Attached files
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EX-32.2 - EX-32.2 - CINEMARK USA INC /TX | d75111exv32w2.htm |
EX-31.1 - EX-31.1 - CINEMARK USA INC /TX | d75111exv31w1.htm |
EX-32.1 - EX-32.1 - CINEMARK USA INC /TX | d75111exv32w1.htm |
EX-31.2 - EX-31.2 - CINEMARK USA INC /TX | d75111exv31w2.htm |
Table of Contents
CINEMARK USA, INC. MEETS THE CONDITIONS SET FORTH IN GENERAL
INSTRUCTION (H)(1)(A) AND (B) OF FORM 10-Q AND THEREFORE IS FILING THIS FORM
WITH THE REDUCED DISCLOSURE FORMAT
INSTRUCTION (H)(1)(A) AND (B) OF FORM 10-Q AND THEREFORE IS FILING THIS FORM
WITH THE REDUCED DISCLOSURE FORMAT
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2010
Commission File Number: 033-47040
CINEMARK USA, INC.
(Exact name of registrant as specified in its charter)
Texas (State or other jurisdiction of incorporation or organization) |
75-2206284 (I.R.S. Employer Identification No.) |
|
3900 Dallas Parkway Suite 500 Plano, Texas (Address of principal executive offices) |
75093 (Zip Code) |
Registrants 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 þ No o
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 o No o
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 o | Accelerated filer o | Non-accelerated filer þ | Smaller reporting company o | |||
(Do not check if a 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 o No þ
As of July 31, 2010, 1,500 shares of Class A common stock and 182,648 shares of Class B common
stock were outstanding.
CINEMARK USA, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
TABLE OF CONTENTS
2
Table of Contents
Cautionary Statement Regarding Forward-Looking Statements
Certain matters within this Quarterly Report on Form 10Q include forwardlooking 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. All statements included in this Form 10Q, other than
statements of historical fact, may constitute forward-looking statements. Forward-looking
statements can be identified by the use of words such as may, should, will, 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 Companys Annual
Report on Form 10-K filed March 12, 2010 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.
3
Table of Contents
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data, unaudited)
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Assets |
||||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | 435,715 | $ | 437,737 | ||||
Inventories |
10,302 | 9,854 | ||||||
Accounts receivable |
40,638 | 32,793 | ||||||
Income tax receivable |
13,961 | 13,025 | ||||||
Current deferred tax asset |
3,289 | 3,321 | ||||||
Prepaid expenses and other |
9,453 | 10,051 | ||||||
Accounts receivable from parent |
8,281 | 7,656 | ||||||
Total current assets |
521,639 | 514,437 | ||||||
Theatre properties and equipment |
1,948,064 | 1,936,535 | ||||||
Less accumulated depreciation and amortization |
763,810 | 716,947 | ||||||
Theatre properties and equipment net |
1,184,254 | 1,219,588 | ||||||
Other assets |
||||||||
Goodwill |
1,114,343 | 1,116,302 | ||||||
Intangible assets net |
339,210 | 342,998 | ||||||
Investment in NCM |
64,283 | 34,232 | ||||||
Investment in DCIP |
13,469 | 640 | ||||||
Investment in Real D |
6,521 | | ||||||
Investments in and advances to affiliates |
3,849 | 2,889 | ||||||
Deferred charges and other assets net |
65,809 | 52,502 | ||||||
Total other assets |
1,607,484 | 1,549,563 | ||||||
Total assets |
$ | 3,313,377 | $ | 3,283,588 | ||||
Liabilities and equity |
||||||||
Current liabilities |
||||||||
Current portion of long-term debt |
$ | 11,112 | $ | 12,227 | ||||
Current portion of capital lease obligations |
7,344 | 7,340 | ||||||
Current liability for uncertain tax positions |
2,652 | 13,229 | ||||||
Accounts payable and accrued expenses |
229,254 | 247,938 | ||||||
Total current liabilities |
250,362 | 280,734 | ||||||
Long-term liabilities |
||||||||
Long-term debt, less current portion |
1,526,805 | 1,531,478 | ||||||
Capital lease obligations, less current portion |
131,680 | 133,028 | ||||||
Deferred tax liability |
110,339 | 124,823 | ||||||
Liability for uncertain tax positions |
15,753 | 18,432 | ||||||
Deferred lease expenses |
29,359 | 27,698 | ||||||
Deferred revenue NCM |
232,212 | 203,006 | ||||||
Other long-term liabilities |
48,188 | 42,248 | ||||||
Total long-term liabilities |
2,094,336 | 2,080,713 | ||||||
Commitments and contingencies (see Note 19) |
||||||||
Equity |
||||||||
Cinemark USA, Inc.s stockholders 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 |
1,162,894 | 1,151,166 | ||||||
Retained deficit |
(220,633 | ) | (261,672 | ) | ||||
Accumulated other comprehensive loss |
(10,370 | ) | (7,459 | ) | ||||
Total Cinemark USA, Inc.s stockholders equity |
957,201 | 907,345 | ||||||
Noncontrolling interests |
11,478 | 14,796 | ||||||
Total equity |
968,679 | 922,141 | ||||||
Total liabilities and equity |
$ | 3,313,377 | $ | 3,283,588 | ||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
4
Table of Contents
CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, unaudited)
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Revenues |
||||||||||||||||
Admissions |
$ | 353,085 | $ | 339,088 | $ | 696,075 | $ | 618,971 | ||||||||
Concession |
165,230 | 158,926 | 318,334 | 288,957 | ||||||||||||
Other |
21,054 | 19,494 | 41,591 | 35,380 | ||||||||||||
Total revenues |
539,369 | 517,508 | 1,056,000 | 943,308 | ||||||||||||
Cost of operations |
||||||||||||||||
Film rentals and advertising |
193,550 | 190,826 | 382,369 | 337,952 | ||||||||||||
Concession supplies |
24,494 | 24,027 | 46,900 | 43,744 | ||||||||||||
Salaries and wages |
56,250 | 52,070 | 108,792 | 96,420 | ||||||||||||
Facility lease expense |
61,990 | 59,195 | 124,705 | 114,933 | ||||||||||||
Utilities and other |
57,648 | 54,168 | 112,869 | 102,896 | ||||||||||||
General and administrative expenses |
24,461 | 23,247 | 49,452 | 44,658 | ||||||||||||
Depreciation and amortization |
34,657 | 37,535 | 68,590 | 73,668 | ||||||||||||
Amortization of favorable/unfavorable leases |
258 | 346 | 416 | 669 | ||||||||||||
Impairment of long-lived assets |
4,688 | 3,930 | 5,035 | 4,969 | ||||||||||||
Loss on sale of assets and other |
1,191 | 1,186 | 4,358 | 1,458 | ||||||||||||
Total cost of operations |
459,187 | 446,530 | 903,486 | 821,367 | ||||||||||||
Operating income |
80,182 | 70,978 | 152,514 | 121,941 | ||||||||||||
Other income (expense) |
||||||||||||||||
Interest expense |
(28,605 | ) | (15,257 | ) | (54,615 | ) | (30,539 | ) | ||||||||
Interest income |
1,379 | 937 | 2,432 | 2,610 | ||||||||||||
Foreign currency exchange gain |
348 | 472 | 80 | 538 | ||||||||||||
Distributions from NCM |
1,332 | 5,027 | 11,278 | 11,606 | ||||||||||||
Equity in loss of affiliates |
(3,182 | ) | (415 | ) | (3,155 | ) | (1,020 | ) | ||||||||
Total other expense |
(28,728 | ) | (9,236 | ) | (43,980 | ) | (16,805 | ) | ||||||||
Income before income taxes |
51,454 | 61,742 | 108,534 | 105,136 | ||||||||||||
Income taxes |
10,392 | 18,190 | 30,425 | 36,651 | ||||||||||||
Net income |
$ | 41,062 | $ | 43,552 | $ | 78,109 | $ | 68,485 | ||||||||
Less: Net income attributable to noncontrolling
interests |
1,077 | 1,137 | 2,695 | 1,923 | ||||||||||||
Net income attributable to Cinemark USA, Inc. |
$ | 39,985 | $ | 42,415 | $ | 75,414 | $ | 66,562 | ||||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
5
Table of Contents
CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)
Six months ended June 30, | ||||||||
2010 | 2009 | |||||||
Operating activities |
||||||||
Net income |
$ | 78,109 | $ | 68,485 | ||||
Adjustments to reconcile net income to cash provided by operating activities: |
||||||||
Depreciation |
66,378 | 71,678 | ||||||
Amortization of intangible and other assets and unfavorable leases |
2,628 | 2,659 | ||||||
Amortization of long-term prepaid rents |
779 | 750 | ||||||
Amortization of debt issue costs |
2,357 | 1,727 | ||||||
Amortization of deferred revenues, deferred lease incentives and other |
(3,005 | ) | (2,167 | ) | ||||
Amortization of accumulated other comprehensive loss related to interest rate
swap agreement |
2,317 | 2,317 | ||||||
Amortization of bond discount |
381 | | ||||||
Impairment of long-lived assets |
5,035 | 4,969 | ||||||
Share based awards compensation expense |
2,873 | 2,153 | ||||||
Loss on sale of assets and other |
2,325 | 1,458 | ||||||
Loss on contribution and sale of digital projection systems to DCIP |
2,033 | | ||||||
Deferred lease expenses |
1,697 | 2,121 | ||||||
Deferred income tax expenses |
(14,176 | ) | (17,006 | ) | ||||
Equity in loss of affiliates |
3,155 | 1,020 | ||||||
Tax benefit related to stock option exercises |
1,904 | | ||||||
Increase in deferred revenue related to new U.S. beverage agreement |
| 6,550 | ||||||
Distributions from equity investees |
2,059 | 1,078 | ||||||
Changes in assets and liabilities |
(48,965 | ) | 21,261 | |||||
Net cash provided by operating activities |
107,884 | 169,053 | ||||||
Investing activities |
||||||||
Additions to theatre properties and equipment |
(56,960 | ) | (60,918 | ) | ||||
Proceeds from sale of theatre properties and equipment |
2,148 | 653 | ||||||
Acquisition of theatres in the U.S. |
| (48,950 | ) | |||||
Investment in joint venture DCIP, net of cash distributions |
(644 | ) | (1,500 | ) | ||||
Net cash used for investing activities |
(55,456 | ) | (110,715 | ) | ||||
Financing activities |
||||||||
Capital contributions from parent |
| 19,650 | ||||||
Dividends paid to parent |
(34,375 | ) | (452,975 | ) | ||||
Payroll taxes paid as a result of noncash stock option exercises and restricted stock withholdings |
(416 | ) | | |||||
Proceeds from issuance of senior notes |
| 458,532 | ||||||
Payment of debt issue costs |
(8,706 | ) | (12,423 | ) | ||||
Repayments of long-term debt |
(6,136 | ) | (6,289 | ) | ||||
Payments on capital leases |
(3,606 | ) | (2,830 | ) | ||||
Other |
(110 | ) | (795 | ) | ||||
Net cash provided by (used for)
financing activities |
(53,349 | ) | 2,870 | |||||
Effect of exchange rate changes on cash and cash equivalents |
(1,101 | ) | 7,959 | |||||
Increase (decrease) in cash and cash equivalents |
(2,022 | ) | 69,167 | |||||
Cash and cash equivalents: |
||||||||
Beginning of period |
437,737 | 313,238 | ||||||
End of period |
$ | 435,715 | $ | 382,405 | ||||
Supplemental information (See Note 15) |
The accompanying notes are an integral part of the condensed consolidated financial statements.
6
Table of Contents
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) is a leader in the motion picture
exhibition industry, with theatres in the United States (U.S.), Canada, Brazil, Mexico, Chile,
Colombia, Argentina, Ecuador, Peru, Honduras, El Salvador, Nicaragua, Costa Rica, Panama and
Guatemala. The Company also managed additional theatres in the U.S., Brazil, and Colombia during
the six months ended June 30, 2010.
The condensed consolidated financial statements have been prepared by the Company, without
audit, according to the rules and regulations of the Securities and Exchange Commission. In the
opinion of management, these interim financial statements reflect all adjustments of a recurring
nature necessary to state fairly the financial position and results of operations as of, and for,
the periods indicated. 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, 2009, included in the Annual Report on Form 10-K filed March 12, 2010 by the Company under the
Securities Exchange Act of 1934, as amended (the Exchange Act). Operating results for the six
months ended June 30, 2010, are not necessarily indicative of the results to be achieved for the
full year.
2. New Accounting Pronouncements
In April 2009, the Financial Accounting Standards Board (FASB) issued FASB Staff Position
(FSP) FAS 107-1 and APB 28-1 (FASB ASC Topic 825) Interim Disclosures about Fair Value of
Financial Instruments. FSP FAS 107-1 and APB 28-1 (FASB ASC Topic 825) require that disclosures
about the fair value of financial instruments be included in the notes to financial statements
issued during interim periods. Fair value information must be presented in the notes to financial
statements together with the carrying amounts of the financial instruments. It must be clearly
stated whether the amounts are assets or liabilities and how they relate to information presented
in the balance sheet. The disclosures must include methods and significant assumptions used to
estimate fair values, along with any changes in those methods and assumptions from prior periods.
FSP FAS 107-1 and APB 28-1 (FASB ASC Topic 825) were effective for interim and annual periods
ending after June 15, 2009, with early adoption permitted. Upon adoption of FSP FAS 107-1 and APB
28-1(FASB ASC Topic 825), the Company added a disclosure regarding the fair value of its long-term
debt (see Note 10). Below is a summary of the Companys financial instruments:
June 30, 2010 | December 31, 2009 | |||||||||||||||
Carrying | Fair | Carrying | Fair | |||||||||||||
Value | Value | Value | Value | |||||||||||||
Debt (see Note 10)
|
$ | (1,537,917 | ) | $ | (1,516,184 | ) | $ | (1,543,705 | ) | $ | (1,513,838 | ) | ||||
Interest rate swap agreements (see Note 11)
|
$ | (19,257 | ) | $ | (19,257 | ) | $ | (18,524 | ) | $ | (18,524 | ) |
In May 2009, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 165
(FASB ASC Topic 855), Subsequent Events". SFAS No. 165 (FASB ASC Topic 855) should not result in
significant changes in the subsequent events that an entity reports. Rather, SFAS No. 165 (FASB ASC
Topic 855) introduced the concept of financial statements that are available to be issued.
Financial statements are considered available to be issued when they are complete in a form and
format that complies with generally accepted accounting principles and all approvals necessary for
issuance have been obtained. SFAS No. 165 (FASB ASC Topic 855) was effective for interim or annual
financial periods ending after June 15, 2009. The adoption of SFAS No. 165 (FASB ASC Topic 855) did
not have a significant impact on the Companys condensed consolidated financial statements.
7
Table of Contents
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
In June 2009, the FASB issued SFAS No. 168 (FASB ASC Topic 105), The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted Accounting Principles", which
authorizes the Codification as the sole source for authoritative generally accepted accounting
principles in the U.S. (U.S. GAAP). SFAS No.
168 (FASB ASC Topic 105) was effective for financial statements issued for reporting periods
that end after September 15, 2009. SFAS No. 168 (FASB ASC Topic 105) supersedes all accounting
standards in U.S. GAAP, aside from those issued by the SEC. SFAS No. 168 (FASB ASC Topic 105)
replaced SFAS No. 162 to establish a new hierarchy of GAAP sources for non-governmental entities
under the FASB Accounting Standards Codification. The adoption of SFAS No. 168 (FASB ASC Topic 105)
did not have a significant impact on the Companys condensed consolidated financial statements.
In December 2009, the FASB issued Accounting Standards Update (ASU) No. 2009-17,
Consolidations (Topic 810) Improvements to Financial Reporting by Enterprises Involved with
Variable Interest Entities. ASU No. 2009-17 changes how a reporting entity determines when an
entity that is insufficiently capitalized or is not controlled through voting (or similar rights)
should be consolidated. The determination of whether a reporting entity is required to consolidate
another entity is based on, among other things, the other entitys purpose and design and the
reporting entitys ability to direct the activities of the other entity that most significantly
impact the other entitys economic performance. ASU No. 2009-17 requires a reporting entity to
provide additional disclosures about its involvement with variable interest entities and any
significant changes in risk exposure due to that involvement. A reporting entity is required to
disclose how its involvement with a variable interest entity affects the reporting entitys
financial statements. ASU No. 2009-17 is effective for fiscal years beginning after November 15,
2009, and interim periods within those fiscal years. The Company adopted ASU No. 2009-17 as of
January 1, 2010, and its application had no impact on the Companys condensed consolidated
financial statements.
In January 2010, the FASB issued FASB ASU 2010-06, Fair Value Measurements and Disclosures:
Improving Disclosures about Fair Value Measurements (ASU 2010-06), which amends FASB ASC Topic
820-10, Fair Value Measurements and Disclosures". The update requires additional disclosures for
transfers in and out of Levels 1 and 2 and for activity in Level 3 and clarifies certain other
existing disclosure requirements. The Company adopted ASU 2010-06 beginning January 1, 2010. This
update did not have a significant impact on the Companys disclosures.
3. Buyout of Colombia Noncontrolling Interest
During April 2010, the Companys partners in Colombia (the Colombian Partners) exercised an
option available to them under an Exchange Option Agreement dated April 9, 2007 between Cinemark
Holdings, Inc. and the Colombian Partners (the Exchange Option Agreement). Under this option,
which was contingent upon completion of an initial public offering of common stock by Cinemark
Holdings, Inc., the Colombian Partners were entitled to exchange their shares in Cinemark Colombia
S.A. for shares of Cinemark Holdings, Inc.s common stock (the Colombia Share Exchange). The
number of shares to be exchanged was determined based on Cinemark Holdings, Inc.s equity value and
the equity value of the Colombian Partners interest in Cinemark Colombia S.A., both of which are
defined in the Exchange Option Agreement. As a result of the Colombia Share Exchange, on June 14,
2010, Cinemark Holdings, Inc. issued 1,112,723 shares of its common stock to the Colombian
Partners. Simultaneously, Cinemark Holdings, Inc. contributed the shares it received in Cinemark
Colombia S.A. to the Company. The increase in the Companys ownership interest in its Colombian
subsidiary was accounted for as an equity transaction. The Company recorded an increase in
additional-paid-in-capital of approximately $6,951, which represented the book value of the
Colombian partners noncontrolling interest account of approximately $5,865 plus the Colombian
partners share of accumulated other comprehensive loss of approximately $1,086. As a result of
this transaction, the Company now owns 100% of the shares in Cinemark Colombia S.A.
8
Table of Contents
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
4. Equity
Below is a summary of changes in stockholders equity attributable to Cinemark USA, Inc.,
noncontrolling interests and total equity for the six months ended June 30, 2010 and 2009:
Cinemark | ||||||||||||
USA, Inc. | ||||||||||||
Stockholders | Noncontrolling | Total | ||||||||||
Equity | Interests | Equity | ||||||||||
Balance at January 1, 2010 |
$ | 907,345 | $ | 14,796 | $ | 922,141 | ||||||
Colombia Share Exchange (see Note 3) |
5,865 | (5,865 | ) | | ||||||||
Share based awards compensation expense |
2,873 | | 2,873 | |||||||||
Dividends paid to parent |
(34,375 | ) | | (34,375 | ) | |||||||
Tax benefit related to stock option exercises |
1,904 | | 1,904 | |||||||||
Dividends paid to noncontrolling interests |
| (110 | ) | (110 | ) | |||||||
Comprehensive income: |
||||||||||||
Net income |
75,414 | 2,695 | 78,109 | |||||||||
Fair value adjustments on interest rate swap agreements, net of
taxes of $276 |
(456 | ) | | (456 | ) | |||||||
Amortization of accumulated other comprehensive loss on
terminated swap agreement |
2,317 | | 2,317 | |||||||||
Foreign currency translation adjustment |
(3,686 | ) | (38 | ) | (3,724 | ) | ||||||
Balance at June 30, 2010 |
$ | 957,201 | $ | 11,478 | $ | 968,679 | ||||||
Cinemark | ||||||||||||
USA, Inc. | ||||||||||||
Stockholders | Noncontrolling | Total | ||||||||||
Equity | Interests | Equity | ||||||||||
Balance at January 1, 2009 |
$ | 1,142,920 | $ | 12,971 | $ | 1,155,891 | ||||||
Share based awards compensation expense |
2,153 | | 2,153 | |||||||||
Dividends paid to parent |
(452,975 | ) | | (452,975 | ) | |||||||
Capital contributions from parent |
55,525 | | 55,525 | |||||||||
Dividends paid to noncontrolling interests |
| (700 | ) | (700 | ) | |||||||
Purchase of noncontrolling interest share of an Argentina subsidiary |
23 | (117 | ) | (94 | ) | |||||||
Comprehensive income: |
||||||||||||
Net income |
66,562 | 1,923 | 68,485 | |||||||||
Fair value adjustments on interest rate swap agreements, net of
taxes of $2,181 |
3,605 | | 3,605 | |||||||||
Amortization of accumulated other comprehensive loss on
terminated swap agreement |
2,317 | | 2,317 | |||||||||
Foreign currency translation adjustment |
33,414 | 127 | 33,541 | |||||||||
Balance at June 30, 2009 |
$ | 853,544 | $ | 14,204 | $ | 867,748 | ||||||
5. Acquisition of U.S. Theatres
On March 18, 2009, the Company acquired four theatres with 82 screens from Muvico
Entertainment L.L.C. in an asset purchase for $48,950 in cash. The acquisition resulted in an
expansion of the Companys U.S. theatre base, as three of the theatres are located in Florida and
one theatre is located in Maryland. The Company incurred approximately $113 in transaction costs,
which are reflected in general and administrative expenses on the condensed consolidated statement
of income for the six months ended June 30, 2009.
9
Table of Contents
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
The transaction was accounted for by applying the acquisition method. The following table
represents the identifiable assets acquired and liabilities assumed that have been recognized by
the Company in its condensed consolidated balance sheet as of the date of acquisition:
Theatre properties and equipment |
$ | 25,575 | ||
Brandname |
3,500 | |||
Noncompete agreement |
1,630 | |||
Goodwill |
44,565 | |||
Unfavorable lease |
(3,600 | ) | ||
Capital lease liability (for one theatre) |
(22,720 | ) | ||
Total |
$ | 48,950 | ||
The brandname and noncompete agreement are presented as intangible assets and the unfavorable
lease is presented as other long-term liabilities on the Companys condensed consolidated balance
sheets. The weighted average remaining amortization period for these intangible assets and the
unfavorable lease are 8.4 years and 8.8 years, respectively. Goodwill represents excess of the
costs of acquiring these theatres over amounts assigned to assets acquired, including intangible
assets, and liabilities assumed. The goodwill recorded is fully deductible for tax purposes.
6. Investment in National CineMedia
Below is a summary of activity with NCM included in the Companys condensed consolidated
financial statements:
Investment | Deferred | Distributions | Equity | Other | Cash | |||||||||||||||||||
in NCM | Revenue | from NCM | Earnings | Revenue | Received | |||||||||||||||||||
Balance as of December 31, 2009 |
$ | 34,232 | $ | (203,006 | ) | |||||||||||||||||||
Receipt of common units due to annual
common unit adjustment |
30,683 | (30,683 | ) | $ | | $ | | $ | | $ | | |||||||||||||
Change of interest gain due to 2010
extraordinary common unit adjustment |
271 | | | | | | ||||||||||||||||||
Revenues earned under exhibitor
services agreement |
| | | | (2,434 | ) | 2,434 | |||||||||||||||||
Receipt of excess cash distributions |
(1,454 | ) | | (8,211 | ) | | | 9,665 | ||||||||||||||||
Receipt under tax receivable agreement |
(477 | ) | | (3,067 | ) | | | 3,544 | ||||||||||||||||
Equity in earnings |
1,028 | | | (1,028 | ) | | | |||||||||||||||||
Amortization of deferred revenue |
| 1,477 | | | (1,477 | ) | | |||||||||||||||||
Balance as of and for the period
ended June 30, 2010 |
$ | 64,283 | $ | (232,212 | ) | $ | (11,278 | ) | $ | (1,028 | ) | $ | (3,911 | ) | $ | 15,643 | ||||||||
During March 2010, NCM performed its annual common unit adjustment calculation under the
Common Unit Adjustment Agreement. As a result of the calculation, the Company received an
additional 1,757,548 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 as an
investment with a corresponding adjustment to deferred revenue of $30,683. The common unit
adjustment resulted in a change in the Companys ownership percentage in NCM from approximately
15.0% to 16.3%. Subsequent to the annual common unit adjustment discussed above, in May 2010, one
of NCMs other founding members completed an acquisition of another theatre circuit that required
an extraordinary common unit adjustment calculation by NCM in accordance with the Common Unit
Adjustment Agreement. As a result of this extraordinary common unit adjustment, the founding member
was granted additional common units of NCM, which resulted in dilution of the Companys ownership
interest in NCM from 16.3% to 15.4%. The Company recognized a change of interest gain of
approximately $271 during the three and six months ended June 30, 2010 as a result of this
extraordinary common unit adjustment, which is reflected net of other losses in loss on sale of
assets and other on the condensed consolidated statement of income.
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CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
As of June 30, 2010, the Company owned a total of 16,946,503 common units of NCM. The Company
continues to account for its investment in NCM under the equity method of accounting. During the
six months ended June 30, 2010 and June 30, 2009, the Company recorded equity earnings of
approximately $1,028 and $407, respectively.
Pursuant to the terms of the Exhibitor Services Agreement, the Company recorded other
revenues, excluding the amortization of deferred revenue, of approximately $2,434 and $2,870 during
the six months ended June 30, 2010 and 2009, respectively. These amounts include the per patron and
per digital advertising screen theatre access fee and theatre rental revenue, net of amounts due to
NCM for on-screen advertising time provided to the Companys beverage concessionaire of $5,183 and
$4,790, respectively.
Below is summary financial information for NCM for the three and six months ended July 1,
2010:
Three Months | Six Months | |||||||
Ended July 1, 2010 | Ended July 1, 2010 | |||||||
Gross revenues |
$ | 98,998 | $ | 183,656 | ||||
Operating income |
$ | 43,550 | $ | 69,710 | ||||
Net earnings |
$ | 27,546 | $ | 40,193 |
7. Investment in Digital Cinema Implementation Partners
On February 12, 2007, the Company, AMC Entertainment Inc. and Regal Entertainment Group
entered into a joint venture known as Digital Cinema Implementation Partners LLC (DCIP) to
facilitate the implementation of digital cinema in the Companys theatres and to establish
agreements with major motion picture studios for the financing of digital cinema.
During January 2010, the Company contributed $500 to DCIP. 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 cash of $1,201 and
digital projection systems at a fair value of $16,380 to DCIP (collectively the contributions),
which DCIP then contributed to Kasima. The net book value of the contributed equipment was
approximately $18,090, and as a result, the Company recorded a loss of approximately $1,710, which
is reflected in loss on sale of assets and other on the condensed consolidated statement of income
for the six months ended June 30, 2010. Subsequent to the contributions, the Company continues to
have a 33% voting interest in DCIP and has a 24.3% economic interest in DCIP. On April 24, 2010,
the Company sold digital projection systems with a net book value of approximately $1,520 to Kasima
for approximately $1,197, resulting in an additional loss of approximately $323, which is reflected
in loss on sale of assets and other on the condensed consolidated statement of income for the three
and six months ended June 30, 2010.
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 Kasimas economic performance. The Company accounts for its investment in DCIP and its
subsidiaries under the equity method of accounting. During the six months ended June 30, 2010 and
2009, the Company recorded equity losses of $4,195 and $1,478, respectively, relating to this
investment. During March 2010, the Company received a cash distribution of $1,057 from DCIP.
As a result of these agreements, the Company will continue to roll out digital projection
systems to a majority of its first run U.S. theatres. The digital projection systems will be leased
from Kasima under an operating lease with an initial term of twelve years that contains ten
one-year fair value renewal options. The equipment lease agreement also contains a fair value
purchase option. Under the equipment lease agreement, the Company pays minimum annual rent of one
thousand dollars per digital projection system for the first six and a half years from the
effective date of the agreement and minimum annual rent of three thousand dollars per digital
projection system beginning at six and a half years from the effective date through the end of the
lease term. The Company may also be subject to various types of other rent if such digital
projection systems do not meet minimum performance
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
requirements as outlined in the agreements.
Certain of the other rent payments are subject to either a monthly or an annual maximum. As of June
30, 2010, the Company had 537 digital projection systems being leased under the master equipment
lease agreement with Kasima. The Company recorded equipment lease expense of approximately $252
during the six months ended June 30, 2010, which is included in utilities and other costs on the
condensed consolidated statement of income.
The digital projection systems leased from Kasima will replace a majority of the Companys
existing 35 millimeter projection systems in its U.S. theatres. Therefore, upon signing the
agreements, the Company began accelerating the depreciation of these existing 35 millimeter
projection systems, based on the estimated two year replacement timeframe. The Company recorded
depreciation expense of approximately $3,695 on its domestic 35 millimeter projectors during the
six months ended June 30, 2010. The net book value of the existing 35 millimeter projection
systems to be replaced was approximately $15,990 as of June 30, 2010.
8. Investment in Real D
Under its license agreement with Real D, the Company earns options to purchase shares of
common stock once it has installed a certain number of 3-D systems as outlined in the license
agreement. During June 2010, the Company reached the first target level and vested in 407,593
options to purchase shares of common stock in Real D, which have an exercise price of $0.00667.
Upon vesting in these options, the Company recorded an investment in Real D of approximately
$6,521, which represents the estimated fair value of the options, with an offset to deferred lease
incentive liability. The fair value of the options was determined using Real Ds initial public
offering price, which falls under Level 2 of the U.S. GAAP fair value hierarchy as defined by ASC
Topic 820-10-35. The Company will account for the investment in Real D as a cost method
investment. The deferred lease incentive liability, which is reflected in other long-term
liabilities on the condensed consolidated balance sheet as of June 30, 2010, will be amortized over
the remaining term of the license agreement, which is approximately seven and one-half years. Under
the license agreement, the Company can earn up to 815,186 additional options to purchase shares of
common stock of Real D as it meets additional 3-D system installation targets as outlined in the
license agreement.
9. Share Based Awards
Stock Options A summary of activity and related information for Cinemark Holdings, Inc.
stock options that are held by the Companys employees for the six months ended June 30, 2010 is as
follows:
Weighted Average | ||||||||||||||||
Number of | Weighted Average | Grant Date Fair | Aggregate Intrinsic | |||||||||||||
Options | Exercise Price | Value | Value | |||||||||||||
Outstanding at December 31, 2009 |
1,231,892 | $ | 7.63 | $ | 3.51 | |||||||||||
Exercised |
(772,727 | ) | $ | 7.63 | $ | 3.51 | ||||||||||
Outstanding at June 30, 2010 |
459,165 | $ | 7.63 | $ | 3.51 | $ | 2,535 | |||||||||
Options exercisable at June 30, 2010 |
459,165 | $ | 7.63 | $ | 3.51 | $ | 2,535 | |||||||||
The total intrinsic value of options exercised during the six month period ended June 30,
2010 was $6,554. The Company recognized a tax benefit of approximately $1,904 related to the
options exercised during the six months ended June 30, 2010.
As of June 30, 2010, there was no remaining unrecognized compensation expense related to
outstanding stock options and all outstanding options fully vested on April 2, 2009. All options
outstanding at June 30, 2010 have an average remaining contractual life of approximately four
years.
Restricted Stock - During the six months ended June 30, 2010, Cinemark Holdings, Inc. granted
679,308 shares of restricted stock to directors of Cinemark Holdings, Inc. and employees of the
Company. The fair value of the restricted stock granted was determined based on the market value of
Cinemark Holdings, Inc.s stock on the dates of grant, which ranged from $13.15 to $18.47 per
share. The Company assumed forfeiture rates ranging from zero to 5% for the restricted stock
awards. The restricted stock granted to directors vests over periods ranging from six
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
months to one
year and the restricted stock granted to employees vest over four years based on continued service.
Below is a summary of restricted stock activity for the six months ended June 30, 2010:
Shares of | Weighted Average | |||||||
Restricted | Grant Date | |||||||
Stock | Fair Value | |||||||
Outstanding at December 31, 2009 |
764,078 | $ | 11.10 | |||||
Granted |
679,308 | $ | 17.94 | |||||
Forfeited |
(2,719 | ) | $ | 11.03 | ||||
Vested |
(189,885 | ) | $ | 12.64 | ||||
Outstanding at June 30, 2010 |
1,250,782 | $ | 14.58 | |||||
Unvested restricted stock at June 30, 2010 |
1,250,782 | $ | 14.58 | |||||
The Company recorded compensation expense of $1,753 and Cinemark Holdings, Inc. recorded
an additional $381 related to these restricted stock awards during the six months ended June 30,
2010. As of June 30, 2010, the remaining unrecognized compensation expense related to restricted
stock awards was $15,214 and the weighted average period over which this remaining compensation
expense will be recognized is approximately three years. Upon vesting, the Company receives an
income tax deduction. The total fair value of shares that vested during the six months ended June
30, 2010 was $3,260. The Company recognized a tax benefit of approximately $1,229 related to these
vested shares. 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.
Restricted Stock Units During the six months ended June 30, 2010, Cinemark Holdings, Inc.
granted restricted stock units to employees of the Company representing 396,432 hypothetical shares
of common stock under the Restated Incentive Plan. 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 three fiscal year period ending December 31, 2012 based on a formula utilizing a
multiple of Adjusted EBITDA subject to certain specified adjustments (as defined in the restricted
stock unit award agreement). The financial performance factors for the restricted stock units have
a threshold, target and maximum level of payment opportunity. If the IRR for the three year period
is at least 8.5%, which is the threshold, one-third of the restricted stock units vest. If the IRR
for the three year period is at least 10.5%, which is the target, two-thirds of the restricted
stock units vest. If the IRR for the three year period is at least 12.5%, which is the maximum,
100% of the restricted stock units vest. Grantees are eligible to receive a ratable portion of the
common stock issuable if the IRR is within the targets previously noted. All payouts of restricted
stock units that vest will be subject to an additional service requirement and will be paid in the
form of common stock if the participant continues to provide services through March 31, 2014, which
is the fourth anniversary of the grant date. Restricted stock unit award participants are eligible
to receive dividend equivalent payments if and at the time the restricted stock unit awards are
paid out.
Below is a table summarizing the potential number of shares that could vest under restricted
stock unit awards granted during the six months ended June 30, 2010 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 8.5% |
132,144 | $ | 2,423 | |||||
at IRR of at least 10.5% |
264,288 | $ | 4,847 | |||||
at IRR of at least 12.5% |
396,432 | $ | 7,271 |
Due to the fact that the IRR for the three year performance period could not be
determined at the time of grant, the Company estimated that the most likely outcome is the
achievement of the mid-point IRR level. The Company assumed a forfeiture rate of 5% for the
restricted stock unit awards. If during the service period, additional information becomes
available to lead the Company to believe a different IRR level will be achieved for the three
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
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.
During the six months ended June 30, 2010, the Compensation Committee of Cinemark Holdings,
Inc.s board of directors approved a modification of restricted stock unit awards granted to
employees during 2008. Cinemark Holdings, Inc.s Compensation Committee also approved the
cancellation and replacement of restricted stock unit awards granted to the Companys top five
executive officers during 2008. Both the modification and the cancellation and replacement were
accounted for as modifications of share based awards. As a result of these modifications, the
Company recorded incremental compensation expense of approximately $391 during the six months ended
June 30, 2010, which represents the difference between the grant date fair value and the
modification date fair value of these awards for the portion of the service period that has been
satisfied. The service period for the modified awards did not change. The Company will record
additional incremental compensation expense of $304 over the remaining service period.
No restricted stock unit awards have vested. There were no forfeitures of restricted stock
unit awards during the six months ended June 30, 2010. The Company recorded compensation expense of
$1,120 related to these restricted stock unit awards during the six months ended June 30, 2010,
including the aforementioned $391 related to the modification of the 2008 restricted stock unit
awards. As of June 30, 2010, the Company had restricted stock units outstanding that represented a
total of 883,943 hypothetical shares of common stock, net of actual cumulative forfeitures of
20,019 units, assuming the maximum IRR of at least 12.5% is achieved for all of the grants. As of
June 30, 2010, the remaining unrecognized compensation expense related to the outstanding
restricted stock unit awards was $6,622, which assumes the mid-point IRR level will be achieved for
all of the restricted stock units outstanding. The weighted average period over which this
remaining compensation expense will be recognized is approximately three years.
10. Long-Term Debt Activity
Senior Notes
On June 29, 2009, Cinemark USA, Inc. issued $470,000 aggregate principal amount of 8.625%
senior notes due 2019 with an original issue discount of $11,468, resulting in proceeds of
approximately $458,532. The proceeds were primarily used to fund the repurchase of $402,459
aggregate principal amount at maturity of Cinemark, Inc.s 9 3/4% senior discount notes discussed
below. Interest is payable on June 15 and December 15 of each year beginning December 15, 2009. The
senior notes mature on June 15, 2019. As of June 30, 2010, the carrying value of the senior notes
was $459,278.
Cash Tender Offer for Cinemark, Inc.s 9 3/4% Senior Discount Notes due 2014
On June 15, 2009, Cinemark, Inc. commenced a cash tender offer for any and all of its 9 3/4%
senior discount notes due 2014, of which $419,403 aggregate principal amount at maturity remained
outstanding. In connection with the tender offer, Cinemark, Inc. solicited consents to adopt
proposed amendments to the indenture to eliminate substantially all restrictive covenants and
certain events of default provisions. On June 29, 2009, approximately $402,459 aggregate principal
amount at maturity of the 9 3/4% senior discount notes were tendered and repurchased by Cinemark,
Inc. for approximately $433,415, including accrued interest of $11,336 and tender premiums paid of
$19,620. The Company funded the repurchase with a dividend paid to Cinemark, Inc. utilizing the
proceeds from the issuance of its senior notes discussed above.
Amendment and Extension of Senior Secured Credit Facility
On March 2, 2010, the Company completed an amendment and extension to its existing senior
secured credit facility to primarily extend the maturities of the facility and make certain other
modifications. Approximately $924,375 of the Companys then remaining outstanding $1,083,600 term
loan debt was extended from an original maturity date of October 2013 to a maturity date of April
2016. The remaining term loan debt of $159,225 that was not extended matures on the original
maturity date of October 2013. Payments on the extended amount are due in equal quarterly
installments of $2,311 through March 31, 2016 with the remaining principal amount of $866,602 due
April 30, 2016. Payments on the original amount that was not extended are due in equal quarterly
installments
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
of approximately $398 beginning March 31, 2010 through September 30, 2012 and increase
to approximately $37,418 each calendar quarter from December 31, 2012 to June 30, 2013 with one
final payment of approximately $42,593 at maturity on October 5, 2013. The amendment also imposed a
1.0% prepayment premium for one year on certain prepayments of the extended portion of the term
loan debt. As of June 30, 2010, there was $1,078,182 outstanding under the term loan.
The interest rate on the original term loan debt that was not extended accrues interest, at
Cinemark USA, Inc.s option, at: (A) the base rate equal to the higher of (1) the prime lending
rate as set forth on the British Banking Association Telerate page 5, or (2) the federal funds
effective rate from time to time plus 0.50% (the base rate), plus a margin that ranges from 0.50%
to 0.75% per annum, or (B) a eurodollar rate plus a margin that ranges from 1.50% to 1.75%, per
annum. The margin of the original term loan debt is a function of the applicable corporate credit
rating. The interest rate on the original portion of the term loan debt accrues interest, at
Cinemark USA, Inc.s option at: (A) the base rate equal to the higher of (1) the prime lending rate
as set forth on the British Banking Association Telerate page 5, or (2) the federal funds effective
rate from time to time plus 0.50%, plus a 2.25% margin per annum, or (B) a eurodollar rate plus a
3.25% margin per annum.
In addition, the maturity date of $73,500 of Cinemark USA, Inc.s $150,000 revolving credit
line has been extended from October 2012 to March 2015. The maturity date of the remaining $76,500
of Cinemark USA, Inc.s revolving credit line did not change and remains October 2012. As of June
30, 2010, the Company had no borrowings outstanding under the revolving credit line. The interest
rate on the original revolving credit line accrues interest, at Cinemark USA, Inc.s option, at:
(A) a base rate equal to the higher of (1) the prime lending rate as set forth on the British
Banking Association Telerate page 5 and (2) the federal funds effective rate from time to time plus
0.50%, plus a margin that ranges from 0.50% to 1.00% per annum, or (B) a eurodollar rate plus a
margin that ranges from 1.50% to 2.00% per annum. The interest rate on the extended revolving
credit line accrues interest, at Cinemark USA, Inc.s option at: (A) the base rate equal to the
higher of (1) the prime lending rate as set forth on the British Banking Association Telerate page
5, or (2) the federal funds effective rate from time to time plus 0.50%, plus a margin that ranges
from 1.75% to 2.0% per annum, or (B) a eurodollar rate plus a margin that ranges from 2.75% to
3.0% per annum. The margin of the revolving credit line is a function of the consolidated net
senior secured leverage ratio as defined in the credit agreement.
The Company incurred debt issue costs of approximately $8,700 during the six months ended June
30, 2010 related to the amendment and extension of its senior secured credit facility. These costs
will be amortized using the straight-line method over the remaining term of the facility.
Fair Value of Long-Term Debt
The Company estimates the fair value of its long-term debt primarily using quoted market
prices, which fall under Level 2 of the U.S. GAAP fair value hierarchy as defined by FASB ASC Topic
820-10-35. The carrying value of the Companys long-term debt was $1,537,917 and $1,543,705 as of
June 30, 2010 and December 31, 2009, respectively. The fair value of the Companys long-term debt
was $1,516,184 and $1,513,838 as of June 30, 2010 and December 31, 2009, respectively.
11. Interest Rate Swap Agreements
The Company has two interest rate swap agreements, both of which qualify for cash flow hedge
accounting. The fair values of the interest rate swaps are recorded on the Companys condensed
consolidated balance sheet as an asset or liability with the effective portion of the interest rate
swaps gains or losses reported as a component of accumulated other comprehensive loss and the
ineffective portion reported in earnings. The evaluation technique used to determine fair value is
the income approach and under this approach, the Company uses projected future interest rates as
provided by counterparties to the interest rate swap agreements and the fixed rates that the
Company is obligated to pay under these agreements. The Companys measurements use significant
unobservable inputs, which fall in Level 3 of the U.S. GAAP fair value hierarchy as defined by FASB
ASC Topic 820-10-35. There were no changes in valuation techniques during the period, no transfers
in or out of Level 3 and no gains or losses included in earnings that were attributable to the
change in unrealized gains or losses related to the interest rate swap agreements.
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CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
As of June 30, 2010, the aggregate fair values of the two interest rate swap agreements
was a liability of approximately $19,257 which has been recorded as a component of other long-term
liabilities. A corresponding cumulative amount of $11,824, which is net of deferred taxes of
$7,433, has been recorded as an increase in accumulated other comprehensive loss on the Companys
condensed consolidated balance sheet as of June 30, 2010. The interest rate swaps exhibited no
ineffectiveness during the six months ended June 30, 2010.
Below is a reconciliation of our interest rate swap values from January 1 to June 30:
2010 | 2009 | |||||||
Beginning liability balance January 1 |
$ | 18,524 | $ | 24,781 | ||||
Total (gain) loss included in accumulated other comprehensive loss |
733 | (5,786 | ) | |||||
Ending liability balance June 30 |
$ | 19,257 | $ | 18,995 | ||||
The Company amortized approximately $2,317 to interest expense during each of the six
months ended June 30, 2009 and 2010, related to a previously terminated interest rate swap
agreement. The Company will amortize approximately $4,634 to interest expense for this terminated
interest rate swap agreement over the next twelve months.
12. Goodwill and Other Intangible Assets
The Companys goodwill was as follows:
U.S. | International | |||||||||||
Operating | Operating | |||||||||||
Segment | Segment | Total | ||||||||||
Balance at December 31, 2009 (1) |
$ | 948,026 | $ | 168,276 | $ | 1,116,302 | ||||||
Foreign currency translation adjustments |
| (1,959 | ) | (1,959 | ) | |||||||
Balance at June 30, 2010 (1) |
$ | 948,026 | $ | 166,317 | $ | 1,114,343 | ||||||
(1) | Balances are presented net of accumulated impairment losses of $214,031 for the U.S. operating segment and $27,622 for the international operating segment. |
The Company evaluates goodwill for impairment on an annual basis during the fourth
quarter or whenever events or changes in circumstances indicate the carrying value of goodwill
might exceed its estimated fair value.
The Company evaluates goodwill for impairment at the reporting unit level and has allocated
goodwill to the reporting unit based on an estimate of its relative fair value. The Company
considers the reporting unit to be each of its sixteen regions in the U.S. and each of its eight
countries internationally (Honduras, El Salvador, Nicaragua, Costa Rica, Panama and Guatemala are
considered one reporting unit). Goodwill impairment is evaluated using a two-step approach
requiring the Company to compute the fair value of a reporting unit and compare it with its
carrying value. If the carrying value of the reporting unit exceeds the estimated fair value, a
second step is performed to measure the potential goodwill impairment. Significant judgment is
involved in estimating cash flows and fair value. Managements 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 evaluation performed during the fourth quarter of 2009. No events or changes in
circumstances occurred during the six months ended June 30, 2010, that indicated that the carrying
value of goodwill might exceed its estimated fair value.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
Intangible assets consisted of the following:
Balance at | Foreign Currency | Balance at | ||||||||||||||
December 31, | Translation | June 30, | ||||||||||||||
2009 | Amortization | Adjustments & Other | 2010 | |||||||||||||
Intangible assets with finite lives: |
||||||||||||||||
Vendor contracts: |
||||||||||||||||
Gross carrying amount |
$ | 56,474 | $ | | $ | 61 | $ | 56,535 | ||||||||
Accumulated amortization |
(29,870 | ) | (1,634 | ) | | (31,504 | ) | |||||||||
Net carrying amount |
26,604 | (1,634 | ) | 61 | 25,031 | |||||||||||
Other intangible assets: |
||||||||||||||||
Gross carrying amount |
26,510 | | (1,896 | ) | 24,614 | |||||||||||
Accumulated amortization |
(20,596 | ) | (1,125 | ) | 726 | (20,995 | ) | |||||||||
Net carrying amount |
5,914 | (1,125 | ) | (1,170 | ) | 3,619 | ||||||||||
Total net intangible assets with finite lives |
32,518 | (2,759 | ) | (1,109 | ) | 28,650 | ||||||||||
Intangible assets with indefinite lives: |
||||||||||||||||
Tradename |
310,480 | | 80 | 310,560 | ||||||||||||
Total intangible assets net |
$ | 342,998 | $ | (2,759 | ) | $ | (1,029 | ) | $ | 339,210 | ||||||
Estimated aggregate future amortization expense for intangible assets is as follows:
For the six months ended December 31, 2010 |
$ | 2,643 | ||
For the twelve months ended December 31, 2011 |
5,158 | |||
For the twelve months ended December 31, 2012 |
5,002 | |||
For the twelve months ended December 31, 2013 |
4,256 | |||
For the twelve months ended December 31, 2014 |
3,710 | |||
Thereafter |
7,881 | |||
Total |
$ | 28,650 | ||
13. 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, future years budgeted theatre level
cash flows, theatre property and equipment carrying values, amortizing intangible assets carrying
values, the age of a recently built theatre, competitive theatres in the marketplace, changes in
foreign currency exchange rates, 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 theatres useful life. The remainder of the useful life correlates with the
available remaining lease period, which includes the probability of renewal periods for leased
properties and a period of twenty years for fee owned properties. If the estimated undiscounted
cash flows are not sufficient to recover a long-lived assets 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 fair value. The estimated
aggregate fair value of the long-lived assets impaired during the six months ended June 30, 2010
was approximately $5,504.
Significant judgment is involved in estimating cash flows and fair value. Managements
estimates, which fall under Level 3 of the U.S. GAAP fair value hierarchy as defined by FASB ASC
Topic 820-10-35, are based on historical and projected operating performance, recent market
transactions and current industry trading multiples. Fair value is determined based on a multiple
of cash flows, which was six and a half times for the evaluations performed during the six months
ended June 30, 2009 and 2010.
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CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
The long-lived asset impairment charges recorded during this period are specific to theatres
that were directly and individually impacted by increased competition, or adverse changes in market
demographics.
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
United States theatre properties |
$ | 2,494 | $ | 3,844 | $ | 2,841 | $ | 4,665 | ||||||||
International theatre properties |
1,063 | 86 | 1,063 | 233 | ||||||||||||
Subtotal |
$ | 3,557 | $ | 3,930 | $ | 3,904 | $ | 4,898 | ||||||||
Intangible assets |
1,131 | | 1,131 | 71 | ||||||||||||
Impairment of long-lived assets |
$ | 4,688 | $ | 3,930 | $ | 5,035 | $ | 4,969 | ||||||||
14. Foreign Currency Translation
The accumulated other comprehensive loss account in stockholders equity of $7,459 and $10,370
at December 31, 2009 and June 30, 2010, respectively, includes the cumulative foreign currency
adjustments of $16,070 and $11,299, respectively, from translating the financial statements of the
Companys international subsidiaries, and also includes the change in fair values of the Companys
interest rate swap agreements.
In 2009 and 2010, all foreign countries where the Company has operations were deemed
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.
On June 30, 2010, the exchange rate for the Brazilian real was 1.80 reais to the U.S. dollar
(the exchange rate was 1.75 reais to the U.S. dollar at December 31, 2009). As a result, the effect
of translating the June 30, 2010 Brazilian financial statements into U.S. dollars is reflected as a
cumulative foreign currency translation adjustment to the accumulated other comprehensive loss
account as a decrease in stockholders equity of $5,724. At June 30, 2010, the total assets of the
Companys Brazilian subsidiaries were U.S. $274,317.
On June 30, 2010, the exchange rate for the Mexican peso was 12.84 pesos to the U.S. dollar
(the exchange rate was 13.04 pesos to the U.S. dollar at December 31, 2009). As a result, the
effect of translating the June 30, 2010 Mexican financial statements into U.S. dollars is reflected
as a cumulative foreign currency translation adjustment to the accumulated other comprehensive loss
account as an increase in stockholders equity of $1,513. At June 30, 2010, the total assets of the
Companys Mexican subsidiaries were U.S. $127,081.
On June 30, 2010, the exchange rate for the Chilean peso was 550.66 pesos to the U.S. dollar
(the exchange rate was 519.30 pesos to the U.S. dollar at December 31, 2009). As a result, the
effect of translating the June 30, 2010 Chilean financial statements into U.S. dollars is reflected
as a cumulative foreign currency translation adjustment to the accumulated other comprehensive loss
account as a decrease in stockholders equity of $1,232. At June 30, 2010, the total assets of the
Companys Chilean subsidiaries were U.S. $31,559.
The effect of translating the June 30, 2010 financial statements of the Companys other
international subsidiaries, with local currencies other than the U.S. dollar, is reflected as a
cumulative foreign currency translation adjustment to the accumulated other comprehensive loss
account as an increase in stockholders equity of $1,758.
During June 2010, the Companys ownership in its Colombian subsidiary increased from 50.1% to
100%, as a result of the Colombia Share Exchange. As part of this transaction, the Company recorded
the amount of accumulated other comprehensive loss previously allocated to the noncontrolling
interest of $1,086 to accumulated other comprehensive loss with an offsetting credit to additional
paid-in-capital. See Note 3.
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CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
15. Supplemental Cash Flow Information
The following is provided as supplemental information to the condensed consolidated statements of
cash flows:
Six Months Ended | ||||||||
June 30, | ||||||||
2010 | 2009 | |||||||
Cash paid for interest |
$ | 47,788 | $ | 28,220 | ||||
Cash paid for income taxes, net of refunds received |
$ | 56,429 | $ | 33,893 | ||||
Noncash investing and financing activities: |
||||||||
Change in accounts payable and accrued expenses for the acquisition of theatre properties
and equipment (1) |
$ | 97 | $ | (7,118 | ) | |||
Theatre properties acquired under capital lease (2) |
$ | 2,191 | $ | 20,400 | ||||
Change in fair market values of interest rate swap agreements, net of taxes |
$ | (456 | ) | $ | 3,605 | |||
Investment in NCM receipt of common units (see Note 6) |
$ | 30,683 | $ | 15,536 | ||||
Investment in NCM change of interest gain (see Note 6) |
$ | 271 | $ | | ||||
Equipment contributed to DCIP (see Note 7) |
$ | 18,090 | $ | | ||||
Investment in Real D (see Note 8) |
$ | 6,521 | $ | | ||||
Capital contribution from former parent, Cinemark, Inc., primarily related to income taxes |
$ | | $ | 35,875 | ||||
Capital contribution from Cinemark Holdings, Inc. as a result of Colombia Share Exchange
(see Note 3) |
$ | 6,951 | $ | |
(1) | Additions to theatre properties and equipment included in accounts payable as of December 31, 2009 and June 30, 2010 were $7,823 and $7,919, respectively. | |
(2) | Amount recorded during the six months ended June 30, 2009 was a result of the acquisition of theatres in the U.S. as discussed in Note 5. |
16. Segments
The Company manages its international market and its U.S. market as separate reportable
operating segments. The international segment consists of operations in Brazil, Mexico, Chile,
Colombia, Argentina, Ecuador, Peru, Honduras, El Salvador, Nicaragua, Costa Rica, Panama and
Guatemala. The U.S. segment includes U.S. and Canada operations. Each segments revenue is derived
from admissions and concession sales and other ancillary revenues, primarily screen advertising.
The measure of segment profit and loss the Company uses to evaluate performance and allocate its
resources is Adjusted EBITDA, as defined in the reconciliation table below. The Company does not
report asset information by segment because that information is not used to evaluate the
performance of or allocate resources between segments.
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CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
Below is a breakdown of selected financial information by reportable operating segment:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Revenues |
||||||||||||||||
U.S. |
$ | 410,964 | $ | 419,575 | $ | 799,579 | $ | 761,019 | ||||||||
International |
129,641 | 98,962 | 258,912 | 184,158 | ||||||||||||
Eliminations |
(1,236 | ) | (1,029 | ) | (2,491 | ) | (1,869 | ) | ||||||||
Total Revenues |
$ | 539,369 | $ | 517,508 | $ | 1,056,000 | $ | 943,308 | ||||||||
Adjusted EBITDA |
||||||||||||||||
U.S. |
$ | 96,857 | $ | 100,879 | $ | 186,596 | $ | 182,850 | ||||||||
International |
28,568 | 20,216 | 60,944 | 36,485 | ||||||||||||
Total Adjusted EBITDA |
$ | 125,425 | $ | 121,095 | $ | 247,540 | $ | 219,335 | ||||||||
Capital Expenditures |
||||||||||||||||
U.S. |
$ | 23,508 | $ | 27,171 | $ | 36,008 | $ | 43,422 | ||||||||
International |
13,935 | 10,875 | 20,952 | 17,496 | ||||||||||||
Total Capital Expenditures |
$ | 37,443 | $ | 38,046 | $ | 56,960 | $ | 60,918 | ||||||||
The following table sets forth a reconciliation of net income to Adjusted EBITDA:
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net income |
$ | 41,062 | $ | 43,552 | $ | 78,109 | $ | 68,485 | ||||||||
Add (deduct): |
||||||||||||||||
Income taxes |
10,392 | 18,190 | 30,425 | 36,651 | ||||||||||||
Interest expense (1) |
28,605 | 15,257 | 54,615 | 30,539 | ||||||||||||
Other (income) expense (2) |
1,455 | (994 | ) | 643 | (2,128 | ) | ||||||||||
Depreciation and amortization |
34,657 | 37,535 | 68,590 | 73,668 | ||||||||||||
Amortization of favorable/unfavorable leases |
258 | 346 | 416 | 669 | ||||||||||||
Impairment of long-lived assets |
4,688 | 3,930 | 5,035 | 4,969 | ||||||||||||
Loss on sale of assets and other |
1,191 | 1,186 | 4,358 | 1,458 | ||||||||||||
Deferred lease expenses |
914 | 1,034 | 1,697 | 2,121 | ||||||||||||
Amortization of long-term prepaid rents |
438 | 360 | 779 | 750 | ||||||||||||
Share based awards compensation expense |
1,765 | 699 | 2,873 | 2,153 | ||||||||||||
Adjusted EBITDA |
$ | 125,425 | $ | 121,095 | $ | 247,540 | $ | 219,335 | ||||||||
(1) | Includes amortization of debt issue costs. | |
(2) | Includes interest income, foreign currency exchange gain, and equity in loss of affiliates and excludes distributions from NCM. Distributions from NCM are reported entirely within the U.S. operating segment. |
Financial Information About Geographic Areas
The Company has operations in the U.S., Canada, Brazil, Mexico, Chile, Colombia, Argentina,
Ecuador, Peru, Honduras, El Salvador, Nicaragua, Costa Rica, Panama and Guatemala, which are
reflected in the condensed consolidated financial statements. Below is a breakdown of selected
financial information by geographic area:
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
Revenues | 2010 | 2009 | 2010 | 2009 | ||||||||||||
U.S. and Canada |
$ | 410,964 | $ | 419,575 | $ | 799,579 | $ | 761,019 | ||||||||
Brazil |
69,999 | 49,323 | 139,217 | 92,581 | ||||||||||||
Mexico |
17,715 | 15,311 | 35,097 | 29,528 | ||||||||||||
Other foreign countries |
41,927 | 34,328 | 84,598 | 62,049 | ||||||||||||
Eliminations |
(1,236 | ) | (1,029 | ) | (2,491 | ) | (1,869 | ) | ||||||||
Total |
$ | 539,369 | $ | 517,508 | $ | 1,056,000 | $ | 943,308 | ||||||||
20
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CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
June 30, | December 31, | |||||||
Theatre Properties and Equipment-net | 2010 | 2009 | ||||||
U.S. and Canada |
$ | 1,000,033 | $ | 1,040,395 | ||||
Brazil |
97,797 | 91,996 | ||||||
Mexico |
37,938 | 39,371 | ||||||
Other foreign countries |
48,486 | 47,826 | ||||||
Total |
$ | 1,184,254 | $ | 1,219,588 | ||||
17. Related Party Transactions
The Company leased one theatre from Plitt Plaza Joint Venture (Plitt Plaza) on a
month-to-month basis. Plitt Plaza is indirectly owned by Lee Roy Mitchell, Cinemark Holdings,
Inc.s Chairman of the Board, who owns approximately 12% of Cinemark Holdings, Inc.s issued and
outstanding shares of common stock. Annual rent is approximately $118 plus certain taxes,
maintenance expenses and insurance. The Company recorded $59 and $30 of facility lease and other
operating expenses payable to Plitt Plaza joint venture during the six months ended June 30, 2009
and 2010, respectively. The Company closed this theatre during March 2010. During the six months
ended June 30, 2010, the Company recorded approximately $107 related to the termination of the
lease, which is reflected in loss on sale of assets and other on the condensed consolidated
statements of income.
The Company manages one theatre 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 Mitchells son-in-law. 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 $49 and $50 of management fee revenues
during the six months ended June 30, 2009 and 2010, respectively. All such amounts are included in
the Companys condensed consolidated financial statements with the intercompany amounts eliminated
in consolidation.
The Company leases 21 theatres and one parking facility from Syufy Enterprises, LP (Syufy)
or affiliates of Syufy, which owns approximately 2% of Cinemark Holdings, Inc.s issued and
outstanding shares of common stock. Raymond Syufy is one of Cinemark Holdings, Inc.s directors and
is an officer of the general partner of Syufy. Of these 22 leases, 18 have fixed minimum annual
rent in an aggregate amount of approximately $21,029. The four leases without minimum annual rent
have rent based upon a specified percentage of gross sales as defined in the lease with no minimum
annual rent. For the six months ended June 30, 2009 and 2010, the Company paid approximately $850
and $687, respectively, in percentage rent for these four leases.
The Company has paid certain fees and expenses on behalf of its parent, Cinemark Holdings,
Inc. and Cinemark Holdings, Inc. has paid income taxes on behalf of the Company. The net receivable
from Cinemark Holdings, Inc. as of June 30, 2010 and December 31, 2009 was $8,281 and $7,656,
respectively.
18. Income Taxes
During the six months ended June 30, 2010, the Company had a reduction in its liabilities for
uncertain tax positions of approximately $14,115 due to settlements and closures of various tax
years. These settlements and closures also resulted in a reduction in income tax expense of
approximately $8,882 for the six months ended June 30, 2010.
19. Commitments and Contingencies
From time to time, the Company is involved in various legal proceedings arising from the
ordinary course of its business operations, such as personal injury claims, employment matters,
landlord-tenant disputes 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 Companys financial position, results of
operations and cash flows.
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CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
20. Condensed Consolidating Financial Information of Subsidiary Guarantors
As of June 30, 2010, the Company had outstanding $470,000 aggregate principal amount of 8.625%
senior notes due 2019. These senior notes are fully and unconditionally guaranteed on a joint and
several senior unsecured basis by the following subsidiaries of Cinemark USA, Inc.:
Cinemark, L.L.C., Sunnymead Cinema Corp., Cinemark Properties, Inc., Greeley Holdings, Inc.,
Trans Texas Cinema, Inc., Cinemark Mexico (USA), Inc., Brasil Holdings, LLC, Cinemark Leasing
Company, Cinemark Partners I, Inc., Multiplex Properties, Inc., Multiplex Services, Inc., CNMK
Investments, Inc., CNMK Texas Properties, LLC.,
Cinemark Concessions LLC, Laredo Theatres, Ltd, 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:
1. | Condensed consolidating balance sheet information as of December 31, 2009 and June 30, 2010, condensed consolidating statements of income information for each of the three and six months ended June 30, 2009 and 2010, and condensed consolidating statements of cash flows information for each of the six months ended June 30, 2009 and 2010. | ||
2. | 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 (loss) 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. | ||
3. | Elimination entries necessary to consolidate the Parent and all of its Subsidiaries. |
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CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION
JUNE 30, 2010
JUNE 30, 2010
Parent | Subsidiary | Subsidiary | ||||||||||||||||||
Company | Guarantors | Non-Guarantors | Eliminations | Consolidated | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Assets |
||||||||||||||||||||
Current assets |
||||||||||||||||||||
Cash and cash equivalents |
$ | 34,538 | $ | 217,660 | $ | 183,517 | $ | | $ | 435,715 | ||||||||||
Other current assets |
53,642 | 34,251 | 28,523 | (38,773 | ) | 77,643 | ||||||||||||||
Accounts receivable from (payable to) parent |
(196,230 | ) | 246,966 | (42,455 | ) | | 8,281 | |||||||||||||
Total current assets |
(108,050 | ) | 498,877 | 169,585 | (38,773 | ) | 521,639 | |||||||||||||
Theatre properties and equipment net |
305,237 | 675,837 | 203,180 | | 1,184,254 | |||||||||||||||
Other assets |
2,738,495 | 632,858 | 365,745 | (2,129,614 | ) | 1,607,484 | ||||||||||||||
Total assets |
$ | 2,935,682 | $ | 1,807,572 | $ | 738,510 | $ | (2,168,387 | ) | $ | 3,313,377 | |||||||||
Liabilities and equity |
||||||||||||||||||||
Current liabilities |
||||||||||||||||||||
Current portion of long-term debt |
$ | 10,836 | $ | | $ | 276 | $ | | $ | 11,112 | ||||||||||
Current portion of capital lease obligations |
1,436 | 5,262 | 646 | | 7,344 | |||||||||||||||
Accounts payable and accrued expenses |
103,725 | 75,432 | 84,421 | (31,672 | ) | 231,906 | ||||||||||||||
Total current liabilities |
115,997 | 80,694 | 85,343 | (31,672 | ) | 250,362 | ||||||||||||||
Long-term liabilities |
||||||||||||||||||||
Long-term debt, less current portion |
1,552,078 | 1,440 | 33,179 | (59,892 | ) | 1,526,805 | ||||||||||||||
Capital lease obligations, less current portion |
27,733 | 97,374 | 6,573 | | 131,680 | |||||||||||||||
Other long-term liabilities and deferrals |
282,673 | 166,446 | 58,224 | (71,492 | ) | 435,851 | ||||||||||||||
Total long-term liabilities |
1,862,484 | 265,260 | 97,976 | (131,384 | ) | 2,094,336 | ||||||||||||||
Commitments and contingencies |
||||||||||||||||||||
Equity |
||||||||||||||||||||
Cinemark USA, Inc.s stockholders equity: |
||||||||||||||||||||
Common stock |
49,543 | 457,372 | 167,765 | (625,137 | ) | 49,543 | ||||||||||||||
Other stockholders equity |
907,658 | 1,003,877 | 376,317 | (1,380,194 | ) | 907,658 | ||||||||||||||
Total Cinemark USA, Inc. stockholders equity |
957,201 | 1,461,249 | 544,082 | (2,005,331 | ) | 957,201 | ||||||||||||||
Noncontrolling interests |
| 369 | 11,109 | | 11,478 | |||||||||||||||
Total equity |
957,201 | 1,461,618 | 555,191 | (2,005,331 | ) | 968,679 | ||||||||||||||
Total liabilities and equity |
$ | 2,935,682 | $ | 1,807,572 | $ | 738,510 | $ | (2,168,387 | ) | $ | 3,313,377 | |||||||||
23
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CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION
DECEMBER 31, 2009
DECEMBER 31, 2009
Parent | Subsidiary | Subsidiary | ||||||||||||||||||
Company | Guarantors | Non-Guarantors | Eliminations | Consolidated | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Assets |
||||||||||||||||||||
Current assets |
||||||||||||||||||||
Cash and cash equivalents |
$ | 39,761 | $ | 237,540 | $ | 160,436 | $ | | $ | 437,737 | ||||||||||
Other current assets |
55,841 | 32,800 | 16,516 | (36,113 | ) | 69,044 | ||||||||||||||
Accounts receivable from (payable to) parent |
(153,678 | ) | 173,888 | (12,554 | ) | | 7,656 | |||||||||||||
Total current assets |
(58,076 | ) | 444,228 | 164,398 | (36,113 | ) | 514,437 | |||||||||||||
Theatre properties and equipment net |
307,089 | 713,860 | 198,639 | | 1,219,588 | |||||||||||||||
Other assets |
2,623,968 | 637,645 | 318,536 | (2,030,586 | ) | 1,549,563 | ||||||||||||||
Total assets |
$ | 2,872,981 | $ | 1,795,733 | $ | 681,573 | $ | (2,066,699 | ) | $ | 3,283,588 | |||||||||
Liabilities and equity |
||||||||||||||||||||
Current liabilities |
||||||||||||||||||||
Current portion of long-term debt |
$ | 11,200 | $ | | $ | 1,027 | $ | | $ | 12,227 | ||||||||||
Current portion of capital lease obligations |
1,313 | 5,527 | 500 | | 7,340 | |||||||||||||||
Accounts payable and accrued expenses |
120,790 | 94,721 | 75,982 | (30,326 | ) | 261,167 | ||||||||||||||
Total current liabilities |
133,303 | 100,248 | 77,509 | (30,326 | ) | 280,734 | ||||||||||||||
Long-term liabilities |
||||||||||||||||||||
Long-term debt, less current portion |
1,532,151 | 4,440 | 35,930 | (41,043 | ) | 1,531,478 | ||||||||||||||
Capital lease obligations, less current portion |
28,491 | 99,819 | 4,718 | | 133,028 | |||||||||||||||
Other long-term liabilities and deferrals |
271,691 | 156,797 | 57,898 | (70,179 | ) | 416,207 | ||||||||||||||
Total long-term liabilities |
1,832,333 | 261,056 | 98,546 | (111,222 | ) | 2,080,713 | ||||||||||||||
Commitments and contingencies |
||||||||||||||||||||
Equity |
||||||||||||||||||||
Cinemark USA, Inc.s stockholders equity: |
||||||||||||||||||||
Common stock |
49,543 | 457,372 | 167,765 | (625,137 | ) | 49,543 | ||||||||||||||
Other stockholders equity |
857,802 | 976,729 | 323,285 | (1,300,014 | ) | 857,802 | ||||||||||||||
Total Cinemark USA, Inc. stockholders equity |
907,345 | 1,434,101 | 491,050 | (1,925,151 | ) | 907,345 | ||||||||||||||
Noncontrolling interests |
| 328 | 14,468 | | 14,796 | |||||||||||||||
Total equity |
907,345 | 1,434,429 | 505,518 | (1,925,151 | ) | 922,141 | ||||||||||||||
Total liabilities and equity |
$ | 2,872,981 | $ | 1,795,733 | $ | 681,573 | $ | (2,066,699 | ) | $ | 3,283,588 | |||||||||
24
Table of Contents
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF INCOME INFORMATION
THREE MONTHS ENDED JUNE 30, 2010
THREE MONTHS ENDED JUNE 30, 2010
Parent | Subsidiary | Subsidiary | ||||||||||||||||||
Company | Guarantors | Non-Guarantors | Eliminations | Consolidated | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Revenues |
$ | 152,662 | $ | 270,392 | $ | 134,235 | $ | (17,920 | ) | $ | 539,369 | |||||||||
Cost of operations |
| | | | ||||||||||||||||
Theatre operating expenses |
133,969 | 176,658 | 101,225 | (17,920 | ) | 393,932 | ||||||||||||||
General and administrative expenses |
4,725 | 14,158 | 5,578 | | 24,461 | |||||||||||||||
Depreciation and amortization |
7,413 | 19,289 | 8,213 | | 34,915 | |||||||||||||||
Impairment of long-lived assets |
166 | 2,358 | 2,164 | | 4,688 | |||||||||||||||
Loss on sale of assets and other |
240 | 271 | 680 | | 1,191 | |||||||||||||||
Total cost of operations |
146,513 | 212,734 | 117,860 | (17,920 | ) | 459,187 | ||||||||||||||
Operating income |
6,149 | 57,658 | 16,375 | | 80,182 | |||||||||||||||
Other income (expense) |
||||||||||||||||||||
Interest expense |
(25,970 | ) | (2,896 | ) | (812 | ) | 1,073 | (28,605 | ) | |||||||||||
Distributions from NCM |
1 | | 1,331 | | 1,332 | |||||||||||||||
Equity in income (loss) of affiliates |
45,748 | 6,637 | (3,169 | ) | (52,398 | ) | (3,182 | ) | ||||||||||||
Other income |
91 | 1,157 | 1,552 | (1,073 | ) | 1,727 | ||||||||||||||
Total other income (expense) |
19,870 | 4,898 | (1,098 | ) | (52,398 | ) | (28,728 | ) | ||||||||||||
Income before income taxes |
26,019 | 62,556 | 15,277 | (52,398 | ) | 51,454 | ||||||||||||||
Income taxes |
(13,966 | ) | 21,244 | 3,114 | | 10,392 | ||||||||||||||
Net income |
39,985 | 41,312 | 12,163 | (52,398 | ) | 41,062 | ||||||||||||||
Less: Net income attributable to
noncontrolling interests |
| 11 | 1,066 | | 1,077 | |||||||||||||||
Net income attributable to Cinemark USA, Inc. |
$ | 39,985 | $ | 41,301 | $ | 11,097 | $ | (52,398 | ) | $ | 39,985 | |||||||||
25
Table of Contents
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF INCOME INFORMATION
THREE MONTHS ENDED JUNE 30, 2009
THREE MONTHS ENDED JUNE 30, 2009
Parent | Subsidiary | Subsidiary | ||||||||||||||||||
Company | Guarantors | Non-Guarantors | Eliminations | Consolidated | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Revenues |
$ | 153,534 | $ | 276,712 | $ | 104,625 | $ | (17,363 | ) | $ | 517,508 | |||||||||
Cost of operations |
||||||||||||||||||||
Theatre operating costs |
134,708 | 183,497 | 79,444 | (17,363 | ) | 380,286 | ||||||||||||||
General and administrative expenses |
4,044 | 13,778 | 5,425 | | 23,247 | |||||||||||||||
Depreciation and amortization |
6,493 | 24,203 | 7,185 | | 37,881 | |||||||||||||||
Impairment of long-lived assets |
166 | 3,678 | 86 | | 3,930 | |||||||||||||||
(Gain) loss on sale of assets and other |
292 | 906 | (12 | ) | | 1,186 | ||||||||||||||
Total cost of operations |
145,703 | 226,062 | 92,128 | (17,363 | ) | 446,530 | ||||||||||||||
Operating income |
7,831 | 50,650 | 12,497 | | 70,978 | |||||||||||||||
Other income (expense) |
||||||||||||||||||||
Interest expense |
(12,570 | ) | (3,083 | ) | (902 | ) | 1,298 | (15,257 | ) | |||||||||||
Distributions from NCM |
960 | | 4,067 | | 5,027 | |||||||||||||||
Equity in income (loss) of affiliates |
43,540 | 14,970 | (409 | ) | (58,516 | ) | (415 | ) | ||||||||||||
Other income |
217 | 1,243 | 1,247 | (1,298 | ) | 1,409 | ||||||||||||||
Total other income (expense) |
32,147 | 13,130 | 4,003 | (58,516 | ) | (9,236 | ) | |||||||||||||
Income before income taxes |
39,978 | 63,780 | 16,500 | (58,516 | ) | 61,742 | ||||||||||||||
Income taxes |
(2,437 | ) | 23,367 | (2,740 | ) | | 18,190 | |||||||||||||
Net income |
42,415 | 40,413 | 19,240 | (58,516 | ) | 43,552 | ||||||||||||||
Less: Net income attributable to
noncontrolling interests |
| 15 | 1,122 | | 1,137 | |||||||||||||||
Net income attributable to Cinemark USA, Inc. |
$ | 42,415 | $ | 40,398 | $ | 18,118 | $ | (58,516 | ) | $ | 42,415 | |||||||||
26
Table of Contents
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF INCOME INFORMATION
SIX MONTHS ENDED JUNE 30, 2010
SIX MONTHS ENDED JUNE 30, 2010
Parent | Subsidiary | Subsidiary | ||||||||||||||||||
Company | Guarantors | Non-Guarantors | Eliminations | Consolidated | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Revenues |
$ | 300,302 | $ | 525,285 | $ | 268,394 | $ | (37,981 | ) | $ | 1,056,000 | |||||||||
Cost of operations |
||||||||||||||||||||
Theatre operating expenses |
268,852 | 347,672 | 197,092 | (37,981 | ) | 775,635 | ||||||||||||||
General and administrative expenses |
9,010 | 27,771 | 12,671 | | 49,452 | |||||||||||||||
Depreciation and amortization |
14,325 | 38,540 | 16,141 | | 69,006 | |||||||||||||||
Impairment of long-lived assets |
513 | 2,358 | 2,164 | | 5,035 | |||||||||||||||
Loss on sale of assets and other |
628 | 1,589 | 2,141 | | 4,358 | |||||||||||||||
Total cost of operations |
293,328 | 417,930 | 230,209 | (37,981 | ) | 903,486 | ||||||||||||||
Operating income |
6,974 | 107,355 | 38,185 | | 152,514 | |||||||||||||||
Other income (expense) |
||||||||||||||||||||
Interest expense |
(49,249 | ) | (5,806 | ) | (1,480 | ) | 1,920 | (54,615 | ) | |||||||||||
Distributions from NCM |
980 | | 10,298 | | 11,278 | |||||||||||||||
Equity in income (loss) of affiliates |
96,333 | 22,002 | (3,167 | ) | (118,323 | ) | (3,155 | ) | ||||||||||||
Other income |
215 | 1,853 | 2,364 | (1,920 | ) | 2,512 | ||||||||||||||
Total other income (expense) |
48,279 | 18,049 | 8,015 | (118,323 | ) | (43,980 | ) | |||||||||||||
Income before income taxes |
55,253 | 125,404 | 46,200 | (118,323 | ) | 108,534 | ||||||||||||||
Income taxes |
(20,161 | ) | 39,297 | 11,289 | | 30,425 | ||||||||||||||
Net income |
75,414 | 86,107 | 34,911 | (118,323 | ) | 78,109 | ||||||||||||||
Less: Net income attributable to
noncontrolling interests |
| 31 | 2,664 | | 2,695 | |||||||||||||||
Net income attributable to Cinemark USA, Inc. |
$ | 75,414 | $ | 86,076 | $ | 32,247 | $ | (118,323 | ) | $ | 75,414 | |||||||||
27
Table of Contents
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF INCOME INFORMATION
SIX MONTHS ENDED JUNE 30, 2009
SIX MONTHS ENDED JUNE 30, 2009
Parent | Subsidiary | Subsidiary | ||||||||||||||||||
Company | Guarantors | Non-Guarantors | Eliminations | Consolidated | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Revenues |
$ | 273,337 | $ | 510,388 | $ | 194,701 | $ | (35,118 | ) | $ | 943,308 | |||||||||
Cost of operations |
||||||||||||||||||||
Theatre operating costs |
244,956 | 337,180 | 148,927 | (35,118 | ) | 695,945 | ||||||||||||||
General and administrative expenses |
7,731 | 26,866 | 10,061 | | 44,658 | |||||||||||||||
Depreciation and amortization |
12,061 | 48,695 | 13,581 | | 74,337 | |||||||||||||||
Impairment of long-lived assets |
981 | 3,684 | 304 | | 4,969 | |||||||||||||||
(Gain) loss on sale of assets and other |
208 | 1,342 | (92 | ) | | 1,458 | ||||||||||||||
Total cost of operations |
265,937 | 417,767 | 172,781 | (35,118 | ) | 821,367 | ||||||||||||||
Operating income |
7,400 | 92,621 | 21,920 | | 121,941 | |||||||||||||||
Other income (expense) |
||||||||||||||||||||
Interest expense |
(24,981 | ) | (6,222 | ) | (1,500 | ) | 2,164 | (30,539 | ) | |||||||||||
Distributions from NCM |
960 | | 10,646 | | 11,606 | |||||||||||||||
Equity in income (loss) of affiliates |
77,865 | 17,378 | (1,073 | ) | (95,190 | ) | (1,020 | ) | ||||||||||||
Other income |
499 | 2,135 | 2,678 | (2,164 | ) | 3,148 | ||||||||||||||
Total other income (expense) |
54,343 | 13,291 | 10,751 | (95,190 | ) | (16,805 | ) | |||||||||||||
Income before income taxes |
61,743 | 105,912 | 32,671 | (95,190 | ) | 105,136 | ||||||||||||||
Income taxes |
(4,819 | ) | 38,590 | 2,880 | | 36,651 | ||||||||||||||
Net income |
66,562 | 67,322 | 29,791 | (95,190 | ) | 68,485 | ||||||||||||||
Less: Net income attributable to
noncontrolling interests |
| 23 | 1,900 | | 1,923 | |||||||||||||||
Net income attributable to Cinemark USA, Inc. |
$ | 66,562 | $ | 67,299 | $ | 27,891 | $ | (95,190 | ) | $ | 66,562 | |||||||||
28
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CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
SIX MONTHS ENDED JUNE 30, 2010
SIX MONTHS ENDED JUNE 30, 2010
Parent | Subsidiary | Subsidiary | ||||||||||||||||||
Company | Guarantors | Non-Guarantors | Eliminations | Consolidated | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Operating activities |
||||||||||||||||||||
Net income |
$ | 75,414 | $ | 86,107 | $ | 34,911 | $ | (118,323 | ) | $ | 78,109 | |||||||||
Adjustments to reconcile net income to cash provided by
(used for) operating activities |
(97,447 | ) | 31,845 | 26,019 | 118,323 | 78,740 | ||||||||||||||
Changes in assets and liabilities |
85,066 | (121,601 | ) | (12,430 | ) | | (48,965 | ) | ||||||||||||
Net cash provided by (used for) operating activities |
63,033 | (3,649 | ) | 48,500 | | 107,884 | ||||||||||||||
Investing activities |
||||||||||||||||||||
Additions to theatre properties and equipment |
(18,818 | ) | (17,009 | ) | (21,133 | ) | | (56,960 | ) | |||||||||||
Proceeds from sale of theatre properties and equipment |
| 735 | 1,413 | | 2,148 | |||||||||||||||
Investment in joint venture DCIP, net of cash distributions |
| | (644 | ) | | (644 | ) | |||||||||||||
Net transactions with affiliates |
113 | 2,753 | | (2,866 | ) | | ||||||||||||||
Net cash used for investing activities |
(18,705 | ) | (13,521 | ) | (20,364 | ) | (2,866 | ) | (55,456 | ) | ||||||||||
Financing activities |
||||||||||||||||||||
Dividends paid to parent |
(34,375 | ) | | (115 | ) | 115 | (34,375 | ) | ||||||||||||
Payroll taxes paid as a result of noncash stock option
exercises and restricted stock withholdings |
(416 | ) | | | | (416 | ) | |||||||||||||
Payment of debt issue costs |
(8,706 | ) | | | | (8,706 | ) | |||||||||||||
Repayments of other long-term debt |
(5,418 | ) | | (718 | ) | | (6,136 | ) | ||||||||||||
Net changes in intercompany notes |
| | (2,751 | ) | 2,751 | | ||||||||||||||
Payments on capital leases |
(636 | ) | (2,710 | ) | (260 | ) | | (3,606 | ) | |||||||||||
Other |
| | (110 | ) | | (110 | ) | |||||||||||||
Net cash used for financing activities |
(49,551 | ) | (2,710 | ) | (3,954 | ) | 2,866 | (53,349 | ) | |||||||||||
Effect of exchange rate changes on cash and cash equivalents |
| | (1,101 | ) | | (1,101 | ) | |||||||||||||
Increase (decrease) in cash and cash equivalents |
(5,223 | ) | (19,880 | ) | 23,081 | | (2,022 | ) | ||||||||||||
Cash and cash equivalents: |
||||||||||||||||||||
Beginning of year |
39,761 | 237,540 | 160,436 | | 437,737 | |||||||||||||||
End of year |
$ | 34,538 | $ | 217,660 | $ | 183,517 | $ | | $ | 435,715 | ||||||||||
29
Table of Contents
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
SIX MONTHS ENDED JUNE 30, 2009
SIX MONTHS ENDED JUNE 30, 2009
Parent | Subsidiary | Subsidiary | ||||||||||||||||||
Company | Guarantors | Non-Guarantors | Eliminations | Consolidated | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Operating activities |
||||||||||||||||||||
Net income |
$ | 66,562 | $ | 67,322 | $ | 29,791 | $ | (95,190 | ) | $ | 68,485 | |||||||||
Adjustments to reconcile net income to cash provided
by operating activities |
(81,909 | ) | 47,415 | 18,611 | 95,190 | 79,307 | ||||||||||||||
Changes in assets and liabilities |
115,367 | (86,624 | ) | (7,482 | ) | | 21,261 | |||||||||||||
Net cash provided by operating activities |
100,020 | 28,113 | 40,920 | | 169,053 | |||||||||||||||
Investing activities |
||||||||||||||||||||
Additions to theatre properties and equipment |
(26,954 | ) | (16,158 | ) | (17,806 | ) | | (60,918 | ) | |||||||||||
Proceeds from sale of theatre properties and equipment |
395 | 58 | 200 | | 653 | |||||||||||||||
Acquisition of theatres |
(48,950 | ) | | | | (48,950 | ) | |||||||||||||
Net transactions with affiliates |
6,998 | 16,283 | | (23,281 | ) | | ||||||||||||||
Other |
| | (1,500 | ) | | (1,500 | ) | |||||||||||||
Net cash provided by (used for) investing activities |
(68,511 | ) | 183 | (19,106 | ) | (23,281 | ) | (110,715 | ) | |||||||||||
Financing activities |
||||||||||||||||||||
Capital contributions from parent |
19,650 | | | | 19,650 | |||||||||||||||
Dividends paid to parent |
(452,975 | ) | | (9,799 | ) | 9,799 | (452,975 | ) | ||||||||||||
Proceeds from issuance of senior notes |
458,532 | | | | 458,532 | |||||||||||||||
Payment of debt issue costs |
(12,423 | ) | | | | (12,423 | ) | |||||||||||||
Repayments of long-term debt |
(5,600 | ) | | (689 | ) | | (6,289 | ) | ||||||||||||
Net changes in intercompany notes |
| | (13,482 | ) | 13,482 | | ||||||||||||||
Payments on capital leases |
(382 | ) | (2,264 | ) | (184 | ) | | (2,830 | ) | |||||||||||
Other |
| | (795 | ) | | (795 | ) | |||||||||||||
Net cash provided by (used for) financing activities |
6,802 | (2,264 | ) | (24,949 | ) | 23,281 | 2,870 | |||||||||||||
Effect of exchange rate changes on cash and cash equivalents |
| | 7,959 | | 7,959 | |||||||||||||||
Increase in cash and cash equivalents |
38,311 | 26,032 | 4,824 | | 69,167 | |||||||||||||||
Cash and cash equivalents: |
||||||||||||||||||||
Beginning of year |
39,039 | 163,007 | 111,192 | | 313,238 | |||||||||||||||
End of year |
$ | 77,350 | $ | 189,039 | $ | 116,016 | $ | | $ | 382,405 | ||||||||||
30
Table of Contents
Item 2. Managements 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., Canada,
Brazil, Mexico, Chile, Colombia, Argentina, Ecuador, Peru, Honduras, El Salvador, Nicaragua, Costa
Rica, Panama and Guatemala. As of June 30, 2010, we managed our business under two reportable
operating segments U.S. markets and international markets, in accordance with FASB ASC Topic 280,
Segment Reporting. See Note 16 to our condensed consolidated financial statements.
We generate revenues primarily from box office receipts and concession sales with additional
revenues from screen advertising sales and other revenue streams, such as vendor marketing
programs, pay phones, ATM machines and electronic video games located in some of our theatres. Our
contracts with NCM have assisted us in expanding our offerings to advertisers and broadening
ancillary revenue sources such as digital video monitor advertising, third party branding, and the
use of theatres for alternative content events, such as concerts, sporting events, and other
cultural events. Films driving the box office during the six months ended June 30, 2010 included
the carryover of Avatar, which grossed over $450 million in U.S. box office revenues during the
period and new releases such as Alice in Wonderland, How to Train Your Dragon, Clash of the Titans,
Iron Man 2, Shrek Forever After, The Karate Kid, Toy Story 3 and The Twilight Saga: Eclipse, which
was released on June 30, 2010. Our revenues are affected by changes in attendance and average
admissions and concession revenues per patron. Attendance is primarily affected by the quality and
quantity of films released by motion picture studios. Films scheduled for release during the
remainder of 2010 include The Last Airbender, Inception, Despicable Me, The Other Guys, Eat Pray
Love, Little Fockers, Tron: Legacy, Tangled, Megamind, Yogi Bear, Chronicles of Narnia: The Voyage
of the Dawn Treader and another installment of the Harry Potter franchise, among other films.
Film rental costs are variable in nature and fluctuate with our admissions revenues. Film
rental costs as a percentage of revenues are generally higher for periods in which more blockbuster
films are released. Film rental costs can also vary based on the length of a films run. Film
rental rates are generally negotiated on a film-by-film and theatre-by-theatre basis. Advertising
costs, which are expensed as incurred, are primarily fixed at the theatre level as daily movie
directories placed in newspapers represent the largest component of advertising costs. The monthly
cost of these advertisements is based on, among other things, the size of the directory and the
frequency and size of the newspapers circulation.
Concession supplies expense is variable in nature and fluctuates with our concession revenues.
We purchase concession supplies to replace units sold. We negotiate prices for concession supplies
directly with concession vendors and manufacturers to obtain volume rates.
Although salaries and wages include a fixed cost component (i.e. the minimum staffing costs to
operate a theatre facility during non-peak periods), salaries and wages move in relation to
revenues as theatre staffing is adjusted to respond to changes in attendance.
Facility lease expense is primarily a fixed cost at the theatre level as most of our facility
leases require a fixed monthly minimum rent payment. Certain of our leases are subject to
percentage rent only while others are subject to percentage rent in addition to their fixed monthly
rent if a target annual revenue level is achieved. Facility lease expense as a percentage of
revenues is also affected by the number of theatres under operating leases, the number of theatres
under capital leases and the number of fee-owned theatres.
Utilities and other costs include certain costs that have both fixed and variable components
such as utilities, property taxes, janitorial costs, repairs and maintenance and security services.
31
Table of Contents
Results of Operations
The following table sets forth, for the periods indicated, the percentage of revenues
represented by certain items reflected in our condensed consolidated statements of income:
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
Operating data (in millions): | 2010 | 2009 | 2010 | 2009 | ||||||||||||
Revenues |
||||||||||||||||
Admissions |
$ | 353.1 | $ | 339.1 | $ | 696.1 | $ | 619.0 | ||||||||
Concession |
165.2 | 158.9 | 318.3 | 288.9 | ||||||||||||
Other |
21.1 | 19.5 | 41.6 | 35.4 | ||||||||||||
Total revenues |
$ | 539.4 | $ | 517.5 | $ | 1,056.0 | $ | 943.3 | ||||||||
Cost of operations |
||||||||||||||||
Film rentals and advertising |
193.5 | 190.9 | 382.3 | 338.0 | ||||||||||||
Concession supplies |
24.5 | 24.0 | 46.9 | 43.7 | ||||||||||||
Salaries and wages |
56.3 | 52.0 | 108.8 | 96.4 | ||||||||||||
Facility lease expense |
62.0 | 59.2 | 124.7 | 114.9 | ||||||||||||
Utilities and other |
57.7 | 54.1 | 112.9 | 102.9 | ||||||||||||
General and administrative expenses |
24.5 | 23.3 | 49.5 | 44.7 | ||||||||||||
Depreciation and amortization |
34.9 | 37.9 | 69.0 | 74.3 | ||||||||||||
Impairment of long-lived assets |
4.6 | 3.9 | 5.0 | 5.0 | ||||||||||||
Loss on sale of assets and other |
1.2 | 1.2 | 4.4 | 1.5 | ||||||||||||
Total cost of operations |
$ | 459.2 | $ | 446.5 | $ | 903.5 | $ | 821.4 | ||||||||
Operating income |
$ | 80.2 | $ | 71.0 | $ | 152.5 | $ | 121.9 | ||||||||
Operating data as a percentage of total revenues: |
||||||||||||||||
Revenues |
||||||||||||||||
Admissions |
65.5 | % | 65.5 | % | 65.9 | % | 65.6 | % | ||||||||
Concession |
30.6 | % | 30.7 | % | 30.1 | % | 30.6 | % | ||||||||
Other |
3.9 | % | 3.8 | % | 4.0 | % | 3.8 | % | ||||||||
Total revenues |
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Cost of operations (1) |
||||||||||||||||
Film rentals and advertising |
54.8 | % | 56.3 | % | 54.9 | % | 54.6 | % | ||||||||
Concession supplies |
14.8 | % | 15.1 | % | 14.7 | % | 15.1 | % | ||||||||
Salaries and wages |
10.4 | % | 10.0 | % | 10.3 | % | 10.2 | % | ||||||||
Facility lease expense |
11.5 | % | 11.4 | % | 11.8 | % | 12.2 | % | ||||||||
Utilities and other |
10.7 | % | 10.5 | % | 10.7 | % | 10.9 | % | ||||||||
General and administrative expenses |
4.5 | % | 4.5 | % | 4.7 | % | 4.7 | % | ||||||||
Depreciation and amortization |
6.5 | % | 7.3 | % | 6.5 | % | 7.9 | % | ||||||||
Impairment of long-lived assets |
0.9 | % | 0.8 | % | 0.5 | % | 0.5 | % | ||||||||
Loss on sale of assets and other |
0.2 | % | 0.2 | % | 0.4 | % | 0.2 | % | ||||||||
Total cost of operations |
85.1 | % | 86.3 | % | 85.6 | % | 87.1 | % | ||||||||
Operating income |
14.9 | % | 13.7 | % | 14.4 | % | 12.9 | % | ||||||||
Average screen count (month end average) |
4,897 | 4,862 | 4,895 | 4,826 | ||||||||||||
Revenues per average screen (dollars) |
$ | 110,154 | $ | 106,450 | $ | 215,730 | $ | 195,452 | ||||||||
(1) | All costs are expressed as a percentage of total revenues, except film rentals and advertising, which are expressed as a percentage of admissions revenues and concession supplies, which are expressed as a percentage of concession revenues. |
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Three months ended June 30, 2010 and 2009
Revenues. Total revenues increased $21.9 million to $539.4 million for the three months ended
June 30, 2010 (second quarter of 2010) from $517.5 million for the three months ended June 30,
2009 (second quarter of 2009), representing a 4.2% increase. The table below, presented by
reportable operating segment, summarizes our year-over-year revenue performance and certain key
performance indicators that impact our revenues.
U.S. Operating Segment | International Operating Segment | Consolidated | ||||||||||||||||||||||||||||||||||
Three Months Ended | Three Months Ended | Three Months Ended | ||||||||||||||||||||||||||||||||||
June 30, | June 30, | June 30, | ||||||||||||||||||||||||||||||||||
% | % | % | ||||||||||||||||||||||||||||||||||
2010 | 2009 | Change | 2010 | 2009 | Change | 2010 | 2009 | Change | ||||||||||||||||||||||||||||
Admissions revenues (1) |
$ | 269.2 | $ | 276.2 | (2.5 | )% | $ | 83.9 | $ | 62.9 | 33.4 | % | $ | 353.1 | $ | 339.1 | 4.1 | % | ||||||||||||||||||
Concession revenues (1) |
$ | 129.6 | $ | 131.2 | (1.2 | )% | $ | 35.6 | $ | 27.7 | 28.5 | % | $ | 165.2 | $ | 158.9 | 4.0 | % | ||||||||||||||||||
Other revenues (1) (2) |
$ | 11.0 | $ | 11.1 | (0.9 | )% | $ | 10.1 | $ | 8.4 | 20.2 | % | $ | 21.1 | $ | 19.5 | 8.2 | % | ||||||||||||||||||
Total revenues (1) (2) |
$ | 409.8 | $ | 418.5 | (2.1 | )% | $ | 129.6 | $ | 99.0 | 30.9 | % | $ | 539.4 | $ | 517.5 | 4.2 | % | ||||||||||||||||||
Attendance (1) |
41.6 | 43.9 | (5.2 | )% | 18.6 | 17.2 | 8.1 | % | $ | 60.2 | 61.1 | (1.5 | )% | |||||||||||||||||||||||
Revenues per average screen (2) |
$ | 107,077 | $ | 109,438 | (2.2 | )% | $ | 121,159 | $ | 95,431 | 27.0 | % | $ | 110,154 | $ | 106,450 | 3.5 | % |
(1) | Amounts in millions. | |
(2) | U.S. operating segment revenues include eliminations of intercompany transactions with the international operating segment. See Note 16 of our condensed consolidated financial statements. |
| Consolidated. The increase in admissions revenues of $14.0 million was primarily attributable to a 5.8% increase in average ticket price from $5.55 for the second quarter of 2009 to $5.87 for the second quarter of 2010, partially offset by a 1.5% decrease in attendance. The increase in concession revenues of $6.3 million was primarily attributable to a 5.4% increase in concession revenues per patron from $2.60 for the second quarter of 2009 to $2.74 for the second quarter of 2010, partially offset by the 1.5% decrease in attendance. The increase in average ticket price was primarily due to incremental 3-D and premium pricing and other price increases and the favorable impact of exchange rates in certain countries in which we operate. The increase in concession revenues per patron was primarily due to price increases and the favorable impact of exchange rates in certain countries in which we operate. The 8.2% increase in other revenues was primarily due to increases in ancillary revenue and the favorable impact of exchange rates in certain countries in which we operate. |
| U.S. The decrease in admissions revenues of $7.0 million was primarily attributable to a 5.2% decrease in attendance, partially offset by a 2.9% increase in average ticket price from $6.29 for the second quarter of 2009 to $6.47 for the second quarter of 2010. The decrease in concession revenues of $1.6 million was primarily attributable to the 5.2% decrease in attendance, partially offset by a 4.3% increase in concession revenues per patron from $2.99 for the second quarter of 2009 to $3.12 for the second quarter of 2010. The increase in average ticket price was primarily due to incremental 3-D and premium pricing and other price increases and the increase in concession revenues per patron was primarily due to price increases. |
| International. The increase in admissions revenues of $21.0 million was primarily attributable to an 8.1% increase in attendance and a 23.2% increase in average ticket price from $3.66 for the second quarter of 2009 to $4.51 for the second quarter of 2010. The increase in concession revenues of $7.9 million was primarily attributable to the 8.1% increase in attendance and an 18.6% increase in concession revenues per patron from $1.61 for the second quarter of 2009 to $1.91 for the second quarter of 2010. The increase in average ticket price was primarily due to incremental 3-D and premium pricing and other price increases and the favorable impact of exchange rates in certain countries in which we operate. The increase in concession revenues per patron was primarily due to price increases and the favorable impact of exchange rates in certain countries in which we operate. The 20.2% increase in other revenues was primarily due to increases in ancillary revenue and the favorable impact of exchange rates in certain countries in which we operate. |
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Cost of Operations. The table below summarizes certain of our theatre operating costs by
reportable operating segment (in millions).
International Operating | ||||||||||||||||||||||||
U.S. Operating Segment | Segment | Consolidated | ||||||||||||||||||||||
Three Months Ended | Three Months Ended | Three Months Ended | ||||||||||||||||||||||
June 30, | June 30, | June 30, | ||||||||||||||||||||||
2010 | 2009 | 2010 | 2009 | 2010 | 2009 | |||||||||||||||||||
Film rentals and advertising |
$ | 150.7 | $ | 158.8 | $ | 42.8 | $ | 32.1 | $ | 193.5 | $ | 190.9 | ||||||||||||
Concession supplies |
15.6 | 17.2 | 8.9 | 6.8 | 24.5 | 24.0 | ||||||||||||||||||
Salaries and wages |
44.7 | 43.8 | 11.6 | 8.2 | 56.3 | 52.0 | ||||||||||||||||||
Facility lease expense |
45.1 | 45.1 | 16.9 | 14.1 | 62.0 | 59.2 | ||||||||||||||||||
Utilities and other |
40.5 | 40.7 | 17.2 | 13.4 | 57.7 | 54.1 |
| Consolidated. Film rentals and advertising costs were $193.5 million, or 54.8% of admissions revenues, for the second quarter of 2010 compared to $190.9 million, or 56.3% of admissions revenues, for the second quarter of 2009. The decrease in the film rentals and advertising rate was primarily due to favorable film rental rates on certain films in the U.S. segment in the second quarter of 2010. Concession supplies expense was $24.5 million, or 14.8% of concession revenues, for the second quarter of 2010 compared to $24.0 million, or 15.1% of concession revenues, for the second quarter of 2009. The decrease in the concession supplies rate was primarily due to favorable inventory procurement costs and the successful implementation of price increases in the U.S. segment. |
Salaries and wages increased to $56.3 million for the second quarter of 2010 from $52.0 million for the second quarter of 2009 primarily due to increased minimum wages in both our U.S. and international segments, increased staffing levels to support the 8.1% increase in attendance in our international segment and the impact of exchange rates in certain countries in which we operate. Facility lease expense increased to $62.0 million for the second quarter of 2010 from $59.2 million for the second quarter of 2009 primarily due to increased percentage rent in our international segment and the impact of exchange rates in certain countries in which we operate. Utilities and other costs increased to $57.7 million for the second quarter of 2010 from $54.1 million for the second quarter of 2009 primarily due to increased 3-D equipment rental fees and the impact of exchange rates in certain countries in which we operate. |
| U.S. Film rentals and advertising costs were $150.7 million, or 56.0% of admissions revenues, for the second quarter of 2010 compared to $158.8 million, or 57.5% of admissions revenues, for the second quarter of 2009. The decrease in film rentals and advertising costs of $8.1 million is due to a $7.0 million decrease in admissions revenues, which contributed $4.1 million and a decrease in our film rentals and advertising rate, which contributed $4.0 million. The decrease in the film rentals and advertising rate was primarily due to favorable film rental rates on certain films in the second quarter of 2010. Concession supplies expense was $15.6 million, or 12.0% of concession revenues, for the second quarter of 2010 compared to $17.2 million, or 13.1% of concession revenues, for the second quarter of 2009. The decrease in concession supplies expense is primarily due to a decrease in the concession supplies rate due to favorable inventory procurement costs and the successful implementation of price increases. |
Salaries and wages increased to $44.7 million for the second quarter of 2010 from $43.8 million for the second quarter of 2009 primarily due to increased minimum wages, partially offset by reduced staffing levels due to the 5.2% decrease in attendance. Facility lease expense remained constant at $45.1 million for the second quarter of 2009 and 2010. Utilities and other costs decreased to $40.5 million for the second quarter of 2010 from $40.7 million for the second quarter of 2009 primarily due to decreased repairs and maintenance expense and decreased theatre supplies expense, partially offset by increased 3-D equipment rental fees. |
| International. Film rentals and advertising costs were $42.8 million for the second quarter of 2010 compared to $32.1 million for the second quarter of 2009, or 51.0% of admissions revenues for each period. The increase in film rentals and advertising costs of $10.7 million was primarily due to a $21.0 million increase in admissions revenues. Concession supplies expense was $8.9 million, or 25.0% of concession revenues, for the second quarter of 2010 compared to $6.8 million, or 24.5% of concession revenues, for the second quarter of 2009. The increase in concession supplies expense of $2.1 million was primarily due to a $7.9 million increase in concession revenues. |
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Table of Contents
Salaries and wages increased to $11.6 million for the second quarter of 2010 from $8.2 million for the second quarter of 2009 primarily due to increased staffing levels to support the 8.1% increase in attendance, increased minimum wages and the impact of exchange rates in certain countries in which we operate. Facility lease expense increased to $16.9 million for the second quarter of 2010 from $14.1 million for the second quarter of 2009 primarily due to increased percentage rent and the impact of exchange rates in certain countries in which we operate. Utilities and other costs increased to $17.2 million for the second quarter of 2010 from $13.4 million for the second quarter of 2009 primarily due to increased 3-D equipment rental fees and the impact of exchange rates in certain countries in which we operate. |
General and Administrative Expenses. General and administrative expenses increased to $24.5
million for the second quarter of 2010 from $23.3 million for the second quarter of 2009. The
increase was primarily due to increased salaries and incentive compensation expense, increased
professional fees and increased service charges related to increased credit card activity and the
impact of exchange rates in certain countries in which we operate.
Depreciation and Amortization. Depreciation and amortization expense, including amortization
of favorable /unfavorable leases, was $34.9 million for the second quarter of 2010 compared to
$37.9 million for the second quarter of 2009. The decrease was primarily related to a reduction in
the depreciable basis of certain of our U.S. assets due to a significant amount of the equipment
acquired in the Century Acquisition becoming fully depreciated during the fourth quarter of 2009,
partially offset by the impact of accelerated depreciation taken on our domestic 35 millimeter
projection systems that will be replaced with digital projection systems. We recorded approximately
$2.4 million of depreciation expense related to these 35 millimeter projection systems during the
second quarter of 2010.
Impairment of Long-Lived Asset. We recorded asset impairment charges on assets held and used
of $4.6 million for the second quarter of 2010 compared to $3.9 million for the second quarter of
2009. Impairment charges for the second quarter of 2010 consisted of $3.5 million of theatre
properties, impacting ten of our twenty-four reporting units, and $1.1 million of intangible assets
associated with Mexico theatre properties. Impairment charges for the second quarter of 2009
consisted of $3.9 million of theatre properties, impacting nine of our twenty-four reporting units.
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, or adverse
changes in market demographics. See Notes 12 and 13 to our condensed consolidated financial
statements.
Loss on Sale of Assets and Other. We recorded a loss on sale of assets and other of $1.2
million during the second quarter of 2010 and the second quarter of 2009.
Interest Expense. Interest costs incurred, including amortization of debt issue costs, were
$28.6 million for the second quarter of 2010 compared to $15.3 million for the second quarter of
2009. The increase was primarily due to the issuance of our 8 ⅝% senior notes during June 2009. See
Note 10 to our condensed consolidated financial statements for further discussion of our long term
debt.
Interest Income. We recorded interest income of $1.4 million during the second quarter of 2010
compared to $0.9 million during the second quarter of 2009. The increase was primarily due to an
increase in our cash investments.
Distributions from NCM. We recorded distributions from NCM of $1.3 million during the second
quarter of 2010 and $5.0 million during the second quarter of 2009, which were in excess of the
carrying value of our investment. See Note 6 to our condensed consolidated financial statements.
Income Taxes. Income tax expense of $10.4 million was recorded for the second quarter of 2010
compared to $18.2 million for the second quarter of 2009. The effective tax rate was 20.2% for the
second quarter of 2010 compared to 29.5% for the second quarter of 2009. Income tax expense for the
second quarter of 2010 includes the impact of the reduction of our liabilities for uncertain tax
positions due to settlements and closures of various tax years, which resulted in a benefit of
approximately $8.0 million. Income tax expense for the second quarter of 2009 includes the impact
of two discrete items, including an adjustment to our deferred tax liability and an increase to our
foreign unrecognized tax benefits in accordance with FIN 48. The net impact of these two items on
income tax expense for the second quarter of 2009 was a benefit of approximately $4.9 million.
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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Table of Contents
Six months ended June 30, 2010 and 2009
Revenues. Total revenues increased $112.7 million to $1,056.0 million for the six months ended
June 30, 2010 (the 2010 period) from $943.3 million for the six months ended June 30, 2009 (the
2009 period), representing an 11.9% increase. The table below, presented by reportable operating
segment, summarizes our year-over-year revenue performance and certain key performance indicators
that impact our revenues.
U.S. Operating Segment | International Operating Segment | Consolidated | ||||||||||||||||||||||||||||||||||
Six Months Ended | Six Months Ended | Six Months Ended | ||||||||||||||||||||||||||||||||||
June 30, | June 30, | June 30, | ||||||||||||||||||||||||||||||||||
% | % | % | ||||||||||||||||||||||||||||||||||
2010 | 2009 | Change | 2010 | 2009 | Change | 2010 | 2009 | Change | ||||||||||||||||||||||||||||
Admissions revenues (1) |
$ | 528.5 | $ | 501.7 | 5.3 | % | $ | 167.6 | $ | 117.3 | 42.9 | % | $ | 696.1 | $ | 619.0 | 12.5 | % | ||||||||||||||||||
Concession revenues (1) |
$ | 248.1 | $ | 237.2 | 4.6 | % | $ | 70.2 | $ | 51.7 | 35.8 | % | $ | 318.3 | $ | 288.9 | 10.2 | % | ||||||||||||||||||
Other revenues (1) (2) |
$ | 20.5 | $ | 20.2 | 1.5 | % | $ | 21.1 | $ | 15.2 | 38.8 | % | $ | 41.6 | $ | 35.4 | 17.5 | % | ||||||||||||||||||
Total revenues (1) (2) |
$ | 797.1 | $ | 759.1 | 5.0 | % | $ | 258.9 | $ | 184.2 | 40.6 | % | $ | 1,056.0 | $ | 943.3 | 11.9 | % | ||||||||||||||||||
Attendance (1) |
81.2 | 81.2 | 0.0 | % | 37.5 | 34.0 | 10.3 | % | 118.7 | 115.2 | 3.0 | % | ||||||||||||||||||||||||
Revenues per average screen
(2) |
$ | 208,272 | $ | 200,379 | 3.9 | % | $ | 242,459 | $ | 177,636 | 36.5 | % | $ | 215,730 | $ | 195,452 | 10.4 | % |
(1) | Amounts in millions. | |
(2) | U.S. operating segment revenues include eliminations of intercompany transactions with the international operating segment. See Note 16 of our condensed consolidated financial statements. |
| Consolidated. The increase in admissions revenues of $77.1 million was primarily attributable to a 3.0% increase in attendance and a 9.1% increase in average ticket price from $5.37 for the 2009 period to $5.86 for the 2010 period. The increase in concession revenues of $29.4 million was primarily attributable to the 3.0% increase in attendance and a 6.8% increase in concession revenues per patron from $2.51 for the 2009 period to $2.68 for the 2010 period. The increase in average ticket price was primarily due to incremental 3-D and premium pricing and other price increases and the favorable impact of exchange rates in certain countries in which we operate. The increase in concession revenues per patron was primarily due to price increases and the favorable impact of exchange rates in certain countries in which we operate. The 17.5% increase in other revenues was primarily due to increases in ancillary revenue and the favorable impact of exchange rates in certain countries in which we operate. |
| U.S. The increase in admissions revenues of $26.8 million was primarily attributable to a 5.3% increase in average ticket price from $6.18 for the 2009 period to $6.51 for the 2010 period. The increase in concession revenues of $10.9 million was primarily attributable to a 4.8% increase in concession revenues per patron from $2.92 for the 2009 period to $3.06 for the 2010 period. The increase in average ticket price was primarily due to incremental 3-D and premium pricing and other price increases and the increase in concession revenues per patron was primarily due to price increases. |
| International. The increase in admissions revenues of $50.3 million was primarily attributable to a 10.3% increase in attendance and a 29.6% increase in average ticket price from $3.45 for the 2009 period to $4.47 for the 2010 period. The increase in concession revenues of $18.5 million was primarily attributable to the 10.3% increase in attendance and a 23.0% increase in concession revenues per patron from $1.52 for the 2009 period to $1.87 for the 2010 period. The increase in average ticket price was primarily due to incremental 3-D and premium pricing and other price increases and the favorable impact of exchange rates in certain countries in which we operate. The increase in concession revenues per patron was primarily due to price increases and the favorable impact of exchange rates in certain countries in which we operate. The increase in other revenues of $5.9 million was primarily due to increases in ancillary revenue and the favorable impact of exchange rates in certain countries in which we operate. |
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Table of Contents
Cost of Operations. The table below summarizes certain of our year-over-year theatre operating
costs by reportable operating segment (in millions).
International Operating | ||||||||||||||||||||||||
U.S. Operating Segment | Segment | Consolidated | ||||||||||||||||||||||
Six Months Ended | Six Months Ended | Six Months Ended | ||||||||||||||||||||||
June 30, | June 30, | June 30, | ||||||||||||||||||||||
2010 | 2009 | 2010 | 2009 | 2010 | 2009 | |||||||||||||||||||
Film rentals and advertising |
$ | 299.2 | $ | 278.8 | $ | 83.1 | $ | 59.2 | $ | 382.3 | $ | 338.0 | ||||||||||||
Concession supplies |
29.5 | 30.6 | 17.4 | 13.1 | 46.9 | 43.7 | ||||||||||||||||||
Salaries and wages |
87.1 | 81.1 | 21.7 | 15.3 | 108.8 | 96.4 | ||||||||||||||||||
Facility lease expense |
90.8 | 87.7 | 33.9 | 27.2 | 124.7 | 114.9 | ||||||||||||||||||
Utilities and other |
80.1 | 77.6 | 32.8 | 25.3 | 112.9 | 102.9 |
| Consolidated. Film rentals and advertising costs were $382.3 million, or 54.9% of admissions revenues, for the 2010 period compared to $338.0 million, or 54.6% of admissions revenues, for the 2009 period. The increase in film rentals and advertising costs of $44.3 million was due to a $77.1 million increase in admissions revenues, which contributed $42.1 million, and an increase in our film rentals and advertising rate, which contributed $2.2 million. The increase in the film rentals and advertising rate was primarily due to higher film rental rates in the U.S. segment due to the increase in the number of blockbuster films released, including the carryover of Avatar, which generally have higher film rental rates. Concession supplies expense was $46.9 million, or 14.7% of concession revenues, for the 2010 period, compared to $43.7 million, or 15.1% of concession revenues, for the 2009 period. The decrease in the concession supplies rate was primarily due to favorable inventory procurement costs and the successful implementation of price increases in the U.S. segment. |
Salaries and wages increased to $108.8 million for the 2010 period from $96.4 million for the 2009 period primarily due to new theatres, increased minimum wages in both our U.S. and international segments, increased staffing levels to support the 10.3% increase in attendance in our international segment and the impact of exchange rates in certain countries in which we operate. Facility lease expense increased to $124.7 million for the 2010 period from $114.9 million for the 2009 period primarily due to new theatres, increased percentage rent and the impact of exchange rates in certain countries in which we operate. Utilities and other costs increased to $112.9 million for the 2010 period from $102.9 million for the 2009 period primarily due to new theatres, increased 3-D equipment rental fees and the impact of exchange rates in certain countries in which we operate. |
| U.S. Film rentals and advertising costs were $299.2 million, or 56.6% of admissions revenues for the 2010 period compared to $278.8 million, or 55.6% of admissions revenues, for the 2009 period. The increase in film rentals and advertising costs of $20.4 million is due to a $26.8 million increase in admissions revenues, which contributed $14.9 million and an increase in our film rentals and advertising rate, which contributed $5.5 million. The increase in the film rentals and advertising rate was primarily due to the increase in the number of blockbuster films released, including the carryover of Avatar, which generally have higher film rental rates. Concession supplies expense was $29.5 million, or 11.9% of concession revenues, for the 2010 period, compared to $30.6 million, or 12.9% of concession revenues, for the 2009 period. The decrease in concession supplies expense is primarily due to a decrease in the concession supplies rate due to favorable inventory procurement costs and the successful implementation of price increases. |
Salaries and wages increased to $87.1 million for the 2010 period from $81.1 million for the 2009 period primarily due to new theatres and increased minimum wages. Facility lease expense increased to $90.8 million for the 2010 period from $87.7 million for the 2009 period primarily due to new theatres and increased percentage rent. Utilities and other costs increased to $80.1 million for the 2010 period from $77.6 million for the 2009 period primarily due to new theatres and increased 3-D equipment rental fees. |
| International. Film rentals and advertising costs were $83.1 million, or 49.6% of admissions revenues, for the 2010 period compared to $59.2 million, or 50.5% of admissions revenues, for the 2009 period. The increase in film rentals and advertising costs was primarily due to a $50.3 million increase in admissions revenues, partially offset by a lower film rentals and advertising rate. Concession supplies expense was $17.4 million, or 24.8% of concession revenues, for the 2010 period compared to $13.1 million, or 25.3% of concession revenues, for the 2009 period. The increase in concession supplies expense of $4.3 million was primarily due to an $18.5 million increase in concession revenues, partially offset by a lower concession supplies rate. |
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Table of Contents
Salaries and wages increased to $21.7 million for the 2010 period from $15.3 million for the 2009 period primarily due to new theatres, increased staffing levels to support the 10.3% increase in attendance, increased minimum wages and the impact of exchange rates in certain countries in which we operate. Facility lease expense increased to $33.9 million for the 2010 period from $27.2 million for the 2009 period primarily due to new theatres, increased percentage rent and the impact of exchange rates in certain countries in which we operate. Utilities and other costs increased to $32.8 million for the 2010 period from $25.3 million for the 2009 period primarily due to new theatres, increased 3-D equipment rental fees and the impact of exchange rates in certain countries in which we operate. |
General and Administrative Expenses. General and administrative expenses increased to $49.5
million for the 2010 period from $44.7 million for the 2009 period. The increase was primarily due
to increased salaries and incentive compensation expense, increased professional fees and increased
service charges related to increased credit card activity and the impact of exchange rates in
certain countries in which we operate.
Depreciation and Amortization. Depreciation and amortization expense, including amortization
of favorable/unfavorable leases, was $69.0 million for the 2010 period compared to $74.3 million
for the 2009 period. The decrease was primarily related to a reduction in the depreciable basis of
certain of our U.S. assets due to a significant amount of the equipment acquired in the Century
Acquisition becoming fully depreciated during the fourth quarter of 2009, partially offset by the
impact of accelerated depreciation taken on our domestic 35 millimeter projection systems that will
be replaced with digital projection systems. We recorded approximately $3.7 million of depreciation
expense related to these 35 millimeter projection systems during the 2010 period.
Impairment of Long-Lived Assets. We recorded asset impairment charges on assets held and used
of $5.0 million for the 2010 period compared to $5.0 million for the 2009 period. Impairment
charges for the 2010 period consisted of $3.9 million of theatre properties, impacting fifteen of
our twenty-four reporting units, and $1.1 million of intangible assets associated with Mexico
theatre properties. Impairment charges for the 2009 period consisted of $4.9 million of theatre
properties, impacting twelve of our twenty-four reporting units, and $0.1 million of intangible
assets associated with Mexico theatre properties. 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, or adverse changes in market demographics. See Notes 12 and 13
to our condensed consolidated financial statements.
Loss on Sale of Assets and Other. We recorded a loss on sale of assets and other of $4.4
million during the 2010 period compared to $1.5 million during the 2009 period. The loss recorded
during the 2010 period included $1.7 million that was recorded upon the contribution of digital
projection systems to DCIP and an additional $0.3 million recorded upon the subsequent sale of
digital projection systems to DCIP. See Note 7 to the condensed consolidated financial statements.
Interest Expense. Interest costs incurred, including amortization of debt issue costs, were
$54.6 million for the 2010 period compared to $30.5 million for the 2009 period. The increase was
primarily due to the issuance of our 8 ⅝% senior notes during June 2009. See Note 10 to our
condensed consolidated financial statements for further discussion of our long term debt.
Interest Income. We recorded interest income of $2.4 million during the 2010 period compared
to $2.6 million during the 2009 period. The decrease in interest income was primarily due to lower
interest rates earned on our cash investments.
Distributions from NCM. We recorded distributions from NCM of $11.3 million during the 2010
period and $11.6 million during the 2009 period, which were in excess of the carrying value of our
investment. See Note 6 to our condensed consolidated financial statements.
Income Taxes. Income tax expense of $30.4 million was recorded for the 2010 period compared to
$36.7 million for the 2009 period. The effective tax rate was 28.0% for the 2010 period compared to
34.9% for the 2009 period. Income tax expense for the 2010 period includes the impact of certain
discrete non-recurring items and the reduction of our liabilities for uncertain tax positions due
to settlements and closures of various tax years, which resulted in a benefit of approximately $8.9
million. Income tax expense for the 2009 period includes the impact of two discrete items,
including an adjustment to our deferred tax liability and an increase to our foreign unrecognized
tax benefits in accordance with FIN 48. The net impact of the two items on income tax expense for
the 2009 period was a benefit of approximately $4.9 million. 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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Table of Contents
Item 4. | Controls and Procedures |
Evaluation of the Effectiveness of Disclosure Controls and Procedures
As of June 30, 2010, we carried out an evaluation required by the 1934 Act, under the
supervision and with the participation of our principal executive officer and principal financial
officer, of the effectiveness of the design and operation of our disclosure controls and
procedures, as defined in Rule 13a-15(e) of the 1934 Act. Based on this evaluation, our principal
executive officer and principal financial officer concluded that, as of June 30, 2010, our
disclosure controls and procedures were effective to provide reasonable assurance that information
required to be disclosed by us in the reports that we file or submit under the 1934 Act is
recorded, processed, summarized, and reported within the time periods specified in the SECs rules
and forms and were effective to provide reasonable assurance that such information is accumulated
and communicated to our management, including our principal executive officer and principal
financial officer, as appropriate to allow timely decisions regarding required disclosures.
Changes in Internal Controls Over Financial Reporting
There have been no changes in our internal control over financial reporting identified in
connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 that occurred
during the quarter ended June 30, 2010 that materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
39
Table of Contents
PART II OTHER INFORMATION
Item 1. | Legal Proceedings |
Previously reported under Business Legal Proceedings in the Companys Annual Report on Form
10-K filed March 12, 2010.
Item 1A. | Risk Factors |
There have been no material changes from risk factors previously disclosed in Risk Factors
in the Companys Annual Report on Form 10-K filed March 12, 2010.
Item 5. | Other Information |
As required by the Indenture governing the Companys 8 5/8% senior
notes, the Company has included in this filing, interim financial information for its subsidiaries
that have been designated as unrestricted subsidiaries, as defined by the Indenture. As required by
the Indenture, the Company has included a condensed consolidating balance sheet and condensed
consolidating statements of income and cash flows for the Company and its subsidiaries. These
supplementary schedules separately identify the Companys restricted subsidiaries and unrestricted
subsidiaries as required by the Indenture.
Supplemental Schedules specified by the senior notes Indenture:
Page | ||||
Condensed Consolidating Balance Sheet Information as of June 30, 2010 (unaudited)
|
41 | |||
Condensed Consolidating Statement of Income Information for the six months ended
June 30, 2010 (unaudited)
|
42 | |||
Condensed Consolidating Statement of Cash Flows Information for the six months
ended June 30, 2010 (unaudited)
|
43 |
40
Table of Contents
CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
JUNE 30, 2010
(In thousands, unaudited)
CONDENSED CONSOLIDATING BALANCE SHEET
JUNE 30, 2010
(In thousands, unaudited)
Restricted | Unrestricted | |||||||||||||||
Group | Group | Eliminations | Consolidated | |||||||||||||
Assets |
||||||||||||||||
Current assets |
||||||||||||||||
Cash and cash equivalents |
$ | 390,660 | $ | 45,055 | $ | | $ | 435,715 | ||||||||
Other current assets |
103,522 | (17,598 | ) | | 85,924 | |||||||||||
Total current assets |
494,182 | 27,457 | | 521,639 | ||||||||||||
Theatre properties and equipment, net |
1,184,254 | | | 1,184,254 | ||||||||||||
Other assets |
1,556,740 | 77,763 | (27,019 | ) | 1,607,484 | |||||||||||
Total assets |
$ | 3,235,176 | $ | 105,220 | $ | (27,019 | ) | $ | 3,313,377 | |||||||
Liabilities and equity |
||||||||||||||||
Current liabilities |
||||||||||||||||
Current portion of long-term debt |
$ | 11,112 | $ | | $ | | $ | 11,112 | ||||||||
Current portion of capital lease obligations |
7,344 | | | 7,344 | ||||||||||||
Accounts payable and accrued expenses |
231,906 | | | 231,906 | ||||||||||||
Total current liabilities |
250,362 | | | 250,362 | ||||||||||||
Long-term liabilities |
||||||||||||||||
Long-term debt, less current portion |
1,526,805 | | | 1,526,805 | ||||||||||||
Capital lease obligations, less current portion |
131,680 | | | 131,680 | ||||||||||||
Other long-term liabilities |
405,130 | 30,721 | | 435,851 | ||||||||||||
Total long-term liabilities |
2,063,615 | 30,721 | | 2,094,336 | ||||||||||||
Commitments and contingencies |
||||||||||||||||
Equity |
921,199 | 74,499 | (27,019 | ) | 968,679 | |||||||||||
Total liabilities and equity |
$ | 3,235,176 | $ | 105,220 | $ | (27,019 | ) | $ | 3,313,377 | |||||||
Note: Restricted Group and Unrestricted Group are defined in the Indenture for the senior
notes.
41
Table of Contents
CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 2010
(In thousands, unaudited)
CONDENSED CONSOLIDATING STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 2010
(In thousands, unaudited)
Restricted | Unrestricted | |||||||||||||||
Group | Group | Eliminations | Consolidated | |||||||||||||
Revenues |
$1,056,000 | $ | | $ | | $ | 1,056,000 | |||||||||
Cost of operations |
||||||||||||||||
Theatre operating costs |
775,635 | | | 775,635 | ||||||||||||
General and administrative expenses |
49,449 | 3 | | 49,452 | ||||||||||||
Depreciation and amortization |
69,006 | | | 69,006 | ||||||||||||
Impairment of long-lived assets |
5,035 | | | 5,035 | ||||||||||||
Loss on sale of assets and other |
3,412 | 946 | | 4,358 | ||||||||||||
Total cost of operations |
902,537 | 949 | | 903,486 | ||||||||||||
Operating income (loss) |
153,463 | (949 | ) | | 152,514 | |||||||||||
Other income (expense) |
(51,153 | ) | 7,173 | | (43,980 | ) | ||||||||||
Income before income taxes |
102,310 | 6,224 | | 108,534 | ||||||||||||
Income taxes |
28,078 | 2,347 | | 30,425 | ||||||||||||
Net income |
74,232 | 3,877 | | 78,109 | ||||||||||||
Less: Net income attributable to noncontrolling interests |
2,695 | | | 2,695 | ||||||||||||
Net income attributable to Cinemark USA, Inc. |
$71,537 | $ | 3,877 | $ | | $ | 75,414 | |||||||||
Note: Restricted Group and Unrestricted Group are defined in the Indenture for the senior
notes.
42
Table of Contents
CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2010
(In thousands, unaudited)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2010
(In thousands, unaudited)
Restricted | Unrestricted | |||||||||||||||
Group | Group | Eliminations | Consolidated | |||||||||||||
Operating activities |
||||||||||||||||
Net income |
$ | 74,232 | $ | 3,877 | $ | | $ | 78,109 | ||||||||
Adjustments to reconcile net income to cash provided by
operating activities and other |
72,696 | 6,044 | | 78,740 | ||||||||||||
Changes in assets and liabilities |
(51,056 | ) | 2,091 | | (48,965 | ) | ||||||||||
Net cash provided by operating activities |
95,872 | 12,012 | | 107,884 | ||||||||||||
Investing activities |
||||||||||||||||
Additions to theatre properties and equipment |
(56,960 | ) | | | (56,960 | ) | ||||||||||
Proceeds from sale of theatre properties and equipment |
951 | 1,197 | | 2,148 | ||||||||||||
Investment in joint venture DCIP, net of cash distributions |
| (644 | ) | | (644 | ) | ||||||||||
Net cash provided by (used for) investing activities |
(56,009 | ) | 553 | | (55,456 | ) | ||||||||||
Financing activities |
||||||||||||||||
Dividends paid to parent |
(34,375 | ) | | | (34,375 | ) | ||||||||||
Payroll taxes paid as a result of noncash stock option
exercises and restricted stock withholdings |
(416 | ) | | | (416 | ) | ||||||||||
Payment of debt issue costs |
(8,706 | ) | | | (8,706 | ) | ||||||||||
Repayments of other long-term debt |
(6,136 | ) | | | (6,136 | ) | ||||||||||
Payments on capital leases |
(3,606 | ) | | | (3,606 | ) | ||||||||||
Other |
(110 | ) | | | (110 | ) | ||||||||||
Net cash used for financing activities |
(53,349 | ) | | | (53,349 | ) | ||||||||||
Effect of exchange rate changes on cash and cash equivalents |
(1,101 | ) | | | (1,101 | ) | ||||||||||
Increase (decrease) in cash and cash equivalents |
(14,587 | ) | 12,565 | | (2,022 | ) | ||||||||||
Cash and cash equivalents: |
||||||||||||||||
Beginning of year |
405,247 | 32,490 | | 437,737 | ||||||||||||
End of year |
$ | 390,660 | $ | 45,055 | $ | | $ | 435,715 | ||||||||
Note: Restricted Group and Unrestricted Group are defined in the Indenture for the senior
notes.
43
Table of Contents
Item 6. Exhibits
*31.1
|
Certification of Alan Stock, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
*31.2
|
Certification of Robert Copple, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
*32.1
|
Certification of Alan Stock, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as added by Section 906 of the Sarbanes-Oxley Act of 2002. | |
*32.2
|
Certification of Robert Copple, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as added by Section 906 of the Sarbanes-Oxley Act of 2002. |
* | filed herewith. |
44
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
CINEMARK USA, INC. | ||||
Registrant | ||||
DATE: August 9, 2010 |
||||
/s/ Alan W. Stock
|
||||
Alan W. Stock | ||||
Chief Executive Officer | ||||
/s/ Robert Copple
|
||||
Robert Copple | ||||
Chief Financial Officer |
45
Table of Contents
EXHIBIT INDEX
*31.1
|
Certification of Alan Stock, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
*31.2
|
Certification of Robert Copple, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
*32.1
|
Certification of Alan Stock, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as added by Section 906 of the Sarbanes-Oxley Act of 2002. | |
*32.2
|
Certification of Robert Copple, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as added by Section 906 of the Sarbanes-Oxley Act of 2002. |
* | filed herewith. |