)  Constant currency revenue amounts, which are non-GAAP measurements, were calculated using the average exchange rates for the corresponding months for 2015. We translate the results of our international operating segment from local currencies into U.S. dollars using currency rates in effect at different points in time. Significant changes in foreign exchange rates from one period to the next can result in meaningful variations in reported results. We are providing constant currency amounts for our international operating segment to present a period-to-period comparison of business performance without the impact of foreign currency fluctuations.

 

    U.S. Admissions revenues increased $47.7 million due to a 2.8% increase in attendance and a 2.0% increase in average ticket price from $7.37 for the 2015 period to $7.52 for the 2016 period. The increase in concession revenues of $52.2 million was attributable to a 6.9% increase in concession revenues per patron from $3.90 for the 2015 period to $ 4.17 for the 2016 period and the 2.8% increase in attendance. 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 incidence and price increases.

 

    International. Admissions revenues decreased $18.7 million as reported, but increased $53.8 million in constant currency. The constant currency increase is a result of a 6.1% increase in attendance and an 8.9% increase in constant currency average ticket price from $4.38 for the 2015 period to $4.77 for the 2016 period. Concession revenues decreased $3.6 million as reported, but increased $33.5 million in constant currency. The constant currency increase is a result of the 6.1% increase in attendance and an 11.3% increase in constant currency concession revenues per patron from $2.30 for the 2015 period to $2.56 for the 2016 period. The increase in attendance was due to new theatres and the success of the films released during the 2016 period. Average ticket price and concession revenues per patron increased primarily driven by price increases, which was primarily due to local inflation.

 

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Cost of Operations. The table below summarizes our theatre operating costs (in millions) by reportable operating segment for the nine months ended September 30, 2016 and 2015.

 

     U.S. Operating Segment      International Operating Segment      Consolidated  
     2016      2015      2016      2015      Constant
Currency
2016 (2)
     2016      2015  

Film rentals and advertising (1)

   $ 578.2       $ 548.9       $ 154.9       $ 164.4       $ 189.4       $ 733.1       $ 713.3   

Concession supplies

     79.9         70.3         37.1         39.1         44.7         117.0         109.4   

Salaries and wages

     183.1         165.4         60.7         56.9         75.2         243.8         222.3   

Facility lease expense

     179.7         179.1         62.2         63.5         73.6         241.9         242.6   

Utilities and other (1)

     188.0         189.2         77.5         80.0         95.1         265.5         269.2   

 

(1)  We made certain reclassifications from film rentals and advertising to utilities and other for the nine months ended September 30, 2015 related to the maintenance and monitoring of projection and sound equipment, which results in a more clear presentation of film rental and advertising costs. Such expenses, which totaled $18.6 million and $5.5 million for the U.S. operating segment and the international operating segment, respectively, are now presented as utilities and other for all periods presented.
(2)  Constant currency expense amounts, which are non-GAAP measurements, were calculated using the average exchange rates for the corresponding months for 2015. We translate the results of our international operating segment from local currencies into U.S. dollars using currency rates in effect at different points in time. Significant changes in foreign exchange rates from one period to the next can result in meaningful variations in reported results. We are providing constant currency amounts for our international operating segment to present a period-to-period comparison of business performance without the impact of foreign currency fluctuations.

 

    U.S. Film rentals and advertising costs were $578.2 million, or 55.7% of admissions revenues for the 2016 period compared to $548.9 million, or 55.4% of admissions revenues for the 2015 period. The increase in the film rentals and advertising rate was primarily due to the higher concentration of blockbuster films during the 2016 period. Concession supplies expense was $79.9 million, or 13.9% of concession revenues, for the 2016 period compared to $70.3 million, or 13.4% of concession revenues, for the 2015 period. The increase in the concession supplies rate was primarily due to the impact of our expanded concession offerings.

Salaries and wages increased to $183.1 million for the 2016 period from $165.4 million for the 2015 period primarily due to new theatres and increases in minimum wages. Facility lease expense increased to $179.7 million for the 2016 period from $179.1 million for the 2015 period due to increased percentage rent expense partially offset by decreased common area maintenance expenses. Utilities and other costs decreased to $188.0 million for the 2016 period from $189.2 million for the 2015 period due to a decrease in projection and sound equipment maintenance and monitoring expenses, partially offset by increased security expense.

 

    International. Film rentals and advertising costs were $154.9 million ($189.4 million in constant currency), or 47.4% of admissions revenues, for the 2016 period compared to $164.4 million, or 47.5 % of admissions revenues, for the 2015 period. Concession supplies expense was $37.1 million ($44.7 million in constant currency), or 20.9% of concession revenues, for the 2016 period compared to $39.1 million, or 21.6% of concession revenues, for the 2015 period. The decrease in the concession supplies rate was primarily due to price increases.

Salaries and wages were $60.7 million as reported, or $75.2 million in constant currency, for the 2016 period compared to $56.9 million for the 2015 period. The increase was due to incremental staffing to support the 6.1 % increase in attendance, increased wage rates, a payroll tax reserve recorded for an ongoing labor audit and new theatres, partially offset by the impact of changes in foreign currency exchange rates in certain countries in which we operate. Facility lease expense was $62.2 million as reported, or $73.6 million in constant currency, for the 2016 period compared to $63.5 million for the 2015 period. The increase was due to increased percentage rent as a result of increased constant currency revenues and new theatres, partially offset by the impact of changes in foreign currency exchange rates in certain countries in which we operate. Utilities and other costs were $77.5 million as reported, or $95.1 million in constant currency, for the 2016 period compared to $80.0 million for the 2015 period. The increase was primarily due to increased utilities costs, increased projection and sound equipment and monitoring expenses, increased repairs and maintenance expenses and increased janitorial services, partially offset by the impact of changes in foreign currency exchange rates in certain countries in which we operate.

General and Administrative Expenses. General and administrative expenses decreased to $107.0 million for the 2016 period from $114.3 million for the 2015 period. The decrease was primarily due to the impact of changes in foreign currency exchange rates in certain countries in which we operate, partially offset by increased salaries and incentive compensation expense.

 

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Depreciation and Amortization. Depreciation and amortization expense was $155.9 million for the 2016 period compared to $139.4 million for the 2015 period. The increase was primarily due to new theatres and theatre remodels.

Impairment of Long-Lived Assets. We recorded asset impairment charges on assets held and used of $2.3 million for the 2016 period compared to $5.0 million for the 2015 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 2016 period impacted six of our twenty-seven reporting units. 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 $11.0 million during the 2016 period compared to $3.9 million during the 2015 period. The loss recorded during the 2016 period was primarily due to the retirement of assets due to theatre remodels and closures, partially offset by a gain on the sale of our investment in RealD stock (see Note 6) and a gain on the sale of a land parcel. 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 gains related to lease amendments that resulted in a reduction of certain capital lease liabilities, the sale of an investment in a Taiwan joint venture, and the sale of a land parcel in the U.S.

Interest Expense. Interest costs incurred, including amortization of debt issue costs, were $82.0 million for the 2016 period compared to $84.9 million for the 2015 period. The decrease was due to the redemption of our previously outstanding $200.0 million 7.375% senior subordinated notes (the “7.375% Senior Subordinated Notes”) funded by a $225.0 million add-on to our 4.875% senior notes (the “4.875% Senior Notes), which occurred on March 21, 2016. See Note 3 to our condensed consolidated financial statements.

Loss On Debt Amendments and Refinancing. We recorded a loss of $13.3 million during the 2016 period primarily related to the early redemption of our $200.0 million 7.375% Senior Subordinated Notes (see Note 4 to our condensed consolidated financial statements). We recorded a loss of $0.9 million during the 2015 period related to the amendment of our senior secured credit facility to extend the maturity of the $700.0 million term loan from December 2019 to May 2022.

Foreign Currency Exchange Gain (Loss). We recorded a foreign currency exchange gain of approximately $2.9 million during the 2016 period compared to a foreign currency exchange loss of $18.7 million during the 2015 period. These amounts primarily represent the impact of changes in foreign currency exchange rates on intercompany transactions between our domestic subsidiaries and our international subsidiaries.

Distributions from NCM. We recorded distributions from NCM of $10.1 million during the 2016 period and $13.1 million during the 2015 period, each of which were in excess of the carrying value of our Tranche 1 investment. See Note 5 to our condensed consolidated financial statements.

Equity in Income of Affiliates. We recorded equity in income of affiliates of $24.6 million during the 2016 period compared to $20.4 million during the 2015 period. See notes 5 and 6 for information about the equity investments to our condensed consolidated financial statements.

Income Taxes. Income tax expense of $106.8 million was recorded for the 2016 period compared to $100.0 million recorded for the 2015 period. The effective tax rate was 37.1% for the 2016 period compared to 38.2% for the 2015 period. 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. Nearly all of our theatres also provide the patron a choice of using a credit card, debit card or advanced-sale type certificates such as a gift card. 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 $277.8 million for the nine months ended September 30, 2016 compared to $225.7 million for the nine months ended September 30, 2015.

 

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Investing Activities

Our investing activities have been principally related to the development, remodel 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 $230.5 million for the nine months ended September 30, 2016 compared to $231.9 million for the nine months ended September 30, 2015.

Capital expenditures for the nine months ended September 30, 2016 and 2015 were as follows (in millions):

 

Period

   New
Theatres
     Existing
Theatres
    Total  

Nine Months Ended September 30, 2016

   $ 65.6       $ 164.7      $ 230.3   

Nine Months Ended September 30, 2015

   $ 90.8       $  141.6 (a)    $ 232.4   

 

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

Capital expenditures for existing theatres in the table above includes the costs of remodeling certain of our existing properties to include Luxury Loungers and expanded concession offerings. During the nine months ended September 30, 2016 and 2015, we had an average of 75 and 28 of our domestic screens, respectively, temporarily closed for such remodels.

Our U.S. theatre circuit consisted of 339 theatres and 4,542 screens at September 30, 2016. During the nine months ended September 30, 2016, we built three new theatres with 33 screens, acquired four theatres with 52 screens and closed five theatres and 61 screens. At September 30, 2016, we had signed commitments to open three new theatres with 36 screens in domestic markets during the remainder of 2016 and open ten new theatres with 106 screens subsequent to 2016. We estimate the remaining capital expenditures for the development of these 142 domestic screens will be approximately $87 million.

Our international theatre circuit consisted of 183 theatres and 1,323 screens at September 30, 2016. During the nine months ended September 30, 2016, we built eight new theatres with 54 screens and closed one theatre with nine screens. At September 30, 2016, we had signed commitments to open four new theatres with 24 screens in international markets during the remainder of 2016 and open six new theatres and 41 screens subsequent to 2016. We estimate the remaining capital expenditures for the development of these 65 international screens will be approximately $31 million.

Actual expenditures for continued theatre development, remodels 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 $110.8 million for the nine months ended September 30, 2016 compared to $113.5 million for the nine months ended September 30, 2015. Financing activities for the nine months ended September 30, 2016 included the redemption of Cinemark USA, Inc.’s $200.0 million 7.375% Senior Subordinated Notes with proceeds from the issuance of a $225.0 million add-on to Cinemark USA, Inc.’s existing 4.875% Senior Notes. See Note 3 to our condensed consolidated financial statements.

 

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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 September 30, 2016 (in millions):

 

Cinemark USA, Inc. term loan

   $ 663.8   

Cinemark USA, Inc. 5.125% senior notes due 2022

     400.0   

Cinemark USA, Inc. 4.875% senior notes due 2023

     755.0   

Other

     5.6   
  

 

 

 

Total long-term debt

   $ 1,824.4   

Less current portion

     (4.2
  

 

 

 

Subtotal long-term debt, less current portion

   $ 1,820.2   

Less: Debt discounts and debt issuance costs

     (33.6
  

 

 

 

Long-term debt, less current portion, net of debt issuance costs

   $ 1,786.6   
  

 

 

 

As of September 30, 2016, Cinemark USA, Inc. had $100.0 million in available borrowing capacity on our revolving credit line.

Contractual Obligations

Due to the redemption of the 7.375% Senior Subordinated Notes due 2021 and issuance of the additional $225.0 million 4.875% Senior Notes as well as a prepayment to our term loan (see Note 3 to the condensed consolidated financial statements), which impacted the maturity of and the amount of outstanding long-term debt and related interest rates, we have included below our long-term debt and estimated scheduled interest payments as of September 30, 2016.

 

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

Long-term debt (1)

   $ 1,824.4       $ 4.2       $ 14.2       $ 12.8       $ 1,793.2   

Scheduled interest payments on long-term debt (2)

     494.2         79.3         157.9         156.9         100.1   

 

(1)  Amounts are presented before adjusting for debt discounts and debt issuance costs.
(2)  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 5.0% and 3.3%, respectively.

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, 2015 filed March 4, 2016.

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, 2015 filed March 4, 2016, we do not have any off-balance sheet arrangements.

Senior Secured Credit Facility

Cinemark USA, Inc. has a senior secured credit facility that includes a $700.0 million term loan, with a maturity date of May 2022, and a $100.0 million revolving credit line, with a maturity date of December 2017.

On May 16, 2016, Cinemark USA, Inc. made a principal pre-payment of $13.5 million using the proceeds received from the sale of shares of RealD (see Note 6 to the condensed consolidated financial statements). In accordance with the terms of the senior secured credit facility agreement (the “Credit Agreement”), the pre-payment was applied first to the next four principal installments, and second, to the remaining installments pro-rata based on the remaining outstanding principal amount of such installments. Therefore, quarterly payments in the amount of $1.4 million are due on the term loan beginning June 30, 2017 through March 31, 2022, with the remaining principal of $635.3 million due on May 8, 2022. The Company did not incur any fees as a result of the pre-payment.

 

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On June 13, 2016, Cinemark USA, Inc. amended its senior secured credit facility, to reduce the rate at which the term loan bears interest by 0.25%. The Company incurred debt issue costs of approximately $0.8 million in connection with the amendment, which are reflected as a reduction of long term debt on the condensed consolidated balance sheet as of September 30, 2016. In addition, the Company incurred approximately $0.3 million in legal and other fees that are reflected as loss on debt amendments and refinancing on the condensed consolidated statements of income for the nine months ended September 30, 2016.

Interest on the term loan accrues at Cinemark USA, Inc.’s option at: (A) the base rate equal to the greater of (1) the US “Prime Rate” as quoted in The Wall Street Journal or if no such rate is quoted therein, in a Federal Reserve Board statistical release, (2) the federal funds effective rate plus 0.50%, and (3) a one-month Eurodollar-based rate plus 1.0%, plus, in each case, a margin of 1.75% per annum, or (B) a Eurodollar-based rate for a period of 1, 2, 3, 6, 9 or 12 months plus a margin of 2.75% per annum. Interest on the revolving credit line accrues, at our option, at: (A) a base rate equal to the greater of (1) the US “Prime Rate” as quoted in The Wall Street Journal or if no such rate is quoted therein, in a Federal Reserve Board statistical release, (2) the federal funds effective rate plus 0.50%, and (3) a one-month Eurodollar-based rate plus 1.0%, plus, in each case, a margin that ranges from 1.00% to 1.75% per annum, or (B) a Eurodollar-based rate for a period of 1, 2, 3, 6, 9 or 12 months 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 Credit Agreement contains usual and customary negative covenants for agreements of this type, including, but not limited to, restrictions on Cinemark USA, Inc.’s ability, and in certain instances, its subsidiaries’ and our ability, to consolidate or merge or liquidate, wind up or dissolve; substantially change the nature of its business; sell, transfer or dispose of assets; create or incur indebtedness; create liens; pay dividends or repurchase stock; and make capital expenditures and investments. 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 Credit Agreement.

The dividend restriction contained in the Credit Agreement prevents the Company and any of its subsidiaries from paying a dividend or otherwise distributing cash to its stockholders unless (1) the Company is not in default, and the distribution would not cause Cinemark USA, Inc. to be in default, under the Credit Agreement; and (2) the aggregate amount of certain dividends, distributions, investme