Attached files
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EX-31.1 - EX-31.1 - CINEMARK USA INC /TX | d81993qexv31w1.htm |
EX-32.1 - EX-32.1 - CINEMARK USA INC /TX | d81993qexv32w1.htm |
EX-32.2 - EX-32.2 - CINEMARK USA INC /TX | d81993qexv32w2.htm |
EX-31.2 - EX-31.2 - CINEMARK USA INC /TX | d81993qexv31w2.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
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 March 31, 2011
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 April 30, 2011, 1,500 shares of Class A common stock and
182,648 shares of Class B common
stock were issued and 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. The forward-looking statements include our current expectations, assumptions, estimates
and projections about our business and our industry. They include statements relating to
future revenues, expenses and profitability, the future development and expected growth of
our business, projected capital expenditures, attendance at movies generally or in any of
the markets in which we operate, the number or diversity of popular movies released and our
ability to successfully license and exhibit popular films, national and international
growth in our industry, competition from other exhibitors and alternative forms of
entertainment and determinations in lawsuits in which we are defendants. Forward-looking
statements can be identified by the use of words such as may, should, could, estimates,
predicts, potential, continue, anticipates, believes, plans, expects, future and
intends and similar expressions. Forward-looking statements may involve known and unknown risks,
uncertainties and other factors that may cause the actual results or performance to differ from
those projected in the forward-looking statements. These statements are not guarantees of future
performance and are subject to risks, uncertainties and other factors, some of which are beyond our
control and difficult to predict and could cause actual results to differ materially from those
expressed or forecasted in the forward-looking statements. For a description of the risk factors,
please review the Risk Factors section or other sections in the Companys Annual Report on Form
10-K filed March 11, 2011 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
CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data, unaudited)
March 31, | December 31, | |||||||
2011 | 2010 | |||||||
Assets |
||||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | 462,589 | $ | 464,765 | ||||
Inventories |
10,505 | 11,686 | ||||||
Accounts receivable |
41,250 | 50,607 | ||||||
Income tax receivable |
8,796 | 30,733 | ||||||
Current deferred tax asset |
4,128 | 8,099 | ||||||
Prepaid expenses and other |
8,479 | 10,931 | ||||||
Accounts receivable from parent |
7,644 | 6,728 | ||||||
Total current assets |
543,391 | 583,549 | ||||||
Theatre properties and equipment |
2,080,882 | 2,048,204 | ||||||
Less accumulated depreciation and amortization |
874,086 | 832,758 | ||||||
Theatre properties and equipment, net |
1,206,796 | 1,215,446 | ||||||
Other assets |
||||||||
Goodwill |
1,125,482 | 1,122,971 | ||||||
Intangible assets net |
328,491 | 329,204 | ||||||
Investment in NCM |
72,162 | 64,376 | ||||||
Investment in DCIP |
13,088 | 10,838 | ||||||
Investment in Real D |
33,455 | 27,993 | ||||||
Investments in and advances to affiliates |
2,462 | 2,619 | ||||||
Deferred charges and other assets net |
85,737 | 70,978 | ||||||
Total other assets |
1,660,877 | 1,628,979 | ||||||
Total assets |
$ | 3,411,064 | $ | 3,427,974 | ||||
Liabilities and equity |
||||||||
Current liabilities |
||||||||
Current portion of long-term debt |
$ | 10,836 | $ | 10,836 | ||||
Current portion of capital lease obligations |
7,570 | 7,348 | ||||||
Current liability for uncertain tax positions |
463 | 1,948 | ||||||
Accounts payable and accrued expenses |
220,400 | 251,660 | ||||||
Total current liabilities |
239,269 | 271,792 | ||||||
Long-term liabilities |
||||||||
Long-term debt, less current portion |
1,519,102 | 1,521,605 | ||||||
Capital lease obligations, less current portion |
130,901 | 132,812 | ||||||
Deferred income taxes |
124,162 | 129,293 | ||||||
Liability for uncertain tax positions |
16,318 | 17,840 | ||||||
Deferred lease expenses |
31,239 | 30,454 | ||||||
Deferred revenue NCM |
239,032 | 230,573 | ||||||
Other long-term liabilities |
53,165 | 52,900 | ||||||
Total long-term liabilities |
2,113,919 | 2,115,477 | ||||||
Commitments and contingencies (see Note 18) |
||||||||
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 |
1,170,775 | 1,167,994 | ||||||
Retained deficit |
(190,901 | ) | (192,385 | ) | ||||
Accumulated other comprehensive income |
40,827 | 28,181 | ||||||
Total Cinemark USA, Inc.s stockholders equity |
1,046,011 | 1,029,100 | ||||||
Noncontrolling interests |
11,865 | 11,605 | ||||||
Total equity |
1,057,876 | 1,040,705 | ||||||
Total liabilities and equity |
$ | 3,411,064 | $ | 3,427,974 | ||||
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 except per share data, unaudited)
Three months ended March 31, | ||||||||
2011 | 2010 | |||||||
Revenues |
||||||||
Admissions |
$ | 311,692 | $ | 342,990 | ||||
Concession |
146,681 | 153,104 | ||||||
Other |
24,763 | 20,537 | ||||||
Total revenues |
483,136 | 516,631 | ||||||
Cost of operations |
||||||||
Film rentals and advertising |
165,153 | 188,819 | ||||||
Concession supplies |
23,282 | 22,406 | ||||||
Salaries and wages |
50,079 | 52,542 | ||||||
Facility lease expense |
66,426 | 62,715 | ||||||
Utilities and other |
59,827 | 55,221 | ||||||
General and administrative expenses |
28,552 | 24,991 | ||||||
Depreciation and amortization |
38,922 | 33,933 | ||||||
Amortization of favorable/unfavorable leases |
218 | 158 | ||||||
Impairment of long-lived assets |
1,015 | 347 | ||||||
Loss on sale of assets and other |
472 | 3,167 | ||||||
Total cost of operations |
433,946 | 444,299 | ||||||
Operating income |
49,190 | 72,332 | ||||||
Other income (expense) |
||||||||
Interest expense |
(29,290 | ) | (26,010 | ) | ||||
Interest income |
1,769 | 1,053 | ||||||
Foreign currency exchange gain (loss) |
823 | (268 | ) | |||||
Distributions from NCM |
9,863 | 9,946 | ||||||
Equity in income of affiliates |
2,438 | 27 | ||||||
Total other expense |
(14,397 | ) | (15,252 | ) | ||||
Income before income taxes |
34,793 | 57,080 | ||||||
Income taxes |
9,200 | 20,033 | ||||||
Net income |
$ | 25,593 | $ | 37,047 | ||||
Less: Net income attributable to noncontrolling
interests |
359 | 1,618 | ||||||
Net income attributable to Cinemark USA, Inc. |
$ | 25,234 | $ | 35,429 | ||||
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)
Three Months Ended March 31, | ||||||||
2011 | 2010 | |||||||
Operating activities |
||||||||
Net income |
$ | 25,593 | $ | 37,047 | ||||
Adjustments to reconcile net income to cash provided by operating activities: |
||||||||
Depreciation |
38,033 | 32,829 | ||||||
Amortization of intangible and other assets and unfavorable leases |
1,107 | 1,262 | ||||||
Amortization of long-term prepaid rents |
667 | 341 | ||||||
Amortization of debt issue costs |
1,184 | 1,181 | ||||||
Amortization of deferred revenues, deferred lease incentives and other |
(2,339 | ) | (1,399 | ) | ||||
Amortization of accumulated other comprehensive loss related to interest rate
swap agreement |
1,158 | 1,158 | ||||||
Amortization of bond discount |
206 | 188 | ||||||
Impairment of long-lived assets |
1,015 | 347 | ||||||
Share based awards compensation expense |
1,871 | 1,108 | ||||||
Loss on sale of assets and other |
472 | 1,457 | ||||||
Loss on contribution of digital projection systems to DCIP |
| 1,710 | ||||||
Deferred lease expenses |
780 | 783 | ||||||
Deferred income tax expenses |
(4,770 | ) | (10,528 | ) | ||||
Equity in income of affiliates |
(2,438 | ) | (27 | ) | ||||
Tax benefit related to stock option exercises and restricted stock vesting |
1,854 | 1,667 | ||||||
Distributions from equity investees |
2,420 | 1,674 | ||||||
Changes in assets and liabilities |
(6,057 | ) | (27,158 | ) | ||||
Net cash provided by operating activities |
60,756 | 43,640 | ||||||
Investing activities |
||||||||
Additions to theatre properties and equipment |
(35,769 | ) | (19,517 | ) | ||||
Proceeds from sale of theatre properties and equipment |
485 | 491 | ||||||
Investment in joint venture DCIP and other |
(572 | ) | (644 | ) | ||||
Net cash used for investing activities |
(35,856 | ) | (19,670 | ) | ||||
Financing activities |
||||||||
Dividends paid to parent |
(23,750 | ) | (14,375 | ) | ||||
Payroll taxes paid as a result of noncash stock option exercises and restricted stock withholdings |
(494 | ) | (299 | ) | ||||
Payment of debt issue costs |
(74 | ) | (8,706 | ) | ||||
Repayments of long-term debt |
(2,709 | ) | (3,070 | ) | ||||
Payments on capital leases |
(1,722 | ) | (1,739 | ) | ||||
Other |
(110 | ) | | |||||
Net cash used for financing activities |
(28,859 | ) | (28,189 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents |
1,783 | (359 | ) | |||||
Decrease in cash and cash equivalents |
(2,176 | ) | (4,578 | ) | ||||
Cash and cash equivalents: |
||||||||
Beginning of period |
464,765 | 437,737 | ||||||
End of period |
$ | 462,589 | $ | 433,159 | ||||
Supplemental information (see Note 14)
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
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.), 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 three months
ended March 31, 2011.
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, 2010, included in the Annual Report on Form 10-K filed March 11, 2011 by the Company under the
Securities Exchange Act of 1934, as amended (the Exchange Act).Operating results for the
three months ended March 31, 2011 are not necessarily indicative of the results to be achieved for the
full year.
2. New Accounting Pronouncements
There were no new accounting pronouncements issued or effective during 2011 that had or are
expected to have an impact on the Companys condensed consolidated financial statements.
3. Equity
Below
is a summary of changes in stockholders equity attributable to Cinemark USA, Inc.,
noncontrolling interests and total equity for the three months ended March 31, 2011 and 2010:
Cinemark | ||||||||||||
USA, Inc. | ||||||||||||
Stockholders | Noncontrolling | Total | ||||||||||
Equity | Interests | Equity | ||||||||||
Balance at January 1, 2011 |
$ | 1,029,100 | $ | 11,605 | $ | 1,040,705 | ||||||
Share based awards compensation expense |
1,871 | | 1,871 | |||||||||
Tax benefit related to stock option exercises and restricted stock vesting |
910 | | 910 | |||||||||
Dividends paid to parent |
(23,750 | ) | | (23,750 | ) | |||||||
Comprehensive income: |
||||||||||||
Net income |
25,234 | 359 | 25,593 | |||||||||
Fair value adjustments on interest
rate swap agreements, net of taxes of $1,936 |
2,716 | | 2,716 | |||||||||
Amortization of accumulated other
comprehensive loss on terminated swap
agreement |
1,158 | | 1,158 | |||||||||
Fair value adjustments on
available-for-sale securities, net of
taxes of $729 |
1,323 | | 1,323 | |||||||||
Foreign currency translation adjustment |
7,449 | (99 | ) | 7,350 | ||||||||
Total comprehensive income |
37,880 | 260 | 38,140 | |||||||||
Balance at March 31, 2011 |
$ | 1,046,011 | $ | 11,865 | $ | 1,057,876 | ||||||
7
Table of Contents
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
In thousands, except share and per share data
Cinemark | ||||||||||||
USA, Inc. | ||||||||||||
Stockholders | Noncontrolling | Total | ||||||||||
Equity | Interests | Equity | ||||||||||
Balance at January 1, 2010 |
$ | 907,345 | $ | 14,796 | $ | 922,141 | ||||||
Share based awards compensation expense |
1,108 | | 1,108 | |||||||||
Tax benefit related to stock option exercises |
1,667 | | 1,667 | |||||||||
Dividends paid to parent |
(14,375 | ) | | (14,375 | ) | |||||||
Comprehensive income: |
||||||||||||
Net income |
35,429 | 1,618 | 37,047 | |||||||||
Fair value adjustments on interest rate swap agreements,
net of taxes of $314 |
(518 | ) | | (518 | ) | |||||||
Amortization of accumulated other comprehensive loss on
terminated swap agreement |
1,158 | | 1,158 | |||||||||
Foreign currency translation adjustment |
(268 | ) | (236 | ) | (504 | ) | ||||||
Total comprehensive income |
35,801 | 1,382 | 37,183 | |||||||||
Balance at March 31, 2010 |
$ | 931,546 | $ | 16,178 | $ | 947,724 | ||||||
4. Investment in National CineMedia
Below is a summary of activity with National CineMedia, LLC (NCM) included in the Companys
condensed consolidated financial statements:
Investment | Deferred | Distributions | Equity in | Other | Cash | |||||||||||||||||||
in NCM | Revenue | from NCM | Earnings | Revenue | Received | |||||||||||||||||||
Balance as of December 31, 2010 |
$ | 64,376 | $ | (230,573 | ) | |||||||||||||||||||
Receipt of common units due to annual
common unit adjustment |
9,302 | (9,302 | ) | $ | | $ | | $ | | $ | | |||||||||||||
Revenues earned under exhibitor
services agreement |
| | | | (1,299 | ) | 1,299 | |||||||||||||||||
Receipt of excess cash distributions |
(1,708 | ) | | (5,909 | ) | | | 7,617 | ||||||||||||||||
Receipt under tax receivable agreement |
(712 | ) | | (3,954 | ) | | | 4,666 | ||||||||||||||||
Equity in earnings |
904 | | | (904 | ) | | | |||||||||||||||||
Amortization of deferred revenue |
| 843 | | | (843 | ) | | |||||||||||||||||
Balance as of and for the period
ended March 31, 2011 |
$ | 72,162 | $ | (239,032 | ) | $ | (9,863 | ) | $ | (904 | ) | $ | (2,142 | ) | $ | 13,582 | ||||||||
During March 2011, 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 549,417 common units of NCM, each of which is convertible into one share of National
CineMedia, 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 approximately $9,302.
The deferred revenue will be recognized under the units of revenue method over the remaining term
of the Companys Exhibitor Services Agreement with NCM, which is approximately 26 years. The common
unit adjustment resulted in a change in the Companys ownership percentage in NCM from
approximately 15.3% to 15.8%.
As of March 31, 2011, the Company owned a total of 17,495,920 common units of NCM. The Company
continues to account for its investment in NCM under the equity method of accounting. During the
three months ended March 31, 2011 and March 31, 2010, the Company recorded equity earnings of
approximately $904 and $821, respectively.
Pursuant to the terms of the Exhibitor Services Agreement, the Company recorded other
revenues, excluding the amortization of deferred revenue, of
approximately $1,299 and $1,190 during
the three months ended March 31, 2011 and 2010, 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
$2,316 and $2,513, respectively.
8
Table of Contents
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
In thousands, except share and per share data
Below is summary financial information for NCM for the year ended December 31, 2010 (financial
information was not yet available for the three months ended March 31, 2011):
Year | ||||
Ended | ||||
December 31, 2010 | ||||
Gross revenues |
$ | 427,445 | ||
Operating income |
$ | 190,559 | ||
Net earnings |
$ | 139,541 |
5. 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.
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 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 three months ended March 31, 2010. As of March 31, 2011, the Company
continues to have a 33% voting interest in DCIP and a 24.3% economic interest in DCIP.
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 three months ended March 31, 2011
and 2010, the Company recorded equity income (losses) of $1,686 and ($818), respectively, relating
to this investment. Below is a summary of activity with DCIP for the three months ended March 31,
2011:
Investment in | ||||
DCIP | ||||
Balance as of December 31, 2010 |
$ | 10,838 | ||
Cash contributions to DCIP |
564 | |||
Equity in income |
1,686 | |||
Balance as of March 31, 2011 |
$ | 13,088 | ||
The Company continues to roll out digital projection systems to a majority of its first
run U.S. theatres. The digital projection systems are 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 is also subject to
various types of other rent if such digital projection systems do not meet minimum performance
requirements as outlined in the agreements. Certain of the other rent payments are subject to
either a monthly or an annual maximum. As of March 31, 2011, the Company had 1,881 digital
projection systems being leased under the master equipment lease agreement with Kasima. The Company
recorded equipment lease expense of approximately $912 and $65 during the three months ended March
31, 2011 and 2010, respectively, which is included in utilities and other costs on the condensed
consolidated statement of income.
9
Table of Contents
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
In thousands, except share and per share data
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 $3,541 on its domestic 35 millimeter projectors during the
three months ended March 31, 2011. The net book value of the existing 35 millimeter projection
systems to be replaced was approximately $7,058 as of March 31, 2011.
6. Investment in Real D
Under its license agreement with Real D, a publicly traded company from whom the Company
licenses its 3-D systems, the Company earned options to purchase shares of common stock upon
installation of a certain number of 3-D systems as outlined in the license agreement. During 2010,
the Company earned a total of 1,085,828 options to purchase shares of common stock in Real D. Upon
vesting in these options, the Company recorded a total investment in Real D of approximately
$18,909, which represented the estimated aggregate fair value of the options, with an offset to
deferred lease incentive liability.
During the three months ended March 31, 2011, the Company vested in an additional 136,952 Real
D options by reaching the final target level, as outlined in the
license agreement. Upon vesting in
these additional options, the Company recorded an increase in its investment in Real D and its
deferred lease incentive liability of approximately $3,402, which represented the estimated fair
value of the Real D options. The fair value measurements were based upon Real Ds closing stock
prices on the dates of vesting. These fair value measurements fall under Level 1 of the U.S. GAAP
fair value hierarchy as defined by ASC Topic 820-10-35. The deferred lease incentive liability,
which is reflected in other long-term liabilities on the condensed consolidated balance sheets, is
being amortized over the term of the license agreement, which is approximately seven and one-half
years.
During March 2011, the Company exercised all of its options to purchase shares of common stock
in Real D for $0.00667 per share. The Company accounts for its investment in Real D as a marketable
security. The Company has determined that its Real D shares are available-for-sale securities in
accordance with ASC Topic 320-10-35-1, therefore unrealized holding gains and losses are reported
as a component of accumulated other comprehensive income (loss) until realized.
As of March 31, 2011, the Company owned 1,222,780 shares in Real D, with an estimated fair
value of $33,455. The fair value of the Real D shares as of March 31, 2011 was determined based
upon the closing price of Real Ds common stock on that date, which falls under Level 1 of the U.S.
GAAP fair value hierarchy as defined by ASC Topic 820-10-35. During the three months ended March 31,
2011, the Company recorded an unrealized holding gain of approximately $2,052 as a component of
accumulated other comprehensive income on the condensed consolidated balance sheet.
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CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
In thousands, except share and per share data
7. Share Based Awards
Stock Options A summary of stock option activity and related information for Cinemark
Holdings, Inc. stock options that are held by the Companys employees for the three months ended
March 31, 2011 is as follows:
Weighted Average | ||||||||||||||||
Number of | Weighted Average | Grant Date Fair | Aggregate Intrinsic | |||||||||||||
Options | Exercise Price | Value | Value | |||||||||||||
Outstanding at December 31, 2010 |
140,356 | $ | 7.63 | $ | 3.51 | |||||||||||
Exercised |
(45,596 | ) | $ | 7.63 | $ | 3.51 | ||||||||||
Outstanding at March 31, 2011 |
94,760 | $ | 7.63 | $ | 3.51 | $ | 1,111 | |||||||||
Options exercisable at March 31, 2011 |
94,760 | $ | 7.63 | $ | 3.51 | $ | 1,111 | |||||||||
The total intrinsic value of options exercised during the three month period ended March
31, 2011 was $520. The Company recognized a tax benefit of approximately $203 during the three
months ended March 31, 2011 related to these option exercises.
As of March 31, 2011, there was no remaining unrecognized compensation expense related to
outstanding stock options as all outstanding options fully vested on April 2, 2009. Options
outstanding at March 31, 2011 have an average remaining contractual life of approximately four
years.
Restricted Stock During the three months ended March 31, 2011, Cinemark Holdings, Inc.
granted 390,463 shares of restricted stock to employees of the Company. The fair value of the
restricted stock granted was determined based on the market value of Cinemark Holdings, Inc.s
common stock on the date of grant, which was $19.35 per share. The Company assumed a forfeiture rate
of 5% for the restricted stock awards. The restricted stock granted vests over four years based on
continued service.
Below is a summary of restricted stock activity for the three months ended March 31, 2011:
Shares of | Weighted Average | |||||||
Restricted | Grant Date | |||||||
Stock | Fair Value | |||||||
Outstanding at December 31, 2010 |
1,254,691 | $ | 14.60 | |||||
Granted |
390,463 | $ | 19.35 | |||||
Forfeited |
(853 | ) | $ | 12.89 | ||||
Vested |
(226,883 | ) | $ | 10.21 | ||||
Canceled |
(4,613 | ) | $ | 18.35 | ||||
Outstanding at March 31, 2011 |
1,412,805 | $ | 16.60 | |||||
Unvested restricted stock at March 31, 2011 |
1,412,805 | $ | 16.60 | |||||
The
Company recorded compensation expense of $1,173 and $540 related to restricted stock
awards during the three months ended March 31, 2011 and 2010, respectively. Cinemark Holdings, Inc.
recorded additional compensation expense of $142 and $205 related to restricted stock awards during
the three months ended March 31, 2011 and 2010, respectively. As of March 31, 2011, the remaining
unrecognized compensation expense related to restricted stock awards
was $18,264 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 three months ended March 31, 2011 was $4,381. The Company recognized
a tax benefit of approximately $1,651 during the three months ended March 31, 2011 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.
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CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
In thousands, except share and per share data
Restricted
Stock Units During the three months ended March 31, 2011, Cinemark Holdings, Inc.
granted restricted stock units representing 153,727 hypothetical shares of common stock to employees
of the Company. The restricted stock units vest based on a combination of financial performance
factors and continued service. The financial performance factors are based on an implied equity
value concept that determines an internal rate of return (IRR) during the three fiscal year period
ending December 31, 2013 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, 2015, 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 vest.
Below is a table summarizing the potential number of shares that could vest under restricted
stock unit awards granted during the three months ended
March 31, 2011 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% |
51,239 | $ | 991 | |||||
at IRR of at least 10.5% |
102,488 | $ | 1,983 | |||||
at IRR of at least 12.5% |
153,727 | $ | 2,975 |
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 fair value of the restricted stock unit awards was
determined based on the market value of the Companys common stock on the date of grant, which was
$19.35 per share. 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 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.
No restricted stock unit awards have vested. There were no forfeitures of restricted stock
unit awards during the three months ended March 31, 2011. The Company recorded compensation expense
of $698 and $568 related to restricted stock unit awards during the three months ended March 31,
2011 and 2010, respectively. As of March 31, 2011, the Company had restricted stock units
outstanding that represented a total of 1,037,770 hypothetical shares of common stock, net of actual
cumulative forfeitures of 19,918 units, assuming the maximum IRR of at least 12.5% is achieved for
all of the grants. As of March 31, 2011, the remaining unrecognized compensation expense related to
the outstanding restricted stock unit awards was $7,617. The weighted average period over which this
remaining compensation expense will be recognized is approximately two years.
8. Long-Term Debt Activity
Amendment and Extension of Senior Secured Credit Facility
On March 2, 2010, the Company completed an amendment and extension to its 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 approximately $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 approximately $2,311 through March 31, 2016 with the remaining principal amount of
approximately $866,602 due April 30, 2016. Payments on the original amount that was not extended are
due in equal
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CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
In thousands, except share and per share data
quarterly installments 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 due 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. The interest rate on the
original term loan debt that was not extended accrues interest, at the Companys 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 that was not extended is determined by the applicable corporate credit
rating. The interest rate on the extended portion of the term loan debt accrues interest, at the
Companys 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.
The maturity date of $73,500 of the Companys $150,000 revolving credit line was extended from
October 2012 to March 2015. The maturity date of the remaining $76,500 of the Companys revolving
credit line did not change and remains October 2012. The interest rate on the original revolving
credit line accrues interest, at the Companys 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 the Companys
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
determined by 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 three months ended
March 31, 2010 related to the amendment and extension of its senior secured credit facility. These
costs will be amortized 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 $1,529,938 and $1,532,441 as of
March 31, 2011 and December 31, 2010, respectively. The fair value of the Companys long-term debt
was $1,585,183 and $1,581,963 as of March 31, 2011 and December 31, 2010, respectively.
9. Interest Rate Swap Agreements
The Company is currently a party to four interest rate swap agreements that qualify for cash
flow hedge accounting. No premium or discount was incurred upon the Company entering into any of
its interest rate swap agreements because the pay rates and receive rates on the interest rate swap
agreements represented prevailing rates for each counterparty at the time each of the interest rate
swap agreements was consummated. The fair values of the interest rate swaps are recorded on the
Companys 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
income (loss) and the ineffective portion reported in earnings. The Companys current interest rate
swap agreements exhibited no ineffectiveness during the three months ended March 31, 2011 and 2010.
The valuation technique used to determine fair value is the income approach and under this
approach, the Company uses projected future interest rates as provided by counterparties to the
interest rate swap agreements and the fixed rates that the Company is obligated to pay under these
agreements. Therefore, the Companys measurements use significant unobservable inputs, which fall
in Level 3 of the U.S. GAAP hierarchy as defined by FASB ASC Topic 820-10-35. There were no changes
in valuation techniques during the period, 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
In thousands, except share and per share data
Below is a summary of the Companys current interest rate swap agreements designated as hedge
agreements:
Estimated | ||||||||||||||||||||||||
Amount | Effective | Pay | Receive | Expiration | Fair Value at | |||||||||||||||||||
Category | Hedged | Date | Rate | Rate | Date | March 31, 2011 | ||||||||||||||||||
Interest Rate Swap Assets |
||||||||||||||||||||||||
$ | 175,000 | December 2010 | 1.4000 | % | 1-Month LIBOR | September 2015 | $ | 5,380 | ||||||||||||||||
$ | 175,000 | December 2010 | 1.3975 | % | 1-Month LIBOR | September 2015 | 5,447 | |||||||||||||||||
$ | 10,827 | |||||||||||||||||||||||
Interest Rate Swap Liabilities |
||||||||||||||||||||||||
$ | 125,000 | August 2007 | 4.9220 | % | 3-Month LIBOR | August 2012 | $ | (7,514 | ) | |||||||||||||||
$ | 175,000 | November 2008 | 3.6300 | % | 1-Month LIBOR | (1) | (5,676 | )(2) | ||||||||||||||||
$ | (13,190 | ) | ||||||||||||||||||||||
Total |
$ | 650,000 | ||||||||||||||||||||||
(1) | $100,000 of this swap expires November 2011 and $75,000 expires November 2012. | |
(2) | Approximately $2,093 is reflected in other current liabilities on the condensed consolidated balance sheet as of March 31, 2011. |
The
Company amortized approximately $1,158 to interest expense during each of the three
months ended March 31, 2010 and 2011, related to a previously terminated interest rate swap
agreement. The Company will amortize approximately $4,633 to interest expense for this terminated
interest rate swap agreement over the next twelve months. See Note 12 for additional information
about the Companys fair value measurements related to its interest rate swap agreements.
10. Goodwill and Other Intangible Assets
The Companys goodwill was as follows:
U.S. | International | |||||||||||
Operating | Operating | |||||||||||
Segment | Segment | Total | ||||||||||
Balance at December 31, 2010(1) |
$ | 948,026 | $ | 174,945 | $ | 1,122,971 | ||||||
Foreign currency translation adjustments |
| 2,511 | 2,511 | |||||||||
Balance at March 31, 2011(1) |
$ | 948,026 | $ | 177,456 | $ | 1,125,482 | ||||||
(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
2010. No events or changes in
circumstances occurred during the three months ended March 31, 2011 that indicated that the
carrying value of goodwill might exceed its
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CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
In thousands, except share and per share data
estimated fair value.
Intangible assets consisted of the following:
Balance at | Foreign Currency | Balance at | ||||||||||||||
December 31, | Translation | March 31, | ||||||||||||||
2010 | Amortization | Adjustments | 2011 | |||||||||||||
Intangible assets with finite lives: |
||||||||||||||||
Gross carrying amount |
$ | 64,319 | $ | | $ | 47 | $ | 64,366 | ||||||||
Accumulated amortization |
(46,185 | ) | (1,126 | ) | | (47,311 | ) | |||||||||
Total net intangible assets with finite lives |
$ | 18,134 | $ | (1,126 | ) | $ | 47 | $ | 17,055 | |||||||
Intangible assets with indefinite lives: |
||||||||||||||||
Tradename |
311,070 | | 366 | 311,436 | ||||||||||||
Total intangible assets net |
$ | 329,204 | $ | (1,126 | ) | $ | 413 | $ | 328,491 | |||||||
Estimated aggregate future amortization expense for intangible assets is as follows:
For the nine
months ended December 31, 2011 |
$ | 2,854 | ||
For the twelve months ended December 31, 2012 |
2,997 | |||
For the twelve months ended December 31, 2013 |
2,437 | |||
For the twelve months ended December 31, 2014 |
1,902 | |||
For the twelve months ended December 31, 2015 |
1,799 | |||
Thereafter |
5,066 | |||
Total |
$ | 17,055 | ||
11. 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 asset carrying
values, the age of a recently built theatre, competitive theatres in the marketplace, the impact of
recent ticket price changes, available lease renewal options and other factors considered relevant
in its assessment of impairment of individual theatre assets. Long-lived assets are evaluated for
impairment on an individual theatre basis, which the Company believes is the lowest applicable
level for which there are identifiable cash flows. The impairment evaluation is based on the
estimated undiscounted cash flows from continuing use through the remainder of the 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 approximately
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. 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 three months ended March 31, 2010 and 2011. As of March 31, 2011, the
estimated aggregate fair value of the long-lived assets impaired during the three months ended
March 31, 2011 was approximately $176.
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CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
In thousands, except share and per share data
The long-lived asset impairment charges recorded during each of the periods presented are
specific to theatres that were directly and individually impacted by increased competition, adverse
changes in market demographics or adverse changes in the development or the conditions of the areas
surrounding the theatre.
Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
United States theatre properties |
$ | 343 | $ | 347 | ||||
International theatre properties |
672 | | ||||||
Subtotal |
$ | 1,015 | $ | 347 | ||||
Intangible assets |
| | ||||||
Impairment of long-lived assets |
$ | 1,015 | $ | 347 | ||||
12. Fair Value Measurements
The Company determines fair value measurements in accordance with FASB ASC Topic 820, which
establishes a fair value hierarchy under which an asset or liability is categorized based on the
lowest level of input significant to its fair value measurement. The levels of input defined by
FASB ASC Topic 820 are as follows:
Level 1 | quoted market prices in active markets for identical assets or liabilities that are accessible at the measurement date; | ||
Level 2 | other than quoted market prices included in Level 1 that are observable for the asset or liability, either directly or indirectly; and | ||
Level 3 | unobservable and should be used to measure fair value to the extent that observable inputs are not available. |
Below is a summary of assets and liabilities measured at fair value on a recurring basis by
the Company under FASB ASC Topic 820 as of March 31, 2011:
Carrying | Fair Value | |||||||||||||||
Description | Value | Level 1 | Level 2 | Level 3 | ||||||||||||
Interest rate swap liabilities current (see Note 9) |
$ | (2,093 | ) | $ | | $ | | $ | (2,093 | ) | ||||||
Interest rate swap liabilities long term (see Note 9) |
$ | (11,097 | ) | $ | | $ | | $ | (11,097 | ) | ||||||
Interest rate swap assets long term (see Note 9) |
$ | 10,827 | $ | | $ | | $ | 10,827 | ||||||||
Investment in Real D (see Note 6) |
$ | 33,455 | $ | 33,455 | $ | | $ | |
Below is a summary of assets and liabilities measured at fair value on a recurring basis
by the Company under FASB ASC Topic 820 as of December 31, 2010:
Carrying | Fair Value | |||||||||||||||
Description | Value | Level 1 | Level 2 | Level 3 | ||||||||||||
Interest rate swap liabilities current (see Note 9) |
$ | (2,928 | ) | $ | | $ | | $ | (2,928 | ) | ||||||
Interest rate swap liabilities long term (see Note 9) |
$ | (13,042 | ) | $ | | $ | | $ | (13,042 | ) | ||||||
Interest rate swap assets long term (see Note 9) |
$ | 8,955 | $ | | $ | | $ | 8,955 | ||||||||
Investment in Real D (see Note 6) |
$ | 27,993 | $ | | $ | 27,993 | $ | |
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CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
In thousands, except share and per share data
Below is a reconciliation of the beginning and ending balance for liabilities measured at
fair value on a recurring basis using significant unobservable inputs (Level 3):
Liabilities | Assets | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Beginning balance January 1 |
$ | (15,970 | ) | $ | (18,524 | ) | $ | 8,955 | $ | | ||||||
Total gain (loss) included in
accumulated other
comprehensive income (loss) |
2,780 | (832 | ) | 1,872 | $ | | ||||||||||
Ending balance March 31 |
$ | (13,190 | ) | $ | (19,356 | ) | $ | 10,827 | $ | | ||||||
There were no changes in valuation techniques during the period. The fair value
measurement for the Companys investment in Real D transferred from Level 2 to Level 1. Previous
fair value estimates for the investment were based on Real Ds stock price, discounted to reflect
the impact of a lock-up period to which the Company was subject. The lock-up period expired during
January 2011; therefore, the fair value estimate for the investment as of
March 31, 2011 was based on Real Ds stock price with no
adjustments. There were no transfers
in or out of Level 3 and no gains or losses included in the earnings that were attributable to the
change in unrealized gains or losses related to the interest rate swap agreements.
13. Foreign Currency Translation
The
accumulated other comprehensive income account in stockholders equity of $28,181 and
$40,827 at December 31, 2010 and March 31, 2011, respectively, includes the cumulative foreign
currency adjustments of $34,248 and $41,696, 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 and the change in fair value of the Companys
available-for-sale securities.
In
2010 and 2011, 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 income (loss).
On
March 31, 2011, the exchange rate for the Brazilian real was 1.65 reais to the U.S. dollar
(the exchange rate was 1.67 reais to the U.S. dollar at December 31, 2010).As a result, the effect
of translating the March 31, 2011 Brazilian financial statements into U.S. dollars is reflected as
a foreign currency translation adjustment to the accumulated other comprehensive income account as
an increase in stockholders equity of $3,498. At March 31, 2011, the total assets of the Companys
Brazilian subsidiaries were U.S. $321,097.
On
March 31, 2011, the exchange rate for the Mexican peso was 11.95 pesos to the U.S. dollar
(the exchange rate was 12.39 pesos to the U.S. dollar at December 31, 2010).As a result, the effect
of translating the March 31, 2011 Mexican financial statements into U.S. dollars is reflected as a
foreign currency translation adjustment to the accumulated other comprehensive income account as
an increase in stockholders equity of $3,054. At March 31, 2011, the total assets of the Companys
Mexican subsidiaries were U.S. $140,754.
On
March 31, 2011, the exchange rate for the Colombian peso was 1,894.60 pesos to the U.S.
dollar (the exchange rate was 2,004.10 pesos to the U.S. dollar at December 31, 2010). As a result,
the effect of translating the March 31, 2011 Colombian financial statements into U.S. dollars is
reflected as a foreign currency translation adjustment to the accumulated other comprehensive
income account as an increase in stockholders equity of $1,115. At March 31, 2011, the total
assets of the Companys Colombian subsidiaries were U.S. $28,035.
The effect of translating the March 31, 2011 financial statements of the Companys other
international subsidiaries, with local currencies other than the U.S. dollar, is reflected as a
foreign currency translation adjustment to the accumulated other comprehensive income account as a
decrease in stockholders equity of $219.
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CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
In thousands, except share and per share data
14. Supplemental Cash Flow Information
The following is provided as supplemental information to the condensed consolidated statements of
cash flows:
Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
Cash paid for interest |
$ | 16,678 | $ | 12,371 | ||||
Cash paid for income taxes, net of refunds received |
$ | (6,610 | ) | $ | 12,903 | |||
Noncash investing and financing activities: |
||||||||
Change in construction lease obligations related to construction of theatres |
$ | | $ | 2,370 | ||||
Change in accounts payable and accrued expenses for the acquisition of theatre
properties and equipment(1) |
$ | 1,466 | $ | 2,543 | ||||
Change in fair market values of interest rate swap agreements, net of taxes |
$ | 2,716 | $ | (518 | ) | |||
Investment in NCM receipt of common units (see Note 4) |
$ | 9,302 | $ | 30,683 | ||||
Equipment contributed to DCIP (see Note 5) |
$ | | $ | 18,090 | ||||
Investment in Real D (see Note 6) |
$ | 3,402 | $ | | ||||
Change in fair market value of available-for-sale securities, net of taxes (see Note 6) |
$ | 1,323 | $ | |
(1) | Additions to theatre properties and equipment included in accounts payable as of December 31, 2010 and March 31, 2011 were $11,162 and $9,696, respectively. |
15. 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 (note that the Companys
only Canadian theatre was sold during November 2010.) 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.
Below is a breakdown of selected financial information by reportable operating segment:
Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
Revenues |
||||||||
U.S. |
$ | 330,866 | $ | 388,615 | ||||
International |
154,471 | 129,271 | ||||||
Eliminations |
(2,201 | ) | (1,255 | ) | ||||
Total revenues |
$ | 483,136 | $ | 516,631 | ||||
Adjusted EBITDA |
||||||||
U.S. |
$ | 69,083 | $ | 89,739 | ||||
International |
33,915 | 32,376 | ||||||
Total Adjusted EBITDA |
$ | 102,998 | $ | 122,115 | ||||
Capital expenditures |
||||||||
U.S. |
$ | 11,468 | $ | 12,500 | ||||
International |
24,301 | 7,017 | ||||||
Total capital expenditures |
$ | 35,769 | $ | 19,517 | ||||
18
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CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
In thousands, except share and per share data
The following table sets forth a reconciliation of net income to Adjusted EBITDA:
Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
Net income |
$ | 25,593 | $ | 37,047 | ||||
Add (deduct): |
||||||||
Income taxes |
9,200 | 20,033 | ||||||
Interest expense (1) |
29,290 | 26,010 | ||||||
Other income (2) |
(5,030 | ) | (812 | ) | ||||
Depreciation and amortization |
38,922 | 33,933 | ||||||
Amortization of favorable/unfavorable leases |
218 | 158 | ||||||
Impairment of long-lived assets |
1,015 | 347 | ||||||
Loss on sale of assets and other |
472 | 3,167 | ||||||
Deferred lease expenses |
780 | 783 | ||||||
Amortization of long-term prepaid rents |
667 | 341 | ||||||
Share based awards compensation expense |
1,871 | 1,108 | ||||||
Adjusted EBITDA |
$ | 102,998 | $ | 122,115 | ||||
(1) | Includes amortization of debt issue costs. | |
(2) | Includes interest income, foreign currency exchange gain (loss), and equity in income of affiliates and excludes distributions from NCM. 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., 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 | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
Revenues |
||||||||
U.S. |
$ | 330,866 | $ | 388,615 | ||||
Brazil |
86,841 | 69,218 | ||||||
Mexico |
15,917 | 17,382 | ||||||
Other foreign countries |
51,713 | 42,671 | ||||||
Eliminations |
(2,201 | ) | (1,255 | ) | ||||
Total |
$ | 483,136 | $ | 516,631 | ||||
March 31, | December 31, | |||||||
2011 | 2010 | |||||||
Theatre Properties and Equipment-net |
||||||||
U.S. |
$ | 956,994 | $ | 972,358 | ||||
Brazil |
129,768 | 129,361 | ||||||
Mexico |
46,549 | 43,127 | ||||||
Other foreign countries |
73,485 | 70,600 | ||||||
Total |
$ | 1,206,796 | $ | 1,215,446 | ||||
16. 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 directly and indirectly owns approximately 10% of Cinemark
Holdings, Inc.s issued and outstanding shares of common stock. The Company closed this theatre
during March 2010. The Company recorded $30 of facility lease and other operating expenses payable
to Plitt Plaza joint venture during the three months ended March 31, 2010.
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
19
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CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
In thousands, except share and per share data
up to $50,000 and 3% of annual
theatre revenues in excess of $50,000. The Company recorded $22 and
$27 of management fee revenues
during the three months ended March 31, 2010 and 2011, respectively. All such amounts are included
in the Companys condensed consolidated financial statements with the intercompany amounts
eliminated in consolidation.
The
Company leases 20 theatres and one parking facility from Syufy Enterprises, LP (Syufy) or
affiliates of Syufy. Raymond Syufy is one of Cinemark Holdings, Inc.s directors and is an officer
of the general partner of Syufy. Of these 21 leases, 17 have fixed minimum annual rent in an
aggregate amount of approximately $21,044. 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 three months ended March 31, 2010 and 2011, the
Company paid approximately $321 and
$281, 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 March 31, 2011 and December 31, 2010 was $7,644 and $6,728,
respectively.
17. Income Taxes
During
the three months ended March 31, 2011, the Company had a reduction in its liabilities
for uncertain tax positions and a reduction in its income tax expense of approximately $3,637 due to
settlements and closures of various tax years.
18. 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, patent claims and contractual disputes, some of which are covered by
insurance. The Company believes its potential liability with respect to proceedings currently
pending is not material, individually or in the aggregate, to the Companys financial position,
results of operations and cash flows.
19. Condensed Consolidating Financial Information of Subsidiary Guarantors
As of March 31, 2011, 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, 2010 and March 31, 2011, condensed consolidating statements of income information for the three months ended March 31, 2010 and 2011, and condensed consolidating statements of cash flows information for the three months ended March 31, 2010 and 2011. |
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 |
20
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CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
In thousands, except share and per share data
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 |
21
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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
MARCH 31, 2011
MARCH 31, 2011
Parent | Subsidiary | Subsidiary | ||||||||||||||||||
Company | Guarantors | Non-Guarantors | Eliminations | Consolidated | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Assets |
||||||||||||||||||||
Current assets |
||||||||||||||||||||
Cash and cash equivalents |
$ | 45,058 | $ | 213,059 | $ | 204,472 | $ | | $ | 462,589 | ||||||||||
Other current assets |
41,448 | 34,351 | 30,657 | (33,298 | ) | 73,158 | ||||||||||||||
Accounts receivable from parent or subsidiaries |
163,647 | | | (156,003 | ) | 7,644 | ||||||||||||||
Total current assets |
250,153 | 247,410 | 235,129 | (189,301 | ) | 543,391 | ||||||||||||||
Theatre properties and equipment net |
304,488 | 634,224 | 268,084 | | 1,206,796 | |||||||||||||||
Investment in subsidiaries |
1,277,339 | 468,744 | | (1,746,083 | ) | | ||||||||||||||
Other assets |
1,201,352 | 171,065 | 388,382 | (99,922 | ) | 1,660,877 | ||||||||||||||
Total assets |
$ | 3,033,332 | $ | 1,521,443 | $ | 891,595 | $ | (2,035,306 | ) | $ | 3,411,064 | |||||||||
Liabilities and equity |
||||||||||||||||||||
Current liabilities |
||||||||||||||||||||
Current portion of long-term debt |
$ | 10,836 | $ | | $ | | $ | | $ | 10,836 | ||||||||||
Current portion of capital lease obligations |
1,668 | 5,231 | 671 | | 7,570 | |||||||||||||||
Accounts payable and accrued expenses |
99,557 | 55,427 | 94,767 | (28,888 | ) | 220,863 | ||||||||||||||
Accounts payable to parent or subsidiaries |
| 107,306 | 48,697 | (156,003 | ) | | ||||||||||||||
Total current liabilities |
112,061 | 167,964 | 144,135 | (184,891 | ) | 239,269 | ||||||||||||||
Long-term liabilities |
||||||||||||||||||||
Long-term debt, less current portion |
1,525,732 | | 28,901 | (35,531 | ) | 1,519,102 | ||||||||||||||
Capital lease obligations, less current portion |
31,147 | 93,382 | 6,372 | | 130,901 | |||||||||||||||
Other long-term liabilities and deferrals |
318,381 | 146,354 | 67,982 | (68,801 | ) | 463,916 | ||||||||||||||
Total long-term liabilities |
1,875,260 | 239,736 | 103,255 | (134,763 | ) | 2,113,919 | ||||||||||||||
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 |
996,468 | 655,942 | 465,004 | (1,120,946 | ) | 996,468 | ||||||||||||||
Total Cinemark USA, Inc. stockholders equity |
1,046,011 | 1,113,314 | 632,769 | (1,746,083 | ) | 1,046,011 | ||||||||||||||
Noncontrolling interests |
| 429 | 11,436 | | 11,865 | |||||||||||||||
Total equity |
1,046,011 | 1,113,743 | 644,205 | (1,746,083 | ) | 1,057,876 | ||||||||||||||
Total liabilities and equity |
$ | 3,033,332 | $ | 1,521,443 | $ | 891,595 | $ | (2,035,306 | ) | $ | 3,411,064 | |||||||||
22
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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, 2010
DECEMBER 31, 2010
Parent | Subsidiary | Subsidiary | ||||||||||||||||||
Company | Guarantors | Non-Guarantors | Eliminations | Consolidated | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Assets |
||||||||||||||||||||
Current assets |
||||||||||||||||||||
Cash and cash equivalents |
$ | 70,054 | $ | 185,660 | $ | 209,051 | $ | | $ | 464,765 | ||||||||||
Other current assets |
73,774 | 39,221 | 34,458 | (35,397 | ) | 112,056 | ||||||||||||||
Accounts receivable from parent or subsidiaries |
135,527 | | | (128,799 | ) | 6,728 | ||||||||||||||
Total current assets |
279,355 | 224,881 | 243,509 | (164,196 | ) | 583,549 | ||||||||||||||
Theatre properties and equipment net |
307,302 | 646,906 | 261,238 | | 1,215,446 | |||||||||||||||
Investment in subsidiaries |
1,230,403 | 455,423 | | (1,685,826 | ) | | ||||||||||||||
Other assets |
1,195,916 | 167,587 | 362,047 | (96,571 | ) | 1,628,979 | ||||||||||||||
Total assets |
$ | 3,012,976 | $ | 1,494,797 | $ | 866,794 | $ | (1,946,593 | ) | $ | 3,427,974 | |||||||||
Liabilities and equity |
||||||||||||||||||||
Current liabilities |
||||||||||||||||||||
Current portion of long-term debt |
$ | 10,836 | $ | | $ | | $ | | $ | 10,836 | ||||||||||
Current portion of capital lease obligations |
1,626 | 5,057 | 665 | | 7,348 | |||||||||||||||
Accounts payable and accrued expenses |
105,748 | 78,779 | 100,788 | (31,707 | ) | 253,608 | ||||||||||||||
Accounts payable to parent or subsidiaries |
| 85,468 | 43,331 | (128,799 | ) | | ||||||||||||||
Total current liabilities |
118,210 | 169,304 | 144,784 | (160,506 | ) | 271,792 | ||||||||||||||
Long-term liabilities |
||||||||||||||||||||
Long-term debt, less current portion |
1,523,640 | | 30,145 | (32,180 | ) | 1,521,605 | ||||||||||||||
Capital lease obligations, less current portion |
31,580 | 94,762 | 6,470 | | 132,812 | |||||||||||||||
Other long-term liabilities and deferrals |
310,446 | 145,948 | 72,747 | (68,081 | ) | 461,060 | ||||||||||||||
Total long-term liabilities |
1,865,666 | 240,710 | 109,362 | (100,261 | ) | 2,115,477 | ||||||||||||||
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 |
979,557 | 627,013 | 433,676 | (1,060,689 | ) | 979,557 | ||||||||||||||
Total Cinemark USA, Inc. stockholders equity |
1,029,100 | 1,084,385 | 601,441 | (1,685,826 | ) | 1,029,100 | ||||||||||||||
Noncontrolling interests |
| 398 | 11,207 | | 11,605 | |||||||||||||||
Total equity |
1,029,100 | 1,084,783 | 612,648 | (1,685,826 | ) | 1,040,705 | ||||||||||||||
Total liabilities and equity |
$ | 3,012,976 | $ | 1,494,797 | $ | 866,794 | $ | (1,946,593 | ) | $ | 3,427,974 | |||||||||
23
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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 INCOME INFORMATION
THREE MONTHS ENDED MARCH 31, 2011
THREE MONTHS ENDED MARCH 31, 2011
Parent | Subsidiary | Subsidiary | ||||||||||||||||||
Company | Guarantors | Non-Guarantors | Eliminations | Consolidated | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Revenues |
$ | 126,218 | $ | 210,599 | $ | 157,325 | $ | (11,006 | ) | $ | 483,136 | |||||||||
Cost of operations |
||||||||||||||||||||
Theatre operating expenses |
110,374 | 148,607 | 116,792 | (11,006 | ) | 364,767 | ||||||||||||||
General and administrative expenses |
4,713 | 14,880 | 8,959 | | 28,552 | |||||||||||||||
Depreciation and amortization |
9,134 | 20,494 | 9,512 | | 39,140 | |||||||||||||||
Impairment of long-lived assets |
234 | 110 | 671 | | 1,015 | |||||||||||||||
(Gain) loss on sale of assets and other |
351 | 191 | (70 | ) | | 472 | ||||||||||||||
Total cost of operations |
124,806 | 184,282 | 135,864 | (11,006 | ) | 433,946 | ||||||||||||||
Operating income |
1,412 | 26,317 | 21,461 | | 49,190 | |||||||||||||||
Other income (expense) |
||||||||||||||||||||
Interest expense |
(26,492 | ) | (2,687 | ) | (600 | ) | 489 | (29,290 | ) | |||||||||||
Distributions from NCM |
1,492 | | 8,371 | | 9,863 | |||||||||||||||
Equity in income of affiliates |
39,601 | 6,380 | 2,424 | (45,967 | ) | 2,438 | ||||||||||||||
Other income |
53 | 525 | 2,503 | (489 | ) | 2,592 | ||||||||||||||
Total other income |
14,654 | 4,218 | 12,698 | (45,967 | ) | (14,397 | ) | |||||||||||||
Income before income taxes |
16,066 | 30,535 | 34,159 | (45,967 | ) | 34,793 | ||||||||||||||
Income taxes |
(9,168 | ) | 9,185 | 9,183 | | 9,200 | ||||||||||||||
Net income |
25,234 | 21,350 | 24,976 | (45,967 | ) | 25,593 | ||||||||||||||
Less: Net income attributable to noncontrolling interests |
| 13 | 346 | | 359 | |||||||||||||||
Net income attributable to Cinemark USA, Inc. |
$ | 25,234 | $ | 21,337 | $ | 24,630 | $ | (45,967 | ) | $ | 25,234 | |||||||||
24
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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 INCOME INFORMATION
THREE MONTHS ENDED MARCH 31, 2010
THREE MONTHS ENDED MARCH 31, 2010
Parent | Subsidiary | Subsidiary | ||||||||||||||||||
Company | Guarantors | Non-Guarantors | Eliminations | Consolidated | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Revenues |
$ | 147,640 | $ | 254,893 | $ | 134,159 | $ | (20,061 | ) | $ | 516,631 | |||||||||
Cost of operations |
||||||||||||||||||||
Theatre operating expenses |
134,883 | 171,014 | 95,867 | (20,061 | ) | 381,703 | ||||||||||||||
General and administrative expenses |
4,285 | 13,613 | 7,093 | | 24,991 | |||||||||||||||
Depreciation and amortization |
6,912 | 19,251 | 7,928 | | 34,091 | |||||||||||||||
Impairment of long-lived assets |
347 | | | | 347 | |||||||||||||||
Loss on sale of assets and other |
388 | 1,318 | 1,461 | | 3,167 | |||||||||||||||
Total cost of operations |
146,815 | 205,196 | 112,349 | (20,061 | ) | 444,299 | ||||||||||||||
Operating income |
825 | 49,697 | 21,810 | | 72,332 | |||||||||||||||
Other income (expense) |
||||||||||||||||||||
Interest expense |
(23,279 | ) | (2,910 | ) | (668 | ) | 847 | (26,010 | ) | |||||||||||
Distributions from NCM |
979 | | 8,967 | | 9,946 | |||||||||||||||
Equity in income of affiliates |
50,585 | 15,365 | 2 | (65,925 | ) | 27 | ||||||||||||||
Other income |
124 | 696 | 812 | (847 | ) | 785 | ||||||||||||||
Total other income |
28,409 | 13,151 | 9,113 | (65,925 | ) | (15,252 | ) | |||||||||||||
Income before income taxes |
29,234 | 62,848 | 30,923 | (65,925 | ) | 57,080 | ||||||||||||||
Income taxes |
(6,195 | ) | 18,053 | 8,175 | | 20,033 | ||||||||||||||
Net income |
35,429 | 44,795 | 22,748 | (65,925 | ) | 37,047 | ||||||||||||||
Less: Net income attributable to noncontrolling interests |
| 20 | 1,598 | | 1,618 | |||||||||||||||
Net income attributable to Cinemark USA, Inc. |
$ | 35,429 | $ | 44,775 | $ | 21,150 | $ | (65,925 | ) | $ | 35,429 | |||||||||
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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
THREE MONTHS ENDED MARCH 31, 2011
THREE MONTHS ENDED MARCH 31, 2011
Parent | Subsidiary | Subsidiary | ||||||||||||||||||
Company | Guarantors | Non-Guarantors | Eliminations | Consolidated | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Operating activities |
||||||||||||||||||||
Net income |
$ | 25,234 | $ | 21,350 | $ | 24,976 | $ | (45,967 | ) | $ | 25,593 | |||||||||
Adjustments to reconcile net income to cash provided by
operating activities |
(31,809 | ) | 16,005 | 11,057 | 45,967 | 41,220 | ||||||||||||||
Changes in assets and liabilities |
11,736 | (1,936 | ) | (15,857 | ) | | (6,057 | ) | ||||||||||||
Net cash provided by operating activities |
5,161 | 35,419 | 20,176 | | 60,756 | |||||||||||||||
Investing activities |
||||||||||||||||||||
Additions to theatre properties and equipment |
(3,337 | ) | (7,728 | ) | (24,704 | ) | | (35,769 | ) | |||||||||||
Proceeds from sale of theatre properties and equipment |
| 162 | 323 | | 485 | |||||||||||||||
Net transactions with affiliates |
113 | 1,246 | | (1,359 | ) | | ||||||||||||||
Investment
in joint venture-DCIP and other |
(8 | ) | | (564 | ) | | (572 | ) | ||||||||||||
Net cash used for investing activities |
(3,232 | ) | (6,320 | ) | (24,945 | ) | (1,359 | ) | (35,856 | ) | ||||||||||
Financing activities |
||||||||||||||||||||
Dividends paid to parent |
(23,750 | ) | | (115 | ) | 115 | (23,750 | ) | ||||||||||||
Payroll taxes paid as a result of restricted stock withholdings |
| (494 | ) | | | (494 | ) | |||||||||||||
Repayments of other long-term debt |
(2,709 | ) | | | | (2,709 | ) | |||||||||||||
Net changes in intercompany notes |
| | (1,244 | ) | 1,244 | | ||||||||||||||
Payments on capital leases |
(392 | ) | (1,206 | ) | (124 | ) | | (1,722 | ) | |||||||||||
Payment of debt issue costs |
(74 | ) | | | | (74 | ) | |||||||||||||
Other |
| | (110 | ) | | (110 | ) | |||||||||||||
Net cash used for financing activities |
(26,925 | ) | (1,700 | ) | (1,593 | ) | 1,359 | (28,859 | ) | |||||||||||
Effect of exchange rate changes on cash and cash equivalents |
| | 1,783 | | 1,783 | |||||||||||||||
Increase (decrease) in cash and cash equivalents |
(24,996 | ) | 27,399 | (4,579 | ) | | (2,176 | ) | ||||||||||||
Cash and cash equivalents: |
||||||||||||||||||||
Beginning of year |
70,054 | 185,660 | 209,051 | | 464,765 | |||||||||||||||
End of year |
$ | 45,058 | $ | 213,059 | $ | 204,472 | $ | | $ | 462,589 | ||||||||||
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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
THREE MONTHS ENDED MARCH 31, 2010
THREE MONTHS ENDED MARCH 31, 2010
Parent | Subsidiary | Subsidiary | ||||||||||||||||||
Company | Guarantors | Non-Guarantors | Eliminations | Consolidated | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Operating activities |
||||||||||||||||||||
Net income |
$ | 35,429 | $ | 44,795 | $ | 22,748 | $ | (65,925 | ) | $ | 37,047 | |||||||||
Adjustments to reconcile net income to cash provided by operating activities |
(53,637 | ) | 10,417 | 11,046 | 65,925 | 33,751 | ||||||||||||||
Changes in assets and liabilities |
25,446 | (41,595 | ) | (11,009 | ) | | (27,158 | ) | ||||||||||||
Net cash provided by operating activities |
7,238 | 13,617 | 22,785 | | 43,640 | |||||||||||||||
Investing activities |
||||||||||||||||||||
Additions to theatre properties and equipment |
(5,673 | ) | (6,721 | ) | (7,123 | ) | | (19,517 | ) | |||||||||||
Proceeds from sale of theatre properties and equipment |
| 395 | 96 | | 491 | |||||||||||||||
Investment in joint venture DCIP, net of cash distributions |
| | (644 | ) | | (644 | ) | |||||||||||||
Net transactions with affiliates |
| 1,361 | | (1,361 | ) | | ||||||||||||||
Net cash used for investing activities |
(5,673 | ) | (4,965 | ) | (7,671 | ) | (1,361 | ) | (19,670 | ) | ||||||||||
Financing activities |
||||||||||||||||||||
Dividends paid to parent |
(14,375 | ) | | | | (14,375 | ) | |||||||||||||
Payroll taxes paid as a result of noncash stock option exercises and
restricted stock withholdings |
(44 | ) | (255 | ) | | | (299 | ) | ||||||||||||
Repayments of other long-term debt |
(2,709 | ) | | (361 | ) | | (3,070 | ) | ||||||||||||
Net changes in intercompany notes |
| | (1,361 | ) | 1,361 | | ||||||||||||||
Payments on capital leases |
(314 | ) | (1,336 | ) | (89 | ) | | (1,739 | ) | |||||||||||
Payment of debt issue costs |
(8,706 | ) | | | | (8,706 | ) | |||||||||||||
Other |
| | | | | |||||||||||||||
Net cash used for financing activities |
(26,148 | ) | (1,591 | ) | (1,811 | ) | 1,361 | (28,189 | ) | |||||||||||
Effect of exchange rate changes on cash and cash equivalents |
| | (359 | ) | | (359 | ) | |||||||||||||
Increase (decrease) in cash and cash equivalents |
(24,583 | ) | 7,061 | 12,944 | | (4,578 | ) | |||||||||||||
Cash and cash equivalents: |
||||||||||||||||||||
Beginning of year |
39,761 | 237,540 | 160,436 | | 437,737 | |||||||||||||||
End of year |
$ | 15,178 | $ | 244,601 | $ | 173,380 | $ | | $ | 433,159 | ||||||||||
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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., Brazil,
Mexico, Chile, Colombia, Argentina, Ecuador, Peru, Honduras, El Salvador, Nicaragua, Costa Rica,
Panama and Guatemala. As of March 31, 2011, we managed our business under two reportable operating
segments U.S. markets and international markets. See Note 15 to our condensed consolidated
financial statements.
We generate revenues primarily from box office receipts and concession sales with additional
revenues from screen advertising sales and other revenue streams, such as vendor marketing
promotions and electronic video games located in some of our theatres. Our contracts with NCM have
assisted us in expanding our offerings to domestic advertisers and broadening ancillary revenue
sources such as digital video monitor advertising, third party branding, and the use of our
domestic theatres for alternative entertainment, such as live and pre-recorded concert events, the
opera, sports programs and other cultural events. Films leading the box office during the
three months ended March 31, 2011 included Rango, Just Go With It, Kings Speech,True Grit and Green
Hornet.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 2011 include Rio,
Fast Five, Thor, Pirates of the Caribbean: On Stranger Tides, The Hangover Part II, Kung Fu Panda
2: The Kaboom of Doom, Cars 2, X Men: First Class, Super 8, Transformers: Dark of the Moon, Harry
Potter and the Deathly Hallows: Part 2, Twilight: Breaking Dawn, Captain America: The First
Avenger, Cowboys and Aliens, Rise of the Planet of the Apes, Puss in Boots, Happy Feet 2, Mission:
Impossible Ghost Protocol, Sherlock Holmes 2 and Alvin and the Chipmunks: Chipwrecked, 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.
28
Table of Contents
Results of Operations
The following table sets forth, for the periods indicated, certain operating data and, the
percentage of revenues represented by certain items reflected in our condensed consolidated
statements of income:
Three Months Ended | ||||||||
March 31, | ||||||||
Operating data (in millions): | 2011 | 2010 | ||||||
Revenues |
||||||||
Admissions |
$ | 311.7 | $ | 343.0 | ||||
Concession |
146.7 | 153.1 | ||||||
Other |
24.7 | 20.5 | ||||||
Total revenues |
483.1 | 516.6 | ||||||
Cost of operations |
||||||||
Film rentals and advertising |
165.2 | 188.8 | ||||||
Concession supplies |
23.3 | 22.4 | ||||||
Salaries and wages |
50.1 | 52.5 | ||||||
Facility lease expense |
66.4 | 62.7 | ||||||
Utilities and other |
59.8 | 55.2 | ||||||
General and administrative expenses |
28.6 | 25.0 | ||||||
Depreciation and amortization |
39.1 | 34.1 | ||||||
Impairment of long-lived assets |
1.0 | 0.4 | ||||||
Loss on sale of assets and other |
0.5 | 3.2 | ||||||
Total cost of operations |
434.0 | 444.3 | ||||||
Operating income |
$ | 49.1 | $ | 72.3 | ||||
Operating data as a percentage of total revenues: |
||||||||
Revenues |
||||||||
Admissions |
64.5 | % | 66.4 | % | ||||
Concession |
30.4 | % | 29.6 | % | ||||
Other |
5.1 | % | 4.0 | % | ||||
Total revenues |
100.0 | % | 100.0 | % | ||||
Cost of operations (1) |
||||||||
Film rentals and advertising |
53.0 | % | 55.0 | % | ||||
Concession supplies |
15.9 | % | 14.6 | % | ||||
Salaries and wages |
10.4 | % | 10.2 | % | ||||
Facility lease expense |
13.7 | % | 12.1 | % | ||||
Utilities and other |
12.4 | % | 10.7 | % | ||||
General and administrative expenses |
5.9 | % | 4.8 | % | ||||
Depreciation and amortization |
8.1 | % | 6.6 | % | ||||
Impairment of long-lived assets |
0.2 | % | 0.1 | % | ||||
Loss on sale of assets and other |
0.1 | % | 0.6 | % | ||||
Total cost of operations |
89.8 | % | 86.0 | % | ||||
Operating income |
10.2 | % | 14.0 | % | ||||
Average screen count (month end average) |
4,941 | 4,891 | ||||||
Revenues per average screen (dollars) |
$ | 97,791 | $ | 105,634 | ||||
(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. |
29
Table of Contents
Three
months ended March 31, 2011 and 2010
Revenues.
Total revenues decreased $33.5 million to $483.1 million for
the three months ended
March 31, 2011 (first quarter of 2011) from
$516.6 million for the three months ended March 31,
2010 (first quarter of 2010). 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 | ||||||||||||||||||||||||||||||||||
March 31, | March 31, | March 31, | ||||||||||||||||||||||||||||||||||
% | % | % | ||||||||||||||||||||||||||||||||||
2011 | 2010 | Change | 2011 | 2010 | Change | 2011 | 2010 | Change | ||||||||||||||||||||||||||||
Admissions revenues (1) |
$ | 213.6 | $ | 259.3 | (17.6 | %) | $ | 98.1 | $ | 83.7 | 17.2 | % | $ | 311.7 | $ | 343.0 | (9.1 | %) | ||||||||||||||||||
Concession revenues (1) |
$ | 104.8 | $ | 118.5 | (11.6 | %) | $ | 41.9 | $ | 34.6 | 21.1 | % | $ | 146.7 | $ | 153.1 | (4.2 | %) | ||||||||||||||||||
Other revenues (1) (2) |
$ | 10.3 | $ | 9.5 | 8.4 | % | $ | 14.4 | $ | 11.0 | 30.9 | % | $ | 24.7 | $ | 20.5 | 20.5 | % | ||||||||||||||||||
Total revenues (1) (2) |
$ | 328.7 | $ | 387.3 | (15.1 | %) | $ | 154.4 | $ | 129.3 | 19.4 | % | $ | 483.1 | $ | 516.6 | (6.5 | %) | ||||||||||||||||||
Attendance (1) |
33.4 | 39.6 | (15.7 | %) | 20.4 | 18.9 | 7.9 | % | 53.8 | 58.5 | (8.0 | %) | ||||||||||||||||||||||||
Revenues per average screen
(2) |
$ | 86,038 | $ | 101,264 | (15.0 | %) | $ | 137,859 | $ | 121,325 | 13.6 | % | $ | 97,791 | $ | 105,634 | (7.4 | %) |
(1) | Amounts in millions. | |
(2) | U.S. operating segment revenues include eliminations of intercompany transactions with the international operating segment. See Note 15 of our condensed consolidated financial statements. |
| Consolidated. The decrease in admissions revenues of $31.3 million was attributable to an 8.0% decrease in attendance and a 1.2% decrease in average ticket price from $5.86 for the first quarter of 2010 to $5.79 for the first quarter of 2011. The decrease in concession revenues of $6.4 million was attributable to the 8.0% decrease in attendance partially offset by a 4.2% increase in concession revenues per patron from $2.62 for the first quarter of 2010 to $2.73 for the first quarter of 2011. The decrease in average ticket price was primarily due to the increased weighting of 2-D attendance during the first quarter of 2011. 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 20.5% 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 decrease in admissions revenues of $45.7 million was attributable to a 15.7% decrease in attendance and a 2.3% decrease in average ticket price from $6.55 for the first quarter of 2010 to $6.40 for the first quarter of 2011. The decrease in concession revenues of $13.7 million was attributable to the 15.7% decrease in attendance, partially offset by a 5.0% increase in concession revenues per patron from $2.99 for the first quarter of 2010 to $3.14 for the first quarter of 2011. The decrease in average ticket price was primarily due to the increased weighting of 2-D attendance during the first quarter of 2011. The increase in concession revenues per patron was primarily due to price increases. | |
| International. The increase in admissions revenues of $14.4 million was attributable to a 7.9% increase in attendance and an 8.6% increase in average ticket price from $4.43 for the first quarter of 2010 to $4.81 for the first quarter of 2011. The increase in concession revenues of $7.3 million was attributable to the 7.9% increase in attendance and a 12.0% increase in concession revenues per patron from $1.83 for the first quarter of 2010 to $2.05 for the first quarter of 2011. The increase in average ticket price was primarily due to the favorable impact of exchange rates in certain countries in which we operate and price increases. 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 30.9% 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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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 | ||||||||||||||||||||||
Three Months Ended | Three Months Ended | Three Months Ended | ||||||||||||||||||||||
March 31, | March 31, | March 31, | ||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||||||
Film rentals and advertising |
$ | 116.2 | $ | 148.5 | $ | 49.0 | $ | 40.3 | $ | 165.2 | $ | 188.8 | ||||||||||||
Concession supplies |
12.6 | 13.9 | 10.7 | 8.5 | 23.3 | 22.4 | ||||||||||||||||||
Salaries and wages |
37.9 | 42.4 | 12.2 | 10.1 | 50.1 | 52.5 | ||||||||||||||||||
Facility lease expense |
45.7 | 45.7 | 20.7 | 17.0 | 66.4 | 62.7 | ||||||||||||||||||
Utilities and other |
39.9 | 39.6 | 19.9 | 15.6 | 59.8 | 55.2 |
| Consolidated. Film rentals and advertising costs were $165.2 million, or 53.0% of admissions revenues, for the first quarter of 2011 compared to $188.8 million, or 55.0% of admissions revenues, for the first quarter of 2010. The decrease in film rentals and advertising costs of $23.6 million was due to a $31.3 million decrease in admissions revenues, which contributed $19.3 million, and a decrease in our film rentals and advertising rate, which contributed $4.3 million. The decrease in the film rentals and advertising rate was primarily due to lower film rental rates in the U.S. segment during the first quarter of 2011 due to fewer blockbuster films during that period. Concession supplies expense was $23.3 million, or 15.9% of concession revenues, for the first quarter of 2011 compared to $22.4 million, or 14.6% of concession revenues, for the first quarter of 2010. The increase in the concession supplies rate was primarily due to the increased weighting of our international segment and increases in inventory procurement costs. |
Salaries and wages decreased to $50.1 million for the first quarter of 2011 from $52.5 million for the first quarter of 2010 primarily due to a reduction in staffing levels given the decline in attendance in the U.S. segment, partially offset by new theatres and the impact of exchange rates in certain countries in which we operate. Facility lease expense increased to $66.4 million for the first quarter of 2011 from $62.7 million for the first quarter of 2010 primarily due to new theatres, increased percentage rent in the international segment and the impact of exchange rates in certain countries in which we operate. Utilities and other costs increased to $59.8 million for the first quarter of 2011 from $55.2 million for the first quarter of 2010 primarily due to new theatres,increased expenses related to digital and 3-D equipment, increased utility expenses and the impact of exchange rates in certain countries in which we operate. |
| U.S. Film rentals and advertising costs were $116.2 million, or 54.4% of admissions revenues, for the first quarter of 2011 compared to $148.5 million, or 57.3% of admissions revenues, for the first quarter of 2010. The decrease in film rentals and advertising costs of $32.3 million was due to a $45.7 million decrease in admission revenues, which contributed $26.2 million, and a decrease in our film rentals and advertising rate, which contributed $6.1 million. The decrease in the film rentals and advertising rate was primarily due to the decrease in the number of blockbuster films released, which generally have higher film rental rates. Concession supplies expense was $12.6 million, or 12.0% of concession revenues, for the first quarter of 2011 compared to $13.9 million, or 11.7% of concession revenues, for the first quarter of 2010. The increase in the concession supplies rate was primarily due to increases in inventory procurement costs. |
Salaries and wages decreased to $37.9 million for the first quarter of 2011 from $42.4 million for the first quarter of 2010 primarily due to a reduction in staffing levels given the 15.7% decline in attendance. Facility lease expense was $45.7 million for the first quarter of 2011 and 2010. Utilities and other costs increased to $39.9 million for the first quarter of 2011 from $39.6 million for the first quarter of 2010. |
| International. Film rentals and advertising costs were $49.0 million, or 49.9% of admissions revenues, for the first quarter of 2011 compared to $40.3 million, or 48.1% of admissions revenues, for the first quarter of 2010. The increase in film rentals and advertising costs was due to a $14.4 million increase in admissions revenues, which contributed $6.9 million, and an increase in the film rentals and advertising rate, which contributed $1.8 million. Concession supplies expense was $10.7 million, or 25.5% of concession revenues, for the first quarter of 2011 compared to $8.5 million, or 24.6% of concession revenues, for the first quarter of 2010. The increase in concession supplies expense of $2.2 million was primarily due to a $7.3 million increase in concession revenues. The increased concession supplies rate was primarily due to increases in inventory procurement costs. |
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Table of Contents
Salaries and wages increased to $12.2 million for the first quarter of 2011 from $10.1 million for the first quarter of 2010 primarily due to new theatres, increased staffing levels to support the 7.9% increase in attendance, increased minimum wages and the impact of exchange rates in certain countries in which we operate. Facility lease expense increased to $20.7 million for the first quarter of 2011 from $17.0 million for the first quarter of 2010 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 $19.9 million for the first quarter of 2011 from $15.6 million for the first quarter of 2010 primarily due to new theatres, increased expenses related to 3-D equipment,increased utility expenses and the impact of exchange rates in certain countries in which we operate. |
General and Administrative Expenses. General and administrative expenses increased to
$28.6 million for the first quarter of 2011 from $25.0 million for the first quarter of 2010. The
increase was primarily due to increased salaries and incentive compensation expense, increased
share based award compensation expense 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 $39.1 million during the first quarter of 2011 compared to
$34.1 million during the first quarter of 2010. The increase was primarily related to the impact of
exchange rates in certain countries in which we operate, new theatres and the impact of accelerated
depreciation taken on our domestic 35 millimeter projection systems that are being replaced with
digital projection systems, which began in March 2010. We recorded approximately $3.5 million of
depreciation expense related to these 35 millimeter projection systems during the first quarter of
2011 compared to $1.3 million during the first quarter of 2010.
Impairment of Long-Lived Assets. We recorded asset impairment charges on assets held and used
of $1.0 million during the first quarter of 2011 compared to $0.4 million during the first quarter
of 2010. Impairment charges for the first quarter of 2011 consisted of U.S. and international
theatre properties, impacting nine of our twenty-four reporting units. Impairment charges for the
first quarter of 2010 consisted of U.S. theatre properties, impacting six of our twenty-four
reporting units. See Note 11 to our condensed consolidated financial statements.
Loss on Sale of Assets and Other. We recorded a loss on sale of assets and other of $0.5
million during the first quarter of 2011 compared to $3.2 million during the first quarter of 2010.
The loss recorded during the first quarter of 2010 included $1.7 million that was recorded upon the
contribution of digital projection systems to DCIP. See Note 5 to our condensed consolidated
financial statements for discussion of DCIP.
Interest Expense. Interest costs incurred, including amortization of debt issue costs,
were $29.3 million during the first quarter of 2011 compared to $26.0 million during the first
quarter of 2010. The increase in interest expense is due to the increase in interest rates on a
portion of our term loan debt that was amended and extended during March 2010.
Distributions from NCM. We recorded distributions from NCM of $9.9 million during the first
quarter of 2011 and 2010, which were in excess of the carrying value of our investment. See Note 4 to
our condensed consolidated financial statements.
Equity
in Income of Affiliates. We recorded equity in income of affiliates of $2.4 million
during the first quarter of 2011 compared to $0.03 million during the first quarter of 2010. The
equity in income of affiliates recorded during the first quarter of 2011 primarily included income
of approximately $1.7 million related to our equity investment in DCIP (see Note 5 to our condensed
consolidated financial statements) and income of approximately $0.9 million related to our equity
investment in NCM (see Note 4 to our condensed consolidated financial statements). The equity in
income of affiliates recorded during the first quarter of 2010 primarily included income of
approximately $0.8 million related to our equity investment in NCM, offset by a loss of
approximately $0.8 million related to our equity investment in DCIP.
Income Taxes. Income tax expense of $9.2 million was recorded for the first quarter of 2011
compared to $20.0 million for the first quarter of 2010. The effective tax rate was 26.4% for the
first quarter of 2011 compared to 35.1% for the first quarter of 2010. 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. During the first quarter of 2011, the Company reduced its liabilities for uncertain tax
positions due to settlements and closures of various tax years, which resulted in a tax benefit of
approximately $3.6 million that impacted the effective tax rate for the period.
32
Table of Contents
Item 4. Controls and Procedures
Evaluation of the Effectiveness of Disclosure Controls and Procedures
As of March 31, 2011, we carried out an evaluation required by the Exchange Act, under the
supervision and with the participation of our principal executive officer and principal financial
officer, of the effectiveness of the design and operation of our disclosure controls and
procedures, as defined in Rule 15d-15(e) of the Exchange Act. Based on this evaluation, our
principal executive officer and principal financial officer concluded that, as of March 31, 2011,
our disclosure controls and procedures were effective to provide reasonable assurance that
information required to be disclosed by us in the reports that we file or submit under the Exchange
Act is recorded, processed, summarized, and reported within the time periods specified in the 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 Rule 15d-15 that occurred
during the quarter ended March 31, 2011 that materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
33
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 11, 2011.
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 11, 2011.
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 | ||||
35 | ||||
36 | ||||
37 |
34
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CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
MARCH 31, 2011
(In thousands, unaudited)
MARCH 31, 2011
(In thousands, unaudited)
Restricted | Unrestricted | |||||||||||||||
Group | Group | Eliminations | Consolidated | |||||||||||||
Assets |
||||||||||||||||
Current assets |
||||||||||||||||
Cash and cash equivalents |
$ | 393,352 | $ | 69,237 | $ | | $ | 462,589 | ||||||||
Other current assets |
103,637 | (22,835 | ) | | 80,802 | |||||||||||
Total current assets |
496,989 | 46,402 | | 543,391 | ||||||||||||
Theatre properties and equipment, net |
1,206,796 | | | 1,206,796 | ||||||||||||
Other assets |
1,602,582 | 85,314 | (27,019 | ) | 1,660,877 | |||||||||||
Total assets |
$ | 3,306,367 | $ | 131,716 | $ | (27,019 | ) | $ | 3,411,064 | |||||||
Liabilities and equity |
||||||||||||||||
Current liabilities |
||||||||||||||||
Current portion of long-term debt |
$ | 10,836 | $ | | $ | | $ | 10,836 | ||||||||
Current portion of capital lease obligations |
7,570 | | | 7,570 | ||||||||||||
Accounts payable and accrued expenses |
220,863 | | | 220,863 | ||||||||||||
Total current liabilities |
239,269 | | | 239,269 | ||||||||||||
Long-term liabilities |
||||||||||||||||
Long-term debt, less current portion |
1,519,102 | | | 1,519,102 | ||||||||||||
Capital lease obligations, less current portion |
130,901 | | | 130,901 | ||||||||||||
Other long-term liabilities and deferrals |
414,114 | 49,802 | | 463,916 | ||||||||||||
Total long-term liabilities |
2,064,117 | 49,802 | | 2,113,919 | ||||||||||||
Commitments and contingencies |
||||||||||||||||
Equity |
1,002,981 | 81,914 | (27,019 | ) | 1,057,876 | |||||||||||
Total liabilities and equity |
$ | 3,306,367 | $ | 131,716 | $ | (27,019 | ) | $ | 3,411,064 | |||||||
Note: Restricted Group and Unrestricted Group are defined in the Indenture for the senior notes.
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Table of Contents
CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 31, 2011
(In thousands, unaudited)
THREE MONTHS ENDED MARCH 31, 2011
(In thousands, unaudited)
Restricted | Unrestricted | |||||||||||||||
Group | Group | Eliminations | Consolidated | |||||||||||||
Revenues |
$ | 483,136 | $ | | $ | | $ | 483,136 | ||||||||
Cost of operations |
||||||||||||||||
Theatre operating costs |
364,767 | | | 364,767 | ||||||||||||
General and administrative expenses |
28,551 | 1 | | 28,552 | ||||||||||||
Depreciation and amortization |
39,140 | | | 39,140 | ||||||||||||
Impairment of long-lived assets |
1,015 | | | 1,015 | ||||||||||||
Loss on sale of assets and other |
472 | | | 472 | ||||||||||||
Total cost of operations |
433,945 | 1 | | 433,946 | ||||||||||||
Operating income (loss) |
49,191 | (1 | ) | | 49,190 | |||||||||||
Other income (expense) |
(25,220 | ) | 10,823 | | (14,397 | ) | ||||||||||
Income before income taxes |
23,971 | 10,822 | | 34,793 | ||||||||||||
Income taxes |
5,163 | 4,037 | | 9,200 | ||||||||||||
Net income |
18,808 | 6,785 | | 25,593 | ||||||||||||
Less: Net income
attributable to noncontrolling
interests |
359 | | | 359 | ||||||||||||
Net income attributable to Cinemark USA, Inc. |
$ | 18,449 | $ | 6,785 | $ | | $ | 25,234 | ||||||||
Note: Restricted Group and Unrestricted Group are defined in the Indenture for the senior notes.
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CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2011
(In thousands, unaudited)
THREE MONTHS ENDED MARCH 31, 2011
(In thousands, unaudited)
Restricted | Unrestricted | |||||||||||||||
Group | Group | Eliminations | Consolidated | |||||||||||||
Operating activities |
||||||||||||||||
Net income |
$ | 18,808 | $ | 6,785 | $ | | $ | 25,593 | ||||||||
Adjustments to reconcile net income to cash provided by
operating activities |
41,224 | (4 | ) | 41,220 | ||||||||||||
Changes in assets and liabilities |
(10,094 | ) | 4,037 | (6,057 | ) | |||||||||||
Net cash provided by operating activities |
49,938 | 10,818 | | 60,756 | ||||||||||||
Investing activities |
||||||||||||||||
Additions to theatre properties and equipment |
(35,769 | ) | | | (35,769 | ) | ||||||||||
Proceeds from sale of theatre properties and equipment |
485 | | | 485 | ||||||||||||
Investment in joint venture DCIP and other |
(8 | ) | (564 | ) | | (572 | ) | |||||||||
Net cash used for investing activities |
(35,292 | ) | (564 | ) | | (35,856 | ) | |||||||||
Financing activities |
||||||||||||||||
Dividends paid to parent |
(23,750 | ) | | | (23,750 | ) | ||||||||||
Payroll taxes paid as a result of restricted stock withholdings |
(494 | ) | | | (494 | ) | ||||||||||
Payment of debt issue costs |
(74 | ) | | | (74 | ) | ||||||||||
Repayments of long-term debt |
(2,709 | ) | | | (2,709 | ) | ||||||||||
Payments on capital leases |
(1,722 | ) | | | (1,722 | ) | ||||||||||
Other |
(110 | ) | | | (110 | ) | ||||||||||
Net cash used for financing activities |
(28,859 | ) | | | (28,859 | ) | ||||||||||
Effect of exchange rate changes on cash and cash equivalents |
1,783 | | | 1,783 | ||||||||||||
Increase (decrease) in cash and cash equivalents |
(12,430 | ) | 10,254 | | (2,176 | ) | ||||||||||
Cash and cash equivalents: |
||||||||||||||||
Beginning of year |
405,782 | 58,983 | | 464,765 | ||||||||||||
End of year |
$ | 393,352 | $ | 69,237 | $ | | $ | 462,589 | ||||||||
Note: Restricted Group and Unrestricted Group are defined in the Indenture for the senior notes.
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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. |
38
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: May 6, 2011 |
||||
/s/ Alan W. Stock | ||||
Alan W. Stock Chief Executive Officer |
||||
/s/ Robert Copple | ||||
Robert Copple | ||||
Chief Financial Officer |
39
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. |