UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 20052009
Commission File Number 033-47040
CINEMARK USA, INC.
(Exact Name of Registrant as Specified in its Charter)
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| Texas | | 75-2206284 |
(State or other jurisdiction
of incorporation or organization) | | (I.R.S. Employer
Identification No.) |
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3900 Dallas Parkway
Suite 500
Plano, Texas
| | 75093 |
| (Address of principal executive offices) | | 75093
(Zip Code) |
Registrant’s telephone number, including area code: (972) 665-1000
Registrant’s corporate website:www.cinemark.com
Securities registered pursuant to Section 12(b) of the Act:
None
(Title of Class)
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yeso Noþ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yeso Noþ
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. Yesþ Noo
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yeso Noo
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K10-K.þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, (as definedor 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. (Check one):
Large accelerated filero Accelerated filero Non-accelerated filerþ
| Large accelerated filer o | Accelerated filer o | Non-accelerated filer þ
(Do not check if a smaller reporting company) | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yeso Noþ
As of February 28, 2006,2010, 1,500 shares of Class A common stock and 182,648 shares of Class B common stock were outstanding.
AllThe registrant is privately held and there is no public trading market for its equity securities; therefore the registrant is unable to calculate the aggregate market value of the registrant’s voting and non-voting common equity is held by affiliates.non-affiliates.
Cautionary Statement Regarding Forward-Looking Statements
This annual report on Form 10-K includes “forward-looking statements” based onwithin 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 subsidiaries’ business and industry. We intend that this annual report be governed by the “safe harbor” provision of the Private Securities Litigation Reform Act of 1995 (the “PSLR Act”) with respect to statements that may be deemed to be forward-looking statements under the PSLR Act. They include statements relating to:
| | • | | future revenues, expenses and profitability; |
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| | • | | the future development and expected growth of our business; |
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| | • | | projected capital expenditures; |
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| | • | | attendance at movies generally or in any of the markets in which we operate; |
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| | • | | the number or diversity of popular movies released; |
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| • | | released and our ability to successfully license and exhibit popular films; |
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| | • | | national and international growth in our industry; |
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| • | | competition from other exhibitors;exhibitors and alternative forms of entertainment; and |
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| | • | | determinations in lawsuits in which we are a defendant.defendants. |
You can identify forward-looking statements by the use of words such as “may,” “should,” “will,” “could,” “estimates,” “predicts,” “potential,” “continue,” “anticipates,” “believes,” “plans,” “expects,” “future” and “intends” and similar expressions which are intended to identify 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. In evaluating these forward-looking statements, you should carefully consider the risks and uncertainties described in this report. These forward-looking statements reflect our view only as of the date“Risk Factors” section in Item 1A of this report. Actual results could differ materially from those indicated by such forward-looking statements due to a number of factors.Form 10-K and elsewhere in this Form 10-K. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements and risk factors contained in this cautionary statement.Form 10-K. Forward-looking statements contained in this Form 10-K reflect our view only as of the date of this Form 10-K. We undertake no current obligation, other than as required by law, to publicly update suchor revise any forward-looking statements, to reflect subsequentwhether as a result of new information, future events or circumstances.otherwise.
Certain Definitions
Unless the context otherwise requires, all references to “we,” “our,” “us,” the “issuer” or “Cinemark” relate to Cinemark USA, Inc. and its consolidated subsidiaries, including Century Theatres, Inc. Unless otherwise specified, all operating and other statistical data for the U.S. include one theatre in Canada. All references to Latin America are to Argentina, Brazil, Chile, Colombia, Costa Rica, Ecuador, El Salvador, Honduras, Mexico, Nicaragua, Panama, Guatemala and Peru. Unless otherwise specified, all operating and other statistical data are as of and for the year ended December 31, 2009.
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PART I
Item 1. Business
TheOur Company
Cinemark USA, Inc. and subsidiaries, are leadersor the Company, is the second largest motion picture exhibitor in the motion picture exhibition industryworld in terms of both revenuesattendance and the number of screens in operation. We are a Texas corporation foundedoperation, with theatres in 1987 by our Chairman and Chief Executive Officer, Lee Roy Mitchell, and have grown primarily through targeted worldwide new theatre development. As of December 31, 2005, we operated an aggregate of 3,329 screens in 308 theatres located in 33 states,the United States, or U.S., Canada, Brazil, Mexico, Chile, Colombia, Argentina, Brazil, Chile, Ecuador, Peru, Honduras, El Salvador, Nicaragua, Costa Rica, Panama and Colombia.Guatemala. We have 2,993 screensalso managed additional theatres in 271 first run theatresthe U.S., Brazil and 336 screensColombia during the year ended December 31, 2009.
As of December 31, 2009, we managed our business under two reportable operating segments — U.S. markets and international markets, in 37 discount theatres. Our overall ratio of screens to theatres is 10.8 to 1. Any references to North America or domestic operations contained in this report referaccordance with FASB ASC Topic 280,Segment Reporting. See Note 21 to the U.S. and Canada.
We are a wholly-owned subsidiary of Cinemark, Inc. On March 12, 2004, Cinemark, Inc. entered into an agreement and plan of merger with a newly formed subsidiary of Madison Dearborn Partners, LLC (“Madison”). The transaction was completed on April 2, 2004, at which time the newly formed subsidiary of Madison was merged with and into Cinemark, Inc., with Cinemark, Inc. continuing as the surviving corporation. Simultaneously, an affiliate of Madison purchased shares of common stock of Cinemark, Inc. and became the controlling stockholder of Cinemark, Inc., owning approximately 83% of Cinemark, Inc.’s capital stock. Lee Roy Mitchell, our Chief Executive Officer, and the Mitchell Special Trust collectively retained approximately 16% ownership of Cinemark, Inc.’s capital stock with certain members of management owning the remaining 1% (herein referred to as the “Recapitalization”). In December 2004, Madison sold approximately 10% of its stock in Cinemark, Inc. to outside investors and in July 2005, Cinemark, Inc. issued an additional 221,400 shares to another outside investor. As of the date of this report, Madison owned approximately 74% of the capital stock of Cinemark, Inc., outside investors
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owned approximately 9%, Lee Roy Mitchell and the Mitchell Special Trust collectively owned approximately 16% and certain members of management owned the remaining 1%.consolidated financial statements.
Our principal executive offices are at 3900 Dallas Parkway, Suite 500, Plano, Texas 75093. Our telephone number is (972) 665-1000. We maintain a corporate website atwww.cinemark.com.Our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and any amendments, are available on our website free of charge under the heading “Corporate – Investor Relations”“Investor Relations — SEC Filings” as soon as practicable after such reports are filed or furnished electronically to the Securities and Exchange Commission. Copies can also be obtained by mail from the Office of Public Reference at the Securities and Exchange Commission at 100 F Street, NE, Room 1580, Washington, D.C. 20549-0102. You may obtain information on the operation of the Office of Public Reference by calling the Securities and Exchange Commission at 1-800-SEC-0330.
Description of Business
We are one of the leaderssecond largest motion picture exhibitor in the motion picture exhibition industry,world in terms of both revenuesattendance and the number of screens in operation. We believe we operateoperated 424 theatres and 4,896 screens in the U.S. and Latin America as of December 31, 2009, and approximately 236.7 million patrons attended our theatres worldwide during the year ended December 31, 2009. Our circuit is the third largest in the U.S. with 294 theatres and 3,830 screens in 39 states and one ofCanadian province. We are the most geographically diverse circuit in Latin America with 130 theatres and 1,066 screens in 13 countries. Our modern theatre circuitscircuit features stadium seating in approximately 84% of our first-run auditoriums.
We selectively build or acquire new theatres in markets where we can establish and maintain a strong market position. We believe our portfolio of modern theatres provides a preferred destination for moviegoers and contributes to our significant cash flows from operating activities. Our significant presence in the U.S. and Latin America has made us an important distribution channel for movie studios, particularly as they look to capitalize on the expanding worldwide box office. Our market leadership is attributable in large part to our senior executives, who average approximately 35 years of industry with 2,259 screens (or 68%experience and have successfully navigated us through multiple industry and economic cycles.
We grew our total revenue per patron at a compound annual growth rate, or CAGR, during the last three fiscal years of our 3,329 screens) having been built by us since 1996. We had total revenues of $1,020.6 million,6.8%, the highest among the three largest U.S. motion picture exhibitors. Revenues, operating income of $119.0 million and net income of $48.4 millionattributable to Cinemark USA, Inc. for the year ended December 31, 2005. Our scale2009, were $1,976.5 million, $252.2 million and geographic diversity within North America$129.4 million, respectively. At December 31, 2009 we had cash and Latin America has allowed us to increase total revenues bycash equivalents of $437.7 million and long-term debt of $1,543.7 million. Approximately $784.6 million, or 50.8% of our long-term debt accrues interest at variable rates.
We recently developed a compound annual growth rate of 5.4% since the beginning of 2000. Our North American theatres, located in 33 states and one Canadian province, are primarily located in mid-sized domestic markets, including suburbs of major metropolitan areas. We believe these markets are generally less competitive and generate high, stable margins. Our theatres outside of North America are primarily located in major Latin American metropolitan markets,large screen digital format, which we believe are generally underscreened.call our XD Extreme Digital Cinema, or XD. We currently have an XD screen installed in 16 theatres and have plans to install 30 to 40 more XD screens during 2010. The XD experience includes wall-to-wall and ceiling-to-floor screens, wrap-around sound and a maximum comfort entertainment environment for an intense sensory experience. We charge a premium price for the XD experience. The XD technology does not require special format movie prints, which allows us the flexibility to play any available digital print we choose, including 3-D content, on the XD screen.
Domestic DevelopmentsMotion Picture Industry Overview
During 2005, we opened 11 new theatresThe motion picture industry has begun a transition to digital projection technology. Digital projection technology allows filmmakers the ability to showcase imaginative works of art exactly as they were intended, with 128 screensincredible realism and detail and in domestic markets. Asa range of December 31, 2005, we operated 2,417 screens in 200 theatres in North America. We operated 2,081 screens in 163 first run theatres (12.8 screens per theatre)up to 35 trillion colors. Because digital features aren’t susceptible to scratching and 336 screens in 37 discount theatres (9.1 screens per theatre). Our overall ratio of screensfading, digital presentations will always remain clear and sharp every time they are shown. A digitally produced or digitally converted movie can be distributed to theatres in North Americavia satellite, physical media, or fiber optic networks. The digitized movie is 12.1 to 1. All but one theatre, with 12 screens located in Vancouver, Canada, are located in the U.S. Approximately 74% of our first run screens in North America feature stadium seating.
International Developments
During 2005, we opened seven new theatres with 44 screens in international markets. As of December 31, 2005, we operated 912 screens in 108 theatres in Mexico, Argentina, Brazil, Chile, Ecuador, Peru, Honduras, El Salvador, Nicaragua, Costa Rica, Panama and Colombia. All of our international theatres are first run theatres. Our ratio of screens to theatres in these international markets is 8.4 to 1. All of our international theatres have been built by us since 1993 and approximately 79% of our international screens feature stadium seating.
Recent Developments
During July 2005, we acquired a 20.7 percent interest in National CineMedia, LLC, (“National CineMedia”), a joint venture among us, Regal Entertainment Group and AMC Entertainment, Inc. National CineMedia was formed on March 29, 2005, to focus on the marketing, sale and distribution of cinema advertising and promotional products; business communications and training services; and the distribution of digital alternative content across its Digital Content Network to its theatre owners and other network affiliate circuits.
According to National CineMedia, this joint venture created a network of approximately 13,000 theatre screens with approximately 565 million patrons annually. After the deployment of National CineMedia’s digital distribution technology in our theatres, National CineMedia will operate the world’s largest digital distribution network with over 10,500 screens throughout the U.S. in approximately 150 markets, including 49 of the top 50 markets.
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Under the termsstored on a computer/server which “serves” it to a digital projector for each screening of the new agreement, we are installing National CineMedia’s in-theatre digital distribution technology in approximately 180 of our domestic theatresmovie and due to provide digital pre-show entertainment content. As of February 15, 2006, installation had been completed in 1,346 screens and installationits format, it enables us to more efficiently move films between auditoriums within a theatre as demand increases or decreases for each film.
Digital projection also allows for the remaining 906 screens ispresentation of 3-D content and alternative entertainment such as concert events, the opera, special live documentaries and sports programs. Fourteen films released during 2009 were available in 3-D format and at least twenty 3-D films are expected to be completed by May 31, 2006. We estimatereleased during 2010. Current 3-D technology offers a premium experience with crisp, bright, ultra-realistic images that our total costsimmerse the patron into a film. A premium is generally charged for this digital distribution technology will be approximately $25 million, all of which will be funded with cash flows from operations.
Competitive Strategy
We believe our operating philosophy provides us with a competitive advantage. We will continue to focus on the following key components of our business plan.
Focus on Less Competitive Domestic Markets and Target Profitable, High Growth International Markets.We will continue to seek growth opportunities in underserved, mid-sized domestic markets and major international metropolitan areas, by building or acquiring modern theatres that meet our strategic, financial and demographic criteria.
Maximize Profitability Through Continued Focus on Operational Excellence.We will continue to focus on achieving operational excellence while controlling theatre operating costs. We believe that our operating efficiency is evidenced by our high operating margins.
Pursue Additional Revenue Opportunities.We will continue to pursue additional growth opportunities by developing and expanding other revenue streams. Our investment in National CineMedia LLC during 2005 will assist us in expanding our offerings to advertisers, exploring additional revenue sources such as digital video monitor advertising, third party branding, and the use of our theatres for non-film events.
Competitive Strengths
We believe the following strengths allow us to compete effectively:
Strong Operating Cash Flow.Our business strategy and disciplined building program allowed us to generate $119.0 million of operating income and $164.0 million of net cash provided by operating activities for the year ended December 31, 2005.
Focused Philosophy Resulting in Strong Financial Performance.We focus on negotiating favorable theatre property economics, providing a superior viewing experience and controlling both corporate and theatre operating costs. As a result of this philosophy, we generated $48.4 million of net income for the year ended December 31, 2005.
Strong Management Team.Led by Mr. Mitchell, our management team has an average of approximately 22 years of theatre operating experience and a proven track record of superior performance. The team has successfully navigated us through many industry cycles.
Selective Building in Less Competitive Domestic Markets and Heavily Populated International Markets.
Less Competitive Domestic Markets: We have historically built modern theatres in mid-sized U.S. markets, including suburbs of major metropolitan areas, which we believe were underserved. We believe our targeting of these markets, together with the high quality of our theatre circuit, helps reduce the risk of competition from new entrants. As the sole exhibitor in approximately 85% of the first run film zones in which we operate, we have maximum access to film product. This enables us to select the films that we believe will deliver the highest returns in those markets.
Heavily Populated, High Growth International Markets: We have directed our activities in international markets primarily toward Latin America due to the growth potential in these markets. We have successfully established a significant presence in most of the major cities in Latin America with theatres in twelve of the fifteen largest metropolitan areas. We generally fund our operating and capital expenditures in local currencies, thereby
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matching our expenses with revenues. We have also geographically diversified our international portfolio in an effort to balance risk and become one of the largest Pan American motion picture exhibition companies.
Modern Theatre Circuit.We have built our modern theatre circuit primarily through targeted worldwide new theatre development, which we believe provides a preferred destination for moviegoers in our markets. Since 1996, we have built 2,259 screens, or 68% of our total screen count. Our ratio of screens to theatres is one of the highest in the industry: 12.1 to 1 in North America and 8.4 to 1 internationally. Approximately 74% of our North America first run screens and 79% of our international screens feature stadium seating.
Motion Picture Industry Overview3-D presentation.
Domestic Markets
The U.S. motion picture exhibition industry has enjoyed annual revenues near $9 billion for the past four years, according to the Motion Picture Associationa track record of America (“MPAA”). U.S.long-term growth, with box office revenues for 2005 were $8.99 billion, which represented a 5.7% decreasegrowing at an estimated CAGR of 3.4% from 1998 to 2008. Against this background of steady long-term growth, the 2004 all-time highexhibition industry has experienced periodic short-term increases and decreases in attendance, and consequently box office performancerevenues.
As of $9.54 billion. The decline in U.S.the date of this report, MPAA Worldwide Market Research (or MPAA) had not yet released the 2009 box office revenues was primarily driven by an 8.7% decrease in attendance offset by a 3.2% increase in average ticket prices from 2004 to 2005. During 2005, one film grossed over $300 million, seven films grossed over $200 million and 12 films grossed over $100 million in the U.S.
information. The following table represents the results of a survey by MPAA Worldwide Market Researchpublished during March 2009, outlining the historical trends in U.S. theatre attendance, average ticket prices and box office salesrevenues for the ten year period from 19961998 to 2005.2008:
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| | | | | | | | | | | | | | | | | | | | | | | | | | | U.S. Box | | Average |
| | | % Change | | Average | | % Change | | U.S. Box | | % Change | | Office Revenues | | Attendance | | Ticket |
| Year | | Attendance | | Since 1996 | | Ticket Price | | Since 1996 | | Office Sales | | Since 1996 | | ($ in millions) | | (in millions) | | Price |
| | | (in millions) | | | | | | | | ($ in millions) | | | |
| 1996 | | 1,339 | | — | | $ | 4.42 | | — | | $ | 5,912 | | — | | |
| 1997 | | 1,388 | | | 3.7 | % | | $ | 4.59 | | | 3.8 | % | | $ | 6,366 | | | 7.7 | % | |
| 1998 | | 1,481 | | | 10.6 | % | | $ | 4.69 | | | 6.1 | % | | $ | 6,949 | | | 17.5 | % | | $ | 6,760 | | 1,438 | | $ | 4.69 | |
| 1999 | | 1,465 | | | 9.4 | % | | $ | 5.08 | | | 14.9 | % | | $ | 7,448 | | | 26.0 | % | | $ | 7,314 | | 1,440 | | $ | 5.08 | |
| 2000 | | 1,421 | | | 6.1 | % | | $ | 5.39 | | | 21.9 | % | | $ | 7,661 | | | 29.6 | % | | $ | 7,468 | | 1,383 | | $ | 5.39 | |
| 2001 | | 1,487 | | | 11.1 | % | | $ | 5.66 | | | 28.1 | % | | $ | 8,413 | | | 42.3 | % | | $ | 8,125 | | 1,438 | | $ | 5.66 | |
| 2002 | | 1,639 | | | 22.4 | % | | $ | 5.81 | | | 31.4 | % | | $ | 9,520 | | | 61.0 | % | | $ | 9,272 | | 1,599 | | $ | 5.81 | |
| 2003 | | 1,574 | | | 17.6 | % | | $ | 6.03 | | | 36.4 | % | | $ | 9,489 | | | 60.5 | % | | $ | 9,165 | | 1,521 | | $ | 6.03 | |
| 2004 | | 1,536 | | | 14.7 | % | | $ | 6.21 | | | 40.5 | % | | $ | 9,539 | | | 61.3 | % | | $ | 9,215 | | 1,484 | | $ | 6.21 | |
| 2005 | | 1,403 | | | 4.8 | % | | $ | 6.41 | | | 45.0 | % | | $ | 8,991 | | | 52.1 | % | | $ | 8,832 | | 1,376 | | $ | 6.41 | |
| 2006 | | | $ | 9,138 | | 1,395 | | $ | 6.55 | |
| 2007 | | | $ | 9,629 | | 1,400 | | $ | 6.88 | |
| 2008 | | | $ | 9,791 | | 1,364 | | $ | 7.18 | |
Films released during the year ended December 31, 2009 includedAvatar, Transformers: Revenge of the Fallen, Harry Potter and the Half-Blood Prince, Up, Twilight Saga: New Moon, The Hangover, Star Trek, Monsters vs. Aliens, Ice Age: Dawn of the Dinosaurs, The Blind Side, X-Men Origins: Wolverine, Night at the Museum 2: Battle of the Smithsonian, The Proposal, 2012, Fast & Furious, G.I. Joe: The Rise of the Cobra, Paul Blart: Mall Cop, Taken, A Christmas Carol, Angels & Demons, Terminator Salvation, Cloudy with a Chance of Meatballs, Inglorious Basterds, G-Force, District 9, Couples Retreat, Paranormal Activity,andWatchmen.
According to industry sources, in 2009, the U.S. motion picture exhibition industry experienced its third consecutive record breaking year and the first in history with U.S. box office revenues in excess of $10 billion. The last week of 2009 from December 25, 2009 to December 31, 2009 was also the single biggest week in history in terms of U.S. box office revenues. In addition, the filmAvatarwhich was released in December 2009, has generated higher U.S. box office revenues and higher worldwide box office revenues, as of the date of this report, than any other film in the industry’s history.
The film slate for 2010 includes the carryover ofAvatar, and new releases such asAlice in Wonderland, How to Train a Dragon, Clash of the Titans, Iron Man 2, Shrek Forever After, Sex and the City 2, Toy Story 3, Little Fockers, The A Team, Tron: Legacy, Robin Hood, Despicable Me, Tangled, Megamindand another installment of both theTwilightandHarry Potterfranchises, among other films.
International Markets
The international motion picture exhibition industry hasInternational growth also grown significantly overcontinues to be consistent. (As of the past several years.date of this report, MPAA had not yet released the 2009 box office information.) According to the MPAA, globalinternational box office revenues increased 46%were $18.3 billion for the year
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ended December 31, 2008, resulting in a CAGR of 10.9% from $15.9 billion in 20002003 to $23.2 billion in 2005. This growth2008 which is thea result of increasing acceptance of movie going as a popular form of entertainment throughout the strong box office showings from both local and U.S. film product,world, ticket price increases and new theatre construction.
Growth in Latin America is expected to be fueled by a combination of continued development of modern theatres, growing populations, attractive demographics (i.e., a significant teenage population), strongquality product from Hollywood and the continued emergence of a local film industry. In many Latin American countries the local film industry had been dormant because of the lack of sufficient theatres to screenexhibit the film product. The development of new modern multiplex theatres has revitalizedhelped to sustain the local film industry and, in Mexico, Brazil and Argentina, successful local film product often provides incremental growth opportunities.
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We believe many international markets for theatrical exhibition have historically been underserved and that certain of these markets, especially those in Latin America, will continue to experience growth as additional modern stadium-styled theatres are introduced.
Market TrendsDrivers of Continued Industry Success
We believe the following market trends will drive the continued growth and strength of our industry:
Increased InvestmentImportance of Theatrical Success in Film ProductionEstablishing Movie Brands and Marketing.Subsequent Markets.Theatrical exhibition is the primary distribution channel for new motion picture releases. The success of aA successful theatrical release which “brands” a film is one of the primarymajor factors in determining its success in “downstream” distribution channels,markets, such as DVD,DVDs, network and syndicated television, video-on-demandvideo on-demand, pay-per-view television and pay-per-view television. Incremental revenue generated by downstream distribution channels has enabled studios to increase production and marketing expenditures. Production and marketing costs per new film in the U.S. have increased by compound annual growth rates of 6.4% and 7.9%, respectively from 1994 to 2004, according to the MPAA.Internet.
Increased Importance of International Markets for Ensuring Box Office Success.International markets are becomingcontinue to be an increasingly important component of the overall box office revenues generated by Hollywood films. Box office revenues in markets outsidefilms, accounting for $18.3 billion, or approximately 65% of North America exceeded domestic2008 total worldwide box office revenues for nineaccording to MPAA. (As of the top ten domestic movies during 2005. Thedate of this report, MPAA had not yet released the 2009 industry information.) With the continued growth of the international motion picture exhibition industry, we believe the relative contribution of markets outside North America shouldwill become even more significant assignificant. Many of the top U.S. films released during 2009 also performed exceptionally well in international markets. Such films includeHarry Potter and the Half-Blood Prince, which grossed approximately $632 million in international markets,Ice Age: Dawn of the Dinosaur, which grossed approximately $691 million in international markets, andAvatar, which has grossed approximately $1.9 billion in international markets to date.
Stable Long-Term Attendance Trends.We believe that long-term trends in motion picture exhibition industry continues to grow and modernize.
Favorable Attendance Trends.Long-term increased movie going frequency and attendance from key demographic groups have benefited the industry. According to the MPAA, annual admissions per capita in the U.S. increased from 4.5xwill continue to 5.2x, between 1991 and 2004. Additionally,benefit the U.S. teenage segment, defined as 12-17 year olds, represented 19% of admissions in 2004, up from 14% in 1997. The MPAA has not yet released statistics related to attendance by demographic group for 2005.
Reduced Seasonality of Revenues.Historically, industry revenues have been highly seasonal, coinciding with the timing of film releases by the major distributors. The most marketable motion pictures were generally releasedindustry. Even during the summer, extending from Memorial Dayrecent recessionary period, attendance levels remained stable as consumers selected the theatre as a preferred value for their discretionary income. Patronage trends in 2009 also reflected increasing demand for products unique to Labor Day, and during the holiday season, extending from Thanksgiving through year-end. However,exhibition industry such as 3D. With the seasonality of motion picture exhibition has become less pronounced in recent years. Studios have begunindustry’s transition to release films more evenly throughoutdigital projection technology, the year, and hit films have emerged during traditionally weaker periods. This benefitsproducts offered by motion picture exhibitors by allowing themcontinues to more effectively cover their fixed costexpand, which allows for a broader base throughout the year.of patrons.
Convenient and Affordable Form of Out-of-Home EntertainmentOut-Of-Home Entertainment..Movie-goingMovie going continues to be one of the most convenient and affordable forms of out-of-home entertainment, with an estimated average ticket price in the U.S. of $6.41$7.18 in 2005.2008. (As of the date of this report, MPAA had not yet released the 2009 box office information.) Average prices in 2008 for other forms of out-of-home entertainment in the U.S., including sporting events and theme parks, musical concerts and plays, rangedrange from approximately $21.00$23.50 to $67.00$71.00 per ticket in 2005.according to MPAA. Movie ticket prices have risen at approximately the rate of inflation, while ticket prices for other forms of out-of-home entertainment have generally increased at higher rates.
Increasing Other Revenue.Innovation with Digital Technology.Advertising revenues represent a small, but growing portion of revenues for motion picture exhibitors. The proliferation in broadcast and cable channels, as well as new recording devices that allow audiencesindustry has begun to skip television commercials, has eroded broadcast media’s advertising effectiveness. As a result, captive theatre audiences are becoming more attractiveconvert to advertisers. During 2005, we invested in National CineMedia LLC, a joint venture between Regal Entertainment Group, AMC Entertainment Inc. and our company. National CineMedia LLC provides marketing, sales and distribution of cinema advertising and promotional products; business communications and training services; and the distribution of digital alternative content across its Digital Content Network to its theatre owners and other network affiliate circuits. Our participation in this joint venture will assist us in expanding our offerings to advertisers, exploring additional revenue sources such as digital video monitor advertising, third party branding, and the use of theatresdigital projection technology, which will allow exhibitors to expand their product offerings. Digital technology will allow the presentation of 3-D content and alternative entertainment venues such as live sports programs, the opera and concert events. These additional programming alternatives may expand the customer base and increase patronage for non-film events.exhibitors.
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Competitive Strengths
We believe the following strengths allow us to compete effectively:
Disciplined Operating Philosophy.We generated operating income and net income attributable to Cinemark USA, Inc. of $252.2 million and $129.4 million, respectively, for the year ended December 31, 2009. Our solid operating performance is a result of our disciplined operating philosophy that centers on building high quality assets, while negotiating favorable theatre level economics and controlling theatre operating costs. As a result, we grew our admissions and concession revenues per patron at the highest CAGR during the last three fiscal years among the three largest U.S. motion picture exhibitors.
Leading Position in Our U.S. Markets.We have a leading market share in the U.S. metropolitan and suburban markets we serve. For the year ended December 31, 2009, we ranked either first or second based on box office revenues in 20 out of our top 25 U.S. markets, including the San Francisco Bay Area, Dallas, Houston and Salt Lake City.
Strategically Located in Heavily Populated Latin American Markets.Since 1993, we have invested throughout Latin America in response to the continued growth of the region. We currently operate 130 theatres and 1,066 screens in 13 countries. Our international screens generated revenues of $421.8 million for the year ended December 31, 2009. We have successfully established a significant presence in major cities in the region, with theatres in thirteen of the fifteen largest metropolitan areas. With a geographically diverse circuit, we are an important distribution channel to the movie studios. The projected annual population growth for the Latin American countries in which we operate ranges from 1% to 2% for each of the next five years. We are well-positioned with our modern, large-format theatres to take advantage of these factors for further growth and diversification of our revenues.
State-of-the-Art Theatre Circuit.We offer state-of-the-art theatres, which we believe makes our theatres a preferred destination for moviegoers in our markets. We feature stadium seating in approximately 84% of our first run auditoriums. During 2009, we increased the size of our circuit by adding 180 new screens. We currently have commitments to build 137 additional screens over the next three years. We plan to accelerate the installation of digital projection technology in many of our U.S. and international auditoriums, which will allow us to also present 3-D content. We recently developed a large screen digital format, which we call our XD Extreme Digital Cinema, or XD. We currently have an XD screen installed in 16 theatres and have plans to install 30 to 40 more XD screens during 2010. The XD experience includes wall-to-wall and ceiling-to-floor screens, wrap-around sound and a maximum comfort entertainment environment for an intense sensory experience. The XD technology does not require special format movie prints, which allows us the flexibility to play any available digital print we choose, including 3-D content, on the XD screen.
Solid Balance Sheet with Significant Cash Flow from Operating Activities.We generate significant cash flow from operating activities as a result of several factors, including a geographically diverse and modern theatre circuit and management’s ability to control costs. Additionally, our ownership of land and buildings for 43 of our theatres is a strategic advantage that enhances our cash flows. We believe our expected level of cash flow generation will provide us with the financial flexibility to pursue growth opportunities, support our debt payments and make dividend payments to our stockholders. As of December 31, 2009, we had cash and cash equivalents of $437.7 million.
Experienced Management.Led by Chairman and founder Lee Roy Mitchell, Chief Executive Officer Alan Stock, President and Chief Operating Officer Timothy Warner and Chief Financial Officer Robert Copple, our management team has an average of approximately 35 years of theatre operating experience executing a focused strategy that has led to consistent operating results. This management team has successfully navigated us through many industry and economic cycles.
Our Strategy
We believe our disciplined operating philosophy and experienced management team will enable us to continue to enhance our leading position in the motion picture exhibition industry. Key components of our strategy include:
Establish and Maintain Leading Market Positions.We will continue to seek growth opportunities by building or acquiring modern theatres that meet our strategic, financial and demographic criteria. We will continue to focus on establishing and maintaining a leading position in the markets we serve.
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Continue to Focus on Operational Excellence.We will continue to focus on achieving operational excellence by controlling theatre operating costs while continuing to provide leading customer service. Our margins reflect our track record of operating efficiency.
Selectively Build in Profitable, Strategic Latin American Markets.Our international expansion will remain focused primarily on Latin America through construction of modern, state-of-the-art theatres in growing urban markets. We plan to continue to install digital projection technology in many of our international auditoriums, which will allow us to expand our capability to present 3-D content in our international markets. We have also installed one of our propriety XD large format screens in one of our international theatres and have plans to install approximately 15 additional XD screens during 2010.
Commitment to Digital Innovation.Our commitment to technological innovation will include an accelerated transition to digital projection technology for a majority of our U.S. theatres and many of our international theatres, which will allow for the presentation of 3-D content and alternative entertainment such as concert events, the opera, special live documentaries and sports programs. See further discussion of our domestic digital expansion at “Participation in Digital Cinema Implementation Partners LLC”. We also plan to expand our XD screen footprint in various markets throughout the U.S. and in select international markets, which offers our patrons a premium movie-viewing experience.
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Theatre Operations
As of December 31, 2005,2009, we operated 3,329424 theatres and 4,896 screens in 308 theatres located in 3339 states, one Canadian province and 1213 Latin American countries. We operated 2,993 screensOur theatres in 271 first run theatres and 336 screens in 37 discount theatres. Our North American theatres, located in 33 states and one Canadian province,the U.S. are primarily located in mid-sized U.S. markets, including suburbs of major metropolitan areas. We believe these markets are generally less competitive and generate high, stable margins. Our theatres outside of Northin Latin America are primarily located in major Latin American metropolitan markets, which we believe are generally underscreened. The following tables summarize the geographic locations of our theatre circuit as of December 31, 2005.2009.
North AmericanUnited States Theatres
| | | | | | | | | | | | | | | | | |
| | | Total | | Total | | Total | | Total |
| State | | Theatres | | Screens | | Theatres | | Screens |
| Texas | | 69 | | 886 | | | 79 | | 1,024 | |
| California | | | 62 | | 752 | |
| Ohio | | 20 | | 213 | | | 20 | | 223 | |
| California | | 16 | | 158 | | |
| Utah | | 10 | | 123 | | | 13 | | 169 | |
| Nevada | | | 10 | | 154 | |
| Illinois | | | 9 | | 128 | |
| Colorado | | | 8 | | 127 | |
| Arizona | | | 7 | | 106 | |
| Oregon | | | 7 | | 102 | |
| Kentucky | | 7 | | 75 | | | 7 | | 87 | |
| Illinois | | 6 | | 72 | | |
| Pennsylvania | | | 6 | | 89 | |
| Oklahoma | | 6 | | 67 | | | 6 | | 67 | |
| Colorado | | 5 | | 79 | | |
| Pennsylvania | | 5 | | 73 | | |
| Florida | | | 5 | | 98 | |
| Louisiana | | 5 | | 68 | | | 5 | | 74 | |
| Indiana | | 5 | | 46 | | | 5 | | 48 | |
| New Mexico | | | 4 | | 54 | |
| Virginia | | 4 | | 52 | | | 4 | | 52 | |
| Oregon | | 4 | | 50 | | |
| North Carolina | | 4 | | 41 | | | 4 | | 41 | |
| Michigan | | 3 | | 50 | | |
| Mississippi | | 3 | | 41 | | | 3 | | 41 | |
| Iowa | | | 3 | | 37 | |
| Arkansas | | 3 | | 30 | | | 3 | | 30 | |
| Iowa | | 3 | | 19 | | |
| Florida | | 2 | | 40 | | |
| Washington | | | 2 | | 30 | |
| Georgia | | 2 | | 27 | | | 2 | | 27 | |
| New York | | 2 | | 27 | | | 2 | | 27 | |
| South Carolina | | 2 | | 22 | | | 2 | | 22 | |
| New Mexico | | 2 | | 16 | | |
| Arizona | | 2 | | 14 | | |
| West Virginia | | | 2 | | 22 | |
| Maryland | | | 1 | | 24 | |
| Kansas | | 1 | | 20 | | | 1 | | 20 | |
| Alaska | | | 1 | | 16 | |
| Michigan | | | 1 | | 16 | |
| New Jersey | | 1 | | 16 | | | 1 | | 16 | |
| Missouri | | 1 | | 14 | | | 1 | | 15 | |
| South Dakota | | | 1 | | 14 | |
| Tennessee | | 1 | | 14 | | | 1 | | 14 | |
| Wisconsin | | 1 | | 14 | | | 1 | | 14 | |
| Massachusetts | | 1 | | 12 | | | 1 | | 12 | |
| Delaware | | 1 | | 10 | | | 1 | | 10 | |
| Minnesota | | | 1 | | 8 | |
| Montana | | 1 | | 8 | | | 1 | | 8 | |
| Minnesota | | 1 | | 8 | | |
| | | | | |
| Total United States | | 199 | | 2,405 | | |
| United States | | | 293 | | 3,818 | |
| Canada | | 1 | | 12 | | | 1 | | 12 | |
| | | | | |
Total North America | | 200 | | 2,417 | | |
Total | | | 294 | | 3,830 | |
| | | | | |
According to the 2009 Census Bureau, Texas and California experienced the two highest state population increases, in terms of number of people, from 2008 to 2009, and Utah experienced one of the highest population growth rates, in terms of percentage increase in population from 2008 to 2009.
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International Theatres
| | | | | | | | | | | | | | | | | |
| | | Total | | Total | | Total | | Total |
| Country | | Theatres | | Screens | | Theatres | | Screens |
| Brazil | | 34 | | 295 | | | 46 | | 388 | |
| Mexico | | 29 | | 282 | | | 31 | | 296 | |
Central America(1) | | | 12 | | 81 | |
| Chile | | 12 | | 91 | | | 11 | | 87 | |
Central America(1) | | 10 | | 67 | | |
| Colombia | | | 11 | | 64 | |
| Argentina | | 9 | | 77 | | | 9 | | 74 | |
| Colombia | | 7 | | 44 | | |
| Peru | | | 6 | | 50 | |
| Ecuador | | 4 | | 26 | | | 4 | | 26 | |
| Peru | | 3 | | 30 | | |
| | | | | |
Total | | 108 | | 912 | | | 130 | | 1,066 | |
| | | | | |
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| (1) | | Includes Honduras, El Salvador, Nicaragua, Costa Rica, Panama and Panama.Guatemala. |
We first entered Latin America with the opening ofwhen we began operating movie theatres in Chile in 1993 and Mexico in 1994. Since 1993,then, through our focused international strategy, we have developed into one of the largest Pan American exhibitorsmost geographically diverse theatre circuit in Latin America. We presently have theatres in twelve of the fifteen largest metropolitan areas in Latin America.region. We have balanced our risk through a diversified international portfolio, with operationscurrently operating theatres in twelve international countries.thirteen of the fifteen largest metropolitan areas in Latin America. In addition, we have achieved significant scale in MexicoBrazil and Brazil,Mexico, the two largest Latin American economies.economies, with 388 screens in Brazil and 296 screens in Mexico as of December 31, 2009.
We believe that certain markets within Latin America continue to be underserved andas penetration of movie screens per capita in Latin American markets is substantially lower than in the U.S. and European markets. We will continue to build and expand our presence in underserved international markets, with emphasis on Latin America, and fund our expansion primarily with cash flow generated in those markets. We are able to mitigate cash flow exposure to currency fluctuations by using local currencies to fund substantially all aspectscollect a majority of our revenues and fund a majority of the costs of our international operations, including film and facility lease expense. Our geographic diversity throughout Latin America has allowed us to maintain consistent revenue growth, notwithstanding currency and economic fluctuations that may affect any particular market. Our international revenues were approximately $421.8 million during 2009 versus $385.8 million during 2008.
Film Licensing
In the domestic marketplace, the Company’s film department negotiates with film distributors, which are made up of the traditional major film companies, specialized and art divisions of some of these major film companies, and many other independent film distributors. The film distributors are responsible for determining release dates, the marketing campaigns and the expenditures related to marketing materials, television spots and other advertising outlets. The marketing of each movie may include tours of the actors in the movies and coordination of articles and features about each movie. The Company is responsible for booking the films in negotiated film zones, which are either free zones or competitive zones. In free zones, movies can be booked without regard to the location of another exhibitor within that area. In competitive zones, the distributor allocates their movies to the exhibitors located in that area generally based on demographics and grossing potential of that particular area. We are the sole exhibitor in approximately 89% of the 246 film zones in which our first run U.S. theatres operate. In film zones where there is no direct competition from other theatres, we select those films that we believe will be the most successful from among those offered to us by film distributors.
Internationally, our local personnel negotiate with local offices of major film distributors as well as local film distributors to license films for our international theatres. In the international marketplace, films are not allocated to a single theatre in a geographic film zone, but played by competitive theatres simultaneously. Our theatre personnel focus on providing excellent customer service, and we provide a modern facility with the most up-to-date sound systems, comfortable stadium style seating and other amenities typical of modern American-style multiplexes, which we believe gives us a competitive advantage in markets where competing theatres play the same films. Of the 1,066 screens we operate in international markets, approximately 72% have no direct competition from other theatres.
Our film rental licenses in the U.S. typically specify that rental fees are based on the applicable box office receipts and either the mutually agreed upon firm terms or a sliding scale formula, which are established prior to the opening of the film, or a mutually agreed upon settlement, which occurs at the conclusion of the film run, subject to the film
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licensing agreement. Under a firm terms formula, we pay the distributor a specified percentage of box office receipts. Under the sliding scale formula, film rental is paid as a percentage of box office revenues using a pre-determined matrix based upon box office performance of the film. The settlement process allows for negotiation of film rental fees upon the conclusion of the film run based upon how the film performs. Internationally, our film rental licenses are primarily based on mutually agreed upon firm terms established prior to the opening of the picture. The film rental percentages paid by our international locations are generally lower than in the U.S. markets.
We regularly play art and independent films at many of our theatres, providing a variety of film choices to our patrons. Bringing art and independent films to our theatres, allows us to benefit from the growth in the art and independent market driven by the more mature patron and the increased interest in art, foreign and documentary films. High profile film festivals, such as the Sundance Film Festival, have contributed to growth and interest in this genre. Recent hits such asCrazy Heart, Up in the Air, Young Victoria, The Hurt LockerandPrecioushave demonstrated the box office potential of art and independent films.
Concessions
Concession sales are our second largest revenue source, representing approximately 31% of total revenues for each of the years ended December 31, 2007, 2008 and 2009. Concession sales have a much higher margin than admissions sales. We have devoted considerable management effort to increase concession sales and improve operating margins. These efforts include implementation of the following strategies:
| • | | Optimization of product mix.We offer concession products that primarily include various sizes of popcorn, soft drinks, candy and quickly-prepared food, such as hot dogs and nachos. Different varieties and flavors of candy and soft drinks are offered at theatres based on preferences in that particular market. Our point of sale system allows us to monitor product sales and make changes to product mix when necessary, as we take advantage of national product launches. Specially priced combos and promotions are introduced on a regular basis to increase average concession purchases as well as to attract new buyers. |
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| • | | Staff training.Employees are continually trained in “suggestive-selling” and “upselling” techniques. Consumer promotions conducted at the concession stand usually include a motivational element that rewards theatre staff for exceptional sales of certain promotional items. |
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| • | | Theatre design.Our theatres are designed to optimize efficiencies at the concession stands, which include multiple service stations to facilitate serving more customers more quickly. We strategically place large concession stands within theatres to heighten visibility, reduce the length of concession lines, and improve traffic flow around the concession stands. We have self-service concession areas in many of our theatres, which allow customers to select their own refreshments and proceed to the cash register when they are ready. This design allows for efficient service, enhanced choices and superior visibility of concession items. Concession designs in many of our new theatres have incorporated the self-service model. |
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| • | | Cost control.We negotiate prices for concession supplies directly with concession vendors and manufacturers to obtain volume rates. Concession supplies are distributed through a national distribution network. The concession distributor supplies and distributes inventory to the theatres, who place orders directly with the vendors to replenish stock. We conduct weekly inventory of all concession products at each theatre to ensure proper stock levels are maintained for business. |
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Participation in National CineMedia
In March 2005, Regal Entertainment, Inc., (or Regal), and AMC Entertainment, Inc., (or AMC), formed National CineMedia, LLC, (or NCM), and on July 15, 2005, we joined NCM, as one of the founding members. NCM operates an in-theatre digital network in the U.S. The digital network consists of projectors used to display advertising and other non-film events. NCM’s primary activities that impact our theatres include:
| • | | advertising through its branded “First Look” pre-feature entertainment program, and lobby promotions and displays, |
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| • | | live and pre-recorded networked and single-site meetings and events, and |
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| • | | live and pre-recorded concerts, sporting events and other non-film entertainment programming. |
We believe that the reach, scope and digital delivery capability of NCM’s network provides an effective platform for national, regional and local advertisers to reach an engaged audience. We receive a monthly theatre access fee for participation in the NCM network. In addition, we are entitled to receive mandatory quarterly distributions of excess cash from NCM. As of December 31, 2009, we had an approximate 15% interest in NCM. See Note 5 to the consolidated financial statements.
In our international markets, we generally outsource our screen advertising to local companies who have established relationships with local advertisers that provide similar benefits as NCM. The terms of our international screen advertising contracts vary by country. In some locations, we earn a percentage of the screen advertising revenues collected by our partners and in other locations we are paid a fixed annual fee for access to our screens.
Participation in Digital Cinema Implementation Partners
On February 12, 2007, we, AMC and Regal, entered into a joint venture known as Digital Cinema Implementation Partners LLC, (or DCIP), to facilitate the implementation of digital cinema in our U.S. theatres and to establish agreements with major motion picture studios for the financing of digital cinema. Future digital cinema developments will be managed by DCIP, subject to certain approvals by us, AMC and Regal. Each of Regal, AMC and Cinemark has an equal voting interest in DCIP. To date, DCIP’s wholly-owned subsidiary Kasima has executed long-term deployment agreements with six motion picture studios, under which Kasima will receive a virtual print fee from such studios for each digital presentation. In accordance with these agreements, the digital projection systems deployed by Kasima will comply with the technology and security specifications developed by the Digital Cinema Initiatives studio consortium. In addition, Kasima will lease digital projection systems to us, AMC and Regal under master lease agreements that have an initial term of twelve years.
On March 10, 2010, we signed a master lease agreement and other related agreements (collectively the “agreements”) with Kasima. Upon signing these agreements, we contributed cash and our existing digital projection systems. Subsequent to the contributions, we continue to have a 33% voting interest in DCIP and now have a 24.3% economic interest in DCIP. This initial financing is expected to cover the cost of conversion for a large portion of our U.S. circuit’s screens. We ultimately expect to convert all of our first run screens with digital projection systems, with up to 1,500 screens being digital 3D capable.
As of December 31, 2009, we operated 398 screens enabled with digital 3D projection systems, including 299 in the U.S. As a result of these agreements, the Company will begin a rollout of 3-D compatible digital projection systems to a majority of our first run U.S. theatres. We will incur certain operating and maintenance costs with respect to the digital projection systems installed in our theatres, which we expect to be relatively comparable to what we currently spend on our conventional film projectors.
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Marketing
In the U.S., we rely on newspaper directory film schedules, generally paid for by us, and Internet advertising, which has emerged as the primary media source to inform patrons of film titles and showtimes. Radio and television advertising spots, generally paid for by film distributors, are used to promote certain motion pictures and special events. We also exhibit previews of coming attractions and films we are currently playing. We offer patrons access to movie times, the ability to buy and print their tickets at home and purchase gift cards and other advanced sale-type certificates at our Web sitewww.cinemark.com. We partner with film distributors to use monthly web contests to drive traffic to our Web site and to ensure that customers visit often. In addition, we work on a regular basis with all of the film distributors to promote their films with local, regional and national programs that are exclusive to our theatres. These programs may involve customer contests, cross-promotions with the media and third parties and other means to increase patronage for a particular film showing at one of our theatres.
Internationally, we exhibit upcoming and current film previews on screen, we partner with film distributors for certain promotions and advertise our new locations through various forms of media and events. We partner with large multi-national corporations in the large metropolitan areas in which we have theatres, to promote our brand, our image and to increase attendance levels at our theatres. Our customers are encouraged to register on our Web site to receive weekly information by email for showtime information, invitations to special screenings, sponsored events and promotional information. In addition, our customers can request to receive showtime information on their cell phones. We also have loyalty programs in some of our international markets that allow customers to pay a nominal fee for a membership card that provides them with certain admissions and concession discounts. In addition, the Company is currently developing an iPhone application for some of its international markets. This application will allow consumers to check showtimes and purchase tickets.
Our marketing department also focuses on maximizing ancillary revenue, which includes the sale of our gift cards and our SuperSaver discount tickets. We market these programs to such business representatives as realtors, human resource managers, incentive program managers and hospital and pharmaceutical personnel. Gift cards can be purchased at our theatres or online through our Web site. SuperSavers are also sold online at our Web site or over the phone, fax or email by our local corporate offices and are also available at certain retailers in the U.S.
Online Sales
Our patrons may purchase advance tickets for all of our domestic screens and approximately one half of our international screens by accessing our corporate Web site atwww.cinemark.com.Advance tickets may also be purchased for our domestic screens atwww.fandango.com.Our Internet initiatives help improve customer satisfaction, allowing patrons who purchase tickets over the Internet to often bypass lines at the box office by printing their tickets at home or picking up their tickets at kiosks located at the theatre.
Point of Sale Systems
We have developed our own proprietary point of sale system to enhance our ability to maximize revenues, control costs and efficiently manage operations. The system is currently installed in all of our U.S. theatres and our one Canadian theatre. The point of sale system provides corporate management with real-time admissions and concession revenues data and reports to allow for timely changes to movie schedules, including extending film runs, increasing the number of screens on which successful movies are being played, or substituting films when gross receipts do not meet expectations. Real-time seating and box office information is available to box office personnel, preventing overselling of a particular film and providing faster and more accurate responses to customer inquiries regarding showtimes and available seating. The system tracks concession sales by product, provides in-theatre inventory reports for efficient inventory management and control, offers numerous ticket pricing options, connects with digital concession signage for real-time pricing modifications, integrates Internet ticket sales and processes credit card transactions. Barcode scanners, pole displays, touch screens, credit card readers and other equipment are integrated with the system to enhance its functions and provide print at home and mobile ticketing. In our international locations, we currently use other point of sale systems that have either been developed internally or by third parties, which have been certified as compliant with applicable governmental regulations and provide generally the same capabilities as our proprietary point of sale system.
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Competition
We are the second largest motion picture exhibitor in the world in terms of both attendance and the number of screens in operation. We compete against local, regional, national and international exhibitors with respect to attracting patrons, licensing films and developing new theatre sites.
We are the sole exhibitor in approximately 89% of the 246 film zones in which our first run U.S. theatres operate. In film zones where there is no direct competition from other theatres, we select those films that we believe will be the most successful from among those offered to us by film distributors. Where there is competition, the distributor allocates their movies to the exhibitors located in that area generally based on demographics and grossing potential of that particular area. Patronage trends in 2009 also reflected increasing demand for products unique to the exhibition industry such as 3D. Of the 1,066 screens we operate outside of the U.S., approximately 72% of those screens have no direct competition from other theatres. In areas where we face direct competition, our success in attracting patrons depends on location, accessibility and capacity of an exhibitor’s theatre, quality of projection and sound equipment, film showtime availability, levels of customer service, and ticket prices. The competition for film licensing in the U.S. is dependent upon factors such as the theatre’s location and its demographics, the condition, capacity and revenue potential of each theatre, and licensing terms.
We compete for new theatre sites with other movie theatre exhibitors as well as other entertainment venues, with securing a potential site being dependent upon factors such as committed investment and resources, theatre design and capacity, revenue and patron potential, and financial stability.
We also face competition from a number of other motion picture exhibition delivery systems, such as DVDs, network and syndicated television, video on-demand, pay-per-view television and the Internet. We also face competition from other forms of entertainment competing for the public’s leisure time and disposable income, such as concerts, theme parks and sporting events.
Corporate Operations
We maintain aOur corporate officeheadquarters is located in Plano, Texas that providesTexas. Personnel at our corporate headquarters provide oversight for our domestic and international theatres. Domestic operations includespersonnel at our corporate headquarters include our executive team and department heads in charge of film licensing, concessions, theatre operations support, film licensing and settlements, human resources, legal, finance and accounting, operational audit, theatre maintenance and construction, internet and information systems support, real estate and marketing. Our North AmericanU.S. operations are divided into elevensixteen regions, primarily organized geographically, each of which is headed by a region leader.
International personnel in theat our corporate officeheadquarters include theour President of Cinemark International, PresidentL.L.C. and directors/vice presidentsdepartment heads in charge of film licensing, marketing, concessions, theatre operations, support, theatre maintenance and construction, real estate, legal, operational audit, information systems and accounting. We have a chief financial officer in both Brazil and Mexico, which are our two largest international markets. We have eight regional offices in Latin America responsible for the local management of operationstheatres in twelvethirteen individual countries. Each regional office is headed by a general manager and includes personnel in film licensing, marketing, human resources, information systems, operations and accounting. The regional offices are staffed with nationalsexperienced personnel from the region to overcomemitigate cultural and operational barriers. Training is conducted at the corporate office to establish consistent standards throughout our international operations.
Film Licensing
In North America, we license films from film distributors that are owned by major film production companies or from independent film distributors that distribute films for smaller production companies. For new release films, film distributors typically establish geographic zones and offer each available film to one theatre in each zone. The size of a film zone is generally determined by the population density, demographics and box office potential of a particular market or region. A film zone can range from a radius of three to five miles in major metropolitan and
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suburban areas to up to fifteen miles in small towns. We currently operate theatres in 158 first run film zones in North America. New film releases are licensed at the discretion of the film distributors. As the sole exhibitor in approximately 85% of the first run film zones in which we operate, we have maximum access to film product, which allows us to select those pictures we believe will be the most successful in our markets from those offered to us by distributors. We usually license films on an allocation basis in film zones where we face competition. Films are released to discount theatres once the attendance levels substantially drop off at the first run theatres. For discount films, film distributors generally establish availability on a market-by-market basis after the completion of exhibition at first run theatres and permit discount theatres within a market to exhibit such films simultaneously without regard to film zones.
In the international markets in which we operate, distributors do not allocate film to a single theatre in a geographic film zone, but allow competitive theatres to play the same films simultaneously. In these markets, films are still licensed on a theatre-by-theatre and film-by-film basis. Our theatre personnel focus on providing excellent customer service, and we provide a modern facility with the most up-to-date sound systems, comfortable stadium style seating and other amenities typical of modern American-style multiplexes, which we believe gives us a competitive advantage in markets where competing theatres play the same films. Of the 912 screens we operate in international markets, approximately 79% feature stadium seating and 85% have no direct competition.
Our film rental licenses in North America typically state that rental fees are based on either mutually agreed upon firm terms established prior to the opening of the picture or on a mutually agreed upon settlement at the conclusion of the picture run. Under a firm terms formula, we pay the distributor a specified percentage of box office receipts, which reflects either a mutually agreed upon aggregate rate for the life of the film or rates that decline over the term of the run. Firm term film rental fees that decline over the term of the run generally start at 60% to 70% of box office receipts, gradually declining to as low as 30% over a period of four to seven weeks. The settlement process allows for negotiation of film rental fees upon the conclusion of the film run based upon how the film performs. Internationally, our film rental licenses are based on mutually agreed upon firm terms established prior to the opening of the picture. The film rental percentages paid by our international locations are generally lower than in North American markets and gradually decline over a period of several weeks.
We also operate discount theatres in North America, with admissions ranging from $0.50 to $2 per ticket, to serve an alternative market of patrons that extends the life of a film past the first run screening. By serving this alternative market of patrons in our discount theatres, we have been able to increase the number of potential customers beyond traditional first run moviegoers. Our discount theatres offer many of the same amenities as our first run theatres, including wall-to-wall screens, comfortable seating with cup holder armrests, digital sound and multiple concession stands. Discount film rental percentages typically begin at 35% of box office receipts and often decline to 30% after the first week.
Film rental costs are accrued based on the applicable box office receipts and either the mutually agreed upon firm terms established prior to the opening of the picture or estimates of the final mutually agreed upon settlement, which occurs at the conclusion of the picture run, subject to the film licensing arrangement. Estimates are based on the expected success of a film over the length of its run in the theatres. The success of a film can typically be determined a few weeks after a film is released when initial box office performance of the film is known. Accordingly, final settlements typically approximate estimates since box office receipts are known at the time the estimate is made and the expected success of a film over the length of its run in theatres can typically be estimated early in the film’s run. The final film settlement amount is negotiated at the conclusion of the film’s run based upon how a film actually performs. If actual settlements are higher than those estimated, additional film rental costs are recorded at that time.
Concessions
Concession sales are our second largest revenue source, representing approximately 31% of total revenues for 2005. Concession sales have a much higher margin than admissions sales. We have devoted considerable management effort to increase concession sales and improve operating margins. These efforts include implementation of the following strategies:
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| • | | Optimization of product mix.Concession products are primarily comprised of various sizes of popcorn, soft drinks and candy. Different varieties and flavors of candy and soft drinks are offered at theatres based on preferences in that particular geographic region. Specially priced combos are launched on a regular basis to increase average concession purchases as well as to attract new buyers. Kids’ meals are also offered and packaged towards younger patrons. |
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| • | | Staff training.Employees are continually trained in “suggestive-selling” and “upselling” techniques. This training occurs through situational role-playing conducted at our “Customer Satisfaction University” as well as continued on-the-job training. Theatre managers receive additional compensation based on concession sales at their theatres and are therefore motivated to maximize concession sales. Consumer promotions conducted at the concession stand always include a motivational element which rewards theatre staff for exceptional combo sales during the period. |
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| | | A formalized crew program is in place to reward front line employees who excel in delivering rapid service. The Speed of Service (SOS) program is held annually to kick off peak business periods and refresh training and the importance of speed at the front line. |
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| | | Also, a year-round crew incentive called Pour More & Score is in place. All concession programs include a points-earning opportunity designed to primarily drive sales of drinks and popcorn. Theatres compete against their own prior year performance in an effort to win staff prizes |
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| • | | Theatre design.Our theatres are designed to optimize efficiencies at the concession stands, which include multiple service stations to facilitate serving more customers quicker. We strategically place large concession stands within theatres to heighten visibility, reduce the length of concession lines, and improve traffic flow around the concession stands. |
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| • | | Cost control.We negotiate prices for concession supplies directly with concession vendors and manufacturers to obtain bulk rates. Concession supplies are distributed through a national distribution network. The concession distributor supplies and distributes inventory to the theatres, which place volume orders directly with the vendors to replenish stock. The concession distributor is paid a percentage fee for warehousing and delivery of concession goods on a weekly basis. |
Marketing
In North America, we rely on newspaper display advertisements, substantially paid for by film distributors, newspaper directory film schedules, generally paid for by us, and internet advertising, which has emerged as a strong media source to inform patrons of film titles and showtimes. Radio and television advertising spots, generally paid for by film distributors, are used to promote certain motion pictures and special events. We also exhibit previews of coming attractions and films presently playing on the other screens which we operate in the same theatre or market. We have successfully used the internet to provide patrons access to movie times, the ability to buy and print their tickets at home and purchase gift cards and other advanced sale-type certificates. The internet is becoming a popular way to check movie showtimes and may, over time, replace the traditional newspaper advertisements. Many newspapers add an internet component to their advertising and add movie showtimes to their internet sites. We use monthly web contests with film distributor partners to drive traffic to our web site and ensure that customers visit often. Over time, the internet may allow us to reduce our advertising costs associated with newspaper directory advertisements. In addition, we work on a regular basis with all of the film distributors to promote their films with local, regional and national programs that are exclusive to our theatres. These may involve customer contests, cross-promotions with third parties, media on-air tie-ins and other means to increase traffic to a particular film showing at one of our theatres.
We also partner with large multi-national corporations, in the larger metropolitan areas in which we have theatres, to promote our brand, our image and to increase attendance levels at our theatres. Our international customers are encouraged to register on our website to receive weekly information via e-mail for showtime information, invitations to special screenings, sponsored events and promotional information. In addition, some of our customers request to receive showtime information via their cellular phones.
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Our marketing department also focuses on maximizing revenue generating opportunities, which include the following:
| • | | Advertising.We believe the advertising industry recognizes the value of in-theatre advertising as an important medium due to the demographics of theatre patrons and the ability to market to specific demographics according to film title. On-screen advertising revenue overall in the United States grew 23% in 2004 to $438 million according to the Cinema Advertising Council and is expected to have grown 20% in 2005. During 2005, we invested in National CineMedia LLC, a joint venture between Regal Entertainment Group, AMC Entertainment Inc. and our company. National CineMedia LLC provides marketing, sales and distribution of cinema advertising and promotional products; business communications and training services; and the distribution of digital alternative content across its Digital Content Network to its theatre owners and other network affiliate circuits. Our participation in this joint venture will assist us in expanding our offerings to advertisers, exploring additional revenue sources such as digital video monitor advertising, third party branding, and the use of theatres for non-film events. In participating in this joint venture, we are able to sell a different kind of advertising to the movie-going public. The entertainment-based pre-show is delivered digitally to the majority of screens and lobby plasma monitors owned by three of the largest U.S. theatre exhibitors and focuses on a “First Look” at movies, television and sports events with ads that have been made especially for the big screen and generally have not been shown on other media. Movie-goers will get a behind-the-scenes look at the making of a film or see exclusive interviews with their favorite stars. In addition, the digital equipment enables us to use theatres during non-peak hours for concerts, sporting events, and other cultural events, which are also sold by National CineMedia on behalf of all three circuits. We are able to offer advertisers national, regional or local coverage in a variety of formats to reach our patrons. National CineMedia also generates other revenue from “imaging” in the lobby, including mini-billboards and displays, and distributing coupons and samples to patrons passing through the theatre complex. Similarly, in our international markets, we generally outsource our screen advertising to local companies, who have established relationships with local advertisers that provide similar benefits as National CineMedia. |
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| • | | Sales.We employ sales personnel at our corporate office who work with National CineMedia to oversee the development and implementation of a comprehensive domestic theatre rental and group sales effort. National CineMedia and our sales department are responsible for increasing theatre rental income during periods when the theatre is normally closed and maximizing group film bookings to specialized groups such as schools, daycare centers and religious organizations. We believe the large lobbies, comfortable seating, big screens and sound capabilities make our theatres an attractive venue for corporate events, private parties, private screenings and team building meetings. With the digital equipment that will be installed in the majority of our theatres, we can also offer capacity to do PowerPoint and other presentations for corporate meetings. We believe the trend to use theatre auditoriums for non-film events during non-peak times will increase, which will add revenue and attract new audiences to our theatres while not significantly increasing costs. In addition, targeted efforts to sell niche films to particular groups will also increase overall revenues. |
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| • | | Business Development. Our marketing personnel are responsible for the sale of our gift cards, gift certificates and discount tickets, which are called SuperSavers. We market these programs to such business representatives as realtors, human resource managers, incentive program managers, hospital and pharmaceutical personnel. Gift cards and gift certificates can be purchased at our theatres. Gift cards, gift certificates and SuperSavers are also sold online, via phone, fax, email and regular mail and fulfilled in-house from the local corporate office. |
Online Sales
Our patrons may purchase advance tickets for 181 of our domestic theatres (2,240 screens) and 25 of our international theatres (217 screens) by accessing our corporate website at www.cinemark.com. Additionally, patrons may purchase advance tickets to our internet-enabled domestic theatres by accessing Fandango’s website at www.fandango.com. Our internet initiatives help improve customer satisfaction, allowing patrons who purchase
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tickets over the internet to often bypass lines at the box office by printing their tickets at home or picking up their tickets at kiosks in the theatre lobby.
Point of Sale Systems
We developed our own proprietary point of sale system to further enhance our ability to maximize revenues, control costs and efficiently manage operations. The system, which is installed in all of our North American theatres and some of our international theatres, provides corporate management with real-time admissions and concession revenue reports that allow managers to make timely changes to movie schedules, including extending film runs, increasing the number of screens on which successful movies are being played, or substituting films when gross receipts do not meet expectations. Real-time seating and box office information is available to box office personnel, preventing overselling of a particular film and providing faster and more accurate responses to customer inquiries regarding showtimes and available seating. The system tracks concession sales, provides in-theatre inventory reports allowing for efficient inventory management and control, has multiple language capabilities, offers numerous ticket pricing options, integrates internet ticket sales and processes credit card transactions. Barcode scanners, pole displays, touch screens, credit card readers and other equipment can be integrated with the system to enhance its functions. In some of our international locations, we use point of sale systems that have been developed by third parties for the motion picture industry, which have been certified as compliant with applicable governmental regulations.
Competition
We are one of the leading motion picture exhibitors in terms of both revenues and the number of screens in operation. We compete against local, regional, national and international exhibitors.
We are the sole exhibitor in approximately 85% of the 158 first run film zones in which our first run North American theatres operate. In film zones where there is no direct competition, we select those films we believe will be the most successful from among those offered to us by film distributors. Where there is competition, we usually license films based on an allocation process. Of the 912 screens we operate outside of North America, approximately 85% of those screens have no direct competition. The principal competitive factors with respect to film licensing are:
| • | | Location, accessibility and capacity of an exhibitor’s theatre; |
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| • | | theatre comfort; |
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| • | | quality of projection and sound equipment; |
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| • | | level of customer service; and |
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| • | | licensing terms. |
The competition for customers is dependent upon factors such as the availability of popular films, the location of theatres, the comfort and quality of theatres and ticket prices. Our ticket prices at first run and discount theatres are competitive with ticket prices of competing theatres.
We also face competition from a number of other motion picture exhibition delivery systems, such as DVD, network and syndicated television, video on-demand, pay-per-view television and downloading utilizing the internet. We do not believe that these additional distribution channels have adversely affected theatre attendance; however, we can give no assurance that these or other alternative delivery systems will not have an adverse impact on attendance in the future. We also face competition from other forms of entertainment competing for the public’s leisure time and disposable income, such as concerts, theme parks and sporting events.
Seasonality
Our revenues have historically been seasonal due to the timing of motion picture releases by the major film distributors. Generally, the most successful motion pictures have been released during the summer, extending from Memorial Day to Labor Day, and during the holiday season, extending from Thanksgiving through the end of the year. The unexpected emergence of a blockbuster film during other periods can alter this seasonality trend. The timing of such film releases can have a significant effect on our results of operations, and the results of one quarter
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are not necessarily indicative of results for the next quarter or for the same period in the following year. The seasonality of successful film releases, however, has become less pronounced in recent years with the release of major motion pictures occurring more evenly throughout the year.
Employees
We have approximately 8,10014,200 employees in North America,the U.S., approximately 10% of whom are full time employees and 90% of whom are part time employees. We have approximately 4,7006,500 employees in our international markets, 46%approximately 63% of whichwhom are full time employees and 54%approximately 37% of whichwhom are part time employees. Twenty-two North AmericanSome of our U.S. employees are represented by unions under collective bargaining agreements. Someagreements, and some of our international locations are subject to union regulations. We regard our relations with our employees to be satisfactory.
Regulations
The distribution of motion pictures is largely regulated by federal and state antitrust laws and has been the subject of numerous antitrust cases. We have not been a party to such cases, but theThe manner in which we can license films from certain major film distributors is subject to consent decrees resulting from these cases. Consent decrees bind certain major film distributors and require the films of such distributors to be offered and licensed to exhibitors, including us, on a theatre-by-theatre and film-by-film basis.
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Consequently, exhibitors cannot assure themselves a supply of films by enteringenter into long-term arrangements with major distributors, but must negotiate for licenses on a theatre-by-theatre and film-by-film basis.
We are subject to various general regulations applicable to our operations including the Americans with Disabilities Act (the “ADA”).of 1990, or the ADA. We develop new theatres to be accessible to the disabled and we believe we are in substantial compliancesubstantially compliant with current regulations relating to accommodating the disabled. Although we believe that our theatres comply with the ADA, we are, or have been a party to lawsuits which claim that our handicapped seating arrangements do not comply with the ADA or that we are required to provide captioning for patrons who are deaf or are severely hearing impaired. See Item 3 — Legal Proceedings.
Our theatre operations are also subject to federal, state and local laws governing such matters as wages, working conditions, citizenship, health and sanitation requirements and licensing.
Financial Information About Geographic Areas
We operate in a single business segment as a motion picture exhibitor. We are a multinational corporation with consolidatedhave operations as of December 31, 2005, in the U.S., Canada, Brazil, Mexico, Chile, Colombia, Argentina, Brazil, Chile,Peru, Ecuador, Peru, Honduras, El Salvador, Nicaragua, Costa Rica, Panama and Colombia.Guatemala, which are reflected in the consolidated financial statements. See Note 18 of21 to the Notes to our Consolidated Financial Statementsconsolidated financial statements for segment information on our revenues and theatre properties and equipment in the U.S. and Canada, Mexico, Brazil and other international countries.financial information by geographic area.
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Item 1A. Risk Factors
Poor motion pictureOur business depends on film production or performance could have an adverse effect on our business.and performance.
Our business is dependentdepends on both upon the availability of suitable motion picturesfilms for exhibition in our theatres and the success of such picturesthose films in our markets. Poor performance of films, the disruption in the production of motion pictures,films due to events such as a strike by directors, writers or actors, a reduction in financing options for the film distributors, or a reduction in the marketing efforts of the film distributors to promote suchtheir films could have an adverse effect on our business by resulting in fewer patrons and reduced revenues.
A deterioration in relationships with film distributors could adversely affect our ability to obtain commercially successful films.
We rely on the film distributors forto supply the motion picturesfilms shown in our theatres. The film distribution business is highly concentrated, with tensix major film distributors accounting for approximately 90%83% of U.S. box office revenues and 44 of the top 50 grossing films during 2005.2009. Numerous antitrust cases and consent decrees resulting from these antitrust cases impact the distribution of motion pictures.films. The consent decrees bind certain major film distributors to license films to exhibitors on a theatre-by-theatre and film-by-film basis. Consequently, we cannot guarantee a supply of films by entering into long-term arrangements with major distributors. We are therefore required to negotiate licenses for each film and for each theatre. A deterioration in our relationship with any of the tensix major film distributors could adversely affect our ability to obtain commercially successful films and to negotiate favorable licensing terms for such films, both of which could adversely affect our business and operating results.
The oversupply of screens in the motion picture exhibition industry and other factors may adversely affect the performance of some of our theatres.
Several major theatre exhibition companies, including Regal Cinemas, Loews Cineplex Entertainment and United Artists filed for bankruptcy during 1999 and 2000. One significant cause of those bankruptcies was the emphasis by theatre circuits on the development of large multiplexes. The strategy of aggressively building multiplexes was adopted throughout the industry and resulted in an oversupply of screens in the North American exhibition industry. As a result of the perceived oversupply of screens and the resulting bankruptcies, screen counts declined in 2001 and 2002. Some analysts believe that there continues to be an oversupply of screens in the North American exhibition industry, as screen counts increased in 2003 and 2004 and continued to increase in 2005. If competitors build theatres in the markets we serve, the performance of some of our theatres could be adversely affected due to increased competition.
Our foreign operations are subject to adverse regulations and currency exchange risk, which may have an adverse effect on our business.
Outside of North America, we operate 108 theatres with 912 screens in Mexico, Argentina, Brazil, Chile, Ecuador, Peru, Honduras, El Salvador, Nicaragua, Costa Rica, Panama and Colombia. Mexico and Brazil represented approximately 7.3% and 11.0% of our consolidated 2005 revenues, respectively. Governmental regulation of the motion picture industry in foreign markets differs from that in the United States. Regulations affecting prices, quota systems requiring the exhibition of locally-produced films and restrictions on ownership of land may adversely affect our international operations in foreign markets. Our international operations are subject to certain political, economic and other uncertainties not encountered by our domestic operations. We also face the additional risks of currency fluctuations, hard currency shortages and controls of foreign currency exchange, all of which could have an adverse effect on the results of our international operations.
If we do not comply with the Americans with Disabilities Act of 1990, we could be subject to further litigation.
Our theatres must comply with Title III of the Americans with Disabilities Act of 1990, or the “ADA,” and analogous state and local laws. Compliance with the ADA requires among other things that public facilities “reasonably accommodate” individuals with disabilities and that new construction or alterations made to “commercial facilities” conform to accessibility guidelines unless “structurally impracticable” for new construction or technically infeasible for alterations. If we fail to comply with the ADA, remedies could include imposition of injunctive relief, fines, awards for damages to private litigants and additional capital expenditures to remedy non-
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compliance. Imposition of significant fines, damage awards or capital expenditures to cure non-compliance could adversely affect our business and operating results.
We face intense competition for patrons, film licensing and theatre locations, which may adversely affect our business.
The motion picture industry is highly competitive. We compete against local, regional, national and international exhibitors. We compete for both patrons and licensing of motion pictures. The competition for patrons is dependent upon such factors as the availability of popular motion pictures, the location and number of theatres and screens in a market, the comfort and quality of the theatres and pricing. Some of our competitors have substantially greater resources and may have lower costs. The principal competitive factors with respect to film licensing include licensing terms, number of seats and screens available for a particular picture, revenue potential and the location and condition of an exhibitor’s theatres. If we are unable to license successful films, our business may be adversely affected.
An increase in the use of alternative film distribution channels and other competing forms of entertainment may drive down movie theatre attendance and limit ticket prices.
We face competition for patrons from a number of alternative motion picture distribution channels, such as DVD, network and syndicated television, video on-demand, pay-per-view television and downloading utilizing the internet. We also compete with other forms of entertainment competing for our patrons’ leisure time and disposable income such as concerts, amusement parks and sporting events. An increase in popularity of these alternative film distribution channels and competing forms of entertainment could have an adverse effect on our business and results of operations.
Our results of operations may be impacted by shrinking video release windows.
Over the last decade, the average video release window, which represents the time that elapses from the date of a film’s theatrical release to the date a film is available on video or DVD, has decreased from approximately six months to approximately four months. We cannot assure you that this release window, which is determined by the film studios, will not shrink further or be eliminated altogether, which could have an adverse impact on our business and results of operations.
We may not be able to generate additional revenues.
We intend to continue to pursue additional revenue streams such as advertising and the use of theatres for non-film events. Our ability to achieve our business objectives may depend in part on our success in generating additional revenue. We cannot assure you that we will be able to effectively generate these additional revenues and our inability to do so may have an adverse effect on our financial performance.
Our results of operations vary from period to period based upon the quantity and quality of the motion pictures that we show in our theatres.
Our results of operations vary from period to period based upon the quantity and quality of the motion pictures that we show in our theatres. The major film distributors generally release the films they anticipate will be most successful during the summer and holiday seasons. Consequently, we typically generate higher revenues during these periods. Due to the dependency on the success of films released from one period to the next, results of operations for one period may not be indicative of the results for the following period or the same period in the following year.
We face intense competition for patrons and films which may adversely affect our business.
The motion picture industry is highly competitive. We compete against local, regional, national and international exhibitors. We compete for both patrons and licensing of films. The competition for patrons is dependent upon such factors as location, accessibility and capacity of an exhibitor’s theatre, the comfort and quality of the theatres, film and showtime availability, levels of customer service, and pricing. The principal competitive factors with respect to film licensing include the theatre’s location and its demographics, the condition, capacity and revenue potential of each theatre and licensing terms. If we are unable to attract patrons or to license successful films, our business may be adversely affected.
An increase in the use of alternative or “downstream” film distribution channels and other competing forms of entertainment may reduce movie theatre attendance and limit ticket price growth.
We face competition for patrons from a number of alternative film distribution channels, such as DVDs, network and syndicated television, video on-demand, pay-per-view television and the Internet. We also compete with other forms of entertainment, such as concerts, amusement parks and sporting events, for our patrons’ leisure time and disposable income. A significant increase in popularity of these alternative film distribution channels and competing forms of entertainment could have an adverse effect on our business and results of operations.
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Our results of operations may be impacted by shrinking video release windows.
Over the last decade, the average video release window, which represents the time that elapses from the date of a film’s theatrical release to the date a film is available on DVD, an important downstream market, has decreased from approximately six months to approximately three to four months. If patrons choose to wait for a DVD release rather than attend a theatre for viewing the film, it may adversely impact our business and results of operations, financial condition and cash flows. We cannot assure you that this release window, which is determined by the film studios, will not shrink further or be eliminated altogether, which could have an adverse impact on our business and results of operations.
We have substantial long-term lease and debt obligations, which may restrict our ability to fund current and future operations and that restrict our ability to enter into certain transactions.
We have, and will continue to have, significant long-term debt service obligations and long-term lease obligations. As of December 31, 2009, we had $1,543.7 million in long-term debt obligations, $140.4 million in capital lease obligations and $1,865.6 million in long-term operating lease obligations. We incurred interest expense of $81.6 million for the year ended December 31, 2009. We incurred $238.8 million of facility lease expense under operating leases for the year ended December 31, 2009 (the terms under these operating leases, excluding renewal options, range from one to 28 years). Our substantial lease and debt obligations pose risk to you by:
| • | | making it more difficult for us to satisfy our obligations; |
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| • | | requiring us to dedicate a substantial portion of our cash flows to payments on our lease and debt obligations, thereby reducing the availability of our cash flows from operations to fund working capital, capital expenditures, acquisitions and other corporate requirements and to pay dividends; |
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| • | | impeding our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions and general corporate purposes; |
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| • | | subjecting us to the risk of increased sensitivity to interest rate increases on our variable rate debt, including our borrowings under our senior secured credit facility; and |
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| • | | making us more vulnerable to a downturn in our business and competitive pressures and limiting our flexibility to plan for, or react to, changes in our industry or the economy. |
Our ability to make scheduled payments of principal and interest with respect to our indebtedness will depend on our ability to generate positive cash flows and on our future financial results. Our ability to generate positive cash flows is subject to general economic, financial, competitive, regulatory and other factors that are beyond our control. We cannot assure you that we will continue to generate cash flows at current levels, or that future borrowings will be available under our senior secured credit facility, in an amount sufficient to enable us to pay our indebtedness. If our cash flows and capital resources are insufficient to fund our lease and debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets or operations, seek additional capital or restructure or refinance our indebtedness. We may not be able to take any of these actions, and these actions may not be successful or permit us to meet our scheduled debt service obligations and these actions may be restricted under the terms of our existing or future debt agreements, including our senior secured credit facility. The senior secured credit facility restricts our ability to dispose of assets and use the proceeds from the disposition. We may not be able to consummate those dispositions or the proceeds may not be adequate to meet our debt service obligations.
If we fail to make any required payment under the agreements governing our leases and indebtedness or fail to comply with the financial and operating covenants contained in them, we would be in default, and as a result, our debt holders would have the ability to require that we immediately repay our outstanding indebtedness and the lenders under our senior secured credit facility could terminate their commitments to lend us money and foreclose against the assets securing their borrowings. We could be forced into bankruptcy or liquidation, which could result in the loss of your investment. The acceleration of our indebtedness under one agreement may permit acceleration of indebtedness under other agreements that contain cross-default and cross-acceleration provisions. If our indebtedness is accelerated, we may not be able to repay our indebtedness or borrow sufficient funds to refinance it. Even if we are able to obtain new financing, it may not be on commercially reasonable terms or on terms that are acceptable to us. If our debt holders require immediate payment, we may not have sufficient assets to satisfy our obligations under our indebtedness.
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General political, social and economic conditions can adversely affect our attendance.
Our results of operations are dependent on general political, social and economic conditions, and the impact of such conditions on our theatre operating costs and on the willingness of consumers to spend money at movie theatres and on our theatre operating costs.theatres. If consumers’ discretionary income declines as a result of an economic downturn, our operations could be
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adversely affected. If theatre operating costs, such as utility costs, increase due to political or economic changes, our results of operations could be adversely affected. Political events, such as terrorist attacks, and health-related epidemics, such as flu outbreaks, could cause people to avoid our theatres or other public places where large crowds are in attendance. In addition, a natural disaster, such as a hurricane or an earthquake, could impact our ability to operate certain of our theatres, which could adversely affect our attendance.
Our foreign operations are subject to adverse regulations, economic instability and currency exchange risk.
We have 130 theatres with 1,066 screens in thirteen countries in Latin America. Brazil and Mexico represented approximately 11% and 3% of our consolidated 2009 revenues, respectively. Governmental regulation of the motion picture industry in foreign markets differs from that in the United States. Changes in regulations affecting prices, quota systems requiring the exhibition of locally-produced films and restrictions on ownership of property may adversely affect our international operations in foreign markets. Our international operations are subject to certain political, economic and other uncertainties not encountered by our domestic operations, including risks of severe economic downturns and high inflation. We also face risks of currency fluctuations, hard currency shortages and controls of foreign currency exchange and transfers abroad, all of which could have an adverse effect on the results of our international operations.
We may not be able to generate additional revenues or continue to realize value from our investment in NCM.
In 2005, we joined Regal and AMC as founding members of NCM, a provider of digital advertising content and digital non-film event content. As of December 31, 2009, we had an interest in NCM of approximately 15%. We receive a monthly theatre access fee under our Exhibitor Services Agreement with NCM and we are entitled to receive mandatory quarterly distributions of excess cash from NCM. During the years ended December 31, 2008 and 2009, the Company received approximately $1.8 million and $5.7 million in other revenues from NCM, respectively, and $18.8 million and $20.8 million in cash distributions in excess of our investment in NCM, respectively. Cinema advertising is a small component of the U.S. advertising market and therefore, NCM competes with larger, established and well known media platforms such as broadcast radio and television, cable and satellite television, outdoor advertising and Internet portals. NCM also competes with other cinema advertising companies and with hotels, conference centers, arenas, restaurants and convention facilities for its non-film related events to be shown or held in our auditoriums. In-theatre advertising may not continue to attract advertisers or NCM’s in-theatre advertising format may not continue to be received favorably by theatre patrons. If NCM is unable to continue to generate consistent advertising revenues, its results of operations may be adversely affected and our investment in and distributions and revenues from NCM may be adversely impacted.
We are subject to uncertainties related to digital cinema, including potentially high costsinsufficient financing to obtain digital projectors and insufficient supply of re-equipping theatres with projectors to show digital movies.projectors.
Digital cinema is still in an early conversion stage in our industry. We, are in the process of rolling out digital equipment for exhibiting advertising and other alternative content. Somealong with some of our competitors, have commenced a roll-out of digital equipment for exhibiting feature films. Digital cinema is still in an experimental stage infilms and plan to continue the roll-out through our industry. There are multiple parties vying for the position of being the primary generator of the digital projector roll-out for exhibiting feature films.joint venture DCIP. However, significant obstacles exist that impact such a roll-out plan including the cost of digital projectors the substantial investment in re-equipping theatres and the party which will be responsible for such costs. Business arrangements for the financingsupply of the digital projector roll-out will require significant discussions.projectors by manufacturers. We cannot assure you that DCIP will be able to obtain sufficient financing arrangements to fundbe able to purchase and lease to us the number of digital projectors needed for our portionroll-out or that the manufacturers will be able to supply the volume of the digital cinema roll-out can be obtained on terms we deem acceptable. Ifprojectors needed for our roll-out. As a result, our roll-out of digital cinema progresses rapidly, we mayequipment could be delayed or not have adequate resources to finance the conversion costs.completed at all.
We are subject to uncertainties relating to future expansion plans, including our ability to identify suitable acquisition candidates or site locations.locations, and to obtain financing for such activities on favorable terms or at all.
We have greatly expanded our operations over the last decade through targeted worldwide theatre development.development and acquisitions. We will continue to pursue a strategy of expansion that will involve the development of new theatres and may involve acquisitions of existing theatres and theatre circuits both in North Americathe U.S. and internationally. Acquisitions generally would be done to provide initial entry into a new market or to strengthen our position in an existing market. There is significant competition for potentialnew site locations and for existing theatre and theatre circuit acquisition opportunities. As a result of such competition, we may not be able to acquire attractive site locations, existing theatres or theatre circuits on terms we consider acceptable. Acquisitions and expansion opportunities may divert a significant amount of management’s time away from the operation of our business. Growth by acquisition also involves risks relating to difficulties in integrating
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the operations and personnel of acquired companies and the potential loss of key employees of acquired companies. We cannot assure you that our expansion strategy will result in improvements to our business, financial condition, profitability, or profitability.cash flows. Further, our expansion programs may require financing above our existing borrowing capacity and internally generated funds.operating cash flows. We cannot assure you that we will be able to obtain such financing noror that such financing will be available to us on acceptable terms.terms or at all.
If we do not comply with the Americans with Disabilities Act of 1990 and a consent order we entered into with the Department of Justice, or the DOJ, we could be subject to further litigation.
Our theatres must comply with Title III of the ADA and analogous state and local laws. Compliance with the ADA requires among other things that public facilities “reasonably accommodate” individuals with disabilities and that new construction or alterations made to “commercial facilities” conform to accessibility guidelines unless “structurally impracticable” for new construction or technically infeasible for alterations. In March 1999, the Department of Justice, or DOJ, filed suit against us in Ohio alleging certain violations of the ADA relating to wheelchair seating arrangements in certain of our stadium-style theatres and seeking remedial action. We and the DOJ have resolved this lawsuit and a consent order was entered by the U.S. District Court for the Northern District of Ohio, Eastern Division, on November 15, 2004. Under the consent order, we were required to make modifications to wheelchair seating locations in fourteen stadium-style movie theatres and spacing and companion seating modifications in 67 auditoriums at other stadium-styled movie theatres. These modifications were completed by November 2009. Upon completion of these modifications, these theatres comply with wheelchair seating requirements, and no further modifications will be required to our other stadium-style movie theatres in the United States existing on the date of the consent order. In addition, under the consent order, the DOJ approved the seating plans for nine stadium-styled movie theatres then under construction and also created a safe harbor framework for us to construct all of our future stadium-style movie theatres. The DOJ has stipulated that all theatres built in compliance with the consent order will comply with the wheelchair seating requirements of the ADA. If we fail to comply with the ADA, remedies could include imposition of injunctive relief, fines, awards for damages to private litigants and additional capital expenditures to remedy non-compliance. Imposition of significant fines, damage awards or capital expenditures to cure non-compliance could adversely affect our business and operating results.
We depend on key personnel for our current and future performance.
Our current and future performance depends to a significant degree upon the continued contributions of our senior management team and other key personnel. The loss or unavailability to us of any member of our senior management team or a key employee could significantly harm us. We cannot assure you that we would be able to locate or employ qualified replacements for senior management or key employees on acceptable terms.
We are subject to impairment losses due to potential declines in valuations.the fair value of our assets.
We review 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.
We assess many factors when determining whether to impair individual theatre assets, including actual theatre level cash flows, future years budgeted theatre level cash flows, theatre property and equipment carrying values, theatre goodwillamortizing intangible assets carrying values, the age of a recently built theatre, competitive theatres in the marketplace, the sharing of a marketplace with our other theatres, changes in foreign currency exchange rates, the impact of recent ticket price changes, available lease renewal options and other factors considered relevant in our assessment of impairment of individual theatre assets. The evaluationLong-lived assets are evaluated for impairment on an individual theatre basis, which we believe is based on the lowest applicable level for which there are identifiable cash flows. When estimated undiscounted cash flows from continuing use through the remainder of the theatre’s useful life. The remainder of the useful life correlates with the available remaining lease period, which includes the probability of renewal periods, for leased properties and a period of twenty years for fee owned properties. If the estimated undiscounted cash flows are not sufficientfair value is determined to recover a long-lived asset’s carrying value, we then comparebe lower than the carrying value of the asset with itstheatre assets, the theatre assets are written down to their estimated fair value. Fair value is determined based on a multiple of cash flows, which was seveneight times for the year ended December 31, 2005. Whenevaluations performed during 2007 and the first, second and third quarters of 2008 and six and a half times for the evaluation performed during the fourth quarter of 2008 and the evaluations performed during 2009. Significant judgment is involved in estimating cash flows and fair value. Management’s estimates, which fall under Level 3, are based on historical and projected operating performance, recent market transactions and current industry trading multiples. Since we evaluate long-lived assets for impairment at the theatre level, if a theatre is directly and individually impacted by increased competition, adverse changes in market demographics or adverse changes in the development or condition of the areas surrounding the theatre, we may record impairment charges to reflect the decline in estimated fair value is determined to be lower than the carrying valueof that theatre.
We have a significant amount of goodwill as a result of the long-lived asset,Century Acquisition and the asset is written down to its estimated fair value.Cinemark Share Exchange. We evaluate goodwill for impairment at the reporting unit level at least annually during the fourth quarter or whenever
17
events or changes in circumstances indicate the carrying value of goodwill might exceed its estimated fair value. Goodwill impairment is evaluated using a two-step approach requiring us to compute the fair value of a reporting unit and compare it with its carrying value. If the carrying value of the theatre exceeds its fair value, a second step would be performed to measure the potential goodwill impairment. Fair values are determined based on a multiple of cash flows, which was eight times for the evaluations performed during 2007 and six and a half times for the evaluations performed during 2008 and 2009. Significant judgment is involved in estimating cash flows and fair value. Management’s estimates, which fall under Level 3, are based on historical and projected operating performance, recent market transactions and current industry trading multiples. Declines in Cinemark Holdings, Inc.’s stock price or market capitalization, declines in the Company’s attendance due to increased competition in certain regions and/or countries or economic factors that lead to a decline in attendance in any given region or country could negatively affect the Company’s estimated fair values and could result in further impairments of goodwill. As of December 31, 2009, the carrying value of goodwill allocated to reporting units where the estimated fair value was less than 10% more than the carrying value was approximately $173.0 million.
We also test goodwillhave a significant amount of tradename intangible assets as a result of the Century Acquisition and otherthe Cinemark Share Exchange. Tradename intangible assets are tested for impairment at least annually during the fourth quarter or whenever events or changes in accordancecircumstances indicate the carrying value may not be recoverable. We estimate the fair value of our tradenames by applying an estimated market royalty rate that could be charged for the use of our tradename to forecasted future revenues, with Statementan adjustment for the present value of Financial Accounting Standards (“SFAS”) No. 142.such royalties. If the estimated fair value is less than the carrying value, the tradename intangible asset is written down to the estimated fair value.
We recorded asset impairment charges, including goodwill impairment charges, of $5.0$86.6 million, $1.7 million$113.5 and $9.7$11.8 million for 2003, 2004the years ended December 31, 2007, 2008 and 2005,2009, respectively. We cannot assure you that additional impairment charges will not be required in the future, and such charges may have an adverse effect on our financial condition and results of operations. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Notes 9 and 10 to the consolidated financial statements.
We have substantial long-term lease and debt obligations, which may restrict our ability to fund current and future operations.The impairment or insolvency of other financial institutions could adversely affect us.
We have significant long-term debt service obligations and long-term lease obligations. Asexposure to different counterparties with regard to our interest rate swap agreements. These transactions expose us to credit risk in the event of December 31, 2005, we had $620.3 million in long-term debt and $1,537.4 million in long-term lease obligations. Our substantial lease and debt obligations pose risk to you by:
| • | | making ita default by one or more difficult for us to satisfy our obligations; |
|
| • | | requiring us to dedicate a substantial portion of our cash flow to payments on our lease and debt obligations, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions and other corporate requirements; |
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| • | | impeding us from obtaining additional financing in the future for working capital, capital expenditures, acquisitions and general corporate purposes; |
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| • | | subjecting us to the risk of increased sensitivity to interest rate increases on our variable rate debt, including our borrowings under the amended senior secured credit facility; and |
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| • | | making us more vulnerable to a downturn in our business and competitive pressures and limiting our flexibility to plan for, or react to, changes in our business. |
Subject to the restrictions contained in our indebtedness agreements, we expect to incur additional indebtedness from time to time to finance acquisitions, capital expenditures, working capital requirements and other general business purposes. In addition, we may need to refinance all or a portion of our indebtedness, including our amended senior secured credit facility, our senior subordinated notes or our parent company’s senior discount notes, on or before maturity. However, we may not be ablecounterparties to refinance all or anysuch agreements. We also have exposure to financial institutions used as depositories of our indebtednesscorporate cash balances. If our counterparties or financial institutions become impaired or insolvent, this could have a material impact on commerciallyour results of operations or impair our ability to access our cash.
A credit market crisis may adversely affect our ability to raise capital and may materially impact our operations.
Severe dislocations and liquidity disruptions in the credit markets could materially impact our ability to obtain debt financing on reasonable terms or at all. The inability to access debt financing on reasonable terms could materially impact our ability to make acquisitions or significantly expand our business in the future.
We may be subject to liability under environmental laws and regulations.
We own and operate a large number of theatres and other properties within the United States and internationally, which may be subject to various foreign, federal, state and local laws and regulations relating to the protection of the environment or human health. Such environmental laws and regulations include those that impose liability for the investigation and remediation of spills or releases of hazardous materials. We may incur such liability, including for any currently or formerly owned, leased or operated property, or for any site, to which we may have disposed, or arranged for the disposal of, hazardous materials or wastes. Certain of these laws and regulations may impose liability, including on a joint and several liability, which can result in a liable party being obliged to pay for greater than its share, regardless of fault or the legality of the original disposal. Environmental conditions relating to our properties or operations could have an adverse effect on our business and results of operations and cash flows.
| | The interests of Madison Dearborn Capital Partners IV, L.P., or MDCP, may not be aligned with yours. |
MDCP beneficially owns approximately 39% of Cinemark Holdings, Inc.’s common stock and under a director nomination agreement, is entitled to designate nominees for five members of Cinemark Holdings, Inc.’s board of directors. Accordingly, MDCP has influence and effectively controls our corporate and management policies and has
18
significant influence over, the outcome of any corporate transaction or other matters submitted to Cinemark Holdings, Inc.’s stockholders for approval, including potential mergers or acquisitions, asset sales and other significant corporate transactions. MDCP could seek to take other actions that might be desirable to MDCP but that might not be desirable for other stockholders.
Legislative or regulatory initiatives related to global warming/climate change concerns may negatively impact our business.
Recently, there has been an increasing focus and continuous debate on global climate change including increased attention from regulatory agencies and legislative bodies. This increased focus may lead to new initiatives directed at regulating an as yet unspecified array of environmental matters. Legislative, regulatory or other efforts in the United States to combat climate change could result in future increases in the cost of raw materials, taxes, transportation and utilities for our vendors and for us which would result in higher operating costs for the Company. Also, compliance of our theatres and accompanying real estate with new and revised environmental, zoning, land-use or building codes, laws, rules or regulations, could have a material and adverse effect on our business. However, we are unable to predict at this time, the potential effects, if any, that any future environmental initiatives may have on our business.
Item 1B. Unresolved Staff Comments
None.
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Item 2. Properties
North AmericaUnited States
As of December 31, 2005, in North America,2009, we operated 165251 theatres, with 1,8953,223 screens, pursuant to leases and own the land and building for 3543 theatres, with 522 screens. During 2005, we opened 11 new theatres with 128 screens.607 screens, in the U.S. Our North America leases are generally entered into on a long termlong-term basis with terms, including renewal options, generally ranging from 1520 to 25 years. The exercise of available renewal options can generally extend these leases by another 5 to 2045 years. As of December 31, 2005,2009, approximately 10%7% of our North American theatre leases in the U.S., covering 1619 theatres and 127with 162 screens, have remaining terms, including optional renewal periods, of less than fivesix years. Approximately 13%12% of our North American theatre leases in the U.S., covering 2129 theatres and 171with 221 screens, have remaining terms, including optional renewal periods, of between six and 15 years and approximately 77%81% of our North American theatre leases in the U.S., covering 128203 theatres and 1,597with 2,840 screens, have remaining terms, including optional renewal periods, of more than 15 years. The leases generally provide for a fixed monthly minimum rent payment, with certain leases also subject to additional percentage rent if a target annual revenue level is achieved. We lease an office building in Plano, Texas asfor our corporate office.headquarters.
International
As of December 31, 2005,2009, internationally, we operated 108130 theatres, with 9121,066 screens, all of which are leased pursuant to ground or building leases. During 2005, we opened seven new theatres with 44 screens. Our international leases are generally entered into on a long term basis with terms generally ranging from 10 to 20 years. The leases generally provide for contingent rental based upon operating results (some of which are subject to an annual minimum). Generally, these leases include renewal options for various periods at stipulated rates. OneAs of December 31, 2009, approximately 5% of our international theatre leases or seven theatres with 854 screens hashave a remaining term, including optional renewal periods, of less than fivesix years. Approximately 29%32% of our international theatre leases, covering 3141 theatres and 263350 screens, have remaining terms, including optional renewal periods, of between six and 15 years and approximately 70%63% of our international theatre leases, covering 7682 theatres and 641662 screens, have remaining terms, including optional renewal periods, of more than 15 years. We lease office space in eight regions in Latin America for our local management.
See Note 1720 to the consolidated financial statements for information regarding our minimum lease commitments. We periodically review the profitability of each of our theatres, particularly those whose lease terms are about to expire,nearing expiration, to determine whether to continue its operations.
Item 3. Legal Proceedings
We resolved a lawsuit filed by the DOJ Litigation— Inin March 1999 the Department of Justice (“DOJ”) filed suit in the U.S. District Court, Northern District of Ohio, Eastern Division, against us allegingwhich alleged certain violations of the Americans with Disabilities Act of 1990 (the “ADA”)ADA relating to our wheelchair seating arrangements and seeking remedial action. An order granting summary judgment to us was issued in November 2001. The Departmentcertain of Justice appealed the district court’s ruling with the Sixth Circuit Court of Appeals. On November 7, 2003, the Sixth Circuit Court of Appeals reversed the summary judgment and sent the case back to the district court for further review without deciding whether wheelchair seating at our theatres comply with the ADA. The Sixth Circuit Court of Appeals also stated that if the district court found that our theatres did not comply with the ADA, any remedial action should be prospective only.stadium-style theatres. We and the United States have resolved this lawsuit. A Consent OrderDOJ agreed to a consent order which was entered by the U.S. District Court for the Northern District of Ohio, Eastern Division, on November 17,15, 2004. This Consent Order fully and finally resolves theUnited States v. Cinemark USA, Inc.lawsuit, and all claims asserted against us in that lawsuit have been dismissed with prejudice. Under the Consent Order,consent order, we willwere required to make modifications to wheelchair seating locations in fourteen stadium-style movie theatres within the Sixth Circuit and elsewhere, and spacing and companion seating modifications atin 67 auditoriums at other stadium-styled movie theatres. These modifications must bewere completed duringby November 2009. We are currently in compliance with the five-year period commencing on the date the Consent Order was executed.consent order. Upon completion of these modifications, suchthese theatres willdid comply with all existing and pending ADA wheelchair seating requirements, and no further modifications will be necessaryare required to remainingour other stadium-style movie theatres in the United States to comply withexisting on the wheelchair seating requirementsdate of the ADA. Underconsent order. In addition, under the Consent Order,consent order, the DOJ approved the seating plans for nine stadium-styled movie theatres then under construction. Weconstruction and the DOJ have also created a safe harbor framework for us to construct all of our future stadium-style movie theatres. The DOJ has stipulated that all theatres built in compliance with the Consent Orderconsent order will comply with the wheelchair seating
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requirements of the ADA. We do not believe that our obligationsrequirements under the Consent Order are not material in the aggregate toconsent order will materially affect our business or financial position, results of operations and cash flows.
Mission, Texas Litigation— In July 2001, Sonia Rivera-Garcia and Valley Association for Independent Living filed suit in the 93rd Judicial District Court of Hidalgo County, Texas, seeking remedial action for certain alleged violations of the Human Resources Code, the Texas Architectural Barriers Act, the Texas Accessibility Standards and the Deceptive Trade Practices Act relating to accessibility of movie theatres for patrons using wheelchairs at one theatre in the Mission, Texas market. During the first quarter of 2005, the plaintiff dismissed any claims under the Deceptive Trade Practices Act. A jury in a similar case in Austin, Texas found that we did not violate the Human Resources Code, the Texas Architectural Business Act or the Texas Accessibility Standards. The judge in that case dismissed the claim under the Deceptive Trade Practices Act. We filed an answer denying the allegations and vigorously defended this suit. In November 2005, the plaintiff dismissed the case with prejudice.condition.
From time to time, we are involved in other various legal proceedings arising from the ordinary course of our business operations, such as personal injury claims, employment matters, landlord-tenant disputes and contractual disputes, mostsome of which are covered by insurance. We believe our potential liability, with respect to proceedings currently pending, is not material, individually or in the aggregate, to our financial position, results of operations and cash flows.
Item 4. Submission of Matters to a Vote of Security HoldersReserved
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There have not been any matters submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report through the solicitation of proxies or otherwise.
PARTPart II
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities |
Item 5. Market for Registrant’s Common Equity and Related Stockholder MattersMarket Information and Holder
There is no established public trading market for our common stock. As of December 31, 2005 there was one holder2009, we had 1,500 shares of recordClass A common stock outstanding and 182,648 shares of ourClass B common stock. We have notstock outstanding, all of which were held by Cinemark Holdings, Inc.
Dividends
During the year ended December 31, 2009, we paid dividends onof $491.0 million to our common stockformer parent company, Cinemark, Inc. and do not expectdividends of $19.6 million to our current parent company, Cinemark Holdings, Inc. Our ability to pay dividends onis limited by the terms of our common stock in the foreseeable future. Our senior subordinated notes indenture contains restrictions that limit the amount of dividends we are able to pay on our common stock and our amended senior secured credit facility, generally prohibits uswhich restrict our ability to pay dividends and the ability of certain of our subsidiaries to pay dividends. Under our debt instruments, we may pay a cash dividend up to a specified amount, provided we have satisfied certain financial covenants in, and are not in default under, our debt instruments. Furthermore, certain of our foreign subsidiaries currently have a deficit in retained earnings which prevents them from declaring and paying dividends onfrom those subsidiaries. The declaration of future dividends will be at the discretion of our common stock.board of directors and will depend upon many factors, including our results of operations, financial condition, earnings, capital requirements, limitations in our debt agreements and legal requirements.
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Item 6. Selected Financial Data
The following tables set forthtable provides our selected consolidated financial and operating data fordata. On August 2, 2006, Cinemark Holdings, Inc. was formed as the periodsDelaware holding company of Cinemark, Inc. On August 7, 2006, the Cinemark, Inc. stockholders entered into the Cinemark Share Exchange. The Cinemark Share Exchange was completed on October 5, 2006 and atfacilitated the dates indicated for eachCentury Acquisition. On October 5, 2006, Cinemark, Inc. became a wholly-owned subsidiary of Cinemark Holdings, Inc. Due to a change in reporting entity that occurred as a result of the five most recent years endedCinemark Share Exchange, Cinemark Holdings, Inc.’s accounting basis was pushed down to us effective on October 5, 2006, the date of the Cinemark Share Exchange. The selected information as of and for periods through October 4, 2006 are of Cinemark USA, Inc. as Predecessor, and the selected information as of and for all subsequent periods are of Cinemark USA, Inc. as Successor. Effective December 31, 2005.11, 2009, Cinemark, Inc. was merged into Cinemark Holdings, Inc., with no accounting impact, and Cinemark USA, Inc. became a wholly-owned subsidiary of Cinemark Holdings, Inc. You should read the selected historical consolidated financial and operating datainformation set forth below in conjunction with Management’s“Management’s Discussion and Analysis of Financial Condition and Results of OperationOperations” and with our Consolidated Financial Statementsaudited consolidated financial statements and related notes and schedules thereto, appearing elsewhere in this report.
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
| | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2001 | | | 2002 | | | 2003 | | | 2004 | | | 2005 | |
| | | (In thousands, except theatres and screen data) | |
Statement of Operations Data (Consolidated)(1): | | | | | | | | | | | | | | | | | | | | |
| Revenues | | $ | 853,658 | | | $ | 935,854 | | | $ | 950,872 | | | $ | 1,024,242 | | | $ | 1,020,597 | |
| | | |
| | | | | | | | | | | | | | | | | | | | | |
| Theatre operating costs | | | 531,967 | | | | 570,948 | | | | 582,574 | | | | 618,627 | | | | 625,496 | |
| Facility lease expense | | | 114,737 | | | | 115,588 | | | | 119,517 | | | | 126,643 | | | | 136,593 | |
| General and administrative expenses | | | 42,597 | | | | 47,851 | | | | 44,186 | | | | 51,550 | | | | 50,722 | |
| Stock option compensation and change of control expenses related to the Recapitalization | | | — | | | | — | | | | — | | | | 31,995 | | | | — | |
| Depreciation and amortization | | | 73,079 | | | | 66,583 | | | | 65,085 | | | | 67,051 | | | | 76,461 | |
| Impairment of long-lived assets | | | 20,723 | | | | 3,869 | | | | 5,049 | | | | 1,667 | | | | 9,672 | |
| (Gain) loss on sale of assets and other | | | 12,408 | | | | 470 | | | | (1,202 | ) | | | 4,851 | | | | 2,625 | |
| | | |
| Total costs and expenses | | | 795,511 | | | | 805,309 | | | | 815,209 | | | | 902,384 | | | | 901,569 | |
| | | |
| | | | | | | | | | | | | | | | | | | | | |
| Operating income | | | 58,147 | | | | 130,545 | | | | 135,663 | | | | 121,858 | | | | 119,028 | |
Interest expense(2) | | | 70,931 | | | | 57,793 | | | | 54,163 | | | | 45,403 | | | | 47,108 | |
| Income (loss) from continuing operations before cumulative effect of an accounting change | | | (3,462 | ) | | | 40,509 | | | | 47,489 | | | | 40,970 | | | | 48,365 | |
| Income (loss) from discontinued operations, net of taxes | | | (559 | ) | | | (1,542 | ) | | | (2,740 | ) | | | 3,584 | | | | — | |
| |
Cumulative effect of an accounting change(3) | | | — | | | | (3,390 | ) | | | — | | | | — | | | | — | |
| |
| Net income (loss) | | $ | (4,021 | ) | | $ | 35,577 | | | $ | 44,749 | | | $ | 44,554 | | | $ | 48,365 | |
| | | | | | | | | | | | | | | | | | | | | |
Other Financial Data (Consolidated): | | | | | | | | | | | | | | | | | | | | |
Ratio of earnings to fixed charges(4) | | | — | | | | 1.76 | x | | | 1.80 | x | | | 1.81 | x | | | 1.88 | x |
| Cash flow provided by (used for): | | | | | | | | | | | | | | | | | | | | |
| Operating activities | | $ | 87,122 | | | $ | 150,119 | | | $ | 135,620 | | | $ | 112,935 | | | $ | 163,969 | |
| Investing activities | | | (33,799 | ) | | | (34,750 | ) | | | (47,151 | ) | | | (116,947 | ) | | | (81,617 | ) |
| Financing activities | | | (21,513 | ) | | | (96,140 | ) | | | (45,839 | ) | | | (4,309 | ) | | | (2,448 | ) |
| Capital expenditures | | | 40,352 | | | | 38,032 | | | | 51,002 | | | | 81,008 | | | | 75,605 | |
| | | | | | | | | | | | | | | | | | | | | |
Balance Sheet Data (Consolidated): | | | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 50,199 | | | $ | 63,719 | | | $ | 107,319 | | | $ | 100,228 | | | $ | 182,180 | |
| Theatre properties and equipment, net | | | 866,406 | | | | 791,731 | | | | 775,880 | | | | 785,595 | | | | 790,566 | |
| Total assets | | | 996,544 | | | | 916,814 | | | | 960,746 | | | | 1,001,565 | | | | 1,097,740 | |
| Total long-term debt, including current portion | | | 780,956 | | | | 692,587 | | | | 658,431 | | | | 626,943 | | | | 620,277 | |
| Shareholder’s equity | | | 25,337 | | | | 27,765 | | | | 76,843 | | | | 168,835 | | | | 251,172 | |
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| | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2001 | | | 2002 | | | 2003 | | | 2004 | | | 2005 | |
| | | (In thousands, except theatres and screen data) | |
Balance Sheet Data (Restricted Group):(5) | | | | | | | | | | | | | | | | | | | | |
| Total long-term debt, including current portion | | $ | 674,217 | | | $ | 596,875 | | | $ | 645,075 | | | $ | 613,095 | | | $ | 608,885 | |
| | | | | | | | | | | | | | | | | | | | | |
Operating Data: | | | | | | | | | | | | | | | | | | | | |
North America(6)(8) | | | | | | | | | | | | | | | | | | | | |
| Theatres operated (at period end) | | | 188 | | | | 188 | | | | 189 | | | | 191 | | | | 200 | |
| Screens operated (at period end) | | | 2,217 | | | | 2,215 | | | | 2,244 | | | | 2,303 | | | | 2,417 | |
Total attendance(1) | | | 100,022 | | | | 111,959 | | | | 112,581 | | | | 113,646 | | | | 105,573 | |
International(7) | | | | | | | | | | | | | | | | | | | | |
| Theatres operated (at period end) | | | 88 | | | | 92 | | | | 97 | | | | 101 | | | | 108 | |
| Screens operated (at period end) | | | 783 | | | | 816 | | | | 852 | | | | 869 | | | | 912 | |
Total attendance(1) | | | 53,853 | | | | 60,109 | | | | 60,553 | | | | 65,695 | | | | 60,104 | |
Worldwide(6)(7)(8) | | | | | | | | | | | | | | | | | | | | |
| Theatres operated (at period end) | | | 276 | | | | 280 | | | | 286 | | | | 292 | | | | 308 | |
| Screens operated (at period end) | | | 3,000 | | | | 3,031 | | | | 3,096 | | | | 3,172 | | | | 3,329 | |
Total attendance(1) | | | 153,875 | | | | 172,068 | | | | 173,134 | | | | 179,341 | | | | 165,677 | |
| | | | | | | | | | | | | | | | | | | | | |
Restricted Group(5)(6)(7)(8) | | | | | | | | | | | | | | | | | | | | |
| Theatres operated (at period end) | | | 218 | | | | 221 | | | | 229 | | | | 229 | | | | 241 | |
| Screens operated (at period end) | | | 2,451 | | | | 2,475 | | | | 2,628 | | | | 2,670 | | | | 2,806 | |
Total attendance(1) | | | 115,355 | | | | 127,498 | | | | 134,239 | | | | 138,737 | | | | 127,950 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Period from | | | Period from | | |
| | | | | | | January 1, | | | October 5, | | |
| | | Year ended | | 2006 to | | | 2006 to | | |
| | | December 31, | | October 4, | | | December 31, | | Year ended December 31, |
| | | 2005 | | 2006 | | | 2006 | | 2007 | | 2008 | | 2009 |
| | | (Predecessor) | | (Predecessor) | | | (Successor) | | (Successor) | | (Successor) | | (Successor) |
| | | (Dollars in thousands, except per share data) |
| | | | | | |
Statement of Operations Data: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Revenues: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Admissions | | $ | 641,240 | | | $ | 514,183 | | | | $ | 246,092 | | | $ | 1,087,480 | | | $ | 1,126,977 | | | $ | 1,293,378 | |
| Concession | | | 320,072 | | | | 260,223 | | | | | 115,575 | | | | 516,509 | | | | 534,836 | | | | 602,880 | |
| Other | | | 59,285 | | | | 54,683 | | | | | 29,838 | | | | 78,852 | | | | 80,474 | | | | 80,242 | |
| | | | | | |
| Total revenues | | $ | 1,020,597 | | | $ | 829,089 | | | | $ | 391,505 | | | $ | 1,682,841 | | | $ | 1,742,287 | | | $ | 1,976,500 | |
| Film rental and advertising | | | 347,727 | | | | 275,005 | | | | | 130,982 | | | | 589,717 | | | | 612,248 | | | | 708,160 | |
| Concession supplies | | | 52,507 | | | | 41,863 | | | | | 17,157 | | | | 81,074 | | | | 86,618 | | | | 91,918 | |
| Salaries and wages | | | 101,431 | | | | 79,002 | | | | | 39,614 | | | | 173,290 | | | | 180,950 | | | | 203,437 | |
| Facility lease expense | | | 136,593 | | | | 109,513 | | | | | 48,246 | | | | 212,730 | | | | 225,595 | | | | 238,779 | |
| Utilities and other | | | 123,831 | | | | 100,924 | | | | | 43,884 | | | | 191,279 | | | | 205,814 | | | | 222,660 | |
| General and administrative expenses | | | 50,722 | | | | 45,865 | | | | | 21,784 | | | | 78,664 | | | | 89,583 | | | | 94,818 | |
| Termination of profit participation agreement | | | — | | | | — | | | | | — | | | | 6,952 | | | | — | | | | — | |
| Total depreciation and amortization | | | 76,461 | | | | 60,043 | | | | | 34,948 | | | | 151,716 | | | | 158,034 | | | | 149,515 | |
| Impairment of long-lived assets | | | 9,672 | | | | 5,741 | | | | | 23,337 | | | | 86,558 | | | | 113,532 | | | | 11,858 | |
| (Gain) loss on sale of assets and other | | | 2,625 | | | | 2,938 | | | | | 2,345 | | | | (2,953 | ) | | | 8,488 | | | | 3,202 | |
| | | | | | |
| Total cost of operations | | | 901,569 | | | | 720,894 | | | | | 362,297 | | | | 1,569,027 | | | | 1,680,862 | | | | 1,724,347 | |
| | | | | | |
| Operating income | | $ | 119,028 | | | $ | 108,195 | | | | $ | 29,208 | | | $ | 113,814 | | | $ | 61,425 | | | $ | 252,153 | |
| | | | | | |
| Interest expense | | $ | 44,334 | | | $ | 37,993 | | | | $ | 31,680 | | | $ | 102,760 | | | $ | 74,406 | | | $ | 81,609 | |
| | | | | | |
| Net income (loss) | | $ | 49,289 | | | $ | 52,344 | | | | $ | (14,757 | ) | | $ | 116,220 | | | $ | (19,954 | ) | | $ | 133,087 | |
| | | | | | |
| Net income (loss) attributable to Cinemark USA, Inc. | | $ | 48,365 | | | $ | 50,554 | | | | | ($14,436 | ) | | $ | 115,428 | | | $ | (23,849 | ) | | $ | 129,439 | |
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| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Period from | | | Period from | | |
| | | | | | | January 1, | | | October 5, | | |
| | | Year Ended | | 2006 to | | | 2006 to | | |
| | | December 31, | | October 4, | | | December 31, | | Year Ended December 31, |
| | | 2005 | | 2006 | | | 2006 | | 2007 | | 2008 | | 2009 |
| | | (Predecessor) | | (Predecessor) | | | (Successor) | | (Successor) | | (Successor) | | (Successor) |
| | | | | | |
Other Financial Data: | | | | | | | | | | | | | | | | | | | | | | | | | |
Ratio of earnings to fixed charges(1) | | | 1.88x | | | | 2.05x | | | | | — | | | | 2.47x | | | | 1.11x | | | | 2.28x | |
| Cash flow provided by (used for): | | | | | | | | | | | | | | | | | | | | | | | | | |
| Operating activities | | $ | 163,969 | | | $ | 81,846 | | | | $ | 80,611 | | | $ | 344,708 | | | $ | 219,788 | | | $ | 366,706 | |
Investing activities(2) | | | (81,617 | ) | | | (76,395 | ) | | | | (555,352 | ) | | | 93,178 | | | | (94,942 | ) | | | (183,130 | ) |
| Financing activities | | | (2,448 | ) | | | (45,707 | ) | | | | 478,854 | | | | (356,993 | ) | | | (29,290 | ) | | | (75,478 | ) |
| Capital expenditures | | | (75,605 | ) | | | (77,902 | ) | | | | (29,179 | ) | | | (146,304 | ) | | | (106,109 | ) | | | (124,797 | ) |
| |
| | | As of and for the |
| | | | | | | Period from | | | Period from | | |
| | | | | | | January 1, | | | October 5, | | |
| | | Year Ended | | 2006 to | | | 2006 to | | |
| | | December 31, | | October 4, | | | December 31, | | Year Ended December 31, |
| | | 2005 | | 2006 | | | | | | | 2007 | | 2008 | | 2009 |
| | | (Predecessor) | | (Predecessor) | | | (Successor) | | (Successor) | | (Successor) | | (Successor) |
| | | (Dollars in thousands) |
Balance Sheet Data: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 182,180 | | | $ | 142,192 | | | | $ | 147,045 | | | $ | 233,383 | | | $ | 313,238 | | | $ | 437,737 | |
| Theatre properties and equipment, net | | | 790,566 | | | | 791,380 | | | | | 1,324,571 | | | | 1,314,066 | | | | 1,208,283 | | | | 1,219,588 | |
| Total assets | | | 1,097,740 | | | | 1,070,778 | | | | | 3,159,385 | | | | 3,181,403 | | | | 3,018,838 | | | | 3,283,588 | |
| Total long-term debt and capital lease obligations, including current portion | | | 620,277 | | | | 605,998 | | | | | 1,477,580 | | | | 1,107,977 | | | | 1,097,144 | | | | 1,684,073 | |
| Stockholder’s equity | | | 267,594 | | | | 304,997 | | | | | 1,127,361 | | | | 1,266,732 | | | | 1,155,891 | | | | 922,141 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Operating Data: | | | | | | | | | | | | | | | | | | | | | | | | | |
United States(3) | | | | | | | | | | | | | | | | | | | | | | | | | |
| Theatres operated (at period end) | | | 200 | | | | 202 | | | | | 281 | | | | 287 | | | | 293 | | | | 294 | |
| Screens operated (at period end) | | | 2,417 | | | | 2,468 | | | | | 3,523 | | | | 3,654 | | | | 3,742 | | | | 3,830 | |
| Total attendance (in 000s) | | | 105,573 | | | | 81,558 | | | | | 37,156 | | | | 151,712 | | | | 147,897 | | | | 165,112 | |
International(4) | | | | | | | | | | | | | | | | | | | | | | | | | |
| Theatres operated (at period end) | | | 108 | | | | 113 | | | | | 115 | | | | 121 | | | | 127 | | | | 130 | |
| Screens operated (at period end) | | | 912 | | | | 945 | | | | | 965 | | | | 1,011 | | | | 1,041 | | | | 1,066 | |
| Total attendance (in 000s) | | | 60,104 | | | | 46,930 | | | | | 12,620 | | | | 60,958 | | | | 63,413 | | | | 71,622 | |
Worldwide(3)(4) | | | | | | | | | | | | | | | | | | | | | | | | | |
| Theatres operated (at period end) | | | 308 | | | | 315 | | | | | 396 | | | | 408 | | | | 420 | | | | 424 | |
| Screens operated (at period end) | | | 3,329 | | | | 3,413 | | | | | 4,488 | | | | 4,665 | | | | 4,783 | | | | 4,896 | |
| Total attendance (in 000s) | | | 165,677 | | | | 128,488 | | | | | 49,776 | | | | 212,670 | | | | 211,310 | | | | 236,734 | |
| | |
| (1) | | Statement of Operations Data and attendance data exclude the results of the two United Kingdom theatres and the eleven Interstate theatres for all periods presented as these theatres were sold during 2004. The results of operations for these theatres are presented as discontinued operations. (See Note 6 to the consolidated financial statements.) |
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(2) | | Includes amortization of debt issue costs and excludes capitalized interest for all periods presented. |
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(3) | | In 2002, a cumulative effect of a change in accounting principle charge of $3.4 million (net of tax benefit) was recorded as a transitional impairment adjustment in connection with the adoption of SFAS No. 142 requiring that goodwill and other intangible assets with indefinite useful lives no longer be amortized but instead be tested for impairment at least annually. |
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(4) | | For the purposes of calculating the ratio of earnings to fixed charges, earnings consist of income (loss) from continuing operations before income taxes and cumulative effect of an accounting change plus fixed charges excluding capitalized interest. Fixed charges consist of interest expense, capitalized interest, amortization of debt issue costcosts and that portion of rental expense which we believe to be representative of the interest factor. For the year endedperiod from October 5, 2006 to December 31, 2001,2006, earnings were insufficient to cover fixed charges by $17.9$6.9 million. |
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(5)(2) | | The restrictive covenants inIncludes the senior subordinated notes indenture apply onlycash portion of the Century Acquisition purchase price of $531.2 million during the period from October 5, 2006 to Cinemark USA, Inc. and its restricted subsidiaries (the “Restricted Group”). This data presents certain information with respect to the Restricted Group only. See the supplemental schedules to our consolidated financial statements required by the indenture for the senior subordinated notes, appearing elsewhere in this report.December 31, 2006. |
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(6)(3) | | The data as of period end 2001, 2002, 2003, 2004 and 2005 excludes certain theatres operated by us in North Americathe U.S. pursuant to management agreements that are not part of our consolidated operations. |
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(7)(4) | | The data as of period end 2001, 2002, 2003, 2004 and 2005 excludes certain theatres operated internationally through our affiliates that are not part of our consolidated operations. |
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(8) | | Figures for 2003 exclude theatres, screens and attendance for eight theatres and 46 screens acquired on December 31, 2003, as the results of operations for these theatres are not included in our 2003 consolidated results of operations. |
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationOperations
The following discussion and analysis should be read in conjunction with our Consolidated Financial Statementsthe financial statements and relatedaccompanying notes and schedules included elsewhere in this report. This discussion contains forward-looking statements. See “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors” for a discussion of the uncertainties and risk associated with these statements.
Overview
On August 2, 2006, Cinemark Holdings, Inc. was formed as the Delaware holding company of Cinemark, Inc. On April 24, 2007, Cinemark Holdings, Inc. completed an initial public offering of its common stock. Effective December 11, 2009, Cinemark, Inc. was merged into Cinemark Holdings, Inc. and Cinemark Holdings, Inc. became the holding company of Cinemark USA, Inc.
As of December 31, 2009, we managed our business under two reportable operating segments — U.S. markets and international markets, in accordance with FASB ASC Topic 280,Segment Reporting. See Note 21 to the consolidated financial statements.
Revenues and Expenses
We are one of the leaders in the motion picture exhibition industry, in terms of both revenues and the number of screens in operation, with theatres in the U.S., Canada, Mexico, Argentina, Brazil, Chile, Ecuador, Peru, Honduras, El Salvador, Nicaragua, Costa Rica, Panama and Colombia. We generate revenues primarily from box office receipts and concession sales with additional revenues from screen advertising sales and other revenue streams, such as vendor marketing programs, pay phones, ATM machines and electronic video games located in some of our theatres. We expect our recentOur investment in National CineMedia to assistNCM has assisted us in expanding our offerings to advertisers exploringand broadening ancillary revenue sources such as digital video monitor advertising, third party branding, and the use of theatres for non-film events. In addition, we are able to use theatres during non-peak hours for concerts, sporting events, and other cultural events. Films released during the year ended December 31, 2009 includedAvatar, Transformers: Revenge of the Fallen, Harry Potter and the Half-Blood Prince, Up, Twilight Saga: New Moon, The Hangover, Star Trek, Monsters vs. Aliens, Ice Age: Dawn of the Dinosaurs, The Blind Side, X-Men Origins: Wolverine, Night at the Museum 2: Battle of the Smithsonian, The Proposal, 2012, Fast & Furious, G.I. Joe: The Rise of the Cobra, Paul Blart: Mall Cop, Taken, A Christmas Carol, Angels & Demons, Terminator Salvation, Cloudy with a Chance of Meatballs, Inglorious Basterds, G-Force, District 9, Couples Retreat, Paranormal Activity,andWatchmen. 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. FilmFilms scheduled for release in 2010 include the carryover ofAvatarand new releases during 2005 included highly anticipated films such asStar Wars: Episode III – RevengeAlice in Wonderland, How to Train a Dragon, Clash of the SithTitans, Iron Man 2, Shrek Forever After, Sex and the City 2, Toy Story 3, Little Fockers, the A Team, Tron: Legacy, Robin Hood, Despicable Me, Tangled, Megamind,Warand another installment of both the WorldsTwilight,Madagascar,King Kong, andHarry Potter and the Goblet of Fire, andThe Chronicles of Narnia: The Lion, the Witch and the Wardrobe. Film releases scheduled for 2006 include high profile films such asPirates of the Carribean: Dead Man’s Chest,Superman Returns,X Men 3, Mission Impossible III, Ice Age 2: The MeltdownandCars.franchises, among other films.
Film rental costs are variable in nature and fluctuate with our admissions revenues. Film rental costs as a percentage of revenues are generally higher for periods in which more blockbuster films are released. Film rental costs can also vary based on the length of a film’s run. Generally, a film that runs for a longer period results in lower film rental costs as a percentage of revenues. 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 newspaper’s circulation.
Concession supplies expense is variable in nature and fluctuates with our concession revenues. We purchase concession supplies to replace units sold. We negotiate prices for concession supplies directly with concession vendors and manufacturers to obtain bulkvolume 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 handlerespond 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 leased versus fee owned facilities.theatres under operating leases, the number of theatres under capital leases and the number of fee-owned theatres.
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Utilities and other costs include certain costs that are fixed such as property taxes, certain costs that are variable such as liability insurance, and certain costs that possesshave both fixed and variable components such as utilities, property taxes, janitorial costs, repairs and maintenance and security services.
Critical Accounting Policies
We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America.U.S. GAAP. As such, we are required to make certain estimates and assumptions that we believe are reasonable based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. The significant accounting policies, which we believe are the most critical to aid in fully understanding and evaluating our reported consolidated financial results, include the following:
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Revenue and Expense Recognition
Revenues are recognized when admissions and concession sales are received at the box office andoffice. Other revenues primarily consist of screen advertising. Screen advertising revenues are recognized over the period that the related advertising is shown in the theatres.delivered on-screen or in-theatre. We record proceeds from the sale of gift cards and other advanced sale-type certificates in current liabilities and recognize admissions and concession revenue when a holder redeems the card or certificate. We recognize unredeemed gift cards and other advanced sale-type certificates as revenue only after such a period of time indicates, based on historical experience, the likelihood of redemption is remote, and based on applicable laws and regulations. In evaluating the likelihood of redemption, we consider the period outstanding, the level and frequency of activity, and the period of inactivity. Other revenues primarily consist of screen advertising. Screen advertising revenues are recognized over the period that the related advertising is delivered on-screen or in-theatre pursuant to the specific terms of the agreements with the advertisers.
Film rental costs are accrued based on the applicable box office receipts and either the mutually agreed upon firm terms or a sliding scale formula, which are established prior to the opening of the picturefilm, or estimates of the final mutually agreed upon settlement, which occurs at the conclusion of the picturefilm run, subject to the film licensing arrangement. Under a firm terms formula, we pay the distributor a mutually agreed upon specified percentage of box office receipts, which reflects either a mutually agreed upon aggregate rate for the life of the film or rates that decline over the term of the run. Under the sliding scale formula, film rental is paid as a percentage of box office revenues using a pre-determined matrix based upon box office performance of the film. The settlement process allows for negotiation of film rental fees upon the conclusion of the film run based upon how the film performs. Estimates are based on the expected success of a film over the length of its run in the theatres. The success of a film can typically be determined a few weeks after a film is released when initial box office performance of the film is known. Accordingly, final settlements typically approximate estimates since box office receipts are known at the time the estimate is made and the expected success of a film over the length of its run in theatres can typically be estimated early in the film’s run. The final film settlement amount is negotiated at the conclusion of the film’s run based upon how a film actually performs. If actual settlements are higherdifferent than those estimated, additional film rental costs are recordedadjusted at that time. We recognize advertising costs and any cost sharing arrangements with film distributors in the same accounting period. Our advertising costs are expensed as incurred.
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 monthly percentage rent only, which is accrued each month based on actual revenues. Certain of our other theatres require payment of percentage rent in addition to fixed monthly rent if a target annual revenue level is achieved. Percentage rent expense is recorded for these theatres on a monthly basis if the theatre’s historical performance or forecasted performance indicates that the annual target will be reached. The estimate of percentage rent expense recorded during the year is based on a trailing twelve months of revenues. Once annual revenues are known, which is generally at the end of the year, the percentage rent expense is adjusted based on actual revenues.
Theatre properties and equipment are depreciated using the straight-line method over their estimated useful lives. In estimating the useful lives of our theatre properties and equipment, we have relied upon our experience with such assets and our historical replacement period. We periodically evaluate these estimates and assumptions and adjust them as necessary. Adjustments to the expected lives of assets are accounted for on a prospective basis through depreciation expense.
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Impairment of Long-Lived Assets
We review 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. We assess many factors including the following to determine whether to impair individual theatre assets:
| | • | | actual theatre level cash flows; |
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| | • | | future years budgeted theatre level cash flows; |
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| | • | | theatre property and equipment carrying values; |
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| | • | | theatre goodwillamortizing intangible asset carrying values; |
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| | • | | the age of a recently built theatre; |
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| | • | | competitive theatres in the marketplace; |
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| • | | the sharing of a marketplace with our other theatres; |
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| | • | | changes in foreign currency exchange rates; |
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| | • | | the impact of recent ticket price changes; |
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| | • | | available lease renewal options; and |
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| | • | | other factors considered relevant in our assessment of impairment of individual theatre assets. |
Long-lived assets are evaluated for impairment on an individual theatre basis, or a group basis if the group of theatres shares the same marketplace, which we believe is the lowest applicable level for which there are identifiable cash flows. The impairment evaluation is based on the estimated undiscounted cash flows from continuing use through the remainder of the theatre’s useful life. The remainder of the useful life correlates with the available remaining lease period, which includes the probability of renewal periods for leased properties and a period of twenty years for fee owned properties. If the estimated undiscounted cash flows are not sufficient to recover a long-lived asset’s carrying value, we then compare the carrying value of the asset group (theatre) with its estimated fair value. Fair value is determined based on a multiple of cash flows, which was seven times for the year ended December 31, 2005. When estimated fair value is determined to be lower than the carrying value of the long-lived asset, the asset is written down to its estimated fair value.
Goodwill
Our recorded goodwill was $42.1 million at December 31, 2005. We evaluate goodwill for impairment annually at fiscal year-end and any time events or circumstances indicate the carrying amount of the goodwill may not be fully recoverable. We evaluate goodwill for impairment on an individual theatre basis, which is the lowest level of identifiable cash flows and the level at which goodwill is recorded. The evaluation is a two-step approach requiring us to compute the fair value of a theatre and compare it with its carrying value. If the carrying value exceeds fair value, a second step would be performed to measure the potential goodwill impairment. Fair value is determined based on a multiple of cash flows,which was seven times for the year ended December 31, 2005. 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. Management’s estimates, which fall under Level 3, are based on historical and projected operating performance, recent market transactions, and current industry trading multiples. Fair value is determined based on a multiple of cash flows, which was eight times for the evaluations performed during 2007 and the first, second and third quarters of 2008 and six and a half times for the evaluation performed during the fourth quarter of 2008 and the evaluations performed during 2009. We reduced the multiple we used to determine fair value during the fourth quarter of 2008 due to the dramatic decline in estimated market values that resulted from a significant decrease in Cinemark Holdings, Inc.’s stock price and the declines in Cinemark Holdings, Inc.’s and our competitors’ market capitalizations that occurred during the fourth quarter of 2008. The long-lived asset impairment charges related to theatre properties 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.
Impairment of Goodwill and Intangible Assets
We evaluate goodwill for impairment annually during the fourth quarter or whenever events or circumstances indicate the carrying value of the goodwill might exceed its estimated fair value. We evaluate goodwill for impairment at the reporting unit level and have allocated goodwill to the reporting unit based on an estimate of its relative fair value. The evaluation is a two-step approach requiring us to compute the fair value of a reporting unit and compare it with its carrying value. If the carrying value of the reporting unit exceeds its estimated fair value, a second step is performed to measure the potential goodwill impairment. Significant judgment is involved in estimating cash flows and fair value. Management’s estimates, which fall under Level 3, are based on historical and projected operating performance, recent market transactions, and current industry trading multiples. Fair value is determined based on a multiple of cash flows, which was eight times for the goodwill impairment evaluations performed during 2007 and six and a half times for the evaluations performed during 2008 and 2009. We reduced the multiple we used to determine fair value during the fourth quarter of 2008 due to the dramatic decline in estimated market values that resulted from significant decreases in Cinemark Holdings, Inc.’s stock price and Cinemark Holdings, Inc.’s and our competitors’ market capitalizations that occurred during the fourth quarter of 2008. Prior to January 1, 2008, we considered our theatres reporting units for purposes of evaluating goodwill for impairment. Changes in the organization, including changes in the structure of the executive management team, the initial public offering of Cinemark Holdings, Inc.’s common stock, the resulting changes
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in the level at which the management team evaluates the business on a regular basis, and the Century Acquisition that increased the size of the theatre base by approximately 25%, led management to conclude that our U.S. regions and international countries are now more reflective of how we manage and operate our business. Accordingly, the U.S. regions and international countries represent the appropriate reporting units for purposes of evaluating goodwill for impairment. Consequently, effective January 1, 2008, management changed the reporting unit to sixteen regions in the U.S. and each of eight countries internationally (Honduras, El Salvador, Nicaragua, Costa Rica, Panama and Guatemala are considered one reporting unit) from approximately four hundred theatres. The goodwill impairment test performed during December 2007 that resulted in the recording of impairment charges during the year ended December 31, 2007 reflected the final calculation utilizing theatres as reporting units. The goodwill impairment charges taken during the year ended December 31, 2008 were related to four U.S. regions, one of which was fully impaired and three of which were partially impaired down to estimated fair value. As of December 31, 2009, the carrying value of goodwill allocated to reporting units where the estimated fair value was less than 10% more than the carrying value was approximately $173.0 million. Declines in Cinemark Holdings, Inc.’s stock price or market capitalization, declines in the Company’s attendance due to increased competition in certain regions and/or countries or economic factors that lead to a decline in attendance in any given region or country could negatively affect the Company’s estimated fair values and could result in further impairments of goodwill.
Tradename intangible assets are tested for impairment at least annually during the fourth quarter or whenever events or changes in circumstances indicate the carrying value may not be recoverable. We estimate the fair value of our tradenames by applying an estimated market royalty rate that could be charged for the use of our tradename to forecasted future revenues, with an adjustment for the present value of such royalties. If the estimated fair value is less than the carrying value, the tradename intangible asset is written down to itsthe estimated fair value.
Acquisitions
We account for acquisitions under the purchaseacquisition method of accounting. The purchaseacquisition method requires that we estimate the fair value of theacquired assets and liabilities, acquiredincluding contingencies, be recorded at fair value determined on the acquisition date and allocate consideration paid accordingly.changes thereafter reflected in income. For significant acquisitions, we obtain independent third party valuation studies for certain of the assets acquired and liabilities acquiredassumed to assist us in determining their fair value. The estimation of the fair values of the assets acquired and liabilities acquiredassumed involves a number of estimates and assumptions that could differ materially from the actual amounts.amounts recorded. We completed acquisitions in 2004 as discussed in Note 4provide the assumptions, including both quantitative and qualitative information, about the specified asset or liability to the third party valuation firms. We primarily utilize the third parties to accumulate comparative data from multiple sources and assemble a report that summarizes the information obtained. We then use that information to determine fair value. The third party valuation firms are supervised by our consolidated financial statements.personnel who are knowledgeable about valuations and fair value. We evaluate the appropriateness of the valuation methodology utilized by the third party valuation firm.
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Income Taxes
We participate in the consolidated tax return of our parent, Cinemark Holdings, Inc. However, our provision for income taxes is computed as if we file separate income tax returns. We use an asset and liability approach to financial accounting and reporting for income taxes. Deferred income taxes are provided when tax laws and financial accounting standards differ with respect to the amount of income for a year and the basesbasis of assets and liabilities. A valuation allowance is recorded to reduce the carrying amount of deferred tax assets unless it is more likely than not thosethat such assets will be realized. Income taxes are provided on unremitted earnings from foreign subsidiaries unless such earnings are expected to be indefinitely reinvested. Income taxes have also been provided for potential tax assessments. The related tax accruals are recorded in accordance with SFAS No. 5,FASB ASC Topic 740,“AccountingIncome Taxes, which clarifies the accounting and reporting for Contingencies”. Toincome taxes recognized, and the extent contingencies are probablerecognition, measurement, presentation and estimable,disclosure of uncertain tax positions taken or expected to be taken in income tax returns. The evaluation of an accrualuncertain tax position is recorded within current liabilitiesa two-step process. The first step is recognition: We determine whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. In evaluating whether a tax position has met the more-likely-than-not recognition threshold, we presume that the position would be examined by the appropriate taxing authority that would have full knowledge of all relevant information. The second step is measurement: A tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in the consolidated balance sheet. Tofinancial statements. The tax position is measured at the extentlargest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Differences between tax accruals differ from actual payments or assessments,positions taken in a tax return and amounts recognized in the accruals will be adjusted.financial statements result in (1) a change in a liability
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for income taxes payable or (2) a change in an income tax refund receivable, a deferred tax asset or a deferred tax liability or both (1) and (2). We accrue for interest and penalties on our tax provisions for uncertain tax positions.
Recent Developments
Amendment and Extension of Senior Secured Credit Facility
On March 2, 2010, we completed an amendment and extension to our existing senior secured credit facility to primarily extend the maturities of the facility and make certain other modifications. Approximately $924.4 million of our $1,083.6 million outstanding term loan debt has been extended from an original maturity date of October 2013 to a maturity date of April 2016. Payments on the extended amount will be due in equal quarterly installments of 0.25% of the extended amount beginning March 31, 2010 through March 31, 2016 with the remaining principal amount due April 30, 2016. The interest rate on this extended portion of the term loan is, at our option, at the base rate plus 2.25% or a eurodollar rate plus 3.25%. The maturity date of, the interest rates applicable to and the quarterly payments for the remaining $159.2 million of our outstanding term loan did not change.
In addition, the maturity date of $73.5 million of our $150.0 million revolving line of credit has been extended from October 2012 to March 2015. The interest rate on this extended portion of the revolving line of credit is, at our option, at the base rate plus a margin that ranges from 1.75% to 2.00% or a eurodollar rate plus a margin that ranges from 2.75% to 3.00%. The maturity date of and the interest rates applicable to the remaining $76.5 million of our revolving line of credit did not change.
We incurred debt issue costs of approximately $8.6 million related to this amendment and extension.
Earthquake in Chile
On February 27, 2010, an 8.8 magnitude earthquake occurred in Chile, a country in which we have eleven theatres, a local corporate office and approximately 800 employees. For the year ended December 31, 2009, revenues generated by our Chile locations were 1.6% of our total revenues. We have property and business interruption insurance for our Chile locations. The insurance policy covers earthquake damage up to a specified limit with applicable deductibles per location. We expect to reopen seven of our theatres within the next week and we are continuing to assess the level and nature of the damage to our other four theatres.
DCIP
On March 10, 2010, we signed a master equipment lease agreement and other related agreements (collectively the “agreements”) with Kasima, which is a wholly-owned subsidiary of our joint venture DCIP and a related party to us. Upon signing the agreements, we contributed cash of $1.2 million and our existing digital equipment at a fair value of $16.4 million to DCIP (collectively the “contributions”). The net book value of the contributed equipment was approximately $18.1 million, and as a result, we will record a loss of approximately $1.7 million during the three months ending March 31, 2010. Subsequent to the contributions, we continue to have a 33% voting interest in DCIP and now have a 24.3% economic interest in DCIP.
As a result of these agreements, we will begin a rollout of 3-D compatible digital projection systems to a majority of our first run U.S. theatres. The digital projection systems will be leased from Kasima under a twelve-year lease 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, we will pay 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. We are also subject to various types of other rent if such 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.
28
Results of OperationOperations
SetThe following table sets forth, below is a summary of consolidated operating revenues and expenses, certain income statement items expressed as afor the periods indicated, the percentage of revenues average screen count and revenues per average screen for the three most recent years ended December 31, 2003, 2004 and 2005.represented by certain items reflected in our consolidated statements of operations:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, | | | Year Ended December 31, |
| | | 2003 | | 2004 | | 2005 | | | 2007 | | 2008 | | 2009 |
Operating Data (in millions)(1): | | |
| Revenues: | | |
Operating data (in millions): | | |
| Revenues | | |
| Admissions | | | $ | 1,087.5 | | $ | 1,127.0 | | $ | 1,293.4 | |
| Concession | | | 516.5 | | 534.8 | | 602.9 | |
| Other | | | 78.8 | | 80.5 | | 80.2 | |
| | | | |
| Total revenues | | | $ | 1,682.8 | | $ | 1,742.3 | | $ | 1,976.5 | |
| Cost of operations | | |
| Film rentals and advertising | | | $ | 589.7 | | $ | 612.2 | | $ | 708.2 | |
| Concession supplies | | | 81.1 | | 86.6 | | 91.9 | |
| Salaries and wages | | | 173.3 | | 181.0 | | 203.4 | |
| Facility lease expense | | | 212.7 | | 225.6 | | 238.8 | |
| Utilities and other | | | 191.3 | | 205.8 | | 222.7 | |
| General and administrative expenses | | | 85.6 | | 89.6 | | 94.8 | |
| Depreciation and amortization | | | 151.7 | | 158.1 | | 149.5 | |
| Impairment of long-lived assets | | | 86.6 | | 113.5 | | 11.8 | |
| (Gain) loss on sale of assets and other | | | | (3.0 | ) | | 8.5 | | 3.2 | |
| | | | |
| Total cost of operations | | | $ | 1,569.0 | | $ | 1,680.9 | | $ | 1,724.3 | |
| | | | |
| Operating income | | | $ | 113.8 | | $ | 61.4 | | $ | 252.2 | |
| | | | |
Operating data as a percentage of total revenues: | | |
| Revenues | | |
| Admissions | | $ | 597.5 | | $ | 647.0 | | $ | 641.2 | | | | 64.6 | % | | | 64.7 | % | | | 65.4 | % |
| Concession | | 300.6 | | 321.6 | | 320.1 | | | | 30.7 | % | | | 30.7 | % | | | 30.5 | % |
| Other | | 52.8 | | 55.6 | | 59.3 | | | | 4.7 | % | | | 4.6 | % | | | 4.1 | % |
| | | | | |
| Total revenues | | $ | 950.9 | | $ | 1,024.2 | | $ | 1,020.6 | | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % |
| | | | | |
Cost of operations:(3) | | |
Cost of operations(1) | | |
| Film rentals and advertising | | $ | 324.9 | | $ | 348.8 | | $ | 347.7 | | | | 54.2 | % | | | 54.3 | % | | | 54.8 | % |
| Concession supplies | | 49.7 | | 53.8 | | 52.5 | | | | 15.7 | % | | | 16.2 | % | | | 15.2 | % |
| Salaries and wages | | 97.2 | | 103.1 | | 101.5 | | | | 10.3 | % | | | 10.4 | % | | | 10.3 | % |
| Facility lease expense | | 119.5 | | 126.6 | | 136.6 | | | | 12.6 | % | | | 12.9 | % | | | 12.1 | % |
| Utilities and other | | 110.8 | | 113.0 | | 123.8 | | | | 11.4 | % | | | 11.8 | % | | | 11.3 | % |
| | | | |
| General and administrative expenses | | | | 5.1 | % | | | 5.2 | % | | | 4.8 | % |
| Depreciation and amortization | | | | 9.1 | % | | | 9.1 | % | | | 7.6 | % |
| Impairment of long-lived assets | | | | 5.2 | % | | | 6.6 | % | | | 0.6 | % |
| (Gain) loss on sale of assets and other | | | | (0.1 | )% | | | 0.5 | % | | | 0.2 | % |
| Total cost of operations | | $ | 702.1 | | $ | 745.3 | | $ | 762.1 | | | | 93.2 | % | | | 96.4 | % | | | 87.2 | % |
| | | | |
| | | |
Operating data as a percentage of total revenues(1): | | |
| Revenues: | | |
| Admissions | | | 62.8 | % | | | 63.2 | % | | | 62.8 | % | |
| Concession | | 31.6 | | 31.4 | | 31.4 | | |
| Other | | 5.6 | | 5.4 | | 5.8 | | |
| | | | |
| Total revenues | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | |
| | | | |
Cost of operations(2)(3): | | |
| Film rentals and advertising | | | 54.4 | % | | | 53.9 | % | | | 54.2 | % | |
| Concession supplies | | 16.5 | | 16.7 | | 16.4 | | |
| Salaries and wages | | 10.2 | | 10.1 | | 9.9 | | |
| Facility lease expense | | 12.6 | | 12.4 | | 13.4 | | |
| Utilities and other | | 11.7 | | 11.0 | | 12.1 | | |
| | | | |
| Total cost of operations | | | 73.8 | % | | | 72.8 | % | | | 74.7 | % | |
| | | | |
| Operating income | | | | 6.8 | % | | | 3.6 | % | | | 12.8 | % |
| | | | |
| Average screen count (month end average) | | 3,027 | | 3,135 | | 3,239 | | | 4,558 | | 4,703 | | 4,860 | |
| | | | | |
| Revenues per average screen (dollars) | | | $ | 369,200 | | $ | 370,469 | | $ | 406,681 | |
| | | | |
| Revenues per average screen | | $ | 314,178 | | $ | 326,664 | | $ | 315,104 | | |
| | | | |
| | |
| (1) | | Certain reclassifications have been made to the 2003 and 2004 consolidated financial statements to conform to the 2005 presentation. Results exclude the results of our two United Kingdom theatres and our eleven Interstate theatres sold during 2004. The results of operations for these theatres are included as discontinued operations for all periods presented. |
|
(2) | | All costs are expressed as a percentage of total revenues, except film rentals and advertising, which are expressed as a percentage of admissions revenues and concession supplies, which are expressed as a percentage of concession revenues. |
|
(3) | | Excludes depreciation and amortization. |
2729
Comparison of Years Ended December 31, 20052009 and December 31, 20042008
Revenues.Total revenues for 2005 decreasedincreased $234.2 million to $1,020.6 million from $1,024.2$1,976.5 million for 2004,2009 from $1,742.3 million for 2008, representing a 0.4% decrease.13.4% increase. The table below, presented by reportable operating segment, summarizes our year-over-year revenue performance and certain key performance indicators that impact our revenues.
| | | | | | | | | | | | | |
| | | Year Ended December 31, | | | | |
| | | 2005 | | | 2004 | | | % Change | |
| Admissions revenues (in millions) | | $ | 641.2 | | | $ | 647.0 | | | | (0.9 | %) |
| Concession revenues (in millions) | | $ | 320.1 | | | $ | 321.6 | | | | (0.5 | %) |
| Total revenues (in millions) | | $ | 1,020.6 | | | $ | 1,024.2 | | | | (0.4 | %) |
| | | | | | | | | | | | | |
| Attendance (in millions) | | | 165.7 | | | | 179.3 | | | | (7.6 | %) |
| Average ticket price | | $ | 3.87 | | | $ | 3.61 | | | | 7.2 | % |
| Concession revenues per patron | | $ | 1.93 | | | $ | 1.79 | | | | 7.8 | % |
| Revenues per screen | | $ | 315,104 | | | $ | 326,664 | | | | (3.6 | %) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | U.S. Operating Segment | | International Operating Segment | | Consolidated |
| | | Year Ended | | Year Ended | | Year Ended |
| | | December 31, | | December 31, | | December 31, |
| | | | | | | | | | | % | | | | | | | | | | % | | | | | | | | | | % |
| | | 2009 | | 2008 | | Change | | 2009 | | 2008 | | Change | | 2009 | | 2008 | | Change |
Admissions revenues(1) | | $ | 1,025.9 | | | $ | 889.1 | | | | 15.4 | % | | $ | 267.5 | | | $ | 237.9 | | | | 12.4 | % | | $ | 1,293.4 | | | $ | 1,127.0 | | | | 14.8 | % |
Concession revenues(1) | | $ | 485.2 | | | $ | 426.5 | | | | 13.8 | % | | $ | 117.7 | | | $ | 108.3 | | | | 8.7 | % | | $ | 602.9 | | | $ | 534.8 | | | | 12.7 | % |
Other revenues(1)(2) | | $ | 43.6 | | | $ | 40.9 | | | | 6.6 | % | | $ | 36.6 | | | $ | 39.6 | | | | (7.6 | )% | | $ | 80.2 | | | $ | 80.5 | | | | (0.4 | )% |
Total revenues(1)(2) | | $ | 1,554.7 | | | $ | 1,356.5 | | | | 14.6 | % | | $ | 421.8 | | | $ | 385.8 | | | | 9.3 | % | | $ | 1,976.5 | | | $ | 1,742.3 | | | | 13.4 | % |
Attendance(1) | | | 165.1 | | | | 147.9 | | | | 11.6 | % | | | 71.6 | | | | 63.4 | | | | 12.9 | % | | | 236.7 | | | | 211.3 | | | | 12.0 | % |
Revenues per average screen(2) | | $ | 408,017 | | | $ | 368,313 | | | | 10.8 | % | | $ | 401,828 | | | $ | 378,252 | | | | 6.2 | % | | $ | 406,681 | | | $ | 370,469 | | | | 9.8 | % |
| | |
| (1) | | Amounts in millions. |
|
| (2) | | U.S. operating segment revenues include eliminations of intercompany transactions with the international operating segment. See Note 21 of our consolidated financial statements. |
| • | | Consolidated.The increase in admissions revenues of $166.4 million was primarily attributable to a 12.0% increase in attendance and a 2.4% increase in average ticket price from $5.33 for 2008 to $5.46 for 2009. The increase in concession revenues of $68.1 million was primarily attributable to the 12.0% increase in attendance and a 0.8% increase in concession revenues per patron from $2.53 for 2008 to $2.55 for 2009. The increase in average ticket price was primarily due to incremental 3-D and premium pricing and other price increases, and the increase in concession revenues per patron were primarily due to price increases. |
|
| • | | U.S.The increase in admissions revenues of $136.8 million was primarily attributable to an 11.6% increase in attendance and a 3.3% increase in average ticket price from $6.01 for 2008 to $6.21 for 2009. The increase in concession revenues of $58.7 million was primarily attributable to the 11.6% increase in attendance and a 2.1% increase in concession revenues per patron from $2.88 for 2008 to $2.94 for 2009. The increase in average ticket price was primarily due to incremental 3-D and premium pricing and other price increases, and the increase in concession revenues per patron was primarily due to price increases. |
|
| • | | International.The increase in admissions revenues of $29.6 million was primarily attributable to a 12.9% increase in attendance, partially offset by a 0.3% decrease in average ticket price from $3.75 for 2008 to $3.74 for 2009. The increase in concession revenues of $9.4 million was primarily attributable to the 12.9% increase in attendance, partially offset by a 4.1% decrease in concession revenues per patron from $1.71 for 2008 to $1.64 for 2009. The decreases in average ticket price and concession revenues per patron were due to the unfavorable impact of exchange rates during most of the year in certain countries in which we operate. The 7.6% decrease in other revenues was primarily due to the unfavorable impact of exchange rates during most of the year in certain countries in which we operate. |
30
Cost of Operations.The table below summarizes certain of our theatre operating costs by reportable operating segment (in millions).
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | International | | |
| | | U.S. | | Operating | | |
| | | Operating Segment | | Segment | | Consolidated |
| | | Year Ended | | Year Ended | | Year Ended |
| | | December 31, | | December 31, | | December 31, |
| | | 2009 | | 2008 | | 2009 | | 2008 | | 2009 | | 2008 |
| Film rentals and advertising | | $ | 572.3 | | | $ | 494.6 | | | $ | 135.9 | | | $ | 117.6 | | | $ | 708.2 | | | $ | 612.2 | |
| Concession supplies | | | 61.9 | | | | 58.5 | | | | 30.0 | | | | 28.1 | | | | 91.9 | | | | 86.6 | |
| Salaries and wages | | | 168.8 | | | | 149.5 | | | | 34.6 | | | | 31.5 | | | | 203.4 | | | | 181.0 | |
| Facility lease expense | | | 178.8 | | | | 166.8 | | | | 60.0 | | | | 58.8 | | | | 238.8 | | | | 225.6 | |
| Utilities and other | | | 163.5 | | | | 151.8 | | | | 59.2 | | | | 54.0 | | | | 222.7 | | | | 205.8 | |
| • | | Consolidated.Film rentals and advertising costs were $708.2 million, or 54.8% of admissions revenues, for 2009 compared to $612.2 million, or 54.3% of admissions revenues, for 2008. The increase in film rentals and advertising costs of $96.0 million is primarily due to the $166.4 million increase in admissions revenues. The increase in the film rentals and advertising rate is primarily due to higher film rental rates associated with the increased number of blockbuster films released in 2009. Concession supplies expense was $91.9 million, or 15.2% of concession revenues, for 2009, compared to $86.6 million, or 16.2% of concession revenues, for 2008. The decrease in the concession supplies rate is primarily related to the benefit of our new U.S. beverage agreement that was effective at the beginning of 2009. |
| | Salaries and wages increased to $203.4 million for 2009 from $181.0 million for 2008 primarily due to increased staffing levels to support the 12.0% increase in attendance, increased minimum wage rates and new theatre openings. Facility lease expense increased to $238.8 million for 2009 from $225.6 million for 2008 primarily due to new theatres and increased percentage rent related to the 13.4% increase in revenues. Utilities and other costs increased to $222.7 million for 2009 from $205.8 million for 2008 primarily due to increased variable costs related to the 12.0% increase in attendance, increased costs related to new theatres, increased repairs and maintenance expense and increased 3-D equipment rental fees. |
| • | | U.S.Film rentals and advertising costs were $572.3 million, or 55.8% of admissions revenues, for 2009 compared to $494.6 million, or 55.6% of admissions revenues, for 2008. The increase in film rentals and advertising costs of $77.7 million is due primarily to the $136.8 million increase in admissions revenues. The increase in the film rentals and advertising rate is primarily due to higher film rental rates associated with the increased number of blockbuster films released in 2009. Concession supplies expense was $61.9 million, or 12.8% of concession revenues, for 2009, compared to $58.5 million, or 13.7% of concession revenues, for 2008. The decrease in the concession supplies rate is primarily related to the benefit of our new U.S. beverage agreement that was effective at the beginning of 2009. |
| | Salaries and wages increased to $168.8 million for 2009 from $149.5 million for 2008 primarily due to increased staffing levels to support the 11.6% increase in attendance, increased minimum wage rates and new theatre openings. Facility lease expense increased to $178.8 million for 2009 from $166.8 million for 2008 primarily due to new theatres and increased percentage rent related to the 14.6% increase in revenues. Utilities and other costs increased to $163.5 million for 2009 from $151.8 million for 2008 primarily due to increased variable costs related to the 11.6% increase in attendance, increased costs related to new theatres, increased repairs and maintenance expense and increased 3-D equipment rental fees. |
| • | | International.Film rentals and advertising costs were $135.9 million, or 50.8% of admissions revenues, for 2009 compared to $117.6 million, or 49.4% of admissions revenues, for 2008. The increase in the film rentals and advertising rate is primarily due to higher film rental rates associated with the increased number of blockbuster films released in 2009. Concession supplies expense was $30.0 million, or 25.5% of concession revenues, for 2009 compared to $28.1 million, or 25.9% of concession revenues, for 2008. |
| | Salaries and wages increased to $34.6 million for 2009 from $31.5 million for 2008 primarily due to increased staffing levels to support the 12.9% increase in attendance, increases in wage rates and new theatre openings. Facility lease expense increased to $60.0 million for 2009 from $58.8 million for 2008 primarily due to new theatres and increased percentage rent related to the 9.3% increase in revenues. Utilities and other costs increased to $59.2 million for 2009 from $54.0 million for 2008 primarily due to increased variable costs related to the 12.9% increase in |
31
attendance, increased costs related to new theatres, increased repairs and maintenance expense and increased 3-D equipment rental fees.
General and Administrative Expenses.General and administrative expenses increased to $94.8 million for 2009 from $89.6 million for 2008. The decline in admissions revenues was due to the 7.6% decline in attendance partially offset by the 7.2% increase in average ticket prices. The decline in concession revenues was also attributable to the decline in attendance partially offset by the 7.8% increase in concession revenues per patron. The decline in attendance for 2005 was primarily due to the decline in the qualityincreased salaries and incentive compensation expense of films released during 2005$4.3 million and increased service charges of $1.7 million related to increased credit card activity.
Depreciation and Amortization.Depreciation and amortization expense, including amortization of favorable/ unfavorable leases, was $149.5 million for 2009 compared to 2004.$158.1 million for 2008. The increases in average ticket prices and concession revenues per patron weredecrease was primarily due to price increases and alsoa reduction in the depreciable basis of certain of our U.S. assets in 2009 due to favorablea significant amount of the equipment acquired in the Century Acquisition becoming fully depreciated in 2009, the impact on current depreciation from prior impairment charges and the impact of exchange rates in certain countries in which we operate.
Cost of Operations.Cost of operations was $762.1 million, or 74.7% of revenues, for 2005 compared to $745.3 million, or 72.8% of revenues, for 2004. The increase, as a percentage of revenues, was primarily due to the decrease in revenues and the fixed nature of some of our theatre operating costs, such as components of facility lease expense and utilities and other costs.
Film rentals and advertising costs were $347.7 million, or 54.2% of admissions revenues, for 2005 compared to $348.8 million, or 53.9% of admissions revenues, for 2004. The increase in film rentals and advertising costs as a percentage of admissions revenues was primarily related to the high film rental costs associated with certain blockbuster films released during 2005. Concession supplies expense was $52.5 million, or 16.4% of concession revenues, for 2005 compared to $53.8 million, or 16.7% of concession revenues, for 2004. The decrease in concession supplies expense as a percentage of concession revenues was primarily due to concession price increases and an increase in concession rebates received from certain vendors.
Salaries and wages decreased to $101.5 million for 2005 from $103.1 million for 2004 primarily due to strategic reductions in certain variable salaries and wages related to the decrease in attendance. Facility lease expense increased to $136.6 million for 2005 from $126.6 million for 2004 primarily due to new theatre openings. Utilities and other costs increased to $123.8 million for 2005 from $113.0 million for 2004 primarily due to higher utility costs and new theatre openings.
General and Administrative Expenses.General and administrative expenses decreased to $50.7 million for 2005 from $51.5 million for 2004. The decrease was primarily due to a reduction in incentive compensation expense.
Stock Option Compensation and Change of Control Expenses related to the Recapitalization. Stock option compensation expense of $16.3 million and change of control fees of $15.7 million were recorded during 2004 as a result of the Recapitalization. See Note 3 to the consolidated financial statements.
Depreciation and Amortization.Depreciation and amortization expense was $76.5 million for 2005 compared to $67.1 million for 2004. The increase was primarily due to new theatre openings during the latter part of 2004 and 2005 and amortization of intangible assets recorded as a result of the final purchase price allocations for the Brazil and Mexico acquisitions (see Note 4 to the consolidated financial statements).
28
Impairment of Long-Lived AssetsAssets.. We recorded asset impairment charges on long-lived assets held and used of $9.7 million during 2005 and $1.7 million during 2004, as follows:
| | | | | | | | | |
| | | Years Ended December 31, | |
| | | 2005 | | | 2004 | |
| U.S. | | $ | 7.5 | | | $ | 1.7 | |
| Chile | | | 0.9 | | | | — | |
| Brazil | | | 0.6 | | | | — | |
| Central America | | | 0.7 | | | | — | |
| | | |
| Total | | $ | 9.7 | | | $ | 1.7 | |
| | | |
The 2005 impairment losses included $6.8$11.8 million for 2009 compared to $113.5 million for 2008. Impairment charges for 2009 consisted of $11.4 million of theatre properties and $0.3 million of intangible assets associated with theatre properties, impacting nineteen of our twenty-four reporting units, and $0.1 million related to an equity investment that was written down to estimated fair value. Impairment charges for 2008 consisted of $34.6 million of theatre properties, $78.6 million of goodwill associated with theatre properties, and $0.3 million of intangible assets associated with theatre properties, impacting twenty of our twenty-four reporting units. The long-lived asset impairment charges recorded during each of the write-down of three U.S.periods presented were specific to theatres for which attendance was negativelythat were directly and individually impacted by competing theatres.increased competition, adverse changes in market demographics, or adverse changes in the development or the conditions of the areas surrounding the theatre. The goodwill impairment charges taken during the year ended December 31, 2008 were primarily a result of our determination that the multiple used to estimate the fair value of our reporting units should be reduced to reflect the dramatic decline in the market value of our stock price and the declines in our and our competitors’ market capitalizations that occurred during the fourth quarter of 2008. We reduced the multiple from eight times cash flows to six and a half times cash flows, which significantly reduced our estimated fair values. See Notes 9 and 10 to our consolidated financial statements.
Loss on Sale of Assets and Other.We recorded a loss on sale of assets and other of $2.6$3.2 million during 2005 and $4.92009 compared to $8.5 million during 2004.2008. The loss recorded during 20052009 was primarily duerelated to property damages sustained at our theatres due to the recent hurricanes along the Gulf of Mexico coast and the write-off of theatre equipment that was replaced. The loss recorded during 2004 consisted of a loss on sale of a land parcel, the write-off of a license agreement that2008 was terminated,primarily related to the write-off of theatre equipment that was replaced, and the write-off of prepaid rent for an international theatre, equipment and goodwill associated withdamages to certain of our theatres that closed during the year.in Texas related to Hurricane Ike.
Interest Expense.Interest costs incurred, including amortization of debt issue costs, was $47.1were $81.6 million for 20052009 compared to $45.4$74.4 million for 2004.2008. The increase in interest expense iswas primarily due to an increase in average interest rates onthe issuance of our variable rate85/8% senior notes during June 2009. See Note 12 to our consolidated financial statements for further discussion of our long term debt.
Loss on Early Retirement of Debt.During In addition, during the 20042008 period, we recorded a loss on early retirementgain of debtapproximately $5.4 million as a component of $6.0 million, which represented the write-off of unamortized debt issue costs, unamortized bond discount, tender offer repurchase costs, including premiums paid, and other fees associated with the repurchase and subsequent retirement of our 81/2% senior subordinated notes and a portion of our 9% senior subordinated notesinterest expense related to the Recapitalization (seechange in fair value of one of our interest rate swap agreements that was deemed not highly effective. See Note 313 to theour consolidated financial statements).statements for further discussion of our interest rate swap agreements.
Interest Income.We recorded interest income of $4.7 million during 2009 compared to interest income of $11.1 million during 2008. The decrease in interest income was primarily due to lower interest rates earned on our cash investments.
Distributions from NCM.We recorded distributions received from NCM of $20.8 million during 2009 and $18.8 million during 2008, which were in excess of the carrying value of our investment. See Note 5 to our consolidated financial statements.
Income Taxes.Income tax expense of $28.2$62.8 million was recorded for 20052009 compared to $27.0$35.6 million recorded for 2004.2008. The effective tax rate for 2009 was 36.8%32.1%, which reflects the benefit of a capital loss. The effective tax rate of 227.6% for 2005 versus 39.7%2008 reflects the impact of our 2008 goodwill impairment charges, which are not deductible for 2004.income tax purposes. The effective tax rate in 2008 net of the impact from the goodwill impairment charges would have been approximately 37.8%. See Note 1619 to theour consolidated financial statements.
32
Income from Discontinued Operations, Net of Taxes.We recorded income from discontinued operations, net of taxes, of $3.6 million during 2004. The income for 2004 includes the results of operations of our two United Kingdom theatres that were sold on April 30, 2004, the loss on sale of the two United Kingdom theatres, the results of operations of the eleven Interstate theatres that were sold on December 23, 2004 and the gain on sale of the Interstate theatres. See Note 6 to the consolidated financial statements.
Comparison of Years Ended December 31, 20042008 and December 31, 20032007
Revenues.Total revenues for 2004 increased $59.5 million to $1,024.2 million from $950.9$1,742.3 million for 2003,2008 from $1,682.8 million for 2007, representing a 7.7%3.5% increase. Admissions revenues increased 8.3% to $647.0 million for 2004 from $597.5 million for 2003. Concession revenues increased 7.0% to $321.6 million for 2004 from $300.6 million for 2003. The increased revenues were partially attributable to a 3.6% increase in attendance from 173.1 million patrons for 2003 to 179.3 million patrons for 2004. The increase in attendance for 2004 was primarily due to new theatre openingstable below, presented by reportable operating segment, summarizes our year-over-year revenue performance and quality film product, including the successful release ofShrek 2,The Passion of the Christ,Spider-Man 2, Harry Potter and the Prisoner of AzkabanandThe Incrediblesduring 2004. In addition,certain key performance indicators that impact our average ticket price increased from $3.45 for 2003 to $3.61 for 2004 and our concession revenues per patron increased from $1.74 for 2003 to $1.79 for 2004. Revenues per screen increased 4.0% to $326,664 for 2004 from $314,178 for 2003.revenues.
Cost of Operations. Cost of operations was $745.3 million, or 72.8% of revenues, for 2004 compared to $702.1 million, or 73.8% of revenues, for 2003. The decrease in cost of operations as a percentage| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | International Operating | | |
| | | U.S. Operating Segment | | Segment | | Consolidated |
| | | | Year Ended | | | | Year Ended | | | | Year Ended | |
| | | December 31, | | December 31, | | December 31, |
| | | | | | | | | | | % | | | | | | | | | | % | | | | | | | | | | % |
| | | 2008 | | 2007 | | Change | | 2008 | | 2007 | | Change | | 2008 | | 2007 | | Change |
Admissions revenues(1) | | $ | 889.1 | | | $ | 879.1 | | | | 1.1 | % | | $ | 237.9 | | | $ | 208.4 | | | | 14.2 | % | | $ | 1,127.0 | | | $ | 1,087.5 | �� | | | 3.6 | % |
Concession revenues(1) | | $ | 426.5 | | | $ | 424.4 | | | | 0.5 | % | | $ | 108.3 | | | $ | 92.1 | | | | 17.6 | % | | $ | 534.8 | | | $ | 516.5 | | | | 3.5 | % |
Other revenues(1)(2) | | $ | 40.9 | | | $ | 45.6 | | | | (10.3 | %) | | $ | 39.6 | | | $ | 33.2 | | | | 19.3 | % | | $ | 80.5 | | | $ | 78.8 | | | | 2.2 | % |
Total revenues(1)(2) | | $ | 1,356.5 | | | $ | 1,349.1 | | | | 0.5 | % | | $ | 385.8 | | | $ | 333.7 | | | | 15.6 | % | | $ | 1,742.3 | | | $ | 1,682.8 | | | | 3.5 | % |
Attendance(1) | | | 147.9 | | | | 151.7 | | | | (2.5 | %) | | | 63.4 | | | | 61.0 | | | | 3.9 | % | | | 211.3 | | | | 212.7 | | | | (0.7 | %) |
Revenues per average screen(2) | | $ | 368,313 | | | $ | 376,771 | | | | (2.2 | %) | | $ | 378,252 | | | $ | 341,451 | | | | 10.8 | % | | $ | 370,469 | | | $ | 369,200 | | | | 0.3 | % |
| | |
| (1) | | Amounts in millions. |
|
| (2) | | U.S. operating segment revenues include eliminations of intercompany transactions with the international operating segment. See Note 21 of our consolidated financial statements. |
| • | | Consolidated. The increase in admissions revenues of $39.5 million was attributable to a 4.3% increase in average ticket price from $5.11 for 2007 to $5.33 for 2008, partially offset by a 0.7% decline in attendance. The increase in concession revenues of $18.3 million was attributable to a 4.1% increase in concession revenues per patron from $2.43 for 2007 to $2.53 for 2008, partially offset by the decline in attendance. The increases in average ticket price and concession revenues per patron were due to price increases and favorable exchange rates during most of the year in certain countries in which we operate. The 2.2% increase in other revenues was primarily attributable to increased screen advertising and other ancillary revenues in certain of our international locations and the favorable impact of exchange rates during most of the year in certain countries in which we operate. |
| • | | U.S. The increase in admissions revenues of $10.0 million was attributable to a 3.8% increase in average ticket price from $5.79 for 2007 to $6.01 for 2008, partially offset by a 2.5% decrease in attendance. The increase in concession revenues of $2.1 million was attributable to a 2.9% increase in concession revenues per patron from $2.80 for 2007 to $2.88 for 2008, partially offset by the decline in attendance. The increases in average ticket price and concession revenues per patron were due to price increases. The 10.3% decrease in other revenues was primarily attributable to reduced screen advertising revenues earned under the exhibitor services agreement with NCM. See Note 5 to the consolidated financial statements. |
| • | | International. The increase in admissions revenues of $29.5 million was attributable to a 9.6% increase in average ticket price from $3.42 for 2007 to $3.75 for 2008 and a 3.9% increase in attendance. The increase in concession revenues of $16.2 million was attributable to a 13.2% increase in concession revenues per patron from $1.51 for 2007 to $1.71 for 2008 and the increase in attendance. The increases in average ticket price and concession revenues per patron were due to price increases and favorable exchange rates during most of the year in certain countries in which we operate. The 19.3% increase in other revenues was primarily due to increased screen advertising and other ancillary revenues and the favorable impact of exchange rates during most of the year in certain countries in which we operate. |
2933
primarily due to the 7.7% increase in revenues and the fixed natureCost of someOperations.The table below summarizes certain of our theatre operating costs such as components of salaries and wages, facility lease expense, and utilities and other costs.by reportable operating segment (in millions).
Film rentals and advertising costs were $348.8 million, or 53.9% of admissions revenues, for 2004 compared to $324.9 million, or 54.4% of admissions revenues, for 2003. The decrease in film rentals and advertising costs as a percentage of admissions revenues was due in part to the increase in international business, which generally has lower film rental rates, and also due to the long successful run of certain high-grossing films during 2004. Concession supplies expense increased to 16.7% of concession revenues for 2004 from 16.5% for 2003 primarily due to an increase in international business, which generally has higher concession supplies costs.| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | International | | |
| | | U.S. Operating | | Operating | | |
| | | Segment | | Segment | | Consolidated |
| | | Year Ended | | Year Ended | | Year Ended |
| | | December 31, | | December 31, | | December 31, |
| | | 2008 | | 2007 | | 2008 | | 2007 | | 2008 | | 2007 |
| Film rentals and advertising | | $ | 494.6 | | | $ | 485.2 | | | $ | 117.6 | | | $ | 104.5 | | | $ | 612.2 | | | $ | 589.7 | |
| Concession supplies | | $ | 58.5 | | | $ | 57.8 | | | $ | 28.1 | | | $ | 23.3 | | | $ | 86.6 | | | $ | 81.1 | |
| Salaries and wages | | $ | 149.5 | | | $ | 146.7 | | | $ | 31.5 | | | $ | 26.6 | | | $ | 181.0 | | | $ | 173.3 | |
| Facility lease expense | | $ | 166.8 | | | $ | 161.7 | | | $ | 58.8 | | | $ | 51.0 | | | $ | 225.6 | | | $ | 212.7 | |
| Utilities and other | | $ | 151.8 | | | $ | 149.0 | | | $ | 54.0 | | | $ | 42.3 | | | $ | 205.8 | | | $ | 191.3 | |
Salaries and wages increased to $103.1 million for 2004 from $97.2 million for 2003 primarily due to new theatre openings and the increase in attendance. Facility lease expense increased to $126.6 million for 2004 from $119.5 million for 2003 primarily due to new theatre openings and increased percentage rent expense. Utilities and other costs increased to $113.0 million for 2004 from $110.8 million for 2003 primarily due to new theatre openings and increased utility rates in certain regions| • | | Consolidated. Film rentals and advertising costs were $612.2 million, or 54.3% of admissions revenues, for 2008 compared to $589.7 million, or 54.2% of admissions revenues, for 2007. The increase in film rentals and advertising costs for 2008 of $22.5 million was primarily due to a $39.5 million increase in admissions revenues. Concession supplies expense was $86.6 million, or 16.2% of concession revenues, for 2008 compared to $81.1 million, or 15.7% of concession revenues, for 2007. The increase in concession supplies expense of $5.5 million was primarily due to an $18.3 million increase in concession revenues and an increase in the concession supplies rate. The increased rate was primarily due to the relative increase in concession revenues from our international operations and increases in product costs from some of our international concession suppliers. |
| | Salaries and wages increased to $181.0 million for 2008 from $173.3 million for 2007, facility lease expense increased to $225.6 million for 2008 from $212.7 million for 2007 and utilities and other costs increased to $205.8 million for 2008 from $191.3 million for 2007, all of which increased primarily due to increased revenues, new theatre openings and the impact of exchange rates in certain countries in which we operate. |
| • | | U.S. Film rentals and advertising costs were $494.6 million, or 55.6% of admissions revenues, for 2008 compared to $485.2 million, or 55.2% of admissions revenues, for 2007. The increase in film rentals and advertising costs for 2008 of $9.4 million was primarily due to the increase in admissions revenues and higher film rentals and advertising rates. Concession supplies expense was $58.5 million, or 13.7% of concession revenues, for 2008 compared to $57.8 million, or 13.6% of concession revenues, for 2007. |
| | Salaries and wages increased to $149.5 million for 2008 from $146.7 million for 2007, facility lease expense increased to $166.8 million for 2008 from $161.7 million for 2007 and utilities and other costs increased to $151.8 million for 2008 from $149.0 million for 2007, all of which increased primarily due to new theatre openings. |
| • | | International. Film rentals and advertising costs were $117.6 million, or 49.4% of admissions revenues, for 2008 compared to $104.5 million, or 50.1% of admissions revenues, for 2007. The increase in film rentals and advertising costs of $13.1 million was due to a $29.5 million increase in admissions revenues, partially offset by a decrease in our film rentals and advertising rate. Concession supplies expense was $28.1 million, or 25.9% of concession revenues, for 2008 compared to $23.3 million, or 25.3% of concession revenues, for 2007. The increase in concession supplies expense of $4.8 million was primarily due to the $16.2 million increase in concession revenues and the increased rate due to increases in product costs from some of our concession suppliers. |
| | Salaries and wages increased to $31.5 million for 2008 from $26.6 million for 2007, facility lease expense increased to $58.8 million for 2008 from $51.0 million for 2007 and utilities and other costs increased to $54.0 million for 2008 from $42.3 million for 2007, all of which increased primarily due to increased revenues, new theatre openings and the impact of exchange rates in certain countries in which we operate. |
General and Administrative Expenses.General and administrative expenses increased to $51.5$89.6 million for 20042008 from $44.2$78.7 million for 2003.2007. The increase was primarily due to increases in salary andincreased incentive compensation expense of approximately $4.7$4.4 million, increased share based award compensation expense of $1.8 million, increased service charges of $1.7 million related to increased credit card activity, increased professional fees of $0.5 million, including audit fees related to Sarbanes-Oxley (“SOX”) compliance, and increased legal fees of approximately $2.2 million.
34
Termination of Profit Participation Agreement.Upon consummation of Cinemark Holdings, Inc.’s initial public offering on April 24, 2007, we exercised our option to terminate the amended and restated profit participation agreement with our CEO Alan Stock Option Compensation and Changepurchased Mr. Stock’s profit interest in two theatres during May 2007 for $6.9 million pursuant to the terms of Control Expensesthe amended and restated profit participation agreement. In addition, we incurred $0.1 million of payroll taxes related to the Recapitalization. Stock option compensation expense of $16.3 million and change of control fees of $15.7 million were recorded during 2004 as a result of the Recapitalization.termination. See Note 322 to theour consolidated financial statements.
Depreciation and Amortization.Depreciation and amortization expense, including amortization of favorable leases, was $67.1$158.1 million for 20042008 compared to $65.1$151.7 million for 2003. The increase is2007 primarily due to new theatre openings the latter part of 2003 and 2004.openings.
Impairment of Long-Lived AssetsAssets.. We recorded asset impairment charges on assets held and used of $1.7$113.5 million for 2008 compared to $86.6 million for 2007. Impairment charges for 2008 consisted of $34.6 million of theatre properties, $78.6 million of goodwill associated with theatre properties, and $0.3 million of intangible assets associated with theatre properties, impacting twenty of our twenty-four reporting units. Impairment charges for 2007 consisted of $14.2 million of theatre properties, $67.7 million of goodwill associated with theatre properties, and $4.7 million of intangible assets associated with theatre properties, impacting twenty of our twenty-four reporting units. The long-lived asset impairment charges recorded during each of the periods presented were specific to theatres that were directly and individually impacted by increased competition, adverse changes in 2004market demographics, or adverse changes in the development or the conditions of the areas surrounding the theatre. The goodwill impairment charges taken during the year ended December 31, 2008 were primarily a result of our determination that the multiple used to estimate the fair value of our reporting units should be reduced to reflect the dramatic decline in the market value of our stock price and $5.0 millionthe declines in 2003, as follows:
| | | | | | | | | |
| | | Years Ended December 31, |
| | | 2004 | | 2003 |
| U.S. | | $ | 1.7 | | | $ | 3.0 | |
| Mexico | | | — | | | | 1.2 | |
| Chile | | | — | | | | 0.7 | |
| Other | | | — | | | | 0.1 | |
| | | |
| Total | | $ | 1.7 | | | $ | 5.0 | |
| | | |
(Gain) Loss on Sale of Assets and Other.We recorded a loss on sale of assets and other of $4.9$8.5 million in 2004during 2008 compared to a gain on sale of assets and other of $1.2$3.0 million during 2003.2007. The loss recorded during 2004 consisted of a loss on sale of a land parcel, the write-off of a license agreement that2008 was terminated,primarily related to the write-off of theatre equipment that was replaced, and the write-off of prepaid rent for an international theatre, equipment and goodwilldamages to certain of our theatres in Texas related to Hurricane Ike. The gain recorded during 2007 primarily related to the sale of real property associated with theatres that closed duringone theatre in the year.U.S.
Interest Expense.Interest costs incurred, including amortization of debt issue costs, was $45.4$74.4 million for 20042008 compared to $54.2$102.8 million for 2003.2007. The decrease iswas primarily due to a decrease in averagethe repurchase of substantially all of our outstanding debt9% senior subordinated notes that occurred during March and April 2007 and a reduction in averagethe variable interest rates on a portion of our long-term debt. See Note 12 to our consolidated financial statements for further discussion of our long term debt. In addition, during the 2008 period, we recorded a gain of approximately $5.4 million as a component of interest expense related to the refinancing transactions completedchange in fair value of one of our interest rate swap agreements that was deemed not highly effective. See Note 13 to our consolidated financial statements for further discussion of our interest rate swap agreements.
Gain on NCM Transaction.During 2007, we recorded a gain of $210.8 million on the sale of a portion of our equity investment in NCM in conjunction with the initial public offering of NCM, Inc. common stock. Our ownership interest in NCM was reduced from approximately 25% to approximately 14% as part of this sale of stock in the Recapitalization.offering. See Note 35 to our consolidated financial statements.
Gain on Fandango Transaction.During 2007, we recorded a gain of $9.2 million as a result of the sale of our investment in stock of Fandango, Inc. See Note 7 to our consolidated financial statements.
Loss on Early Retirement of Debt.Debt. During 2004,2007, we recorded a loss on early retirement of debt of $6.0$8.0 million which representedas a result of the repurchase of $332.1 million aggregate principal amount of our 9% senior subordinated notes and the related write-off of unamortized debt issue costs unamortized bond discount, tender offer repurchase costs, includingand the payment of premiums, paid,fees and other fees associated with the repurchase and subsequent retirement ofexpenses. See Note 12 to our 81/2% senior subordinated notes and a portion of our 9% senior subordinated notes related to the Recapitalization. During the 2003 period, we recorded a loss on early retirement of debt of $7.5 million, which related to the write-off of unamortized debt issue costs, unamortized bond premiums/discounts and tender offer repurchase costs, includingconsolidated financial statements.
| Distributions from NCM.We recorded distributions received from NCM of $18.8 million during 2008 and $11.5 million during 2007, which were in excess of the carrying value of our investment. See Note 5 to our consolidated financial statements. |
3035
premiums paid, and other fees associated with the retirement of certain debt agreements, including our former 95/8% senior subordinated notes, and the refinancing of our then existing credit facility (see Note 10 to the consolidated financial statements). Income Taxes.Income tax expense of $27.0$35.6 million was recorded for 20042008 compared to $25.0$127.6 million recorded for 2003.2007. The effective tax rate was 39.7%of 227.6% for 2004 versus 34.5%2008 reflects the impact of our 2008 goodwill impairment charges, which are not deductible for 2003.income tax purposes. The increase in the effective tax rate was primarily due to adjustments made toin 2008 net of the inflation adjustedimpact from the goodwill impairment charges would have been approximately 37.8%. The effective tax accumulated depreciationrate of 52.3% for 2007 reflects the impact of our 2007 goodwill impairment charges, which are not deductible for income tax purposes. The effective tax rate in Mexico.2007 net of the impact from the goodwill impairment charges would have been approximately 42.0%. See Note 1619 to theour consolidated financial statements.
Income (Loss) from Discontinued Operations, Net of Taxes.We recorded income from discontinued operations, net of taxes, of $3.6 million during 2004 and a loss from discontinued operations, net of taxes, of $2.7 million during 2003. The income for 2004 includes the results of operations of our two United Kingdom theatres that were sold on April 30, 2004, the loss on sale of the United Kingdom theatres, the results of operations of the eleven Interstate theatres that were sold on December 23, 2004 and the gain on sale of the Interstate theatres, all of which are presented net of taxes. The loss recorded for 2003 primarily includes the results of operations of our United Kingdom theatres, including an asset impairment charge of $2.5 million. See Note 6 to the consolidated financial statements.
Liquidity and Capital Resources
Operating Activities
We primarily collect our revenues in cash, mainly through box office receipts and the sale of concession products. We also continue to expand the numberconcessions. In addition, a majority of our theatres that provide the patron a choice of using a credit card, in place of cash, which we convert to cash in approximately threeover a range from one to four businesssix days. Because our revenues are received in cash prior to the payment of related expenses, we have an operating “float” and historically have not required traditional working capital financing. Cash flow provided by operating activities as reflected in the consolidated statements of cash flows, amounted to $135.6$344.7 million, $112.9$219.8 million and $164.0$366.7 million in 2003, 2004 and 2005, respectively. The increase in cash flows provided by operating activities from 2004 to 2005 is primarily due tofor the increased accounts payable and accrued liabilities and income tax liabilities atyears ended December 31, 2005 compared to December 31, 2004.2007, 2008 and 2009, respectively.
Investing Activities
Our investing activities have been principally related to the development and acquisition of additional theatres. New theatre openings and acquisitions historically have been financed with internally generated cash and by debt financing, including borrowings under our amended senior secured credit facility. Cash flow used forprovided by (used for) investing activities as reflected in the consolidated statements of cash flows, amounted to $47.2$93.2 million, $116.9$(94.9) million and $81.6$(183.1) million in 2003, 2004for the years ended December 31, 2007, 2008 and 2005,2009, respectively. The decrease in cash used for investing activities from 2004 to 2005 is primarily due to the funding of the Brazil acquisition ($45.0 million) and the Mexico acquisition ($5.4 million) that occurred duringFor the year ended December 31, 2004 and2007, $214.8 million of the cash provided by investing activities related to the proceeds received from NCM for the sale of a slight decrease in capital expenditures, partially offset byportion of our equity investment in National CineMedia LLC during the year ended December 31, 2005 ($7.3 million).
As a result of the RecapitalizationNCM in 2004, our Brazilian partners exercised their option to cause Cinemark,conjunction with NCM Inc. to purchase all of their shares of common stock of Cinemark Brasil S.A., which represented 47.2% of total common stock of Cinemark Brasil S.A. We purchased the partners’ shares of Cinemark Brasil S.A. for approximately $45.0 million with available cash on August 18, 2004.’s initial public offering. See Note 45 to theour consolidated financial statements for further discussion of this acquisition.
On September 15, 2004, we purchased sharesthe NCM Transaction. For the year ended December 31, 2009, the increase in cash used for investing activities is primarily due to the acquisition of common stock of Cinemark Mexico USA, Inc. from our Mexican partners, increasing our ownership interestfour theatres in this subsidiary from 95.0% to 99.4%. The purchase price wasthe U.S. for approximately $5.4$49.0 million and was funded with available cash and borrowings on our revolving credit line. See(see Note 4 to the consolidated financial statements for further discussionstatements), the acquisition of this acquisition.
31
On July 15, 2005, the Company purchased a 20.7% interestone theatre in National CineMedia, LLCBrazil for approximately $7.3 million. See Note 5 to the consolidated financial statements for further discussion of this investment.$9.1 million and increased capital expenditures.
Capital expenditures for the years ended December 31, 2003, 20042007, 2008 and 20052009 were as follows (in millions):
| | | | | | | | | | | | | |
| | | New | | | Existing | | | | |
| Year Ended December 31, | | Theatres | | | Theatres | | | Total | |
| 2003 | | $ | 33.7 | | | $ | 17.3 | | | $ | 51.0 | |
| 2004 | | $ | 61.5 | | | $ | 19.5 | | | $ | 81.0 | |
| 2005 | | $ | 50.3 | | | $ | 25.3 | | | $ | 75.6 | |
During 2005, capital expenditures for existing theatres of $25.3 million included approximately $9.7 million of costs associated with installing National CineMedia’s in-theatre digital distribution technology in our theatres. We estimate that our total costs for this digital distribution technology will be approximately $25 million, with the remaining $15.3 million expected to be spent by May 31, 2006.| | | | | | | | | | | | | |
| | | New | | Existing | | |
| Period | | Theatres | | Theatres | | Total |
| Year Ended December 31, 2007 | | $ | 113.3 | | | $ | 33.0 | | | $ | 146.3 | |
| Year Ended December 31, 2008 | | $ | 69.9 | | | $ | 36.2 | | | $ | 106.1 | |
| Year Ended December 31, 2009 | | $ | 36.5 | | | $ | 88.3 | | | $ | 124.8 | |
We continue to expand our U.S. theatre circuit. We opened 11 newacquired four theatres with 12882 screens, built four theatres with 54 screens, and closed seven theatres with 48 screens during the year ended December 31, 2005.2009. At December 31, 2005, our total domestic screen count was 2,417 screens (12 of which are in Canada). At December 31, 2005,2009, we had signed commitments to open 12two new theatres with 17324 screens in domestic markets during 20062010 and oneopen four new theatretheatres with 1560 screens in domestic markets subsequent to 2006.2010. We estimate the remaining capital expenditures for the development of these 18884 domestic screens will be approximately $46$34 million. Actual expenditures for continued theatre development and acquisitions are subject to change based upon the availability of attractive opportunities.
We also continue to expand our international theatre circuit. We opened sevenacquired one theatre with 15 screens, built five new theatres with 4429 screens and closed three theatres and 19 screens during the year ended December 31, 2005, bringing our total international screen count to 912 screens.2009. At December 31, 2005,2009, we had signed commitments to open fourseven new theatrestheatre with 3153 screens in international markets during 2006 and five new theatres with 45 screens in international markets subsequent to 2006.2010. We estimate the remaining capital expenditures for the development of these 7653 international screens in international markets will be approximately $26$24 million. Actual expenditures for continued theatre development and acquisitions are subject to change based upon the availability of attractive opportunities.
We plan to fund capital expenditures for our continued development fromwith cash flow from operations, borrowings under our amended senior secured credit facility, subordinated note borrowings,from debt issuances, proceeds from sale-leasebacksale leaseback transactions and/or sales of excess real estate. Additionally, we
36
Financing Activities
Cash used for financing activities was $357.0 million, $29.3 million and $75.5 million during the years ended December 31, 2007, 2008 and 2009, respectively. For the year ended December 31, 2007, cash used for financing activities primarily consisted of the repurchase of $332.1 million aggregate principal amount of Cinemark USA, Inc.’s 9% senior subordinated notes. For the year ended December 31, 2009, cash used for financing activities includes dividends paid to our parent company of $510.6 million, partially offset by the net proceeds of $458.5 million from the issuance of Cinemark USA, Inc.’s $470 million 85/8% senior notes. The dividends paid to our parent primarily funded the repurchase of approximately $419.4 million aggregate principal amount at maturity of Cinemark, Inc.’s 93/4% senior discount notes.
We may from time to time, subject to compliance with our debt instruments, purchase on the open market our debt securities depending upon the availability and prices of such securities. Long-term debt consisted of the following as of December 31, 2008 and 2009:
Financing Activities| | | | | | | | | |
| | | December 31, 2008 | | December 31, 2009 |
| | | | | | | | | |
| Cinemark USA, Inc. term loan | | $ | 1,094.8 | | | $ | 1,083.6 | |
Cinemark USA, Inc. 85/8 % senior notes due 2019(1) | | | — | | | | 458.9 | |
| Cinemark USA, Inc. 9% senior subordinated notes due 2013 | | | 0.2 | | | | 0.2 | |
| Other long-term debt | | | 2.2 | | | | 1.0 | |
| | | |
| Total long-term debt | | | 1,097.2 | | | | 1,543.7 | |
| Less current portion | | | 12.5 | | | | 12.2 | |
| | | |
| Long-term debt, less current portion | | $ | 1,084.7 | | | $ | 1,531.5 | |
| | | |
Cash flow used for financing activities amounted to $45.8 million, $4.3 million and $2.4 million in 2003, 2004 and 2005, respectively. The decrease in cash used for financing activities from 2004 to 2005 is primarily due to a decrease in net payments on long-term debt and a decrease in new debt issue costs from 2004 to 2005, offset by a decrease in total capital contributions from our parent. The activity during 2004 was primarily related to the Recapitalization and the related refinancing of our long-term debt.32
| | |
| (1) | | Includes the $470.0 million aggregate principal amount of the 8.625% senior notes before the original issue discount, which was $11.1 million as of December 31, 2009. |
As of December 31, 20052009, we had borrowings of $1,083.6 million outstanding on the term loan under our senior secured credit facility, $458.9 million accreted principal amount outstanding under our 8.625% senior notes and approximately $0.2 million aggregate principal amount outstanding under the 9% senior subordinated notes, respectively. We had $150.0 million in available borrowing capacity under our revolving credit facility.
As of December 31, 2009, our long-term debt obligations, scheduled interest payments on long-term debt, future minimum lease obligations under non-cancelable operating and capital leases, outstanding letters of credit,scheduled interest payments under capital leases and other obligations under employment agreements and purchase commitments for each period indicated are summarized as follows:
37
| | | | | | | | | | | | | | | | | | | | | |
| | | Payments Due by Period | |
| | | (in millions) | �� |
| | | | | | | Less Than | | | | | | | | | | | After | |
| Contractual Obligations | | Total | | | One Year | | | 1 - 3 Years | | | 4 - 5 Years | | | 5 Years | |
Long-term debt1 | | $ | 620.3 | | | $ | 6.9 | | | $ | 9.8 | | | $ | 189.2 | | | $ | 414.4 | |
Scheduled interest payments on long-term debt2 | | | 297.3 | | | | 48.2 | | | | 95.0 | | | | 87.9 | | | | 66.2 | |
Lease obligations3 | | | 1,537.4 | | | | 121.4 | | | | 252.6 | | | | 237.9 | | | | 925.5 | |
| Letters of credit | | | 0.1 | | | | 0.1 | | | | — | | | | — | | | | — | |
Employment agreements3 | | | 9.3 | | | | 3.1 | | | | 6.2 | | | | — | | | | — | |
Purchase commitments4 | | | 88.4 | | | | 66.5 | | | | 20.9 | | | | 0.4 | | | | 0.6 | |
| | | |
| Total obligations | | $ | 2,552.8 | | | $ | 246.2 | | | $ | 384.5 | | | $ | 515.4 | | | $ | 1,406.7 | |
| | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | Payments Due by Period |
| | | (in millions) |
| | | | | | | Less Than | | | | | | | | | | After |
| Contractual Obligations | | Total | | One Year | | 1 - 3 Years | | 4 - 5 Years | | 5 Years |
| | | | | | | | | | | | | | | | | | | | | |
Long-term debt(1) | | $ | 1,554.8 | | | $ | 12.2 | | | $ | 282.8 | | | $ | 789.8 | | | $ | 470.0 | |
Scheduled interest payments on long-term debt(2) | | | 497.5 | | | | 74.1 | | | | 144.9 | | | | 97.8 | | | | 180.7 | |
| Operating lease obligations | | | 1,865.6 | | | | 192.6 | | | | 375.5 | | | | 358.2 | | | | 939.3 | |
| Capital lease obligations | | | 140.4 | | | | 7.3 | | | | 15.1 | | | | 19.3 | | | | 98.7 | |
| Scheduled interest payments on capital leases | | | 108.0 | | | | 14.0 | | | | 25.8 | | | | 22.3 | | | | 45.9 | |
| Employment agreements | | | 11.1 | | | | 3.7 | | | | 7.4 | | | | — | | | | — | |
Purchase commitments(3) | | | 63.0 | | | | 32.9 | | | | 29.5 | | | | 0.5 | | | | 0.1 | |
Current liability for uncertain tax positions(4) | | | 13.2 | | | | 13.2 | | | | — | | | | — | | | | — | |
| | | |
| Total obligations | | $ | 4,253.6 | | | $ | 350.0 | | | $ | 881.0 | | | $ | 1,287.9 | | | $ | 1,734.7 | |
| | | |
| | |
1(1) | | These amounts are includedIncludes the 8.625% senior notes in our consolidated balance sheet asthe aggregate principal amount of December 31, 2005. See Note 10 to$470.0 million excluding the consolidated financial statements for additional information about our long-term debt obligations and related matters.discount of $11.1 million. |
| |
2(2) | | Amounts include scheduled interest payments on fixed rate and variable rate debt agreements. Estimates for the variable rate interest payments were based on interest rates in effect on December 31, 2005.2009. The average interest rates on our fixed rate and variable rate debt were 7.6% and 2.0%, respectively, as of December 31, 2009. |
| |
3 | | See Note 17 to the consolidated financial statements for additional information about our lease obligations and employment agreements. |
|
4(3) | | Includes estimated capital expenditures associated with the construction of new theatres to which we were committed as of December 31, 2005.2009. |
|
| (4) | | The contractual obligations table excludes the long-term portion of our liability for uncertain tax positions of $18.4 million because we cannot make a reliable estimate of the timing of the related cash payments. |
Recapitalization ofSenior Secured Credit Facility
On October 5, 2006, in connection with the Century Acquisition, Cinemark Inc.
We are a wholly-owned subsidiary of Cinemark, Inc. On March 12, 2004, Cinemark,USA, Inc., entered into a senior secured credit facility. The senior secured credit facility provides for a seven year term loan of $1.12 billion and a $150 million revolving credit line that matures in six years unless Cinemark USA, Inc.’s 9% senior subordinated notes have not been refinanced by August 1, 2012 with indebtedness that matures no earlier than seven and one-half years after the closing date of the senior secured credit facility, in which case the maturity date of the revolving credit line becomes August 1, 2012. The revolving credit line is used for general corporate purposes.
At December 31, 2009, there was $1,083.6 million outstanding under the term loan and no borrowings outstanding under the revolving credit line. Cinemark USA, Inc. had $150.0 million in available borrowing capacity under its revolving credit facility. The average interest rate on outstanding term loan borrowings under the senior secured credit facility at December 31, 2009 was 3.1% per annum.
Under the term loan, principal payments of $2.8 million are due each calendar quarter through September 30, 2012 and increase to $263.2 million each calendar quarter from December 31, 2012 to maturity at October 5, 2013. Prior to the amendment to the senior secured credit facility discussed below, the term loan accrued interest, at Cinemark USA, Inc.’s option, at: (A) the base rate equal to the higher of (1) the prime lending rate as set forth on the British Banking Association Telerate page 5 or (2) the federal funds effective rate from time to time plus 0.50%, plus a margin that ranges from 0.75% to 1.00% per annum, or (B) a “eurodollar rate” plus a margin that ranges from 1.75% to 2.00% per annum, in each case as adjusted pursuant to Cinemark USA, Inc.’s corporate credit rating. Borrowings under the revolving credit line bear interest, at Cinemark USA, Inc.’s option, at: (A) a base rate equal to the higher of (1) the prime lending rate as set forth on the British Banking Association Telerate page 5 and (2) the federal funds effective rate from time to time plus 0.50%, plus a margin that ranges from 0.50% to 1.00% per annum, or (B) a “eurodollar rate” plus a margin that ranges from 1.50% to 2.00% per annum, in each case as adjusted pursuant to Cinemark USA, Inc.’s consolidated net senior secured leverage ratio as defined in the credit agreement. Cinemark USA, Inc. is required to pay a commitment fee calculated at the rate of 0.50% per annum on the average daily unused portion of the new revolving credit line, payable quarterly in arrears, which decreases to 0.375% per annum for any fiscal quarter in which Cinemark USA, Inc.’s consolidated net senior secured leverage ratio on the last day of such fiscal quarter is less than 2.25 to 1.0.
On March 14, 2007, Cinemark USA, Inc. amended its senior secured credit facility to, among other things, modify the interest rate on the term loans under the senior secured credit facility, modify certain prepayment terms and covenants, and facilitate the tender offer for the 9% senior subordinated notes. The term loan now accrues interest, at Cinemark USA, Inc.’s option, at: (A) the base rate equal to the higher of (1) the prime lending rate as set forth on the British
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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 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. In each case, the margin is a function of the corporate credit rating applicable to the borrower. The interest rate on the revolving credit line was not amended. Additionally, the amendment removed any obligation to prepay amounts outstanding under the senior secured credit facility in an agreementamount equal to the amount of the net cash proceeds received from the NCM Transaction or from excess cash flows, and planimposed a 1% prepayment premium for one year on certain prepayments of merger with a newly formed subsidiary of Madison Dearborn Partners, LLC (“Madison”). The transaction was completed on April 2, 2004, at which time the newly formed subsidiary of Madison was merged with and intoterm loans.
Cinemark USA, Inc.’s obligations under the senior secured credit facility are guaranteed by Cinemark Holdings, Inc., with Cinemark, Inc. continuing as the surviving corporation. Simultaneously, an affiliate of Madison purchased shares of common stockand certain of Cinemark USA, Inc. for approximately $518.3 million’s domestic subsidiaries and are secured by mortgages on certain fee and leasehold properties and security interests in cash and became the controlling stockholdersubstantially all of Cinemark USA, Inc., owning approximately 83%’s and the guarantors’ personal property, including, without limitation, pledges of all of Cinemark Inc.’s capital stock. Lee Roy Mitchell, our Chief Executive Officer, and the Mitchell Special Trust collectively retained approximately 16% ownership of Cinemark,USA, Inc.’s capital stock, with certain members of management owning the remaining 1%. Based on the terms of the transaction, including Mr. Mitchell’s ownership retention, the transaction was accounted for as a recapitalization, which resulted in Cinemark, Inc. and its subsidiaries retaining their historical book values. In December 2004, Madison sold approximately 10% of its stock in Cinemark, Inc. to outside investors and in July 2005, Cinemark, Inc. issued an additional 0.2 million shares to another outside investor. As of the date of this report, Madison owned approximately 74%all of the capital stock of certain of Cinemark USA, Inc., outside investors owned approximately 9%, Lee Roy Mitchell’s domestic subsidiaries and 65% of the voting stock of certain of its foreign subsidiaries.
The senior secured credit facility contains usual and customary negative covenants for agreements of this type, including, but not limited to, restrictions on Cinemark USA, Inc.’s ability, and in certain instances, its subsidiaries’ and Cinemark Holdings, Inc.’s ability, to consolidate or merge or liquidate; wind up or dissolve; substantially change the nature of its business; sell, transfer or dispose of assets; create or incur indebtedness; create liens; pay dividends and repurchase stock; and make capital expenditures and investments. The senior secured credit facility also requires Cinemark USA, Inc. to satisfy a consolidated net senior secured leverage ratio covenant as determined in accordance with the senior secured credit facility.
The dividend restriction contained in the senior secured credit facility prevents us and any of our subsidiaries from paying a dividend or otherwise distributing cash to its stockholders unless (1) we are not in default, and the Mitchell Special Trust collectively owned approximately 16%distribution would not cause us to be in default, under the senior secured credit facility; and (2) the aggregate amount of certain membersdividends, distributions, investments, redemptions and capital expenditures made since October 5, 2006, including dividends declared by the board of management owneddirectors, is less than the remaining 1%.sum of (a) the aggregate amount of cash and cash equivalents received by Cinemark Holdings, Inc. or Cinemark USA, Inc. as common equity since October 5, 2006, (b) Cinemark USA, Inc.’s consolidated EBITDA minus 1.75 times its consolidated interest expense, each as defined in the senior secured credit facility, since October 1, 2006, (c) $150 million and (d) certain other amounts specified in the senior secured credit facility, subject to certain adjustments specified in the senior secured credit facility. The dividend restriction is subject to certain exceptions specified in the senior secured credit facility.
The senior secured credit facility also includes customary events of default, including, among other things, payment default, covenant default, breach of representation or warranty, bankruptcy, cross-default, material ERISA events, certain types of change of control, material money judgments and failure to maintain subsidiary guarantees. If an event of default occurs, all commitments under the senior secured credit facility may be terminated and all obligations under the senior secured credit facility could be accelerated by the lenders, causing all loans outstanding (including accrued interest and fees payable thereunder) to be declared immediately due and payable.
See discussion of interest rate swap agreements under Quantitative and Qualitative Disclosures About Market Risk.
85/8% Senior Notes
On March 31, 2004,June 29, 2009, Cinemark USA, Inc. issued approximately $577.2$470.0 million aggregate principal amount at maturity of 8.625% senior notes due 2019 with an original issue discount of approximately $11.5 million, resulting in proceeds of approximately $458.5 million. The proceeds were primarily used to fund the repurchase of Cinemark, Inc.’s 93/4% senior discount notes due 2014. The gross proceeds at issuance of approximately $360.0 million were used to fund in part the Recapitalization.notes. Interest is payable on the notes accretes until March 15, 2009 up to their aggregate principal amount. Cash interest will accrue and be payable semi-annually in arrears on MarchJune 15 and SeptemberDecember 15 commencingof each year beginning on SeptemberDecember 15, 2009. DueThe senior notes mature on June 15, 2019.
The senior notes are fully and unconditionally guaranteed on a joint and several senior unsecured basis by certain of our subsidiaries that guarantee, assume or become liable with respect to any of our or our guarantor’s debt. The senior notes and the guarantees are senior unsecured obligations and rank equally in right of payment with all of our and our guarantor’s existing and future senior unsecured debt and senior in right of payment to all of our and our guarantor’s existing and future subordinated debt. The senior notes and the guarantees are effectively subordinated to all of our and our guarantor’s existing and future secured debt to the holding company statusextent of Cinemark, Inc., paymentsthe value of principalthe assets securing such debt, including all borrowings under our senior secured credit facility. The senior notes and interest under these notes will be dependent on loans, dividendsthe guarantees are structurally subordinated to all existing and future debt and other payments from us to Cinemark, Inc. On September 22, 2005, Cinemark, Inc. repurchased approximately $1.8 million aggregate principal amount at maturityliabilities of our subsidiaries that do not guarantee the 93/4% senior discount notes as part of an open market purchase for approximately $1.3 million, including accreted interest. As of December 31, 2005, the accreted principal balance of the notes was approximately $424.0 million and the aggregate principal amount at maturity will be approximately $575.3 million.notes.
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The indenture to the senior notes contains covenants that limit, among other things, the ability of Cinemark USA, Inc. and certain of its subsidiaries to (1) consummate specified asset sales, (2) make investments or other restricted payments, including paying dividends, making other distributions or repurchasing subordinated debt or equity, (3) incur additional indebtedness and issue preferred stock, (4) enter into transactions with affiliates, (5) enter new lines of business, (6) merge or consolidate with, or sell all or substantially all of its assets to another person and (7) create liens. Upon a change of control of Cinemark Holdings, Inc., or Cinemark USA, Inc., Cinemark USA, Inc. would be required to make an offer to repurchase all of the 93/4% senior discount notes at a price equal to 101% of the accreted value of the notes plus accrued and unpaid interest, if any, through the date of purchase. We have no obligation, contingent or otherwise, to pay the amounts due under the 93/4% senior discount notes or to make funds available to pay those amounts. The 93/4% senior discount notes are general, unsecured senior obligations of Cinemark, Inc. that are effectively subordinated to our indebtedness and other liabilities.
Historical Financings
Senior Subordinated Notes
On March 16, 2004, in connection with the Recapitalization, we initiated a tender offer for our then outstanding $105 million aggregate principal amount 81/2% senior subordinated notes due 2008 and a consent solicitation to remove substantially all restrictive covenants in the indenture governing those notes. On March 25, 2004, we executed a supplemental indenture removing substantially all of the covenants, which became effective on the date of the Recapitalization. On April 2, 2004, we redeemed approximately $94.1 million aggregate principal amount of 81/2% senior subordinated notes that were tendered, pursuant to the tender offer, utilizing a portion of the proceeds from our amended senior secured credit facility. On April 14, 2004, after the expiration of the tender offer, we redeemed an additional $50,000 aggregate principal amount of 81/2% senior subordinated notes that were tendered, leaving outstanding approximately $10.8 million aggregate principal amount of 81/2% senior subordinated notes.
On April 6, 2004, as a result of the consummation of the Recapitalization and in accordance with the terms of the indenture governing our 9% senior subordinated notes due 2013, we made a change of control offer to purchase the 9% senior subordinated notes at a purchase price of 101% of the aggregate principal amount, plus accrued and unpaid interest, if any, at the date of purchase. Approximately $17.8 million in aggregate principal amount of the 9% senior subordinated notes were tendered and not withdrawn in the change of control offer, which expired on May 26, 2004. We paid the change of control price with available cash on June 1, 2004.
On July 28, 2004, we provided notice to the holders of our remaining outstanding 81/2% senior subordinated notes due 2008 of our election to redeem all outstanding notes at a redemption price of 102.833% of the aggregate principal amount plus accrued interest. On August 27, 2004, we redeemed the remaining $10.8 million aggregate principal amount of notes utilizing available cash and borrowings under our amended revolving credit line.
As of December 31, 2005, we had outstanding approximately $342.3 million aggregate principal amount of 9% senior subordinated notes due 2013. Interest is payable on February 1 and August 1 of each year. We may redeem all or part of the existing 9% notes on or after February 1, 2008.
The senior subordinated notes are general, unsecured obligations and are subordinated in right of payment to the amended senior secured credit facility or other senior indebtedness. The notes are guaranteed by certain of our domestic subsidiaries. The guarantees are subordinated to the senior debt of the subsidiary guarantors and rank pari passu with the senior subordinated debt of our guarantor subsidiaries. The notes are effectively subordinated to the indebtedness and other liabilities of our non-guarantor subsidiaries.
The indenture governing the senior subordinated notes contain covenants that limit, among other things, dividends, transactions with affiliates, investments, sale of assets, mergers, repurchases of our capital stock, liens and additional indebtedness. Upon a change of control, we would be required to make an offer to repurchase the senior subordinated notes at a price equal to 101% of the aggregate principal amount outstanding plus accrued and unpaid interest through the date of repurchase. Certain asset dispositions are considered triggering events that may require Cinemark USA, Inc. to use the proceeds from those asset dispositions to make an offer to purchase the notes at 100% of their principal amount, plus accrued and unpaid interest, if any, to the date of repurchase if such proceeds are not otherwise used within 365 days as described in the indenture. The indenture governing the senior subordinated notes allow usallows Cinemark USA, Inc. to incur additional indebtedness if we satisfy the coverage ratio specified in the indenture, after giving effect to the incurrence of the additional indebtedness, and in certain other circumstances. The required minimum coverage ratio is 2 to 1 and our actual ratio as of December 31, 2009 was 5.4 to 1.
Prior to June 15, 2014, Cinemark USA, Inc. may redeem all or any part of the senior notes at its option at 100% of the principal amount plus a make-whole premium. After June 15, 2014, Cinemark USA, Inc. may redeem the senior notes in whole or in part at redemption prices described in the senior notes. In addition, Cinemark USA, Inc. may redeem up to 35% of the aggregate principal amount of the senior notes from the net proceeds of certain equity offerings at the redemption price set forth in the senior notes.
We filed a registration statement with the Securities and Exchange Commission (or the Commission) on September 24, 2009 pursuant to which we offered to exchange the senior notes for substantially similar registered senior notes. The registration statement became effective on December 17, 2009. The exchanged registered senior notes do not have transfer restrictions.
9% Senior Secured Credit FacilitySubordinated Notes
On April 2, 2004, we amended ourFebruary 11, 2003, Cinemark USA, Inc. issued $150 million aggregate principal amount of 9% senior subordinated notes due 2013 and on May 7, 2003, Cinemark USA, Inc. issued an additional $210 million aggregate principal amount of 9% senior subordinated notes due 2013, collectively referred to as the 9% senior subordinated notes. Interest is payable on February 1 and August 1 of each year.
Prior to 2007, Cinemark USA, Inc. repurchased approximately $27.8 million aggregate principal amount of its 9% senior subordinated notes. The transaction was funded with available cash from its operations.
On March 6, 2007, Cinemark USA, Inc. commenced an offer to purchase for cash any and all of its then existingoutstanding $332.2 million aggregate principal amount of 9% senior secured credit facility insubordinated notes. In connection with the Recapitalization. The amendedtender offer, Cinemark USA, Inc. solicited consents for certain proposed amendments to the indenture under which such notes were issued to remove substantially all restrictive covenants and certain events of default provisions. On March 20, 2007, the early settlement date, Cinemark USA, Inc. repurchased $332.0 million aggregate principal amount of 9% senior secured credit facility provides forsubordinated notes and executed a $260 million seven year term loan and a $100 million six and one-half year revolving credit line. The netsupplemental indenture implementing the proposed amendments. Cinemark USA, Inc. used the proceeds from the amendedNCM Transaction and cash on hand to purchase the 9% senior secured credit facility were usedsubordinated notes tendered pursuant to repay the term loan under our then existingtender offer and consent solicitation. On April 3, 2007, Cinemark USA, Inc. repurchased an additional $0.1 million aggregate principal amount of the 9% senior secured credit facilitysubordinated notes tendered after the early settlement date.
As of December 31, 2009, Cinemark USA, Inc. had outstanding approximately $0.2 million aggregate principal amount of 9% senior subordinated notes. Cinemark USA, Inc. may redeem the remaining 9% senior subordinated notes at its option at any time.
Covenant Compliance
The indenture to the senior notes contains covenants that limit, among other things, the ability of Cinemark USA, Inc. and certain of its subsidiaries to (1) consummate specified asset sales, (2) make investments or other restricted payments, including paying dividends, making other distributions or repurchasing subordinated debt or equity, (3) incur additional indebtedness and issue preferred stock, (4) enter into transactions with affiliates, (5) enter new lines of business, (6) merge or consolidate with, or sell all or substantially all of its assets to another person and (7) create liens. Upon a
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$163.8 million andchange of control of Cinemark Holdings, Inc. or Cinemark USA, Inc., Cinemark USA, Inc. would be required to redeemmake an offer to repurchase the approximately $94.2 millionsenior notes at a price equal to 101% of the aggregate principal amount of our then outstanding $105 million aggregate principal amount 81/2% senior subordinated notes due 2008 that were tendered pursuant to the tender offer.
The amended senior secured credit facility was further amended on August 18, 2004 to, among other things, reduce the interest rate applicable to the term loan. Under the amended term loan, principal payments of approximately $0.7 million are due each calendar quarter through March 31, 2010 and increase to $61.1 million each calendar quarter from June 30, 2010 to maturity at March 31, 2011. The amended term loan bears interest, at our option, at: (A) the base rate equal to the higher of (i) the prime lending rate as set forth on the British Banking Association Telerate page 5 or (ii) the federal funds effective rate from time to time plus 0.50%, plus a margin of 1.00% per annum, or (B) a “eurodollar rate” plus a margin of 2.00% per annum. After the completion of two fiscal quarters after the closing date, the margin under the amended term loan applicable to base rate loans ranges from 0.75% per annum to 1.00% per annum and the margin applicable to eurodollar rate loans ranges from 1.75% per annum to 2.00% per annum, and will be adjusted based upon our achieving certain performance targets.
Borrowings under the amended revolving credit line bear interest, at our option, at: (A) a base rate equal to the higher of (i) the prime lending rate as set forth on the British Banking Association Telerate page 5 or (ii) the federal funds effective rate from time to time plus 0.50%, plus a margin of 1.50% per annum, or (B) a “eurodollar rate” plus a margin of 2.50% per annum. After the completion of two fiscal quarters after the closing date, the margin under the amended revolving credit line applicable to base rate loans ranges from 1.00% per annum to 1.50% per annum and the margin applicable to eurodollar rate loans ranges from 2.00% per annum to 2.50% per annum, and will be adjusted based upon our achieving certain performance targets. We are required to pay a commitment fee calculated at the rate of 0.50% per annum on the average daily unused portion of the amended revolving credit line, payable quarterly in arrears.
Our obligations under the amended senior secured credit facility are guaranteed by Cinemark, Inc., CNMK Holding, Inc. and certain of our subsidiaries and are secured by mortgages on certain fee and leasehold properties and security interests in substantially all of our domestic personal and intangible property, including without limitation, pledges of all of our capital stock, all of the capital stock of CNMK Holding, Inc. and certain of our domestic subsidiaries and 65% of the voting stock of certain of our foreign subsidiaries.
At December 31, 2005, there was approximately $255.5 million outstanding under the amended term loan and no borrowings outstanding under the amended revolving credit line. Approximately $99.9 million was available for borrowing under the amended revolving credit line, giving effect to a $0.1 million letter of credit outstanding. The average interest rate on outstanding borrowings under the amended senior secured credit facility at December 31, 2005 was 6.5% per annum.
Cinemark Chile Note Payable
On March 26, 2002, Cinemark Chile S.A. entered into a Debt Acknowledgment, Rescheduling and Joint Guarantee and Co-Debt Agreement with Scotiabank Sud Americano and three local banks. Under this agreement, Cinemark Chile S.A. borrowed the U.S. dollar equivalent of approximately $10.6 million in Chilean pesos (adjusted for inflation pursuant to the Unidades de Fomento). Cinemark Chile S.A. was required to make 24 equal quarterly installments of principal plus accrued and unpaid interest commencing March 27, 2002. On September 29, 2004,through the date of repurchase. Certain asset dispositions are considered triggering events that may require Cinemark Chile S.A. refinancedUSA, Inc. to use the outstanding debt underproceeds from those asset dispositions to make an amended debt agreement with twooffer to purchase the notes at 100% of the original local banks, Corpbanca and Banco Security. The amended agreement requires 24 equal quarterly installments oftheir principal amount, plus accrued and unpaid interest, which commencedif any, to the date of repurchase if such proceeds are not otherwise used within 365 days as described in the indenture. The indenture governing the senior notes allows Cinemark USA, Inc. to incur additional indebtedness if we satisfy the coverage ratio specified in the indenture, after giving effect to the incurrence of the additional indebtedness, and in certain other circumstances. The required minimum coverage ratio is 2 to 1 and our actual ratio as of December 31, 2004. The agreement requires Cinemark Chile S.A.2009 was 5.4 to maintain certain financial ratios and contains other restrictive covenants typical for agreements of this type such as a limitation on dividends. Funds borrowed under this agreement bear interest at the 90 day TAB Banking rate as published by the Association of Banks and Financial Institutions Act plus 1.5%. At December 31, 2005, approximately US$6.6 million was outstanding under this agreement.1.
As of December 31, 2005,2009, we wereare in full compliance with all agreements, including all related covenants, governing our outstanding debt.
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Ratings
We are rated by nationally recognized rating agencies. The significance of individual ratings varies from agency to agency. However, companies’ assigned ratings at the top end of the range have, in the opinion of certain rating agencies, the strongest capacity for repayment of debt or payment of claims, while companies at the bottom end of the range have the weakest capability. Ratings are always subject to change and there can be no assurance that our current ratings will continue for any given period of time. A downgrade of our debt ratings, depending on the extent, could increase the cost to borrow funds. Below are our latest ratings per category, which were current as of January 31, 2006.February 28, 2010.
| | | | | | | | |
| Category | | Moody’s | | Standard and Poor’s |
Cinemark USA, Inc. 9 3/4%8.625% Senior Discount Notes | | Caa1 | B3 | | | | B- | |
| Cinemark USA, Inc. Senior Secured Credit Facility | | Ba3 | | BB- |
Cinemark USA, Inc. 9% Senior Subordinated NotesB | | B3 | | B- |
New Accounting Pronouncements
In December 2004,September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157 (FASB Accounting Standards Codification (“ASC”) Topic 820),“Fair Value Measurements.”Among other requirements, this statement defines fair value, establishes a framework for using fair value to measure assets and liabilities, and expands disclosures about fair value measurements. The statement applies whenever other statements require or permit assets or liabilities to be measured at fair value. SFAS No. 153, “Exchanges of Non-monetary Assets-Amendment of APB Opinion No. 29”. SFAS No. 153 amends APB Opinion No. 29 to eliminate the exception157 (FASB ASC Topic 820) was effective for nonmonetary exchanges of similar productiveus beginning January 1, 2008 (January 1, 2009 for nonfinancial assets and replaces it with a general exception for exchangesliabilities). Adoption of nonmonetary assets that do not have commercial substance, defined as transactions that are not expected to result in significant changes in the cash flows of the reporting entity. Thisthis statement is effective for exchanges of non-monetary assets occurring after June 15, 2005. The adoption of SFAS No. 153 did not have a materialsignificant impact on our consolidated financial statements.
In December 2004,2007, the FASB issued SFAS No. 123(R),“Share-Based Payment”141(R) (FASB ASC Topic 805), which supercedes APB Opinion No. 25,““AccountingBusiness Combinations”. This statement requires all business combinations completed after the effective date to be accounted for Stock Issuedby applying the acquisition method (previously referred to Employees,”as the purchase method); expands the definition of transactions and replacesevents that qualify as business combinations; requires that the acquired assets and liabilities, including contingencies, be recorded at the fair value determined on the acquisition date and changes thereafter reflected in income, not goodwill; changes the recognition timing for restructuring costs; and requires acquisition costs to be expensed as incurred rather than capitalized as part of the cost of the acquisition. Adoption of SFAS No. 123,“Accounting141(R) (FASB ASC Topic 805) is required for Stock-Based Compensation”business combinations that occur after December 15, 2008. Early adoption and retroactive application of SFAS No. 141(R) (FASB ASC Topic 805) to fiscal years preceding the effective date is not permitted. Adoption of this statement did not have a significant impact on our consolidated financial statements.
In December 2007, the FASB issued SFAS No. 160 (FASB ASC Topic 810), “Noncontrolling Interest in Consolidated Financial Statements”.This statement establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically, this statement requires the recognition of a noncontrolling interest (minority interest) as equity in the consolidated financial statements and separate from the parent’s equity. The amount of net income attributable to the noncontrolling interest will no longer be shown as a expense item for all transactionsperiods presented, but will be included in which an entity exchanges its equity instruments for goods and services.consolidated net income on the face of the income statement. SFAS No. 123(R) focuses primarily160 (FASB ASC Topic 810) requires disclosure, on accounting for transactions with employees,the face of the consolidated income statement, of the amounts of consolidated net income attributable to the parent and carries forward without change prior guidance for share-based payments for transactions with non employees.the noncontrolling interest. SFAS No. 123(R) eliminates160 (FASB ASC Topic 810) clarifies that changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the intrinsic value measurement objectiveparent retains its controlling financial interest. In addition, this statement
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requires that a parent recognize a gain or loss in APB Opinion No. 25 and generally requires us to measure the cost of employee services received in exchange for an award of equity instruments based onnet income when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the awardnoncontrolling equity investment on the datedeconsolidation date. SFAS No. 160 (FASB ASC Topic 810) also includes expanded disclosure requirements regarding the interests of the grant. The standard requires grant date fair value to be estimated using either an option-pricing model, which is consistent with the terms of the award, or a market observed price, if such a price exists. Such cost must be recognized over the period during which an employee is required to provide service in exchange for the award (which is usually the vesting period). The standard also requires us to estimate the number of instruments that will ultimately be issued, rather than accounting for forfeitures as they occur. We are required to applyparent and its noncontrolling interest. SFAS No. 123(R) to all awards granted, modified160 (FASB ASC Topic 810) was effective for fiscal years, and interim periods within those fiscal years, beginning on or settled in its first annual reporting period after December 15, 2005. We will be required2008. Upon adoption of this statement, we have recognized our noncontrolling interests as equity in the consolidated balance sheets, have reflected net income (loss) attributable to usenoncontrolling interests in consolidated net income (loss) in the “modified prospective method’’statements of operations and have provided a summary of changes in equity and a summary of comprehensive income (loss) attributable to Cinemark Holdings, Inc., under which we must recognize compensation costour noncontrolling interests and in total in the statement of stockholder’s equity and comprehensive income (loss) for all awards grantedperiods presented.
In March 2008, the FASB issued SFAS No. 161 (FASB ASC Topic 815) “Disclosures about Derivative Instruments and Hedging Activities—an Amendment of FASB Statement No. 133”. This statement intends to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures about their impact on an entity’s financial position, financial performance, and cash flows. SFAS No. 161 (FASB ASC Topic 815) requires disclosures regarding the objectives for using derivative instruments, the fair values of derivative instruments and their related gains and losses, and the accounting for derivatives and related hedged items. SFAS No. 161 (FASB ASC Topic 815) was effective for fiscal years and interim periods beginning after we adoptNovember 15, 2008, with early adoption permitted. The adoption of SFAS No. 161 (FASB ASC Topic 815) did not impact our consolidated financial statements, and did not have a significant impact on our disclosures.
In May 2009, the standardFASB issued SFAS No. 165 (FASB ASC Topic 855),“Subsequent Events”. SFAS No. 165 (FASB ASC Topic 855) should not result in significant changes in the subsequent events that an entity reports. Rather, SFAS No. 165 (FASB ASC Topic 855) introduces the concept of financial statements that are available to be issued. Financial statements are considered available to be issued when they are complete in a form and format that complies with generally accepted accounting principles and all approvals necessary for issuance have been obtained. SFAS No. 165 (FASB ASC Topic 855) was effective for interim or annual financial periods ending after June 15, 2009. The adoption of SFAS No. 165 (FASB ASC Topic 855) did not have a significant impact on our consolidated financial statements.
In June 2009, the FASB issued SFAS No. 168 (FASB ASC Topic 105),“The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles”, which authorizes the Codification as the sole source for authoritative generally accepted accounting principles in the U.S. (“U.S. GAAP”). SFAS No. 168 (FASB ASC Topic 105) was effective for financial statements issued for reporting periods that ended after September 15, 2009. SFAS No. 168 (FASB ASC Topic 105) supersedes all accounting standards in U.S. GAAP, aside from those issued by the SEC. SFAS No. 168 (FASB ASC Topic 105) replaced SFAS No. 162 to establish a new hierarchy of GAAP sources for non-governmental entities under the FASB Accounting Standards Codification. The adoption of SFAS No. 168 (FASB ASC Topic 105) did not have a significant impact on our consolidated financial statements.
Seasonality
Our revenues have historically been seasonal, coinciding with the timing of releases of motion pictures by the major distributors. Generally, the most successful motion pictures have been released during the summer, extending from May to mid-August, and during the holiday season, extending from early November through year-end. The unexpected emergence of a hit film during other periods can alter this seasonality trend. The timing of such film releases can have a significant effect on our results of operations, and the results of one quarter are not necessarily indicative of results for the unvested portion of previously granted awards that are outstanding on that date. We performed a preliminary analysis of the impact of SFAS 123(R). We had 1,538,062 unvested options outstanding on January 1, 2006 and the pre-tax compensation expense related to these options is estimated to be approximately $2.9 millionnext quarter or for the year ended December 31, 2006.same period in the following year.
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We have exposure to financial market risks, including changes in interest rates, foreign currency exchange rates and other relevant market prices.
Interest Rate Risk
We are currently party to variable rate debt facilities. An increase or decrease in interest rates would affect our interest costsexpense relating to our variable rate debt facilities. At December 31, 2005, we and our subsidiaries are parties to2009, there was an aggregate of
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approximately $784.6 million of variable rate debt outstanding under these facilities, which excludes $300.0 million of Cinemark USA, Inc.’s term loan that is hedged with an aggregate principal amount outstanding of approximately $266.9 million.the Company’s interest rate swap agreements as discussed below. Based on the interest rates in effect on ourthe variable rate debt outstanding at December 31, 2005,2009, a 10%100 basis point increase in thesemarket interest rates would not increase our annual interest expense by approximately $7.8 million.
During 2007 and 2008, we entered into three interest rate swap agreements. The interest rate swap agreements qualify for cash flow hedge accounting. The fair values of the interest rate swaps are recorded on our consolidated balance sheet as an asset or liability with the effective portion of the interest rate swaps’ gains or losses reported as a material amount. Changescomponent of accumulated other comprehensive income (loss) and the ineffective portion reported in earnings.
In March 2007, we entered into two interest rate swap agreements with effective dates of August 13, 2007 and terms of five years each. The interest rate swaps were designated to hedge approximately $500.0 million of our variable rate debt obligations under our senior secured credit facility. Under the terms of the interest rate swap agreements, we pay fixed rates do not haveof 4.918% and 4.922% on $375.0 million and $125.0 million, respectively, of variable rate debt and receive interest at a direct impactvariable rate based on the 3-month LIBOR. The 3-month LIBOR rate on each reset date determines the variable portion of the interest expense relatingrate-swaps for the three-month period following the reset date. No premium or discount was incurred upon us entering into the interest rate swaps because the pay and receive rates on the interest rate swaps represented prevailing rates for each counterparty at the time the interest rate swaps were consummated.
On September 14, 2008, the counterparty to our $375.0 million interest rate swap agreement filed for bankruptcy protection. As a result, we determined that on September 15, 2008, when the remainingcounterparty’s credit rating was downgraded, the interest rate swap was no longer highly effective. On October 1, 2008, we terminated this interest rate swap.
During October 2008, we entered into one interest rate swap agreement with an effective date of November 14, 2008 and a term of four years. The interest rate swap was designated to hedge approximately $100.0 million of our variable rate debt obligations under our senior secured credit facility for three years and $75.0 million of our variable rate debt obligations under our senior secured credit facility for four years. Under the terms of the interest rate swap agreement, we pay a fixed rate of 3.63% on $175.0 million of variable rate debt facilities.and receive interest at a variable rate based on the 1-month LIBOR. The 1-month LIBOR rate on each reset date determines the variable portion of the interest rate swap for the one-month period following the reset date. No premium or discount was incurred by us upon entering into the interest rate swap because the pay and receive rates on the interest rate swap represented prevailing rates for the counterparty at the time the interest rate swap was consummated.
The tablestable below provideprovides information about our fixed rate and variable rate long-term debt agreements as of December 31, 2005 and 2004:2009:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Expected Maturity As of December 31, 2005 | | | | | | | |
| | | (in millions) | | Average | | | | | |
| | | December 31, | | Fair | | Interest | | | Expected Maturity for the Twelve-Month Periods Ending December 31, | | Average |
| | | | | | | | | | (in millions) | | Interest |
| | | 2006 | | 2007 | | 2008 | | 2009 | | 2010 | | Thereafter | | Total | | Value | | Rate | | | 2010 | | 2011 | | 2012 | | 2013 | | 2014 | | Thereafter | | Total | | Fair Value | | Rate |
Fixed rate | | $ | 0.1 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 353.3 | | $ | 353.4 | | $ | 362.8 | | | 9.0 | % | | $ | — | | $ | — | | $ | — | | $ | 300.2 | | $ | — | | $ | 470.0 | | $ | 770.2 | | $ | 772.4 | | | 7.6 | % |
| Variable rate | | 6.8 | | 5.5 | | 4.3 | | 4.1 | | 185.1 | | 61.1 | | 266.9 | | 268.4 | | | 6.6 | % | | 12.2 | | 11.2 | | 271.6 | | 489.6 | | — | | $ | — | | 784.6 | | 741.4 | | | 2.0 | % |
| | | | | | | |
| Total debt | | $ | 6.9 | | $ | 5.5 | | $ | 4.3 | | $ | 4.1 | | $ | 185.1 | | $ | 414.4 | | $ | 620.3 | | $ | 631.2 | | | $ | 12.2 | | $ | 11.2 | | $ | 271.6 | | $ | 789.8 | | $ | — | | $ | 470.0 | | $ | 1,554.8 | | $ | 1,513.8 | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Expected Maturity As of December 31, 2004 | | | | | | | | |
| | | (in millions) | | | | | | | Average | |
| | | December 31, | | | Fair | | | Interest | |
| | | | | | | | | | |
| | | 2005 | | | 2006 | | | 2007 | | | 2008 | | | 2009 | | | Thereafter | | | Total | | | Value | | | Rate | |
| Fixed rate | | $ | 0.1 | | | $ | 0.1 | | | $ | — | | | $ | — | | | | — | | | $ | 354.9 | | | $ | 355.1 | | | $ | 390.6 | | | | 9.0 | % |
| Variable rate | | | 6.4 | | | | 6.5 | | | | 5.0 | | | | 4.0 | | | | 3.9 | | | | 246.0 | | | | 271.8 | | | | 271.4 | | | | 4.5 | % |
| | | | | | | |
| Total debt | | $ | 6.5 | | | $ | 6.6 | | | $ | 5.0 | | | $ | 4.0 | | | $ | 3.9 | | | $ | 600.9 | | | $ | 626.9 | | | $ | 662.0 | | | | | |
| | | | | | | |
| | |
| (1) | | Includes $300.0 million of the Cinemark USA, Inc. term loan, which represents the debt hedged with our interest rate swap agreements. |
Foreign Currency Exchange Rate Risk
We are also exposed to market risk arising from changes in foreign currency exchange rates as a result of our international operations. Generally, we export from the U.S. certain of the equipment and construction interior finish items and other operating supplies used by our international subsidiaries. Principally allA majority of the revenues and operating expenses of our international subsidiaries are transacted in the country’s local currency. Generally accepted accounting principles in the U.S. (“U.S. GAAP”) require that our subsidiaries use the currency of the primary economic environment in which they operate as their functional currency. If our subsidiaries operate in a highly inflationary economy, generally accepted accounting principles in the U.S. requireGAAP requires that the U.S. dollar be used as the functional currency for the subsidiary. Currency fluctuations in the countries in which we operate result in us reporting exchange gains (losses) or foreign currency translation adjustments relating to our international subsidiaries depending on the inflationary environment of the country in which we operate. adjustments.
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Based upon our equity ownership in our international subsidiaries as of December 31, 2005,2009, holding everything else constant, a 10% immediate, simultaneous, unfavorable change in eachall of the foreign currency exchange rates to which we are exposed, would decrease the aggregate net fairbook value of our investments in our international subsidiaries by approximately $14.0 million.
The accumulated other comprehensive loss account in shareholder’s equity of $77.1$39 million and $60.2 million atwould decrease the aggregate net income of our international subsidiaries for the years ended December 31, 20042008 and December 31, 2005, respectively, primarily relates to the cumulative foreign currency adjustments from translating the financial statements of Cinemark Argentina, S.A., Cinemark Brasil S.A., Cinemark de Mexico, S.A. de C.V.2009 by approximately $3 million and Cinemark Chile S.A. into U.S. dollars.
37
In 2005 and 2004, all foreign countries where the Company has operations, including Argentina, Brazil, Mexico and Chile were deemed non-highly inflationary. Thus, any fluctuation in the currency results in a cumulative foreign currency translation adjustment to the accumulated other comprehensive loss account recorded as an increase in, or reduction of, shareholder’s equity.
On December 31, 2005, the exchange rate for the Brazilian real was 2.34 reais to the U.S. dollar (the exchange rate was 2.65 reais to the U.S. dollar at December 31, 2004). As a result, the effect of translating the December 31, 2005 Brazilian financial statements into U.S. dollars is reflected as a cumulative foreign currency translation adjustment to the accumulated other comprehensive loss account as an increase in shareholder’s equity of $12.0 million. At December 31, 2005, the total assets of our Brazilian subsidiaries were U.S. $99.8 million.
On December 31, 2005, the exchange rate for the Mexican peso was 10.71 pesos to the U.S. dollar (the exchange rate was 11.22 pesos to the U.S. dollar at December 31, 2004). The effect of translating the December 31, 2005 Mexican financial statements into U.S. dollars is reflected as a cumulative foreign currency translation adjustment to the accumulated other comprehensive loss account as an increase in shareholder’s equity of $4.6 million. At December 31, 2005, the total assets of our Mexican subsidiaries were U.S. $88.4 million.
On December 31, 2005, the exchange rate for the Argentine peso was 3.03 pesos to the U.S. dollar (the exchange rate was 2.97 pesos to the U.S. dollar at December 31, 2004). The effect of translating the December 31, 2005 Argentine financial statements into U.S. dollars was immaterial to the change in the accumulated other comprehensive loss account. At December 31, 2005, the total assets of our Argentine subsidiaries were U.S. $16.5 million.
On December 31, 2005, the exchange rate for the Chilean peso was 514.21 pesos to the U.S. dollar (the exchange rate was 559.83 pesos to the U.S. dollar at December 31, 2004). As a result, the effect of translating the December 31, 2005 Chilean financial statements into U.S. dollars is reflected as a cumulative foreign currency translation adjustment to the accumulated other comprehensive loss account as an increase in shareholder’s equity of $1.1 million. At December 31, 2005, the total assets of the Company’s Chilean subsidiaries were U.S. $19.7 million.
During 2004, we sold our United Kingdom theatres, which resulted in a reduction of shareholder’s equity upon the realization of $1.1$4 million, of cumulative foreign currency translation adjustments previously recorded in the accumulated other comprehensive loss account.respectively.
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Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data are listed on the Index on page F-1.F-1 of this Form 10-K. Such financial statements and supplementary data are included herein beginning on page F-3.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
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Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We have established a systemAs of December 31, 2009, we carried out an evaluation required by the 1934 Act, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and other procedures, designedas defined in Rule 13a-15(e) of the 1934 Act. Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of December 31, 2009, our disclosure controls and procedures were effective to ensureprovide reasonable assurance that information required to be disclosed by us in our periodicthe reports filedthat we file or submit under the Securities Exchange1934 Act of 1934 (the “Exchange Act”), as amended, is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’sSEC’s rules and forms. These disclosure controlsforms and procedures have been evaluated underwere 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.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) of the direction1934 Act. The Company’s internal control framework and processes are designed to provide reasonable assurance to management and the board of directors regarding the reliability of financial reporting and the preparation of the Company’s consolidated financial statements in accordance with the accounting principles generally accepted in the United States of America. Management has assessed the effectiveness of our Chief Executive Officer and Chief Financial Officer forinternal control over financial reporting as of December 31, 2009 based on criteria set forth by the period covered byCommittee of Sponsoring Organizations of the Treadway Commission (“COSO”) inInternal Control—Integrated Framework. As a result of this report. Based on such evaluations, the Chief Executive Officer and Chief Financial Officer haveassessment, management concluded that, the disclosure controls and procedures areas of December 31, 2009, our internal control over financial reporting was effective.
Certifications of our CEO and our CFO, which are required in accordance with Rule 13a-14 of the Exchange Act, are attached as exhibits to this Annual Report. This “Controls and Procedures” section includes the information concerning the controls evaluation referred to in the certifications, and it should be read in conjunction with the certifications for a more complete understanding of the topics presented.
The Company’s independent auditors, Deloitte & Touche LLP, with direct access to the Company’s board of directors through its Audit Committee, have audited the consolidated financial statements prepared by the Company. Their report on the consolidated financial statements is included in Part II, Item 8. Financial Statements and Supplementary Data. Deloitte & Touche LLP has issued an attestation report on the Company’s internal control over financial reporting. Deloitte & Touche LLP’s report on the Company’s internal control over financial reporting is included herein.
Changes in Internal ControlsControl Over Financial Reporting
In 2005, we restated the footnote disclosure that contains our condensed consolidating financial information of subsidiary guarantors. We determined that controls over the preparation and review of the condensed consolidating financial information of subsidiary guarantors were insufficient andThere have taken actions to strengthen our review controls over the condensed consolidating financial information of subsidiary guarantors. During the fourth quarter of fiscal 2005, except for the corrective actions noted above, there werebeen no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 that occurred during the quarter ended December 31, 2009 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Controls
Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors or fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.
3945
Attestation Report of Deloitte & Touche, LLP
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of
Cinemark USA, Inc.
Plano, Texas
We have audited the internal control over financial reporting of Cinemark USA, Inc. and subsidiaries (the “Company”) as of December 31, 2009, based on criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying management’s report on internal control over financial reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on the criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2009 of the Company and our report dated March 10, 2010 expressed an unqualified opinion on those financial statements.
/s/ Deloitte & Touche LLP
Dallas, Texas
March 10, 2010
46
PART III
Item 10. Directors, and Executive Officers of the Registrantand Corporate Governance
| | | | | | |
Name | | Age | | Position |
Lee Roy Mitchell | | | 68 | | | Chairman of the Board; Chief Executive Officer; Director |
Tandy Mitchell | | | 55 | | | Executive Vice President; Assistant Secretary |
Alan Stock | | | 45 | | | President; Chief Operating Officer |
Robert Copple | | | 47 | | | Senior Vice President; Treasurer; Chief Financial Officer; Assistant Secretary |
Tim Warner | | | 61 | | | Senior Vice President; President of Cinemark International, L.L.C. |
Robert Carmony | | | 48 | | | Senior Vice President-Operations |
Michael Cavalier | | | 39 | | | Senior Vice President-General Counsel; Secretary |
Margaret Richards | | | 47 | | | Vice President-Real Estate; Assistant Secretary |
John Lundin | | | 56 | | | Vice President-Film Licensing |
Walter Hebert, III | | | 60 | | | Vice President-Purchasing |
Don Harton | | | 48 | | | Vice President-Construction |
Terrell Falk | | | 55 | | | Vice President-Marketing and Communications |
Tom Owens | | | 49 | | | Vice President-Development |
Benjamin D. Chereskin | | | 47 | | | Director |
James N. Perry, Jr | | | 45 | | | Director |
Robin P. Selati | | | 39 | | | Director |
Vahe A. Dombalagian | | | 32 | | | Director |
Enrique F. Senior | | | 62 | | | Director |
Peter R. Ezersky | | | 45 | | | Director |
The Company has adopted a code Incorporated by reference to Cinemark Holdings, Inc.’s Proxy Statement for its Annual Stockholders Meeting (under the headings “Election of ethics applicableDirectors”, “Corporate Governance” and “Executive Officers”) to its principal executive officerbe held on May 13, 2010 and its principal financial officer.
The following is a brief description ofto be filed with the business experience of each of our current directorsSecurities and executive officers.
Lee Roy Mitchellhas served as Chairman of the Board since March 1996 and as Chief Executive Officer and a Director since our inception in 1987. Mr. Mitchell has served on the Board of Directors of the National Association of Theatre Owners since 1991. Mr. Mitchell also serves on the Board of Directors of National CineMedia, L.L.C., Texas Capital Bancshares, Inc., Champions for Life and Dallas County Community College. Mr. Mitchell is the husband of Tandy Mitchell.
Tandy Mitchellhas served as Executive Vice President since October 1989 and Assistant Secretary sinceExchange Commission within 120 days after December 2003. Mrs. Mitchell also served as Vice Chairman of the Board from March 1996 to April 2004. Mrs. Mitchell is the wife of Lee Roy Mitchell and sister of Walter Hebert, III.31, 2009.
Alan Stockhas served as President since March 1993 and as Chief Operating Officer since March 1992. Mr. Stock also served as a Director from April 1992 to April 2004. Mr. Stock serves on the Board of Directors of National CineMedia, L.L.C.
Robert Copplehas served as Senior Vice President, Treasurer, Chief Financial Officer and Assistant Secretary since August 2000 and also served as a Director from September 2001 to April 2004. Mr. Copple was acting Chief Financial Officer from March 2000 to August 2000.
Tim Warnerhas served as Senior Vice President since May 2002 and President of Cinemark International, L.L.C. since April 1996. Mr. Warner has served on the Board of Directors of the National Association of Theatre
40
Owners since 1982 and was the Chairman of the National Association of Theatre Owners International Committee from 2002 through 2004.
Robert Carmonyhas served as Senior Vice President-Operations since July 1997.
Michael Cavalierhas served as Senior Vice President-General Counsel since January 2006, as Vice President-General Counsel since July 1999, as Assistant Secretary from December 2002 to December 2003 and as Secretary since December 2003.
Margaret Richardshas served as Vice President-Real Estate since March 1994 and as Vice President and Assistant Secretary since October 1989.
John Lundinhas served as Vice President-Film Licensing since September 2000 and as Head Film Buyer from September 1997 to September 2000.
Walter Hebert, IIIhas served as Vice President–Purchasing since July 1997. Mr. Hebert is the brother of Tandy Mitchell.
Don Hartonhas served as Vice President-Construction since July 1997.
Terrell Falkhas served as Vice President-Marketing and Communications since April 2001. From March 1998 to April 2001, Ms. Falk was Director of Large Format Theatres, overseeing the marketing and operations of our IMAX theatres.
Tom Owenshas served as Vice President-Development since December 2003 and as Director of Real Estate since April 2001. From 1998 to April 2001, Mr. Owens was President of NRE, a company he founded that specialized in the development and financing of motion picture theatres. From 1996 to 1998, Mr. Owens served as President of Silver Cinemas International, Inc., a motion picture exhibitor.
Benjamin D. Chereskinhas served as a Director since April 2004. Mr. Chereskin is a Managing Director of Madison Dearborn Partners, LLC and co-founded the firm in 1993. Previously, Mr. Chereskin was with First Chicago Venture Capital for nine years. Mr. Chereskin currently serves on the Board of Directors of Tuesday Morning Corporation, NWL Holdings, Inc., Family Christian Stores, Inc., Carrols Holdings Corp., BF Bolthouse Holdco, LLC, and National CineMedia L.L.C.
James N. Perry, Jr.has served as a Director since April 2004. Mr. Perry is a Managing Director of Madison Dearborn Partners, LLC and has been employed by the firm since 1993. Previously, Mr. Perry was with First Chicago Venture Capital for eight years. Mr. Perry currently serves on the Board of Directors of Nextel Partners, Inc., Cbeyond Communications, LLC, Madison River Telephone Company, Intelsat, Ltd., MetroPCS and Band-X.
Robin P. Selatihas served as a Director since April 2004. Mr. Selati is a Managing Director of Madison Dearborn Partners, LLC and has been employed by the firm since 1993. Previously, Mr. Selati was with Alex. Brown & Sons Incorporated, an investment bank. Mr. Selati currently serves on the Board of Directors of Tuesday Morning Corporation, Peter Piper, Inc., NWL Holdings, Inc., Carrols Holdings Corporation, Family Christian Stores, Inc., Ruth’s Chris Steak House, Inc., Beverages & More, Inc., Pierre Foods, Inc., and Wm. Bolthouse Farms, Inc.
Vahe A. Dombalagianhas served as a Director since April 2004. Mr. Dombalagian is a Director of Madison Dearborn Partners, LLC and has been employed by the firm since July 2001. From August 1997 to August 1999, Mr. Dombalagian was an Associate with Texas Pacific Group, a private equity firm. Mr. Dombalagian currently serves on the Board of Directors of Outsourcing Solutions, Inc.
Enrique F. Seniorhas served as a Director since April 2005. Mr. Senior is a Managing Director of Allen & Company LLC, formerly Allen & Company Incorporated, and has been employed by the firm since 1973.
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Previously Mr. Senior was with White, Weld & Company for three years. Mr. Senior currently serves on the Board of Directors of Grupo Televisa S.A. de C.V. and Coca Cola FEMSA S.A. de C.V.
Peter R. Ezerskyhas served as a Director since April 2005. Mr. Ezersky is a Managing Principal of Quadrangle Group LLC and co-founded the firm in 2000. Previously, Mr. Ezersky was with Lazard Freres & Co. for ten years and The First Boston Corporation for four years. Mr. Ezersky currently serves on the Board of Directors of MGM Holdings, Dice Holdings and Publishing Group of America.
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Item 11. Executive Compensation
The following Summary Compensation Table sets forth the compensation earnedIncorporated by the Company’s Chief Executive Officer and the four most highly compensated executive officers:
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | Long-Term | | |
| | | | | | | | | | | | | | | Compensation | | |
| | | | | Awards | | |
| | | Annual Compensation | | Securities | | All Other |
| | | | | | | Salary(1) | | Bonus | | Underlying | | Compensation |
| Name and Principal Position | | Year | | ($) | | ($) | | Options/SAR | | ($) |
| Lee Roy Mitchell, Chairman of the | | | 2005 | | | $ | 741,707 | | | $ | — | (2) | | | — | | | $ | 120,119 | (5) |
| Board and Chief Executive | | | 2004 | | | | 716,625 | | | | 417,526 | (3) | | | — | | | | 2,532,271 | (6) |
| Officer | | | 2003 | | | | 682,500 | | | | 652,740 | (4) | | | — | | | | 132,020 | (7) |
| |
| Alan Stock, President and Chief | | | 2005 | | | | 438,929 | | | | — | (2) | | | — | | | | 681,299 | (8) |
| Operating Officer | | | 2004 | | | | 424,086 | | | | 247,084 | (3) | | | 307,499 | (14) | | | 4,315,751 | (9) |
| | | | 2003 | | | | 403,891 | | | | 98,826 | (4) | | | — | | | | 10,500 | (10) |
| |
| Tim Warner, Senior Vice | | | 2005 | | | | 355,938 | | | | — | (2) | | | — | | | | 11,025 | (10) |
| President and President — | | | 2004 | | | | 343,901 | | | | 200,366 | (3) | | | 307,499 | (14) | | | 3,929,017 | (11) |
| Cinemark International, L.L.C. | | | 2003 | | | | 327,525 | | | | 80,140 | (4) | | | — | | | | 10,500 | (10) |
| |
| Robert Copple, Senior Vice | | | 2005 | | | | 320,503 | | | | — | (2) | | | — | | | | 11,025 | (10) |
| President and Chief Financial | | | 2004 | | | | 309,665 | | | | 180,419 | (3) | | | 307,499 | (14) | | | 3,162,632 | (12) |
| Officer | | | 2003 | | | | 294,919 | | | | 72,162 | (4) | | | — | | | | 10,500 | (10) |
| |
| Robert Carmony, Senior Vice | | | 2005 | | | | 308,978 | | | | — | (2) | | | — | | | | 11,025 | (10) |
| President — Operations | | | 2004 | | | | 298,529 | | | | 173,931 | (3) | | | 199,874 | (14) | | | 1,814,225 | (13) |
| | | | 2003 | | | | 284,313 | | | | 69,567 | (4) | | | — | | | | 9,035 | (10) |
(1) | | Amounts shown include cash and non-cash compensation earned and received by executive officers. |
|
(2) | | No bonuses were earned in 2005. |
|
(3) | | Bonuses were earned in 2004 but were paid in 2005. |
|
(4) | | Bonuses were earned in 2003 but were paid in 2004. |
|
(5) | | Represents an $11,025 annual matching contribution to executives’ 401(k) savings plan, $10,250 representing the value of the use of a company vehicle for one year and $98,844 of life insurance premiums paid by us for the benefit of Mr. Mitchell. |
|
(6) | | Represents a $10,762 annual matching contribution to executives’ 401(k) savings plan, $22,665 representing the value of the use of a company vehicle for one year and $98,844 of life insurance premiums paid by us for the benefit of Mr. Mitchell and a $2,400,000 bonus payment made to Mr. Mitchell under Mr. Mitchell’s new employment agreement upon the Recapitalization of Cinemark, Inc. |
|
(7) | | Represents a $10,500 annual matching contribution to executives’ 401(k) savings plan, $22,665 representing the value of the use of a company vehicle for one year and $98,855 of life insurance premiums paid by us for the benefit of Mr. Mitchell. |
43
(8) | | Represents an $11,025 annual matching contribution to executives’ 401(k) savings plan and a $670,274 payment under Mr. Stock’s profit participation agreement for certain of our theatres. |
|
(9) | | Represents a $10,762 annual matching contribution to executives’ 401(k) savings plan, $364,699 payment under Mr. Stock’s profit participation agreement for certain of our theatres, and, upon the Recapitalization of Cinemark, Inc., a $1,742,391 payment made to Mr. Stock under a sale bonus agreement, a $1,159,640 change of control compensation payment under Mr. Stock’s prior employment agreement, a $50,000 bonus payment under Mr. Stock’s new employment agreement and $988,259 net consideration paid for options that were acquired as part of the Recapitalization. |
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(10) | | Represents an annual matching contribution to executives’ 401(k) savings plan. |
|
(11) | | Represents a $10,762 annual matching contribution to executives’ 401(k) savings plan, and, upon the Recapitalization of Cinemark, Inc., a $1,939,614 payment made to Mr. Warner under a sale bonus agreement, a $940,382 change of control compensation payment under Mr. Warner’s prior employment agreement, a $50,000 bonus payment under Mr. Warner’s new employment agreement and $988,259 net consideration paid for options that were acquired as part of the Recapitalization. |
|
(12) | | Represents a $10,762 annual matching contribution to executives’ 401(k) savings plan, and, upon the Recapitalization of Cinemark, Inc. a $1,733,757 payment made to Mr. Copple under a sale bonus agreement, a $846,763 change of control compensation payment under Mr. Copple’s prior employment agreement, a $50,000 bonus payment under Mr. Copple’s new employment agreement and $521,350 net consideration paid for options that were acquired as part of the Recapitalization. |
|
(13) | | Represents a $9,652 annual matching contribution to executives’ 401(k) savings plan, and, upon the Recapitalization of Cinemark, Inc. an $816,314 change of control compensation payment under Mr. Carmony’s prior employment agreement and $988,259 net consideration paid for options that were acquired as part of the Recapitalization. |
|
(14) | | On September 30, 2004, our parent, Cinemark, Inc., granted each of Mr. Stock, Mr. Warner, and Mr. Copple options to purchase an aggregate of 307,499 shares of Class A common stock of Cinemark, Inc., and granted Mr. Carmony options to purchase an aggregate of 199,874 shares of Class A common stock of Cinemark, Inc., under Cinemark, Inc.’s Long Term Incentive Plan at an exercise price of $22.58 per share. On the date of grant, Cinemark, Inc.’s Class A common stock had a market value of $22.58 per share. For Messrs. Stock, Warner and Copple, options to purchase 30,497 shares vested immediately and for Mr. Carmony, options to purchase 19,823 shares vested immediately. The remaining options vest daily over the period ending April 1, 2009. |
Options/ Stock Appreciation Right Grants in Last Fiscal Year
There were no stock appreciation rights or stock options granted to the named executive officers during the year ended December 31, 2005.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Value Table
None of our named executive officers exercised options during the most recent fiscal year ended December 31, 2005.
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Director Compensation
Our directors are elected each year by our shareholders to serve for a one year term and until their successors are elected and qualified. Directors are reimbursed for expenses actually incurred for each Board meeting which they attend. In addition, independent directors may receive a fee for each meeting of the Board of Directors attended by such person. Our executive officers are elected by the Board of Directors to serve at the discretion of the Board.
Committees of the Board of Directors
The Board of Directors of Cinemark, Inc., our parent, has established an audit committee and a compensation committee. Mr. Dombalagian is serving as the chairman and sole member of the audit committee, and Mr. Chereskin is serving as the chairman of the compensation committee. The audit committee recommends the annual appointment of auditors. The audit committee reviews the scope of audit and non-audit services and related fees, accounting principles we and Cinemark, Inc. use in financial reporting, and the adequacy of our and Cinemark, Inc.’s internal control procedures. The compensation committee reviews and approves the compensation and benefits for our executive officers, authorizes and ratifies stock option grants and other incentive arrangements, and authorizes employment and related agreements. The Board of Directors may contemplate establishing other committees.
Employment Agreements
On March 12, 2004, our parent, Cinemark, Inc., entered into new employment agreements with certain executives which became effective upon the consummation of the Recapitalization on April 2, 2004. In addition, in connection with the Recapitalization, Cinemark, Inc. paid a one-time special bonus in the amount of $2.4 million to Lee Roy Mitchell and in the amount of $50,000 to each of Alan Stock, Tim Warner and Robert Copple. Set forth below is a summary of our employment agreements.
Lee Roy Mitchell
Cinemark, Inc. entered into an employment agreement with Lee Roy Mitchell pursuant to which Mr. Mitchell serves as its and our Chief Executive Officer. The employment agreement became effective upon the consummation of the Recapitalization. The initial term of the employment agreement is three years, subject to an automatic extension for a one-year period, unless the employment agreement is terminated. Mr. Mitchell received a base salary of $741,707 during 2005, which is subject to annual review for increase (but not decrease) each year by Cinemark, Inc.’s Board of Directors or committee or delegate thereof. In addition, Mr. Mitchell is eligible to receive an annual cash incentive bonus upon our meeting certain performance targets established by the Cinemark, Inc. board or the compensation committee for the fiscal year. Mr. Mitchell is also entitled to additional fringe benefits including life insurance benefits of not less than $5 million, disability benefits of not less than 66% of base salary, a luxury automobile and a membership at a country club. The employment agreement provides for severance payments upon termination of employment, the amount and nature of which depends upon the reason for the termination of employment. If Mr. Mitchell resigns for good reason or is terminated by Cinemark, Inc. without cause (as defined in the agreement), Mr. Mitchell will receive: accrued compensation (which includes base salary and a pro rata bonus) through the date of termination; any previously vested stock options and accrued benefits, such as retirement benefits, in accordance with the terms of the plan or agreement pursuant to which such options or benefits were granted; his annual base salary as in effect at the time of termination for a period of twelve months following such termination; and an amount equal to the most recent annual bonus he received prior to the date of termination. Mr. Mitchell’s equity-based or performance-based awards will become fully vested and exercisable upon such termination or resignation. Mr. Mitchell may choose to continue to participate in our benefit plans and insurance programs on the same terms as other actively employed senior executives for a one-year period. Furthermore, so long as Mr. Mitchell remains Chief Executive Officer, he will possess approval rights over certain significant transactions that may be pursued by us.
In the event Mr. Mitchell’s employment is terminated due to his death or disability, Mr. Mitchell or his estate will receive: accrued compensation (which includes base salary and a pro rata bonus) through the date of termination; any previously vested stock options and accrued benefits, such as retirement benefits, in accordance
45
with the terms of the plan or agreement pursuant to which such options or benefits were granted; his annual base salary as in effect at the time of termination for a period of six months following such termination; a lump sum payment equal to an additional six months of base salary payable six months after the date of termination; and any benefits payable to Mr. Mitchell and or his beneficiaries in accordance with the terms of any applicable benefit plan.
In the event Mr. Mitchell’s employment is terminated by Cinemark, Inc. for cause or under a voluntary termination (as defined in the agreement), Mr. Mitchell will receive: accrued base salary through the date of termination; and any previously vested rights under a stock option or similar incentive compensation plan in accordance with the terms of such plan.
Mr. Mitchell will also be entitled, for a period of five years, to tax preparation assistance upon termination of his employment for any reason other than for cause or under a voluntary termination. The employment agreement contains various covenants, including covenants related to confidentiality, non-competition (other than certain permitted activities as defined therein) and non-solicitation.
Tandy Mitchell, Alan Stock, Robert Copple, Timothy Warner, Robert Carmony, John Lundin and Michael Cavalier
Cinemark, Inc. entered into executive employment agreements with each of Tandy Mitchell, Alan Stock, Robert Copple, Timothy Warner, Robert Carmony, John Lundin and Michael Cavalier pursuant to which Mrs. Mitchell and Messrs. Stock, Copple, Warner, Carmony, Lundin and Cavalier serve, respectively, as its and our Executive Vice President, President and Chief Operating Officer, Senior Vice President and Chief Financial Officer, Senior Vice President, Senior Vice President of Operations, Vice President of Film Licensing and Senior Vice President- General Counsel. The employment agreements became effective upon the consummation of the Recapitalization. The initial term of each employment agreement is three years, subject to automatic extensions for a one-year period at the end of each year of the term, unless the agreement is terminated. Pursuant to the employment agreements, each of these individuals receives a base salary, which is subject to annual review for increase (but not decrease) each year by Cinemark, Inc.’s Board of Directors or committee or delegate thereof. In addition, each of these executives is eligible to receive an annual cash incentive bonus upon our meeting certain performance targets established by the Cinemark, Inc. Board of Directors or the compensation committee for the fiscal year.
Cinemark, Inc.’s Board of Directors has adopted a stock option plan and granted each executive stock options to acquire such number of shares as set forth in that executive’s employment agreement. The executive’s stock options vest and become exercisable twenty percent per year on a daily pro rata basis and shall be fully vested and exercisable five years after the date of the grant, as long as the executive remains continuously employed by Cinemark, Inc. Upon consummation of a sale of Cinemark, Inc. or our company, the executive’s stock options will accelerate and become fully vested.
The employment agreement with each executive provides for severance payments on substantially the same terms as the employment agreement for Mr. Mitchell in that the executive will receive his or her annual base salary in effect at the time of termination for a period commencing on the date of termination and ending on the second anniversary of the effective date (rather than for twelve months); and an amount equal to the most recent annual bonus he or she received prior to the date of termination pro rated for the number of days between such termination and the second anniversary of the effective date (rather than a single annual bonus).
Each executive will also be entitled to office space and support services for a period of not more than three months following the date of any termination except for termination for cause. The employment agreements contain various covenants, including covenants related to confidentiality, non-competition and non-solicitation.
Non-Competition, Non-Solicitation and Non-Disclosure Agreement
Each of Lee Roy Mitchell, Tandy Mitchell, Alan Stock, Robert Copple, Timothy Warner, Robert Carmony, John Lundin, Michael Cavalier and certain trusts, in his, her or its capacity as a seller of Cinemark, Inc.’s common stock, have entered into non-competition, non-solicitation and non-disclosure agreements with Cinemark, Inc. These agreements became effective upon the consummation of the Recapitalization. Pursuant to the agreements, each executive agreed not to compete with Cinemark, Inc. for a period of two years, and each executive agreed not to
46
solicit its customers or hire its employees, or disparage Cinemark, Inc., for a period of three years. The obligation not to compete will terminate prior to the two year period if we effect a sale of Cinemark, Inc. (as defined in the agreements). In addition, each executive agreed not to disclose confidential information for a period of three years.
401(k) Plan
We sponsor a defined contribution savings plan, or 401(k) Plan, whereby certain employees may elect to contribute, in whole percentages between 1% and 50% of such employee’s compensation, provided no employee’s elective contribution shall exceed the amount permitted under Section 402(g) of the Internal Revenue Code of 1986, as amended ($14,000 in 2005). We may make an annual discretionary matching contribution. For plan years prior to 2002, our discretionary matching contribution is subject to vesting and forfeiture. For these plan years, our discretionary matching contributions vest to individual accounts at the rate of 20% per year beginning two years from the date of employment, and employees are fully vested in the discretionary matching contributions after six years of employment. For plan years beginning in 2002, our discretionary matching contributions immediately vest.
Stock Option Plan
Upon consummation of the Recapitalization on April 2, 2004, all stock options of Cinemark, Inc. outstanding prior to the Recapitalization immediately vested and the majority were repurchased, resulting in compensation expense of $16.2 million recorded by us. See Note 3 to the consolidated financial statements for further discussion of the Recapitalization.
On September 30, 2004, the Board of Directors and the majority of stockholders of Cinemark, Inc. approved the 2004 Long Term Incentive Plan (the “Plan”) under which 3,074,991 shares of Class A common stock are available for issuance to selected employees, directors and consultants of ours. The Plan provides for restricted share grants, incentive option grants and nonqualified option grants. On September 30, 2004, Cinemark, Inc. granted options to purchase 2,361,590 shares of Cinemark, Inc. Class A common stock under the Plan at an exercise price of $22.58 per option. The exercise price was equal to the fair market value of the Cinemark, Inc. Class A common stock on the date of grant. Options to purchase 234,219 shares vested immediately and the remaining options granted in 2004 vest daily over the period ending April 1, 2009. On January 28, 2005, Cinemark, Inc. granted 4,075 options under the Plan at an exercise price of $22.58 per option. The exercise price was equal to the fair market value of the Cinemark, Inc. Class A common stock on the date of grant. The options granted during January 2005 vest daily over five years. All options granted under the Plan expire ten years from the grant date. There were options to purchase 2,365,665 shares of Cinemark, Inc. Class A common stock outstanding under the Plan as of December 31, 2005.
A participant’s options under the Plan are forfeited if the participant’s servicereference to Cinemark Holdings, Inc. or any of’s Proxy Statement for its subsidiaries is terminated for cause. At any time beforeAnnual Stockholders Meeting (under the Class A common stock becomes listed or admitted to unlisted trading privileges on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers or if sale or bid and other offer quotations are reported for that class of common stock on the NASDAQ National Market, Cinemark, Inc. or a designee shall have the right to purchase any shares of Class A common stock acquired on exercise of an option, any restricted shares issued under the Plan and any exercisable options granted under the Plan. The purchase price in such event shall be determined as provided in the Plan.
Compensation Committee Interlocks and Insider Participation
In April 2004, the Board of Directors of Cinemark, Inc. established a Compensation Committee to study senior management compensation and make recommendations to the Board of Directors as a whole relating to said compensation. Mr. Chereskin currently serves as the chairman of the Compensation Committee. Mr. Chereskin is not and has never been an officer of the Company.
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| | |
Item 12. | | Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters |
Equity Compensation Plan Information
The following table provides information about the securities authorized for issuance under our equity compensation plans as of December 31, 2005:
| | | | | | | | | | | | | |
| | | Equity | | Equity | | |
| | | compensation | | compensation | | |
| | | plans approved | | plans not | | |
| | | by security | | approved by | | |
| | | holders | | security holders | | Total |
| | | |
| (a) Number of securities to be issued upon exercise of outstanding options, warrants and rights | | | 2,365,665 | | | | — | | | | 2,365,665 | |
| | | | | | | | | | | | | |
| (b) Weighted-average exercise price of outstanding options, warrants and rights | | $ | 22.58 | | | | — | | | $ | 22.58 | |
| | | | | | | | | | | | | |
| (c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in row (a)) | | | 709,326 | | | | — | | | | 709,326 | |
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Beneficial Ownership
All of our outstanding common stock is beneficially owned by Cinemark, Inc., through its wholly owned subsidiary CNMK Holding, Inc. The following table presents information regarding beneficial ownership of Cinemark, Inc.’s common stock as of February 28, 2006 by:
| • | | each person known by us to beneficially hold five percent or more of Cinemark, Inc.’s common stock; |
|
| • | | each of Cinemark, Inc.’s and Cinemark USA, Inc.’s directors; |
|
| • | | each of Cinemark, Inc.’s named executive officers; and |
|
| • | | all of Cinemark, Inc.’s executive officers and directors as a group. |
Beneficial ownership has been determined in accordance with the applicable rules and regulations, promulgated under the Securities Exchange Act of 1934, as amended. Unless indicated below, to our knowledge, the persons and entities named in the table have sole voting and sole investment power with respect to all shares beneficially owned, subject to community property laws where applicable. Shares of common stock of Cinemark, Inc. subject to options that are currently exercisable or exercisable within 60 days of February 28, 2006 are deemedheading “Executive Compensation”) to be outstandingheld on May 13, 2010 and to be beneficially ownedfiled with the Securities and Exchange Commission within 120 days after December 31, 2009.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Incorporated by the person holding the options for the purpose of computing the percentage ownership of that person but are not treated as outstanding for the purpose of computing the percentage ownership of any other person. Percentage ownership is based on 27,896,316 shares of Class A common stock ofreference to Cinemark Inc. issued and outstanding as of February 28, 2006. As of February 28, 2006, there were 15 holders of record of Cinemark,Holdings, Inc.’s Class A common stock.
| | | | | | | | | |
| | | Number of | | |
| | | Shares | | |
| | Beneficially | | Percent of |
| Names of Beneficial Owner (1) | | Owned | | Class |
| Directors and Executive Officers | | | | |
| Madison Dearborn Capital Partners IV, L.P. (1) | | | 20,676,263 | | | | 74.12 | % |
| Mitchell Special Trust (2) | | | 2,169,713 | | | | 7.78 | % |
| Lee Roy Mitchell(3) | | | 4,427,986 | | | | 15.87 | % |
| Quadrangle Capital Partners LP (4) | | | 2,213,993 | | | | 7.94 | % |
| Alan W. Stock(5) | | | 211,074 | | | | * | |
| Tim Warner (5) | | | 210,440 | | | | * | |
| Robert Copple(5) | | | 201,820 | | | | * | |
| Robert Carmony(6) | | | 82,906 | | | | * | |
| Benjamin D. Chereskin (7) | | | 20,676,263 | | | | 74.12 | % |
| James N. Perry, Jr. (7) | | | 20,676,263 | | | | 74.12 | % |
| Robin P. Selati (7) | | | 20,676,263 | | | | 74.12 | % |
| Vahe A. Dombalagian | | | — | | | | * | |
| Enrique Senior (8) | | | — | | | | * | |
| Peter Ezersky (9) | | | 2,213,993 | | | | 7.94 | % |
| |
| All directors and executive officers as a group (19 persons)(10) | | | 28,304,831 | | | | 99.02 | % |
* | | Represents less than 1% |
|
(1) | | The address of Madison Dearborn Capital Partners IV, L.P. is Three First National Plaza, Suite 3800, 70 West Madison Street, Chicago, Illinois 60602. |
|
(2) | | The address of the Mitchell Special Trust is 3900 Dallas Parkway, Suite 500, Plano, Texas 75093. |
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(3) Includes 2,169,713 shares owned byProxy Statement for its Annual Stockholders Meeting (under the Mitchell Special Trust. Mr. Mitchell isheadings “Security Ownership of Certain Beneficial Owners and Management”) to be held on May 13, 2010 and to be filed with the co-trustee of the Mitchell Special Trust. Mr. Mitchell disclaims beneficial ownership of all shares held by the Mitchell Special Trust. Mr. Mitchell’s address is c/o Cinemark, Inc., 3900 Dallas Parkway, Suite 500, Plano, Texas 75093.
(4) Includes 80,986 shares owned by Quadrangle Select Partners L.P., 567,067 shares owned by Quadrangle Capital Partners A LPSecurities and 163,025 shares owned by Quadrangle (Cinemark) Capital Partners LP. Quadrangle GP Investors LLC is the general partner of Quadrangle GP Investors LP. Quadrangle GP Investors LP is the general partner of Quadrangle Capital Partners LP, Quadrangle Select Partners LP, Quadrangle Capital Partners A LP and Quadrangle (Cinemark) Capital Partners LP. Quadrangle Capital Partners LP disclaims beneficial ownership of all shares held by Quadrangle Select Partners LP and Quadrangle Capital Partners A LP. The address of Quadrangle Capital Partners LP is c/o Quadrangle Group LLC, 375 Park Avenue, New York, New York 10152.
(5) Includes 127,548 shares of Class A common stock issuable upon the exercise of options that may be exercisedExchange Commission within 60120 days of February 28, 2006.after December 31, 2009.
(6) Includes 82,906 shares of Class A common stock issuable upon the exercise of options that may be exercised within 60 days of February 28, 2006.
(7) Messrs. Chereskin, Perry and Selati are Managing Directors of Madison Dearborn Partners, LLC, which is the General Partner of Madison Dearborn Partners IV, L.P., which is the General Partner of Madison Dearborn Capital Partners IV, L.P., and they may therefore be deemed to share beneficial ownership of the shares owned by Madison Dearborn Capital Partners IV, L.P. Messrs. Chereskin, Perry and Selati expressly disclaim beneficial ownership of the shares owned by Madison Dearborn Capital Partners IV, L.P. The address of Messrs. Chereskin, Perry and Selati is c/o Madison Dearborn Partners, LLC, Three First National Plaza, Suite 3800, 70 West Madison Street, Chicago, Illinois 60602.
(8) The address of Mr. Senior is 711 Fifth Avenue, New York, New York, 10022.
(9) Mr. Ezersky is a Managing Member of Quadrangle GP Investors LLC, which is the general partner of Quadrangle GP Investors LP. Quadrangle GP Investors LP is the general partner of Quadrangle Capital Partners LP, Quadrangle Select Partners LP, Quadrangle Capital Partners A LP and Quadrangle (Cinemark) Capital Partners LP, and he may therefore be deemed to share beneficial ownership of the 1,402,915 shares owned by Quadrangle Capital Partners LP, the 80,986 shares owned by Quadrangle Select Partners LP, the 567,067 shares owned by Quadrangle Capital Partners A LP and the 163,025 shares owned by Quadrangle (Cinemark) Capital Partners LP. Mr. Ezersky expressly disclaims beneficial ownership of the shares owned by Quadrangle Capital Partners LP, Quadrangle Select Partners LP, Quadrangle Capital Partners A LP and Quadrangle (Cinemark) Capital Partners LP. The address of Mr. Ezersky is c/o Quadrangle Group LLC, 14th Floor, 375 Park Avenue, New York, New York 10152.
(10) Includes 687,479 shares of Class A common stock issuable upon the exercise of options that may be exercised within 60 days of February 28, 2006.
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Item 13. Certain Relationships and Related Transactions,
Certain Agreements and Director Independence
We lease one theatre from Plitt Plaza Joint Venture (“Plitt Plaza”). Plitt Plaza is indirectly ownedIncorporated by Lee Roy Mitchell.reference to Cinemark Holdings, Inc.’s Proxy Statement for its Annual rent is approximately $0.12 million plus certain taxes, maintenance expensesStockholders Meeting (under the heading “Certain Relationships and insurance. We recorded $0.15 million of facility lease expense payableRelated Transactions”) to Plitt Plaza joint venture duringbe held on May 13, 2010 and to be filed with the year endedSecurities and Exchange Commission within 120 days after December 31, 2005.2009.
We manage one theatre for Laredo Theatre, Ltd. (“Laredo”). We are the sole general partner and own 75% of the limited partnership interests of Laredo. Lone Star Theatres, Inc. owns the remaining 25% of the limited partnership interests in Laredo and is 100% owned by Mr. David Roberts, Lee Roy Mitchell’s son-in-law. Under the agreement, management fees are paid by Laredo to us at a rate of 5% of annual theatre revenues up to $50 million and 3% of annual theatre revenues in excess of $50 million. We recorded $0.2 million of management fee revenues and received $0.7 million in dividends from Laredo during the year ended December 31, 2005. All such amounts are included in our consolidated financial statements with the intercompany amounts eliminated in consolidation.
Profit Participation
We entered into an amended and restated profit participation agreement on March 12, 2004 with our President, Alan Stock, which became effective upon consummation of the Recapitalization and amends a profit participation agreement with Mr. Stock in effect since May 2002. Under the agreement, Mr. Stock receives a profit interest in two theatres once we have recovered our capital investment in these theatres plus our borrowing costs. During 2005, we recorded $0.6 million in profit participation expense payable to Mr. Stock, which is included in general and administrative expense in our consolidated statements of income. We paid $0.7 million to Mr. Stock during 2005 for amounts earned during 2004 and 2005. In the event that Mr. Stock’s employment is terminated without cause, profits will be distributed according to a formula set forth in the profit participation agreement.
Indemnification of Directors
We have adopted provisions in our Articles of Incorporation and Bylaws which provide for indemnification of our officers and directors to the maximum extent permitted under the Texas Business Corporation Act. We have obtained an insurance policy providing for indemnification of our officers and directors and certain other persons against liabilities and expenses incurred by any of them in certain stated proceedings and under certain stated conditions.
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Item 14. Principal Accounting Fees and Services
ForIncorporated by reference to Cinemark Holdings, Inc.’s Proxy Statement for its Annual Stockholders Meeting (under the years endedheading “Board Committees — Fees Paid to Independent Registered Public Accounting Firm”) to be held on May 13, 2010 and to be filed with the Securities and Exchange Commission within 120 days after December 31, 2005 and 2004, Deloitte & Touche LLP, our independent auditor, billed the aggregate fees listed in the table below:2009.
| | | | | | | | | |
| | | (in millions) |
| Category | | 2005 | | 2004 |
| Audit Fees (a) | | $ | 0.7 | | | $ | 0.8 | |
| Audit-Related Fees (b) | | | — | | | | 0.3 | |
| Tax Fees (c) | | | 0.2 | | | | 0.6 | |
| All Other Fees (d) | | | — | | | | — | |
| | | |
| Total | | $ | 0.9 | | | $ | 1.7 | |
| | | |
(a) | | Fees for audit services billed in 2005 and 2004 consisted of the audit of our annual consolidated financial statements, reviews of our quarterly consolidated financial statements, statutory audits and comfort letters, consents and other services related to Securities and Exchange Commission (“SEC”) matters, including fees and services related to our bond offerings. |
|
(b) | | Fees for audit-related services billed in 2004 consisted of due diligence associated with mergers and acquisitions. |
|
(c) | | Fees for tax services billed in 2005 and 2004 consisted of assistance with our federal, state, local and foreign jurisdictions income tax returns. We have additionally sought consultation and advice related to various tax compliance planning projects. |
|
(d) | | No material other fees were billed in 2005 or 2004. |
Under Cinemark, Inc.’s Audit Committee’s charter, the Audit Committee is required to give advance approval of any nonaudit services, other than those of a de minimus nature, to be performed by our auditors, provided that such services are not otherwise prohibited by law. In recognition of this responsibility, the Audit Committee has established a policy to review and pre-approve all audit and permissible non-audit services provided by the independent auditor. The policy provides for the general pre-approval of specific types of services, gives detailed guidance to management as to the specific services that are eligible for general pre-approval and provides specific cost limits for each such service on an annual basis. The policy also requires specific pre-approval of all other permitted services.
Cinemark, Inc.’s Audit Committee has considered and concluded that the provision of the non-audit services is compatible with maintaining auditor independence.
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PART IV
Item 15. Exhibits, Financial Statement Schedules
(a)Documents Filed as Part of this Report
| | 1. | | The financial statement schedules and related data listed in the accompanying Index beginning on page F-1 are filed as a part of this report. |
| |
| | 2. | | The financial statement schedules beginning on page S-1 are filed as a part of this report. |
|
| 3. | | The exhibits listed in the accompanying Index beginning on page E-1 are filed as a part of this report, which exhibits are bound separately.report. |
(b)Exhibits
See the accompanying Index beginning on page E-1, which exhibits are bound separately.E-1.
(c)Financial Statement Schedules
SeeAll schedules not identified above have been omitted because they are not required, are not applicable or the accompanying Index beginning on page F-1.information is included in the consolidated financial statements or notes contained in this report.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
| | | | | | |
Dated: March 27, 2006 | | | 10, 2010 | CINEMARK USA, INC.
| |
| BY: | /s/ Alan W. Stock | |
| | | Alan W. Stock | |
| | Chief Executive Officer | |
|
| | | |
| | BY: | | | BY: | | /s/ Alan W. Stock |
| | | | | /s/ Robert Copple | |
| | | Robert Copple | |
| | | Chief Financial Officer and Principal Accounting Officer | Alan W. Stock, President |
|
POWER OF ATTORNEY
Each person whose signature appears below hereby severally constitutes and appoints Alan W. Stock and Robert Copple his true and lawful attorney-in-fact and agent, each with the power of substitution and resubstitution, for him in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K and to file the same, with accompanying exhibits and other related documents, with the Securities and Exchange Commission, and ratify and confirm all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue of said appointment.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| | | | | |
| Name | | Title | | Date |
| | | | | |
/s//s/ Lee Roy Mitchell Lee Roy Mitchell | | Chairman of the Board of Directors and Chief Executive OfficerDirector | | March 27, 200610, 2010 |
| | | | | |
/s/ Robert Copple/s/ Alan W. Stock Robert CoppleAlan W. Stock | | Senior Vice PresidentChief Executive Officer
(principal executive officer) and Treasurer (Chief Financial and Accounting Officer)Director | | March 27, 200610, 2010 |
| | | | | |
/s/ Benjamin D. Chereskin/s/ Timothy Warner Benjamin D. ChereskinTimothy Warner | | President; Chief Operating Officer; Director | | March 27, 200610, 2010 |
| | | | | |
/s/ James N. Perry, Jr./s/ Robert Copple James N. Perry, Jr.Robert Copple | | Executive Vice President; Treasurer; Chief Financial
Officer (principal financial and accounting officer);
Assistant Secretary and Director | | March 27, 2006 |
| | | | |
/s/ Robin P. SelatiRobin P. Selati | | Director | | March 27, 2006 |
| | | | |
/s/ Vahe A. DombalagianVahe A. Dombalagian | | Director | | March 27, 2006 |
| | | | |
/s/ Enrique F. SeniorEnrique F. Senior | | Director | | March 27, 2006 |
| | | | |
/s/ Peter R. EzerskyPeter R. Ezersky | | Director | | March 27, 200610, 2010 |
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SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(d) OF THE
ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED
SECURITIES PURSUANT TO SECTION 12 OF THE ACT.
No annual report or proxy material has been sent to our shareholders.stockholders. An annual report and proxy material may be sent to our shareholdersstockholders subsequent to the filing of this Form 10-K. We shall furnish to the Securities and Exchange Commission copies of any annual report or proxy material that is sent to our shareholders.stockholders.
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CINEMARK USA, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
(ITEMS 8 AND 15 OF FORM 10-K) AND SUPPLEMENTAL SCHEDULES
| | | | |
| | | Page | |
| | F-2 |
| | | |
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES: | | |
| F-2 | |
| | F-3 |
| | F-3 | |
| | F-4 |
| | F-4 | |
| | F-5 |
| | F-5 | |
| | F-6 |
| | F-6 | |
| | | F-7 | |
FINANCIAL STATEMENTS OF 50-PERCENT-OR-LESS-OWNED INVESTEE | | | | |
| | |
| S-1 | |
| | S-1 |
| | S-2 | |
| | S-2 |
| | S-3 | |
| | S-3 | S-4 | |
F - 1F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of
Cinemark USA, Inc. and Subsidiaries
Plano, TXTexas
We have audited the accompanying consolidated balance sheets of Cinemark USA, Inc. and subsidiaries (the “Company”) as of December 31, 20052008 and 2004,2009, and the related consolidated statements of income, shareholder’soperations, stockholder’s equity and comprehensive income (loss), and cash flows for each of the three years in the period ended December 31, 2005.2009. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Cinemark USA, Inc. and subsidiaries as of December 31, 20052008 and 2004,2009, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2005,2009, in conformity with accounting principles generally accepted in the United States of America.
The condensed consolidating We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial information of subsidiary guarantorsreporting as of December 31, 20032009, based on the criteria established inInternal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and 2004 presented in Note 21 has been restated.
Our audits were conducted for the purpose of formingour report dated March 10, 2010 expressed an unqualified opinion on the basic consolidatedCompany’s internal control over financial statements taken as a whole. The supplemental schedules of certain consolidating information listed in the index on page F-1 are presented for the purpose of additional analysis of the basic consolidated financial statements rather than to present the financial position, results of operations, and cash flows of the individual companies, and are not a required part of the basic consolidated financial statements. These schedules are the responsibility of the Company’s management. Such schedules have been subjected to the auditing procedures applied in our audits of the basic 2005 consolidated financial statements and, in our opinion, are fairly stated in all material respects when considered in relation to the basic 2005 consolidated financial statements taken as a whole.reporting.
/s/ Deloitte & Touche LLP
Dallas, Texas
March 22, 200610, 2010
F - 2F-2
CINEMARK USA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
| | | | | | | | | | | | | | | | | |
| | | December 31, | | December 31, | | | December 31, | | December 31, | |
| | | 2004 | | 2005 | | | 2008 | | 2009 | |
ASSETS | | |
| | | |
| CURRENT ASSETS | | |
Assets | | |
| Current assets | | |
| Cash and cash equivalents | | $ | 100,228 | | $ | 182,180 | | | $ | 313,238 | | $ | 437,737 | |
| Inventories | | 4,237 | | 4,546 | | | 8,024 | | 9,854 | |
| Accounts receivable | | 11,303 | | 15,405 | | | 24,623 | | 32,793 | |
| Income tax receivable | | 7,037 | | — | | | 5,525 | | 13,025 | |
| Deferred tax asset | | | 2,799 | | 3,321 | |
| Prepaid expenses and other | | 3,819 | | 4,538 | | | 9,319 | | 10,051 | |
| Accounts receivable from parent | | | — | | 7,656 | |
| | | | | | | | | | | |
| Total current assets | | 126,624 | | 206,669 | | | 363,528 | | 514,437 | |
| | | |
| THEATRE PROPERTIES AND EQUIPMENT | | |
| Theatre properties and equipment | | |
| Land | | 60,700 | | 62,470 | | | 96,718 | | 94,879 | |
| Buildings | | 337,559 | | 348,038 | | | 396,028 | | 394,654 | |
| Property under capital lease | | | 184,248 | | 204,881 | |
| Theatre furniture and equipment | | 509,737 | | 559,994 | | | 546,466 | | 639,538 | |
| Leasehold interests and improvements | | 385,043 | | 413,759 | | | 541,140 | | 602,583 | |
| Theatres under construction | | 14,049 | | 14,537 | | |
| | | | | | | | | | | |
| Total | | 1,307,088 | | 1,398,798 | | | 1,764,600 | | 1,936,535 | |
| Less accumulated depreciation and amortization | | 521,493 | | 608,232 | | | 556,317 | | 716,947 | |
| | | | | | | | | | | |
| Theatre properties and equipment, net | | 785,595 | | 790,566 | | | 1,208,283 | | 1,219,588 | |
| | |
| OTHER ASSETS | | |
| Other assets | | |
| Goodwill | | 45,006 | | 42,107 | | | 1,039,818 | | 1,116,302 | |
| Intangible assets — net | | 6,084 | | 9,958 | | | 341,768 | | 342,998 | |
| Investment in NCM | | | 19,141 | | 34,232 | |
| Investments in and advances to affiliates | | 1,710 | | 8,400 | | | 4,284 | | 3,529 | |
| Deferred charges and other assets — net | | 36,546 | | 40,040 | | | 42,016 | | 52,502 | |
| | | | | | | | | | | |
| Total other assets | | 89,346 | | 100,505 | | | 1,447,027 | | 1,549,563 | |
| | | | | | | | | | | |
| | |
| TOTAL ASSETS | | $ | 1,001,565 | | $ | 1,097,740 | | |
Total assets | | | $ | 3,018,838 | | $ | 3,283,588 | |
| | | | | | | | | | | |
| | | |
LIABILITIES AND SHAREHOLDER’S EQUITY | | |
Liabilities and stockholder’s equity | | |
| | | |
| CURRENT LIABILITIES | | |
| Current liabilities | | |
| Current portion of long-term debt | | $ | 6,539 | | $ | 6,871 | | | $ | 12,450 | | $ | 12,227 | |
| Current portion of capital lease obligations | | | 5,532 | | 7,340 | |
| Current liability for uncertain tax positions | | | 10,775 | | 13,229 | |
| Accounts payable | | 34,257 | | 47,234 | | | 54,596 | | 53,709 | |
| Income tax payable | | — | | 13,144 | | |
| Accrued film rentals | | 21,395 | | 21,441 | | | 43,750 | | 69,216 | |
| Accrued interest | | 14,569 | | 15,333 | | | 4,343 | | 6,411 | |
| Accrued payroll | | 14,335 | | 11,226 | | | 23,995 | | 29,928 | |
| Accrued property taxes | | 14,326 | | 16,345 | | | 23,486 | | 22,913 | |
| Accrued other current liabilities | | 23,442 | | 28,413 | | | 52,126 | | 65,761 | |
| Accounts payable to parent | | | 32,724 | | — | |
| | | | | | | | | | | |
| Total current liabilities | | 128,863 | | 160,007 | | | 263,777 | | 280,734 | |
| | | |
| LONG-TERM LIABILITIES | | |
| Long-term liabilities | | |
| Long-term debt, less current portion | | 620,404 | | 613,406 | | | 1,084,694 | | 1,531,478 | |
| Capital lease obligations, less current portion | | | 118,180 | | 133,028 | |
| Deferred income taxes | | 23,138 | | 15,427 | | | 135,667 | | 124,823 | |
| Liability for uncertain tax positions | | | 6,748 | | 18,432 | |
| Deferred lease expenses | | 27,962 | | 29,518 | | | 23,371 | | 27,698 | |
| Deferred gain on sale leasebacks | | 3,641 | | 3,275 | | |
| Deferred revenues and other long-term liabilities | | 12,025 | | 8,513 | | |
| Deferred revenue — NCM | | | 189,847 | | 203,006 | |
| Other long-term liabilities | | | 40,663 | | 42,248 | |
| | | | | | | | | | | |
| Total long-term liabilities | | 687,170 | | 670,139 | | | 1,599,170 | | 2,080,713 | |
| | | |
| COMMITMENTS AND CONTINGENCIES (see Note 17) | | — | | — | | |
| Commitments and contingencies (see Note 20) | | |
| | | |
| MINORITY INTERESTS IN SUBSIDIARIES | | 16,697 | | 16,422 | | |
| | | |
| SHAREHOLDER’S EQUITY | | |
| Class A common stock, $.01 par value: 10,000,000 shares authorized, 1,500 shares issued and outstanding at December 31, 2004 and 2005 | | — | | — | | |
| Class B common stock, no par value: 1,000,000 shares authorized, 239,893 shares issued and outstanding at December 31, 2004 and 2005 | | 49,543 | | 49,543 | | |
| Stockholder’s equity | | |
| Cinemark USA, Inc.’s stockholder’s equity: | | |
| Class A common stock, $0.01 par value: 10,000,000 shares authorized, 1,500 shares issued and outstanding | | | — | | — | |
| Class B common stock, no par value: 1,000,000 shares authorized, 239,893 shares issued and 182,648 shares outstanding | | | 49,543 | | 49,543 | |
| Treasury stock, 57,245 Class B shares at cost | | | | (24,233 | ) | | | (24,233 | ) |
| Additional paid-in-capital | | 51,070 | | 68,105 | | | 1,070,468 | | 1,151,166 | |
| Retained earnings | | 169,577 | | 217,942 | | |
| Treasury stock, 57,245 Class B shares at cost | | | (24,233 | ) | | | (24,233 | ) | |
| Retained earnings (deficit) | | | 119,489 | | | (261,672 | ) |
| Accumulated other comprehensive loss | | | (77,122 | ) | | | (60,185 | ) | | | (72,347 | ) | | | (7,459 | ) |
| | | | | | | | | | | |
| Total shareholder’s equity | | 168,835 | | 251,172 | | |
| Total Cinemark USA, Inc.’s stockholder’s equity | | | 1,142,920 | | 907,345 | |
| Noncontrolling interests | | | 12,971 | | 14,796 | |
| | | | | | | |
| Total stockholder’s equity | | | 1,155,891 | | 922,141 | |
| | | | | | | | | | | |
| | |
| TOTAL LIABILITIES AND SHAREHOLDER’S EQUITY | | $ | 1,001,565 | | $ | 1,097,740 | | |
Total liabilities and stockholder’s equity | | | $ | 3,018,838 | | $ | 3,283,588 | |
| | | | | | | | | | | |
The accompanying notes are an integral part of the consolidated financial statements.
F - 3F-3
CINEMARK USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
OPERATIONS
YEARS ENDED DECEMBER 31, 2003, 20042007, 2008 AND 20052009
(In thousands)thousands, except per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2003 | | 2004 | | 2005 | | | Year Ended December 31, | |
| REVENUES | | |
| | | | 2007 | | 2008 | | 2009 | |
Revenues | | |
| Admissions | | $ | 597,548 | | $ | 646,999 | | $ | 641,240 | | | $ | 1,087,480 | | $ | 1,126,977 | | $ | 1,293,378 | |
| Concession | | 300,568 | | 321,621 | | 320,072 | | | 516,509 | | 534,836 | | 602,880 | |
| Other | | 52,756 | | 55,622 | | 59,285 | | | 78,852 | | 80,474 | | 80,242 | |
| | | | | | | | | | | | | | | |
| Total revenues | | 950,872 | | 1,024,242 | | 1,020,597 | | | 1,682,841 | | 1,742,287 | | 1,976,500 | |
| | | |
| COSTS AND EXPENSES | | |
| Cost of operations (excludes depreciation and amortization): | | |
Cost of operations | | |
| Film rentals and advertising | | 324,902 | | 348,816 | | 347,727 | | | 589,717 | | 612,248 | | 708,160 | |
| Concession supplies | | 49,640 | | 53,761 | | 52,507 | | | 81,074 | | 86,618 | | 91,918 | |
| Salaries and wages | | 97,240 | | 103,084 | | 101,431 | | | 173,290 | | 180,950 | | 203,437 | |
| Facility lease expense | | 119,517 | | 126,643 | | 136,593 | | | 212,730 | | 225,595 | | 238,779 | |
| Utilities and other | | 110,792 | | 112,966 | | 123,831 | | | 191,279 | | 205,814 | | 222,660 | |
| General and administrative expenses | | | 78,664 | | 89,583 | | 94,818 | |
| Termination of profit participation agreement | | | 6,952 | | — | | — | |
| Depreciation and amortization | | | 148,781 | | 155,326 | | 148,264 | |
| Amortization of favorable/unfavorable leases | | | 2,935 | | 2,708 | | 1,251 | |
| Impairment of long-lived assets | | | 86,558 | | 113,532 | | 11,858 | |
| (Gain) loss on sale of assets and other | | | | (2,953 | ) | | 8,488 | | 3,202 | |
| | | | | | | | | | | | | | | |
| Total cost of operations | | 702,091 | | 745,270 | | 762,089 | | | 1,569,027 | | 1,680,862 | | 1,724,347 | |
| | | | | | | | | |
| General and administrative expenses | | 44,186 | | 51,550 | | 50,722 | | |
| Stock option compensation and change of control expenses related to the Recapitalization | | — | | 31,995 | | — | | |
| Depreciation and amortization | | 65,085 | | 67,051 | | 76,461 | | |
| Impairment of long-lived assets | | 5,049 | | 1,667 | | 9,672 | | |
| (Gain) loss on sale of assets and other | | | (1,202 | ) | | 4,851 | | 2,625 | | |
| | | | | | | | | |
| Total costs and expenses | | 815,209 | | 902,384 | | 901,569 | | |
Operating income | | | 113,814 | | 61,425 | | 252,153 | |
| | | |
Other income (expense) | | |
| Interest expense | | | | (102,760 | ) | | | (74,406 | ) | | | (81,609 | ) |
| Interest income | | | 11,256 | | 11,123 | | 4,746 | |
| Gain on NCM transaction | | | 210,773 | | — | | — | |
| Gain on Fandango transaction | | | 9,205 | | — | | — | |
| Foreign currency exchange gain | | | 438 | | 986 | | 635 | |
| Loss on early retirement of debt | | | | (7,952 | ) | | — | | — | |
| Distributions from NCM | | | 11,499 | | 18,838 | | 20,822 | |
| Dividend income | | | 50 | | 49 | | 51 | |
| Equity in loss of affiliates | | | | (2,462 | ) | | | (2,373 | ) | | | (907 | ) |
| | | | | | | | | |
| Total other income (expense) | | | 130,047 | | | (45,783 | ) | | | (56,262 | ) |
| | | | | | | | | | | | | | | |
| | | |
| OPERATING INCOME | | 135,663 | | 121,858 | | 119,028 | | |
| | | |
| OTHER INCOME (EXPENSE) | | |
| Interest expense | | | (51,853 | ) | | | (42,739 | ) | | | (44,334 | ) | |
| Amortization of debt issue costs | | | (2,310 | ) | | | (2,664 | ) | | | (2,774 | ) | |
| Interest income | | 2,035 | | 1,965 | | 6,600 | | |
| Foreign currency exchange loss | | | (196 | ) | | | (266 | ) | | | (1,276 | ) | |
| Loss on early retirement of debt | | | (7,540 | ) | | | (5,974 | ) | | — | | |
| Equity in income of affiliates | | 141 | | 173 | | 227 | | |
| Minority interests in income of subsidiaries | | | (3,410 | ) | | | (4,353 | ) | | | (924 | ) | |
| | | | | | | | | |
| Total other expenses | | | (63,133 | ) | | | (53,858 | ) | | | (42,481 | ) | |
| | | | | | | | | |
| | | |
| INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | | 72,530 | | �� | | 68,000 | | 76,547 | | |
| | | |
Income before income taxes | | | 243,861 | | 15,642 | | 195,891 | |
| Income taxes | | 25,041 | | 27,030 | | 28,182 | | | 127,641 | | 35,596 | | 62,804 | |
| | | | | | | | | | | | | | | |
Net income (loss) | | | 116,220 | | | (19,954 | ) | | 133,087 | |
| Less: Net income attributable to noncontrolling interests | | | 792 | | 3,895 | | 3,648 | |
| | | | | | | | | |
| INCOME FROM CONTINUING OPERATIONS AFTER INCOME TAXES | | 47,489 | | 40,970 | | 48,365 | | |
Net income (loss) attributable to Cinemark USA, Inc. | | | $ | 115,428 | | $ | (23,849 | ) | | $ | 129,439 | |
| | | | | | | | | |
| Income (loss) from discontinued operations, net of taxes (See Note 6) | | | (2,740 | ) | | 3,584 | | — | | |
| | | | | | | | | |
| | | |
| NET INCOME | | $ | 44,749 | | $ | 44,554 | | $ | 48,365 | | |
| | | | | | | | | |
The accompanying notes are an integral part of the consolidated financial statements.
F - 4F-4
CINEMARK USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER’SSTOCKHOLDER’S EQUITY AND COMPREHENSIVE INCOME
(LOSS)
YEARS ENDED DECEMBER 31, 2003, 20042007, 2008 AND 20052009
(In thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Class A | | | Class B | | | | | | | | | | | | | | | Accumulated | | | | | | | | |
| | | Common Stock | | | Common Stock | | | Additional | | | | | | | | | | | Other | | | | | | | | |
| | | Shares | | | | | | | Shares | | | | | | | Paid-in | | | Retained | | | Treasury | | | Comprehensive | | | | | | | Comprehensive | |
| | | Issued | | | Amount | | | Issued | | | Amount | | | Capital | | | Earnings | | | Stock | | | Loss | | | Total | | | Income | |
| | | | | | | |
| Balance at December 31, 2002 | | | — | | | $ | — | | | | 240 | | | $ | 49,543 | | | $ | 11,975 | | | $ | 80,274 | | | $ | (24,233 | ) | | $ | (89,794 | ) | | $ | 27,765 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income | | | | | | | | | | | | | | | | | | | | | | | 44,749 | | | | | | | | | | | | 44,749 | | | $ | 44,749 | |
| Amortization of Cinemark, Inc. unearned compensation | | | | | | | | | | | | | | | | | | | 1,080 | | | | | | | | | | | | | | | | 1,080 | | | | | |
| Foreign currency translation adjustment | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 3,249 | | | | 3,249 | | | | 3,249 | |
| | | | | | |
| Balance at December 31, 2003 | | | — | | | $ | — | | | | 240 | | | $ | 49,543 | | | $ | 13,055 | | | $ | 125,023 | | | $ | (24,233 | ) | | $ | (86,545 | ) | | $ | 76,843 | | | $ | 47,998 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income | | | | | | | | | | | | | | | | | | | | | | | 44,554 | | | | | | | | | | | | 44,554 | | | | 44,554 | |
| Amortization of Cinemark, Inc. unearned compensation | | | | | | | | | | | | | | | | | | | 145 | | | | | | | | | | | | | | | | 145 | | | | | |
| Write-off of unearned compensation related to Recapitalization | | | | | | | | | | | | | | | | | | | 1,595 | | | | | | | | | | | | | | | | 1,595 | | | | | |
| Capital contribution from Cinemark, Inc. related to Recapitalization | | | | | | | | | | | | | | | | | | | 23,750 | | | | | | | | | | | | | | | | 23,750 | | | | | |
| Capital contribution from Cinemark, Inc. related to income taxes | | | | | | | | | | | | | | | | | | | 12,525 | | | | | | | | | | | | | | | | 12,525 | | | | | |
| Foreign currency translation adjustment | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 9,423 | | | | 9,423 | | | | 9,423 | |
| | | | | | |
| Balance at December 31, 2004 | | | — | | | $ | — | | | | 240 | | | $ | 49,543 | | | $ | 51,070 | | | $ | 169,577 | | | $ | (24,233 | ) | | $ | (77,122 | ) | | $ | 168,835 | | | $ | 53,977 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income | | | | | | | | | | | | | | | | | | | | | | | 48,365 | | | | | | | | | | | | 48,365 | | | | 48,365 | |
| Capital contributions from Cinemark, Inc. | | | | | | | | | | | | | | | | | | | 17,035 | | | | | | | | | | | | | | | | 17,035 | | | | | |
| Foreign currency translation adjustment | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 16,937 | | | | 16,937 | | | | 16,937 | |
| | | | | | |
| Balance at December 31, 2005 | | | — | | | $ | — | | | | 240 | | | $ | 49,543 | | | $ | 68,105 | | | $ | 217,942 | | | $ | (24,233 | ) | | $ | (60,185 | ) | | $ | 251,172 | | | $ | 65,302 | |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | | | | | | | | | | | | | | | | | | | | |
| | | Class A | | | Class B | | | | | | | | | | | | | | | Accumulated | | | Cinemark | | | | | | | | | | | Comprehensive Income (Loss) | |
| | | Common Stock | | | Common Stock | | | Additional | | | Retained | | | | | | | Other | | | USA, Inc. | | | | | | | Total | | | Attributable to: | |
| | | Shares | | | | | | | Shares | | | | | | | Paid-in | | | Earnings | | | Treasury | | | Comprehensive | | | Stockholder’s | | | Noncontrolling | | | Stockholder’s | | | Cinemark | | | Noncontrolling | | | | |
| | | Issued | | | Amount | | | Issued | | | Amount | | | Capital | | | (Deficit) | | | Stock | | | Income (Loss) | | | Equity | | | Interest | | | Equity | | | USA, Inc. | | | Interest | | | Total | |
| | | | | |
| Balance at January 1, 2007 | | | — | | | $ | — | | | | 240 | | | $ | 49,543 | | | $ | 1,044,973 | | | $ | 29,003 | | | $ | (24,233 | ) | | $ | 11,463 | | | $ | 1,110,749 | | | $ | 16,613 | | | $ | 1,127,362 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Tax adjustment related to the adoption of paragraph 10 of FASB ASC Topic 740 (formerly FIN 48) related to uncertain tax positions | | | | | | | | | | | | | | | | | | | | | | | (1,093 | ) | | | | | | | | | | | (1,093 | ) | | | | | | | (1,093 | ) | | | | | | | | | | | | |
| Share based awards compensation expense | | | | | | | | | | | | | | | | | | | 2,881 | | | | | | | | | | | | | | | | 2,881 | | | | | | | | 2,881 | | | | | | | | | | | | | |
| Tax benefit related to stock option exercises | | | | | | | | | | | | | | | | | | | 1,353 | | | | | | | | | | | | | | | | 1,353 | | | | | | | | 1,353 | | | | | | | | | | | | | |
| Dividends paid to noncontrolling interest | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (1,730 | ) | | | (1,730 | ) | | | | | | | | | | | | |
| Comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income | | | | | | | | | | | | | | | | | | | | | | | 115,428 | | | | | | | | | | | | 115,428 | | | | 792 | | | | 116,220 | | | $ | 115,428 | | | $ | 792 | | | $ | 116,220 | |
| Fair value adjustments on interest rate swap agreements, net of taxes of $7,074 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (11,348 | ) | | | (11,348 | ) | | | | | | | (11,348 | ) | | | (11,348 | ) | | | — | | | | (11,348 | ) |
| Foreign currency translation adjustment | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 32,580 | | | | 32,580 | | | | 507 | | | | 33,087 | | | | 32,580 | | | | 507 | | | | 33,087 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | |
| Balance at December 31, 2007 | | | — | | | $ | — | | | | 240 | | | $ | 49,543 | | | $ | 1,049,207 | | | $ | 143,338 | | | $ | (24,233 | ) | | $ | 32,695 | | | $ | 1,250,550 | | | $ | 16,182 | | | $ | 1,266,732 | | | $ | 136,660 | | | $ | 1,299 | | | $ | 137,959 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Share based awards compensation expense | | | | | | | | | | | | | | | | | | | 4,638 | | | | | | | | | | | | | | | | 4,638 | | | | | | | | 4,638 | | | | | | | | | | | | | |
| Tax benefit related to stock option exercises | | | | | | | | | | | | | | | | | | | 474 | | | | | | | | | | | | | | | | 474 | | | | | | | | 474 | | | | | | | | | | | | | |
| Central America share exchange | | | | | | | | | | | | | | | | | | | 12,949 | | | | | | | | | | | | | | | | 12,949 | | | | (3,245 | ) | | | 9,704 | | | | | | | | | | | | | |
| Ecuador share exchange | | | | | | | | | | | | | | | | | | | 3,200 | | | | | | | | | | | | | | | | 3,200 | | | | (1,574 | ) | | | 1,626 | | | | | | | | | | | | | |
| Contribution by noncontrolling interest | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 585 | | | | 585 | | | | | | | | | | | | | |
| Dividends paid to noncontrolling interest | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (1,353 | ) | | | (1,353 | ) | | | | | | | | | | | | |
| Comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income (loss) | | | | | | | | | | | | | | | | | | | | | | | (23,849 | ) | | | | | | | | | | | (23,849 | ) | | | 3,895 | | | | (19,954 | ) | | $ | (23,849 | ) | | $ | 3,895 | | | $ | (19,954 | ) |
| Fair value adjustments on interest rate swap agreements, net of taxes of $2,442 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (22,063 | ) | | | (22,063 | ) | | | | | | | (22,063 | ) | | | (22,063 | ) | | | — | | | | (22,063 | ) |
| Amortization of accumulated other comprehensive loss on terminated swap agreement | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 1,351 | | | | 1,351 | | | | | | | | 1,351 | | | | 1,351 | | | | — | | | | 1,351 | |
| Foreign currency translation adjustment | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (84,330 | ) | | | (84,330 | ) | | | (1,519 | ) | | | (85,849 | ) | | | (84,330 | ) | | | (1,519 | ) | | | (85,849 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | |
| Balance at December 31, 2008 | | | — | | | $ | — | | | | 240 | | | $ | 49,543 | | | $ | 1,070,468 | | | $ | 119,489 | | | $ | (24,233 | ) | | $ | (72,347 | ) | | $ | 1,142,920 | | | $ | 12,971 | | | $ | 1,155,891 | | | $ | (128,891 | ) | | $ | 2,376 | | | $ | (126,515 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Share based award compensation expense | | | — | | | | — | | | | — | | | | — | | | | 3,805 | | | | — | | | | — | | | | — | | | | 3,805 | | | | — | | | | 3,805 | | | | | | | | | | | | | |
| Tax benefit related to stock option exercises | | | — | | | | — | | | | — | | | | — | | | | 7,545 | | | | — | | | | — | | | | — | | | | 7,545 | | | | — | | | | 7,545 | | | | | | | | | | | | | |
| Purchase of noncontrolling interest share of an Argentina subsidiary | | | — | | | | — | | | | — | | | | — | | | | 23 | | | | — | | | | — | | | | — | | | | 23 | | | | (117 | ) | | | (94 | ) | | | | | | | | | | | | |
| Dividends paid to parent | | | — | | | | — | | | | — | | | | — | | | | — | | | | (510,600 | ) | | | — | | | | — | | | | (510,600 | ) | | | — | | | | (510,600 | ) | | | | | | | | | | | | |
| Capital contributions from parent | | | — | | | | — | | | | — | | | | — | | | | 69,325 | | | | — | | | | — | | | | | | | | 69,325 | | | | — | | | | 69,325 | | | | | | | | | | | | | |
| Dividends paid to noncontrolling interests | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (2,322 | ) | | | (2,322 | ) | | | | | | | | | | | | |
| Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | — | | | | | | | | — | | | | | | | | | | | | | |
| Net income | | | — | | | | — | | | | — | | | | — | | | | — | | | | 129,439 | | | | — | | | | — | | | | 129,439 | | | | 3,648 | | | | 133,087 | | | | 129,439 | | | | 3,648 | | | | 133,087 | |
| Fair value adjustments on interest rate swap agreements, net of taxes of $2,359 | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 3,898 | | | | 3,898 | | | | — | | | | 3,898 | | | | 3,898 | | | | — | | | | 3,898 | |
| Amortization of accumulated other comprehensive loss on terminated swap agreement | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 4,633 | | | | 4,633 | | | | — | | | | 4,633 | | | | 4,633 | | | | — | | | | 4,633 | |
| Foreign currency translation adjustment | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 56,357 | | | | 56,357 | | | | 616 | | | | 56,973 | | | | 56,357 | | | | 616 | | | | 56,973 | |
| | | | | |
| Balance at December 31, 2009 | | | — | | | $ | — | | | | 240 | | | $ | 49,543 | | | $ | 1,151,166 | | | $ | (261,672 | ) | | $ | (24,233 | ) | | $ | (7,459 | ) | | $ | 907,345 | | | $ | 14,796 | | | $ | 922,141 | | | $ | 194,327 | | | $ | 4,264 | | | $ | 198,591 | |
| | | | | |
The accompanying notes are an integral part of the consolidated financial statements.
F - 5F-5
CINEMARK USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2003, 20042007, 2008 AND 2005
(In thousands)2009
| | | | | | | | | | | | | |
| | | 2003 | | | 2004 | | | 2005 | |
| OPERATING ACTIVITIES | | | | | | | | | | | | |
| Net income | | $ | 44,749 | | | $ | 44,554 | | | $ | 48,365 | |
| | | | | | | | | | | | | |
| Adjustments to reconcile net income to cash provided by operating activities: | | | | | | | | | | | | |
| Depreciation | | | 64,429 | | | | 66,398 | | | | 73,796 | |
| Amortization of intangible and other assets | | | 656 | | | | 653 | | | | 2,665 | |
| Amortization of foreign advanced rents | | | 1,806 | | | | 1,713 | | | | 1,258 | |
| Amortized compensation — stock options | | | 1,080 | | | | 145 | | | | — | |
| Amortization of debt issue costs | | | 2,310 | | | | 2,664 | | | | 2,774 | |
| Amortization of gain on sale leasebacks | | | (366 | ) | | | (366 | ) | | | (366 | ) |
| Amortization of debt discount and premium | | | (972 | ) | | | (1,535 | ) | | | (1,564 | ) |
| Amortization of deferred revenues | | | (2,623 | ) | | | (753 | ) | | | (597 | ) |
| Impairment of long-lived assets | | | 5,049 | | | | 1,667 | | | | 9,672 | |
| (Gain) loss on sale of assets and other | | | (1,202 | ) | | | 4,851 | | | | 2,625 | |
| Write-off unamortized debt issue costs and debt discount and premium related to the early retirement of debt | | | 3,601 | | | | 938 | | | | — | |
| Write-off unearned compensation related to the Recapitalization | | | — | | | | 1,595 | | | | — | |
| Deferred lease expenses | | | 2,741 | | | | 309 | | | | 1,556 | |
| Deferred income tax expenses | | | 1,863 | | | | 10,105 | | | | (7,711 | ) |
| Equity in income of affiliates | | | (141 | ) | | | (173 | ) | | | (227 | ) |
| Minority interests in income of subsidiaries | | | 3,410 | | | | 4,353 | | | | 924 | |
| Other | | | 3,374 | | | | (1,916 | ) | | | 284 | |
| | | | | | | | | | | | | |
| Changes in assets and liabilities: | | | | | | | | | | | | |
| Inventories | | | (635 | ) | | | 86 | | | | (309 | ) |
| Accounts receivable | | | (2,998 | ) | | | 3,700 | | | | (4,102 | ) |
| Prepaid expenses and other | | | (1,382 | ) | | | 1,657 | | | | (719 | ) |
| Other assets | | | (5,909 | ) | | | (7,448 | ) | | | (12,373 | ) |
| Advances with affiliates | | | 392 | | | | (423 | ) | | | 561 | |
| Accounts payable and accrued liabilities | | | 6,917 | | | | (7,929 | ) | | | 14,043 | |
| Other long-term liabilities | | | 3,233 | | | | 649 | | | | 1,198 | |
| Income tax receivable/payable | | | 6,238 | | | | (12,559 | ) | | | 32,216 | |
| | | | | | | | | | |
| Net cash provided by operating activities | | | 135,620 | | | | 112,935 | | | | 163,969 | |
| | | | | | | | | | | | | |
| INVESTING ACTIVITIES | | | | | | | | | | | | |
| Additions to theatre properties and equipment | | | (51,002 | ) | | | (81,008 | ) | | | (75,605 | ) |
| Proceeds from sale of theatre properties and equipment | | | 3,084 | | | | 12,945 | | | | 1,317 | |
| Purchase of shares in National CineMedia | | | — | | | | — | | | | (7,329 | ) |
| Proceeds from sale of equity investment | | | — | | | | 1,250 | | | | — | |
| Purchase of minority partner shares in Cinemark Brasil | | | — | | | | (44,958 | ) | | | — | |
| Purchase of minority partner shares in Cinemark Mexico | | | — | | | | (5,379 | ) | | | — | |
| Other | | | 767 | | | | 203 | | | | — | |
| | | | | | | | | | |
| Net cash used for investing activities | | | (47,151 | ) | | | (116,947 | ) | | | (81,617 | ) |
| | | | | | | | | | | | | |
| FINANCING ACTIVITIES | | | | | | | | | | | | |
| Cash contributions from parent | | | — | | | | 36,275 | | | | 5,000 | |
| Issuance of senior subordinated notes | | | 375,225 | | | | — | | | | — | |
| Retirement of senior subordinated notes | | | (275,000 | ) | | | (122,750 | ) | | | — | |
| Proceeds from long-term debt | | | 403,516 | | | | 291,446 | | | | 660 | |
| Repayments of long-term debt | | | (537,765 | ) | | | (200,070 | ) | | | (6,671 | ) |
| Debt issue costs | | | (15,622 | ) | | | (7,954 | ) | | | (239 | ) |
| Increase in minority investment in subsidiaries | | | 4,573 | | | | 969 | | | | 155 | |
| Decrease in minority investment in subsidiaries | | | (766 | ) | | | (2,225 | ) | | | (1,353 | ) |
| | | | | | | | | | |
| Net cash used for financing activities | | | (45,839 | ) | | | (4,309 | ) | | | (2,448 | ) |
| | | | | | | | | | | | | |
| EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS | | | 970 | | | | 1,230 | | | | 2,048 | |
| | | | | | | | | | |
| | | | | | | | | | | | | |
| INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | | | 43,600 | | | | (7,091 | ) | | | 81,952 | |
| |
| CASH AND CASH EQUIVALENTS: | | | | | | | | | | | | |
| Beginning of period | | | 63,719 | | | | 107,319 | | | | 100,228 | |
| | | | | | | | | | |
| End of period | | $ | 107,319 | | | $ | 100,228 | | | $ | 182,180 | |
| | | | | | | | | | |
| |
| SUPPLEMENTAL INFORMATION (see Note 15) | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2007 | | | 2008 | | | 2009 | |
Operating activities | | | | | | | | | | | | |
| Net income (loss) | | $ | 116,220 | | | $ | (19,954 | ) | | $ | 133,087 | |
| Adjustments to reconcile net income (loss) to cash provided by operating activities: | | | | | | | | | | | | |
| Depreciation | | | 144,629 | | | | 151,425 | | | | 144,055 | |
| Amortization of intangible and other assets and unfavorable leases | | | 7,087 | | | | 6,609 | | | | 5,460 | |
| Amortization of long-term prepaid rents | | | 1,146 | | | | 1,717 | | | | 1,389 | |
| Amortization of debt issue costs | | | 3,314 | | | | 3,339 | | | | 4,094 | |
| Amortization of deferred revenues, deferred lease incentives and other | | | (2,508 | ) | | | (3,735 | ) | | | (4,810 | ) |
| Amortization of debt (premium) discount | | | (678 | ) | | | — | | | | 365 | |
| Amortization of accumulated other comprehensive loss related to interest rate swap agreement | | | — | | | | 1,351 | | | | 4,633 | |
| Impairment of long-lived assets | | | 86,558 | | | | 113,532 | | | | 11,858 | |
| Share based awards compensation expense | | | 2,881 | | | | 4,638 | | | | 3,805 | |
| Gain on NCM transaction | | | (210,773 | ) | | | — | | | | — | |
| Gain on Fandango transaction | | | (9,205 | ) | | | — | | | | — | |
| (Gain) loss on sale of assets and other | | | (2,953 | ) | | | 8,488 | | | | 3,202 | |
| Gain on change in fair value of interest rate swap agreement | | | — | | | | (5,422 | ) | | | — | |
| Write-off unamortized debt issue costs and debt premium related to the early retirement of debt | | | (17,098 | ) | | | — | | | | — | |
| Deferred lease expenses | | | 5,979 | | | | 4,350 | | | | 3,960 | |
| Deferred income taxes | | | (33,016 | ) | | | (25,806 | ) | | | (12,614 | ) |
| Equity in loss of affiliates | | | 2,462 | | | | 2,373 | | | | 907 | |
| Tax benefit related to stock option exercises | | | 1,353 | | | | 474 | | | | 7,545 | |
| Increase in deferred revenue related to NCM transaction | | | 174,001 | | | | — | | | | — | |
| Increase in deferred revenue related to Fandango transaction | | | 5,000 | | | | — | | | | — | |
| Increase in deferred revenue related to new U.S. beverage agreement | | | — | | | | — | | | | 6,550 | |
| Distributions from equity investees | | | — | | | | 644 | | | | 2,699 | |
| Changes in other assets and liabilities | | | 70,309 | | | | (24,235 | ) | | | 50,521 | |
| | | | | | | | | | |
| Net cash provided by operating activities | | | 344,708 | | | | 219,788 | | | | 366,706 | |
| | | | | | | | | | | | | |
Investing activities | | | | | | | | | | | | |
| Additions to theatre properties and equipment | | | (146,304 | ) | | | (106,109 | ) | | | (124,797 | ) |
| Proceeds from sale of theatre properties and equipment | | | 37,532 | | | | 2,539 | | | | 2,178 | |
| Increase in escrow deposit due to like-kind exchange | | | (22,739 | ) | | | (2,089 | ) | | | — | |
| Return of escrow deposits | | | — | | | | 24,828 | | | | — | |
| Acquisition of theatres in the U.S. | | | — | | | | (5,011 | ) | | | (48,950 | ) |
| Acquisition of theatres in Brazil | | | — | | | | (5,100 | ) | | | (9,061 | ) |
| Net proceeds from sale of NCM stock | | | 214,842 | | | | — | | | | — | |
| Net proceeds from sale of Fandango stock | | | 11,347 | | | | — | | | | — | |
| Investment in joint venture — DCIP | | | (1,500 | ) | | | (4,000 | ) | | | (2,500 | ) |
| | | | | | | | | | |
| Net cash provided by (used for) investing activities | | | 93,178 | | | | (94,942 | ) | | | (183,130 | ) |
| | | | | | | | | | | | | |
Financing activities | | | | | | | | | | | | |
| Capital contributions from parent | | | — | | | | — | | | | 19,650 | |
| Dividends paid to parent | | | — | | | | — | | | | (510,600 | ) |
| Payroll taxes paid as a result of immaculate option exercises | | | — | | | | — | | | | (8,972 | ) |
| Retirement of senior subordinated notes | | | (332,066 | ) | | | (3 | ) | | | — | |
| Proceeds from issuance of senior notes | | | — | | | | — | | | | 458,532 | |
| Repayments of other long-term debt | | | (19,438 | ) | | | (10,430 | ) | | | (12,605 | ) |
| Payments on capital leases | | | (3,759 | ) | | | (4,901 | ) | | | (6,064 | ) |
| Payment of debt issue costs | | | — | | | | — | | | | (13,003 | ) |
| Termination of interest rate swap agreement | | | — | | | | (12,725 | ) | | | — | |
| Other | | | (1,730 | ) | | | (1,231 | ) | | | (2,416 | ) |
| | | | | | | | | | |
| Net cash used for financing activities | | | (356,993 | ) | | | (29,290 | ) | | | (75,478 | ) |
| | | | | | | | | | | | | |
Effect of exchange rates on cash and cash equivalents | | | 5,445 | | | | (15,701 | ) | | | 16,401 | |
| | | | | | | | | | |
Increase in cash and cash equivalents | | | 86,338 | | | | 79,855 | | | | 124,499 | |
| | | | | | | | | | | | | |
Cash and cash equivalents: | | | | | | | | | | | | |
| Beginning of period | | | 147,045 | | | | 233,383 | | | | 313,238 | |
| | | | | | | | | | |
| End of period | | $ | 233,383 | | | $ | 313,238 | | | $ | 437,737 | |
| | | | | | | | | | |
Supplemental Information (see Note 18)
The accompanying notes are an integral part of the consolidated financial statements.
F - 6F-6
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
In thousands, except share and per share data
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business— Cinemark USA, Inc. and subsidiaries (the “Company”) are leadersis the second largest motion picture exhibitor in the motion picture exhibition industryworld in terms of both revenuesattendance and the number of screens in operation, with theatres in the United States (“U.S.”), Canada, Brazil, Mexico, Chile, Colombia, Argentina, Brazil, Chile, Ecuador, Peru, Honduras, El Salvador, Nicaragua, Costa Rica, Panama and Colombia.Guatemala. The Company also managed additional theatres in the U.S., Canada, Brazil, Colombia and TaiwanColombia during the year ended December 31, 2005.2009.
Share ExchangeBasis of Presentation —— On May 16, 2002,August 2, 2006, Cinemark Holdings, Inc. was formed as the Delaware holding company of Cinemark, USA, Inc. Under a share exchange agreement dated May 17, 2002,On April 24, 2007, Cinemark Holdings, Inc. completed an initial public offering of its common stock. Effective December 11, 2009, Cinemark, Inc. was merged into Cinemark Holdings, Inc. and after giving effect to a reverse stock split, each outstanding share and option to purchase shares ofCinemark Holdings, Inc. became the Company’s common stock was exchanged for 220 shares and options to purchase sharesholding company of Cinemark USA, Inc.’s common stock.
Principles of Consolidation— The consolidated financial statements include the accounts of Cinemark USA, Inc., its subsidiaries and subsidiaries.its affiliates. Majority-owned subsidiaries that the Company has control of are consolidated while those subsidiariesaffiliates of which the Company owns between 20% and 50% and does not control are accounted for as affiliates under the equity method. Those subsidiariesaffiliates of which the Company owns less than 20% are generally accounted for as affiliates 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 consolidated financial statements effective with their formation or from their dates of acquisition. Significant intercompanyIntercompany balances and transactions are eliminated in consolidation.
Cash and Cash Equivalents— Cash and cash equivalents consist of operating funds held in financial institutions, petty cash held by the theatres and highly liquid investments with remaining maturities of three months or less when purchased. At December 31, 2009, cash investments were primarily in money market funds.
Inventories— Concession and theatre supplies inventories are stated at the lower of cost (first-in, first-out method) or market.
Theatre Properties and Equipment— Theatre properties and equipment are stated at cost less accumulated depreciation and amortization. Property additionsAdditions to theatre properties and equipment include the capitalization of $234, $407$618, $270 and $74$0 of interest incurred during the development and construction of theatres in 2003, 2004during the years ended December 31, 2007, 2008 and 2005,2009, respectively. Depreciation is provided using the straight-line method over the estimated useful lives of the assets as follows:
| | | |
| Category | | Useful Life |
| Buildings on owned land | | 40 years |
| Buildings on leased land | | Lesser of lease term or useful life |
| Buildings under capital lease | | Lesser of lease term or useful life |
| Theatre furniture and equipment | | 5 to 15 years |
Leasehold interests and improvements | | Lesser of lease term or useful life |
The Company evaluates theatre properties and equipmentreviews long-lived assets for impairment in conjunction with the preparation of itsindicators on a quarterly consolidated financial statementsbasis or whenever events or changes in circumstances indicate the carrying amount of the assets may not be fully recoverable. When
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, changes in foreign currency exchange rates, the impact of recent ticket price changes, available lease renewal options and other factors considered relevant in its assessment of impairment of individual theatre assets. Long-lived assets are evaluated for impairment on an individual theatre basis, which the Company believes is the lowest applicable level for which there are identifiable cash flows. The impairment evaluation is based on the estimated undiscounted cash flows willfrom continuing use through the remainder of the theatre’s useful life. The remainder of the useful life correlates with the available remaining lease period, which includes the probability of renewal periods for leased properties and a period of twenty years for fee owned properties. If the estimated undiscounted cash flows are not be sufficient to recover a long-lived asset’s carrying amount, an impairment review is performed in whichvalue, the Company then compares the carrying value of the asset group (theatre) with its estimated fair value, which is determined based on a multiple of cash flows,which was seven times for the year ended December 31, 2005.value. When estimated fair value is determined to be lower than the carrying value of the long-lived 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. Management’s estimates, which fall under Level 3, are based on historical and projected operating performance, recent market transactions, and current industry trading
F-7
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
multiples. Fair value is determined based on a multiple of cash flows, which was eight times for the evaluations performed during 2007 and the first, second and third quarters of 2008 and six and a half times for the evaluation performed during the fourth quarter of 2008 and the evaluations performed during 2009. The Company reduced the multiple it used to determine fair value during the fourth quarter of 2008 due to the dramatic decline in estimated market values that resulted from a significant decrease in Cinemark Holdings, Inc.’s stock price and the declines in the market capitalizations of Cinemark Holdings, Inc. and the Company’s competitors that occurred during the fourth quarter of 2008. 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. See Note 10.
Goodwill and Other Intangible Assets— Goodwill is the excess of cost over fair value of theatre businesses acquired. Goodwill is evaluated 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. 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 its estimated fair value, a second step is performed to measure the potential goodwill impairment. Significant judgment is involved in estimating cash flows and fair value. Management’s estimates, which fall under Level 3, are based on historical and projected operating performance, recent market transactions, and current industry trading multiples. Fair value is determined based on a multiple of cash flows, which was eight times for the goodwill impairment evaluations performed during 2007 and six and a half times for the evaluations performed during 2008 and 2009. The Company reduced the multiple it used to determine fair value during the fourth quarter of 2008 due to the dramatic decline in estimated market values that resulted from a significant decrease in Cinemark Holdings, Inc.’s stock price and the declines in the market capitalizations of Cinemark Holdings, Inc. and the Company’s competitors that occurred during the fourth quarter of 2008. Prior to January 1, 2008, the Company considered its theatres reporting units for purposes of evaluating goodwill for impairment. Changes in the organization, including changes in the structure of the Company’s executive management team, Cinemark Holdings, Inc.’s initial public offering of its common stock, the resulting changes in the level at which the Company’s management team evaluates the business on a regular basis, and the Century Acquisition that increased the size of the Company’s theatre base by approximately 25%, led the Company to conclude that its U.S. regions and international countries are now more reflective of how it manages and operates its business. Accordingly, the Company’s U.S. regions and international countries represent the appropriate reporting units for purposes of evaluating goodwill for impairment. Consequently, effective January 1, 2008, the Company changed the reporting unit to 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) from approximately four hundred theatres. The goodwill impairment test performed during December 2007 that resulted in the recording of impairment charges during the year ended December 31, 2007 reflected the final calculation utilizing theatres as reporting units. See Notes 9 and 10.
Tradename intangible assets are tested for impairment at least annually during the fourth quarter or whenever events or changes in circumstances indicate the carrying value may not be recoverable. The Company estimates the fair value of its tradenames by applying an estimated market royalty rate that could be charged for the use of the Company’s tradename to forecasted future revenues, with an adjustment for the present value of such royalties. If the estimated fair value is less than the carrying value, the tradename intangible asset is written down to the estimated fair value.
F-8
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
The table below summarizes the Company’s intangible assets and the amortization method used for each type of intangible asset:
| | |
| Intangible Asset | | Amortization Method |
| Goodwill | | Indefinite-lived |
| Tradename | | Indefinite-lived |
| Capitalized licensing fees | | Straight-line method over 15 years. The remaining terms of the underlying agreements range from approximately 5 to 11 years. |
| Vendor contracts | | Straight-line method over the terms of the underlying contracts. The remaining terms of the underlying contracts range from 2 to 13 years. |
| Favorable/unfavorable leases | | Based on the pattern in which the economic benefits are realized over the terms of the lease agreements. The remaining terms of the lease agreements range from 1 to 26 years. |
| Other intangible assets | | Straight-line method over the terms of the underlying agreement. The remaining term of the underlying agreements range from 5 to 11 years. |
Deferred Charges and Other Assets— Deferred charges and other assets consist of debt issue costs, long-term prepaid rents, construction advances and other deposits, equipment to be placed in service and other assets. Debt issue costs are amortized using the straight-line method (which approximates the effective interest method) over the primary financing terms of the related debt agreement. Long-term prepaid rents represent advance rental payments on operating leases. These payments are recognized to facility lease expense over the period for which the rent was paid in advance as outlined in the lease agreements. These periods generally range from 10 to 20 years.
Lease Accounting— The Company accounts for leased properties under the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 13, “Accounting for Leases”, and other authoritative accounting literature. SFAS No. 13 requires that the Company evaluateevaluates each lease for classification as either a capital lease or an operating lease. According to SFAS No. 13, ifIf substantially all of the benefits and risks of ownership have been transferred to the lessee, the lesseeCompany records the lease as a capital lease at its inception. The Company performs this evaluation at the inception of the lease and when a modification is made to a lease. If the lease agreement calls for a scheduled rent increase during the lease term, the Company in accordance with Financial Accounting Standards Board (“FASB”) Technical Bulletin 85-3, “Accounting for Operating Leases with Scheduled Rent Increases”,
F - 7
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
recognizes the lease expense on a straight-line basis over the lease term as deferred lease expense. The Company determines the straight-line rent expense impact of an operating lease upon inception of the lease. For leases in which the Company is involved with construction of the theatre, the Company accounts for the lease during the construction period under the provisions of Emerging Issues Task Force (“EITF”) 97-10, “The Effect of Lessee Involvement in Asset Construction”. The landlord is typically responsible for constructing a theatre using guidelines and specifications agreed to by the Company and assumes substantially all of the risk of construction. In accordance with EITF 97-10, ifIf the Company concludes that it has substantially all of the construction period risks, it records a construction asset and related liability for the amount of total project costs incurred during the construction period.
Goodwill and Other Intangible Assets— The excess At the end of cost over fair value of theatre businesses acquired, less goodwill impairment charges and cumulative foreign currency translation adjustments, is recorded as goodwill, generally at the theatre level. Goodwill is tested for impairment at least annually or whenever events or changes in circumstances indicate the carrying value may not be recoverable. Factors considered include significant underperformance relative to historical or projected business and significant negative industry or economic trends. Goodwill impairment is evaluated using a two-step approach requiringconstruction period, the Company determines if the transaction qualifies for sale-leaseback accounting treatment in regards to compute the fair value of a theatre, and compare it with its carrying value. If the carrying value of the theatre exceeds its fair value, a second step would be performed to measure the potential goodwill impairment. When estimated fair value is determined to be lower than the carrying value of the asset, the asset is written down to its estimated fair value. Fair value is determined based on a multiple of cash flows. The Company performed its annual goodwill impairment evaluation as of December 31, 2005 using a multiple of cash flows of seven times.
Intangible assets consist of capitalized licensing fees, vendor contracts, favorable leases, and other intangible assets. The table below summarizes the amortization method used for each type of intangible asset:
| | |
Intangible Asset | | Amortization Method |
Capitalized licensing fees | | Straight-line method over 15 years |
Vendor contracts | | Straight-line method over the terms of the underlying contracts |
Favorable leases | | Based on the pattern in which the economic benefits are realized over the terms of the lease agreements |
Other intangible assets | | Straight-line method over the terms of the underlying agreements |
Intangible assets with indefinite lives are no longer being amortized, but instead are being evaluated for impairment at least annually or whenever events or changes in circumstances indicate the carrying value may not be recoverable. The Company currently has a tradename intangible asset that has an indefinite useful life. The Company performed its annual impairment evaluation of indefinite-lived intangible assets as of December 31, 2005, resulting in no changes to recorded amounts.
Deferred Charges and Other Assets— Deferred charges and other assets consist of debt issue costs, foreign advanced rents, construction advances and other deposits, equipment to be placed in service and other assets. Debt issue costs are amortized using the straight-line method (which approximates the effective interest method) over the primary financing terms of the related debt agreement. Foreign advanced rents represent advance rental payments for long-term foreign leases. These payments are recognized to facility lease expense over the period for which the rent was paid in advance as outlined in the lease agreements. These periods generally range from 10 to 20 years.classification.
Deferred Revenues— Advances collected on long-term screen advertising, concession and concessionother contracts are recorded as deferred revenues. In accordance with the terms of the agreements, the advances collected on screen advertisingsuch contracts are recognized as other revenues during the period in which the revenue isadvances are earned, based primarily on the Company’s attendance counts or screenings, which may differ from the period in which the advances are collected. InRevenues related to these advances are recognized on either a straight-line basis over the term of the contracts or as such revenues are earned in accordance with the terms of the agreements,contracts.
Casualty Insurance —The Company is self-insured for general liability claims up to $250 per occurrence with an annual cap of approximately $2,650 per policy year and is self-insured for medical claims up to $100 per occurrence. The Company is fully insured for workers compensation claims. As of December 31, 2008 and 2009, the advances collected on concession contracts are recognized as a reduction in concession supplies expense during the period in which earned which may differ from the period in which the advances are collected.
F - 8
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)Company maintained insurance reserves of $8,116 and $8,022, respectively.
Revenue and Expense Recognition— Revenues are recognized when admissions and concession sales are received at the box office andoffice. Other revenues primarily consist of screen advertising. Screen advertising revenues are recognized over the period that the related advertising is shown in the theatres.delivered on-screen or in-theatre. The Company records proceeds from the sale of gift cards and other advanced sale-type certificates in current liabilities and recognizes admissions and concession revenue when a holder redeems the card or certificate. The Company recognizes unredeemed gift cards and other advanced sale-type certificates as revenue only after such a period of time indicates, based on historical experience, the likelihood of redemption is remote, and based on applicable laws and regulations. In evaluating the likelihood of redemption, the Company considers the period outstanding, the level and frequency of activity, and the period of inactivity. OtherThe Company recognized unredeemed gift cards and other advance sale-type certificates as revenues primarily consistin the amount of screen advertising. Screen advertising revenues are recognized over$5,516, $7,629 and $7,162 during the period that the related advertising is delivered on-screen or in-theatre pursuant to the specific terms of the agreements with the advertisers.years ended December 31, 2007, 2008 and 2009, respectively.
F-9
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
Film rental costs are accrued based on the applicable box office receipts and either the mutually agreed upon firm terms or sliding scale formula, which are established prior to the opening of the picturefilm, or estimates of the final mutually agreed upon settlement, which occurs at the conclusion of the picturefilm run, subject to the film licensing arrangement. Under a firm terms formula, the Company pays the distributor a mutually agreed upon specified percentage of box office receipts, which reflects either a mutually agreed upon aggregate rate for the life of the film or rates that decline over the term of the run. Under the sliding scale formula, film rental is paid as a percentage of box office revenues using a pre-determined matrix based upon box office performance of the film. The settlement process allows for negotiation of film rental fees upon the conclusion of the film run based upon how the film performs. Estimates are based on the expected success of a film over the length of its run in the theatres.film. The success of a film can typically be determined a few weeks after a film is released when initial box office performance of the film is known. Accordingly, final settlements typically approximate estimates since box office receipts are known at the time the estimate is made and the expected success of a film over the length of its run in theatres can typically be estimated early in the film’s run. The final film settlement amount is negotiated at the conclusion of the film’s run based upon how a film actually performs. If actual settlements are higherdifferent than those estimated, additionalestimates, film rental costs are recordedadjusted at that time. The Company recognizes advertising costs and any sharing arrangements with film distributors in the same accounting period. The Company’s advertisingAdvertising costs are expensed as incurred. Advertising expensesincurred and we expensed $17,252, $16,839 and $15,104, respectively for the years ended December 31, 2003, 20042007, 2008 and 2005 were $14,643, $14,316 and $15,927, respectively.2009.
Stock Option Accounting– On May 16, 2002, Cinemark, Inc. was formed as the Delaware holding company of Cinemark USA, Inc. Under a share exchange agreement dated May 17, 2002, and after giving effect to a reverse stock split, each outstanding share and option to purchase shares of the Company’s common stock was exchanged for 220 shares and options to purchase shares of Cinemark, Inc.’s common stock. Unearned compensation of $3,810 related to the Company’s stock options was contributed to the Company’s parent, Cinemark, Inc. on May 17, 2002 as part of the share exchange. No unearned compensation has been recorded on the Company’s books subsequent to the share exchange.
Although the Company does not have any options outstanding, compensation expense related to the outstanding options of Cinemark, Inc. is recorded in the Company’s consolidated statements of income. Compensation expense resulting from the amortization of unearned compensation recorded in the Company’s consolidated statements of income under former stock option plans was $1,080 and $145 in 2003 and 2004, respectively. During 2004, the Company recorded additional compensation expense of $1,595 related to the write-off of the remaining unearned compensation for options outstanding as of the date of the Recapitalization and $14,650 related to the cash settlement of these options (see Note 3).
F - 9
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Share Based Awards— The Company applies Accounting Principles Board (“APB”) Opinion No. 25 and related interpretationsmeasures the cost of employee services received in accountingexchange for stock option plans. Had compensation costs been determinedan award of equity instruments based on the fair value atof the date of grant for awards under the plans, consistent with the method of SFAS No. 123, “Accounting for Stock-Based Compensation” and SFAS No. 148, “Accounting for Stock-Based Compensation Transition and Disclosure”, the Company’s net income would have been reduced to the pro-forma amounts indicated below:
| | | | | | | | | | | | | |
| | | Years Ended December 31, | |
| | | 2003 | | | 2004 | | | 2005 | |
| Net income as reported | | $ | 44,749 | | | $ | 44,554 | | | $ | 48,365 | |
| | | | | | | | | | | | | |
Compensation expense included in reported net income, net of tax1 | | | 707 | | | | 87 | | | | — | |
| Compensation expense under fair-value method, net of tax | | | (1,054 | ) | | | (2,219 | ) | | | (2,964 | ) |
| | | |
| Pro-forma net income | | $ | 44,402 | | | $ | 42,422 | | | $ | 45,401 | |
| | | |
1Amount for 2004 excludes compensation expense of $16,245 related to the Recapitalization included in net income.
The weighted average fair value per share of stock options granted by the Company’s parent, Cinemark, Inc., during 2003 was $12.76 (all of which had an exercise price equal to the market value at the date of grant). For each 2003 grant, compensation expense under the fair value method of SFAS No. 123 was estimatedaward on the date of the grant. The grant date fair value is estimated using the Black-Scholeseither an option-pricing model, consistent with the following assumptions: dividend yieldterms of 0 percent;the award, or a market observed price, if such a price exists. Such costs must be recognized over the period during which an expected lifeemployee is required to provide service in exchange for the award (which is usually the vesting period). The Company also estimates the number of 6.5 years; expected volatilityinstruments that will ultimately be forfeited, rather than accounting for forfeitures as they occur. See Note 17 for discussion of approximately 39 percent;all the Company’s share based awards and a risk-free interest rate of 3.29 percent. The weighted average fair value per share of stock options granted by Cinemark, Inc. during 2004 was $22.58 (all of which had an exercise price equal to the market value at the date of grant). For each 2004 grant,related compensation expense under the fair value method of SFAS No. 123 was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: dividend yield of 0 percent; an expected life of 6.5 years; expected volatility of approximately 39 percent; and a risk-free interest rate of 3.79 percent. The weighted average fair value per share of stock options granted by Cinemark, Inc. during 2005 was $22.58 (all of which had an exercise price equal to the market value at the date of grant). For the 2005 grant, compensation expense under the fair value method of SFAS No. 123 was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: dividend yield of 0 percent; an expected life of 6.5 years; expected volatility of approximately 44 percent; and a risk-free interest rate of 3.93 percent.expense.
Income Taxes —– The Company participates in the consolidated tax return of its parent, Cinemark Holdings, Inc. However, theThe Company’s provision for income taxes is computed as if the Company files separate income tax returns.it were a seprate taxpayer. The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income taxes are provided when tax laws and financial accounting standards differ with respect to the amount of income for a year and the basesbasis of assets and liabilities. A valuation allowance is recorded to reduce the carrying amount of deferred tax assets unless it is more likely than not that such assets will be realized. Income taxes are provided on unremitted earnings from foreign subsidiaries unless such earnings are expected to be indefinitely reinvested. Income taxes have also been provided for potential tax assessments. The related tax accruals are recorded in accordance with SFASFASB Interpretation No. 5,48,“Accounting for Contingencies”Uncertainty in Income Taxes — an interpretation of SFAS No. 109”. To(“FIN 48” or FASB ASC Topic 740,Income Taxes[“FASB ASC Topic 740"]), which the extent contingencies are probableCompany adopted on January 1, 2007. FIN 48 (FASB ASC Topic 740) clarifies the accounting and estimable, an accrualreporting for income taxes recognized in accordance with SFAS No. 109,“Accounting for Income Taxes”(FASB ASC Topic 740), and the recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns. The evaluation of a tax position is recorded within current liabilitiesa two-step process. The first step is recognition: the Company determines whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. In evaluating whether a tax position has met the more-likely-than-not recognition threshold, the Company should presume that the position would be examined by the appropriate taxing authority that would have full knowledge of all relevant information. The second step is measurement: a tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in the consolidated balance sheet. Tofinancial statements. The tax position is measured as the extentlargest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Differences between tax accruals differ from actual paymentspositions taken in a tax return and amounts recognized in the financial statements result in (1) a change in a liability for income taxes payable or assessments,(2) a change in an income tax refund receivable, a deferred tax asset or a deferred tax liability or both (1) and (2). The Company accrues interest and penalties on its uncertain tax positions.
Segments— As of December 31, 2009, the accruals will be adjusted.Company managed its business under two reportable operating segments, U.S. markets and international markets, in accordance with FASB ASC Topic 280,Segment Reporting. See Note 21.
Use of Estimates— The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to makethe use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. The Company’s consolidated financial statements include amounts that are based on management’s best estimates and judgments. Actual results could differ from those estimates.
F-10
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
Foreign Currency Translations— The assets and liabilities of the Company’s foreign subsidiaries are translated into U.S. dollars at current exchange rates as of the balance sheet date, and revenues and expenses are translated at average monthly exchange rates. The resulting translation adjustments are recorded in the consolidated balance sheet in accumulated other comprehensive income (loss). The company recognizes foreign currency transaction gains and losses when changes in exchange rates impact transactions, other than intercompany transactions of a long-term nature, that have been denominated in a currency other than the functional currency.
Fair Value Measurements —The Company has interest rate swap agreements that are adjusted to fair value on a recurring basis (quarterly). The Company uses the income approach to determine the fair value of its interest rate swap agreements and under this approach, the Company uses projected future interest rates as provided by the counterparties to the interest rate swap agreements and the fixed rates that the Company is obligated to pay under these agreements. According to authoritative guidance, inputs used in fair value measurements fall into three different categories; Level 1, Level 2 and Level 3. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. Therefore, the Company’s measurements use significant unobservable inputs, which fall in Level 3. 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. Below is a reconciliation of our interest rate swap values, as included in other long-term liabilities on the consolidated balance sheets, from January 1, 2008 to December 31, 2009:
| | | | | |
| Beginning balance — January 1, 2008 | | $ | (18,422 | ) |
| Total gains (losses): | | | | |
| Included in earnings (as a component of interest expense) | | | 5,422 | |
| Included in accumulated other comprehensive loss | | | (24,506 | ) |
| Settlements | | | 12,725 | |
| | | | |
| Ending balance — December 31, 2008 | | $ | (24,781 | ) |
| Total gains (losses): | | | | |
| Included in accumulated other comprehensive loss | | | 6,257 | |
| | | | |
| Ending balance — December 31, 2009 | | $ | (18,524 | ) |
| | | | |
See Note 13 for further discussion of the terms of the Company’s interest rate swap agreements.
Acquisitions— The Company accounts for acquisitions under the acquisition method of accounting. The acquisition method requires that the acquired assets and liabilities, including contingencies, be recorded at fair value determined on the acquisition date and changes thereafter reflected in income. For significant acquisitions, the Company obtains independent third party valuation studies for certain of the assets acquired and liabilities assumed to assist the Company in determining fair value. The estimation of the fair values of the assets acquired and liabilities assumed involves a number of estimates and assumptions that could differ materially from the actual amounts recorded. The Company provides the assumptions, including both quantitative and qualitative information, about the specified asset or liability to the third party valuation firms. The Company primarily utilizes the third parties to accumulate comparative data from multiple sources and assemble a report that summarizes the information obtained. The Company then uses the information to determine fair value. The third party valuation firms are supervised by Company personnel who are knowledgeable about valuations and fair value. The Company evaluates the appropriateness of the valuation methodology utilized by the third party valuation firm.
2. NEW ACCOUNTING PRONOUNCEMENTS
In September 2006, the FASB issued SFAS No. 157 (FASB Accounting Standards Codification [“ASC”] Topic 820),“Fair Value Measurements.”Among other requirements, this statement defines fair value, establishes a framework for using fair value to measure assets and liabilities, and expands disclosures about fair value measurements. The statement applies whenever other statements require or permit assets or liabilities to be measured at fair value. SFAS No. 157 (FASB ASC Topic 820) was effective for the Company beginning January 1, 2008 (January 1, 2009 for nonfinancial assets and liabilities). Adoption of this statement did not have a significant impact on the Company’s consolidated financial statements.
F - 10F-11
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
average monthly exchange rates. The resulting translation adjustments are recorded as a separate component of shareholder’s equity.
Fair Values of Financial Instruments— Fair values of financial instruments are estimated by the Company using available market informationIn thousands, except share and other valuation methods. Values are based on available market quotes or estimates using a discounted cash flow approach based on the interest rates currently available for similar instruments. The fair values of financial instruments for which estimated fair value amounts are not specifically presented are estimated to approximate the related recorded values.
2. NEW ACCOUNTING PRONOUNCEMENTSper share data
In December 2004,2007, the FASB issued SFAS No. 153,141(R) (FASB ASC Topic 805), “ExchangesBusiness Combinations”. This statement requires all business combinations completed after the effective date to be accounted for by applying the acquisition method (previously referred to as the purchase method); expands the definition of Non-monetary Assets-Amendment of APB Opinion No. 29”. SFAS No. 153 amends APB Opinion No. 29 to eliminatetransactions and events that qualify as business combinations; requires that the exception for nonmonetary exchanges of similar productiveacquired assets and replaces it with a general exceptionliabilities, including contingencies, be recorded at the fair value determined on the acquisition date and changes thereafter reflected in income, not goodwill; changes the recognition timing for exchanges of nonmonetary assets that do not have commercial substance, definedrestructuring costs; and requires acquisition costs to be expensed as transactions that are not expected to result in significant changes in the cash flowsincurred rather than being capitalized as part of the reporting entity. This statement is effective for exchangescost of non-monetary assets occurring after June 15, 2005. The adoptionthe acquisition. Adoption of SFAS No. 153141(R) (FASB ASC Topic 805) was required for business combinations that occur after December 15, 2008. Early adoption and retroactive application of SFAS No. 141(R) (FASB ASC Topic 805) to fiscal years preceding the effective date is not permitted. Adoption of this statement did not have a materialsignificant impact on the Company’s consolidated financial statements.
In December 2004,2007, the FASB issued SFAS No. 123(R),160, (FASB ASC Topic 810) ““Share-Based Payment”Noncontrolling Interest in Consolidated Financial Statements, which supercedes APB Opinion No. 25,“Accounting for Stock Issued to Employees,”and replaces SFAS No. 123,“Accounting for Stock-Based Compensation”. This statement establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically, this statement requires the recognition of a noncontrolling interest (minority interest) as equity in the consolidated financial statements and separate from the parent’s equity. The amount of net income attributable to the noncontrolling interest will no longer be shown as an expense item for all transactionsperiods presented, but will be included in which an entity exchanges its equity instruments for goods and services.consolidated net income on the face of the income statement. SFAS No. 123(R) focuses primarily160 (FASB ASC Topic 810) requires disclosure, on accounting for transactions with employees,the face of the consolidated income statement, of the amounts of consolidated net income attributable to the parent and carries forward without change prior guidance for share-based payments for transactions with non employees.the noncontrolling interest. SFAS No. 123(R) eliminates160 (FASB ASC Topic 810) clarifies that changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the intrinsic value measurement objectiveparent retains its controlling financial interest. In addition, this statement requires that a parent recognize a gain or loss in APB Opinion No. 25 and generally requires the Company to measure the cost of employee services received in exchange for an award of equity instruments based onnet income when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the awardnoncontrolling equity investment on the datedeconsolidation date. SFAS No. 160 (FASB ASC Topic 810) also includes expanded disclosure requirements regarding the interests of the grant. The standard requires grant date fair value to be estimated using either an option-pricing model, which is consistent with the terms of the award, or a market observed price, if such a price exists. Such cost must be recognized over the period during which an employee is required to provide service in exchange for the award (which is usually the vesting period). The standard also requires the Company to estimate the number of instruments that will ultimately be issued, rather than accounting for forfeitures as they occur. The Company is required to applyparent and its noncontrolling interest. SFAS No. 123(R) to all awards granted, modified160 (FASB ASC Topic 810) was effective for fiscal years, and interim periods within those fiscal years, beginning on or settled in its first annual reporting period after December 15, 2005. The2008. Upon adoption of this statement, the Company will be requiredhas recognized its noncontrolling interest as equity in the consolidated balance sheets, has reflected net income attributable to usenoncontrolling interest in consolidated net income (loss) in the “modified prospective method’’statements of operations and has provided, in its consolidated statements of stockholder’s equity and comprehensive income (loss), under which it must recognize compensation costa summary of changes in equity attributable to Cinemark USA, Inc., changes attributable to noncontrolling interests and changes in total equity for all awards grantedperiods presented.
In March 2008, the FASB issued SFAS No. 161 (FASB ASC Topic 815) “Disclosures about Derivative Instruments and Hedging Activities—an Amendment of FASB Statement No. 133”. This statement intends to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures about their impact on an entity’s financial position, financial performance, and cash flows. SFAS No. 161 (FASB ASC Topic 815) requires disclosures regarding the objectives for using derivative instruments, the fair values of derivative instruments and their related gains and losses, and the accounting for derivatives and related hedged items. SFAS No. 161 (FASB ASC Topic 815) was effective for fiscal years and interim periods beginning after November 15, 2008, with early adoption permitted. The adoption of SFAS No. 161 (FASB ASC Topic 815) did not impact the Company’s consolidated financial statements, nor did it adoptshave a significant impact on the standard and forCompany’s disclosures.
In May 2009, the unvested portionFASB issued SFAS No. 165 (FASB ASC Topic 855),“Subsequent Events”. SFAS No. 165 (FASB ASC Topic 855) should not result in significant changes in the subsequent events that an entity reports. Rather, SFAS No. 165 (FASB ASC Topic 855) introduces the concept of previously granted awardsfinancial statements that are outstanding onavailable to be issued. Financial statements are considered available to be issued when they are complete in a form and format that date.complies with generally accepted accounting principles and all approvals necessary for issuance have been obtained. SFAS No. 165 (FASB ASC Topic 855) was effective for interim or annual financial periods ending after June 15, 2009. The Company performed a preliminary analysis of the impactadoption of SFAS 123(R). The Company has 1,538,062 unvested options outstandingNo. 165 (FASB ASC Topic 855) did not have a significant impact on January 1, 2006 and the pre-tax compensation expense related to these options is estimated to be approximately $2,900 for the year ended December 31, 2006.
3. RECAPITALIZATION OF CINEMARK, INC. AND REFINANCING OF CERTAIN LONG-TERM DEBT
Recapitalization of Cinemark, Inc.— On March 12, 2004, the Company’s parent, Cinemark, Inc., entered into an agreement and plan of merger with a newly formed subsidiary of Madison Dearborn Partners, LLC (“Madison”). The transaction was completed on April 2, 2004, at which time the newly formed subsidiary of Madison was merged with and into Cinemark, Inc., with Cinemark, Inc. continuing as the surviving corporation. Simultaneously, an affiliate of Madison purchased shares of common stock of Cinemark, Inc. for $518,245 in cash and became the controlling stockholder of Cinemark, Inc., owning approximately 83% of Cinemark, Inc.’s capital stock. Lee Roy Mitchell, the Company’s Chief Executive Officer, and the Mitchell Special Trust collectively retained approximately 16% ownership of Cinemark, Inc.’s capital stock with certain members of management owning the remaining 1%. Based on the terms of the transaction, including Mr. Mitchell’s ownership retention, the transaction was accounted for as a recapitalization, which resulted in Cinemark, Inc. and its subsidiaries retaining their historical book values (the “Recapitalization”). In December 2004, Madison sold approximately 10% of its stock in Cinemark, Inc. to outside investors and in July 2005, Cinemark, Inc. issued an additional 221,400 shares to another outside investor. As of December 31, 2005, Madison owned approximately 74% of the capital stock of Cinemark,consolidated financial statements.
F - 11F-12
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)In thousands, except share and per share data
Inc. In June 2009, the FASB issued SFAS No. 168 (FASB ASC Topic 105), outside investors owned approximately 9%, Lee Roy Mitchell“The FASB Accounting Standards Codification and the Mitchell Special Trust collectively ownedHierarchy of Generally Accepted Accounting Principles”, which authorizes the Codification as the sole source for authoritative generally accepted accounting principles in the U.S. (“U.S. GAAP”). SFAS No. 168 (FASB ASC Topic 105) was effective for financial statements issued for reporting periods that ended after September 15, 2009. SFAS No. 168 (FASB ASC Topic 105) supersedes all accounting standards in U.S. GAAP, aside from those issued by the SEC. SFAS No. 168 (FASB ASC Topic 105) replaced SFAS No. 162 to establish a new hierarchy of GAAP sources for non-governmental entities under the FASB Accounting Standards Codification. The adoption of SFAS No. 168 (FASB ASC Topic 105) did not have a significant impact on the Company’s consolidated financial statements.
3. INITIAL PUBLIC OFFERING OF COMMON STOCK
On April 24, 2007, Cinemark Holdings, Inc., completed an initial public offering of its common stock. Cinemark Holdings, Inc. sold 13,888,889 shares of its common stock and selling stockholders sold an additional 14,111,111 shares of common stock at a price of $17.955 ($19 per share less underwriting discounts). The net proceeds (before expenses) received by Cinemark Holdings, Inc. were $249,375 and Cinemark Holdings, Inc. paid approximately 16%$3,526 in legal, accounting and certain membersother fees, all of management ownedwhich are recorded in its additional paid-in-capital. The selling stockholders granted the underwriters a 30-day option to purchase up to an additional 2,800,000 shares of Cinemark Holdings, Inc.’s common stock at a price of $17.955 ($19 per share less underwriting discounts). On May 21, 2007, the underwriters purchased an additional 269,100 shares from the selling stockholders pursuant to this option. Cinemark Holdings, Inc. did not receive any proceeds from the sale of shares by the selling stockholders. Cinemark Holdings, Inc. has utilized a portion of the net proceeds that it received from the offering to repurchase a portion of Cinemark, Inc.’s outstanding 93/4% senior discount notes. Cinemark Holdings, Inc. has significant flexibility in applying the net proceeds from the initial public offering. Cinemark Holdings, Inc. has invested the remaining 1%.net proceeds in money market funds.
4. ACQUISITION OF U.S. THEATRES
On March 31, 2004, Cinemark, Inc. issued $577,173 aggregate principal amount at maturity of 93/4% senior discount notes due 2014. The gross proceeds at issuance of $360,000 were used to fund in part the Recapitalization. Interest on the notes accretes until March 15,18, 2009, up to their aggregate principal amount. Cash interest will accrue and be payable semi-annually in arrears on March 15 and September 15, commencing on September 15, 2009. Due to the holding company status of Cinemark, Inc., payments of principal and interest under these notes will be dependent on loans, dividends and other payments from the Company to Cinemark, Inc. On September 22, 2005, Cinemark, Inc. repurchased $1,840 aggregate principal amount at maturityacquired four theatres with 82 screens from Muvico Entertainment L.L.C. in an asset purchase for $48,950 in cash. The acquisition resulted in an expansion of the 93/4% senior discount notesCompany’s U.S. theatre base, as part of an open market purchase for approximately $1,302, including accreted interest. As of December 31, 2005, the accreted principal balancethree of the notes was $423,978theatres are located in Florida and the aggregate principal amount at maturity will be $575,333. Upon a change of control, Cinemark, Inc. would be required to make an offer to repurchase all of the 93/4% senior discount notes at a price equal to 101% of the accreted value of the notes plus accrued and unpaid interest, if any, through the date of purchase.one theatre is located in Maryland. The Company has no obligation, contingent or otherwise, to pay the amounts due under the 93/4% senior discount notes or to make funds available to pay those amounts. The 93/4% senior discount notesincurred approximately $113 in transaction costs, which are general, unsecured senior obligations of Cinemark, Inc. that are effectively subordinated to indebtedness and other liabilities of the Company.
Upon consummation of the Recapitalization on April 2, 2004, all outstanding stock options of Cinemark, Inc. immediately vested and the majority were repurchased, which resulted in compensation expense of $16,245 recorded by the Company. Compensation expense, which was included in general and administrative expenses, consisted of the write-off of the unamortized unearned compensation expense for options outstanding as of the date of the Recapitalization and the impact of the cash settlement of these options. As part of the transaction, Cinemark, Inc. paid change of control fees and other management compensation expenses of $15,749, which were also includedreflected in general and administrative expenses on the Company’s consolidated statementsstatement of incomeoperations for the year ended December 31, 2004.2009.
As a resultThe transaction was accounted for by applying the acquisition method. The following table represents the fair value of the Recapitalization,identifiable assets acquired and liabilities assumed that have been recognized by the Company in its consolidated balance sheet as of December 31, 2009:
| | | | | |
| Theatre properties and equipment | | $ | 25,575 | |
| Brandname | | | 3,500 | |
| Noncompete agreement | | | 1,630 | |
| Goodwill | | | 44,565 | |
| Unfavorable lease | | | (3,600 | ) |
| Capital lease liability (for one theatre) | | | (22,720 | ) |
| | | | |
| Total | | $ | 48,950 | |
| | | | |
The brandname and noncompete agreement are presented as intangible assets and the unfavorable lease is presented as other long-term liabilities on the Company’s Brazilian partners exercised their option to cause Cinemark, Inc. to purchase allconsolidated balance sheet as of their shares of common stock of Cinemark Brasil S.A., which represented 47.2% of total common stock of Cinemark Brasil S.A. See Note 4.
Refinancing of Certain Long-Term Debt— On March 16, 2004,December 31, 2009. The weighted average amortization period for these intangible assets and the Company initiated a tender offer for its then outstanding $105,000 aggregate principal amount 81/2% senior subordinated notes due 2008unfavorable lease are 9.6 years and a consent solicitation to remove substantially all restrictive covenants in the indenture governing those notes. On March 25, 2004, a supplemental indenture removing substantially all10.0 years, respectively. Goodwill represents excess of the covenants was executedcosts of acquiring these theatres over amounts assigned to assets acquired, including intangible assets, and became effective on the date of the Recapitalization. Additionally, on the date of the Recapitalization, the Company amended its then existing senior secured credit facility to provideliabilities assumed. The goodwill recorded is fully deductible for a $260,000 seven year term loan and a $100,000 six and one-half year revolving credit line, which was left undrawn. The net proceeds from the amended senior secured credit facility were used to repay the term loan under the Company’s then existing senior secured credit facility of approximately $163,763 and to redeem the $94,165 aggregate principal amount of the Company’s then outstanding $105,000 aggregate principal amount of 81/2% senior subordinated notes that were tendered pursuant to the tender offer. The tender offer was made at 104.5% of the aggregate principal amount of the notes tendered on or prior to the consent date and at 101.5% of the aggregate principal amount of the notes tendered subsequent to the consent date but prior to the expiration date.
On April 6, 2004, as a result of the consummation of the Recapitalization and in accordance with the terms of the indenture governing the Company’s 9% senior subordinated notes due 2013, the Company made a change of control offer to purchase the 9% senior subordinated notes at a purchase price of 101% of the aggregate principal amount, plus accrued and unpaid interest, if any, at the date of purchase. Approximately $17,750 aggregate principal amount of the 9% senior subordinated notes were tendered and not withdrawn in the change of control offer, which expired on May 26, 2004. The Company paid the change of control price with available cash on June 1, 2004.tax purposes.
F - 12F-13
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data
5. INVESTMENT IN THOUSANDS, EXCEPT SHARENATIONAL CINEMEDIA LLC AND PER SHARE DATA)TRANSACTION RELATED TO ITS INITIAL PUBLIC OFFERING
OnIn March 2005, Regal Entertainment Inc. (“Regal”) and AMC Entertainment Inc. (“AMC”) formed National CineMedia, LLC, or “NCM”, and on July 28, 2004,15, 2005, the Company provided noticejoined NCM, as one of the founding members. NCM operates a digital in-theatre network in the U.S. for providing cinema advertising and non-film events. Upon joining NCM, the Company and NCM entered into an Exhibitor Services Agreement, pursuant to which NCM provides advertising, promotion and event services to the Company’s theatres. On February 13, 2007, National CineMedia, Inc., or “NCM Inc.”, a newly formed entity that serves as a member and the sole manager of NCM, completed an initial public offering of its common stock. In connection with the NCM Inc. initial public offering, the Company amended its operating agreement with NCM and the Exhibitor Services Agreement. In connection with NCM Inc.’s initial public offering and the transactions described below (the “NCM Transaction”), the Company received an aggregate of $389,003.
Prior to pricing the initial public offering of NCM Inc., NCM completed a recapitalization whereby (1) each issued and outstanding Class A unit of NCM was split into 44,291 Class A units, and (2) following such split of Class A Units, each issued and outstanding Class A Unit was recapitalized into one common unit and one preferred unit. As a result, the Company received 14,159,437 common units and 14,159,437 preferred units. All existing preferred units of NCM, or 55,850,951 preferred units, held by Regal, AMC and the Company were redeemed on a pro-rata basis on February 13, 2007. NCM utilized the proceeds of its new $725,000 term loan facility and a portion of the proceeds it received from NCM Inc. from its initial public offering to redeem all of its outstanding preferred units. Each preferred unit was redeemed for $13.7782 and the Company received approximately $195,092 as payment in full for redemption of all of the Company’s preferred units in NCM. Upon payment of such amount, each preferred unit was cancelled and the holders of the preferred units ceased to have any rights with respect to the preferred units.
At the closing of the initial public offering, the underwriters exercised their over-allotment option to purchase additional shares of common stock of NCM Inc. at the initial public offering price, less underwriting discounts and commissions. In connection with the over-allotment option exercise, Regal, AMC and the Company each sold to NCM Inc. common units of NCM on a pro-rata basis at the initial public offering price, less underwriting discounts and expenses. The Company sold 1,014,088 common units to NCM Inc. for proceeds of $19,910, and upon completion of this sale of common units, the Company owned 13,145,349 common units of NCM. The net proceeds of $215,002 from the above described stock transactions were applied against the Company’s existing investment basis in NCM of $4,069 until such basis was reduced to $0 with the remaining outstanding 81/2% senior subordinated notes$210,933 of proceeds net of $160 of transaction related costs, recorded as a gain of $210,773 in the consolidated statement of operations for the year ended December 31, 2007.
NCM also paid the Company a portion of the proceeds it received from NCM Inc. in the initial public offering for agreeing to modify the prior Exhibitor Services Agreement. The modification reflects a shift from circuit share expense under the prior Exhibitor Services Agreement, which obligated NCM to pay the Company a percentage of revenue, to the monthly theatre access fee described below. The theatre access fee significantly reduced the contractual amounts paid to the Company by NCM. In exchange for the Company agreeing to so modify the agreement, NCM paid the Company approximately $174,001 upon modification of the Exhibitor Services Agreement on February 13, 2007, the proceeds of which were recorded as deferred revenue. The Company believes this payment approximates the fair value of the Exhibitor Services Agreement modification. The deferred revenue is being amortized into other revenues over the life of the agreement using the units of revenue method. Regal and AMC similarly amended their exhibitor service agreements with NCM.
In consideration for NCM’s exclusive access to the Company’s theatre attendees for on-screen advertising and use of off-screen locations within the Company’s theatres for the lobby entertainment and lobby promotions, the Company receives a monthly theatre access fee under the modified Exhibitor Services Agreement (“modified ESA”). The theatre access fee is composed of a fixed payment per patron, initially seven cents, and a fixed payment per digital screen, which may be adjusted for certain reasons outlined in the modified ESA. The payment per theatre patron increases by 8% every five years, with the first such increase taking effect after the end of fiscal 2011, and the payment per digital screen, initially eight hundred dollars per digital screen per year, increases annually by 5%. For 2009, the annual payment per digital screen was eight hundred eighty two dollars. The theatre access fee paid in the aggregate to Regal, AMC and the Company will not be less than 12% of NCM’s Aggregate Advertising Revenue (as defined in the modified ESA), or it will be adjusted upward to reach this minimum payment. Additionally, with respect to any on-screen advertising time provided to the Company’s beverage concessionaire, the Company is required to purchase such time from NCM at a negotiated rate. The modified ESA has, except with respect to certain limited services, a remaining term of approximately 28 years.
F-14
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
Prior to the initial public offering of NCM Inc. common stock, the Company’s ownership interest in NCM was approximately 25% and subsequent to the completion of the offering the Company held a 14% interest in NCM. Subsequent to NCM Inc.’s initial public offering, the Company continues to account for its investment in NCM under the equity method of accounting due to its ability to exercise significant influence over NCM. The Company has substantial rights as a founding member, including the right to designate a total of two nominees to the ten-member board of directors of NCM Inc., the sole manager. So long as the Company owns at least 5% of NCM’s membership interests, approval of at least 90% (80% if the board has less than 10 directors) will be required before NCM Inc. may take certain actions including but not limited to mergers and acquisitions, issuance of common or preferred shares, approval of NCM Inc.’s budget, incurrence of indebtedness, entering into or terminating material agreements, and modifications to its articles of incorporation or bylaws. Additionally, if any of the Company’s director designees are not appointed to the board of directors of NCM Inc., nominated by NCM Inc. or elected by NCM Inc.’s stockholders, then the Company (so long as the Company continues to own at least 5% of NCM’s membership interest) will be entitled to approve certain actions of NCM including without limitation, approval of the budget, incurrence of indebtedness, consummating or amending material agreements, approving dividends, amending the NCM operating agreement, hiring or termination of the chief executive officer, chief financial officer, chief technology officer or chief marketing officer of NCM and the dissolution or liquidation of NCM.
During 2008, NCM performed its initial annual common unit adjustment calculation in accordance with the Common Unit Adjustment Agreement dated as of February 13, 2007 between NCM, Inc. and the Company, Regal and AMC. The annual common unit adjustment is based on the change in the number of screens operated by and attendance of the Company, AMC and Regal. As a result of the calculation, the Company received an additional 846,303 common units of NCM, each of which is convertible into one share of NCM, Inc. common stock. The Company recorded the additional common units received at fair value as an investment with a corresponding adjustment to deferred revenue of $19,020. The common unit adjustment resulted in an increase in the Company’s ownership percentage in NCM from approximately 14.0% to approximately 14.5%. Subsequent to the annual common unit adjustment discussed above, in May 2008, Regal completed an acquisition of another theatre circuit that required an extraordinary common unit adjustment calculation by NCM in accordance with the Common Unit Adjustment Agreement. As a result of this extraordinary common unit adjustment, Regal was granted additional common units of NCM, which resulted in dilution of the Company’s ownership interest in NCM from 14.5% to 14.1%. The Company recognized a change of interest loss of approximately $75 during the year ended December 31, 2008 as a result of this extraordinary common unit adjustment, which is reflected in (gain) loss on sale of assets and other on the consolidated statement of operations.
During March 2009, NCM performed its annual common unit adjustment calculation under the Common Unit Adjustment Agreement. As a result of the calculation, the Company received an additional 1,197,303 common units of NCM, each of which is convertible into one share of NCM, Inc. common stock. The Company recorded the additional common units received at fair value as an investment with a corresponding adjustment to deferred revenue of $15,536. The common unit adjustment resulted in an increase in the Company’s ownership percentage in NCM from approximately 14.1% to 15.0%.
As of December 31, 2009, the Company owned a total of 15,188,955 common units of NCM.
F-15
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
Below is a summary of activity with NCM included in the Company’s consolidated financial statements:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Gain | | | | | | Equity in | | | | |
| | | Investment | | Deferred | | on NCM | | Distributions | | (Earnings) | | Other | | Cash |
| | | in NCM | | Revenue | | Transaction(2) | | from NCM | | Losses | | Revenue | | Received |
| Beginning balance on January 1, 2007 | | $ | 5,353 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Equity in losses | | | (1,284 | ) | | | — | | | | — | | | | — | | | | 1,284 | | | | — | | | | — | |
| Preferred and common unit redemption | | | (4,069 | ) | | | — | | | | (210,773 | ) | | | — | | | | — | | | | — | | | | 215,002 | |
| ESA modification payment | | | — | | | | (174,001 | ) | | | — | | | | — | | | | — | | | | — | | | | 174,001 | |
Revenues earned under ESA(1) | | | — | | | | — | | | | — | | | | — | | | | — | | | | (5,664 | ) | | | 5,664 | |
| Amortization of deferred revenue | | | — | | | | 1,305 | | | | — | | | | — | | | | — | | | | (1,305 | ) | | | — | |
| Receipt of excess cash distributions | | | — | | | | — | | | | — | | | | (11,499 | ) | | | — | | | | — | | | | 11,499 | |
| | | |
| Balance as of and for the period ended December 31, 2007 | | $ | — | | | $ | (172,696 | ) | | $ | (210,773 | ) | | $ | (11,499 | ) | | $ | 1,284 | | | $ | (6,969 | ) | | $ | 406,166 | |
| | | | | | | | | | | |
| Receipt of common units due to 2008 common unit adjustment | | $ | 19,020 | | | $ | (19,020 | ) | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Change of interest loss due to extraordinary common unit adjustment(3) | | | (75 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Revenues earned under ESA(1) | | | — | | | | — | | | | — | | | | — | | | | — | | | | (1,764 | ) | | | 1,764 | |
| Receipt of excess cash distributions | | | (644 | ) | | | — | | | | — | | | | (16,005 | ) | | | — | | | | — | | | | 16,649 | |
| Receipt under tax receivable agreement | | | — | | | | — | | | | — | | | | (2,833 | ) | | | — | | | | — | | | | 2,833 | |
| Equity in earnings | | | 840 | | | | — | | | | — | | | | — | | | | (840 | ) | | | — | | | | — | |
| Amortization of deferred revenue | | | — | | | | 1,869 | | | | — | | | | — | | | | — | | | | (1,869 | ) | | | — | |
| | | |
| Balance as of and for the period ended December 31, 2008 | | $ | 19,141 | | | $ | (189,847 | ) | | $ | — | | | $ | (18,838 | ) | | $ | (840 | ) | | $ | (3,633 | ) | | $ | 21,246 | |
| | | | | | | | | | | |
| Receipt of common units due to 2009 common unit adjustment | | $ | 15,536 | | | $ | (15,536 | ) | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Revenues earned under ESA(1) | | | — | | | | — | | | | — | | | | — | | | | — | | | | (5,711 | ) | | | 5,711 | |
| Receipt of excess cash distributions | | | (2,358 | ) | | | — | | | | — | | | | (17,738 | ) | | | — | | | | — | | | | 20,096 | |
| Receipt under tax receivable agreement | | | — | | | | — | | | | — | | | | (3,084 | ) | | | — | | | | — | | | | 3,084 | |
| Equity in earnings | | | 1,913 | | | | — | | | | — | | | | — | | | | (1,913 | ) | | | — | | | | — | |
| Amortization of deferred revenue | | | — | | | | 2,377 | | | | — | | | | — | | | | — | | | | (2,377 | ) | | | — | |
| | | |
| Balance as of and for the period ended December 31, 2009 | | $ | 34,232 | | | $ | (203,006 | ) | | $ | — | | | $ | (20,822 | ) | | $ | (1,913 | ) | | $ | (8,088 | ) | | $ | 28,891 | |
| | | |
| | |
| (1) | | Amounts include the per patron and per digital screen theatre access fees due to the Company, net of amounts due to NCM for on-screen advertising time provided to the Company’s beverage concessionaire. The amounts due to NCM for on-screen advertising time provided to the Company’s beverage concessionaire were approximately $10,367, $12,784 and $9,719 for the years ended December 31, 2007, 2008 and 2009, respectively. |
|
| (2) | | Amount is net of approximately $160 of costs incurred by the Company related to the NCM transaction. |
|
| (3) | | Loss was recorded as (gain) loss on sale of assets and other. |
6. INVESTMENT IN DIGITAL CINEMA IMPLEMENTATION PARTNERS
On February 12, 2007, the Company, AMC and Regal entered into a joint venture known as Digital Cinema Implementation Partners LLC (“DCIP”) to facilitate the implementation of digital cinema in the Company’s theatres and to establish agreements with major motion picture studios for the financing of digital cinema. Future digital cinema developments will be managed by DCIP, subject to the Company’s approval along with the Company’s partners, AMC and Regal. During the year ended December 31, 2007, the Company invested an initial $1,500 for a one-third ownership interest in DCIP. The Company, AMC and Regal each invested an additional $4,000 and $2,500 during the years ended December 31, 2008 and 2009, respectively, in DCIP. The Company is accounting for its investment in DCIP under the equity method of accounting.
During the years ended December 31, 2007, 2008 and 2009, the Company recorded equity losses in DCIP of approximately $1,240, $3,243 and $2,877, respectively, relating to this investment. The Company’s investment basis in DCIP was $1,017 and $640 at December 31, 2008 and 2009, respectively, which is included in investments in and advances to affiliates on the consolidated balance sheets.
7.SALE OF INVESTMENT IN FANDANGO, INC.
In May 2007, Fandango, Inc., an on-line ticketing distributor, executed a merger agreement, which resulted in the Company selling its investment in stock of Fandango, Inc. for approximately $14,147 of consideration (the “Fandango Transaction”). The Company paid $2,800 of the consideration to Syufy Enterprises, LP in accordance with the terms of
F-16
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
agreements entered into as part of the Century Acquisition. The carrying value of the Company’s investment in stock of Fandango, Inc. was $2,142. As a result of the sale of its election to redeem all outstanding notes atinvestment, the Company recorded a redemption pricegain of 102.833%$9,205 in the consolidated statement of operations for the year ended December 31, 2007.
As part of the aggregate principal amount plus accrued interest. On August 27, 2004,sale of its investment in stock of Fandango, Inc., the Company redeemed the remaining $10,835 aggregate principal amountamended its exclusive ticketing and distribution agreement with Fandango, Inc. and received proceeds of notes utilizing available cash and borrowings under$5,000. The proceeds were recorded as deferred revenue on the Company’s consolidated balance sheet and are being amortized straight-line over the term of the amended revolving credit line.ticketing and distribution agreement, which expires December 2011.
The amendedIn accordance with the terms of its senior secured credit facility, the Company used approximately $9,914 of the net proceeds to pay down its term loan. The payment was further amendedmade on August 18, 200410, 2007 and was applied against the current portion of long-term debt.
8. SHARE EXCHANGES WITH NONCONTROLLING INTERESTS
During May 2008, the Company’s partners in Central America (the “Central American Partners”) exercised an option available to amongthem under an Exchange Option Agreement dated February 7, 2007 between Cinemark Holdings, Inc. and the Central American Partners. Under this option, which was contingent upon completion of an initial public offering of common stock by Cinemark Holdings, Inc., the Central American Partners were entitled to exchange their shares in Cinemark Equity Holdings Corporation, which is the Company’s Central American holding company, for shares of Cinemark Holdings, Inc.’s common stock. The number of shares to be exchanged was determined based on Cinemark Holdings, Inc.’s equity value and the equity value of the Central American Partner’s interest in Cinemark Equity Holdings Corporation, both of which are defined in the Exchange Option Agreement. As a result of this exchange on October 1, 2008, Cinemark Holdings, Inc. issued 902,981 shares of its common stock to the Company’s Central American Partners (the “Central America Share Exchange”). Simultaneously, Cinemark Holdings, Inc. contributed the shares it received in Cinemark Equity Holdings Corporation to Cinemark, Inc. who then contributed the shares received to the Company. As a result of this transaction, the Company owns 100% of the shares in Cinemark Equity Holdings Corporation.
The Company accounted for the transaction as a step acquisition. The purchase price of the shares in Cinemark Equity Holdings Corporation was recorded based on the fair value of the shares issued by Cinemark Holdings, Inc. of $12,949 plus related transaction costs of $2, which totaled approximately $12,951. The following table represents the allocation of purchase price to the assets acquired and liabilities assumed:
| | | | | |
| Net unfavorable leases | | $ | (443 | ) |
| Vendor contract | | | 1,034 | |
| Tradename | | | 892 | |
| Goodwill | | | 8,222 | |
| Reduction of noncontrolling interest | | | 3,246 | |
| | | | |
| | | $ | 12,951 | |
| | | | |
The net book values of fixed assets approximated fair value. The net unfavorable leases, vendor contracts and tradename are presented as intangible assets on the Company’s consolidated balance sheets. The goodwill recorded as a result of the acquisition is not deductible for tax purposes.
During July 2008, the Company’s partners in Ecuador (the “Ecuador Partners”) exercised an option available to them under an Exchange Option Agreement dated April 24, 2007 between Cinemark Holdings, Inc. and the Ecuador Partners. Under this option, which was contingent upon completion of an initial public offering of common stock by Cinemark Holdings, Inc., the Ecuador Partners were entitled to exchange their shares in Cinemark del Ecuador S.A. for shares of Cinemark Holdings, Inc.’s common stock. The number of shares to be exchanged was determined based on Cinemark Holdings, Inc.’s equity value and the equity value of the Ecuador Partner’s interest in Cinemark del Ecuador S.A., both of which are defined in the Exchange Option Agreement. As a result of this exchange on November 6, 2008, Cinemark Holdings, Inc. issued 393,615 shares of its common stock to the Company’s Ecuador partners (the “Ecuador Share Exchange”). Simultaneously, Cinemark Holdings, Inc. contributed the shares it received in Cinemark del Ecuador S.A. to Cinemark, Inc. who then contributed the shares received to the Company. As a result of this transaction, the Company owns 100% of the shares of Cinemark del Ecuador S.A.
F-17
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
The Company accounted for the transaction as a step acquisition. The purchase price of the shares in Cinemark del Ecuador S.A. was recorded based on the fair value of the shares issued by Cinemark Holdings, Inc., which was approximately $3,200.
The following table represents the allocation of purchase price to the assets acquired and liabilities assumed:
| | | | | |
| Net unfavorable leases | | $ | (161 | ) |
| Tradename | | | 313 | |
| Goodwill | | | 1,473 | |
| Reduction of noncontrolling interest | | | 1,575 | |
| | | | |
| | | $ | 3,200 | |
| | | | |
The net book value of fixed assets approximated fair value. The net unfavorable leases and tradename are presented as intangible assets on the Company’s consolidated balance sheets. The goodwill recorded as a result of the acquisition is not deductible for tax purposes.
9. GOODWILL AND OTHER INTANGIBLE ASSETS — NET
The Company’s goodwill was as follows:
| | | | | | | | | | | | | |
| | | U.S. | | International | | |
| | | Operating | | Operating | | |
| | | Segment | | Segment | | Total |
Balance at January 1, 2008(1) | | $ | 979,148 | | | $ | 155,541 | | | $ | 1,134,689 | |
| Impairment charges | | | (78,579 | ) | | | — | | | | (78,579 | ) |
Acquisition of one U.S. theatre(2) | | | 2,892 | | | | — | | | | 2,892 | |
Acquisition of two Brazil theatres(3) | | | — | | | | 2,247 | | | | 2,247 | |
Central America share exchange(4) | | | — | | | | 8,222 | | | | 8,222 | |
Ecuador share exchange(4) | | | — | | | | 1,473 | | | | 1,473 | |
| Foreign currency translation adjustments | | | — | | | | (31,126 | ) | | | (31,126 | ) |
| | | |
Balance at December 31, 2008(7) | | $ | 903,461 | | | $ | 136,357 | | | $ | 1,039,818 | |
Acquisition of four U.S. theatres(5) | | | 44,565 | | | | — | | | | 44,565 | |
Acquisition of one Brazil theatre(6) | | | — | | | | 6,270 | | | | 6,270 | |
| Foreign currency translation adjustments and other | | | — | | | | 25,649 | | | | 25,649 | |
| | | |
Balance at December 31, 2009(7) | | $ | 948,026 | | | $ | 168,276 | | | $ | 1,116,302 | |
| | | |
| | |
| (1) | | Balances are presented net of accumulated impairment losses of $135,452 for the U.S. operating segment and $27,622 for the international operating segment. |
|
| (2) | | The Company acquired one theatre in the U.S. during 2008 for approximately $5,011, which resulted in an allocation of $2,892 to goodwill and $2,119 to theatre properties and equipment. |
|
| (3) | | The Company acquired two theatres in Brazil during 2008 for approximately $5,100 which resulted in an allocation of $2,247 to goodwill, $2,368 to theatre properties and equipment, and $485 to intangible assets. |
|
| (4) | | See Note 8. |
|
| (5) | | See Note 4. |
|
| (6) | | The Company acquired one theatre in Brazil during 2009 for approximately $9,061 which resulted in a preliminary allocation of $6,270 to goodwill, $2,130 to theatre properties and equipment and $661 to other current assets and liabilities. |
|
| (7) | | 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 goodwill impairment charges taken during the year ended December 31, 2008 were primarily a result of the Company’s determination that the multiple used to estimate the fair value of its reporting units should be reduced to reflect the dramatic decline in market values that resulted from significant decreases in Cinemark Holdings, Inc.’s stock price and the declines in the market capitalizations of Cinemark Holdings, Inc. and the Company’s competitors that occurred during the fourth quarter of 2008. The Company reduced the multiple from eight times cash flows to six and a half times cash flows, which significantly reduced the Company’s estimated fair values.
F-18
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
As of December 31, intangible assets-net, consisted of the following:
| | | | | | | | | | | | | | | | | | | | | |
| | | December 31, | | | | | | | | | | | | | | December 31, |
| | | 2007 | | Additions(1) | | Amortization | | Other(3) | | 2008 |
| | | |
Intangible assets with finite lives: | | | | | | | | | | | | | | | | | | | | |
| Vendor contracts: | | | | | | | | | | | | | | | | | | | | |
| Gross carrying amount | | $ | 56,973 | | | $ | 1,519 | | | $ | — | | | $ | (2,652 | ) | | $ | 55,840 | |
| Accumulated amortization | | | (23,342 | ) | | | — | | | | (3,322 | ) | | | — | | | | (26,664 | ) |
| | | |
| Net carrying amount | | | 33,631 | | | | 1,519 | | | | (3,322 | ) | | | (2,652 | ) | | | 29,176 | |
| | | |
| Other intangible assets: | | | | | | | | | | | | | | | | | | | | |
| Gross carrying amount | | | 25,898 | | | | (604 | ) | | | — | | | | (2,438 | ) | | | 22,856 | |
| Accumulated amortization | | | (17,166 | ) | | | — | | | | (3,138 | ) | | | 938 | | | | (19,366 | ) |
| | | |
| Net carrying amount | | | 8,732 | | | | (604 | ) | | | (3,138 | ) | | | (1,500 | ) | | | 3,490 | |
| | | |
| Total net intangible assets with finite lives | | | 42,363 | | | | 915 | | | | (6,460 | ) | | | (4,152 | ) | | | 32,666 | |
Intangible assets with indefinite lives: | | | | | | | | | | | | | | | | | | | | |
| Tradename and other | | | 310,684 | | | | 1,205 | | | | — | | | | (2,787 | ) | | | 309,102 | |
| | | |
| Total intangible assets — net | | $ | 353,047 | | | $ | 2,120 | | | $ | (6,460 | ) | | $ | (6,939 | ) | | $ | 341,768 | |
| | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | December 31, | | | | | | | | | | | | | | December 31, |
| | | 2008 | | Additions(2) | | Amortization | | Other(3) | | 2009 |
| | | |
Intangible assets with finite lives: | | | | | | | | | | | | | | | | | | | | |
| Vendor contracts: | | | | | | | | | | | | | | | | | | | | |
| Gross carrying amount | | $ | 55,840 | | | $ | (375 | ) | | $ | — | | | $ | 1,009 | | | $ | 56,474 | |
| Accumulated amortization | | | (26,664 | ) | | | — | | | | (3,206 | ) | | | — | | | | (29,870 | ) |
| | | |
| Net carrying amount | | | 29,176 | | | | (375 | ) | | | (3,206 | ) | | | 1,009 | | | | 26,604 | |
| | | |
| Other intangible assets: | | | | | | | | | | | | | | | | | | | | |
| Gross carrying amount | | | 22,856 | | | | 5,130 | | | | — | | | | (1,476 | ) | | | 26,510 | |
| Accumulated amortization | | | (19,366 | ) | | | — | | | | (2,434 | ) | | | 1,204 | | | | (20,596 | ) |
| | | |
| Net carrying amount | | | 3,490 | | | | 5,130 | | | | (2,434 | ) | | | (272 | ) | | | 5,914 | |
| | | |
| Total net intangible assets with finite lives | | | 32,666 | | | | 4,755 | | | | (5,640 | ) | | | 737 | | | | 32,518 | |
Intangible assets with indefinite lives: | | | | | | | | | | | | | | | | | | | | |
| Tradename | | | 309,102 | | | | — | | | | — | | | | 1,378 | | | | 310,480 | |
| | | |
| Total intangible assets — net | | $ | 341,768 | | | $ | 4,755 | | | $ | (5,640 | ) | | $ | 2,115 | | | $ | 342,998 | |
| | | |
| | |
| (1) | | Includes approximately $485 of vendor contracts recorded as a result of the acquisition of two theatres in Brazil during 2008. Includes approximately $1,034 of vendor contracts, $443 of net unfavorable leases and $892 of tradename recorded as a result of the Central America Share Exchange (see Note 8). Includes approximately $161 of net unfavorable leases and $313 of tradename recorded as a result of the Ecuador Share Exchange (see Note 8). |
|
| (2) | | The additions to other intangible assets are a result of the acquisition of theatres in the U.S. as discussed in Note 4. The reduction in vendor contracts is a result of an adjustment to the preliminary purchase price allocation related to the acquisition of theatres in Brazil, which occurred during 2008. |
|
| (3) | | Includes foreign currency translation adjustments, impairments and write-offs for closed theatres. See Note 10 for summary of impairment charges. |
Estimated aggregate future amortization expense for intangible assets is as follows:
| | | | | |
| For the year ended December 31, 2010 | | $ | 5,519 | |
| For the year ended December 31, 2011 | | | 5,279 | |
| For the year ended December 31, 2012 | | | 5,123 | |
| For the year ended December 31, 2013 | | | 4,377 | |
| For the year ended December 31, 2014 | | | 3,831 | |
| Thereafter | | | 8,389 | |
| | | | |
| Total | | $ | 32,518 | |
| | | | |
F-19
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
10. IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews long-lived assets for impairment indicators on a quarterly basis or whenever events or changes in circumstances indicate the carrying amount of the assets may not be fully recoverable. See Note 1 for discussion of the Company’s impairment evaluation.
The Company’s long-lived asset impairment losses are summarized in the following table:
| | | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | 2007 | | 2008 | | 2009 |
| | | |
| United States theatre properties | | $ | 12,423 | | | $ | 27,761 | | | $ | 10,013 | |
| International theatre properties | | | 1,799 | | | | 6,869 | | | | 1,340 | |
| | | |
| Subtotal | | $ | 14,222 | | | $ | 34,630 | | | $ | 11,353 | |
| Intangible assets (see Note 9) | | | 4,611 | | | | 323 | | | | 358 | |
| Goodwill (see Note 9) | | | 67,725 | | | | 78,579 | | | | — | |
| Equity investment | | | — | | | | — | | | | 147 | |
| | | |
| Impairment of long-lived assets | | $ | 86,558 | | | $ | 113,532 | | | $ | 11,858 | |
| | | |
The long-lived asset impairment charges recorded during each of the years 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.
11. DEFERRED CHARGES AND OTHER ASSETS — NET
As of December 31, deferred charges and other things, reduceassets — net consisted of the following:
| | | | | | | | | |
| | | December 31, | |
| | | 2008 | | | 2009 | |
| Debt issue costs | | $ | 24,305 | | | $ | 37,334 | |
| Less: Accumulated amortization | | | (8,118 | ) | | | (12,210 | ) |
| | | | | | | |
| Subtotal | | | 16,187 | | | | 25,124 | |
| Long-term prepaid rents | | | 16,833 | | | | 15,426 | |
| Construction advances and other deposits | | | 1,677 | | | | 3,171 | |
| Equipment to be placed in service | | | 5,413 | | | | 6,454 | |
| Other | | | 1,906 | | | | 2,327 | |
| | | | | | | |
| Total | | $ | 42,016 | | | $ | 52,502 | |
| | | | | | | |
During the year ended December 31, 2009, the Company paid debt issue costs of $12,722 related to the issuance of the 85/8% senior notes and $281 related to its senior secured credit facility. See Note 12.
12. LONG-TERM DEBT
As of December 31, long-term debt consisted of the following:
| | | | | | | | | |
| | | December 31, |
| | | 2008 | | 2009 |
| | | |
| Cinemark USA, Inc. term loan | | $ | 1,094,800 | | | $ | 1,083,600 | |
Cinemark USA, Inc. 85/8% senior notes due 2019(1) | | | — | | | | 458,897 | |
| Cinemark USA, Inc. 9% senior subordinated notes due 2013 | | | 181 | | | | 181 | |
| Other long-term debt | | | 2,163 | | | | 1,027 | |
| | | |
| Total long-term debt | | | 1,097,144 | | | | 1,543,705 | |
| Less current portion | | | 12,450 | | | | 12,227 | |
| | | |
| Long-term debt, less current portion | | $ | 1,084,694 | | | $ | 1,531,478 | |
| | | |
| | |
| (1) | | Includes the $470,000 aggregate principal amount of the 85/8% senior notes net of the unamortized discount of $11,103. |
F-20
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
Senior Secured Credit Facility
On October 5, 2006, in connection with the Century Acquisition, Cinemark USA, Inc., entered into a senior secured credit facility. The senior secured credit facility provides for a seven year term loan of $1,120,000 and a $150,000 revolving credit line that matures in six years unless Cinemark USA, Inc.’s 9% senior subordinated notes have not been refinanced by August 1, 2012 with indebtedness that matures no earlier than seven and one-half years after the closing date of the senior secured credit facility, in which case the maturity date of the revolving credit line becomes August 1, 2012. The revolving credit line is used for general corporate purposes.
At December 31, 2009, there was $1,083,600 outstanding under the term loan and no borrowings outstanding under the $150,000 revolving credit line. The average interest rate applicable toon outstanding term loan borrowings under the term loan.senior secured credit facility at December 31, 2009 was 3.1% per annum.
Under the amended term loan, principal payments of $650$2,800 are due each calendar quarter through March 31, 2010September 30, 2012 and increase to $61,100$263,200 each calendar quarter from June 30, 2010December 31, 2012 to maturity at March 31, 2011. The amendedOctober 5, 2013. Prior to the amendment to the senior secured credit facility discussed below, the term loan bearsaccrued interest, at the Company’sCinemark USA, Inc.’s option, at: (A) the base rate equal to the higher of (i)(1) the prime lending rate as set forth on the British Banking Association Telerate page 5 or (ii)(2) the federal funds effective rate from time to time plus 0.50%, plus a margin ofthat ranges from 0.75% to 1.00% per annum, or (B) a “eurodollar rate” plus a margin of 2.00% per annum. After the completion of two fiscal quarters after the closing date, the margin under the amended term loan applicable to base rate loansthat ranges from 0.75% per annum to 1.00% per annum and the margin applicable to eurodollar rate loans ranges from 1.75% per annum to 2.00% per annum, and will bein each case as adjusted based upon the Company achieving certain performance targets.
pursuant to Cinemark USA, Inc.’s corporate credit rating. Borrowings under the amended revolving credit line bear interest, at the Company’sCinemark USA, Inc.’s option, at: (A) a base rate equal to the higher of (i)(1) the prime lending rate as set forth on the British Banking Association Telerate page 5 or (ii)and (2) the federal funds effective rate from time to time plus 0.50%, plus a margin of 1.50%that ranges from 0.50% to 1.00% per annum, or (B) a “eurodollar rate” plus a margin of 2.50% per annum. After the completion of two fiscal quarters after the closing date, the margin under the amended revolving credit line applicable to base rate loansthat ranges from 1.00% per annum1.50% to 1.50% per annum and the margin applicable to eurodollar rate loans ranges from 2.00% per annum, in each case as adjusted pursuant to 2.50% per annum, and will be adjusted based uponCinemark USA, Inc.’s consolidated net senior secured leverage ratio as defined in the Company achieving certain performance targets. The Companycredit agreement. Cinemark USA, Inc. is required to pay a commitment fee calculated at the rate of 0.50% per annum on the average daily unused portion of the amended revolving credit line, payable quarterly in arrears.arrears, which rate decreases to 0.375% per annum for any fiscal quarter in which Cinemark USA, Inc.’s consolidated net senior secured leverage ratio on the last day of such fiscal quarter is less than 2.25 to 1.0.
See Note 10On March 14, 2007, Cinemark USA, Inc. amended its senior secured credit facility to, among other things, modify the interest rate on the term loans under the senior secured credit facility, modify certain prepayment terms and covenants, and facilitate the tender offer for further discussionthe 9% senior subordinated notes. The term loans now accrue interest, at Cinemark USA, Inc.’s option, at: (A) the base rate equal to the higher of long-term debt.
4. ACQUISITIONS(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 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. In each case, the margin is a function of the corporate credit rating applicable to the borrower. The interest rate on the revolving credit line was not amended. Additionally, the amendment removed any obligation to prepay amounts outstanding under the senior secured credit facility in an amount equal to the amount of the net cash proceeds received from the NCM Transaction or from excess cash flows, and imposed a 1% prepayment premium for one year on certain prepayments of the term loans.
Interstate TheatresCinemark USA, Inc.’s obligations under the senior secured credit facility are guaranteed by Cinemark Holdings, Inc. and certain of Cinemark USA, Inc.’s domestic subsidiaries and are secured by mortgages on certain fee and leasehold properties and security interests in substantially all of Cinemark USA, Inc.’s and the guarantors’ personal property, including, without limitation, pledges of all of Cinemark USA, Inc.’s capital stock, all of the capital stock of certain of Cinemark USA, Inc.’s domestic subsidiaries and 65% of the voting stock of certain of its foreign subsidiaries.
During 2003,The senior secured credit facility contains usual and customary negative covenants for agreements of this type, including, but not limited to, restrictions on Cinemark USA, Inc.’s ability, and in certain instances, its subsidiaries’ and Cinemark Holdings, Inc.’s ability, to consolidate or merge or liquidate, wind up or dissolve; substantially change the nature of its business; sell, transfer or dispose of assets; create or incur indebtedness; create liens; pay dividends, and repurchase stock; and make capital expenditures and investments. The senior secured credit facility also requires Cinemark USA, Inc. to satisfy a consolidated net senior secured leverage ratio covenant as determined in accordance with the senior secured credit facility.
The dividend restriction contained in the senior secured credit facility prevents the Company accounted forand any of its 50% investmentsubsidiaries from paying a dividend or otherwise distributing cash to its stockholders unless (1) the Company is not in Interstate Theatres, L.L.C.default, and the distribution would not cause the Company to be in default, under the equity method of accounting. On December 31, 2003, the Company purchased the remaining 50% interest in Interstate Theatres, L.L.C, which owns 80% of Interstate Theatres II, L.L.C. The Company accounted for the purchase as a step acquisition. The total purchase price of $1,500 was allocated to theatre propertiessenior secured credit facility; and equipment of $404, working capital of $66 and goodwill of $1,030. Results of operations for Interstate Theatres, L.L.C. and its subsidiary (the “Interstate theatres”) are included in the Company’s consolidated statements of income for the period from January 1, 2004 through December 23, 2004. On December 23, 2004, the Company sold Interstate Theatres. See Note 6.
Cinemark Brasil, S.A.
As a result of the Recapitalization, the Company’s Brazilian partners exercised their option to cause Cinemark, Inc. to purchase all of their shares of common stock of Cinemark Brasil S.A., which represented 47.2% of total common stock of Cinemark Brasil S.A. The Company, through its subsidiary Brasil Holdings, LLC, directly and indirectly purchased the partners’ shares of Cinemark Brasil S.A. for $44,958 with available cash on August 18, 2004. The Company also incurred $771 of legal, accounting and other direct costs, which were capitalized as part of the acquisition. Prior to the acquisition, Cinemark Brasil S.A. was reported as a consolidated subsidiary and the Brazilian partners’ 47.2% interest was shown as minority interest in subsidiaries on the Company’s consolidated balance sheet. As a result of this acquisition, the Company owns 100% of the common stock in Cinemark Brasil S.A. The Company accounted for the purchase as a step acquisition and finalized its purchase accounting during June 2005.
F - 13F-21
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)In thousands, except share and per share data
(2) the aggregate amount of certain dividends, distributions, investments, redemptions and capital expenditures made since October 5, 2006, including dividends declared by the board of directors, is less than the sum of (a) the aggregate amount of cash and cash equivalents received by Cinemark Holdings, Inc. or Cinemark USA, Inc. as common equity since October 5, 2006, (b) Cinemark USA, Inc.’s consolidated EBITDA minus 1.75 times its consolidated interest expense, each as defined in the senior secured credit facility, since October 1, 2006, (c) $150 million and (d) certain other amounts specified in the senior secured credit facility, subject to certain adjustments specified in the senior secured credit facility. The following assets and liabilities were recorded at estimated fair value. Net book value of all other assets and liabilities approximated fair value and therefore did not require adjustment.
| | | | | |
| Net favorable leases | | $ | 730 | |
| Vendor contracts | | | 2,231 | |
| Goodwill | | | 23,962 | |
| Reduction of minority interest liability | | | 18,806 | |
| | | | |
| | | $ | 45,729 | |
| | | | |
The net favorable leasessenior secured credit facility also includes customary events of default, including, among other things, payment default, covenant default, breach of representation or warranty, bankruptcy, cross-default, material ERISA events, certain types of change of control, material money judgments and vendor contracts are presented as intangible assetsfailure to maintain subsidiary guarantees. If an event of default occurs, all commitments under the senior secured credit facility may be terminated and all obligations under the senior secured credit facility could be accelerated by the lenders, causing all loans outstanding (including accrued interest and fees payable thereunder) to be declared immediately due and payable.
See Note 13 for a discussion of interest rate swap agreements.
Senior Notes
On June 29, 2009, Cinemark USA, Inc. issued $470,000 aggregate principal amount of 8.625% senior notes due 2019 with an original issue discount of $11,468, resulting in proceeds of approximately $458,532. The proceeds were primarily used to fund the repurchase of Cinemark, Inc.’s 93/4% senior discount notes. Interest is payable on June 15 and December 15 of each year beginning December 15, 2009. The senior notes mature on June 15, 2019. The Company incurred debt issue costs of $12,722 in connection with the Company’s consolidated balance sheet as of December 31, 2005. The net favorable leases will be amortized over three to seventeen years based upon the pattern inissuance, which the economic benefits are realized during the terms of the lease agreements. The vendor contracts will be amortized on athe straight-line basismethod over the remaining terms of the contracts. The average remaining years for the net favorable leases and the vendor contracts are approximately five and two years, respectively. As of December 31, 2005, accumulated amortization on the intangible assets was $1,728. The goodwill recorded as a result of the acquisition is deductible for tax purposes in Brazil.
Cinemark Mexico
On September 15, 2004, the Company purchased shares of common stock of its Mexican subsidiary from its Mexican partners, increasing its ownership interest in the Mexican subsidiary from 95.0% to 99.4%. The purchase price was $5,379 and was funded with available cash and borrowings on the Company’s amended revolving credit line. Prior to the acquisition, Cinemark Mexico USA was reported as a consolidated subsidiary and the Mexican partners’ 4.4% interest was shown as minority interest in subsidiaries on the Company’s consolidated balance sheet. The Company accounted for the purchase as a step acquisition and finalized its purchase accounting during June 2005. The following assets and liabilities were recorded at estimated fair value. Net book value of all other assets and liabilities approximated fair value and therefore did not require adjustment.
| | | | | |
| Vendor contract | | $ | 439 | |
| Net favorable leases | | | 480 | |
| Tradename | | | 1,179 | |
| Goodwill | | | 1,715 | |
| Reduction of minority interest liability | | | 1,566 | |
| | | | |
| | | $ | 5,379 | |
| | | | |
The vendor contract, net favorable leases and tradename are presented as intangible assets on the Company’s consolidated balance sheet as of December 31, 2005. The vendor contract will be amortized on a straight-line basis over the remaining term of the contract, whichsenior notes. The original issue discount is approximately two years. The net favorable leases will bebeing amortized on the effective interest method over five to twenty-one years based upon the pattern in which the economic benefits are realized during the termsterm of the lease agreements. The average remaining years for the net favorable leases is approximately nine years. The tradename is an indefinite lived intangible asset and is not amortized, but will be tested for impairment annually. As of December 31, 2005, accumulated amortization on these intangible assets was $207. The goodwill recorded as a result of the acquisition is not deductible for tax purposes.
5. INVESTMENT IN NATIONAL CINEMEDIA LLC
On July 15, 2005, Cinemark Media, Inc., a wholly-owned subsidiary of the Company, purchased a 20.7% interest in National CineMedia LLC (“National CineMedia”) for approximately $7,329. National CineMedia is a joint venture between Regal Entertainment Group, AMC Entertainment Inc. and the Company. National CineMedia provides marketing, sales and distribution of cinema advertising and promotional products; business communications and training services; and the distribution of digital alternative content. As part of the transaction, the Company and National CineMedia entered into an exhibitor services agreement, pursuant to which National CineMedia provides advertising, promotion and event services to the Company’s theatres, and a software license
F - 14
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
agreement in connection with the licensing of certain software and related rights. During 2005, the Company used only limited services offered by National CineMedia while the Company fulfilled its existing contractual theatre advertising obligations.
The Company is accounting for its investment in National CineMedia under the equity method of accounting. The Company’s investment in National CineMedia is included in investments in and advances to affiliates on the Company’s consolidated balance sheets. Equity income was immaterial in 2005. Under the terms of its agreement with National CineMedia, the Company is required to install digital distribution technology in certain of its domestic theatres. The Company estimates that it will spend approximately $25,000 for digital projectors and related equipment necessary to show various digital media. As of December 31, 2005, the Company had purchased approximately $9,731 for these digital projectors and expects to purchase the remaining $15,269 by May 31, 2006.
As part of the joint venture, the Company, Regal Entertainment Group, AMC Entertainment Inc. and National CineMedia signed a promissory note under which the Company, Regal Entertainment Group and AMC Entertainment Inc. are obligated to make pro rata loans to National CineMedia on a revolving basis as needed. The maximum amount that National CineMedia can borrow under the note is $11 million for which the Company’s obligation would be approximately $2.3 million. Amounts borrowed by National CineMedia are due in full upon the earlier of March 31, 2007 or an event of default as defined in the promissory note. National CineMedia will pay interest on outstanding amounts on a monthly basis at a rate of LIBOR plus 200 basis points. As of December 31, 2005, $264 was outstanding under this promissory note, which was included in deferred charges and other assets on the Company’s consolidated balance sheet.
6. DISCONTINUED OPERATIONS
As of March 31, 2004, the Company’s two United Kingdom theatres met the criteria of assets held for sale in accordance with SFAS No. 144,“Accounting for Impairment or Disposal of Long-Lived Assets.”On April 30, 2004, the Company sold its two United Kingdom theatres through the sale of all of the capital stock of Cinemark Theatres UK, Ltd., its United Kingdom subsidiary. The Company received $2,646 in proceeds upon closing of the transaction and $540 once the final working capital position was determined in accordance with the stock purchase agreement. The sale resulted in a loss of $463, which is included in income (loss) from discontinued operations, net of taxes, in the Company’s consolidated statements of income.
On December 23, 2004, the Company sold eleven discount theatres (“Interstate theatres”) through the sale of all of the capital stock of Interstate Holdings, Inc. The Company received $5,810 in proceeds upon closing of the transaction. The sale resulted in a gain of $2,715, which is included in income (loss) from discontinued operations, net of taxes, in the Company’s consolidated statements of income.
F - 15
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The results of operations for the United Kingdom and Interstate theatres have been classified as discontinued operations for all periods presented. Amounts reported as discontinued operations in the Company’s consolidated statements of income include the following components:
| | | | | | | | | |
| | | Year Ended | |
| | | December 31, | |
| | | 2003 | | | 2004 | |
| | | |
| Revenues | | | | | | | | |
| Admissions | | $ | 4,328 | | | $ | 4,893 | |
| Concession | | | 1,878 | | | | 5,341 | |
| Other | | | 513 | | | | 1,137 | |
| | | |
| Total revenues | | | 6,719 | | | | 11,371 | |
| Costs and Expenses | | | | | | | | |
| Cost of operations: | | | | | | | | |
| Film rentals and advertising | | | 1,863 | | | | 2,191 | |
| Concession supplies | | | 365 | | | | 905 | |
| Salaries and wages | | | 1,043 | | | | 2,266 | |
| Facility lease expense | | | 1,395 | | | | 1,684 | |
| Utilities and other | | | 799 | | | | 2,216 | |
| | | |
| Total cost of operations | | | 5,465 | | | | 9,262 | |
| | | | | | | | | |
| General and administrative expenses | | | 496 | | | | 497 | |
| Depreciation and amortization | | | 656 | | | | 295 | |
| Impairment of long-lived assets | | | 2,500 | | | | — | |
| (Gain) loss on sale of assets and other | | | 540 | | | | (2,252 | ) |
| | | |
| Total costs and expenses | | | 9,657 | | | | 7,802 | |
| | | |
| Operating income (loss) | | | (2,938 | ) | | | 3,569 | |
| Equity in income of affiliates | | | 323 | | | | — | |
| Minority interests in income of subsidiaries | | | — | | | | (41 | ) |
| | | |
| Income (loss) before income taxes | | | (2,615 | ) | | | 3,528 | |
| Income tax expense (benefit) | | | 125 | | | | (56 | ) |
| | | |
| Income (loss) from discontinued operations | | $ | (2,740 | ) | | $ | 3,584 | |
| | | |
Net cash flows from operating, investing and financing activities related to the United Kingdom and Interstate theatres were immaterial for all periods presented and are included in the respective sections of the statements of cash flows.
F - 16
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
7. | | GOODWILL AND OTHER INTANGIBLE ASSETS — NET |
|
| | The Company’s goodwill is as follows: |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | U.S. | | | Brazil | | | Mexico | | | Argentina | | | Chile | | | Peru | | | Total | |
| | | |
| Balance at December 31, 2003 | | $ | 6,312 | | | $ | — | | | $ | — | | | $ | 239 | | | $ | 2,994 | | | $ | 2,538 | | | $ | 12,083 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Purchase from minority investors | | | — | | | | 26,923 | | | | 3,813 | | | | — | | | | — | | | | — | | | | 30,736 | |
| Write-off related to theatre closure | | | (350 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | (350 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Sale of Interstate Theatres, L.L.C. | | | (1,030 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | (1,030 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Foreign currency translation adjustment | | | — | | | | 3,146 | | | | 71 | | | | (3 | ) | | | 212 | | | | 141 | | | | 3,567 | |
| | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2004 | | $ | 4,932 | | | $ | 30,069 | | | $ | 3,884 | | | $ | 236 | | | $ | 3,206 | | | $ | 2,679 | | | $ | 45,006 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Impairment charge | | | (667 | ) | | | (601 | ) | | | — | | | | — | | | | — | | | | — | | | | (1,268 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Purchase from minority investors purchase price allocation adjustments | | | — | | | | (2,961 | ) | | | (2,098 | ) | | | — | | | | — | | | | — | | | | (5,059 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Foreign currency translation adjustment | | | — | | | | 3,223 | | | | 44 | | | | (5 | ) | | | 284 | | | | (118 | ) | | | 3,428 | |
| | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2005 | | $ | 4,265 | | | $ | 29,730 | | | $ | 1,830 | | | $ | 231 | | | $ | 3,490 | | | $ | 2,561 | | | $ | 42,107 | |
| | | |
During the year ended December 31, 2005, the Company recorded impairment charges of $1,268 to write-down goodwill on one theatre in the United States and two theatres in Brazil to their estimated fair values. During the year ended December 31, 2004, the Company wrote off $350 of goodwill for one theatre based on the Company’s decision to not renew the existing lease. See Note 6 regarding the sale of Interstate Theatres, L.L.C. See Note 4 regarding the purchase price allocation adjustments for Brazil and Mexico.
F - 17
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
| | As of December 31, intangible assets-net, consisted of the following: |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Foreign | | | | |
| | | Balance at | | | | | | | Currency | | | Balance at | |
| | | December 31, | | | | | | | Translation | | | December 31, | |
| | | 2004 | | | Additions | | | Adjustment | | | 2005 | |
Intangible assets with finite lives: | | | | | | | | | | | | | | | | |
| Capitalized licensing fees: | | | | | | | | | | | | | | | | |
| Gross carrying amount | | $ | 7,750 | | | $ | 500 | | | $ | — | | | $ | 8,250 | |
| Accumulated amortization | | | (2,066 | ) | | | (525 | ) | | | — | | | | (2,591 | ) |
| | | |
| Net carrying amount | | $ | 5,684 | | | $ | (25 | ) | | $ | — | | | $ | 5,659 | |
| | | |
| | | | | | | | | | | | | | | | | |
| Vendor contracts: | | | | | | | | | | | | | | | | |
| Gross carrying amount | | | — | | | | 2,670 | | | | 547 | | | | 3,217 | |
| Accumulated amortization | | | — | | | | (1,703 | ) | | | — | | | | (1,703 | ) |
| | | |
| Net carrying amount | | $ | — | | | $ | 967 | | | $ | 547 | | | $ | 1,514 | |
| | | |
| | | | | | | | | | | | | | | | | |
| Net favorable leases: | | | | | | | | | | | | | | | | |
| Gross carrying amount | | | — | | | | 1,210 | | | | 182 | | | | 1,392 | |
| Accumulated amortization | | | — | | | | (232 | ) | | | — | | | | (232 | ) |
| | | |
| Net carrying amount | | $ | — | | | $ | 978 | | | $ | 182 | | | $ | 1,160 | |
| | | |
| | | | | | | | | | | | | | | | | |
| Other intangible assets: | | | | | | | | | | | | | | | | |
| Gross carrying amount | | | 437 | | | | — | | | | (8 | ) | | | 429 | |
| Accumulated amortization | | | (53 | ) | | | (26 | ) | | | — | | | | (79 | ) |
| | | |
| Net carrying amount | | $ | 384 | | | $ | (26 | ) | | $ | (8 | ) | | $ | 350 | |
| | | |
| Total net intangible assets with finite lives | | $ | 6,068 | | | $ | 1,894 | | | $ | 721 | | | $ | 8,683 | |
| | | |
| | | | | | | | | | | | | | | | | |
Intangible assets with indefinite lives: | | | | | | | | | | | | | | | | |
| Tradename | | | — | | | | 1,179 | | | | 80 | | | | 1,259 | |
| Other unamortized intangible assets | | | 16 | | | | — | | | | — | | | | 16 | |
| | | |
| Total intangible assets — net | | $ | 6,084 | | | $ | 3,073 | | | $ | 801 | | | $ | 9,958 | |
| | | |
During the year ended December 31, 2005, the Company recorded intangible assets as a result of the final purchase price allocations for its Brazil and Mexico acquisitions (see Note 4) and recorded $500 of capitalized licensing fees as a result of a new licensing agreement.
Aggregate amortization expense of $2,665 for the year ended December 31, 2005 consisted of $2,486 of amortization of intangible assets and $179 of amortization of other assets. Estimated aggregate future amortization expense for intangible assets is as follows:
| | | | | |
| For the year ended December 31, 2006 | | $ | 1,615 | |
| For the year ended December 31, 2007 | | | 1,179 | |
| For the year ended December 31, 2008 | | | 942 | |
| For the year ended December 31, 2009 | | | 719 | |
| For the year ended December 31, 2010 | | | 700 | |
| Thereafter | | | 3,528 | |
| | | | |
| Total | | $ | 8,683 | |
| | | | |
F - 18
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
8. | | IMPAIRMENT OF LONG-LIVED ASSETS |
In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the Company reviews long-lived assets for impairment 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, theatre goodwill carrying values, the age of a recently built theatre, competitive theatres in the marketplace, the sharing of a marketplace with other Company theatres, changes in foreign currency exchange rates, the impact of recent ticket price changes, available lease renewal options and other factors in its assessment of impairment of individual theatre assets. Long-lived assets are evaluated for impairment on an individual theatre basis or a group basis if the group of theatres shares the same marketplace, which the Company believes is the lowest applicable level for which there are identifiable cash flows. The impairment evaluation is based on the estimated undiscounted cash flows from continuing use through the remainder of the theatre’s useful life. The remainder of the useful life correlates with the available remaining lease period, which includes the probability of renewal periods, for leased properties and a period of twenty years for fee owned properties. If the estimated undiscounted cash flows are not sufficient to recover a long-lived asset’s carrying value, the Company then compares the carrying value of the asset with its estimated fair value. Fair value is determined based on a multiple of cash flows, which was seven times for the year ended December 31, 2005. When estimated fair value is determined to be lower than the carrying value of the long-lived asset, the asset is written down to its estimated fair value.
The Company’s long-lived asset impairment losses are summarized in the following table:
| | | | | | | | | | | | | |
| | | Years Ended December 31, | |
| Theatre properties and equipment | | 2003 | | | 2004 | | | 2005 | |
| United States | | | | | | | | | | | | |
| Theatre properties | | $ | 820 | | | $ | 1,667 | | | $ | 6,788 | |
| Land parcels | | | 2,200 | | | | — | | | | — | |
| Chile theatre properties | | | 529 | | | | — | | | | 866 | |
| Mexico theatre properties | | | 1,241 | | | | — | | | | — | |
| Central America theatre properties | | | — | | | | — | | | | 750 | |
| | | |
| Subtotal | | $ | 4,790 | | | $ | 1,667 | | | $ | 8,404 | |
| Goodwill (see Note 7) | | | 259 | | | | — | | | | 1,268 | |
| | | |
| Impairment of long-lived assets | | $ | 5,049 | | | $ | 1,667 | | | $ | 9,672 | |
| | | |
The 2005 impairment losses included $6.8 million for the write-down of three U.S. theatres for which attendance was negatively impacted by competing theatres.
F - 19
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
9. | | DEFERRED CHARGES AND OTHER ASSETS — NET |
As of December 31, deferred charges and other assets – net consisted of the following:
| | | | | | | | | |
| | | 2004 | | | 2005 | |
| Debt issue costs | | $ | 23,787 | | | $ | 24,035 | |
| Less: Accumulated amortization | | | (5,093 | ) | | | (7,867 | ) |
| | | |
| Subtotal | | | 18,694 | | | | 16,168 | |
| Foreign advanced rents | | | 6,626 | | | | 11,782 | |
| Construction advances and other deposits | | | 1,728 | | | | 2,026 | |
| Equipment to be placed in service | | | 3,599 | | | | 3,744 | |
| Brazil value added tax deposit | | | 3,178 | | | | 3,602 | |
| Other | | | 2,721 | | | | 2,718 | |
| | | |
| Total | | $ | 36,546 | | | $ | 40,040 | |
| | | |
Long-term debt at December 31 consisted of the following:
| | | | | | | | | |
| | | 2004 | | | 2005 | |
| Cinemark USA, Inc. 9% senior subordinated notes due 2013 | | $ | 354,894 | | | $ | 353,330 | |
| Cinemark USA, Inc. Term Loan | | | 258,050 | | | | 255,450 | |
| Cinemark Chile S.A. Notes Payable | | | 7,324 | | | | 6,587 | |
| Other long-term debt | | | 6,675 | | | | 4,910 | |
| | | |
| Total long-term debt | | | 626,943 | | | | 620,277 | |
| Less current portion | | | 6,539 | | | | 6,871 | |
| | | |
| Long-term debt, less current portion | | $ | 620,404 | | | $ | 613,406 | |
| | | |
Retirement of Outstanding Senior Subordinated Notes
On March 16, 2004, in connection with the Recapitalization, the Company initiated a tender offer for its then outstanding $105,000 aggregate principal amount 81/2% senior subordinated notes due 2008 and a consent solicitation to remove substantially all restrictive covenants in the indenture governing those notes. On March 25, 2004, the Company executed a supplemental indenture removing substantially all of the covenants, which became effective on the date of the Recapitalization. Additionally, on the date of the Recapitalization, the Company amended its then existing senior secured credit facility to provide for a $260,000 seven year term loan and a $100,000 six and one-half year revolving credit line, which was left undrawn. The net proceeds from the amended senior secured credit facility were used to repay the term loan under the Company’s then existing senior secured credit facility of approximately $163,764 and to redeem the approximately $94,165 aggregate principal amount of the Company’s then outstanding $105,000 aggregate principal amount of 81/2% senior subordinated notes that were tendered pursuant to the tender offer. The tender offer was made at 104.5% of the principal amount of the notes tendered on or prior to the consent date and at 101.5% of the principal amount of the notes tendered subsequent to the consent date but prior to the expiration date. The unamortized bond discount, tender offer repurchase costs, including premiums paid, and other fees of $4,800 related to the retirement of the 81/2% notes were recorded as a loss on early retirement of debt in the Company’s consolidated statements of income for the year ended December 31, 2004.
On April 6, 2004, as a result of the consummation of the Recapitalization and in accordance with the terms of the indenture governing the Company’s 9% senior subordinated notes due 2013, the Company made a change of control offer to purchase the 9% senior subordinated notes at a purchase price of 101% of the aggregate principal amount, plus accrued and unpaid interest, if any, at the date of purchase. Approximately $17,750 aggregate principal amount of the 9% senior subordinated notes were tendered and not withdrawn in the change of control offer, which expired on May 26, 2004. The Company paid the change of control price with available cash on June 1, 2004. The unamortized debt issue costs, tender offer repurchase costs, including premiums paid, and other fees of $777 related
F - 20
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
to the retirement of the 9% notes were recorded as a loss on early retirement of debt in the Company’s consolidated statements of income for the year ended December 31, 2004.
On July 28, 2004, the Company provided notice to the holders of the remaining outstanding 81/2% senior subordinated notes due 2008 of its election to redeem all outstanding notes at a redemption price of 102.833% of the aggregate principal amount plus accrued interest. On August 27, 2004, the Company redeemed the remaining notes utilizing available cash and borrowings under the Company’s revolving credit line. The unamortized bond discount, tender offer repurchase costs, including premiums paid, and other fees of $397 related to the retirement of the 81/2% notes were recorded as a loss on early retirement of debt in the Company’s consolidated statements of income for the year ended December 31, 2004.
Senior Subordinated Notes
As of December 31, 2005, the Company had outstanding $342,250 aggregate principal amount of 9% senior subordinated notes due 2013. Interest is payable on February 1 and August 1 of each year. The Company may redeem all or part of the existing 9% notes on or after February 1, 2008.
The senior subordinated notes are general,fully and unconditionally guaranteed on a joint and several senior unsecured basis by certain of Cinemark USA, Inc.’s subsidiaries that guarantee, assume or become liable with respect to any of Cinemark USA, Inc.’s or a guarantor’s debt. The senior notes and the guarantees are senior unsecured obligations and are subordinatedrank equally in right of payment with all of Cinemark USA, Inc.’s and its guarantor’s existing and future senior unsecured debt and senior in right of payment to all of Cinemark USA, Inc.’s and its guarantor’s existing and future subordinated debt. The senior notes and the amended senior secured credit facility or other senior indebtedness. The notes are guaranteed by certain of the Company’s domestic subsidiaries. The guarantees are subordinated to the senior debt of the subsidiary guarantors and rank pari passu with the senior subordinated debt of the Company’s guarantor subsidiaries. The notes are effectively subordinated to all of Cinemark USA, Inc.’s and its guarantor’s existing and future secured debt to the indebtednessextent of the value of the assets securing such debt, including all borrowings under Cinemark USA, Inc.’s senior secured credit facility. The senior notes and the guarantees are structurally subordinated to all existing and future debt and other liabilities of Cinemark USA, Inc.’s subsidiaries that do not guarantee the Company’s non-guarantor subsidiaries.senior notes.
The indenture governingto the senior subordinated notes containcontains covenants that limit, among other things, the ability of Cinemark USA, Inc. and certain of its subsidiaries to (1) consummate specified asset sales, (2) make investments or other restricted payments, including paying dividends, making other distributions or repurchasing subordinated debt or equity, (3) incur additional indebtedness and issue preferred stock, (4) enter into transactions with affiliates, investments, sale(5) enter new lines of business, (6) merge or consolidate with, or sell all or substantially all of its assets mergers, repurchases of the Company’s capital stock, liensto, another person and additional indebtedness.(7) create liens. Upon a change of control the Companyof Cinemark Holdings, Inc. or Cinemark USA, Inc., Cinemark USA, Inc. would be required to make an offer to repurchase the senior subordinated notes at a price equal to 101% of the aggregate principal amount outstanding plus accrued and unpaid interest, if any, through the date of repurchase. Certain asset dispositions are considered triggering events that may require Cinemark USA, Inc. to use the proceeds from those asset dispositions to make an offer to purchase the notes at 100% of their principal amount, plus accrued and unpaid interest, if any, to the date of repurchase if such proceeds are not otherwise used within 365 days as described in the indenture. The indenturesindenture governing the senior subordinated notes allow the Companyallows Cinemark USA, Inc. to incur additional indebtedness if it satisfies the coverage ratio specified in the indenture, after giving effect to the incurrence of the additional indebtedness, and in certain other circumstances.
Senior Secured Credit Facility The required minimum coverage ratio is 2 to 1 and our actual ratio as of December 31, 2009 was 5.4 to 1.
On April 2, 2004,Prior to June 15, 2014, Cinemark USA, Inc. may redeem all or any part of the Company amendedsenior notes at its then existing senior secured credit facility in connection withoption at 100% of the Recapitalization. The amended senior secured credit facility provides forprincipal amount plus a $260,000 seven year term loan and a $100,000 six and one-half year revolving credit line. The net proceeds from the amended senior secured credit facility were used to repay the existing term loan of approximately $163,764 and tomake-whole premium. After June 15, 2014, Cinemark USA, Inc. may redeem the approximately $94,165senior notes in whole or in part at redemption prices described in the senior notes. In addition, Cinemark USA, Inc. may redeem up to 35% of the aggregate principal amount of the Company’s then outstanding $105,000 aggregate principal amount 81/2% senior subordinated notes due 2008 that were tendered pursuant tofrom the tender offer.
The amended senior secured credit facility was further amended on August 18, 2004 to, among other things, reduce the interest rate applicable to the term loan. Under the amended term loan, principal paymentsnet proceeds of $650 are due each calendar quarter through March 31, 2010 and increase to $61,100 each calendar quarter from June 30, 2010 to maturity at March 31, 2011. The amended term loan bears interest,certain equity offerings at the Company’s option, at: (A) the base rate equal to the higher of (i) the prime lending rate asredemption price set forth onin the British Banking Association Telerate page 5 or (ii) the federal funds effective rate from time to time plus 0.50%, plus a margin of 1.00% per annum, or (B) a “eurodollar rate” plus a margin of 2.00% per annum. After the completion of two fiscal quarters after the closing date, the margin under the amended term loan applicable to base rate loans ranges from 0.75% per annum to 1.00% per annum and the margin applicable to eurodollar rate loans ranges from 1.75% per annum to 2.00% per annum, and will be adjusted based upon the Company achieving certain performance targets.
At December 31, 2005, there was $255,450 outstanding under the amended term loan and no borrowings outstanding under the amended revolving credit line. Approximately $99,931 was available for borrowing under the amended revolving credit line, giving effect to a $69 letter of credit outstanding. The average interest rate on outstanding borrowings under the amended senior secured credit facility at December 31, 2005 was 6.5% per annum.notes.
F - 21F-22
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)In thousands, except share and per share data
Borrowings underCinemark USA, Inc. and its guarantor subsidiaries filed a registration statement with the amended revolving credit line bear interest, atSecurities and Exchange Commission (the “Commission”) on September 24, 2009 pursuant to which Cinemark USA, Inc. offered to exchange the Company’s option, at: (A) a base rate equal to the higher of (i) the prime lending rate as set forth on the British Banking Association Telerate page 5 or (ii) the federal fundssenior notes for substantially similar registered senior notes. The registration statement became effective rate from time to time plus 0.50%, plus a margin of 1.50% per annum, or (B) a “eurodollar rate” plus a margin of 2.50% per annum. After the completion of two fiscal quarters after the closing date, the margin under the amended revolving credit line applicable to base rate loans ranges from 1.00% per annum to 1.50% per annum and the margin applicablenotes were exchanged on December 17, 2009. The exchanged registered senior notes do not have transfer restrictions.
Senior Subordinated Notes
On February 11, 2003, Cinemark USA, Inc. issued $150,000 aggregate principal amount of 9% senior subordinated notes due 2013 and on May 7, 2003, Cinemark USA, Inc. issued an additional $210,000 aggregate principal amount of 9% senior subordinated notes due 2013, collectively referred to eurodollar rate loans ranges from 2.00% per annumas the 9% senior subordinated notes. Interest is payable on February 1 and August 1 of each year.
Prior to 2.50% per annum, and will be adjusted based upon the Company achieving certain performance targets.2007, Cinemark USA, Inc. repurchased a total of $27,750 aggregate principal amount of its 9% senior subordinated notes. The Company is required to pay a commitment fee calculated at the rate of 0.50% per annum on the average daily unused portion of the amended revolving credit line, payable quarterly in arrears.
The Company’s obligations under the amended senior secured credit facility are guaranteedtransactions were funded by Cinemark Inc., CNMK Holding,USA, Inc. and certain ofwith available cash from its subsidiariesoperations.
On March 6, 2007, Cinemark USA, Inc. commenced an offer to purchase for cash any and are secured by mortgages on certain fee and leasehold properties and security interests in substantially all of the Company’s domestic personal and intangible property, including without limitation, pledges of all of its capital stock,then outstanding $332,250 aggregate principal amount of 9% senior subordinated notes. In connection with the tender offer, Cinemark USA, Inc. solicited consents for certain proposed amendments to the indenture to remove substantially all of the capital stock of CNMK Holding, Inc.restrictive covenants and certain events of the Company’s domestic subsidiaries and 65% of the voting stock of certain of the Company’s foreign subsidiaries.
Cinemark Chile Notes Payable
default provisions. On March 26, 2002,20, 2007, the early settlement date, Cinemark Chile S.A. entered intoUSA, Inc. repurchased $332,000 aggregate principal amount of 9% senior subordinated notes and executed a Debt Acknowledgment, Reschedulingsupplemental indenture implementing the proposed amendments. Cinemark USA, Inc. used the proceeds from the NCM Transaction and Joint Guarantee and Co-Debt Agreement with Scotiabank Sud Americano and three local banks. Under this agreement, Cinemark Chile S.A. borrowedcash on hand to purchase the U.S. dollar equivalent of approximately $10,600 in Chilean pesos (adjusted for inflation9% senior subordinated notes tendered pursuant to the Unidades de Fomento).tender offer and consent solicitation. On April 3, 2007, Cinemark Chile S.A. was required to make 24 equal quarterly installments ofUSA, Inc. repurchased an additional $66 aggregate principal plus accrued and unpaid interest, commencing March 27, 2002. On September 29, 2004, Cinemark Chile S.A. refinanced the outstanding debt under an amended debt agreement with twoamount of the original local banks, Corpbanca and Banco Security.9% senior subordinated notes tendered after the early settlement date. The amendedCompany recorded a loss on early retirement of debt agreement requires 24 equal quarterly installments of principal plus accrued and unpaid interest, which commenced on$7,952 during the year ended December 31, 2004. The agreement requires Cinemark Chile S.A.2007, related to maintain certain financial ratiosthese repurchases, which consisted of tender offer repurchase costs, including premiums paid and contains other restrictive covenants typical for agreementsfees, and the write-off of this type such as a limitation on dividends. Funds borrowed under this agreement bear interest at the 90 day TAB Banking rate as publishedunamortized debt issue costs, partially offset by the Associationwrite-off of Banks and Financial Institutions Act plus 1.5%. At December 31, 2005, US$6,587 was outstanding under this agreement.an unamortized bond premium.
During 2008, in one open market purchase, Cinemark USA, Inc. repurchased $3 aggregate principal amount of its 9% senior subordinated notes.
As of December 31, 2005,2009, Cinemark USA, Inc. had outstanding approximately $181 aggregate principal amount of 9% senior subordinated notes. Cinemark USA, Inc. may redeem the Company was in full compliance with all agreements governingremaining 9% senior subordinated notes at its outstanding debt.option at any time.
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. The carrying value of the Company’s long-termlong term debt atwas $1,543,705 and $1,097,144 as of December 31, 2005 matures as follows:
| | | | | |
| 2006 | | $ | 6,871 | |
| 2007 | | | 5,557 | |
| 2008 | | | 4,277 | |
| 2009 | | | 4,108 | |
| 2010 | | | 185,034 | |
| Thereafter | | | 414,430 | |
| | | | |
| | | $ | 620,277 | |
| | | | |
2009 and 2008, respectively. The estimated fair value of the Company’s long-termlong term debt was $1,513,838 and $1,104,188 as of $620,277 at December 31, 2005 was approximately $631,204. Such amounts do2009 and 2008, respectively. The estimated fair value does not include prepayment penalties that would be incurred upon the early extinguishment of certain debt issues.
Covenant Compliance and Debt issue costsMaturity
As of $24,035, net of accumulated amortization of $7,867,December 31, 2009, the Company was in full compliance with all agreements, including related to the senior subordinated notes, the amended senior secured credit facility and othercovenants, governing its outstanding debt. The Company’s long-term debt agreements, are included in deferred charges and other assets – net, on the consolidated balance sheets at December 31, 2005.2009 matures as follows:
| | | | | |
| 2010 | | $ | 12,227 | |
| 2011 | | | 11,200 | |
| 2012 | | | 271,600 | |
| 2013 | | | 789,781 | |
| 2014 | | | — | |
| Thereafter | | | 470,000 | (1) |
| | | | |
| Total | | $ | 1,554,808 | |
| | | | |
| | |
| (1) | | Reflects the aggregate principal amount at maturity of the 85/8% senior notes before the original issue discount of $11,103 . |
F - 22F-23
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)In thousands, except share and per share data
13. INTEREST RATE SWAP AGREEMENTS
During 2007 and 2008, the Company entered into three interest rate swap agreements. The interest rate swap agreements qualify for cash flow hedge accounting. The fair values of the interest rate swaps are recorded on the Company’s 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 valuation technique used to determine fair value is the income approach and under this approach, the Company uses projected future interest rates as provided by counterparties to the interest rate swap agreements and the fixed rates that the Company is obligated to pay under these agreements. Therefore, the Company’s measurements use significant unobservable inputs, which fall in Level 3 as defined by ASC Topic 820-10-35.
In March 2007, the Company entered into two interest rate swap agreements with effective dates of August 13, 2007 and terms of five years each. The interest rate swaps were designated to hedge approximately $500,000 of the Company’s variable rate debt obligations under its senior secured credit facility. Under the terms of the interest rate swap agreements, the Company pays fixed rates of 4.918% and 4.922% on $375,000 and $125,000, respectively, of variable rate debt and receives interest at a variable rate based on the 3-month LIBOR. The 3-month LIBOR rate on each reset date determines the variable portion of the interest rate swaps for the three-month period following the reset date. No premium or discount was incurred upon the Company entering into the interest rate swaps because the pay and receive rates on the interest rate swaps represented prevailing rates for each counterparty at the time the interest rate swaps were consummated.
On September 14, 2008, the counterparty to the $375,000 interest rate swap agreement filed for bankruptcy protection. As a result, the Company determined that on September 15, 2008, when the counterparty’s credit rating was downgraded, the interest rate swap was no longer highly effective. On October 1, 2008, this interest rate swap was terminated by the Company. The change in fair value of this interest rate swap agreement from inception to September 14, 2008 was recorded as a losscomponent of accumulated other comprehensive loss. The change in fair value from September 15, 2008 through September 30, 2008 and the gain on early retirementtermination were recorded in earnings as a component of debt of $5,974interest expense during the year ended December 31, 2004,2008. The Company determined that the forecasted transactions hedged by this interest rate swap are still probable to occur, thus the total amount reported in accumulated other comprehensive income (loss) related to this swap of $18,147 is being amortized on a straight-line basis to interest expense over the period during which included (i) $5,197the forecasted transactions are expected to occur, which is September 15, 2008 through August 13, 2012. The Company amortized approximately $1,351 and $4,633 to interest expense during the years ended December 31, 2008 and 2009. The Company will amortize approximately $4,633 to interest expense over the next twelve months.
During October 2008, the Company entered into one interest rate swap agreement with an effective date of unamortized bond discounts, tender offer repurchase costs, including premiums paid,November 14, 2008 and other fees associated with the repurchase and subsequent retirementa term of $105,000 aggregate principal amount of outstanding 81/2% senior subordinated notes; and (ii) $777 of unamortized debt issue costs, tender offer repurchase costs, including premiums paid, and other fees associated with the redemption of the $17,750 aggregate principal amountfour years. The interest rate swap was designated to hedge approximately $100,000 of the Company’s 9%variable rate debt obligations under its senior subordinated notes.secured credit facility for three years and $75,000 of the Company’s variable rate debt obligations under its senior secured credit facility for four years. Under the terms of the interest rate swap agreement, the Company pays a fixed rate of 3.63% on $175,000 of variable rate debt and receives interest at a variable rate based on the 1-month LIBOR. The 1-month LIBOR rate on each reset date determines the variable portion of the interest rate swap for the one-month period following the reset date. No premium or discount was incurred upon the Company entering into the interest rate swap because the pay and receive rates on the interest rate swap represented prevailing rates for the counterparty at the time the interest rate swap was consummated.
11. | | FOREIGN CURRENCY TRANSLATION |
As of December 31, 2009, the fair values of the $125,000 interest rate swap and the $175,000 interest rate swap were liabilities of approximately $10,268 and $8,256, respectively, which have been reported as a component of other long-term liabilities. A corresponding cumulative amount of $11,367, net of taxes of $7,157, has been recorded as an increase in accumulated other comprehensive loss on the Company’s consolidated balance sheet as of December 31, 2009. These two interest rate swaps exhibited no ineffectiveness during the years ended December 31, 2008 and 2009.14. FOREIGN CURRENCY TRANSLATION
The accumulated other comprehensive loss account in shareholder’sstockholder’s equity of $77,122$72,347 and $60,185$7,459 at December 31, 20042008 and December 31, 2005,2009, respectively, primarily relates toincludes the cumulative foreign currency adjustments of $(40,287) and $16,070, respectively, from translating the financial statements of Cinemark Argentina, S.A., Cinemark Brasil S.A., Cinemark de Mexico, S.A. de C.V.the Company’s international subsidiaries.
F-24
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and Cinemark Chile S.A. into U.S. dollars.per share data
In 20052008 and 2004,2009, all foreign countries where the Company has operations including Argentina, Brazil, Mexico and Chile were deemed non-highly inflationary.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 the accumulated other comprehensive loss account recorded as an increase in, or reduction of, shareholder’s equity.loss.
On December 31, 2005,2009, the exchange rate for the Brazilian real was 2.341.75 reais to the U.S. dollar (the exchange rate was 2.652.36 reais to the U.S. dollar at December 31, 2004)2008). As a result, the effect of translating the December 31, 20052009 Brazilian financial statements into U.S. dollars is reflected as a cumulative foreign currency translation adjustment to the accumulated other comprehensive loss account as an increase in shareholder’sstockholder’s equity of $12,026.$48,500. At December 31, 2005,2009, the total assets of the Company’s Brazilian subsidiaries were U.S. $99,849.$261,892.
On December 31, 2005,2009, the exchange rate for the Mexican peso was 10.7113.04 pesos to the U.S. dollar (the exchange rate was 11.2213.78 pesos to the U.S. dollar at December 31, 2004)2008). As a result, the effect of translating the December 31, 20052009 Mexican financial statements into U.S. dollars is reflected as a cumulative foreign currency translation adjustment to the accumulated other comprehensive loss account as an increase in shareholder’sstockholder’s equity of $4,633$3,570. At December 31, 2005,2009, the total assets of the Company’s Mexican subsidiaries were U.S. $88,397.$128,263.
On December 31, 2005,2009, the exchange rate for the ArgentineChilean peso was 3.03519.30 pesos to the U.S. dollar (the exchange rate was 2.97648.00 pesos to the U.S. dollar at December 31, 2004)2008). As a result, the effect of translating the December 31, 2005 Argentine financial statements into U.S. dollars was immaterial to the change in accumulated other comprehensive loss. At December 31, 2005, the total assets of the Company’s Argentine subsidiaries were U.S. $16,453.
On December 31, 2005, the exchange rate for the Chilean peso was 514.21 pesos to the U.S. dollar (the exchange rate was 559.83 pesos to the U.S. dollar at December 31, 2004). As a result, the effect of translating the December 31, 20052009 Chilean financial statements into U.S. dollars is reflected as a cumulative foreign currency translation adjustment to the accumulated other comprehensive loss account as an increase in shareholder’sstockholder’s equity of $1,059.$3,507. At December 31, 2005,2009, the total assets of the Company’s Chilean subsidiaries were U.S. $19,678.$29,957.
During 2004,The effect of translating the Company sold its United Kingdom theatres, which resulted inDecember 31, 2009 financial statements of our other international subsidiaries, with local currencies other than the U.S. dollar, is reflected as a reduction of shareholder’s equity upon the realization of $1,076 of cumulative foreign currency translation adjustments previously recorded inadjustment to the accumulated other comprehensive loss account.account as an increase in stockholder’s equity of $780.
F - 23
CINEMARK USA, INC.15. INVESTMENTS IN AND SUBSIDIARIES
NOTESADVANCES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
12. | | INVESTMENTS IN AND ADVANCES TO AFFILIATES |
AFFILIATES The Company had the following investments in and advances to affiliates at December 31:
| | | | | | | | | | | | | | | | | |
| | | 2004 | | 2005 | | | December 31, |
| Investment in National CineMedia LLC — 21% interest | | $ | — | | $ | 7,329 | | |
| Cinemark Theatres Alberta, Inc. — investment, at equity — 50% interest | | 293 | | 303 | | |
| Fandango, Inc. — investment, at cost — 1% interest | | 171 | | 171 | | |
| | | | 2008 | | 2009 |
| | | | |
| Investment in DCIP — investment, at equity— 33% interest | | | $ | 1,017 | | $ | 640 | |
| Cinemark — Core Pacific, Ltd. (Taiwan) — investment, at cost — 14% interest | | 338 | | 338 | | | 1,383 | | 1,383 | |
| Other | | 908 | | 259 | | | 1,884 | | 1,506 | |
| | | | | |
| Total | | $ | 1,710 | | $ | 8,400 | | | $ | 4,284 | | $ | 3,529 | |
| | | | | |
During 2009, the year endedCompany invested an additional $2,500 in DCIP. The Company’s basis was reduced to $640 as of December 31, 2005, Cinemark Media, Inc.,2009 as a wholly-owned subsidiaryresult of the Company, purchased a 20.7% interest in National CineMedia LLC (“National CineMedia”) for approximately $7,329. National CineMedia is a joint venture between Regal Entertainment Group, AMC Entertainment Inc. and the Company.equity losses of $2,877 recorded during 2009. See Note 5 to the consolidated financial statements for further discussion of the investment.6.
13. | | MINORITY INTERESTS IN SUBSIDIARIES |
16. NONCONTROLLING INTERESTS IN SUBSIDIARIES Minority ownershipNoncontrolling interests in subsidiaries of the Company arewere as follows at December 31:
| | | | | | | | | | |
| | | | December 31, |
| | | | 2008 | | 2009 |
| | | | | | | | | | | |
| | | 2004 | | 2005 | | |
| Cinemark Partners II — 49.2% interest | | $ | 8,494 | | $ | 8,554 | | | $ | 8,114 | | $ | 7,961 | |
| Cinemark Equity Holdings Corp. (Central America) — 49.9% interest | | 3,227 | | 2,577 | | |
| Cinemark Colombia, S.A. — 49.0% interest | | 2,056 | | 2,333 | | | 3,105 | | 4,465 | |
| Greeley Ltd. — 49.0% interest | | 1,586 | | 1,491 | | | 1,015 | | 982 | |
| Cinemark del Ecuador, S.A. — 40.0% interest | | 827 | | 932 | | |
| Cinemark de Mexico, S.A. de C.V. — 0.6% interest | | 204 | | 272 | | |
| Cinemark Panama S.A. — 20% interest | | | 181 | | 369 | |
| Others | | 303 | | 263 | | | 556 | | 1,019 | |
| | | | | |
| Total | | $ | 16,697 | | $ | 16,422 | | | $ | 12,971 | | $ | 14,796 | |
| | | | | |
During May 2008, the Company’s partners in Central America (the “Central American Partners”) exercised an option available to them under an Exchange Option Agreement dated February 7, 2007 between Cinemark Holdings, Inc. and the Central American Partners. Under this option, which was triggered by completion of an initial public offering of common stock by Cinemark Holdings, Inc., the Central American Partners are entitled to exchange their shares in Cinemark Equity Holdings Corporation, which is the Company’s Central American holding company, for shares of Cinemark Holdings, F-25
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
Inc.’s common stock. The exchange of shares occurred during October 2008. See Note 8. Prior to the exchange, the Company owned approximately 51% of the shares in Cinemark Equity Holdings Corporation and subsequent to the exchange, the Company owns 100% of the shares in Cinemark Equity Holdings Corporation. The Company’s Panama subsidiary is 80% owned by Cinemark Equity Holdings Corporation and 20% owned by a minority partner.
During July 2008, the Company’s partners in Ecuador (the “Ecuador Partners”) exercised an option available to them under an Exchange Option Agreement dated April 24, 2007 between Cinemark Holdings, Inc. and the Ecuador Partners. Under this option, which was triggered by completion of an initial public offering of common stock by Cinemark Holdings, Inc., the Ecuador Partners are entitled to exchange their shares in Cinemark del Ecuador S.A. for shares of Cinemark Holdings, Inc.’s common stock. The exchange of shares occurred during November 2008. See Note 8. Prior to the exchange, the Company owned 60% of the shares in Cinemark del Ecuador S.A. and subsequent to the exchange, the Company owns 100% of the shares in Cinemark del Ecuador S.A.
Below is a summary of the impact of changes in the Company’s ownership interest in its subsidiaries on its equity:
| | | | | | | | | | | | | |
| | | Years ended December 31, |
| | | 2007 | | 2008 | | 2009 |
| | | | | | | | | | | | | |
| Net income (loss) attributable to Cinemark USA, Inc. | | $ | 115,428 | | | $ | (23,849 | ) | | $ | 129,439 | |
| | | |
| Transfers from noncontrolling interests | | | | | | | | | | | | |
| Increase in Cinemark Holdings, Inc. additional paid-in-capital for Central America Share Exchange | | | — | | | | 12,949 | | | | — | |
| Increase in Cinemark Holdings, Inc. additional paid-in-capital for Ecuador Share Exchange | | | — | | | | 3,200 | | | | — | |
| Increase in Cinemark Holdings, Inc. additional paid-in-capital for buyout of Argentina noncontrolling interests | | | — | | | | — | | | | 23 | |
| | | |
| Net transfers from non-controlling interests | | | — | | | | 16,149 | | | | 23 | |
| | | |
| Change from net income (loss) attributable to Cinemark USA, Inc. and transfers from noncontrolling interests | | $ | 115,428 | | | $ | (7,700 | ) | | $ | 129,462 | |
| | | |
17. CAPITAL STOCK
Common and Preferred StocksStock ——Holders of Class A common stock shareholders have exclusive voting rights. Holders of Class B common stock shareholders have no voting rights except upon any proposed amendments to the articles of incorporation. However, they may convert their Class B common stock, at their option, to Class A common stock. In the event of any liquidation, holders of the Class A and Class B common stock shareholders will be entitled to their pro ratapro-rata share of assets remaining after any holders of preferred stock shareholders have received their preferential amounts based on their respective shares held.
The Company has 1,000,000 shares of preferred stock, $1.00 par value, authorized with none issued or outstanding. The rights and preferences of preferred stock will be determined by the Board of Directors at the time of issuance.
The Company’s ability to pay dividends is effectively limited by the terms of its indenture and amended senior secured credit facility, which also significantly restrict the ability of certain of the Company’s subsidiaries to pay dividends directly or indirectly to the Company. Furthermore, certain of the Company’s foreign subsidiaries currently have a deficit in retained earnings which prevents the Company from declaring and paying dividends from those subsidiaries.
F - 24
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Stock Option Plans Share Based Awards—On May 16, 2002, Cinemark, Inc. was formed as the Delaware holding company of Cinemark USA, Inc. Under a share exchange agreement dated May 17, 2002, and after giving effect to a reverse stock split, each outstanding share and option to purchase shares of the Company’s common stock was exchanged for 220 shares and options to purchase shares of Cinemark, Inc.’s common stock. Unearned compensation of $3,810 related to the Company’s stock options was contributed to the Company’s parent, Cinemark, Inc. on May 17, 2002 as part of the share exchange. No unearned compensation has been recorded on the Company’s books subsequent to the share exchange.
Although the Company does not have any options outstanding, compensation expense related to the outstanding options of Cinemark, Inc. is recorded in the Company’s consolidated statements of income. Compensation expense resulting from the amortization of unearned compensation recorded in the Company’s consolidated statements of income under former stock option plans was $1,080 and $145 in 2003 and 2004, respectively. During 2004, the Company recorded additional compensation expense of $1,595 related to the write-off of the remaining unearned compensation for options outstanding as of the date of the Recapitalization and $14,650 related to the cash settlement of these options.
Upon consummation of the Recapitalization on April 2, 2004, all stock options of Cinemark, Inc. outstanding prior to the Recapitalization immediately vested and the majority were repurchased and the then existing stock option plans, which included theEmployee Stock Option Plan, theIndependent Director Stock Optionsand theLong Term Incentive Plan, were terminated.
On September 30, 2004, the BoardCinemark, Inc.’s board of Directorsdirectors and the majority of its stockholders of Cinemark, Inc. approved the 2004 Long Term Incentive Plan (the “Plan”“2004 Plan”) under which 3,074,9919,097,360 shares of Class A common stock are available for issuance to selected employees, directors and consultants of the Company. The 2004 Plan providesprovided for restricted share grants, incentive option grants and nonqualified option grants.
On September 30, 2004,August 2, 2006, Cinemark Holdings, Inc. granted options to purchase 2,361,590 shareswas formed as the Delaware holding company of Cinemark, Inc. Under a share exchange agreement dated August 7, 2006, each outstanding share of Cinemark, Inc.’s Class A common stock under the Plan at an exercise price of $22.58 per option. The exercise price was equal to the fair market value of the Cinemark, Inc. Class A common stock on the date of grant. Options to purchase 234,219 shares vested immediately and the remaining options granted in 2004 vest daily over the period ending April 1, 2009. The options expire ten years from the grant date.
On January 28, 2005, Cinemark, Inc. granted options to purchase 4,075 shares of Cinemark, Inc. Class A common stock under the Plan at an exercise price of $22.58 per option (equal to the market value at the date of grant). The options vest daily over five years and the options expire ten years from the grant date.
There were options to purchase 2,365,665 shares of Cinemark, Inc. Class A common stock outstanding under the Plan as of December 31, 2005.
A participant’s options under the Plan are forfeited if the participant’s service to Cinemark, Inc. or any of its subsidiaries is terminated for cause. At any time before the Class A common stock becomes listed or admitted to unlisted trading privileges on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers or if sale or bid and other offer quotations are reported for that class of common stock on the NASDAQ National Market, Cinemark, Inc. or a designee shall have the right to purchase any shares of Class A common stock acquired on exercise of an option, any restricted shares issued under the Plan and any exercisable options granted under the Plan. The purchase price in such event shall be determined as provided in the Plan.
F - 25F-26
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHAREIn thousands, except share and per share data
was exchanged for an equivalent number of shares of Cinemark Holdings, Inc. common stock. The share exchange was completed on October 5, 2006.
In November 2006, Cinemark Holdings, Inc.’s board of directors amended the 2004 Plan to provide that no additional awards may be granted under the 2004 Plan. At that time, the Board of Cinemark Holdings, Inc. and the majority of Cinemark Holdings, Inc.’s stockholders approved the 2006 Long Term Incentive Plan (the “2006 Plan”) and all options to purchase shares of Cinemark Inc.’s Class A common stock under the 2004 Plan were exchanged for an equal number of options to purchase shares of Cinemark Holdings, Inc.’s common stock under the 2006 Plan. The 2006 Plan is substantially similar to the 2004 Plan.
During March 2008, Cinemark Holdings, Inc.’s board of directors approved the Amended and Restated Cinemark Holdings, Inc. 2006 Long Term Incentive Plan (the “Restated Incentive Plan”). The Restated Incentive Plan amends and restates the 2006 Plan, to (i) increase the number of shares reserved for issuance from 9,097,360 shares of common stock to 19,100,000 shares of common stock and (ii) permit the Compensation Committee of Cinemark Holdings, Inc.’s board of directors (the “Compensation Committee”) to award participants restricted stock units and performance awards. The right of a participant to exercise or receive a grant of a restricted stock unit or performance award may be subject to the satisfaction of such performance or objective business criteria as determined by the Compensation Committee. With the exception of the changes identified in (i) and (ii) above, the Restated Incentive Plan does not materially differ from the 2006 Plan. The Restated Incentive Plan was approved by Cinemark Holdings, Inc.’s stockholders at its annual meeting held on May 15, 2008.
During August 2008, Cinemark Holdings, Inc. filed a registration statement with the Securities and Exchange Commission on Form S-8 for the purpose of registering the additional shares available for issuance under the Restated Incentive Plan.
Stock Options— Below is a summary of stock option activity and related information for the years ended December 31, 2007, 2008 and 2009:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended | | Year Ended | | Year Ended | | |
| | | December 31, 2007 | | December 31, 2008 | | December 31, 2009 | | |
| | | | | | | Weighted | | | | | | Weighted | | | | | | Weighted | | |
| | | | | | | Average | | | | | | Average | | | | | | Average | | Aggregate |
| | | | | | | Exercise | | | | | | Exercise | | | | | | Exercise | | Intrinsic |
| | | Shares | | Price | | Shares | | Price | | Shares | | Price | | Value |
| Outstanding at January 1 | | | 6,980,593 | | | $ | 7.63 | | | | 6,323,429 | | | $ | 7.63 | | | | 6,139,670 | | | $ | 7.63 | | | | | |
| Granted | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | | |
| Forfeited | | | (112,416 | ) | | $ | 7.63 | | | | (14,492 | ) | | $ | 7.63 | | | | — | | | | — | | | | | |
| Exercised | | | (544,748 | ) | | $ | 7.63 | | | | (169,267 | ) | | $ | 7.63 | | | | (4,907,778 | ) | | $ | 7.63 | | | | | |
| | | |
| Outstanding at December 31 | | | 6,323,429 | | | $ | 7.63 | | | | 6,139,670 | | | $ | 7.63 | | | | 1,231,892 | | | $ | 7.63 | | | $ | 8,303 | |
| | | |
| Vested options at December 31 | | | 4,647,460 | | | $ | 7.63 | | | | 5,809,343 | | | $ | 7.63 | | | | 1,231,892 | | | $ | 7.63 | | | $ | 8,303 | |
| | | |
The total intrinsic value of options exercised during the years ended December 31, 2007, 2008 and 2009, was $4,961, $1,191 and $28,083, respectively.
The Company recorded compensation expense of $2,881 and $3,393 during the years ended December 31, 2007 and 2008, respectively, related to these stock options. During the year ended December 31, 2009, the Company changed its estimated forfeiture rate of 5% to 2.5% based on actual cumulative stock option forfeitures. The cumulative impact of the reduction in forfeiture rate was $260 and was recorded as additional compensation expense during the year ended December 31, 2009. During July 2009, the Company modified the terms of certain stock options outstanding by extending the expiration date by approximately two years. The Company recorded additional compensation expense of approximately $132 related to this modification. The Company recorded total compensation expense of $1,152, including the aforementioned $260 related to the change in forfeiture rate and $132 related to the option modification, and a tax benefit of approximately $434 during the year ended December 31, 2009, related to the outstanding stock options. As of December 31, 2009, there was no remaining unrecognized compensation expense related to outstanding stock options since all outstanding options fully vested on April 2, 2009. All options outstanding at December 31, 2009 have an average remaining contractual life of approximately 4.75 years.
F-27
CINEMARK USA, INC. AND PER SHARE DATA)SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
15. | | SUPPLEMENTAL CASH FLOW INFORMATION |
Restricted Stock— During the year ended December 31, 2009, Cinemark Holdings, Inc. granted 472,881 shares of restricted stock to independent directors of Cinemark Holdings, Inc. and employees of the Company. The fair value of the shares of restricted stock was determined based on the market value of Cinemark Holdings, Inc.’s stock on the dates of grant, which ranged from $9.50 to $11.32 per share. The Company assumed forfeiture rates ranging from zero to 5% for the restricted stock awards. The restricted stock vests over periods ranging from one year to four years based on continued service by the directors and employees. Below is a summary of restricted stock activity for the years ended December 31, 2007, 2008 and 2009:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended | | | Year Ended | | | Year Ended | |
| | | December 31, 2007 | | | December 31, 2008 | | | December 31, 2009 | |
| | | | | | | Weighted | | | | | | | Weighted | | | | | | | Weighted | |
| | | | | | | Average | | | | | | | Average | | | | | | | Average | |
| | | | | | | Exercise | | | | | | | Exercise | | | | | | | Exercise | |
| | | Shares | | | Price | | | Shares | | | Price | | | Shares | | | Price | |
| Outstanding at January 1 | | | — | | | | — | | | | 21,880 | | | $ | 18.28 | | | | 385,666 | | | $ | 13.32 | |
| Granted | | | 21,880 | | | $ | 18.28 | | | | 392,317 | | | $ | 13.32 | | | | 472,881 | | | $ | 9.69 | |
| Vested | | | — | | | | — | | | | (22,032 | ) | | $ | 18.24 | �� | | | (70,493 | ) | | $ | 13.77 | |
| Forfeited | | | — | | | | — | | | | (6,499 | ) | | $ | 13.14 | | | | (23,976 | ) | | $ | 11.15 | |
| | | |
| Outstanding at December 31 | | | 21,880 | | | $ | 18.28 | | | | 385,666 | | | $ | 13.32 | | | | 764,078 | | | $ | 11.10 | |
| | | |
During 2008, the Company changed its estimated forfeiture rate on certain of these grants from 2% to 5%, based on actual cumulative restricted stock forfeitures. The cumulative impact of the increased forfeiture rate was approximately $14 and was recorded as a reduction in compensation expense during the year ended December 31, 2008.
The Company recorded total compensation expense of $0, $919, and $1,893 related to these restricted stock awards during the years ended December 31, 2007, 2008 and 2009, respectively, including the aforementioned $14 related to the change in forfeiture rate during 2008. Cinemark Holdings, Inc. recorded an additional $200, $475 and $500 related to these restricted stock awards during the years ended December 31, 2007, 2008 and 2009, respectively. As of December 31, 2009, the remaining unrecognized compensation expense related to these restricted stock awards was approximately $5,728 and the weighted average period over which this remaining compensation expense will be recognized is approximately three years. The total fair value of shares vested during the years ended December 31, 2007, 2008 and 2009 was $0, $286 and $762, respectively. Upon vesting, the Company receives an income tax deduction. The recipients of restricted stock are entitled to receive dividends and to vote their respective shares, however the sale and transfer of the restricted shares is prohibited during the restriction period.
Restricted Stock Units— During the years ended December 31, 2008 and 2009, Cinemark Holdings, Inc. granted restricted stock units to employees of the Company representing 204,361 and 303,168 hypothetical shares of common stock, respectively, under the Restated Incentive Plan. The restricted stock units vest based on a combination of financial performance factors and continued service. The financial performance factors are based on an implied equity value concept that determines an internal rate of return (“IRR”) during a three fiscal year period 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. All payouts of restricted stock units that vest are subject to an additional one year service requirement and will be paid in the form of common stock if the participant continues to provide services through 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 become vested.
F-28
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
Below is a table summarizing the potential restricted stock unit awards granted during the years ended December 31, 2008 and 2009 at each of the three levels of financial performance (excluding forfeiture assumptions):
| | | | | | | | | | | | | | | | | |
| | | Granted During the Year Ended December 31, |
| | | 2008 | | 2009 |
| | | Number of | | | | | | Number of | | |
| | | Shares | | Value at | | Shares | | Value at |
| | | Vesting | | Grant | | Vesting | | Grant |
| at IRR of at least 8.5% | | | 68,116 | | | $ | 885 | | | | 101,051 | | | $ | 963 | |
| at IRR of at least 10.5% | | | 136,239 | | | $ | 1,771 | | | | 202,117 | | | $ | 1,927 | |
| at IRR of at least 12.5% | | | 204,361 | | | $ | 2,656 | | | | 303,168 | | | $ | 2,891 | |
Due to the fact that the IRR for the three year performance period could not be determined at the time of each grant, the Company estimated that the most likely outcome is the achievement of the mid-point IRR level. The Company assumed forfeiture rates ranging from zero to 5% for the restricted stock unit awards. If during the service periods, additional information becomes available to lead the Company to believe a different IRR level will be achieved for the three year performance periods, the Company will reassess the number of units that will vest for the respective grant and adjust its compensation expense accordingly on a prospective basis over the remaining service period.
Approximately 13,279 restricted stock unit awards were forfeited during the year ended December 31, 2009, which was within the Company’s original forfeiture rate estimates. No restricted stock unit awards have vested. The Company recorded compensation expense of $0, $326 and $759 related to these restricted stock unit awards during the years ended December 31, 2007, 2008 and 2009, respectively. As of December 31, 2009, the remaining unrecognized compensation expense related to these restricted stock unit awards was $2,442 and the weighted average period over which this remaining compensation expense will be recognized is approximately three years.
18. SUPPLEMENTAL CASH FLOW INFORMATION
The following is provided as supplemental information to the consolidated statements of cash flows:
| | | | | | | | | | | | | |
| | | Years Ended December 31, |
| | | 2003 | | 2004 | | 2005 |
| Cash paid for interest | | $ | 50,992 | | | $ | 46,686 | | | $ | 45,166 | |
| | | | | | | | | | | | | |
| Net cash paid for income taxes | | $ | 17,330 | | | $ | 16,682 | | | $ | 2,911 | |
| | | | | | | | | | | | | |
| Noncash activities: | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Change in construction lease obligations related to construction of theatres | | $ | — | | | $ | 6,463 | | | $ | (4,312 | ) |
| | | | | | | | | | | | | |
| Changes in accounts payable and accrued expenses for the acquisition of theatre properties and equipment | | $ | 3,218 | | | $ | (1,149 | ) | | $ | 8,945 | |
| | | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | 2007 | | 2008 | | 2009 |
| | | |
| Cash paid for interest | | $ | 115,437 | | | $ | 79,347 | | | $ | 69,691 | |
| Cash paid for income taxes, net of refunds received | | $ | 139,443 | | | $ | 36,203 | | | $ | 46,213 | |
| | | | | | | | | | | | | |
| Noncash investing and financing activities: | | | | | | | | | | | | |
| Change in construction lease obligations related to construction of theatres | | $ | (2,546 | ) | | $ | — | | | $ | — | |
Changes in accounts payable and accrued expenses for the acquisition of theatre properties and equipment(1) | | $ | (9,754 | ) | | $ | 3,723 | | | $ | (6,166 | ) |
Theatre properties and equipment acquired under capital lease(2) | | $ | 9,102 | | | $ | 7,911 | | | $ | 20,400 | |
| Change in fair market values of interest rate swap agreements (See Note 13) | | $ | (11,348 | ) | | $ | (22,063 | ) | | $ | 3,898 | |
| Capital contribution from Cinemark, Inc. as a result of the Central America Share Exchange (See Note 8) | | $ | — | | | $ | 12,949 | | | $ | — | |
| Capital contribution from Cinemark, Inc. as a result of the Ecuador Share Exchange (See Note 8) | | $ | — | | | $ | 3,200 | | | $ | — | |
| Investment in NCM (See Note 5) | | $ | — | | | $ | 19,020 | | | $ | 15,536 | |
| Noncash capital contributions from Cinemark, Inc. primarily related to income taxes | | $ | — | | | $ | — | | | $ | 49,675 | |
16. | | |
| (1) | | INCOME TAXESAdditions to theatre properties and equipment included in accounts payable as of December 31, 2008 and 2009 were $13,989 and $7,823, respectively. |
|
| (2) | | Amount recorded during the twelve months ended December 31, 2009 was a result of the acquisition of theatres in the U.S. as discussed in Note 4. |
During December 2007, the Company elected to use the proceeds of approximately $22,739 from the sale of real property to pursue the purchase of a like-kind property in accordance with the Internal Revenue Code and as a result, the proceeds were deposited to an escrow account. During 2008, the Company elected to use the proceeds of approximately $2,089 from the sale of real properties to pursue the purchase of like-kind properties in accordance with the Internal
F-29
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
Revenue Code and as a result, the proceeds were deposited to an escrow account. The Company did not purchase like-kind properties and the deposits of approximately $24,828 were returned to the Company during the year ended December 31, 2008.
19. INCOME TAXES
Income from continuing operations before income taxes consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2003 | | 2004 | | 2005 | | | Year Ended December 31, |
| Income from continuing operations before income taxes: | | |
| | | | 2007 | | 2008 | | 2009 |
| | | | |
| Income before income taxes: | | |
| U.S. | | $ | 65,448 | | $ | 40,048 | | $ | 59,805 | | | $ | 230,960 | | $ | (14,435 | ) | | $ | 149,198 | |
| Foreign | | 7,082 | | 27,952 | | 16,742 | | | 12,901 | | 30,077 | | 46,693 | |
| | | | | |
| Total | | $ | 72,530 | | $ | 68,000 | | $ | 76,547 | | | $ | 243,861 | | $ | 15,642 | | $ | 195,891 | |
| | | | | |
| | | |
| Income taxes consisted of the following: | | |
| Current: | | |
| Federal | | $ | 16,280 | | $ | 12,457 | | $ | 31,806 | | | $ | 138,098 | | $ | 51,030 | | $ | 51,504 | |
| Foreign | | 5,885 | | 4,008 | | 2,115 | | | 5,519 | | 4,620 | | 13,706 | |
| State | | 1,013 | | 460 | | 1,972 | | | 18,825 | | 6,090 | | 10,208 | |
| | | | | |
| Total current expense | | 23,178 | | 16,925 | | 35,893 | | | 162,442 | | 61,740 | | 75,418 | |
| | | | | |
| | | |
| Deferred: | | |
| Federal | | 2,898 | | 4,825 | | | (7,679 | ) | | | (33,290 | ) | | | (28,307 | ) | | | (9,527 | ) |
| Foreign | | | (1,053 | ) | | 5,474 | | 356 | | | 286 | | 7,330 | | | (2,405 | ) |
| State | | 18 | | | (194 | ) | | | (388 | ) | | | (1,797 | ) | | | (5,167 | ) | | | (682 | ) |
| | | | | |
| Total deferred expense | | 1,863 | | 10,105 | | | (7,711 | ) | |
| Total deferred taxes | | | | (34,801 | ) | | | (26,144 | ) | | | (12,614 | ) |
| | | | | |
| Income tax expense | | $ | 25,041 | | $ | 27,030 | | $ | 28,182 | | | $ | 127,641 | | $ | 35,596 | | $ | 62,804 | |
| | | | | |
A reconciliation between income tax expense and taxes computed by applying the applicable statutory federal income tax rate to income from continuing operations before income taxes follows:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2003 | | 2004 | | 2005 | | | Year Ended December 31, |
| Computed normal tax expense | | $ | 25,386 | | $ | 23,800 | | $ | 26,792 | | |
| | | | 2007 | | 2008 | | 2009 |
| | | | |
| Computed normal tax expense (benefit) | | | $ | 85,351 | | $ | 5,475 | | $ | 68,562 | |
| Goodwill | | | (20 | ) | | | (42 | ) | | 91 | | | 23,050 | | 27,503 | | — | |
| Foreign inflation adjustments | | 11 | | | (100 | ) | | | (3,405 | ) | | | (620 | ) | | 464 | | 1,614 | |
| State and local income taxes, net of federal income tax benefit | | 666 | | 159 | | 1,030 | | |
| State and local income taxes, net of federal income tax impact | | | 10,991 | | | (1,621 | ) | | 6,358 | |
| Foreign losses not benefited and other changes in valuation allowance | | 221 | | | (3,201 | ) | | | (917 | ) | | | (536 | ) | | 1,459 | | | (552 | ) |
| Foreign tax rate differential | | 883 | | | (117 | ) | | | (33 | ) | | 3,721 | | 1,537 | | | (1,464 | ) |
| Section 965 dividends | | — | | — | | 1,537 | | |
| Foreign dividends, including Section 965 | | | 1,405 | | 2,084 | | 2,141 | |
| Capital loss benefit | | | — | | — | | | (12,913 | ) |
| Changes in uncertain tax positions | | | 1,980 | | — | | 6,957 | |
| True up to deferred tax items | | | — | | — | | | (6,453 | ) |
| Other — net | | | (2,106 | ) | | 6,531 | | 3,087 | | | 2,299 | | | (1,305 | ) | | | (1,446 | ) |
| | | | | |
| Income tax expense | | $ | 25,041 | | $ | 27,030 | | $ | 28,182 | | |
| Income taxes | | | $ | 127,641 | | $ | 35,596 | | $ | 62,804 | |
| | | | | |
The Company reinvests the undistributed earnings of its foreign subsidiaries, with the exception of its subsidiary in Ecuador. Accordingly, deferred U.S. federal and state income taxes are provided only on the undistributed earnings of the Company’s Ecuador subsidiary. As of December 31, 2009, the cumulative amount of undistributed earnings of the foreign subsidiaries on which the Company has not recognized income taxes was approximately $170,000.
F - 26F-30
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)In thousands, except share and per share data
Deferred Income Taxes
The tax effects of significant temporary differences and tax loss and tax credit carryforwards comprising the net long-term deferred income tax liability atliabilities as of December 31, 20042008 and 20052009 consisted of the following:
| | | | | | | | | |
| | | 2004 | | | 2005 | |
| Deferred liabilities: | | | | | | | | |
| Theatre properties and equipment | | $ | 40,134 | | | $ | 33,657 | |
| Deferred intercompany sale | | | 2,985 | | | | 2,961 | |
| | | |
| Total | | $ | 43,119 | | | $ | 36,618 | |
| | | |
| Deferred assets: | | | | | | | | |
| Deferred lease expenses | | $ | 10,155 | | | $ | 10,289 | |
| Theatre properties and equipment | | | 4,012 | | | | 6,772 | |
| Deferred gain on sale leasebacks | | | 1,986 | | | | 1,220 | |
| Deferred screen advertising revenues | | | 107 | | | | — | |
| Tax loss carryforward | | | 14,501 | | | | 13,549 | |
| AMT and other credit carryforwards | | | 1,147 | | | | 2,159 | |
| Other expenses, not currently deductible for tax purposes | | | (2,111 | ) | | | (3,900 | ) |
| | | |
| Total | | $ | 29,797 | | | $ | 30,089 | |
| | | |
| | | | | | | | | |
| Net long-term deferred income tax liability before valuation allowance | | $ | 13,322 | | | $ | 6,529 | |
| Valuation allowance | | | 9,816 | | | | 8,898 | |
| | | |
| Net long-term deferred income tax liability | | $ | 23,138 | | | $ | 15,427 | |
| | | |
| | | | | | | | | |
| Net deferred tax asset — Foreign | | $ | (2,763 | ) | | $ | (2,407 | ) |
| Net deferred tax liability — U.S. | | | 25,901 | | | | 17,834 | |
| | | |
| Total of all deferrals | | $ | 23,138 | | | $ | 15,427 | |
| | | |
| | | | | | | | | |
| | | December 31, |
| | | 2008 | | 2009 |
| Deferred liabilities: | | | | | | | | |
| Theatre properties and equipment | | $ | 105,079 | | | $ | 102,464 | |
| Deferred intercompany sales | | | 14,543 | | | | 8,650 | |
| Intangible asset — contracts | | | 9,545 | | | | 8,873 | |
| Intangible asset — tradenames | | | 114,379 | | | | 116,054 | |
| Intangible asset — net favorable leases | | | 354 | | | | (1,596 | ) |
| Investment in partnerships | | | 36,364 | | | | 38,405 | |
| | | |
| Total deferred liabilities | | | 280,264 | | | | 272,850 | |
| | | |
| Deferred assets: | | | | | | | | |
| Deferred lease expenses | | | 11,923 | | | | 13,493 | |
| Theatre properties and equipment | | | 9,693 | | | | 11,672 | |
| Deferred revenue — NCM and Fandango | | | 65,613 | | | | 64,313 | |
| Capital lease obligations | | | 46,098 | | | | 52,645 | |
| Interest rate swaps agreements | | | 9,515 | | | | 7,157 | |
| Tax loss carryforwards | | | 12,342 | | | | 12,747 | |
| Alternative minimum tax and other credit carryforwards | | | 3,606 | | | | 5,634 | |
| Other expenses, not currently deductible for tax purposes | | | 2,069 | | | | 1,915 | |
| | | |
| Total deferred assets | | | 160,859 | | | | 169,576 | |
| | | |
| Net deferred income tax liability before valuation allowance | | | 119,405 | | | | 103,274 | |
| Valuation allowance against deferred assets | | | 13,463 | | | | 18,228 | |
| | | |
| Net deferred income tax liability | | $ | 132,868 | | | $ | 121,502 | |
| | | |
| | | | | | | | | |
| Net deferred tax liability — Foreign | | $ | 16,645 | | | $ | 13,381 | |
| Net deferred tax liability — U.S. | | | 116,223 | | | | 108,121 | |
| | | |
| Total | | $ | 132,868 | | | $ | 121,502 | |
| | | |
The Company’s valuation allowance against deferred tax assets increased from $13,463 at December 31, 2008 to $18,228 at December 31, 2009. The increase in the valuation allowance was primarily due to an increase in foreign and state net operating loss carryforwards and foreign tax credit carryovers.
The Company’s foreign tax credit carryforwards begin expiring in 2008. The2015. Some foreign net operating losses began expiringwill expire in 2002;the next reporting period; however, some losses may be carried forward indefinitely. The Company’s stateState net operating losses will expire in 2006 through 2024.
Management continues to reinvestmay be carried forward for periods of between five and twenty years with the undistributed earnings of its foreign subsidiaries. Accordingly, deferred U.S. federal and state income taxes are not provided on the undistributed earnings of these foreign subsidiaries. As of December 31, 2005, the cumulative amount of undistributed earnings of these foreign subsidiaries on which the Company has not recognized income taxes was approximately $56,000.
The Company’s valuation allowance decreased from $9,816 at December 31, 2004 to $8,898 at December 31, 2005. This change was primarily due to a decrease in the deferred tax asset in Brazil, which remains fully reserved.
The Company is routinely under audit in various jurisdictions and is currently under examination in the United States by the IRS and in Mexico by Hacienda. The Company believes that it is adequately reserved for the probable outcome of these examinations.
On October 22, 2004, the American Jobs Creation Act was signed into law. The Act provides, among other things, a special one-time deduction for certain foreign earnings that are repatriated to and reinvested in the United States. During 2005, the Company repatriated approximately $36,000 of unremitted earnings from certain of its non-U.S. subsidiaries under the provisions of the Act. As a result, the Company recorded income tax expense and a related income tax liability, net of foreign tax benefits, of $1,537 during 2005.last expiring year being 2029.
F - 27F-31
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHAREIn thousands, except share and per share data
Uncertain Tax Positions
The following is a reconciliation of the total amounts of unrecognized tax benefits excluding interest and penalties, for the years ended December 31, 2007, 2008 and 2009:
| | | | | |
| Balance at January 1, 2007 | | $ | 10,512 | |
| Gross increases — tax positions in prior period | | | 1,432 | |
| Gross increases — current-period tax positions | | | 549 | |
| | | | |
| Balance at December 31, 2007 | | $ | 12,493 | |
| Gross increases — tax positions in prior period | | | 37 | |
| Gross decreases — tax positions in prior period | | | (166 | ) |
| Gross increases — current-period tax positions | | | 2,397 | |
| Gross decreases — current-period tax positions | | | (752 | ) |
| Reductions due to lapse in statute of limitations | | | (33 | ) |
| | | | |
| Balance at December 31, 2008 | | $ | 13,976 | |
| Gross increases — tax positions in prior period | | | 2,274 | |
| Gross increases — current-period tax positions | | | 7,607 | |
| | | | |
| Balance at December 31, 2009 | | $ | 23,857 | |
| | | | |
The Company had $17,523 and $31,661 of gross unrecognized tax benefits, including interest and penalties as of December 31, 2008 and December 31, 2009, respectively. Of these amounts, $13,851 and $23,212 represent the amount of unrecognized tax benefits that if recognized would impact the effective income tax rate for the years ended December 31, 2008 and 2009, respectively. The Company had $3,547 and $7,804 accrued for interest and/or penalties as of December 31, 2008 and 2009, respectively.
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and multiple state and foreign jurisdictions, and the Company is routinely under audit by many different tax authorities. The Company believes that its accrual for tax liabilities is adequate for all open audit years based on its assessment of many factors including past experience and interpretations of tax law. This assessment relies on estimates and assumptions and may involve a series of complex judgments about future events. The Company is no longer subject to income tax audits from the Internal Revenue Service for years before 2002. The Company is no longer subject to state income tax examinations by tax authorities in its major state jurisdictions for years before 2002. The Company is no longer subject to non-U.S. income tax examinations by tax authorities in its major non-U.S. tax jurisdictions for years before 2004.
The Company is currently under examination by the Internal Revenue Service for the 2002 through 2007 tax years. It is reasonably possible that the 2002-2004 audits could be completed within the next twelve months. These events could result in a decrease in the Company’s total unrecognized benefits of approximately $13,000 which includes approximately $4,000 of accrued interest.
20. COMMITMENTS AND PER SHARE DATA)
17. | | COMMITMENTS AND CONTINGENCIES |
CONTINGENCIES Leases— The Company conducts a significant part of its theatre operations in leased properties under noncancelable operating and capital leases with terms generally ranging from 10 to 25 years. In addition to the minimum annual lease payments, some of the leases provide for contingent rentals based on operating results of the theatre and most require the payment of taxes, insurance and other costs applicable to the property. The Company can renew, at its option, a substantial portion of the leases at defined or then market rental rates for various periods. Some leases also provide for escalating rent payments throughout the lease term. A liability for deferred lease expenses of $27,962$23,371 and $29,518$27,698 at December 31, 20042008 and 2005,2009, respectively, havehas been provided to account for lease expenses on a straight-line basis, where lease payments are not made on such a basis. Rent expense for the years ended December 31, iswas as follows:
| | | | | | | | | | | | | |
| | | 2003 | | | 2004 | | | 2005 | |
| Fixed rent expense | | $ | 100,562 | | | $ | 104,954 | | | $ | 110,995 | |
| Contingent rent expense | | | 18,955 | | | | 21,689 | | | | 25,598 | |
| | | |
| Facility lease expense | | | 119,517 | | | | 126,643 | | | | 136,593 | |
| Corporate office rent expense | | | 1,401 | | | | 1,406 | | | | 1,432 | |
| | | |
| Total rent expense | | $ | 120,918 | | | $ | 128,049 | | | $ | 138,025 | |
| | | |
| | | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | 2007 | | 2008 | | 2009 |
| Fixed rent expense | | $ | 164,915 | | | $ | 175,368 | | | $ | 181,075 | |
| Contingent rent expense | | | 47,815 | | | | 50,227 | | | | 57,704 | |
| | | |
| Total facility lease expense | | $ | 212,730 | | | $ | 225,595 | | | $ | 238,779 | |
| | | |
F-32
The Company deferred total gains of $5,961 from three sale leaseback transactions that occurred during 1998CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and 1999 and is recognizing them evenly over the lives of the leases (ranging from 10 to 20 years). As of December 31, 2005, $2,686 of the total deferred gains had been recognized leaving an aggregate deferred gain of $3,275 to be amortized.per share data
Future minimum lease payments under noncancelable operating and capital leases (including leases under the aforementioned sale leaseback transactions) withthat have initial or remaining terms in excess of one year at December 31, 20052009 are due as follows:
| | | | | |
| | | Operating | |
| | | Leases | |
| 2006 | | $ | 121,353 | |
| 2007 | | | 127,263 | |
| 2008 | | | 125,287 | |
| 2009 | | | 122,030 | |
| 2010 | | | 115,937 | |
| Thereafter | | | 925,537 | |
| | | | |
| Total | | $ | 1,537,407 | |
| | | | |
| | | | | | | | | |
| | | Operating | | | Capital | |
| | | Leases | | | Leases | |
| 2010 | | $ | 192,606 | | | $ | 21,329 | |
| 2011 | | | 189,798 | | | | 20,389 | |
| 2012 | | | 185,663 | | | | 20,528 | |
| 2013 | | | 181,536 | | | | 20,666 | |
| 2014 | | | 176,684 | | | | 20,943 | |
| Thereafter | | | 939,268 | | | | 144,554 | |
| | | | | | | |
| Total | | $ | 1,865,555 | | | $ | 248,409 | |
| | | | | | | | |
| Amounts representing interest payments | | | | | | | 108,041 | |
| | | | | | | | |
| Present value of future minimum payments | | | | | | $ | 140,368 | |
| Current portion of capital lease obligations | | | | | | | 7,340 | |
| | | | | | | | |
| Capital lease obligations, less current portion | | | | | | $ | 133,028 | |
| | | | | | | | |
Employment Agreements— On March 12, 2004, the Company’s parent,Effective June 16, 2008, Cinemark Holdings, Inc. entered into new employment agreements with certain executives which becameAlan W. Stock, Timothy Warner, Robert Copple and Michael Cavalier and effective upon the consummation of the Recapitalization on April 2, 2004. In addition, in connection with the Recapitalization,December 15, 2008, Cinemark Inc. paid a one-time special bonus in the amount of $2,400 to Lee Roy Mitchell and in the amount of $50 to each of Alan Stock, Tim Warner and Robert Copple. Set forth below is a summary of the Company’s employment agreements.
Lee Roy Mitchell
Cinemark,Holdings, Inc. entered into annew employment agreementagreements with Lee Roy Mitchell, pursuantRob Carmony, and John Lundin. Collectively these new employment agreements are herein referred to which Mr. Mitchell serves as Cinemark, Inc.’s and the Company’s Chief Executive Officer.“Employment Agreements”. The employment agreement became effective upon the consummation of the Recapitalization. TheEmployment Agreements have an initial term of the employment agreement is three years subject to an automatic extension for a one-year period, unless the employment agreements are terminated. Effective June 3, 2009, Cinemark Holdings, Inc. terminated its employment agreement with John Lundin. Effective May 25, 2009, Cinemark Holdings, Inc. entered into a new employment agreement with Steve Bunnell that has an initial term of two years subject to an extension for a one year period, unless the agreement is terminated. Mr. Mitchell received aThe base salary of $742 during 2005, which issalaries stipulated in the employment agreements are subject to annual review during the term of the agreements for increase (but not decrease) each year by Cinemark Holdings, Inc.’s Board of Directors or committee or delegate thereof. In addition, Mr. Mitchell isCompensation Committee. Management personnel subject to these employment agreements are eligible to receive an annual cash incentive bonusbonuses upon the Company meeting certain performance targets established by the board or the compensation committee for the fiscal year. Mr. Mitchell is also entitled to additional fringe benefits including life insurance benefits of not less than $5,000, disability benefits of not less than
F - 28
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
66% of base salary, a luxury automobile and a membership at a country club. The employment agreement provides for severance payments upon termination of employment, the amount and nature of which depends upon the reason for the termination of employment. If Mr. Mitchell resigns for good reason or is terminated by Cinemark Holdings, Inc. without cause (as defined in the agreement), Mr. Mitchell will receive: accrued compensation (which includes base salary and a pro rata bonus) through the date of termination; any previously vested stock options and accrued benefits, such as retirement benefits, in accordance with the terms of the plan or agreement pursuant to which such options or benefits were granted; his annual base salary as in effect at the time of termination for a period of twelve months following such termination; and an amount equal to the most recent annual bonus he received prior to the date of termination. Mr. Mitchell’s equity-based or performance-based awards will become fully vested and exercisable upon such termination or resignation. Mr. Mitchell may choose to continue to participate in the Company’s benefit plans and insurance programs on the same terms as other actively employed senior executives for a one-year period. Furthermore, so long as Mr. Mitchell remains Chief Executive Officer, he will possess approval rights over certain significant transactions that may be pursued by the Company.’s Compensation Committee.
In the event Mr. Mitchell’s employment is terminated due to his death or disability, Mr. Mitchell or his estate will receive: accrued compensation (which includes base salary and a pro rata bonus) through the date of termination; any previously vested stock options and accrued benefits, such as retirement benefits, in accordance with the terms of the plan or agreement pursuant to which such options or benefits were granted; his annual base salary as in effect at the time of termination for a period of six months following such termination; a lump sum payment equal to an additional six months of base salary payable six months after the date of termination; and any benefits payable to Mr. Mitchell and or his beneficiaries in accordance with the terms of any applicable benefit plan.
In the event Mr. Mitchell’s employment is terminated by Cinemark, Inc. for cause or under a voluntary termination (as defined in the agreement), Mr. Mitchell will receive: accrued base salary through the date of termination; and any previously vested rights under a stock option or similar incentive compensation plan in accordance with the terms of such plan.
Mr. Mitchell will also be entitled, for a period of five years, to tax preparation assistance upon termination of his employment for any reason other than for cause or under a voluntary termination. The employment agreement contains various covenants, including covenants related to confidentiality, non-competition (other than certain permitted activities as defined therein) and non-solicitation.
Tandy Mitchell, Alan Stock, Robert Copple, Timothy Warner, Robert Carmony, John Lundin and Michael Cavalier
Cinemark, Inc. entered into executive employment agreements with each of Tandy Mitchell, Alan Stock, Robert Copple, Timothy Warner, Robert Carmony, John Lundin and Michael Cavalier pursuant to which Mrs. Mitchell and Messrs. Stock, Copple, Warner, Carmony, Lundin and Cavalier serve, respectively, as Cinemark, Inc.’s and the Company’s Executive Vice President, President and Chief Operating Officer, Senior Vice President and Chief Financial Officer, Senior Vice President, Senior Vice President of Operations, Vice President of Film Licensing and Senior Vice President — General Counsel. The employment agreements became effective upon the consummation of the Recapitalization. The initial term of each employment agreement is three years, subject to automatic extensions for a one-year period at the end of each year of the term, unless the agreement is terminated. Pursuant to the employment agreements, each of these individuals receives a base salary, which is subject to annual review for increase (but not decrease) each year by Cinemark, Inc.’s Board of Directors or committee or delegate thereof. In addition, each of these executives is eligible to receive an annual cash incentive bonus upon the Company’s meeting certain performance targets established by the Cinemark, Inc. Board of Directors or the compensation committee for the fiscal year.
Cinemark, Inc.’s Board of Directors has adopted a stock option plan and granted each executive stock options to acquire such number of shares as set forth in that executive’s employment agreement. The executive’s stock options vest and become exercisable twenty percent per year on a daily pro rata basis and shall be fully vested and exercisable five years after the date of the grant, as long as the executive remains continuously employed by Cinemark, Inc. Upon consummation of a sale of Cinemark, Inc. or the Company, the executive’s stock options will accelerate and become fully vested.
F - 29
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The employment agreement with each executive provides for severance payments on substantially the same terms as the employment agreement for Mr. Mitchell in that the executive will receive his or her annual base salary in effect at the time of termination for a period commencing on the date of termination and ending on the second anniversary of the effective date (rather than for twelve months); and an amount equal to the most recent annual bonus he or she received prior to the date of termination pro rated for the number of days between such termination and the second anniversary of the effective date (rather than a single annual bonus).
Each executive will also be entitled to office space and support services for a period of not more than three months following the date of any termination except for termination for cause. The employment agreements contain various covenants, including covenants related to confidentiality, non-competition and non-solicitation.
Retirement Savings Plan— The Company has a 401(k) retirement savings plan for the benefit of all employees and makes contributions as determined annually by the BoardCinemark Holdings, Inc.’s board of Directors.directors. Contribution payments of $1,105$1,795 and $1,382$1,834 were made in 20042008 (for plan year 2003)2007) and 20052009 (for plan year 2004)2008), respectively. A liability of $1,295approximately $2,083 has been recorded at December 31, 20052009 for contribution payments to be made in 20062010 (for plan year 2005)2009).
Letters of Credit and Collateral— The Company had outstanding letters of credit of $69, in connection with property and liability insurance coverage, at December 31, 2004 and 2005.
Litigation and Litigation Settlements—DOJ Litigation— In March 1999, the Department of Justice (“DOJ”) filed suit in the U.S. District Court, Northern District of Ohio, Eastern Division, against the Company alleging certain violations of the Americans with Disabilities Act of 1990 (the “ADA”) relating to the Company’s wheelchair seating arrangements and seeking remedial action. An order granting summary judgment to the Company was issued in November 2001. The Department of Justice appealed the district court’s ruling with the Sixth Circuit Court of Appeals. On November 7, 2003, the Sixth Circuit Court of Appeals reversed the summary judgment and sent the case back to the district court for further review without deciding whether wheelchair seating at the Company’s theatres comply with the ADA. The Sixth Circuit Court of Appeals also stated that if the district court found that the theatres did not comply with the ADA, any remedial action should be prospective only. The Company and the United States have resolved this lawsuit. A Consent Orderconsent order was entered by the U.S. District Court for the Northern District of Ohio, Eastern Division, on November 17,15, 2004. This Consent Orderconsent order fully and finally resolves theUnited States v. Cinemark USA, Inc.lawsuit, and all claims asserted against the Company in that lawsuit have been dismissed with prejudice. Under the Consent Order,consent order, the Company will makemade modifications to wheelchair seating locations in fourteen stadium-style movie theatres, within the Sixth Circuit and elsewhere, and spacing and companion seating modifications at 67 auditoriums at other stadium-styled movie theatres. These modifications must bewere completed during the five-year period commencing on the date the Consent Order was executed.by November 2009. Upon completion of these modifications, such theatres will complycomplied with all existing and pending ADA wheelchair seating requirements, and no further modifications will be necessaryrequired to remainingthe Company’s other stadium-style movie theatres in the United States to comply withexisting on the wheelchair seating requirementsdate of the ADA.consent order. Under the Consent Order,consent order, the DOJ approved the seating plans for nine stadium-styled movie theatres under construction. The Company and the DOJ have also created a safe harbor framework for the Company to construct all of its future stadium-style movie theatres. The DOJ has stipulated that all theatres built in compliance with the Consent Orderconsent order will comply with the wheelchair seating
F-33
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
requirements of the ADA. The Company believes that its obligations under the Consent Orderconsent order are not material in the aggregate to its financial position, results of operations and cash flows.
Mission, Texas Litigation— In July 2001, Sonia Rivera-Garcia and Valley Association for Independent Living filed suit in the 93rd Judicial District Court of Hidalgo County, Texas, seeking remedial action for certain alleged violations of the Human Resources Code, the Texas Architectural Barriers Act, the Texas Accessibility Standards and the Deceptive Trade Practices Act relating to accessibility of movie theatres for patrons using wheelchairs at one theatre in the Mission, Texas market. During the first quarter of 2005, the plaintiff dismissed any claims under the Deceptive Trade Practices Act. A jury in a similar case in Austin, Texas found that the Company did not violate the Human Resources Code, the Texas Architectural Business Act or the Texas Accessibility Standards. The judge in that case dismissed the claim under the Deceptive Trade Practices Act. The Company filed an answer denying the allegations and vigorously defended this suit. In November 2005, the plaintiff dismissed the case with prejudice.
F - 30
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
From time to time, the Company is involved in other various legal proceedings arising from the ordinary course of its business operations, such as personal injury claims, employment matters, landlord-tenant disputes and contractual disputes, mostsome of which are covered by insurance. The Company believes its potential liability with respect to proceedings currently pending is not material, individually or in the aggregate, to the Company’s financial position, results of operations and cash flows.
18. | | FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS |
21. SEGMENTS The Company operates in one businessmanages its international market and its U.S. market as separate reportable operating segments. The international segment as a motion picture exhibitor. The Company hasconsists of operations in the U.S., Canada,Brazil, Mexico, Chile, Colombia, Argentina, Brazil, Chile, Ecuador, Peru, Honduras, El Salvador, Nicaragua, Costa Rica, Panama and Guatemala. The U.S. segment includes U.S. and Canada operations. Each segment’s revenue is derived from admissions and concession sales and other ancillary revenues, primarily screen advertising. The measure of segment profit and loss the Company uses to evaluate performance and allocate its resources is Adjusted EBITDA, as defined in the reconciliation table below. The Company does not report asset information by segment because that information is not used to evaluate the performance or allocate resources.
Below is a breakdown of select financial information by reportable operating segment:
| | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2007 | | | 2008 | | | 2009 | |
| | | |
| Revenues: | | | | | | | | | | | | |
| U.S. | | $ | 1,352,042 | | | $ | 1,360,176 | | | $ | 1,558,736 | |
| International | | | 333,624 | | | | 385,817 | | | | 421,765 | |
| Eliminations | | | (2,825 | ) | | | (3,706 | ) | | | (4,001 | ) |
| | | |
| Total revenues | | $ | 1,682,841 | | | $ | 1,742,287 | | | $ | 1,976,500 | |
| | | |
| | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2007 | | | 2008 | | | 2009 | |
| | | |
| Adjusted EBITDA: | | | | | | | | | | | | |
| U.S. | | $ | 310,454 | | | $ | 292,217 | | | $ | 362,865 | |
| International | | | 67,138 | | | | 78,805 | | | | 83,839 | |
| | | |
| Total Adjusted EBITDA | | $ | 377,592 | | | $ | 371,022 | | | $ | 446,704 | |
| | | |
| | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2008 | | | 2009 | |
| | | |
| Capital Expenditures: | | | | | | | | |
| U.S. | | $ | 77,193 | | | $ | 81,695 | |
| International | | | 28,916 | | | | 43,102 | |
| | | |
| Total capital expenditures | | $ | 106,109 | | | $ | 124,797 | |
| | | |
F-34
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
The following table sets forth a reconciliation of net income (loss) to Adjusted EBITDA:
| | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2007 | | | 2008 | | | 2009 | |
| Net income (loss) | | $ | 116,220 | | | $ | (19,954 | ) | | $ | 133,087 | |
| Add (deduct): | | | | | | | | | | | | |
| Income taxes | | | 127,641 | | | | 35,596 | | | | 62,804 | |
Interest expense(1) | | | 102,760 | | | | 74,406 | | | | 81,609 | |
| Gain on NCM transaction | | | (210,773 | ) | | | — | | | | — | |
| Gain on Fandango transaction | | | (9,205 | ) | | | — | | | | — | |
| Loss on early retirement of debt | | | 7,952 | | | | — | | | | — | |
Other income(2) | | | (9,282 | ) | | | (9,785 | ) | | | (4,525 | ) |
| Termination of profit participation agreement | | | 6,952 | | | | — | | | | — | |
| Depreciation and amortization | | | 148,781 | | | | 155,326 | | | | 148,264 | |
| Amortization of favorable/unfavorable leases | | | 2,935 | | | | 2,708 | | | | 1,251 | |
| Impairment of long-lived assets | | | 86,558 | | | | 113,532 | | | | 11,858 | |
| (Gain) loss on sale of assets and other | | | (2,953 | ) | | | 8,488 | | | | 3,202 | |
| Deferred lease expenses | | | 5,979 | | | | 4,350 | | | | 3,960 | |
| Amortization of long-term prepaid rents | | | 1,146 | | | | 1,717 | | | | 1,389 | |
| Share based awards compensation expense | | | 2,881 | | | | 4,638 | | | | 3,805 | |
| | | |
| Adjusted EBITDA | | $ | 377,592 | | | $ | 371,022 | | | $ | 446,704 | |
| | | |
| | |
| (1) | | Includes amortization of debt issue costs. |
|
| (2) | | Includes interest income, foreign currency exchange gain, dividend income and equity in loss of affiliates and excludes distributions from NCM. Distributions from NCM are reported entirely within the U.S. operating segment. |
Financial Information About Geographic Areas
We have operations in the U.S., Canada, Brazil, Mexico, Chile, Colombia, Argentina, Ecuador, Peru, Honduras, El Salvador, Nicaragua, Costa Rica, Panama and Guatemala, which are reflected in the consolidated financial statements. Below is a breakdown of select financial information by geographic area:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Years Ended December 31, | | | Year Ended December 31, |
| Revenues(1) | | 2003 | | 2004 | | 2005 | | |
| | | | 2007 | | 2008 | | 2009 |
Revenues | | |
| U.S. and Canada | | $ | 743,843 | | $ | 783,394 | | $ | 757,902 | | | $ | 1,352,042 | | $ | 1,360,176 | | $ | 1,558,736 | |
| Brazil | | | 157,158 | | 186,159 | | 218,236 | |
| Mexico | | 70,246 | | 76,148 | | 74,919 | | | 74,983 | | 78,292 | | 65,206 | |
| Brazil | | 74,853 | | 90,872 | | 112,182 | | |
| Other foreign countries | | 63,475 | | 75,200 | | 77,213 | | | 101,483 | | 121,366 | | 138,323 | |
| Eliminations | | | (1,545 | ) | | | (1,372 | ) | | | (1,619 | ) | | | (2,825 | ) | | | (3,706 | ) | | | (4,001 | ) |
| | | | | |
| Total | | $ | 950,872 | | $ | 1,024,242 | | $ | 1,020,597 | | | $ | 1,682,841 | | $ | 1,742,287 | | $ | 1,976,500 | |
| | | | | |
| | | | | | | | | | | | | | | | | |
| | | December, 31, | | December, 31, | | | December 31, |
| Theatre properties and equipment, net | | 2004 | | 2005 | | |
| | | | 2008 | | 2009 |
| | | | |
Theatres properties and equipment, net | | |
| U.S. and Canada | | $ | 622,578 | | $ | 634,938 | | | $ | 1,073,551 | | $ | 1,040,395 | |
| Brazil | | | 58,641 | | 91,996 | |
| Mexico | | 61,043 | | 55,366 | | | 38,290 | | 39,371 | |
| Brazil | | 51,982 | | 52,371 | | |
| Other foreign countries | | 49,992 | | 47,891 | | | 37,801 | | 47,826 | |
| | | | | |
| Total | | $ | 785,595 | | $ | 790,566 | | | $ | 1,208,283 | | $ | 1,219,588 | |
| | | | | |
| | |
(1) | | Revenues for all periods do not include results of the two United Kingdom theatres or the eleven Interstate theatres, which were sold during 2004, as the results of operations for these theatres are included as discontinued operations |
F - 31F-35
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)In thousands, except share and per share data
19. | | OTHER RELATED PARTY TRANSACTIONS |
In addition to transactions discussed in other notes to the consolidated financial statements, the following transactions with related companies are included in the Company’s consolidated financial statements:
| | | | | | | | | | | | | |
| | | 2003 | | | 2004 | | | 2005 | |
| Facility lease expense — theatre and equipment leases with shareholder affiliates | | $ | 288 | | | $ | 138 | | | $ | 152 | |
| | | | | | | | | | | | | |
| Management fee revenues for property and theatre management: | | | | | | | | | | | | |
| Equity investee | | $ | 395 | | | $ | 169 | | | $ | 146 | |
| Other related parties | | $ | 32 | | | $ | — | | | $ | 66 | |
The Company leases one theatre from Plitt Plaza Joint Venture (“Plitt Plaza”) on a month-to-month basis. Plitt Plaza is indirectly owned by Lee Roy Mitchell.Mitchell, Cinemark Holdings, Inc.’s Chairman of the Board, who owns approximately 12% of Cinemark Holdings, Inc.’s issued and outstanding shares of common stock. Annual rent is approximately $118 plus certain taxes, maintenance expenses and insurance. The Company recorded $152$120, $127 and $118 of facility lease and other operating expenses payable to Plitt Plaza joint venture during the yearyears ended December 31, 2005.2007, 2008 and 2009, respectively.
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 Mitchell’s son-in-law. Under the agreement, management fees are paid by Laredo to the Company at a rate of 5% of annual theatre revenues up to $50,000 and 3% of annual theatre revenues in excess of $50,000. The Company recorded $201$82, $92 and $102 of management fee revenues and received $675 of distributions from Laredo during the yearyears ended December 31, 2005.2007, 2008 and 2009, respectively. All such amounts are included in the Company’s consolidated financial statements with the intercompany amounts eliminated in consolidation.
The Company has paid certainan Aircraft Time Sharing Agreement with Copper Beech Capital, LLC to use, on occasion, a private aircraft owned by Copper Beech Capital, LLC. Copper Beech Capital, LLC is owned by Mr. Mitchell and his wife, Tandy Mitchell. The private aircraft is used by Mr. Mitchell and other executives who accompany Mr. Mitchell to business meetings for the Company. The Company reimburses Copper Beech Capital, LLC the actual costs of fuel usage and the expenses of the pilots, landing fees, storage fees and similar expenses on behalf of its parent, Cinemark, Inc., that are included in investments in and advances to affiliates onincurred during the Company’s consolidated balance sheets. At December 31, 2005, the amount due to Cinemark, Inc. was $226. The Company also received capital contributions from Cinemark, Inc. totaling $36,275 and $17,035 fortrip. For the years ended December 31, 20042008 and 2005,2009, the aggregate amounts paid to Copper Beech Capital, LLC for the use of the aircraft was approximately $136 and $64, respectively.
The Company leases 23 theatres and two parking facilities from Syufy Enterprises, LP (“Syufy”) or affiliates of Syufy, which owns approximately 6% of Cinemark Holdings, Inc.’s issued and outstanding shares of common stock. Raymond Syufy is one of Cinemark Holdings, Inc.’s directors and is an officer of the general partner of Syufy. Of these 23 leases, 20 have fixed minimum annual rent in an aggregate amount of approximately $21,791. The three 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 years ended December 31, 2007, 2008 and 2009, the Company paid approximately $1,185, $1,078 and $1,087, respectively, primarily due to the Recapitalization and a subsequent income tax sharing agreement.in percentage rent for these leases.
The Company entered into an amended and restated profit participation agreement on March 12, 2004 with its President,CEO, Alan Stock, which became effective upon consummation ofon April 2, 2004, and amended the Recapitalization and amends a profit participation agreement with Mr. Stock in effect since May 2002. Under the agreement, Mr. Stock receivesreceived a profit interest in two theatres once the Company has recovered its capital investment in these theatres plus its borrowing costs. During the year ended December 31, 2005,2007, the Company recorded $633$114 in profit participation expense payable to Mr. Stock, which is included in general and administrative expenseexpenses on the Company’s consolidated statement of operations. After Cinemark Holdings, Inc.’s initial public offering of its common stock in April 2007, the Company exercised its option to terminate the amended and restated profit participation agreement and purchased Mr. Stock’s interest in the theatres on May 3, 2007 for a price of $6,853 pursuant to the terms of the agreement. The Company also paid payroll taxes of approximately $99 related to the payment made to terminate the amended and restated profit participation agreement. The aggregate amount paid of $6,952 is reflected within cost of operations in the Company’s consolidated statementsstatement of income. During 2005,operations for the year ended December 31, 2007 and the agreement with Mr. Stock has been terminated.
Prior to the completion of the Century Acquisition, Century Theatres, Inc. owned certain shares of Fandango, Inc., an on-line ticketing distributor. In connection with the Century Acquisition, the Company paid $670agreed to Mr. Stock for amounts earned during 2004 and 2005. Inpay Syufy the event that Mr. Stock’s employment is terminated without cause, profits will be distributed accordingcash proceeds received by the Company in connection with any sale of such shares of Fandango, Inc. up to a formula set forthmaximum amount of $2,800. As discussed in Note 7, the profit participationCompany sold all of its shares of Fandango, Inc. stock during May 2007 for approximately $14,147 of consideration and paid $2,800 of the cash consideration to Syufy in accordance with the Century Acquisition agreement.
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 (payable to)/receivable from Cinemark Holdings, Inc. as of December 31, 2008 and December 31, 2009 was $(32,724) and $7,656, respectively.
F - 32F-36
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHAREIn thousands, except share and per share data
23. VALUATION AND PER SHARE DATA)
20. | | VALUATION AND QUALIFYING ACCOUNTS |
QUALIFYING ACCOUNTS The Company’s valuation allowance for deferred tax assets for the years ended December 31, 2003, 20042007, 2008 and 20052009 were as follows:
| | | | | | | | | |
| | | Valuation | | | Valuation Allowance | |
| | | Allowance for | | | for Deferred | |
| | | Deferred Tax | | | Tax Assets | |
| | | Assets | | |
| Balance at December 31, 2002 | | $ | 11,767 | | |
| Balance at January 1, 2007 | | | $ | 8,862 | |
| Additions | | 2,876 | | | 2,370 | |
| Deductions | | | (1,626 | ) | | | (1,360 | ) |
| | | | | | | |
| Balance at December 31, 2003 | | $ | 13,017 | | |
| Balance at December 31, 2007 | | | $ | 9,872 | |
| Additions | | 999 | | | 4,200 | |
| Deductions | | | (4,200 | ) | | | (609 | ) |
| | | | | | | |
| Balance at December 31, 2004 | | $ | 9,816 | | |
| Balance at December 31, 2008 | | | $ | 13,463 | |
| Additions | | 1,464 | | | 5,163 | |
| Deductions | | | (2,382 | ) | | | (398 | ) |
| | | | | | | |
| Balance at December 31, 2005 | | $ | 8,898 | | |
| Balance at December 31, 2009 | | | $ | 18,228 | |
| | | | | | | |
21. | | CONDENSED CONSOLIDATING FINANCIAL INFORMATION OF SUBSIDIARY GUARANTORS — RESTATED |
24. SUBSEQUENT EVENT —DCIP On March 10, 2010, the Company signed a master equipment lease agreement and other related agreements (collectively the “agreements”) with Kasima, which is a wholly-owned subsidiary of the Company’s joint venture DCIP and a related party to the Company. Upon signing the agreements, the Company contributed cash of $1,201 and its existing digital equipment at a fair value of $16,380 to DCIP (collectively the “contributions”). The net book value of the contributed equipment was approximately $18,138, and as a result, the Company will record a loss of approximately $1,758 during the three months ending March 31, 2010. Subsequent to the contributions, the Company continues to have a 33% voting interest in DCIP and now has a 24.3% economic interest in DCIP.
As a result of these agreements, the Company will begin a rollout of 3-D compatible digital projection systems to a majority of its first run U.S. theatres. The digital projection systems will be leased from Kasima under a twelve-year lease 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 will pay 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 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.
The Company has a variable interest in Kasima, however the Company has concluded that it is not the primary beneficiary of Kasima. The Company will continue to account for its investment in DCIP and its subsidiaries under the equity method of accounting due to its continued 33% voting interest in DCIP.
The digital projection systems leased from Kasima will replace a majority of the Company’s existing 35 millimeter projection systems in its U.S. theatres. Therefore, the Company will accelerate the depreciation of these existing 35 millimeter projections systems over the next two years, based on the estimated timeframe in which they will be replaced. The net book value of the existing 35 millimeter projection systems to be replaced was approximately $17,700 as of December 31, 2009.
25. SUBSEQUENT EVENT — AMENDMENT AND EXTENSION OF SENIOR SECURED CREDIT FACILITY
On March 2, 2010, the Company completed an amendment and extension to its existing senior secured credit facility to primarily extend the maturities of the facility and make certain other modifications. Approximately $924,375 of the Company’s $1,083,600 outstanding term loan debt has been extended from an original maturity date of October 2013 to a maturity date of April 2016. Payments on the extended amount will be due in equal quarterly installments of 0.25% of the extended amount beginning March 31, 2010 through March 31, 2016 with the remaining principal amount due April 30, 2016. The interest rate on this extended portion of the term loan is, at the Company’s option, at the base rate plus 2.25% or a eurodollar rate plus 3.25%. The maturity date of, the interest rates applicable to and the quarterly payments for the remaining $159,225 of the Company’s outstanding term loan did not change.
F-37
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
In addition, the maturity date of $73,500 of the Company’s $150,000 revolving line of credit has been extended from October 2012 to March 2015. The interest rate on this extended portion of the revolving line of credit is, at the Company’s option, at the base rate plus a margin that ranges from 1.75% to 2.00% or a eurodollar rate plus a margin that ranges from 2.75% to 3.00%. The maturity date of and the interest rates applicable to the remaining $76,500 of the Company’s revolving line of credit did not change.
The Company incurred debt issue costs of approximately $8,600 related to this amendment and extension.
26. SUBSEQUENT EVENT — EARTHQUAKE IN CHILE
On February 27, 2010, an 8.8 magnitude earthquake occurred in Chile, a country in which the Company has eleven theatres, a local corporate office and approximately 800 employees. For the year ended December 31, 2009, revenues generated by the Company’s Chile locations was 1.6% of the Company’s total revenues. The Company has property and business interruption insurance for its Chile locations. The insurance policy covers earthquake damage up to a specified limit with applicable deductibles per location. The Company expects to reopen seven of its theatres within the next week and is continuing to assess the level and nature of the damage to its other four theatres.
27. CONDENSED CONSOLIDATING FINANCIAL INFORMATION OF SUBSIDIARY GUARANTORS
As of December 31, 2005,2009, the Company had outstanding $342,250$470,000 aggregate principal amount of 9%8.625% senior subordinated notes due 2013.2019. These senior subordinated notes are fully and unconditionally guaranteed jointly and severally, on a joint and several senior subordinated 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 Delaware Investments I, L.L.C., CNMK Delaware Investments II, L.L.C., CNMK Delaware Investments Properties, L.P., CNMK Texas Properties, Ltd.LLC., Cinemark Concessions LLC, Laredo Theatres, Ltd, Century Theatres, Inc., Marin Theatre Ltd.,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 Cinemark Investments Corporation.Century Theatres Seattle, LLC.
The following supplemental condensed consolidating financial information presents:
| | 1. | | Condensed consolidating balance sheet information as of December 31, 20042007, 2008 and December 31, 20052009, condensed consolidating statements of operations information and condensed consolidating statements of income information and cash flows information for each of the years ended December 31, 2003, 20042007, 2008 and 2005.2009. |
| |
| | 2. | | Cinemark USA, Inc. (the “Parent” and “Issuer”), combined Guarantor Subsidiaries and combined Non-Guarantor Subsidiaries with their investments in subsidiaries accounted for using the equity method of accounting and therefore, the Parent column reflects the equity income (loss) of its Guarantor Subsidiaries and Non-Guarantor Subsidiaries, which are also separately reflected in the stand-alone Guarantor Subsidiaries and Non-Guarantor Subsidiaries column. Additionally, the Guarantor Subsidiaries column reflects the equity income (loss) of its Non-Guarantor Subsidiaries, which are also separately reflected in the stand-alone Non-Guarantor Subsidiaries column. |
| |
| | 3. | | Elimination entries necessary to consolidate the Parent and all of its Subsidiaries. |
In 2005, the Company determined it should restate its condensed consolidating financial information of subsidiary guarantors to correctly reflect the following items:
| • | | Shareholder’s equity balances in 1999 presented in the beginning balance sheet information for the parent and subsidiary guarantors financial information improperly included dividends received from their respective subsidiaries; |
|
| • | | Certain investments in affiliate subsidiaries were not properly eliminated within the parent and subsidiary guarantors balance sheet information; |
|
| • | | Cumulative translation adjustments were not properly reflected within the subsidiary guarantors and |
F - 33
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
| | | subsidiary non-guarantors balance sheet information which in turn impacted the investment in and advances to affiliates and other shareholder’s equity balances presented for the parent and the subsidiary guarantors, respectively. |
|
| • | | Dividends paid by certain subsidiary guarantors and subsidiary non-guarantors entities were improperly presented as part of cash flows from investing activities rather than financing activities. |
While these items were not presented properly within the parent, subsidiary guarantors and subsidiary non-guarantors balance sheet information and statements of cash flows information, the consolidated financial information was accurate. The Company has made the necessary adjustments to the current year and prior year condensed consolidating financial information of subsidiary guarantors included within this footnote.
F - 34
CINEMARK USA, INC. AND SUBSIDIARIES
SUBSIDIARY GUARANTORS
CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION
DECEMBER 31, 2005
(In thousands)
| | | | | | | | | | | | | | | | | | | | | |
| | | Parent | | | Subsidiary | | | Subsidiary | | | | | | | |
| | | Company | | | Guarantors | | | Non-Guarantors | | | Eliminations | | | Consolidated | |
| ASSETS | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| CURRENT ASSETS | | | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 105,661 | | | $ | 31,915 | | | $ | 44,604 | | | $ | — | | | $ | 182,180 | |
| Inventories | | | 1,794 | | | | 1,426 | | | | 1,326 | | | | — | | | | 4,546 | |
| Accounts receivable | | | 11,842 | | | | 23,352 | | | | 6,288 | | | | (26,077 | ) | | | 15,405 | |
| Income tax receivable | | | 3,368 | | | | 22 | | | | 7,905 | | | | (11,295 | ) | | | — | |
| Prepaid expenses and other | | | 6,865 | | | | 712 | | | | 540 | | | | (3,579 | ) | | | 4,538 | |
| | | |
| Total current assets | | | 129,530 | | | | 57,427 | | | | 60,663 | | | | (40,951 | ) | | | 206,669 | |
| | | | | | | | | | | | | | | | | | | | | |
| THEATRE PROPERTIES AND EQUIPMENT — net | | | 290,834 | | | | 323,820 | | | | 175,912 | | | | — | | | | 790,566 | |
| | | | | | | | | | | | | | | | | | | | | |
| OTHER ASSETS | | | | | | | | | | | | | | | | | | | | |
| Goodwill | | | 6,825 | | | | 2,061 | | | | 33,221 | | | | — | | | | 42,107 | |
| Investments in and advances to affiliates | | | 562,859 | | | | 338,105 | | | | 8,488 | | | | (901,052 | ) | | | 8,400 | |
| Intangible assets, deferred charges and other assets — net | | | 22,143 | | | | 4,494 | | | | 93,351 | | | | (69,990 | ) | | | 49,998 | |
| | | |
| Total other assets | | | 591,827 | | | | 344,660 | | | | 135,060 | | | | (971,042 | ) | | | 100,505 | |
| | | |
| | | | | | | | | | | | | | | | | | | | | |
| TOTAL ASSETS | | $ | 1,012,191 | | | $ | 725,907 | | | $ | 371,635 | | | $ | (1,011,993 | ) | | $ | 1,097,740 | |
| | | |
| | | | | | | | | | | | | | | | | | | | | |
| LIABILITIES AND SHAREHOLDER’S EQUITY | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| CURRENT LIABILITIES | | | | | | | | | | | | | | | | | | | | |
| Current portion of long-term debt | | $ | 2,656 | | | $ | — | | | $ | 4,215 | | | $ | — | | | $ | 6,871 | |
| Income tax payable | | | 16,752 | | | | — | | | | 7,687 | | | | (11,295 | ) | | | 13,144 | |
| Accounts payable and accrued expenses | | | 88,042 | | | | 31,592 | | | | 46,567 | | | | (26,209 | ) | | | 139,992 | |
| | | |
| Total current liabilities | | | 107,450 | | | | 31,592 | | | | 58,469 | | | | (37,504 | ) | | | 160,007 | |
| | | | | | | | | | | | | | | | | | | | | |
| LONG-TERM LIABILITIES | | | | | | | | | | | | | | | | | | | | |
| Long-term debt, less current portion | | | 606,229 | | | | 30,217 | | | | 69,540 | | | | (92,580 | ) | | | 613,406 | |
| Deferred income taxes | | | 14,320 | | | | 3,524 | | | | (2,417 | ) | | | — | | | | 15,427 | |
| Other long-term liabilities and deferrals | | | 33,020 | | | | 73,931 | | | | 7,924 | | | | (73,569 | ) | | | 41,306 | |
| | | |
| Total long-term liabilities | | | 653,569 | | | | 107,672 | | | | 75,047 | | | | (166,149 | ) | | | 670,139 | |
| | | | | | | | | | | | | | | | | | | | | |
| COMMITMENTS AND CONTINGENCIES | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
| MINORITY INTERESTS IN SUBSIDIARIES | | | — | | | | 280 | | | | 16,142 | | | | — | | | | 16,422 | |
| | | | | | | | | | | | | | | | | | | | | |
| SHAREHOLDER’S EQUITY | | | | | | | | | | | | | | | | | | | | |
| Common stock | | | 49,543 | | | | 17 | | | | 167,804 | | | | (167,821 | ) | | | 49,543 | |
| Other shareholder’s equity | | | 201,629 | | | | 586,346 | | | | 54,173 | | | | (640,519 | ) | | | 201,629 | |
| | | |
| Total shareholder’s equity | | | 251,172 | | | | 586,363 | | | | 221,977 | | | | (808,340 | ) | | | 251,172 | |
| | | |
| | | | | | | | | | | | | | | | | | | | | |
| TOTAL LIABILITIES AND SHAREHOLDER’S EQUITY | | $ | 1,012,191 | | | $ | 725,907 | | | $ | 371,635 | | | $ | (1,011,993 | ) | | $ | 1,097,740 | |
| | | |
F-35
CINEMARK USA, INC. AND SUBSIDIARIES
SUBSIDIARY GUARANTORS
CONDENSED CONSOLIDATING STATEMENT OF INCOME INFORMATION
YEAR ENDED DECEMBER 31, 2005
(In thousands)
| | | | | | | | | | | | | | | | | | | | | |
| | | Parent | | | Subsidiary | | | Subsidiary | | | | | | | |
| | | Company | | | Guarantors | | | Non-Guarantors | | | Eliminations | | | Consolidated | |
| REVENUES | | $ | 460,162 | | | $ | 331,544 | | | $ | 280,926 | | | $ | (52,035 | ) | | $ | 1,020,597 | |
| | | | | | | | | | | | | | | | | | | | | |
| COSTS AND EXPENSES | | | | | | | | | | | | | | | | | | | | |
| Cost of operations | | | 398,713 | | | | 203,697 | | | | 211,714 | | | | (52,035 | ) | | | 762,089 | |
| General and administrative expenses | | | 4,787 | | | | 30,336 | | | | 15,599 | | | | — | | | | 50,722 | |
| Depreciation and amortization | | | 23,031 | | | | 24,537 | | | | 28,893 | | | | — | | | | 76,461 | |
| Impairment of long-lived assets | | | 1,289 | | | | 6,548 | | | | 1,835 | | | | — | | | | 9,672 | |
| Loss on sale of assets and other | | | 605 | | | | 1,241 | | | | 779 | | | | — | | | | 2,625 | |
| | | |
| Total costs and expenses | | | 428,425 | | | | 266,359 | | | | 258,820 | | | | (52,035 | ) | | | 901,569 | |
| | | |
| | | | | | | | | | | | | | | | | | | | | |
| OPERATING INCOME | | | 31,737 | | | | 65,185 | | | | 22,106 | | | | — | | | | 119,028 | |
| | | | | | | | | | | | | | | | | | | | | |
| OTHER INCOME (EXPENSE) | | | | | | | | | | | | | | | | | | | | |
| Interest expense | | | (44,995 | ) | | | (3,452 | ) | | | (6,476 | ) | | | 10,589 | | | | (44,334 | ) |
| Amortization of debt issue costs | | | (2,753 | ) | | | — | | | | (21 | ) | | | — | | | | (2,774 | ) |
| Interest income | | | 4,795 | | | | 7,426 | | | | 4,968 | | | | (10,589 | ) | | | 6,600 | |
| Foreign currency exchange loss | | | — | | | | — | | | | (1,276 | ) | | | — | | | | (1,276 | ) |
| Equity in income of affiliates | | | 72,099 | | | | 15,159 | | | | 90 | | | | (87,121 | ) | | | 227 | |
| Minority interests in income of subsidiaries | | | — | | | | (221 | ) | | | (703 | ) | | | — | | | | (924 | ) |
| | | |
| Total other income (expense) | | | 29,146 | | | | 18,912 | | | | (3,418 | ) | | | (87,121 | ) | | | (42,481 | ) |
| | | |
| | | | | | | | | | | | | | | | | | | | | |
| INCOME BEFORE INCOME TAXES | | | 60,883 | | | | 84,097 | | | | 18,688 | | | | (87,121 | ) | | | 76,547 | |
| | | | | | | | | | | | | | | | | | | | | |
| Income taxes | | | 12,518 | | | | 13,117 | | | | 2,547 | | | | — | | | | 28,182 | |
| | | |
| | | | | | | | | | | | | | | | | | | | | |
| NET INCOME | | $ | 48,365 | | | $ | 70,980 | | | $ | 16,141 | | | $ | (87,121 | ) | | $ | 48,365 | |
| | | |
F-36
CINEMARK USA, INC. AND SUBSIDIARIES
SUBSIDIARY GUARANTORS
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
YEAR ENDED DECEMBER 31, 2005
(In thousands)
| | | | | | | | | | | | | | | | | | | | | |
| | | Parent | | Subsidiary | | Subsidiary | | | | |
| | | Company | | Guarantors | | Non-Guarantors | | Eliminations | | Consolidated |
| OPERATING ACTIVITIES | | | | | | | | | | | | | | | | | | | | |
| Net income | | $ | 48,365 | | | $ | 70,980 | | | $ | 16,141 | | | $ | (87,121 | ) | | $ | 48,365 | |
| | | | | | | | | | | | | | | | | | | | | |
| Adjustments to reconcile net income to cash provided by operating activities: | | | | | | | | | | | | | | | | | | | | |
| Depreciation and amortization | | | 23,311 | | | | 24,537 | | | | 30,118 | | | | — | | | | 77,966 | |
| Impairment of long-lived assets | | | 1,289 | | | | 6,548 | | | | 1,835 | | | | — | | | | 9,672 | |
| Loss on sale of assets and other | | | 605 | | | | 1,241 | | | | 779 | | | | — | | | | 2,625 | |
| Deferred lease expenses | | | 1,163 | | | | 21 | | | | 372 | | | | — | | | | 1,556 | |
| Deferred income tax expenses | | | (9,024 | ) | | | 919 | | | | 394 | | | | — | | | | (7,711 | ) |
| Equity in (income) loss of affiliates | | | (21,806 | ) | | | 25,945 | | | | (90 | ) | | | (4,276 | ) | | | (227 | ) |
| Minority interests in income of subsidiaries | | | — | | | | 221 | | | | 703 | | | | — | | | | 924 | |
| Changes in assets and liabilities | | | 52,482 | | | | (11,787 | ) | | | (24,657 | ) | | | 14,761 | | | | 30,799 | |
| | | |
| Net cash provided by operating activities | | | 96,385 | | | | 118,625 | | | | 25,595 | | | | (76,636 | ) | | | 163,969 | |
| | | | | | | | | | | | | | | | | | | | | |
| INVESTING ACTIVITIES | | | | | | | | | | | | | | | | | | | | |
| Additions to theatre properties and equipment | | | (12,667 | ) | | | (43,012 | ) | | | (19,926 | ) | | | — | | | | (75,605 | ) |
| Proceeds from sale of theatre properties and equipment | | | 683 | | | | 80 | | | | 554 | | | | — | | | | 1,317 | |
| Purchase of shares in National CineMedia | | | — | | | | — | | | | (7,329 | ) | | | — | | | | (7,329 | ) |
| Net transactions with affiliates | | | (4,469 | ) | | | (9,509 | ) | | | 48,191 | | | | (34,213 | ) | | | — | |
| | | |
| Net cash provided by (used for) investing activities | | | (16,453 | ) | | | (52,441 | ) | | | 21,490 | | | | (34,213 | ) | | | (81,617 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| FINANCING ACTIVITIES | | | | | | | | | | | | | | | | | | | | |
| Capital contribution from parent | | | 5,000 | | | | — | | | | — | | | | — | | | | 5,000 | |
| Proceeds from long-term debt | | | — | | | | — | | | | 660 | | | | — | | | | 660 | |
| Repayments of long-term debt | | | (2,600 | ) | | | — | | | | (4,071 | ) | | | — | | | | (6,671 | ) |
| Debt issue costs | | | (239 | ) | | | — | | | | — | | | | — | | | | (239 | ) |
| Change in intercompany notes | | | — | | | | (2,122 | ) | | | (17,332 | ) | | | 19,454 | | | | — | |
| Dividends paid to parent | | | — | | | | (49,475 | ) | | | (41,920 | ) | | | 91,395 | | | | — | |
| Increase in minority investment in subsidiaries | | | — | | | | — | | | | 155 | | | | — | | | | 155 | |
| Decrease in minority investment in subsidiaries | | | — | | | | (225 | ) | | | (1,128 | ) | | | — | | | | (1,353 | ) |
| | | |
| Net cash provided by (used for) financing activities | | | 2,161 | | | | (51,822 | ) | | | (63,636 | ) | | | 110,849 | | | | (2,448 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Effect of exchange rate changes on cash and cash equivalents | | | — | | | | — | | | | 2,048 | | | | — | | | | 2,048 | |
| | | |
| |
| INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | | | 82,093 | | | | 14,362 | | | | (14,503 | ) | | | — | | | | 81,952 | |
| | | | | | | | | | | | | | | | | | | | | |
| CASH AND CASH EQUIVALENTS: | | | | | | | | | | | | | | | | | | | | |
| Beginning of period | | | 23,568 | | | | 17,553 | | | | 59,107 | | | | — | | | | 100,228 | |
| | | |
| End of period | | $ | 105,661 | | | $ | 31,915 | | | $ | 44,604 | | | $ | — | | | $ | 182,180 | |
| | | |
F-37
CINEMARK USA, INC. AND SUBSIDIARIES
SUBSIDIARY GUARANTORS
CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION
DECEMBER 31, 2004
AS RESTATED
(In thousands)
| | | | | | | | | | | | | | | | | | | | | |
| | | Parent | | Subsidiary | | Subsidiary | | | | |
| | | Company | | Guarantors | | Non-Guarantors | | Eliminations | | Consolidated |
| ASSETS | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| CURRENT ASSETS | | | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 23,568 | | | $ | 17,553 | | | $ | 59,107 | | | $ | — | | | $ | 100,228 | |
| Inventories | | | 1,822 | | | | 1,204 | | | | 1,211 | | | | — | | | | 4,237 | |
| Accounts receivable | | | 13,769 | | | | 21,111 | | | | 4,528 | | | | (28,105 | ) | | | 11,303 | |
| Income tax receivable | | | 12,002 | | | | 168 | | | | 8,388 | | | | (13,521 | ) | | | 7,037 | |
| Prepaid expenses and other | | | 6,789 | | | | 577 | | | | 517 | | | | (4,064 | ) | | | 3,819 | |
| | | |
| Total current assets | | | 57,950 | | | | 40,613 | | | | 73,751 | | | | (45,690 | ) | | | 126,624 | |
| | | | | | | | | | | | | | | | | | | | | |
| THEATRE PROPERTIES AND EQUIPMENT — net | | | 291,847 | | | | 309,721 | | | | 184,027 | | | | — | | | | 785,595 | |
| | | | | | | | | | | | | | | | | | | | | |
| OTHER ASSETS | | | | | | | | | | | | | | | | | | | | |
| Goodwill | | | 7,610 | | | | 4,427 | | | | 32,969 | | | | — | | | | 45,006 | |
| Investments in and advances to affiliates | | | 530,435 | | | | 350,407 | | | | 809 | | | | (879,941 | ) | | | 1,710 | |
| Intangible assets, deferred charges and other assets — net | | | 25,312 | | | | 1,815 | | | | 85,493 | | | | (69,990 | ) | | | 42,630 | |
| | | |
| Total other assets | | | 563,357 | | | | 356,649 | | | | 119,271 | | | | (949,931 | ) | | | 89,346 | |
| | | |
| | | | | | | | | | | | | | | | | | | | | |
| TOTAL ASSETS | | $ | 913,154 | | | $ | 706,983 | | | $ | 377,049 | | | $ | (995,621 | ) | | $ | 1,001,565 | |
| | | |
| | | | | | | | | | | | | | | | | | | | | |
| LIABILITIES AND SHAREHOLDER’S EQUITY | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| CURRENT LIABILITIES | | | | | | | | | | | | | | | | | | | | |
| Current portion of long-term debt | | $ | 2,655 | | | $ | — | | | $ | 3,884 | | | $ | — | | | $ | 6,539 | |
| Income tax payable | | | 5,211 | | | | — | | | | 8,310 | | | | (13,521 | ) | | | — | |
| Accounts payable and accrued expenses | | | 72,866 | | | | 38,007 | | | | 39,046 | | | | (27,595 | ) | | | 122,324 | |
| | | |
| Total current liabilities | | | 80,732 | | | | 38,007 | | | | 51,240 | | | | (41,116 | ) | | | 128,863 | |
| | | | | | | | | | | | | | | | | | | | | |
| LONG-TERM LIABILITIES | | | | | | | | | | | | | | | | | | | | |
| Long-term debt, less current portion | | | 610,439 | | | | 44,018 | | | | 77,980 | | | | (112,033 | ) | | | 620,404 | |
| Deferred income taxes | | | 23,344 | | | | 2,605 | | | | (2,811 | ) | | | — | | | | 23,138 | |
| Other long-term liabilities and deferrals | | | 29,804 | | | | 74,236 | | | | 13,642 | | | | (74,054 | ) | | | 43,628 | |
| | | |
| Total long-term liabilities | | | 663,587 | | | | 120,859 | | | | 88,811 | | | | (186,087 | ) | | | 687,170 | |
| | | | | | | | | | | | | | | | | | | | | |
| COMMITMENTS AND CONTINGENCIES | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
| MINORITY INTERESTS IN SUBSIDIARIES | | | — | | | | 283 | | | | 16,414 | | | | — | | | | 16,697 | |
| | | | | | | | | | | | | | | | | | | | | |
| SHAREHOLDER’S EQUITY | | | | | | | | | | | | | | | | | | | | |
| Common stock | | | 49,543 | | | | 17 | | | | 167,800 | | | | (167,817 | ) | | | 49,543 | |
| Other shareholder’s equity | | | 119,292 | | | | 547,817 | | | | 52,784 | | | | (600,601 | ) | | | 119,292 | |
| | | |
| Total shareholder’s equity | | | 168,835 | | | | 547,834 | | | | 220,584 | | | | (768,418 | ) | | | 168,835 | |
| | | |
| |
| TOTAL LIABILITIES AND SHAREHOLDER’S EQUITY | | $ | 913,154 | | | $ | 706,983 | | | $ | 377,049 | | | $ | (995,621 | ) | | $ | 1,001,565 | |
| | | |
F-38
CINEMARK USA, INC. AND SUBSIDIARIES
SUBSIDIARY GUARANTORS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF INCOME INFORMATION
YEAR ENDED DECEMBER 31, 2004
AS RESTATED2007
(In thousands)
| | | | | | | | | | | | | | | | | | | | | |
| | | Parent | | Subsidiary | | Subsidiary | | | | |
| | | Company | | Guarantors | | Non-Guarantors | | Eliminations | | Consolidated |
| REVENUES | | $ | 482,648 | | | $ | 341,605 | | | $ | 259,405 | | | $ | (59,416 | ) | | $ | 1,024,242 | |
| | | | | | | | | | | | | | | | | | | | | |
| COSTS AND EXPENSES | | | | | | | | | | | | | | | | | | | | |
| Cost of operations | | | 412,850 | | | | 201,313 | | | | 191,051 | | | | (59,944 | ) | | | 745,270 | |
| General and administrative expenses | | | 8,667 | | | | 59,377 | | | | 14,973 | | | | 528 | | | | 83,545 | |
| Depreciation and amortization | | | 21,375 | | | | 22,952 | | | | 22,724 | | | | — | | | | 67,051 | |
| Impairment of long-lived assets | | | 375 | | | | 1,292 | | | | — | | | | — | | | | 1,667 | |
| Loss on sale of assets and other | | | 1,285 | | | | 2,771 | | | | 795 | | | | — | | | | 4,851 | |
| | | |
| Total costs and expenses | | | 444,552 | | | | 287,705 | | | | 229,543 | | | | (59,416 | ) | | | 902,384 | |
| | | |
| | | | | | | | | | | | | | | | | | | | | |
| OPERATING INCOME | | | 38,096 | | | | 53,900 | | | | 29,862 | | | | — | | | | 121,858 | |
| | | | | | | | | | | | | | | | | | | | | |
| OTHER INCOME (EXPENSE) | | | | | | | | | | | | | | | | | | | | |
| Interest expense | | | (43,581 | ) | | | (3,508 | ) | | | (6,572 | ) | | | 10,922 | | | | (42,739 | ) |
| Amortization of debt issue costs | | | (2,613 | ) | | | — | | | | (51 | ) | | | — | | | | (2,664 | ) |
| Interest income | | | 4,015 | | | | 7,122 | | | | 1,750 | | | | (10,922 | ) | | | 1,965 | |
| Foreign currency exchange loss | | | — | | | | — | | | | (266 | ) | | | — | | | | (266 | ) |
| Loss on early retirement of debt | | | (5,974 | ) | | | — | | | | — | | | | — | | | | (5,974 | ) |
| Equity in income of affiliates | | | 58,600 | | | | 10,024 | | | | 149 | | | | (68,600 | ) | | | 173 | |
| Minority interests in income of subsidiaries | | | — | | | | (599 | ) | | | (3,754 | ) | | | — | | | | (4,353 | ) |
| | | |
| Total other income (expense) | | | 10,447 | | | | 13,039 | | | | (8,744 | ) | | | (68,600 | ) | | | (53,858 | ) |
| | | |
| | | | | | | | | | | | | | | | | | | | | |
| INCOME FROM CONTINUING | | | | | | | | | | | | | | | | | | | | |
| OPERATIONS BEFORE INCOME TAXES | | | 48,543 | | | | 66,939 | | | | 21,118 | | | | (68,600 | ) | | | 68,000 | |
| | | | | | | | | | | | | | | | | | | | | |
| Income taxes | | | 3,989 | | | | 11,968 | | | | 11,073 | | | | — | | | | 27,030 | |
| | | |
| | | | | | | | | | | | | | | | | | | | | |
| INCOME FROM CONTINUING OPERATIONS AFTER INCOME TAXES | | | 44,554 | | | | 54,971 | | | | 10,045 | | | | (68,600 | ) | | | 40,970 | |
| | | | | | | | | | | | | | | | | | | | | |
| Income from discontinued operations, net of taxes | | | — | | | | 1,323 | | | | 2,261 | | | | — | | | | 3,584 | |
| | | |
| | | | | | | | | | | | | | | | | | | | | |
| NET INCOME | | $ | 44,554 | | | $ | 56,294 | | | $ | 12,306 | | | $ | (68,600 | ) | | $ | 44,554 | |
| | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | Parent | | Subsidiary | | Subsidiary | | | | |
| | | Company | | Guarantors | | Non-Guarantors | | Eliminations | | Consolidated |
| | | | | | | | | | | (In thousands) | | | | |
Revenues | | $ | 472,038 | | | $ | 920,099 | | | $ | 352,996 | | | $ | (62,292 | ) | | $ | 1,682,841 | |
| | | | | | | | | | | | | | | | | | | | | |
Cost of operations | | | | | | | | | | | | | | | | | | | | |
| Theatre operating costs | | | 425,248 | | | | 617,839 | | | | 267,295 | | | | (62,292 | ) | | | 1,248,090 | |
| General and administrative expenses | | | 7,012 | | | | 57,474 | | | | 21,130 | | | | — | | | | 85,616 | |
| Depreciation and amortization | | | 22,075 | | | | 93,355 | | | | 36,286 | | | | — | | | | 151,716 | |
| Impairment of long-lived assets | | | 29,939 | | | | 44,131 | | | | 12,488 | | | | — | | | | 86,558 | |
| (Gain) loss on sale of assets and other | | | (3,415 | ) | | | (140 | ) | | | 602 | | | | — | | | | (2,953 | ) |
| | | |
| Total cost of operations | | | 480,859 | | | | 812,659 | | | | 337,801 | | | | (62,292 | ) | | | 1,569,027 | |
| | | |
| | | | | | | | | | | | | | | | | | | | | |
Operating income (loss) | | | (8,821 | ) | | | 107,440 | | | | 15,195 | | | | — | | | | 113,814 | |
| | | | | | | | | | | | | | | | | | | | | |
Other income (expense) | | | | | | | | | | | | | | | | | | | | |
| Interest expense | | | (90,931 | ) | | | (14,168 | ) | | | (4,921 | ) | | | 7,260 | | | | (102,760 | ) |
| Gain on NCM transaction | | | — | | | | — | | | | 210,773 | | | | — | | | | 210,773 | |
| Gain on Fandango transaction | | | 1,148 | | | | 8,057 | | | | — | | | | — | | | | 9,205 | |
| Distributions from NCM | | | — | | | | — | | | | 11,499 | | | | — | | | | 11,499 | |
| Equity in income (loss) of affiliates | | | 200,867 | | | | 6,048 | | | | (2,552 | ) | | | (206,825 | ) | | | (2,462 | ) |
| Other income (expense) | | | (4,144 | ) | | | 8,139 | | | | 7,057 | | | | (7,260 | ) | | | 3,792 | |
| | | |
| Total other income | | | 106,940 | | | | 8,076 | | | | 221,856 | | | | (206,825 | ) | | | 130,047 | |
| | | |
Income before income taxes | | | 98,119 | | | | 115,516 | | | | 237,051 | | | | (206,825 | ) | | | 243,861 | |
| Income taxes | | | (17,309 | ) | | | 57,955 | | | | 86,995 | | | | — | | | | 127,641 | |
| | | |
Net income | | | 115,428 | | | | 57,561 | | | | 150,056 | | | | (206,825 | ) | | | 116,220 | |
| Less: Net income (loss) attributable to noncontrolling interests | | | — | | | | (7 | ) | | | 799 | | | | — | | | | 792 | |
| | | |
Net income attributable to Cinemark USA, Inc. | | $ | 115,428 | | | $ | 57,568 | | | $ | 149,257 | | | $ | (206,825 | ) | | $ | 115,428 | |
| | | |
F-39
CINEMARK USA, INC. AND SUBSIDIARIES
SUBSIDIARY GUARANTORS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
YEAR ENDED DECEMBER 31, 2004
AS RESTATED2007
(In thousands)
| | | | | | | | | | | | | | | | | | | | | |
| | | Parent | | Subsidiary | | Subsidiary | | | | |
| | | Company | | Guarantors | | Non-Guarantors | | Eliminations | | Consolidated |
| OPERATING ACTIVITIES | | | | | | | | | | | | | | | | | | | | |
| Net income | | $ | 44,554 | | | $ | 56,294 | | | $ | 12,306 | | | $ | (68,600 | ) | | $ | 44,554 | |
| | | | | | | | | | | | | | | | | | | | | |
| Adjustments to reconcile net income to cash provided by operating activities: | | | | | | | | | | | | | | | | | | | | |
| Depreciation and amortization | | | 21,479 | | | | 22,952 | | | | 24,488 | | | | — | | | | 68,919 | |
| Impairment of long-lived assets | | | 375 | | | | 1,292 | | | | — | | | | — | | | | 1,667 | |
| Loss on sale of assets and other | | | 1,285 | | | | 2,771 | | | | 795 | | | | — | | | | 4,851 | |
| Write-off unamortized debt issue costs and debt discount | | | 938 | | | | — | | | | — | | | | — | | | | 938 | |
| Write-off of unearned compensation related to Recapitalization | | | 1,595 | | | | — | | | | — | | | | — | | | | 1,595 | |
| Deferred lease expenses | | | 1,382 | | | | (13 | ) | | | (1,060 | ) | | | — | | | | 309 | |
| Deferred income tax expenses | | | 3,911 | | | | 721 | | | | 5,473 | | | | — | | | | 10,105 | |
| Equity in income of affiliates | | | (24,351 | ) | | | (1,573 | ) | | | (149 | ) | | | 25,900 | | | | (173 | ) |
| Minority interests in income of subsidiaries | | | — | | | | 599 | | | | 3,754 | | | | — | | | | 4,353 | |
| Other noncash items | | | — | | | | 2,715 | | | | (4,631 | ) | | | — | | | | (1,916 | ) |
| Changes in assets and liabilities | | | (11,594 | ) | | | (10,858 | ) | | | 5,928 | | | | (5,743 | ) | | | (22,267 | ) |
| | | |
| Net cash provided by operating activities | | | 39,574 | | | | 74,900 | | | | 46,904 | | | | (48,443 | ) | | | 112,935 | |
| | | | | | | | | | | | | | | | | | | | | |
| INVESTING ACTIVITIES | | | | | | | | | | | | | | | | | | | | |
| Additions to theatre properties and equipment | | | (14,216 | ) | | | (41,299 | ) | | | (25,493 | ) | | | — | | | | (81,008 | ) |
| Proceeds from sale of theatre properties and equipment | | | 690 | | | | 7,966 | | | | 4,289 | | | | — | | | | 12,945 | |
| Proceeds from sale of equity investment | | | 1,250 | | | | — | | | | — | | | | — | | | | 1,250 | |
| Purchase of minority partner shares in Cinemark Brasil | | | — | | | | — | | | | (44,958 | ) | | | — | | | | (44,958 | ) |
| Purchase of minority partner shares in Cinemark Mexico | | | — | | | | (5,379 | ) | | | — | | | | — | | | | (5,379 | ) |
| Net transactions with affiliates | | | (50,146 | ) | | | 6,281 | | | | 44,975 | | | | (907 | ) | | | 203 | |
| | | |
| Net cash used for investing activities | | | (62,422 | ) | | | (32,431 | ) | | | (21,187 | ) | | | (907 | ) | | | (116,947 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| FINANCING ACTIVITIES | | | | | | | | | | | | | | | | | | | | |
| Capital contribution from parent | | | 36,275 | | | | — | | | | — | | | | — | | | | 36,275 | |
| Retirement of senior subordinated notes | | | (122,750 | ) | | | — | | | | — | | | | — | | | | (122,750 | ) |
| Proceeds from long-term debt | | | 287,500 | | | | — | | | | 3,946 | | | | — | | | | 291,446 | |
| Repayments of long-term debt | | | (193,625 | ) | | | — | | | | (6,445 | ) | | | — | | | | (200,070 | ) |
| Debt issue costs | | | (7,903 | ) | | | — | | | | (51 | ) | | | — | | | | (7,954 | ) |
| Change in intercompany notes | | | — | | | | — | | | | (5,809 | ) | | | 5,809 | | | | — | |
| Dividends paid to parent | | | — | | | | (34,250 | ) | | | (9,291 | ) | | | 43,541 | | | | — | |
| Increase in minority investment in subsidiaries | | | — | | | | — | | | | 969 | | | | — | | | | 969 | |
| Decrease in minority investment in subsidiaries | | | — | | | | (188 | ) | | | (2,037 | ) | | | — | | | | (2,225 | ) |
| | | |
| Net cash used for financing activities | | | (503 | ) | | | (34,438 | ) | | | (18,718 | ) | | | 49,350 | | | | (4,309 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS | | | — | | | | — | | | | 1,230 | | | | — | | | | 1,230 | |
| | | |
| |
| INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | | | (23,351 | ) | | | 8,031 | | | | 8,229 | | | | — | | | | (7,091 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| CASH AND CASH EQUIVALENTS: | | | | | | | | | | | | | | | | | | | | |
| Beginning of period | | | 46,919 | | | | 9,522 | | | | 50,878 | | | | — | | | | 107,319 | |
| | | |
| End of period | | $ | 23,568 | | | $ | 17,553 | | | $ | 59,107 | | | $ | — | | | $ | 100,228 | |
| | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | Parent | | Subsidiary | | Subsidiary | | | | |
| | | Company | | Guarantors | | Non-Guarantors | | Eliminations | | Consolidated |
| | | | | | | (In thousands) | | | | | | | | |
Operating activities | | | | | | | | | | | | | | | | | | | | |
| Net income | | $ | 115,428 | | | $ | 57,561 | | | $ | 150,056 | | | $ | (206,825 | ) | | $ | 116,220 | |
| Adjustments to reconcile net income to cash provided by (used for) operating activities | | | (204,659 | ) | | | 136,523 | | | | 60,467 | | | | 206,825 | | | | 199,156 | |
| Gain on NCM transaction | | | — | | | | — | | | | (210,773 | ) | | | — | | | | (210,773 | ) |
| Gain on Fandango transaction | | | (1,148 | ) | | | (8,057 | ) | | | — | | | | — | | | | (9,205 | ) |
| Increase in deferred revenue related to NCM transaction | | | 174,001 | | | | — | | | | — | | | | — | | | | 174,001 | |
| Increase in deferred revenue related to Fandango transaction | | | — | | | | 5,000 | | | | — | | | | — | | | | 5,000 | |
| Changes in assets and liabilities | | | 178,347 | | | | (100,628 | ) | | | (7,410 | ) | | | — | | | | 70,309 | |
| | | |
| Net cash provided by (used for) operating activities | | | 261,969 | | | | 90,399 | | | | (7,660 | ) | | | — | | | | 344,708 | |
| | | | | | | | | | | | | | | | | | | | | |
Investing activities | | | | | | | | | | | | | | | | | | | | |
| Additions to theatre properties and equipment | | | (24,427 | ) | | | (85,808 | ) | | | (36,069 | ) | | | — | | | | (146,304 | ) |
| Proceeds from sale of theatre properties and equipment | | | 4,612 | | | | 31,823 | | | | 1,097 | | | | — | | | | 37,532 | |
| Net proceeds from sale of NCM stock | | | — | | | | — | | | | 214,842 | | | | — | | | | 214,842 | |
| Net proceeds from sale of Fandango stock | | | 1,319 | | | | 10,028 | | | | — | | | | — | | | | 11,347 | |
| Net transactions with affiliates | | | 121,638 | | | | 5,990 | | | | — | | | | (127,628 | ) | | | — | |
| Other | | | — | | | | (22,739 | ) | | | (1,500 | ) | | | — | | | | (24,239 | ) |
| | | |
| Net cash provided by (used for) investing activities | | | 103,142 | | | | (60,706 | ) | | | 178,370 | | | | (127,628 | ) | | | 93,178 | |
| | | | | | | | | | | | | | | | | | | | | |
Financing activities | | | | | | | | | | | | | | | | | | | | |
| Dividends paid to parent | | | — | | | | — | | | | (121,730 | ) | | | 121,730 | | | | — | |
| Retirement of senior subordinated notes | | | (332,066 | ) | | | — | | | | — | | | | — | | | | (332,066 | ) |
| Repayments of long-term debt | | | (15,514 | ) | | | — | | | | (3,924 | ) | | | — | | | | (19,438 | ) |
| Net changes in intercompany notes | | | — | | | | — | | | | (5,936 | ) | | | 5,936 | | | | — | |
| Payments on capital leases | | | — | | | | (3,675 | ) | | | (84 | ) | | | — | | | | (3,759 | ) |
| Other | | | — | | | | 38 | | | | (1,730 | ) | | | (38 | ) | | | (1,730 | ) |
| | | |
| Net cash used for financing activities | | | (347,580 | ) | | | (3,637 | ) | | | (133,404 | ) | | | 127,628 | | | | (356,993 | ) |
| | | | | | | | | | | | | | | | | | | | | |
Effect of exchange rate changes on cash and cash equivalents | | | — | | | | — | | | | 5,445 | | | | — | | | | 5,445 | |
| | | |
Increase in cash and cash equivalents | | | 17,531 | | | | 26,056 | | | | 42,751 | | | | — | | | | 86,338 | |
Cash and cash equivalents: | | | | | | | | | | | | | | | | | | | | |
| Beginning of year | | | 37,680 | | | | 49,589 | | | | 59,776 | | | | — | | | | 147,045 | |
| | | |
| End of year | | $ | 55,211 | | | $ | 75,645 | | | $ | 102,527 | | | $ | — | | | $ | 233,383 | |
| | | |
F-40
CINEMARK USA, INC. AND SUBSIDIARIES
SUBSIDIARY GUARANTORS
NOTES TO CONDENSED CONSOLIDATING STATEMENT OF INCOMECONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEET INFORMATION
YEAR ENDED DECEMBER 31, 2003
AS RESTATED2008
(In thousands)
| | | | | | | | | | | | | | | | | | | | | |
| | | Parent | | Subsidiary | | Subsidiary | | | | |
| | | Company | | Guarantors | | Non-Guarantors | | Eliminations | | Consolidated |
| REVENUES | | $ | 457,629 | | | $ | 318,936 | | | $ | 223,053 | | | $ | (48,746 | ) | | $ | 950,872 | |
| | | | | | | | | | | | | | | | | | | | | |
| COSTS AND EXPENSES | | | | | | | | | | | | | | | | | | | | |
| Cost of operations | | | 388,062 | | | | 195,473 | | | | 167,742 | | | | (49,186 | ) | | | 702,091 | |
| General and administrative expenses | | | 3,929 | | | | 26,833 | | | | 12,983 | | | | 441 | | | | 44,186 | |
| Depreciation and amortization | | | 21,300 | | | | 22,024 | | | | 21,761 | | | | — | | | | 65,085 | |
| Impairment of long-lived assets | | | 2,263 | | | | 820 | | | | 1,966 | | | | — | | | | 5,049 | |
| (Gain) loss on sale of assets and other | | | 243 | | | | (933 | ) | | | (512 | ) | | | — | | | | (1,202 | ) |
| | | |
| Total costs and expenses | | | 415,797 | | | | 244,217 | | | | 203,940 | | | | (48,745 | ) | | | 815,209 | |
| | | |
| | | | | | | | | | | | | | | | | | | | | |
| OPERATING INCOME | | | 41,832 | | | | 74,719 | | | | 19,113 | | | | (1 | ) | | | 135,663 | |
| | | | | | | | | | | | | | | | | | | | | |
| OTHER INCOME (EXPENSE) | | | | | | | | | | | | | | | | | | | | |
| Interest expense | | | (51,688 | ) | | | (698 | ) | | | (7,385 | ) | | | 7,918 | | | | (51,853 | ) |
| Amortization of debt issue costs | | | (2,145 | ) | | | (130 | ) | | | (35 | ) | | | — | | | | (2,310 | ) |
| Interest income | | | 917 | | | | 7,260 | | | | 1,776 | | | | (7,918 | ) | | | 2,035 | |
| Foreign currency exchange loss | | | — | | | | — | | | | (196 | ) | | | — | | | | (196 | ) |
| Loss on early retirement of debt | | | (6,656 | ) | | | (884 | ) | | | — | | | | — | | | | (7,540 | ) |
| Equity in income of affiliates | | | 73,029 | | | | 3,783 | | | | 58 | | | | (76,729 | ) | | | 141 | |
| Minority interests in income of subsidiaries | | | — | | | | (245 | ) | | | (3,165 | ) | | | — | | | | (3,410 | ) |
| | | |
| Total other income (expense) | | | 13,457 | | | | 9,086 | | | | (8,947 | ) | | | (76,729 | ) | | | (63,133 | ) |
| | | |
| | | | | | | | | | | | | | | | | | | | | |
| INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | | | 55,289 | | | | 83,805 | | | | 10,166 | | | | (76,730 | ) | | | 72,530 | |
| | | | | | | | | | | | | | | | | | | | | |
| Income taxes | | | 10,540 | | | | 10,272 | | | | 4,229 | | | | — | | | | 25,041 | |
| | | |
| | | | | | | | | | | | | | | | | | | | | |
| INCOME FROM CONTINUING OPERATIONS AFTER INCOME TAXES | | | 44,749 | | | | 73,533 | | | | 5,937 | | | | (76,730 | ) | | | 47,489 | |
| | | | | | | | | | | | | | | | | | | | | |
| Loss from discontinued operations, net of taxes | | | — | | | | — | | | | (2,740 | ) | | | — | | | | (2,740 | ) |
| | | |
| | | | | | | | | | | | | | | | | | | | | |
| NET INCOME | | $ | 44,749 | | | $ | 73,533 | | | $ | 3,197 | | | $ | (76,730 | ) | | $ | 44,749 | |
| | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | Parent | | Subsidiary | | Subsidiary | | | | |
| | | Company | | Guarantors | | Non-Guarantors | | Eliminations | | Consolidated |
| | | | | | | | | | | (In thousands) | | | | | | | | |
Assets | | | | | | | | | | | | | | | | | | | | |
| Current assets | | | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 39,039 | | | $ | 163,007 | | | $ | 111,192 | | | $ | — | | | $ | 313,238 | |
| Other current assets | | | 37,173 | | | | 28,350 | | | | 15,531 | | | | (30,764 | ) | | | 50,290 | |
| | | |
| Total current assets | | | 76,212 | | | | 191,357 | | | | 126,723 | | | | (30,764 | ) | | | 363,528 | |
| Theatre properties and equipment — net | | | 275,191 | | | | 778,455 | | | | 154,637 | | | | — | | | | 1,208,283 | |
| | | | | | | | | | | | | | | | | | | | | |
| Other assets | | | 2,400,337 | | | | 506,572 | | | | 270,372 | | | | (1,730,254 | ) | | | 1,447,027 | |
| | | |
| | | | | | | | | | | | | | | | | | | | | |
Total assets | | $ | 2,751,740 | | | $ | 1,476,384 | | | $ | 551,732 | | | $ | (1,761,018 | ) | | $ | 3,018,838 | |
| | | |
| | | | | | | | | | | | | | | | | | | | | |
Liabilities and stockholder’s equity | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Current liabilities | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Current portion of long-term debt | | $ | 11,200 | | | $ | — | | | $ | 1,250 | | | $ | — | | | $ | 12,450 | |
| Current portion of capital lease obligations | | | 320 | | | | 4,712 | | | | 500 | | | | — | | | | 5,532 | |
| Accounts payable to parent | | | 151,324 | | | | (134,592 | ) | | | 15,992 | | | | — | | | | 32,724 | |
| Accounts payable and accrued expenses | | | 104,608 | | | | 81,394 | | | | 52,450 | | | | (25,381 | ) | | | 213,071 | |
| | | |
| Total current liabilities | | | 267,452 | | | | (48,486 | ) | | | 70,192 | | | | (25,381 | ) | | | 263,777 | |
| | | | | | | | | | | | | | | | | | | | | |
| Long-term liabilities | | | | | | | | | | | | | | | | | | | | |
| Long-term debt, less current portion | | | 1,088,280 | | | | 10,015 | | | | 53,068 | | | | (66,669 | ) | | | 1,084,694 | |
| Capital lease obligations, less current portion | | | 7,751 | | | | 105,346 | | | | 5,083 | | | | — | | | | 118,180 | |
| Other long-term liabilities and deferrals | | | 245,337 | | | | 199,320 | | | | 21,412 | | | | (69,773 | ) | | | 396,296 | |
| | | |
| Total long-term liabilities | | | 1,341,368 | | | | 314,681 | | | | 79,563 | | | | (136,442 | ) | | | 1,599,170 | |
| | | | | | | | | | | | | | | | | | | | | |
| Commitments and contingencies | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Stockholder’s equity | | | | | | | | | | | | | | | | | | | | |
| Cinemark USA, Inc.’s stockholder’s equity: | | | | | | | | | | | | | | | | | | | | |
| Common stock | | | 49,543 | | | | 457,372 | | | | 168,782 | | | | (626,154 | ) | | | 49,543 | |
| Other stockholder’s equity | | | 1,093,377 | | | | 752,614 | | | | 220,427 | | | | (973,041 | ) | | | 1,093,377 | |
| | | |
| Total Cinemark USA, Inc. stockholder’s equity | | | 1,142,920 | | | | 1,209,986 | | | | 389,209 | | | | (1,599,195 | ) | | | 1,142,920 | |
| Noncontrolling interests | | | — | | | | 203 | | | | 12,768 | | | | — | | | | 12,971 | |
| | | |
| Total stockholder’s equity | | | 1,142,920 | | | | 1,210,189 | | | | 401,977 | | | | (1,599,195 | ) | | | 1,155,891 | |
| | | | | | | | | | | | | | | | | | | | | |
Total liabilities and stockholder’s equity | | $ | 2,751,740 | | | $ | 1,476,384 | | | $ | 551,732 | | | $ | (1,761,018 | ) | | $ | 3,018,838 | |
| | | |
F-41
CINEMARK USA, INC. AND SUBSIDIARIES
SUBSIDIARY GUARANTORS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWSINCOME INFORMATION
YEAR ENDED DECEMBER 31, 2003
AS RESTATED2008
(In thousands)
| | | | | | | | | | | | | | | | | | | | | |
| | | Parent | | Subsidiary | | Subsidiary | | | | |
| | | Company | | Guarantors | | Non-Guarantors | | Eliminations | | Consolidated |
| OPERATING ACTIVITIES | | | | | | | | | | | | | | | | | | | | |
| Net income | | $ | 44,749 | | | $ | 73,533 | | | $ | 3,197 | | | $ | (76,730 | ) | | $ | 44,749 | |
| | | | | | | | | | | | | | | | | | | | | |
| Adjustments to reconcile net income to cash provided by operating activities: | | | | | | | | | | | | | | | | | | | | |
| Depreciation and amortization | | | 20,565 | | | | 22,154 | | | | 23,601 | | | | — | | | | 66,320 | |
| Impairment of long-lived assets | | | 2,263 | | | | 820 | | | | 1,966 | | | | — | | | | 5,049 | |
| (Gain) loss on sale of assets and other | | | 243 | | | | (933 | ) | | | (512 | ) | | | — | | | | (1,202 | ) |
| Write-off unamortized debt issue costs and debt discount and premium related to the early retirement of debt | | | 2,717 | | | | 884 | | | | — | | | | — | | | | 3,601 | |
| Deferred lease expenses | | | 9,298 | | | | (7,530 | ) | | | 973 | | | | — | | | | 2,741 | |
| Deferred income tax expenses | | | 9,058 | | | | (6,141 | ) | | | (1,054 | ) | | | — | | | | 1,863 | |
| Equity in income of affiliates | | | (49,529 | ) | | | (3,108 | ) | | | (58 | ) | | | 52,554 | | | | (141 | ) |
| Minority interests in income of subsidiaries | | | — | | | | 245 | | | | 3,165 | | | | — | | | | 3,410 | |
| Other noncash items | | | — | | | | — | | | | 3,374 | | | | — | | | | 3,374 | |
| Changes in assets and liabilities | | | 10,286 | | | | (5,007 | ) | | | 11,649 | | | | (11,072 | ) | | | 5,856 | |
| | | |
| |
| Net cash provided by operating activities | | | 49,650 | | | | 74,917 | | | | 46,301 | | | | (35,248 | ) | | | 135,620 | |
| | | | | | | | | | | | | | | | | | | | | |
| INVESTING ACTIVITIES | | | | | | | | | | | | | | | | | | | | |
| Additions to theatre properties and equipment | | | (12,191 | ) | | | (17,253 | ) | | | (21,558 | ) | | | — | | | | (51,002 | ) |
| Sale of theatre properties and equipment | | | 98 | | | | 2,065 | | | | 921 | | | | — | | | | 3,084 | |
| Net transactions with affiliates | | | (62,049 | ) | | | (19,092 | ) | | | 18,675 | | | | 63,233 | | | | 767 | |
| | | |
| |
| Net cash used for investing activities | | | (74,142 | ) | | | (34,280 | ) | | | (1,962 | ) | | | 63,233 | | | | (47,151 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| FINANCING ACTIVITIES | | | | | | | | | | | | | | | | | | | | |
| Issuance of senior subordinated notes | | | 375,225 | | | | — | | | | — | | | | — | | | | 375,225 | |
| Retirement of senior subordinated notes | | | (275,000 | ) | | | — | | | | — | | | | — | | | | (275,000 | ) |
| Proceeds from long-term debt | | | 403,516 | | | | — | | | | — | | | | — | | | | 403,516 | |
| Repayments of long-term debt | | | (454,045 | ) | | | (51,336 | ) | | | (32,384 | ) | | | — | | | | (537,765 | ) |
| Debt issue costs | | | (15,622 | ) | | | — | | | | — | | | | — | | | | (15,622 | ) |
| Change in intercompany notes | | | 27,850 | | | | 20,140 | | | | 4,170 | | | | (52,160 | ) | | | — | |
| Dividends paid to parent | | | — | | | | (23,500 | ) | | | (675 | ) | | | 24,175 | | | | — | |
| Increase in minority investment in subsidiaries | | | — | | | | — | | | | 4,573 | | | | — | | | | 4,573 | |
| Decrease in minority investment in subsidiaries | | | — | | | | (255 | ) | | | (511 | ) | | | — | | | | (766 | ) |
| | | |
| |
| Net cash provided by (used for) financing activities | | | 61,924 | | | | (54,951 | ) | | | (24,827 | ) | | | (27,985 | ) | | | (45,839 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS | | | — | | | | — | | | | 970 | | | | — | | | | 970 | |
| | | |
| |
| INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | | | 37,432 | | | | (14,314 | ) | | | 20,482 | | | | — | | | | 43,600 | |
| | | | | | | | | | | | | | | | | | | | | |
| CASH AND CASH EQUIVALENTS: | | | | | | | | | | | | | | | | | | | | |
| Beginning of period | | | 9,487 | | | | 23,836 | | | | 30,396 | | | | — | | | | 63,719 | |
| | | |
| End of period | | $ | 46,919 | | | $ | 9,522 | | | $ | 50,878 | | | $ | — | | | $ | 107,319 | |
| | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | Parent | | Subsidiary | | Subsidiary | | | | |
| | | Company | | Guarantors | | Non-Guarantors | | Eliminations | | Consolidated |
| | | | | | | | | | | (In thousands) | | | | | | | | |
Revenues | | $ | 463,288 | | | $ | 942,602 | | | $ | 405,111 | | | $ | (68,714 | ) | | $ | 1,742,287 | |
| | | | | | | | | | | | | | | | | | | | | |
Cost of operations | | | | | | | | | | | | | | | | | | | | |
| Theatre operating expenses | | | 433,016 | | | | 639,973 | | | | 306,950 | | | | (68,714 | ) | | | 1,311,225 | |
| General and administrative expenses | | | 11,024 | | | | 56,430 | | | | 22,129 | | | | — | | | | 89,583 | |
| Depreciation and amortization | | | 21,112 | | | | 101,301 | | | | 35,621 | | | | — | | | | 158,034 | |
| Impairment of long-lived assets | | | 88,045 | | | | 18,281 | | | | 7,206 | | | | — | | | | 113,532 | |
| Loss on sale of assets and other | | | 1,443 | | | | 5,200 | | | | 1,845 | | | | — | | | | 8,488 | |
| | | |
| Total cost of operations | | | 554,640 | | | | 821,185 | | | | 373,751 | | | | (68,714 | ) | | | 1,680,862 | |
| | | |
| | | | | | | | | | | | | | | | | | | | | |
Operating income (loss) | | | (91,352 | ) | | | 121,417 | | | | 31,360 | | | | — | | | | 61,425 | |
| | | | | | | | | | | | | | | | | | | | | |
Other income (expense) | | | | | | | | | | | | | | | | | | | | |
| Interest expense | | | (63,891 | ) | | | (13,133 | ) | | | (4,711 | ) | | | 7,329 | | | | (74,406 | ) |
| Distributions from NCM | | | 720 | | | | — | | | | 18,118 | | | | — | | | | 18,838 | |
| Equity in income (loss) of affiliates | | | 98,427 | | | | 10,236 | | | | (2,335 | ) | | | (108,701 | ) | | | (2,373 | ) |
| Other income (expense) | | | 2,672 | | | | 9,216 | | | | 7,599 | | | | (7,329 | ) | | | 12,158 | |
| | | |
| Total other income | | | 37,928 | | | | 6,319 | | | | 18,671 | | | | (108,701 | ) | | | (45,783 | ) |
| | | |
Income (loss) before income taxes | | | (53,424 | ) | | | 127,736 | | | | 50,031 | | | | (108,701 | ) | | | 15,642 | |
| Income taxes | | | (29,575 | ) | | | 46,140 | | | | 19,031 | | | | — | | | | 35,596 | |
| | | |
Net income (loss) | | | (23,849 | ) | | | 81,596 | | | | 31,000 | | | | (108,701 | ) | | | (19,954 | ) |
| | | |
| Less: Net income attributable to noncontrolling interests | | | — | | | | 20 | | | | 3,875 | | | | — | | | | 3,895 | |
| | | |
Net income (loss) attributable to Cinemark USA, Inc. | | $ | (23,849 | ) | | $ | 81,576 | | | $ | 27,125 | | | $ | (108,701 | ) | | $ | (23,849 | ) |
| | | |
F-42
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING BALANCE SHEETSSTATEMENT OF CASH FLOWS INFORMATION
YEAR ENDED DECEMBER 31, 2008
| | | | | | | | | | | | | | | | | | | | | |
| | | Parent | | Subsidiary | | Subsidiary | | | | |
| | | Company | | Guarantors | | Non-Guarantors | | Eliminations | | Consolidated |
| | | (In thousands) |
| | | | | | | | | | | | | | | | | | | | | |
Operating activities | | | | | | | | | | | | | | | | | | | | |
| Net income (loss) | | $ | (23,849 | ) | | $ | 81,596 | | | $ | 31,000 | | | $ | (108,701 | ) | | $ | (19,954 | ) |
| Adjustments to reconcile net income (loss) to cash provided by operating activities | | | (23,385 | ) | | | 122,125 | | | | 56,536 | | | | 108,701 | | | | 263,977 | |
| Changes in assets and liabilities | | | 73,389 | | | | (87,059 | ) | | | (10,565 | ) | | | — | | | | (24,235 | ) |
| | | |
| Net cash provided by operating activities | | | 26,155 | | | | 116,662 | | | | 76,971 | | | | — | | | | 219,788 | |
| | | | | | | | | | | | | | | | | | | | | |
Investing activities | | | | | | | | | | | | | | | | | | | | |
| Additions to theatre properties and equipment | | | (21,894 | ) | | | (55,047 | ) | | | (29,168 | ) | | | — | | | | (106,109 | ) |
| Proceeds from sale of theatre properties and equipment | | | 1,442 | | | | 761 | | | | 336 | | | | — | | | | 2,539 | |
| Acquisition of theatres | | | (5,011 | ) | | | — | | | | (5,100 | ) | | | — | | | | (10,111 | ) |
| Net transactions with affiliates | | | 2,991 | | | | 6,407 | | | | — | | | | (9,398 | ) | | | — | |
| Other | | | — | | | | 22,739 | | | | (4,000 | ) | | | — | | | | 18,739 | |
| | | |
| Net cash used for investing activities | | | (22,472 | ) | | | (25,140 | ) | | | (37,932 | ) | | | (9,398 | ) | | | (94,942 | ) |
| | | | | | | | | | | | | | | | | | | | | |
Financing activities | | | | | | | | | | | | | | | | | | | | |
| Dividends paid to parent | | | — | | | | — | | | | (3,029 | ) | | | 3,029 | | | | — | |
| Retirement of senior subordinated notes | | | (3 | ) | | | — | | | | — | | | | — | | | | (3 | ) |
| Repayments of long-term debt | | | (6,886 | ) | | | — | | | | (3,544 | ) | | | — | | | | (10,430 | ) |
| Net changes in intercompany notes | | | — | | | | — | | | | (6,369 | ) | | | 6,369 | | | | — | |
| Payments on capital leases | | | (241 | ) | | | (4,160 | ) | | | (500 | ) | | | — | | | | (4,901 | ) |
| Other | | | (12,725 | ) | | | — | | | | (1,231 | ) | | | — | | | | (13,956 | ) |
| | | |
| Net cash used for financing activities | | | (19,855 | ) | | | (4,160 | ) | | | (14,673 | ) | | | 9,398 | | | | (29,290 | ) |
| | | | | | | | | | | | | | | | | | | | | |
Effect of exchange rate changes on cash and cash equivalents | | | — | | | | — | | | | (15,701 | ) | | | — | | | | (15,701 | ) |
| | | |
Increase (decrease) in cash and cash equivalents | | | (16,172 | ) | | | 87,362 | | | | 8,665 | | | | — | | | | 79,855 | |
Cash and cash equivalents: | | | | | | | | | | | | | | | | | | | | |
| Beginning of year | | | 55,211 | | | | 75,645 | | | | 102,527 | | | | — | | | | 233,383 | |
| | | |
| End of year | | $ | 39,039 | | | $ | 163,007 | | | $ | 111,192 | | | $ | — | | | $ | 313,238 | |
| | | |
F-43
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF CONDENSED CONSOLIDATED BALANCE SHEET INFORMATION
DECEMBER 31, 20052009
(In thousands)
| | | | | | | | | | | | | | | | | | | | | |
| | | Parent | | Subsidiary | | Subsidiary | | | | |
| | | Company | | Guarantors | | Non-Guarantors | | Eliminations | | Consolidated |
| | | (In thousands) |
Assets | | | | | | | | | | | | | | | | | | | | |
| Current assets | | | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 39,761 | | | $ | 237,540 | | | $ | 160,436 | | | $ | — | | | $ | 437,737 | |
| Other current assets | | | 55,841 | | | | 32,800 | | | | 16,516 | | | | (36,113 | ) | | | 69,044 | |
| Accounts receivable from (payable to) parent | | | (153,678 | ) | | | 173,888 | | | | (12,554 | ) | | | — | | | | 7,656 | |
| | | |
| Total current assets | | | (58,076 | ) | | | 444,228 | | | | 164,398 | | | | (36,113 | ) | | | 514,437 | |
| | | | | | | | | | | | | | | | | | | | | |
| Theatre properties and equipment — net | | | 307,089 | | | | 713,860 | | | | 198,639 | | | | — | | | | 1,219,588 | |
| | | | | | | | | | | | | | | | | | | | | |
| Other assets | | | 2,623,968 | | | | 637,645 | | | | 318,536 | | | | (2,030,586 | ) | | | 1,549,563 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | |
Total assets | | $ | 2,872,981 | | | $ | 1,795,733 | | | $ | 681,573 | | | $ | (2,066,699 | ) | | $ | 3,283,588 | |
| | | |
| | | | | | | | | | | | | | | | | | | | | |
Liabilities and stockholder’s equity | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Current liabilities | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Current portion of long-term debt | | $ | 11,200 | | | $ | — | | | $ | 1,027 | | | $ | — | | | $ | 12,227 | |
| Current portion of capital lease obligations | | | 1,313 | | | | 5,527 | | | | 500 | | | | — | | | | 7,340 | |
| Accounts payable and accrued expenses | | | 120,790 | | | | 94,721 | | | | 75,982 | | | | (30,326 | ) | | | 261,167 | |
| | | |
| Total current liabilities | | | 133,303 | | | | 100,248 | | | | 77,509 | | | | (30,326 | ) | | | 280,734 | |
| | | | | | | | | | | | | | | | | | | | | |
| Long-term liabilities | | | | | | | | | | | | | | | | | | | | |
| Long-term debt, less current portion | | | 1,532,151 | | | | 4,440 | | | | 35,930 | | | | (41,043 | ) | | | 1,531,478 | |
| Capital lease obligations, less current portion | | | 28,491 | | | | 99,819 | | | | 4,718 | | | | — | | | | 133,028 | |
| Other long-term liabilities and deferrals | | | 271,691 | | | | 156,797 | | | | 57,898 | | | | (70,179 | ) | | | 416,207 | |
| | | |
| Total long-term liabilities | | | 1,832,333 | | | | 261,056 | | | | 98,546 | | | | (111,222 | ) | | | 2,080,713 | |
| | | | | | | | | | | | | | | | | | | | | |
| Commitments and contingencies | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Stockholder’s equity | | | | | | | | | | | | | | | | | | | | |
| Cinemark USA, Inc.’s stockholder’s equity: | | | | | | | | | | | | | | | | | | | | |
| Common stock | | | 49,543 | | | | 457,372 | | | | 167,765 | | | | (625,137 | ) | | | 49,543 | |
| Other stockholder’s equity | | | 857,802 | | | | 976,729 | | | | 323,285 | | | | (1,300,014 | ) | | | 857,802 | |
| | | |
| Total Cinemark USA, Inc. stockholder’s equity | | | 907,345 | | | | 1,434,101 | | | | 491,050 | | | | (1,925,151 | ) | | | 907,345 | |
| Noncontrolling interests | | | — | | | | 328 | | | | 14,468 | | | | — | | | | 14,796 | |
| | | |
| Total stockholder’s equity | | | 907,345 | | | | 1,434,429 | | | | 505,518 | | | | (1,925,151 | ) | | | 922,141 | |
| | | | | | | | | | | | | | | | | | | | | |
Total liabilities and stockholder’s equity | | $ | 2,872,981 | | | $ | 1,795,733 | | | $ | 681,573 | | | $ | (2,066,699 | ) | | $ | 3,283,588 | |
| | | |
F-44
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF INCOME INFORMATION
YEAR ENDED DECEMBER 31, 2009
| | | | | | | | | | | | | | | | | | | | | |
| | | Parent | | Subsidiary | | Subsidiary | | | | |
| | | Company | | Guarantors | | Non-Guarantors | | Eliminations | | Consolidated |
| | | (In thousands) |
Revenues | | $ | 573,291 | | | $ | 1,035,099 | | | $ | 441,278 | | | $ | (73,168 | ) | | $ | 1,976,500 | |
| | | | | | | | | | | | | | | | | | | | | |
Cost of operations | | | | | | | | | | | | | | | | | | | | |
| Theatre operating expenses | | | 512,741 | | | | 689,544 | | | | 335,837 | | | | (73,168 | ) | | | 1,464,954 | |
| General and administrative expenses | | | 16,241 | | | | 54,289 | | | | 24,288 | | | | — | | | | 94,818 | |
| Depreciation and amortization | | | 26,121 | | | | 93,903 | | | | 29,491 | | | | — | | | | 149,515 | |
| Impairment of long-lived assets | | | 5,525 | | | | 4,922 | | | | 1,411 | | | | — | | | | 11,858 | |
| Loss on sale of assets and other | | | 809 | | | | 2,319 | | | | 74 | | | | — | | | | 3,202 | |
| | | |
| Total cost of operations | | | 561,437 | | | | 844,977 | | | | 391,101 | | | | (73,168 | ) | | | 1,724,347 | |
| | | |
| | | | | | | | | | | | | | | | | | | | | |
Operating income | | | 11,854 | | | | 190,122 | | | | 50,177 | | | | — | | | | 252,153 | |
| | | | | | | | | | | | | | | | | | | | | |
Other income (expense) | | | | | | | | | | | | | | | | | | | | |
| Interest expense | | | (71,777 | ) | | | (12,252 | ) | | | (3,232 | ) | | | 5,652 | | | | (81,609 | ) |
| Distributions from NCM | | | 960 | | | | — | | | | 19,862 | | | | — | | | | 20,822 | |
| Equity in income (loss) of affiliates | | | 160,435 | | | | 25,771 | | | | (975 | ) | | | (186,138 | ) | | | (907 | ) |
| Other income (expense) | | | 849 | | | | 5,461 | | | | 4,774 | | | | (5,652 | ) | | | 5,432 | |
| | | |
| Total other income | | | 90,467 | | | | 18,980 | | | | 20,429 | | | | (186,138 | ) | | | (56,262 | ) |
| | | |
Income before income taxes | | | 102,321 | | | | 209,102 | | | | 70,606 | | | | (186,138 | ) | | | 195,891 | |
| Income taxes | | | (27,118 | ) | | | 71,134 | | | | 18,788 | | | | — | | | | 62,804 | |
| | | |
Net income | | | 129,439 | | | | 137,968 | | | | 51,818 | | | | (186,138 | ) | | | 133,087 | |
| Less: Net income attributable to noncontrolling interests | | | — | | | | 104 | | | | 3,544 | | | | — | | | | 3,648 | |
| | | |
Net income attributable to Cinemark USA, Inc. | | $ | 129,439 | | | $ | 137,864 | | | $ | 48,274 | | | $ | (186,138 | ) | | $ | 129,439 | |
| | | |
F-45
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
YEAR ENDED DECEMBER 31, 2009
(In thousands)
| | | | | | | | | | | | | | | | | | | | | |
| | | Parent | | Subsidiary | | Subsidiary | | | | |
| | | Company | | Guarantors | | Non-Guarantors | | Eliminations | | Consolidated |
| | | | | | | | | | | (In thousands) | | | | | | | | |
Operating activities | | | | | | | | | | | | | | | | | | | | |
| Net income | | $ | 129,439 | | | $ | 137,968 | | | $ | 51,818 | | | $ | (186,138 | ) | | $ | 133,087 | |
| Adjustments to reconcile net income to cash provided by operating activities | | | (102,910 | ) | | | 36,481 | | | | 63,389 | | | | 186,138 | | | | 183,098 | |
| Changes in assets and liabilities | | | 114,711 | | | | (71,950 | ) | | | 7,760 | | | | — | | | | 50,521 | |
| | | |
| Net cash provided by operating activities | | | 141,240 | | | | 102,499 | | | | 122,967 | | | | — | | | | 366,706 | |
| | | | | | | | | | | | | | | | | | | | | |
Investing activities | | | | | | | | | | | | | | | | | | | | |
| Additions to theatre properties and equipment | | | (43,752 | ) | | | (37,385 | ) | | | (43,660 | ) | | | — | | | | (124,797 | ) |
| Proceeds from sale of theatre properties and equipment | | | 1,532 | | | | 369 | | | | 277 | | | | — | | | | 2,178 | |
| Acquisition of theatres in the U.S. | | | (48,950 | ) | | | — | | | | — | | | | — | | | | (48,950 | ) |
| Acquisition of theatres in Brazil | | | — | | | | — | | | | (9,061 | ) | | | — | | | | (9,061 | ) |
| Investment in joint venture — DCIP | | | — | | | | — | | | | (2,500 | ) | | | — | | | | (2,500 | ) |
| Net transactions with affiliates | | | 8,321 | | | | 22,823 | | | | — | | | | (31,144 | ) | | | — | |
| | | |
| Net cash used for investing activities | | | (82,849 | ) | | | (14,193 | ) | | | (54,944 | ) | | | (31,144 | ) | | | (183,130 | ) |
| | | | | | | | | | | | | | | | | | | | | |
Financing activities | | | | | | | | | | | | | | | | | | | | |
| Capital contributions from parent | | | 19,650 | | | | — | | | | — | | | | — | | | | 19,650 | |
| Dividends paid to parent | | | (510,600 | ) | | | (150 | ) | | | (14,769 | ) | | | 14,919 | | | | (510,600 | ) |
| Payroll taxes paid as a result of immaculate stock exercies | | | (61 | ) | | | (8,911 | ) | | | — | | | | — | | | | (8,972 | ) |
| Proceeds from issuance of senior notes | | | 458,532 | | | | — | | | | — | | | | — | | | | 458,532 | |
| Payment of debt issue costs | | | (13,003 | ) | | | — | | | | — | | | | — | | | | (13,003 | ) |
| Repayments of other long-term debt | | | (11,200 | ) | | | — | | | | (1,405 | ) | | | — | | | | (12,605 | ) |
| Net changes in intercompany notes | | | — | | | | — | | | | (16,225 | ) | | | 16,225 | | | | — | |
| Payments on capital leases | | | (987 | ) | | | (4,712 | ) | | | (365 | ) | | | — | | | | (6,064 | ) |
| Other | | | — | | | | — | | | | (2,416 | ) | | | — | | | | (2,416 | ) |
| | | |
| Net cash used for financing activities | | | (57,669 | ) | | | (13,773 | ) | | | (35,180 | ) | | | 31,144 | | | | (75,478 | ) |
| | | | | | | | | | | | | | | | | | | | | |
Effect of exchange rate changes on cash and cash equivalents | | | — | | | | — | | | | 16,401 | | | | — | | | | 16,401 | |
| | | |
Increase in cash and cash equivalents | | | 722 | | | | 74,533 | | | | 49,244 | | | | — | | | | 124,499 | |
Cash and cash equivalents: | | | | | | | | | | | | | | | | | | | | |
| Beginning of year | | | 39,039 | | | | 163,007 | | | | 111,192 | | | | — | | | | 313,238 | |
| | | |
| End of year | | $ | 39,761 | | | $ | 237,540 | | | $ | 160,436 | | | $ | — | | | $ | 437,737 | |
| | | |
F-46
* * * * * *
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Members of
National CineMedia, LLC
Centennial, Colorado
We have audited the accompanying balance sheets of National CineMedia, LLC (the “Company”) as of December 31, 2009 and January 1, 2009, and the related statements of operations, members’ equity (deficit), and cash flows for the years ended December 31, 2009 and January 1, 2009, the period February 13, 2007 through December 27, 2007, and for the period December 29, 2006 through February 12, 2007. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2009 and January 1, 2009, and the results of its operations and its cash flows for the years ended December 31, 2009 and January 1, 2009, the period February 13, 2007 through December 27, 2007, and for the period December 29, 2006 through February 12, 2007, in conformity with accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
Denver, Colorado
March 9, 2010
F-47
NATIONAL CINEMEDIA, LLC
BALANCE SHEETS
(In millions)
| | | | | | | | | |
| | | December 31, 2009 | | | January 1, 2009 | |
ASSETS | | | | | | | | |
| CURRENT ASSETS: | | | | | | | | |
| Cash and cash equivalents | | $ | 37.8 | | | $ | 34.1 | |
| Receivables, net of allowance of $3.6 and $2.6 million, respectively | | | 89.0 | | | | 92.0 | |
| Prepaid expenses | | | 1.5 | | | | 1.6 | |
| Prepaid management fees to managing member | | | 0.6 | | | | 0.5 | |
| | | | | | | |
| Total current assets | | | 128.9 | | | | 128.2 | |
| PROPERTY AND EQUIPMENT, net of accumulated depreciation of $39.3 and $27.0 million, respectively | | | 23.7 | | | | 28.0 | |
| INTANGIBLE ASSETS, net of accumulated amortization of $4.4 and $1.5 million, respectively | | | 134.2 | | | | 111.8 | |
| OTHER ASSETS: | | | | | | | | |
| Debt issuance costs, net | | | 9.2 | | | | 11.1 | |
| Equity method investment | | | 7.4 | | | | — | |
| Other long-term assets | | | 1.0 | | | | 0.8 | |
| | | | | | | |
| Total other assets | | | 17.6 | | | | 11.9 | |
| | | | | | | |
| TOTAL | | $ | 304.4 | | | $ | 279.9 | |
| | | | | | | |
| | | | | | | | | |
LIABILITIES AND MEMBERS’ EQUITY/(DEFICIT) | | | | | | | | |
| CURRENT LIABILITIES: | | | | | | | | |
| Amounts due to founding members | | | 29.8 | | | | 25.6 | |
| Amounts due to managing member | | | 22.9 | | | | 22.1 | |
| Accrued expenses | | | 12.4 | | | | 6.3 | |
| Current portion of long-term debt | | | 4.3 | | | | — | |
| Accrued payroll and related expenses | | | 6.6 | | | | 5.7 | |
| Accounts payable | | | 11.3 | | | | 11.2 | |
| Deferred revenue and other current liabilities | | | 2.8 | | | | 3.4 | |
| | | | | | | |
| Total current liabilities | | | 90.1 | | | | 74.3 | |
| OTHER LIABILITIES: | | | | | | | | |
| Borrowings | | | 799.0 | | | | 799.0 | |
| Interest rate swap agreements | | | 54.6 | | | | 87.7 | |
| Other long-term liabilities | | | 0.3 | | | | 4.5 | |
| | | | | | | |
| Total other liabilities | | | 853.9 | | | | 891.2 | |
| | | | | | | |
| Total liabilities | | | 944.0 | | | | 965.5 | |
| | | | | | | |
| | | | | | | | | |
| COMMITMENTS AND CONTINGENCIES (NOTE 9) | | | | | | | | |
| | | | | | | | | |
| MEMBERS’ EQUITY/(DEFICIT) | | | (639.6 | ) | | | (685.6 | ) |
| | | | | | | | | |
| | | | | | | |
| TOTAL | | $ | 304.4 | | | $ | 279.9 | |
| | | | | | | |
See accompanying notes to financial statements.
F-48
NATIONAL CINEMEDIA, LLC
STATEMENTS OF OPERATIONS
(In millions)
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Period | | | | Period | |
| | | | | | | | | | | February 13, | | | | December 29, | |
| | | Year Ended | | | Year Ended | | | 2007 through | | | | 2006 through | |
| | | December 31, | | | January 1, | | | December 27, | | | | February 12, | |
| | | 2009 | | | 2009 | | | 2007 | | | | 2007 | |
| | | | | | |
| REVENUE: | | | | | | | | | | | | | | | | | |
| Advertising (including revenue from founding members of $36.3, $43.3, $40.9 and $0 million, respectively) | | $ | 335.1 | | | $ | 330.3 | | | $ | 282.7 | | | | $ | 20.6 | |
| Administrative fees—founding members | | | — | | | | — | | | | — | | | | | 0.1 | |
| Fathom Events | | | 45.5 | | | | 38.9 | | | | 25.4 | | | | | 2.9 | |
| Other | | | 0.1 | | | | 0.3 | | | | 0.2 | | | | | — | |
| | | | | | |
| Total | | | 380.7 | | | | 369.5 | | | | 308.3 | | | | | 23.6 | |
| | | | | | |
| OPERATING EXPENSES: | | | | | | | | | | | | | | | | | |
| Advertising operating costs | | | 20.0 | | | | 18.7 | | | | 9.1 | | | | | 1.1 | |
| Fathom Events operating costs | | | 29.1 | | | | 25.1 | | | | 15.4 | | | | | 1.4 | |
| Network costs | | | 18.6 | | | | 17.0 | | | | 13.3 | | | | | 1.7 | |
| Theatre access fees/circuit share costs—founding members | | | 52.7 | | | | 49.8 | | | | 41.5 | | | | | 14.4 | |
| Selling and marketing costs | | | 50.2 | | | | 47.9 | | | | 40.9 | | | | | 5.2 | |
| Administrative costs | | | 14.8 | | | | 14.5 | | | | 10.0 | | | | | 2.8 | |
| Administrative fee – managing member | | | 10.8 | | | | 9.7 | | | | 9.2 | | | | | — | |
| Severance plan costs | | | — | | | | 0.5 | | | | 1.5 | | | | | 0.4 | |
| Depreciation and amortization | | | 15.6 | | | | 12.4 | | | | 5.0 | | | | | 0.7 | |
| Other costs | | | 0.7 | | | | 0.7 | | | | 0.9 | | | | | — | |
| | | | | | |
| Total | | | 212.5 | | | | 196.3 | | | | 146.8 | | | | | 27.7 | |
| | | | | | |
| OPERATING INCOME (LOSS) | | | 168.2 | | | | 173.2 | | | | 161.5 | | | | | (4.1 | ) |
| | | | | | | | | | | | | | | | | | |
| Interest Expense, Net: | | | | | | | | | | | | | | | | | |
| Borrowings | | | 47.1 | | | | 51.8 | | | | 48.0 | | | | | 0.1 | |
| Change in derivative fair value | | | (7.0 | ) | | | 14.2 | | | | — | | | | | — | |
| Interest income and other | | | (2.0 | ) | | | (0.2 | ) | | | (0.2 | ) | | | | — | |
| | | | | | |
| Total | | | 38.1 | | | | 65.8 | | | | 47.8 | | | | | 0.1 | |
| Impairment and related loss | | | — | | | | 11.5 | | | | — | | | | | — | |
| | | | | | |
| | | | | | | | | | | | | | | | | | |
| INCOME (LOSS) BEFORE INCOME TAXES | | | 130.1 | | | | 95.9 | | | | 113.7 | | | | | (4.2 | ) |
| Provision for Income Taxes | | | 0.8 | | | | 0.6 | | | | — | | | | | — | |
| Equity loss from investment, net | | | 0.8 | | | | — | | | | — | | | | | — | |
| | | | | | | | | | | | | | | | | | |
| | | | | | |
| NET INCOME (LOSS) | | $ | 128.5 | | | $ | 95.3 | | | $ | 113.7 | | | | $ | (4.2 | ) |
| | | | | | |
See accompanying notes to financial statements.
F-49
NATIONAL CINEMEDIA, LLC
STATEMENTS OF MEMBERS’ EQUITY/(DEFICIT)
(In millions)
| | | | | |
| | | Total | |
| Balance—December 28, 2006 | | $ | 3.5 | |
| Contribution of severance plan payments | | | 0.4 | |
| Net loss | | | (4.2 | ) |
| | | | |
| Balance—February 12, 2007 | | $ | (0.3 | ) |
| | | | |
| | | | | |
| Balance—February 13, 2007 | | $ | (0.3 | ) |
| Contribution of severance plan payments | | | 1.5 | |
| Capital contribution from managing member | | | 746.1 | |
| Capital contribution from founding member | | | 11.2 | |
| Distribution to managing member | | | (53.3 | ) |
| Distribution to founding members | | | (1,521.6 | ) |
| Reclassification of unit option plan | | | 2.3 | |
| Comprehensive Income: | | | | |
| Unrealized (loss) on cash flow hedge | | | (14.4 | ) |
| Net income | | | 113.7 | |
| | | | |
| Total Comprehensive Income | | | 99.3 | |
| | | | |
| Share-based compensation expense | | | 1.0 | |
| | | | |
| Balance—December 27, 2007 | | $ | (713.8 | ) |
| | | | |
| | | | | |
| Contribution of severance plan payments | | | 0.5 | |
| Capital contribution from managing member | | | 0.6 | |
| Capital contribution from founding members | | | 4.7 | |
| Distribution to managing member | | | (55.5 | ) |
| Distribution to founding members | | | (75.5 | ) |
| Units issued for purchase of intangible asset | | | 116.1 | |
| Comprehensive Income: | | | | |
| Unrealized (loss) on cash flow hedge | | | (59.1 | ) |
| Net income | | | 95.3 | |
| | | | |
| Total Comprehensive Income | | | 36.2 | |
| Share-based compensation expense | | | 1.1 | |
| | | | |
| Balance—January 1, 2009 | | $ | (685.6 | ) |
| | | | |
| | | | | |
| Capital contribution from founding members | | | 0.1 | |
| Distribution to managing member | | | (57.8 | ) |
| Distribution to founding members | | | (81.5 | ) |
| Units issued for purchase of intangible asset | | | 28.5 | |
| Comprehensive Income: | | | | |
| Unrealized (loss) on cash flow hedge | | | 26.1 | |
| Net income | | | 128.5 | |
| | | | |
| Total Comprehensive Income | | | 154.6 | |
| Share-based compensation expense | | | 2.1 | |
| | | | |
| Balance—December 31, 2009 | | $ | (639.6 | ) |
| | | | |
See accompanying notes to financial statements.
F-50
NATIONAL CINEMEDIA, LLC
STATEMENTS OF CASH FLOWS
(In millions)
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Period | | | Period |
| | | | | | | | | | | February 13, | | | December 29, |
| | | Year Ended | | Year Ended | | 2007 through | | | 2006 through |
| | | December 31, | | January 1, | | December 27, | | | February 12, |
| | | 2009 | | 2009 | | 2007 | | | 2007 |
| | | | | | |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | | | | | | | | | | |
| Net income (loss) | | $ | 128.5 | | | $ | 95.3 | | | $ | 113.7 | | | | $ | (4.2 | ) |
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | | | | | | | | | | | | | | | | | |
| Depreciation and amortization | | | 15.6 | | | | 12.4 | | | | 5.0 | | | | | 0.7 | |
| Non-cash severance plan and share-based compensation | | | 2.0 | | | | 1.5 | | | | 2.5 | | | | | 0.7 | |
| Non-cash impairment and related loss | | | — | | | | 11.5 | | | | — | | | | | — | |
| Net unrealized hedging transactions | | | (7.0 | ) | | | 14.2 | | | | — | | | | | — | |
| Equity in losses from investment | | | 0.8 | | | | — | | | | — | | | | | — | |
| Amortization of debt issuance costs | | | 1.9 | | | | 1.9 | | | | 1.7 | | | | | — | |
| Changes in operating assets and liabilities: | | | | | | | | | | | | | | | | | |
| Receivables—net | | | 3.0 | | | | (0.4 | ) | | | (40.3 | ) | | | | 12.6 | |
| Accounts payable and accrued expenses | | | 6.9 | | | | (0.7 | ) | | | 10.4 | | | | | (4.4 | ) |
| Amounts due to founding members and managing member | | | 1.2 | | | | 0.4 | | | | (51.1 | ) | | | | (3.7 | ) |
| Other | | | (3.5 | ) | | | 0.1 | | | | (1.3 | ) | | | | 0.5 | |
| | | | | | |
| Net cash provided by operating activities | | | 149.4 | | | | 136.2 | | | | 40.6 | | | | | 2.2 | |
| | | | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | | | | | | | | |
| Purchases of property and equipment | | | (8.4 | ) | | | (16.6 | ) | | | (13.8 | ) | | | | (0.5 | ) |
| Increase in investment in affiliate | | | (2.0 | ) | | | — | | | | (7.0 | ) | | | | — | |
| Other | | | — | | | | — | | | | (0.3 | ) | | | | — | |
| | | | | | |
| Net cash (used in) investing activities | | | (10.4 | ) | | | (16.6 | ) | | | (21.1 | ) | | | | (0.5 | ) |
| | | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | | | | | | | | | |
| Reimbursement (payment) of offering costs and fees | | | — | | | | — | | | | 4.7 | | | | | (0.1 | ) |
| Proceeds from borrowings | | | — | | | | 139.0 | | | | 924.0 | | | | | 13.0 | |
| Repayments of borrowings | | | (3.0 | ) | | | (124.0 | ) | | | (150.0 | ) | | | | (13.0 | ) |
| Proceeds from managing member contributions | | | — | | | | 0.6 | | | | 746.1 | | | | | — | |
| Proceeds from founding member contributions | | | 3.6 | | | | 9.7 | | | | 7.5 | | | | | — | |
| Distribution to founding members and managing member | | | (135.9 | ) | | | (118.3 | ) | | | (1,538.0 | ) | | | | — | |
| Payment of debt issuance costs | | | — | | | | — | | | | (14.6 | ) | | | | — | |
| | | | | | |
| Net cash (used in) financing activities | | | (135.3 | ) | | | (93.0 | ) | | | (20.3 | ) | | | | (0.1 | ) |
| | | | | | |
| CHANGE IN CASH AND CASH EQUIVALENTS | | | 3.7 | | | | 26.6 | | | | (0.8 | ) | | | | 1.6 | |
| CASH AND CASH EQUIVALENTS: | | | | | | | | | | | | | | | | | |
| Beginning of period | | | 34.1 | | | | 7.5 | | | | 8.3 | | | | | 6.7 | |
| | | | | | |
| End of period | | $ | 37.8 | | | $ | 34.1 | | | $ | 7.5 | | | | $ | 8.3 | |
| | | | | | |
(Continued)
See accompanying notes to financial statements.
F-51
NATIONAL CINEMEDIA, LLC
STATEMENTS OF CASH FLOWS (CONTINUED)
(In millions)
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Period | | | Period |
| | | | | | | | | | | February 13, | | | December 29, |
| | | Year Ended | | Year Ended | | 2007 through | | | 2006 through |
| | | December 31, | | January 1, | | December 27, | | | February 12, |
| | | 2009 | | 2009 | | 2007 | | | 2007 |
| | | | | | |
| Supplemental disclosure of non-cash financing and investing activity: | | | | | | | | | | | | | | | | | |
| Contribution for severance plan payments | | | — | | | $ | 0.5 | | | $ | 1.5 | | | | $ | 0.4 | |
| Increase in distributions payable to founding members and managing member | | $ | 53.1 | | | $ | 49.7 | | | $ | 37.0 | | | | | — | |
| Contributions from members collected after period end | | | — | | | $ | 0.4 | | | $ | 3.7 | | | | | — | |
| Integration payment from founding member collected after period end | | $ | 1.2 | | | $ | 1.2 | | | | — | | | | | — | |
| Purchase of an intangible asset with subsidiary equity | | $ | 28.5 | | | $ | 116.1 | | | | — | | | | | — | |
| Settlement of put liability by issuance of debt | | $ | 7.0 | | | | — | | | | — | | | | | — | |
| Assets acquired in settlement of put liability | | $ | 2.5 | | | | — | | | | — | | | | | — | |
| Increase in property and equipment not requiring cash in the period | | | — | | | | — | | | $ | 0.6 | | | | | — | |
| Unit option plan reclassified to equity | | | — | | | | — | | | $ | 2.3 | | | | | — | |
| | | | | | | | | | | | | | | | | | |
| Supplemental disclosure of cash flow information: | | | | | | | | | | | | | | | | | |
| Cash paid for interest | | $ | 38.8 | | | $ | 48.3 | | | $ | 44.0 | | | | $ | 0.1 | |
| Cash paid for income taxes | | $ | 0.8 | | | $ | 0.6 | | | | — | | | | | — | |
See accompanying notes to financial statements.
F-52
NATIONAL CINEMEDIA LLC
NOTES TO FINANCIAL STATEMENTS
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Formation of Business
National CineMedia, LLC (“NCM LLC” or “the Company”) commenced operations on April 1, 2005 and operates the largest digital in-theatre network in North America, allowing NCM LLC to distribute advertising, Fathom Business meeting services, and Fathom Consumer entertainment services under long-term exhibitor services agreements (“ESAs”) with American Multi-Cinema, Inc. (“AMC”), a wholly owned subsidiary of AMC Entertainment, Inc. (“AMCE”), Regal Cinemas, Inc., a wholly owned subsidiary of Regal Entertainment Group (“Regal”), and Cinemark USA, Inc. (“Cinemark USA”), a wholly owned subsidiary of Cinemark Holdings, Inc. (“Cinemark”). AMC, Regal and Cinemark and their affiliates are referred to in this document as “founding members”. NCM LLC also provides such services to certain third-party theater circuits under multi-year network affiliate agreements, which expire at various dates.
NCM LLC was formed through the combination of the operations of National Cinema Network, Inc. (“NCN”), a wholly owned subsidiary of AMCE, and Regal CineMedia Corporation (“RCM”), a wholly owned subsidiary of Regal. All assets contributed to and liabilities assumed by NCM LLC were recorded on NCM LLC’s accounting records in the amounts as reflected on the Members’ historic accounting records, based on the application of accounting principles as provided in ASC Topic 805-Business Combinations(formerly under Emerging Issues Task Force (“EITF”) 98–4,Accounting by a Joint Venture for Businesses Received at its Formation). Although legally structured as a limited liability company, NCM LLC was considered a joint venture for accounting purposes given the joint control provisions of the operating agreement among the members, consistent with ASC Topic 323 –Investments – Equity Method and Joint Venture(formerly Accounting Principles Board (“APB”) Opinion No. 18,The Equity Method of Accounting for Investments in Common Stock). RCM and NCN are each considered to be predecessors of NCM LLC. Cinemark became a founding member on July 15, 2005 through units, which were issued to Cinemark Media, Inc. (“Cinemark Media”), a wholly owned subsidiary of Cinemark USA, Inc.
Initial Public Offering and Related Transactions
On February 13, 2007, National CineMedia, Inc. (“NCM, Inc.” or “managing member”), a Company formed by NCM LLC and incorporated in the State of Delaware with the sole purpose of becoming a member and sole manager of NCM LLC, closed its initial public offering (“IPO”). NCM, Inc. used the net proceeds from its IPO to purchase a 44.8% interest in NCM LLC, paying NCM LLC $746.1 million, which included reimbursement to NCM LLC for expenses the Company advanced related to the NCM, Inc. IPO and paying the founding members $78.5 million for a portion of the NCM LLC units owned by them. NCM LLC paid $686.3 million of the funds received from NCM, Inc. to the founding members as consideration for their agreement to modify the then-existing ESAs. Proceeds received by NCM LLC from NCM, Inc. of $59.8 million, together with $709.7 million net proceeds from NCM LLC’s new senior secured credit facility (see Note 6), entered into concurrently with the completion of NCM, Inc.’s IPO were used to redeem $769.5 million in NCM LLC preferred units held by the founding members. The preferred units were created immediately prior to the NCM, Inc. IPO in a non-cash recapitalization of each membership unit into one common unit and one preferred unit. Immediately prior to this non-cash recapitalization, the existing common units and employee unit options (see Note 7) were split on a 44,291-to-1 basis. All unit and per unit amounts in these financial statements reflect the impact of this split.
At December 31, 2009, NCM LLC had 101,557,505 membership units outstanding, of which 42,121,747 (41.5%) were owned by NCM, Inc., 25,425,689 (25.0%) were owned by RCM, 18,821,114 (18.5%) were owned by AMC, and 15,188,955 (15.0%) were owned by Cinemark.
In connection with the completion of the NCM, Inc.’s IPO, NCM, Inc. and the founding members entered into a third amended and restated limited liability company operating agreement of NCM LLC (“LLC Operating Agreement”). Under the LLC Operating Agreement, NCM, Inc. became a member and the sole manager of NCM LLC. As the sole manager, NCM, Inc. is able to control all of the day to day business affairs and decision-making of NCM LLC without the approval of any other member. NCM, Inc. cannot be removed as manager of NCM LLC. NCM LLC entered into a management services agreement with NCM, Inc. pursuant to which NCM, Inc. agrees to provide certain specific management services to NCM LLC, including those services typically provided by the individuals serving in the positions of president and chief executive officer, president of sales and chief marketing officer, executive vice president and chief financial officer, executive vice president and chief operations officer and executive vice president and general counsel. In exchange for the services, NCM LLC reimburses NCM, Inc. for compensation and other expenses of the officers and for certain out-of-pocket costs (see Note 5). NCM LLC also provides administrative and support services to NCM, Inc. such as office facilities, equipment, supplies, payroll and accounting and financial reporting. The management services agreement also provides that NCM LLC employees may participate in the NCM, Inc. equity incentive plan (see Note 7). NCM LLC will indemnify NCM Inc. for any losses arising from NCM Inc.’s performance under the management services agreement, except that NCM Inc. will indemnify NCM LLC for any losses caused by NCM Inc.’s willful misconduct or gross negligence.
F-53
NATIONAL CINEMEDIA LLC
NOTES TO FINANCIAL STATEMENTS
The ESAs with the founding members were amended and restated in conjunction with the NCM, Inc. IPO. Subject to limited exceptions, under the ESAs NCM LLC is the exclusive provider of advertising services to the founding members for a 30-year term (with a five-year right of first refusal commencing one year before the end of the term) beginning February 13, 2007 and Fathom Events services to the founding members for an initial five-year term, with an automatic five-year renewal providing certain financial tests are met. In exchange for the right to provide these services to the founding members, NCM LLC is required to pay to the founding members a theatre access fee which is a specified calculation based on the attendance at the founding member theatres and the number of digital screens in founding member theatres. Prior to the NCM, Inc. IPO, NCM LLC paid to the founding members a percentage of NCM LLC’s advertising revenue as advertising circuit share. Upon the completion of the NCM, Inc. IPO, the founding members made additional time available for sale by NCM LLC, subject to a first right to purchase the time, if needed, by the founding members to fulfill advertising obligations with their in-theatre beverage concessionaries.
Basis of Presentation
The Company has prepared its financial statements and related notes in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”).
The Company’s historical financial data may not be indicative of the Company’s future performance nor will such data reflect what its financial position and results of operations would have been had it operated as an independent company during the entirety of all periods presented. NCM, Inc.’s IPO was completed in February 2007. In addition, as a result of the various related-party agreements discussed in Note 5, the operating results as presented are not necessarily indicative of the results that might have occurred if all agreements were with non-related third parties.
The founding members received all of the proceeds from NCM, Inc.’s IPO and the related issuance of debt, except for amounts needed to pay out-of-pocket costs of the financings and other expenses, and $10.0 million to repay outstanding amounts under NCM LLC’s then-existing revolving line of credit agreement. In conformity with accounting guidance of the SEC concerning monetary consideration paid to promoters, such as the founding members, in exchange for property conveyed by the promoters, the excess over predecessor cost was treated as a special distribution. Because the founding members had no cost basis in the ESAs, all payments to the founding members with the proceeds of NCM Inc.’s IPO and related debt, amounting to approximately $1.456 billion, have been accounted for as distributions, except for the payments to liquidate accounts payable to the founding members arising from the ESAs. The distributions by NCM LLC to the founding members made at the date of NCM, Inc.’s IPO resulted in a stockholders’ deficit.
The results of operations for the period ended December 27, 2007 are presented in two periods, reflecting operations prior to and subsequent to NCM, Inc.’s IPO. The period from December 29, 2006 through February 12, 2007 is referred to as the “2007 pre-IPO period”. The period from February 13, 2007 through December 27, 2007 is referred to as the “2007 post-IPO period”. Separate periods have been presented because there were significant changes at the time of NCM, Inc.’s IPO including modifications to the ESAs and related expenses thereunder, and significant changes to revenue arrangements and contracts with the founding members. The financial statements for both the 2007 pre-IPO period and 2007 post-IPO period give effect to allocations of revenues and expenses made using relative percentages of founding member attendance or days in each period, discrete events and other methods management considered a reasonable reflection of the results for such periods.
Summary of Significant Accounting Policies
Accounting Period—The Company operates on a 52-week fiscal year, with the fiscal year ending on the first Thursday after December 25, which, in certain years, results in a 53-week year, as was the case for fiscal year 2008.
Estimates—The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include those related to the reserve for uncollectible accounts receivable and equity-based compensation. Actual results could differ from those estimates.
Segment Reporting— Segments are accounted for under ASC Topic 280Segment Reporting(formerly Statement of Financial Accounting Standards (“SFAS”) No. 131,Disclosures about Segments of an Enterprise and Related Information). Refer to Note 11.
Revenue Recognition—Advertising revenue is recognized in the period in which an advertising contract is fulfilled against the contracted theatre attendees. Advertising revenue is recorded net of make-good provisions to account for delivered attendance that is less than contracted attendance. When remaining delivered attendance is provided in subsequent
F-54
NATIONAL CINEMEDIA LLC
NOTES TO FINANCIAL STATEMENTS
periods, that portion of the revenue earned is recognized in that period. Deferred revenue refers to the unearned portion of advertising contracts. All deferred revenue is classified as a current liability. Fathom Events revenue is recognized in the period in which the event is held.
Operating Costs—Advertising-related operating costs primarily include personnel and other costs related to advertising fulfillment, and to a lesser degree, production costs of non-digital advertising, and payments due to unaffiliated theatre circuits under the network affiliate agreements.
Fathom Events operating costs include equipment rental, catering, movie tickets acquired primarily from the founding members, revenue share under the amended and restated ESAs and other direct costs of the meeting or event.
In the 2007 pre-IPO period and prior periods, circuit share costs were fees payable to the founding members for the right to exhibit advertisements within the theatres, based on a percentage of advertising revenue. In the 2007 post-IPO period and subsequent periods, under the amended and restated ESAs, a payment to the founding members of a theatre access fee, in lieu of circuit share expense, comprised of a payment per theatre attendee and a payment per digital screen, both of which escalate over time, is reflected in expense.
Network costs include personnel, satellite bandwidth, repairs, and other costs of maintaining and operating the digital network and preparing advertising and other content for transmission across the digital network. These costs are not specifically allocable between the advertising business and the Fathom Events business.
Leases—The Company leases various office facilities under operating leases with terms ranging from 3 to 8 years. We calculate straight-line rent expense over the initial lease term and renewals that are reasonably assured.
Advertising Costs—Costs related to advertising and other promotional expenditures are expensed as incurred. Due to the nature of our business, we have an insignificant amount of advertising costs included in selling and marketing costs on the statement of operations.
Cash and Cash Equivalents—All highly liquid debt instruments and investments purchased with an original maturity of three months or less are classified as cash equivalents. These are cash balances in a bank in excess of the federally insured limits or in the form of a money market demand account with a major financial institution.
Restricted Cash—At December 31, 2009 and January 1, 2009, other non-current assets included restricted cash of $0.3 million, which secures a letter of credit used as a lease deposit on NCM LLC’s New York office.
Receivables—Bad debts are provided for using the allowance for doubtful accounts method based on historical experience and management’s evaluation of outstanding receivables at the end of the period. Receivables are written off when management determines amounts are uncollectible. Trade accounts receivable are uncollateralized and represent a large number of geographically dispersed debtors. At December 31, 2009 there was one advertising agency group through which the Company sources national advertising revenue representing approximately 19% of the Company’s outstanding gross receivable balance; however, none of the individual contracts related to the advertising agency were more than 10% of advertising revenue. At January 1, 2009, there was one client and one advertising agency group through which the Company sources national advertising revenue representing approximately 10% and 20%, respectively, of the Company’s outstanding gross receivable balance; however, none of the individual contracts related to the advertising agency were more than 10% of advertising revenue. The collectability risk is reduced by dealing with large, national advertising agencies and clients who have strong reputations in the advertising industry and stable financial positions.
Receivables consisted of the following, in millions:
| | | | | | | | | |
| | | As of December 31, | | As of January 1, |
| | | 2009 | | 2009 |
| | | |
| Trade accounts | | $ | 91.6 | | | $ | 92.4 | |
| Other | | | 1.0 | | | | 2.2 | |
| Less allowance for doubtful accounts | | | (3.6 | ) | | | (2.6 | ) |
| | | |
| Total | | $ | 89.0 | | | $ | 92.0 | |
| | | |
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NATIONAL CINEMEDIA LLC
NOTES TO FINANCIAL STATEMENTS
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Period | | Period |
| | | | | | | | | | | February 13, | | December 29, |
| | | Year Ended | | | | | | 2007 through | | 2006 through |
| | | December 31, | | Year Ended | | December 27, | | February 12, |
| | | 2009 | | January 1, 2009 | | 2007 | | 2007 |
| | | | | |
| ALLOWANCE FOR DOUBTFUL ACCOUNTS: | | | | | | | | | | | | | | | | |
| Balance at beginning of period | | $ | 2.6 | | | $ | 1.5 | | | $ | 1.1 | | | $ | 1.1 | |
| Provision for bad debt | | | 2.4 | | | | 2.3 | | | | 1.0 | | | | 0.1 | |
| Write-offs, net | | | (1.4 | ) | | | (1.2 | ) | | | (0.6 | ) | | | (0.1 | ) |
| | | | | |
| Balance at end of period | | $ | 3.6 | | | $ | 2.6 | | | $ | 1.5 | | | $ | 1.1 | |
| | | |
Long-lived Assets—Property and equipment is stated at cost, net of accumulated depreciation or amortization. Refer to Note 2. Major renewals and improvements are capitalized, while replacements, maintenance, and repairs that do not improve or extend the lives of the respective assets are expensed currently. In general, the equipment associated with the digital network that is located within the theatre is owned by the founding members, while equipment outside the theatre is owned by the Company. The Company records depreciation and amortization using the straight-line method over the following estimated useful lives:
| | |
| Equipment | | 4-10 years |
| Computer hardware and software | | 3-5 years |
| Leasehold improvements | | Lesser of lease term or asset life |
We account for the costs of software and web site development costs developed or obtained for internal use in accordance with ASC Subtopic 350-40Internal Use Software(formerly American Institute of Certified Public Accountants Statement of Position (“SOP”) 98-1,Accounting for the Costs of Computer Software Developed or Obtained for Internal Use) and ASC Subtopic 350-50Website Development Costs(formerly EITF 00-2,Accounting for Web Site Development Costs). The subtopics require the capitalization of certain costs incurred in developing or obtaining software for internal use. The majority of our software costs and web site development costs, which are included in equipment, are depreciated over three to five years. As of December 31, 2009 and January 1, 2009, we had a net book value of $11.0 million and $11.8 million, respectively, of capitalized software and web site development costs. We recorded approximately $6.7 million, $4.9 million, $2.8 million and $0.3 million for the years ended December 31, 2009, January 1, 2009, the 2007 post-IPO period and the 2007 pre-IPO period, respectively, in depreciation expense. As of December 31, 2009, January 1, 2009 and the 2007 post-IPO period we recorded $1.6 million, $1.2 million and $1.3 million in research and development expense, respectively.
Construction in progress includes costs relating to installations of our equipment into affiliate theatres. Assets under construction are not depreciated until placed into service.
Intangible assets consist of contractual rights and are stated at cost, net of accumulated amortization. Refer to Note 3. The Company records amortization using the straight-line method over the estimated useful life of the intangibles.
We assess impairment of long-lived assets pursuant with ASC Topic 360Property, Plant and Equipment(formerly SFAS No. 144,Accounting for the Impairment or Disposal of Long-Lived Assets) annually.This includes determining if certain triggering events have occurred that could affect the value of an asset. Thus far, we have recorded no impairment charges related to long-lived assets.
Amounts Due to/from Founding Members—Amounts due to/from founding members in the 2009 and 2008 periods include amounts due for the theatre access fee, offset by a receivable for advertising time purchased by the founding members, as well as revenue share earned for Fathom Events plus any amounts outstanding under other contractually obligated payments. Payments to or received from the founding members against outstanding balances are made monthly.
Amounts Due to/from Managing Member—In the 2009 and 2008 periods, amounts due to/from the managing member include amounts due under the NCM LLC Operating Agreement and other contractually obligated payments. Payments to or received from the managing member against outstanding balances are made periodically.
Income Taxes—As a limited liability company, NCM LLC’s taxable income or loss is allocated to the founding members and managing member and, therefore, the only provision for income taxes included in the financial statements is for income-based state and local taxes.
F-56
NATIONAL CINEMEDIA LLC
NOTES TO FINANCIAL STATEMENTS
Accumulated Other Comprehensive Income/Loss—Accumulated other comprehensive income/loss is composed of the following (in millions):
| | | | | | | | | | | | | |
| | | | | | | | | | | Period |
| | | | | | | | | | | February 13, 2007 |
| | | Year Ended | | | | | | through |
| | | Dec. 31, | | Year Ended | | December 27, |
| | | 2009 | | Jan. 1, 2009 | | 2007 |
| | | |
| Beginning Balance | | $ | (73.5 | ) | | $ | (14.4 | ) | | $ | — | |
| Change in fair value on cash flow hedge | | | 24.8 | | | | (59.5 | ) | | | (14.4 | ) |
| Reclassifications into earnings | | | 1.3 | | | | 0.4 | | | | — | |
| | | |
| Ending Balance | | $ | (47.4 | ) | | $ | (73.5 | ) | | $ | (14.4 | ) |
| | | |
Debt Issuance Costs—In relation to the issuance of long-term debt discussed in Note 6, we have a balance of $9.2 million and $11.1 million in deferred financing costs as of December 31, 2009 and January 1, 2009, respectively. These debt issuance costs are being amortized over the terms of the underlying obligation and are included in interest expense. For the years ended December 31, 2009, January 1, 2009, 2007 post-IPO period, and the 2007 pre-IPO period we amortized $1.9 million, $1.9 million, $1.7 million and $0.0, respectively.
Fair Value of Financial Instruments—The carrying amounts of cash and cash equivalents, the revolving credit facility and other notes payable as reported in the Company’s balance sheets approximate their fair values due to their short maturity or floating rate terms, as applicable. The carrying amounts and fair values of interest rate swap agreements are the same since the Company accounts for these instruments at fair value. The Company has estimated the fair value of its term loan based on an average of three non-binding broker quotes and our reasonability analysis to be $688.8 million and $514.8 million at December 31, 2009 and January 1, 2009, respectively. The carrying value of the term loan was $725.0 million as of December 31, 2009 and January 1, 2009.
Equity Method Investments— The Company accounts for its investment in RMG Networks, Inc., (“RMG”) (formerly Danoo, Inc.) under the equity method of accounting as required by ASC Topic 323-10Investments – Equity Method and Joint Ventures(formerly APB No. 18,The Equity Method of Accounting for Investments in Common Stock) because we exert “significant influence” over, but do not control, the policy and decisions of RMG (see Note 9). As of December 31, 2009, the Company owns approximately 24% of the issued and outstanding preferred and common stock of RMG (before considering out-of-the-money warrants). The Company’s investment is $7.4 million. The investment in RMG and the Company’s share of its operating results are not material to the Company’s financial position or results of operations and as a result summarized financial information is not presented.
Share-Based Compensation—Stock-based employee compensation is accounted for at fair value under ASC Topic 718Compensation – Stock Compensation(formerly SFAS No. 123(R),Share-Based Payment). The Company adopted Topic 718 on December 30, 2005 prospectively for new equity based grants, as there were no equity based grants prior to the date of adoption. Refer to Note 7.
Recent Accounting Pronouncements
ASC Topic 815-10Derivatives and Hedging(formerly SFAS No. 161,Disclosures about Derivative Instruments and Hedging Activities) was adopted by the Company effective January 2, 2009. The guidance under Topic 815-10 changes the manner of presentation and related disclosures of the fair values of derivative instruments and their gains and losses (see Note 10).
In April 2009, the Company adopted ASC Topic 820-10-65Fair Value Measurements and Disclosures (formerly FASB Staff Position No. SFAS 157-4,Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly). The standard provides additional guidance for estimating fair value in accordance with Topic 820-10-65 when the volume and level of activity for the asset or liability have significantly decreased and includes guidance on identifying circumstances that indicate if a transaction is not orderly. The Company adopted this pronouncement effective April 3, 2009 with no impact on its financial statements.
In July 2009, the FASB issued SFAS No. 168,The Hierarchy of Generally Accepted Accounting Principles. SFAS 168 codified all previously issued accounting pronouncements, eliminating the prior hierarchy of accounting literature, in a single source for authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. SFAS 168, now ASC Topic 105-10Generally Accepted Accounting Principles, is effective for financial statements issued for interim and
F-57
NATIONAL CINEMEDIA LLC
NOTES TO FINANCIAL STATEMENTS
annual periods ending after September 15, 2009. The adoption of this pronouncement did not have an effect on the financial statements.
The Company adopted, ASC Topic 855-10Subsequent Events(formerly SFAS 165,Subsequent Events) effective April 3, 2009, which was modified in February 2010. This pronouncement changes the general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued (see Note 12).
In August 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-05,Measuring Liabilities at Fair Value, which clarifies, among other things, that when a quoted price in an active market for the identical liability is not available, an entity must measure fair value using one or more specified techniques. The Company adopted the pronouncement effective July 2, 2009 with no impact on its financial statements.
In October 2009, the FASB issued ASU No. 2009-13,Multiple-Deliverable Revenue Arrangements, which revises the existing multiple-element revenue arrangements guidance and changes the determination of when the individual deliverables included in a multiple-element revenue arrangement may be treated as separate units of accounting, modifies the manner in which the transaction consideration is allocated across the separately identified deliverables and expands the disclosures required for multiple-element revenue arrangements. The pronouncement is effective for financial statements issued after December 31, 2010. The Company does not expect the pronouncement to have a material effect on its financial statements.
In January 2010, the FASB issued ASU No. 2010-06,Improving Disclosures about Fair Value Measurements, which requires additional disclosures about (1) the different classes of assets and liabilities measured at fair value, (2) the valuation techniques and inputs used, (3) the activity in Level 3 fair value measurements, and (4) the transfers between Levels 1, 2 and 3.The new disclosures are effective for financial statements issued for interim and annual periods beginning after December 15, 2009. The Company does not expect the pronouncement to have a material effect on its financial statements.
The Company has considered all other recently issued accounting pronouncements and does not believe the adoption of such pronouncements will have a material impact on its financial statements.
2. PROPERTY AND EQUIPMENT(in millions)
| | | | | | | | | |
| | | As of | | | As of | |
| | | December 31, | | | January 1, | |
| | | 2009 | | | 2009 | |
| Equipment | | $ | 60.6 | | | $ | 53.3 | |
| Leasehold Improvements | | | 1.6 | | | | 1.4 | |
| Less accumulated depreciation | | | (39.3 | ) | | | (27.0 | ) |
| | | | | | | |
| Subtotal | | | 22.9 | | | | 27.7 | |
| Construction in Progress | | | 0.8 | | | | 0.3 | |
| | | | | | | |
| Total property and equipment | | $ | 23.7 | | | $ | 28.0 | |
| | | | | | | |
For the years ended December 31, 2009, January 1, 2009, 2007 post-IPO period and 2007 pre-IPO period we recorded depreciation of $12.5 million, $10.2 million, $4.8 million and $0.6 million respectively.
3. INTANGIBLE ASSETS
During 2008, NCM LLC issued 2,544,949 common membership units to its founding members in connection with its rights of exclusive access to net new theatres and projected attendees added by the founding members to NCM LLC’s network and 2,913,754 common membership units to Regal in connection with the closing of its acquisition of Consolidated Theatres (see Note 5). The Company recorded an intangible asset of $116.1 million representing the contractual rights. During the first quarter of 2009, NCM LLC issued 2,126,104 common membership units to its founding members in exchange for the rights to exclusive access to net new theatre screens and projected attendees added by the founding members to NCM LLC’s network. As a result, NCM LLC recorded an intangible asset at fair value of $28.5 million. The Company based the fair value of the intangible assets on the fair value of the common membership units issued on the date of grants, which are freely convertible into NCM Inc.’s common stock.
Pursuant to ASC Topic 350-10Intangibles – Goodwill and Other(formerly SFAS No. 142,Goodwill and Other Intangible Assets), the intangible assets have a finite useful life and the Company amortizes the assets over the remaining useful life corresponding with the ESAs. Amortization of the asset related to Regal Consolidated Theatres will not begin
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NATIONAL CINEMEDIA LLC
NOTES TO FINANCIAL STATEMENTS
until after 2011 since the Company will not have access to on-screen advertising in the Regal Consolidated Theatres until the run-out of their existing on–screen advertising agreement.
| | | | | | | | | |
| | | As of December | | | As of January 1, | |
| | | 31, 2009 | | | 2009 | |
| | | (in millions) | |
| Beginning balance | | $ | 111.8 | | | $ | — | |
| Purchase of intangible asset subject to amortization | | | 28.5 | | | | 116.1 | |
| Less integration payments | | | (3.2 | ) | | | (2.8 | ) |
| Less amortization expense | | | (2.9 | ) | | | (1.5 | ) |
| | | | | | | |
| Total intangible assets | | $ | 134.2 | | | $ | 111.8 | |
| | | | | | | |
For the years ended December 31, 2009 and January 1, 2009 we recorded amortization of $2.9 million and $1.5 million, respectively.
The estimated aggregate amortization expense for each of the five succeeding years are as follows (in millions):
| | | | | |
| 2010 | | $ | 3.0 | |
| 2011 | | | 4.9 | |
| 2012 | | | 4.9 | |
| 2013 | | | 4.9 | |
| 2014 | | | 4.9 | |
4. ACCRUED EXPENSES(in millions)
| | | | | | | | | |
| | | As of December | | | As of January 1, | |
| | | 31, 2009 | | | 2009 | |
| Make-good Reserve | | $ | 0.3 | | | $ | 1.3 | |
| Accrued Interest | | | 9.8 | | | | 4.0 | |
| Other accrued expenses | | | 2.3 | | | | 1.0 | |
| | | | | | | |
| Total accrued expenses | | $ | 12.4 | | | $ | 6.3 | |
| | | | | | | |
5. RELATED-PARTY TRANSACTIONS
Years Ended December 31, 2009 and January 1, 2009 and the 2007 Post-IPO Period–
Pursuant to the ESAs, the Company makes monthly theatre access fee payments to the founding members, comprised of a payment per theatre attendee and a payment per digital screen with respect to the founding member theatres included in our network. Also, the founding members are purchasing 60 seconds of on-screen advertising time (with a right to purchase up to 90 seconds) for the year ended December 31, 2009 to satisfy their obligations under their beverage concessionaire agreements at a specified 30 second equivalent cost per thousand (“CPM”) impressions. For the year ended January 1, 2009 two of the founding members purchased 90 seconds and one purchased 60 seconds of on-screen advertising time under their beverage concessionaire agreement. For the 2007 post-IPO period, all three founding members purchased 90 seconds of on-screen time. The total theatre access fee to the founding members for the years ended December 31, 2009, January 1, 2009 and the 2007 post-IPO period is $52.7 million, $49.8 million and $41.5 million, respectively. The total revenue related to the beverage concessionaire agreements for the years ended December 31, 2009, January 1, 2009 and the 2007 post-IPO period is $36.3 million, $43.3 million and $40.9 million, respectively. In addition, the Company makes payments to the founding members for use of their screens and theatres for its Fathom Events businesses. These payments are at rates (percentage of event revenue) included in the ESAs based on the nature of the event. Payments to the founding members for these events totaled $6.7 million, $6.0 million and $3.8 million for the years ended December 31, 2009, January 1, 2009 and the 2007 post-IPO period, respectively.
F-59
NATIONAL CINEMEDIA LLC
NOTES TO FINANCIAL STATEMENTS
Also, pursuant to the terms of the LLC Operating Agreement in place since the close of NCM, Inc.’s IPO, NCM LLC is required to make mandatory distributions on a proportionate basis to its members of available cash, as defined in the LLC Operating Agreement, on a quarterly basis in arrears. Balances for the years ended December 31, 2009, January 1, 2009 and the 2007 post-IPO period are as follows (in millions):
| | | | | | | | | | | | | |
| | | 2009 | | 2008 | | Post-IPO |
| | | |
| AMC | | $ | 25.8 | | | $ | 24.3 | | | $ | 22.2 | |
| Cinemark | | | 20.8 | | | | 18.5 | | | | 16.7 | |
| Regal | | | 34.9 | | | | 32.7 | | | | 26.9 | |
| NCM, Inc. | | | 57.8 | | | | 55.6 | | | | 53.3 | |
| | | |
| Total | | $ | 139.3 | | | $ | 131.1 | | | $ | 119.1 | |
| | | |
On January 26, 2006, AMC acquired the Loews Cineplex Entertainment Inc. (“AMC Loews”) theatre circuit. The Loews screen integration agreement, effective as of January 5, 2007 and amended and restated as of February 13, 2007, between NCM LLC and AMC, committed AMC to cause substantially all of the theatres it acquired as part of the Loews theatre circuit to be included in the NCM digital network in accordance with the ESAs on June 1, 2008. In accordance with the Loews screen integration agreement, prior to June 1, 2008 AMC paid the Company amounts based on an agreed-upon calculation to reflect cash amounts that approximated what NCM LLC would have generated if the Company sold on-screen advertising in the Loews theatre chain on an exclusive basis. These AMC Loews payments were made on a quarterly basis in arrears through May 31, 2008, with the exception of Star Theatres, which were paid through February 2009 in accordance with certain run-out provisions. For the years ended December 31, 2009, January 1, 2009 and the 2007 post-IPO period, the AMC Loews payment was $0.1 million, $4.7 million and $11.2 million respectively. The AMC Loews payment was recorded directly to NCM LLC’s members’ equity account.
On April 30, 2008, Regal acquired Consolidated Theatres and NCM issued common membership units to Regal upon the closing of its acquisition in exchange for the right to exclusive access to the theatres (see Note 3). The Consolidated Theatres had a pre-existing advertising agreement and, as a result, Regal must make “integration” payments pursuant to the ESAs on a quarterly basis in arrears through 2011 in accordance with certain run-out provisions. For the years ended December 31, 2009 and January 1, 2009, the Consolidated Theatres payment was $3.2 million and $2.8 million, respectively and represents a cash element of the consideration received for the common membership units issued.
Amounts due to/from founding members at December 31, 2009 were comprised of the following (in millions):
| | | | | | | | | | | | | | | | | |
| | | AMC | | | Cinemark | | | Regal | | | Total | |
| | | |
| Theatre access fees, net of beverage revenues | | $ | 0.5 | | | $ | 0.4 | | | $ | 0.5 | | | $ | 1.4 | |
| Cost and other reimbursement | | | (0.5 | ) | | | (0.5 | ) | | | (0.5 | ) | | | (1.5 | ) |
| Distributions payable, net | | | 9.9 | | | | 7.9 | | | | 12.1 | | | | 29.9 | |
| | | | | | | | | | | | | |
| Total | | $ | 9.9 | | | $ | 7.8 | | | $ | 12.1 | | | $ | 29.8 | |
| | | | | | | | | | | | �� | |
Amounts due to/from founding members at January 1, 2009 were comprised of the following (in millions):
| | | | | | | | | | | | | | | | | |
| | | AMC | | | Cinemark | | | Regal | | | Total | |
| | | |
| Theatre access fees, net of beverage revenues | | $ | (0.1 | ) | | $ | — | | | $ | 0.7 | | | $ | 0.6 | |
| Cost and other reimbursement | | | (1.1 | ) | | | (0.5 | ) | | | (0.6 | ) | | | (2.2 | ) |
| Distributions payable, net | | | 8.9 | | | | 7.0 | | | | 11.3 | | | | 27.2 | |
| | | | | | | | | | | | | |
| Total | | $ | 7.7 | | | $ | 6.5 | | | $ | 11.4 | | | $ | 25.6 | |
| | | | | | | | | | | | | |
F-60
NATIONAL CINEMEDIA LLC
NOTES TO FINANCIAL STATEMENTS
2007 Pre-IPO Period –
At the formation of NCM LLC and upon the admission of Cinemark as a founding member, circuit share arrangements and administrative services fee arrangements were in place with each founding member. Circuit share cost and administrative fee revenue by founding member were as follows (in millions):
| | | | | | | | | |
| | | Pre-IPO Period December 29, 2006 |
| | | through February 12, 2007 |
| | | Circuit Share | | Administrative |
| | | Cost | | Fee Revenue |
| | | |
| AMC | | $ | 4.1 | | | $ | — | |
| Cinemark | | | 3.7 | | | | 0.1 | |
| Regal | | | 6.6 | | | | — | |
| | | |
| Total | | $ | 14.4 | | | $ | 0.1 | |
| | | |
At the closing of NCM, Inc.’s IPO, the founding members entered into amended and restated ESAs, which, among other things, amended the circuit share structure in favor of the theatre access fee structure.
Pursuant to the agreements entered into at the completion of NCM, Inc.’s IPO, amounts owed to the founding members through the date of NCM, Inc.’s IPO of $50.8 million were paid by NCM LLC on March 15, 2007.
Other –
During the years ended December 31, 2009, January 1, 2009, the 2007 post-IPO period, and the 2007 pre-IPO period, AMC, Cinemark and Regal purchased $1.9 million, $2.3 million, $1.4 million and $0.1 million respectively, of NCM LLC’s advertising inventory for their own use. The value of such purchases are calculated by reference to NCM LLC’s advertising rate card and is included in advertising revenue.
Included in Fathom Events operating costs is $1.0 million, $1.8 million, $3.3 million and $0.2 million for the years ended December 31, 2009, January 1, 2009, the 2007 post-IPO period and the 2007 pre-IPO period respectively, related to purchases of movie tickets and concession products from the founding members primarily for marketing resale to NCM LLC’s customers.
National CineMedia, Inc. –
Pursuant to the LLC Operating Agreement, as the sole manager of NCM LLC, NCM, Inc. provides certain specific management services to NCM LLC, including those services of the positions of president and chief executive officer, president of sales and chief marketing officer, executive vice president and chief financial officer, executive vice president and chief operations officer and executive vice president and general counsel. In exchange for the services, NCM LLC reimburses NCM, Inc. for compensation and other expenses of the officers and for certain out-of-pocket costs. During the years ended December 31, 2009 and January 1, 2009 and the 2007 post-IPO period, NCM LLC paid NCM, Inc. $10.8 million, $9.7 million and $9.2 million, respectively, for these services and expenses. The payments for estimated management services related to employment are made one month in advance. At December 31, 2009 and January 1, 2009, $0.6 million and $0.5 million, respectively, has been paid in advance and is reflected as prepaid management fees to managing member in the accompanying financial statements. NCM LLC also provides administrative and support services to NCM, Inc. such as office facilities, equipment, supplies, payroll and accounting and financial reporting at no charge. Based on the limited activities of NCM, Inc. as a standalone entity, the Company does not believe such unreimbursed costs are significant. The management services agreement also provides that NCM LLC employees may participate in the NCM, Inc. equity incentive plan (see Note 7).
Amounts due to/from managing member were comprised of the following (in millions):
| | | | | | | | | | | | | |
| | | At December 31, 2009 | | At January 1, 2009 | | | | |
| | | |
| Distributions payable | | $ | 22.0 | | | $ | 21.0 | | | | | |
| Cost and other reimbursement | | | 0.9 | | | | 1.1 | | | | | |
| | | |
| Total | | $ | 22.9 | | | $ | 22.1 | | | | | |
| | | |
F-61
NATIONAL CINEMEDIA LLC
NOTES TO FINANCIAL STATEMENTS
6. BORROWINGS
On February 13, 2007, concurrently with the closing of the IPO of NCM, Inc., NCM LLC entered into a senior secured credit facility with a group of lenders. The facility consists of a six-year $80.0 million revolving credit facility and an eight-year, $725.0 million term loan facility. The revolving credit facility portion is available, subject to certain conditions, for general corporate purposes of the Company in the ordinary course of business and for other transactions permitted under the credit agreement, and a portion is available for letters of credit.
The outstanding balance of the term loan facility at December 31, 2009 and January 1, 2009 was $725.0 million. The outstanding balance under the revolving credit facility at December 31, 2009 and January 1, 2009 was $74.0 million. As of December 31, 2009, the effective rate on the term loan was 5.59% including the effect of the interest rate swaps (both those accounted for as hedges and those not). The interest rate swaps hedged $550.0 million of the $725.0 million term loan at a fixed interest rate of 6.734% while the unhedged portion was at an interest rate of 2.01%. The weighted-average interest rate on the unhedged revolver was 1.99%. Commencing with the fourth fiscal quarter in fiscal year 2008, the applicable margin for the revolving credit facility is determined quarterly and is subject to adjustment based upon a consolidated net senior secured leverage ratio for NCM LLC and its subsidiaries (the ratio of secured funded debt less unrestricted cash and cash equivalents, over a non-GAAP measure defined in the credit agreement which is equivalent to Adjusted OIBDA). The senior secured credit facility also contains a number of covenants and financial ratio requirements, with which the Company was in compliance at December 31, 2009, including the consolidated net senior secured leverage ratio. There are no distribution restrictions as long as the Company is in compliance with its debt covenants. As of December 31, 2009, our consolidated net senior secured leverage ratio was 4.0 times the covenant. The debt covenants also require 50% of the term loan, or $362.5 million to be hedged at a fixed rate. As of December 31, 2009, the Company had approximately $550 million or 76% hedged. Of the $550.0 million that is hedged, $137.5 million is with Lehman Brothers Special Financing (“LBSF”). As described further in Note 12, in February 2010 LBSF transferred its interest rate swap agreement to Barclays Bank PLC (“Barclays”). See Note 10 for an additional discussion of the interest rate swaps.
On September 15, 2008, Lehman Brothers Holdings Inc. (“Lehman”) filed for protection under Chapter 11 of the federal Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York. NCM LLC has an aggregate revolving credit facility commitment of $80.0 million with a consortium of banks, including $20.0 million with Lehman Commercial Paper Inc. (“LCPI”), a subsidiary of Lehman. As of December 31, 2009, NCM LLC borrowed $14.0 million from LCPI under the revolving credit facility. Following the bankruptcy filing, LCPI failed to fund a borrowing request related to its undrawn commitment of $6.0 million. On February 3, 2010, LCPI assigned the $6.0 million commitment to Barclays. Until the LCPI issues are resolved, NCM LLC is not anticipating repaying any of its revolver borrowings as it would effectively result in a permanent reduction of its revolving credit facility, to the extent of any payments of LCPI commitments. In addition, NCM LLC has been working with LCPI and its other lenders with the goal of having LCPI’s agency function transferred to another bank within NCM LLC’s lender group and restructuring LCPI’s outstanding $14.0 million revolving loan such that (i) it would not be required to be repaid, nor would it share in any pro rata prepayments of the revolving loans, until the final maturity date of the revolving credit facility, and (ii) it would not be available for reborrowing in the event that it was prepaid. Until these LCPI issues are resolved, however, NCM LLC is not anticipating repaying any of its revolver borrowings as it would effectively result in a permanent reduction of its revolving credit facility, to the extent of the payments against LCPI borrowings.
On March 19, 2009, the Company gave an $8.5 million note payable to Credit Suisse, Cayman Islands Branch (“Credit Suisse”) with no stated interest to settle the $10.0 million contingent put obligation and to acquire the $20.7 million outstanding principal balance of debt of IdeaCast, Inc. (“IdeaCast”) (together with all accrued interest and other lender costs required to be reimbursed by IdeaCast). Quarterly payments to Credit Suisse began on April 15, 2009 and will continue through January 15, 2011. At issuance the Company recorded the note at a present value of $7.0 million. At December 31, 2009, $4.3 million of the balance is recorded in current liabilities and $0.3 million is included in non-current liabilities. Interest on the note is accreted at the Company’s estimated incremental cost of debt based on then current market indicators over the term of the loan to interest expense. The amount of interest expense recognized on the note for the year ended December 31, 2009 was $0.7 million. See Note 9 “—Contingent Put Obligation” for additional discussion of the IdeaCast restructuring.
F-62
NATIONAL CINEMEDIA LLC
NOTES TO FINANCIAL STATEMENTS
Future Maturities of Long-Term Borrowings—
The scheduled annual maturities on the credit facility for the next five years as of December 31, 2009 are as follows (in millions):
| | | | | |
| 2010 | | $ | 4.3 | |
| 2011 | | | — | |
| 2012 | | | — | |
| 2013 | | | 74.0 | |
| 2014 | | | — | |
| Thereafter | | | 725.0 | |
| | | | |
| Total | | $ | 803.3 | |
| | | | |
7. SHARE-BASED COMPENSATION
On April 4, 2006, NCM LLC’s board of directors approved the NCM LLC 2006 Unit Option Plan, under which 1,131,728 units were outstanding as of December 28, 2006. Under certain circumstances, holders of unit options could put the options to NCM LLC for cash. As such, the Unit Option Plan was accounted for as a liability plan and the liability was measured at its fair value at each reporting date. The valuation of the liability was determined based on provisions of ASC Topic 718Compensation — Stock Compensation(formerly SFAS No. 123(R)), and factored into the valuation that the options were granted in contemplation of NCM, Inc.’s IPO. The Company used the estimated pricing of NCM, Inc.’s IPO at the time of the grant to determine the equity value, for each unit underlying the options. The Unit Option Plan allowed for additional equity awards to be issued to outstanding option holders in the event of the occurrence of NCM, Inc.’s IPO, with the purpose of the additional option awards or restricted units being to ensure that the economic value of outstanding unit options, as defined in the agreement, held just prior to NCM, Inc.’s IPO was maintained by the option holder immediately after the offering.
At the date of the NCM, Inc. IPO, the Company adopted the NCM, Inc. 2007 Equity Incentive Plan. The employees of NCM, Inc. and NCM LLC are eligible to participate in the Equity Incentive Plan. Under the Equity Incentive Plan, eligible employees were issued stock options on 1,589,625 shares of common stock to holders of outstanding unit options in substitution of the unit options and also issued 262,466 shares of restricted stock. In connection with the conversion at the date of NCM, Inc.’s IPO, and pursuant to the antidilution adjustment terms of the Unit Option Plan, the exercise price and the number of shares of common stock subject to options held by the Company’s option holders were adjusted to prevent dilution and restore their economic position to that existing immediately before the NCM, Inc. IPO. The Equity Incentive Plan is treated as an equity plan under the provisions of Topic 718, and the existing liability under the Unit Option Plan at the end of the 2007 pre-IPO period of $2.3 million was reclassified to equity at that date.
As of December 31, 2009, there were 7,076,000 shares of common stock available for issuance or delivery under the Equity Incentive Plan. Options awarded under the Equity Incentive Plan are generally granted with an exercise price equal to the market price of NCM, Inc. common stock on the date of the grant. Upon vesting of the awards, NCM LLC will issue common membership units to NCM, Inc. equal to the number of shares of NCM, Inc.’s common stock represented by such awards. Under the fair value recognition provisions of Topic 718, the Company recognizes stock-based compensation net of an estimated forfeiture rate, and therefore only recognizes stock-based compensation cost for those shares expected to vest over the requisite service period of the award. Options generally vest annually over a three or five-year period and have either 10-year or 15-year contractual terms. A forfeiture rate of 5% was estimated for all employees to reflect the potential separation of employees.
The recognized expense, including equity based compensation costs of NCM, Inc. employees, is included in the operating results of NCM LLC. The Company recognized $3.1 million, $2.1 million, $1.9 million, and $0.3 million for the year ended December 31, 2009, January 1, 2009, the 2007 post-IPO period, and the 2007 pre-IPO period, respectively, of share-based compensation expense for these options and $0.1 million and $0.1 million were capitalized during the year ended December 31, 2009 and January 1, 2009, respectively. As of December 31, 2009, unrecognized compensation cost related to nonvested options was approximately $7.1 million, which will be recognized over a weighted average remaining period of 2.33 years.
F-63
NATIONAL CINEMEDIA LLC
NOTES TO FINANCIAL STATEMENTS
The weighted average grant date fair value of granted options was $2.17, $3.77 and $6.23 for the years ended December 31, 2009 and January 1, 2009 and the 2007 post-IPO period, respectively. The intrinsic value of options exercised during the year was $0.2 million for both years ended December 31, 2009 and January 1, 2009. During the year ended December 31, 2009 there was an immaterial amount of cash received on options exercised and $0.6 million received for the 2008 period. The total fair value of awards vested during the years ended December 31, 2009 and January 1, 2009 was $0.3 million and $3.9 million, respectively. There were no options vested or exercised prior to the 2008 fiscal year.
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model, which requires that the Company make estimates of various factors. The following assumptions were used in the valuation of the options:
| | | | | | | | | | | | | |
| | | Fiscal 2009 | | Fiscal 2008 | | Fiscal 2007 |
| Expected life of options | | 6.5 years | | 6.5 years | | | 6.5 to 9 years | |
| | | | | | | | | | | | | |
| Risk free interest rate | | 2.23% to 3.70% | | 3.74% to 4.09% | | 4.1% to 4.9% |
| | | | | | | | | | | | | |
| Expected volatility | | | 30 | % | | | 30 | % | | | 30 | % |
| | | | | | | | | | | | | |
| Dividend yield | | | 3 | % | | | 3 | % | | | 3 | % |
Activity in the Equity Incentive Plan, as converted, is as follows:
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Weighted | | |
| | | | | | | Weighted | | Average | | Aggregate |
| | | | | | | Average | | Remaining | | Intrinsic |
| | | | | | | Exercise | | Contractual Life | | Value (in |
| | | Shares | | Price | | (in years) | | millions) |
| | | |
| Outstanding at January 1, 2009 | | | 2,025,099 | | | $ | 17.33 | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Granted | | | 1,156,515 | | | | 9.53 | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Exercised | | | (1,800 | ) | | | 5.35 | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Forfeited | | | (53,254 | ) | | | 14.35 | | | | | | | | | |
| | | |
| Outstanding at December 31, 2009 | | | 3,126,560 | | | $ | 14.51 | | | | 9.9 | | | $ | 9.2 | |
| | | | | | | | | | | | | | | | | |
| Exercisable at December 31, 2009 | | | 648,359 | | | $ | 17.67 | | | | 10.5 | | | $ | 0.2 | |
| | | | | | | | | | | | | | | | | |
| Vested and Expected to Vest at December 31, 2009 | | | 3,090,782 | | | $ | 14.52 | | | | 9.9 | | | $ | 9.0 | |
The following table summarizes information about the stock options at December 31, 2009, including the weighted average remaining contractual life and weighted average exercise price:
| | | | | | | | | | | | | | | | | | | | | |
| | | Options Outstanding | | Options Exercisable |
| | | | | | | Weighted | | Weighted | | | | | | Weighted |
| | | Number | | Average | | Average | | Number | | Average |
| | | Outstanding at | | Remaining Life | | Exercise | | Exercisable at | | Exercise |
| Range of Exercise Price | | Dec. 31, 2009 | | (in years) | | Price | | Dec. 31, 2009 | | Price |
| $5.35-$9.22 | | | 1,126,350 | | | | 9.0 | | | $ | 9.06 | | | | 7,800 | | | $ | 5.35 | |
| $11.59-$15.04 | | | 136,408 | | | | 8.9 | | | | 13.47 | | | | 14,600 | | | | 12.33 | |
| $16.35–$18.01 | | | 1,409,436 | | | | 11.3 | | | | 16.52 | | | | 476,280 | | | | 16.56 | |
| $19.37-$21.00 | | | 301,500 | | | | 7.5 | | | | 20.35 | | | | 96,000 | | | | 20.59 | |
| $24.04–$29.05 | | | 152,866 | | | | 10.1 | | | | 25.40 | | | | 53,679 | | | | 25.59 | |
| | | |
| | | | 3,126,560 | | | | 9.9 | | | $ | 14.51 | | | | 648,359 | | | $ | 17.67 | |
| | | |
F-64
NATIONAL CINEMEDIA LLC
NOTES TO FINANCIAL STATEMENTS
Non-vested (Restricted) Stock— NCM, Inc. has a non-vested stock program as part of the Equity Incentive Plan. The plan provides for non-vested stock awards to officers, board members and other key employees, including employees of NCM LLC. Under the non-vested stock program, common stock of NCM, Inc. may be granted at no cost to officers, board members and key employees, subject to a continued employment restriction and as such restrictions lapse, the award vests in that proportion. The participants are entitled to cash dividends from NCM, Inc. and to vote their respective shares, although the sale and transfer of such shares is prohibited and the shares are subject to forfeiture during the restricted period. The shares are also subject to the terms and provisions of the Equity Incentive Plan. Non-vested stock awards granted in 2009 include performance vesting conditions, which permit vesting to the extent that NCM, Inc. achieves specified non-GAAP targets at the end of the three-year period. Non-vested stock granted to non-employee directors vest after one year. Compensation cost is valued based on the market price on the grant date and is expensed over the vesting period.
The following table represents the shares of non-vested stock:
| | | | | | | | | |
| | | | | | | Weighted |
| | | | | | | Average Grant- |
| | | Shares | | Date Fair Value |
| | | |
| Non-vested as of January 1, 2009 | | | 203,618 | | | $ | 20.91 | |
| | | | | | | | | |
| Granted | | | 424,555 | | | | 9.50 | |
| | | | | | | | | |
| Forfeited | | | (12,500 | ) | | | 10.10 | |
| | | | | | | | | |
| Vested | | | (25,299 | ) | | | 21.93 | |
| | | |
| Non-vested as of December 31, 2009 | | | 590,374 | | | $ | 13.15 | |
The recognized expense, including the equity based compensation costs of NCM, Inc. employees, is included in the operating results of NCM LLC. The Company recorded $2.4 million, $1.3 million and $1.2 million in compensation expense related to such outstanding non-vested shares during the years ended December 31, 2009, January 1, 2009 and the 2007 post-IPO period. Minimal amounts were capitalized during the 2009 fiscal year. As of December 31, 2009, unrecognized compensation cost related to non-vested stock was approximately $5.1 million, which will be recognized over a weighted average remaining period of 2.27 years. The total fair value of awards vested during the year ended December 31, 2009 was $0.3 million.
8. EMPLOYEE BENEFIT PLANS
NCM LLC sponsors the NCM 401(k) Profit Sharing Plan (the “Plan”) under Section 401(k) of the Internal Revenue Code of 1986, as amended, for the benefit of substantially all full-time employees. The Plan provides that participants may contribute up to 20% of their compensation, subject to Internal Revenue Service limitations. Employee contributions are invested in various investment funds based upon election made by the employee. The recognized expense, including the discretionary contributions of NCM, Inc. employees, is included in the operating results of NCM LLC. The Company made discretionary contributions of $0.8 million, $0.8 million, and $0.6 million during the years ended December 31, 2009, January 1, 2009 and December 27, 2007, respectively.
9. COMMITMENTS AND CONTINGENCIES
The Company is subject to claims and legal actions in the ordinary course of business. The Company believes such claims will not have a material adverse effect on its financial position or results of operations.
Operating Lease Commitments
The Company leases office facilities for its headquarters in Centennial, Colorado and also in various cities for its sales and marketing personnel as sales offices. The Company has no capital lease obligations. Total lease expense for the years ended December 31, 2009, January 1, 2009, 2007 post-IPO period and the 2007 pre-IPO period, was $2.3 million, $2.0 million, $1.3 million, and $0.3 million, respectively.
F-65
NATIONAL CINEMEDIA LLC
NOTES TO FINANCIAL STATEMENTS
Future minimum lease payments under noncancelable operating leases as of December 31, 2009 are as follows (in millions):
| | | | | |
| 2010 | | $ | 2.2 | |
| 2011 | | | 2.1 | |
| 2012 | | | 2.0 | |
| 2013 | | | 1.9 | |
| 2014 | | | 0.8 | |
| Thereafter | | | 0.2 | |
| | | | |
| Total | | $ | 9.2 | |
| | | | |
Contingent Put Obligation
On April 29, 2008, NCM LLC, IdeaCast, the IdeaCast lender and certain of its stockholders agreed to a financial restructuring of IdeaCast. Among other things, the restructuring resulted in the lender being granted an option to “put,” or require NCM LLC to purchase, up to $10 million of the funded convertible debt at par, on or after December 31, 2010 through March 31, 2011. The put was accounted for under ASC Topic 460-10Guarantees(formerly FIN No. 45 (as amended),Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others). During the fourth quarter of 2008, the Company determined that the initial investment and call right in IdeaCast were other-than-temporarily impaired due to IdeaCast’s defaults on its senior debt and liquidity issues and that the put obligation was probable. The Company estimated a liability at January 1, 2009 of $4.5 million, which represented the excess of the estimated probable loss on the put (net of estimated recoveries from the net assets of IdeaCast that serve as collateral for the convertible debt) obligation over the unamortized ASC Topic 460-10 liability. The total amount of the impairment and related loss recorded in the fourth quarter of 2008 was $11.5 million.
On March 19, 2009, NCM LLC, IdeaCast and IdeaCast’s lender agreed to certain transactions with respect to the IdeaCast Credit Agreement. Among other things, these agreements resulted in (i) the termination of the Put and the Call; (ii) the transfer, sale and assignment by IdeaCast’s lender to NCM LLC of all of its right, title and interest under the Credit Agreement, including without limitation the loans outstanding under the Credit Agreement; (iii) the resignation of IdeaCast’s lender, and the appointment of NCM LLC, as administrative agent and collateral agent under the Credit Agreement; and (iv) the delivery by NCM LLC to IdeaCast’s lender of a non-interest bearing promissory note in the amount of $8.5 million payable through January 2011. On June 16, 2009, NCM LLC’s interest in the Credit Agreement was assigned to NCM Out-Of-Home, LLC (“OOH”), which was a wholly-owned subsidiary of NCM LLC. OOH was also appointed as administrative agent and collateral agent under the Credit Agreement. On June 16, 2009, OOH, as IdeaCast’s senior secured lender, foreclosed on substantially all of the assets of IdeaCast, consisting of certain tangible and intangible assets (primarily equipment, business processes and contracts with health clubs and programming partners). The assets were valued at approximately $8.2 million. On June 29, 2009, NCM LLC transferred its ownership interest in OOH to RMG, a digital advertising company, in exchange for approximately 24% of the equity (excluding out-of-the-money warrants) of RMG on a fully diluted basis through a combination of convertible preferred stock, common stock and common stock warrants (refer to Note 1-Equity Method Investments). The Company’s investment in RMG was valued at the fair value of the assets contributed.
Minimum Revenue Guarantees
As part of the network affiliate agreements entered in the ordinary course of business under which the Company sells advertising for display in various theatre chains other than those of the founding members of NCM LLC, the Company has agreed to certain minimum revenue guarantees. If an affiliate achieves the attendance set forth in their respective agreement, the Company has guaranteed minimum revenue for the network affiliate per attendee if such amount paid under the revenue share arrangement is less than its guaranteed amount. The amount and term varies for each network affiliate, but ranges from 2-5 years. The maximum potential amount of future payments the Company could be required to make pursuant to the minimum revenue guarantees is $21.2 million over the remaining terms of the network affiliate agreements. For the years ended December 31, 2009 and January 1, 2009 the Company had no liabilities recorded for these obligations as such guarantees are less than the expected share of revenue paid to the affiliate.
F-66
NATIONAL CINEMEDIA LLC
NOTES TO FINANCIAL STATEMENTS
10. FAIR VALUE MEASUREMENTS AND DERIVATIVE INSTRUMENTS
Fair Value Measurements—The fair values of the Company’s assets and liabilities measured on a recurring basis pursuant to ASC Topic 820-10Fair Value Measurements and Disclosures(formerly FAS No. 157,Fair Value Measurements and Disclosures) are as follows (in millions):
| | | | | | | | | | | | | | | | | |
| | | | | | | Fair Value Measurements at Reporting Date Using |
| | | | | | | Quoted Prices in | | Significant | | |
| | | At | | Active Markets | | Other | | Significant |
| | | December 31, | | for Identical | | Observable | | Unobservable |
| | | 2009 | | Assets (Level 1) | | Inputs (Level 2) | | Inputs (Level 3) |
| | | |
| LIABILITIES: | | | | | | | | | | | | | | | | |
| | | |
| Interest Rate Swap Agreements | | $ | 54.6 | | | | — | | | $ | 54.6 | | | | — | |
| | | |
Derivative Instruments—NCM LLC has interest rate swap agreements with four counterparties that, at their inception, qualified for and were designated as cash flow hedges against interest rate exposure on $550.0 million of the variable rate debt obligations under the senior secured credit facility. The interest rate swap agreements have the effect of converting a portion of the Company’s variable rate debt to a fixed rate of 6.734%. All interest rate swaps were entered into for risk management purposes. The Company has no derivatives for other purposes.
On September 15, 2008, Lehman filed for protection under Chapter 11 of the Federal Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York. LBSF is the counterparty to a notional amount of $137.5 million of NCM LLC’s interest rate swaps, and Lehman is a guarantor of LBSF’s obligations under such swap. NCM LLC notified LBSF on September 18, 2008 that, as a result of the bankruptcy of Lehman, an event of default had occurred under the swap with respect to which LBSF was the defaulting party. On October 3, 2008, LBSF also filed for Chapter 11 protection, which constituted another default by LBSF under the swap. As a result, as permitted under the terms of NCM LLC’s swap agreement with LBSF, the Company has withheld interest rate swap payments aggregating $5.5 million in the year ended December 31, 2009 and $1.5 million in the year ended January 1, 2009 that were due to LBSF, and has further notified LBSF that the bankruptcy and insolvency of both Lehman and LBSF constitute default events under the swap. As of December 31, 2009 the interest rate swap agreement had not been terminated.
The Company performed an effectiveness test for the swaps with LBSF as of September 14, 2008, the day immediately prior to the default date, and determined they were effective on that date. As a result, the fair values of the interest rate swap on that date was recorded as a liability with an offsetting amount recorded in other comprehensive income. Cash flow hedge accounting was discontinued on September 15, 2008 due to the event of default and the inability of the Company to continue to demonstrate the swap would be effective. The Company continues to record the interest rate swap with LBSF at fair value with any change in the fair value recorded in the statement of operations.
There was an $8.3 million decrease and a $13.8 million increase in the fair value of the liability for the years ended December 31, 2009 and January 1, 2009, respectively, which the Company recorded as a component of interest expense. In accordance with Topic 815Derivatives and Hedging, the net derivative loss as of September 14, 2008 related to the discontinued cash flow hedge with LBSF shall continue to be reported in accumulated other comprehensive income unless it is probable that the forecasted transaction will not occur by the end of the originally specified time period. Accordingly, the net derivative loss is being amortized to interest expense over the remaining term of the interest rate swap through February 13, 2015. The amount amortized during the years ended December 31, 2009 and January 1, 2009 were $1.3 million and $0.4 million, respectively. The Company estimates approximately $1.3 million will be amortized to interest expense in the next 12 months.
Both at inception and on an on-going basis the Company performs an effectiveness test using the hypothetical derivative method. The fair values of the interest rate swaps with the counterparties other than LBSF (representing notional amounts of $412.5 million associated with a like amount of the variable rate debt) are recorded on the Company’s balance sheet as a liability with the change in fair value recorded in other comprehensive income since the instruments other than LBSF were determined to be perfectly effective at December 31, 2009 and January 1, 2009. There were no amounts reclassified into current earnings due to ineffectiveness during the periods presented other than as described below.
The fair value of the Company’s interest rate swap is based on dealer quotes, and represents an estimate of the amount the Company would receive or pay to terminate the agreements taking into consideration various factors, including current interest rates and the forward yield curve for 3-month LIBOR.
F-67
NATIONAL CINEMEDIA LLC
NOTES TO FINANCIAL STATEMENTS
At December 31, 2009 and January 1, 2009, the estimated fair value and line item caption of derivative instruments recorded were as follows (in millions):
| | | | | | | | | | | | | |
| | | Liability Derivatives | |
| | | As of December 31, 2009 | | | As of January 1, 2009 | |
| | | Balance Sheet | | Fair | | | Balance Sheet | | Fair | |
| | | Location | | Value | | | Location | | Value | |
| | | |
| Derivatives designated as hedging instruments: | | | | | | | | | | | | |
| Interest Rate Swaps | | Other Liabilities | | $ | 40.9 | | | Other Liabilities | | $ | 65.8 | |
| | | | | | | | | | | | | |
| Derivatives not designated as hedging instruments: | | | | | | | | | | | | |
| Interest Rate Swaps | | Other Liabilities | | $ | 13.7 | | | Other Liabilities | | $ | 21.9 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | |
| Total derivatives | | | | $ | 54.6 | | | | | $ | 87.7 | |
The effect of derivative instruments in cash flow hedge relationships on the financial statements for the year ended December 31, 2009, January 1, 2009, the 2007 post-IPO period were as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Unrealized Gain (Loss) | | | Realized Gain (Loss) |
| | | Recognized in NCM LLC’s | | | Recognized in Interest |
| | | OCI (Pre-tax) | | | Expense (Pre-tax) |
| | | | | | | | | | | Period | | | | | | | | | | | Period |
| | | | | | | | | | | Feb. 13, | | | | | | | | | | | Feb. 13, |
| | | Year | | Year | | 2007 | | | Year | | Year | | 2007 |
| | | Ended | | Ended | | through | | | Ended | | Ended | | through |
| | | Dec. 31, | | Jan. 1, | | Dec. 27, | | | Dec. 31, | | Jan. 1, | | Dec. 27, |
| | | 2009 | | 2009 | | 2007 | | | 2009 | | 2009 | | 2007 |
| | | | | | |
| Interest Rate Swaps | | $ | 9.3 | | | $ | (67.9 | ) | | $ | (12.3 | ) | | | $ | (16.7 | ) | | $ | (8.8 | ) | | $ | 2.1 | |
There was $1.3 million and $0.4 million $0.0 million and $0.0 million of ineffectiveness recognized for the years ended December 31, 2009, January 1, 2009, the 2007 post-IPO period and the 2007 pre-IPO period, respectively.
The effect of derivative not designated as hedging instruments under Topic 815 on the financial statements for the years ended December 31, 2009, January 1, 2009, the 2007 post-IPO period and the 2007 pre-IPO period were as follows (in millions):
| | | | | | | | | | | | | |
| | | Gain or (Loss) Recognized in |
| | | Interest Expense (Pre-tax) |
| | | | | | | | | �� | | Period |
| | | | | | | | | | | Feb. 13, |
| | | Year | | Year | | 2007 |
| | | Ended | | Ended | | through |
| | | Dec. 31, | | Jan. 1, | | Dec. 27, |
| | | 2009 | | 2009 | | 2007 |
| | | |
| Borrowings | | $ | (6.2 | ) | | $ | (1.0 | ) | | $ | — | |
| Change in derivative fair value | | | 7.0 | | | | (14.2 | ) | | | — | |
| | | |
| Total | | $ | 0.8 | | | $ | (15.2 | ) | | $ | — | |
| | | |
11. SEGMENT REPORTING
Advertising is the principal business activity of the Company and is the Company’s reportable segment under the requirements of ASC Topic 280,Segment Reporting. Advertising revenue accounts for 88.0%, 89.4%, 91.7% and 87.7% of revenue for the years ended December 31, 2009, January 1, 2009, the post-IPO period and the pre-IPO period, respectively. Fathom Consumer Events and Fathom Business Events are operating segments under ASC Topic 280, but do not meet the quantitative thresholds for segment reporting. The following table presents revenues less directly identifiable expenses to arrive at operating income net of direct expenses for the Advertising reportable segment, the combined Fathom Events operating segments, and Network, Administrative and Unallocated costs. Management does not evaluate its segments on a fully allocated cost basis. Therefore, the measure of segment operating income net of direct expenses shown below is not prepared on the same basis as operating income in the statement of operations and the results below are not indicative of what segment results of operations would have been had it been operated on a fully allocated cost basis. Management
F-68
NATIONAL CINEMEDIA LLC
NOTES TO FINANCIAL STATEMENTS
cautions that it would be inappropriate to assume that unallocated operating costs are incurred proportional to segment revenue or any directly identifiable segment expenses. Unallocated operating costs consist primarily of network costs, general and administrative costs and other unallocated costs including depreciation and amortization. Management does not track segment assets and, therefore, segment asset information is not presented.
| | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, 2009 (in millions) | |
| | | | | | | | | | | Network, | | | | |
| | | | | | | | | | | Administrative | | | | |
| | | | | | | | | | | and | | | | |
| | | | | | | | | | | Unallocated | | | | |
| | | Advertising | | | Other | | | Costs | | | Total | |
| | | |
| Revenue | | $ | 335.1 | | | $ | 45.5 | | | $ | 0.1 | | | $ | 380.7 | |
| Operating costs | | | 72.7 | | | | 29.1 | | | | | | | | 101.8 | |
| Selling and marketing costs | | | 40.6 | | | | 8.6 | | | | 1.0 | | | | 50.2 | |
| Other costs | | | 2.8 | | | | 0.9 | | | | | | | | 3.7 | |
| | | | | | | | | | | |
| Operating income, net of direct expenses | | $ | 219.0 | | | $ | 6.9 | | | | | | | | | |
| Network, administrative and other costs | | | | | | | | | | | 56.8 | | | | 56.8 | |
| | | | | | | | | | | | | | | | |
| Total Operating Income | | | | | | | | | | | | | | $ | 168.2 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | Year Ended January 1, 2009 (in millions) | |
| | | | | | | | | | | Network, | | | | |
| | | | | | | | | | | Administrative | | | | |
| | | | | | | | | | | and | | | | |
| | | | | | | | | | | Unallocated | | | | |
| | | Advertising | | | Other | | | Costs | | | Total | |
| | | |
| Revenue | | $ | 330.3 | | | $ | 38.9 | | | $ | 0.3 | | | $ | 369.5 | |
| Operating costs | | | 68.5 | | | | 25.1 | | | | | | | | 93.6 | |
| Selling and marketing costs | | | 38.5 | | | | 8.3 | | | | 1.1 | | | | 47.9 | |
| Other costs | | | 2.8 | | | | 0.8 | | | | | | | | 3.6 | |
| | | | | | | | | | | |
| Operating income, net of direct expenses | | $ | 220.5 | | | $ | 4.7 | | | | | | | | | |
| Network, administrative and other costs | | | | | | | | | | | 51.2 | | | | 51.2 | |
| | | | | | | | | | | | | | | | |
| Total Operating Income | | | | | | | | | | | | | | $ | 173.2 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | Period February 13, 2007 through December 27, 2007 | |
| | | (in millions) | |
| | | | | | | | | | | Network, | | | | |
| | | | | | | | | | | Administrative | | | | |
| | | | | | | | | | | and | | | | |
| | | | | | | | | | | Unallocated | | | | |
| | | Advertising | | | Other | | | Costs | | | Total | |
| | | |
| Revenue | | $ | 282.7 | | | $ | 25.4 | | | $ | 0.2 | | | $ | 308.3 | |
| Operating costs | | | 50.6 | | | | 15.4 | | | | | | | | 66.0 | |
| Selling and marketing costs | | | 32.2 | | | | 7.4 | | | | 1.3 | | | | 40.9 | |
| Other costs | | | 2.4 | | | | 0.4 | | | | | | | | 2.8 | |
| | | | | | | | | | | |
| Operating income, net of direct expenses | | $ | 197.5 | | | $ | 2.2 | | | | | | | | | |
| Network, administrative and other costs | | | | | | | | | | | 37.1 | | | | 37.1 | |
| | | | | | | | | | | | | | | | |
| Total Operating Income | | | | | | | | | | | | | | $ | 161.5 | |
| | | | | | | | | | | | | | | | |
F-69
NATIONAL CINEMEDIA LLC
NOTES TO FINANCIAL STATEMENTS
| | | | | | | | | | | | | | | | | |
| | | Period December 29, 2006 through February 12, 2007 | |
| | | (in millions) | |
| | | | | | | | | | | Network, | | | | |
| | | | | | | | | | | Administrative | | | | |
| | | | | | | | | | | and | | | | |
| | | | | | | | | | | Unallocated | | | | |
| | | Advertising | | | Other | | | Costs | | | Total | |
| | | |
| Revenue | | $ | 20.7 | | | $ | 2.9 | | | | | | | $ | 23.6 | |
| Operating costs | | | 15.5 | | | | 1.4 | | | | | | | | 16.9 | |
| Selling and marketing costs | | | 4.4 | | | | 0.8 | | | | | | | | 5.2 | |
| Other costs | | | 0.3 | | | | 0.1 | | | | | | | | 0.4 | |
| | | | | | | | | | | |
| Operating income, net of direct expenses | | $ | 0.5 | | | $ | 0.6 | | | | | | | | | |
| Network, administrative and other costs | | | | | | | | | | $ | 5.2 | | | | 5.2 | |
| | | | | | | | | | | | | | | | |
| Total Operating Income (Loss) | | | | | | | | | | | | | | | ($4.1 | ) |
| | | | | | | | | | | | | | | | |
The following is a summary of revenues by category, in millions:
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Period | | Period |
| | | | | | | | | | | February 13, | | December 29, |
| | | Year Ended | | Year Ended | | 2007 through | | 2006 through |
| | | December | | January 1, | | December 27, | | February 12, |
| | | 31, 2009 | | 2009 | | 2007 | | 2007 |
| | | |
| National Advertising Revenue | | $ | 236.8 | | | $ | 223.1 | | | $ | 187.1 | | | $ | 15.3 | |
| Founding Member Advertising Revenue | | | 36.3 | | | | 43.3 | | | | 40.9 | | | | — | |
| Regional Advertising Revenue | | | 62.0 | | | | 63.9 | | | | 54.7 | | | | 5.4 | |
| Fathom Consumer Revenue | | | 28.6 | | | | 20.2 | | | | 8.2 | | | | 1.4 | |
| Fathom Business Revenue | | | 16.9 | | | | 18.7 | | | | 17.2 | | | | 1.5 | |
| Other Revenue | | | 0.1 | | | | 0.3 | | | | 0.2 | | | | — | |
| | | |
| Total Revenues | | $ | 380.7 | | | $ | 369.5 | | | $ | 308.3 | | | $ | 23.6 | |
| | | |
12. SUBSEQUENT EVENTS
ASC Topic 855-10,Subsequent Events(formerly SFAS No. 165,Subsequent Events) requires the Company to disclose the date through which subsequent events have been evaluated, as well as whether that date is the date the financial statements were issued. For the year ended December 31, 2009, the Company evaluated, for potential recognition and disclosure, events that occurred prior to the filing of the Company’s financial statements in NCM, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2009 on March 9, 2010.
Effective February 8, 2010, NCM LLC entered into a novation agreement with Lehman Brothers Special Financing Inc. (“Lehman”) and Barclays Bank PLC (“Barclays”) whereby Lehman transferred to Barclays all the rights, liabilities, duties and obligations of NCM LLC’s interest rate swap agreement with Lehman with identical terms. NCM LLC accepted Barclays as its sole counterparty with respect to the new agreement. The term runs until February 13, 2015, subject to earlier termination upon the occurrence of certain specified events. Subject to the terms of the new agreement, NCM LLC or Barclays will make payments at specified intervals based on the variance between LIBOR and a fixed rate of 4.984% on a notional amount of $137,500,000. NCM LLC effectively pays a rate of 6.734% on this notional amount inclusive of the 1.75% margin currently required by NCM LLC’s credit agreement. The agreement with Barclays is secured by the assets of NCM LLC on a pari passu basis with the credit agreement (as defined in Note 6) and the other interest rates swaps that were entered into by NCM LLC. In consideration of Lehman entering into the transfer, NCM LLC agreed to pay to Lehman the full amount of interest rate swap payments withheld aggregating $7.0 million and an immaterial amount of default interest. The Company expects to redesignate the Barclays interest rate swap agreement as a cash flow hedge.
Effective February 3, 2010, LCPI entered into an assignment and assumption agreement with Barclays whereby LCPI transferred to Barclays the remaining unfunded revolving credit commitment of $6.0 million.
F-70
SUPPLEMENTAL SCHEDULES
As required by the indenture governing the senior notes, the Company has included in this filing, financial information for its subsidiaries that have been designated as unrestricted subsidiaries (as defined by the indenture). As required by the indenture governing the senior notes, 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 Company’s restricted subsidiaries and unrestricted subsidiaries as required by the indenture.
S-1
CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2009
(In thousands, except share data, unaudited)
| | | | | | | | | | | | | | | | | |
| | | Restricted | | Unrestricted | | | | |
| | | Group | | Group | | Eliminations | | Consolidated |
ASSETS | | | | | | | | | | | | | | | | |
| CURRENT ASSETS | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 161,523 | | | $ | 20,657 | | | $ | — | | | $ | 182,180 | |
| Inventories | | | 3,749 | | | | 797 | | | | — | | | | 4,546 | |
| Accounts receivable | | | 12,030 | | | | 4,443 | | | | (1,068 | ) | | | 15,405 | |
| Prepaid expenses and other | | | 4,194 | | | | 344 | | | | — | | | | 4,538 | |
| | | |
| Total current assets | | | 181,496 | | | | 26,241 | | | | (1,068 | ) | | | 206,669 | |
| | | | | | | | | | | | | | | | | |
| THEATRE PROPERTIES AND EQUIPMENT — net | | | 705,645 | | | | 84,921 | | | | — | | | | 790,566 | |
| | | | | | | | | | | | | | | | | |
| OTHER ASSETS | | | | | | | | | | | | | | | | |
| Goodwill | | | 8,887 | | | | 33,220 | | | | — | | | | 42,107 | |
| Investments in and advances to affiliates | | | 183,681 | | | | 8,224 | | | | (183,505 | ) | | | 8,400 | |
| Intangible assets, deferred charges and other assets — net | | | 51,989 | | | | 9,301 | | | | (11,292 | ) | | | 49,998 | |
| | | |
| Total other assets | | | 244,557 | | | | 50,745 | | | | (194,797 | ) | | | 100,505 | |
| | | |
| | | | | | | | | | | | | | | | | |
| TOTAL ASSETS | | $ | 1,131,698 | | | $ | 161,907 | | | $ | (195,865 | ) | | $ | 1,097,740 | |
| | | |
| | | | | | | | | | | | | | | | | |
LIABILITIES AND SHAREHOLDER’S EQUITY | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| CURRENT LIABILITIES | | | | | | | | | | | | | | | | |
| Current portion of long-term debt | | $ | 2,656 | | | $ | 4,215 | | | $ | — | | | $ | 6,871 | |
| Income tax payable | | | 14,293 | | | | (1,149 | ) | | | — | | | | 13,144 | |
| Accounts payable and accrued expenses | | | 123,979 | | | | 17,079 | | | | (1,066 | ) | | | 139,992 | |
| | | |
| Total current liabilities | | | 140,928 | | | | 20,145 | | | | (1,066 | ) | | | 160,007 | |
| | | | | | | | | | | | | | | | | |
| LONG-TERM LIABILITIES | | | | | | | | | | | | | | | | |
| Senior credit agreements | | | 252,899 | | | | 18,469 | | | | (11,292 | ) | | | 260,076 | |
| Senior subordinated notes | | | 353,330 | | | | — | | | | — | | | | 353,330 | |
| Deferred income taxes | | | 15,438 | | | | (11 | ) | | | — | | | | 15,427 | |
| Deferred lease expenses | | | 27,794 | | | | 1,724 | | | | — | | | | 29,518 | |
| Deferred gain on sale leasebacks | | | 3,275 | | | | — | | | | — | | | | 3,275 | |
| Deferred revenues and other long-term liabilities | | | 3,364 | | | | 5,149 | | | | — | | | | 8,513 | |
| | | |
| Total long-term liabilities | | | 656,100 | | | | 25,331 | | | | (11,292 | ) | | | 670,139 | |
| | | | | | | | | | | | | | | | | |
| COMMITMENTS AND CONTINGENCIES | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | |
| MINORITY INTERESTS IN SUBSIDIARIES | | | 10,566 | | | | 5,856 | | | | — | | | | 16,422 | |
| | | | | | | | | | | | | | | | | |
| SHAREHOLDER’S EQUITY | | | | | | | | | | | | | | | | |
| Class A common stock, $.01 par value: 10,000,000 shares authorized, 1,500 shares issued and outstanding | | | — | | | | 37,942 | | | | (37,942 | ) | | | — | |
| Class B common stock, no par value: 1,000,000 shares authorized, 239,893 shares issued and outstanding | | | 49,543 | | | | 33,050 | | | | (33,050 | ) | | | 49,543 | |
| Additional paid-in-capital | | | 68,105 | | | | 112,515 | | | | (112,515 | ) | | | 68,105 | |
| Retained earnings | | | 279,803 | | | | (38,781 | ) | | | (23,080 | ) | | | 217,942 | |
| Distributions | | | — | | | | (23,080 | ) | | | 23,080 | | | | — | |
| Treasury stock, 57,245 Class B shares at cost | | | (24,233 | ) | | | — | | | | — | | | | (24,233 | ) |
| Accumulated other comprehensive loss | | | (49,114 | ) | | | (11,071 | ) | | | — | | | | (60,185 | ) |
| | | |
| Total shareholder’s equity | | | 324,104 | | | | 110,575 | | | | (183,507 | ) | | | 251,172 | |
| | | |
| TOTAL LIABILITIES AND SHAREHOLDER’S EQUITY | | $ | 1,131,698 | | | $ | 161,907 | | | $ | (195,865 | ) | | $ | 1,097,740 | |
| | | |
| | | | | | | | | | | | | | | | | |
| | | Restricted | | Unrestricted | | | | |
| | | Group | | Group | | Eliminations | | Consolidated |
Assets | | | | | | | | | | | | | | | | |
| Current assets | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 405,247 | | | $ | 32,490 | | | $ | — | | | $ | 437,737 | |
| Other current assets | | | 68,120 | | | | 8,580 | | | | — | | | | 76,700 | |
| | | |
| Total current assets | | | 473,367 | | | | 41,070 | | | | — | | | | 514,437 | |
| | | | | | | | | | | | | | | | | |
| Theatre properties and equipment, net | | | 1,219,588 | | | | — | | | | — | | | | 1,219,588 | |
| | | | | | | | | | | | | | | | | |
| Other assets | | | 1,522,916 | | | | 34,872 | | | | (8,225 | ) | | | 1,549,563 | |
| | | | | | | | | | | | | | | | | |
| | | |
Total assets | | $ | 3,215,871 | | | $ | 75,942 | | | $ | (8,225 | ) | | $ | 3,283,588 | |
| | | |
| | | | | | | | | | | | | | | | | |
Liabilities and stockholder’s equity | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Current liabilities | | | | | | | | | | | | | | | | |
| Current portion of long-term debt | | $ | 12,227 | | | $ | — | | | $ | — | | | $ | 12,227 | |
| Current portion of capital lease obligations | | | 7,340 | | | | — | | | | — | | | | 7,340 | |
| Accounts payable and accrued expenses | | | 261,167 | | | | — | | | | — | | | | 261,167 | |
| | | |
| Total current liabilities | | | 280,734 | | | | — | | | | — | | | | 280,734 | |
| | | | | | | | | | | | | | | | | |
| Long-term liabilities | | | | | | | | | | | | | | | | |
| Long-term debt, less current portion | | | 1,531,478 | | | | — | | | | — | | | | 1,531,478 | |
| Other long-term liabilities | | | 518,514 | | | | 30,721 | | | | — | | | | 549,235 | |
| | | |
| Total long-term liabilities | | | 2,049,992 | | | | 30,721 | | | | — | | | | 2,080,713 | |
| | | | | | | | | | | | | | | | | |
| Commitments and contingencies | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Stockholder’s equity | | | 885,145 | | | | 45,221 | | | | (8,225 | ) | | | 922,141 | |
| | | | | | | | | | | | | | | | | |
| | | |
Total liabilities and stockholder’s equity | | $ | 3,215,871 | | | $ | 75,942 | | | $ | (8,225 | ) | | $ | 3,283,588 | |
| | | |
Note: “Restricted Group” and “Unrestricted Group” are defined in the IndenturesIndenture for the senior subordinateddiscount notes.
S-1S-2
CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTSSTATEMENT OF INCOME
FOR THE
YEAR ENDED DECEMBER 31, 2005
2009
(In thousands, unaudited)
| | | | | | | | | | | | | | | | | |
| | | Restricted | | Unrestricted | | | | |
| | | Group | | Group | | Eliminations | | Consolidated |
| REVENUES | | $ | 854,789 | | | $ | 166,987 | | | $ | (1,179 | ) | | $ | 1,020,597 | |
| | | | | | | | | | | | | | | | | |
| COSTS AND EXPENSES | | | | | | | | | | | | | | | | |
| Cost of operations | | | 634,987 | | | | 128,281 | | | | (1,179 | ) | | | 762,089 | |
| General and administrative expenses | | | 40,676 | | | | 10,046 | | | | — | | | | 50,722 | |
| Depreciation and amortization | | | 58,766 | | | | 17,695 | | | | — | | | | 76,461 | |
| Impairment of long-lived assets | | | 7,837 | | | | 1,835 | | | | — | | | | 9,672 | |
| Loss on sale of assets and other | | | 2,489 | | | | 136 | | | | — | | | | 2,625 | |
| | | |
| Total costs and expenses | | | 744,755 | | | | 157,993 | | | | (1,179 | ) | | | 901,569 | |
| | | |
| | | | | | | | | | | | | | | | | |
| OPERATING INCOME | | | 110,034 | | | | 8,994 | | | | — | | | | 119,028 | |
| |
| OTHER INCOME (EXPENSE) | | | | | | | | | | | | | | | | |
| Interest expense | | | (43,187 | ) | | | (1,807 | ) | | | 660 | | | | (44,334 | ) |
| Amortization of debt issue costs | | | (2,753 | ) | | | (21 | ) | | | — | | | | (2,774 | ) |
| Interest income | | | 4,416 | | | | 2,844 | | | | (660 | ) | | | 6,600 | |
| Foreign currency exchange loss | | | (1,139 | ) | | | (137 | ) | | | — | | | | (1,276 | ) |
| Dividend income | | | 23,080 | | | | — | | | | (23,080 | ) | | | — | |
| Equity in income of affiliates | | | 137 | | | | 90 | | | | — | | | | 227 | |
| Minority interests in (income) loss of subsidiaries | | | (1,067 | ) | | | 143 | | | | — | | | | (924 | ) |
| | | |
| Total other income (expense) | | | (20,513 | ) | | | 1,112 | | | | (23,080 | ) | | | (42,481 | ) |
| | | |
| | | | | | | | | | | | | | | | | |
| INCOME BEFORE INCOME TAXES | | | 89,521 | | | | 10,106 | | | | (23,080 | ) | | | 76,547 | |
| | | | | | | | | | | | | | | | | |
| Income taxes | | | 27,234 | | | | 948 | | | | — | | | | 28,182 | |
| | | | | | | | | | | | | | | | | |
| | | |
| NET INCOME | | $ | 62,287 | | | $ | 9,158 | | | $ | (23,080 | ) | | $ | 48,365 | |
| | | |
| | | | | | | | | | | | | | | | | |
| | | Restricted | | Unrestricted | | | | |
| | | Group | | Group | | Eliminations | | Consolidated |
| | | | | | | | | | | | | | | | | |
Revenues | | $ | 1,976,500 | | | $ | — | | | $ | — | | | $ | 1,976,500 | |
| | | | | | | | | | | | | | | | | |
Cost of operations | | | | | | | | | | | | | | | | |
| Theatre operating costs | | | 1,464,954 | | | | — | | | | — | | | | 1,464,954 | |
| General and administrative expenses | | | 94,786 | | | | 32 | | | | — | | | | 94,818 | |
| Depreciation and amortization | | | 149,515 | | | | — | | | | — | | | | 149,515 | |
| Impairment of long-lived assets | | | 11,858 | | | | — | | | | — | | | | 11,858 | |
| Loss on sale of assets and other | | | 3,202 | | | | — | | | | — | | | | 3,202 | |
| | | |
| Total cost of operations | | | 1,724,315 | | | | 32 | | | | — | | | | 1,724,347 | |
| | | |
| | | | | | | | | | | | | | | | | |
Operating income (loss) | | | 252,185 | | | | (32 | ) | | | — | | | | 252,153 | |
| | | | | | | | | | | | | | | | | |
Other income (expense) | | | (69,353 | ) | | | 18,977 | | | | (5,886 | ) | | | (56,262 | ) |
| | | |
| | | | | | | | | | | | | | | | | |
Income before income taxes | | | 182,832 | | | | 18,945 | | | | (5,886 | ) | | | 195,891 | |
| Income taxes | | | 55,662 | | | | 7,142 | | | | — | | | | 62,804 | |
| | | |
Net income | | | 127,170 | | | | 11,803 | | | | (5,886 | ) | | | 133,087 | |
| Less: Net income attributable to noncontrolling interests | | | 3,648 | | | | — | | | | — | | | | 3,648 | |
| | | |
Net income attributable to Cinemark USA, Inc. | | $ | 123,522 | | | $ | 11,803 | | | $ | (5,886 | ) | | $ | 129,439 | |
| | | |
Note: “Restricted Group” and “Unrestricted Group” are defined in the IndenturesIndenture for the senior subordinateddiscount notes.
S-2S-3
CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTSSTATEMENT OF CASH FLOWS
FOR THE
YEAR ENDED DECEMBER 31, 2005
2009
(In thousands, unaudited)
| | | | | | | | | | | | | | | | | |
| | | Restricted | | Unrestricted | | | | |
| | | Group | | Group | | Eliminations | | Consolidated |
| OPERATING ACTIVITIES | | | | | | | | | | | | | | | | |
| Net income | | $ | 62,287 | | | $ | 9,158 | | | $ | (23,080 | ) | | $ | 48,365 | |
| | | | | | | | | | | | | | | | | |
| Adjustments to reconcile net income to cash provided by operating activities: | | | | | | | | | | | | | | | | |
| Depreciation | | | 57,955 | | | | 15,841 | | | | — | | | | 73,796 | |
| Amortization of intangible and other assets | | | 811 | | | | 1,854 | | | | — | | | | 2,665 | |
| Amortization of foreign advanced rents | | | 742 | | | | 516 | | | | — | | | | 1,258 | |
| Amortization of debt issue costs | | | 2,753 | | | | 21 | | | | — | | | | 2,774 | |
| Amortization of gain on sale leasebacks | | | (366 | ) | | | — | | | | — | | | | (366 | ) |
| Amortization of debt premium | | | (1,564 | ) | | | — | | | | — | | | | (1,564 | ) |
| Amortization of deferred revenues | | | (597 | ) | | | — | | | | — | | | | (597 | ) |
| Impairment of long-lived assets | | | 7,837 | | | | 1,835 | | | | — | | | | 9,672 | |
| Loss on sale of assets and other | | | 2,489 | | | | 136 | | | | — | | | | 2,625 | |
| Deferred lease expenses | | | 1,235 | | | | 321 | | | | — | | | | 1,556 | |
| Deferred income tax expenses | | | (7,757 | ) | | | 46 | | | | — | | | | (7,711 | ) |
| Equity in income of affiliates | | | (137 | ) | | | (90 | ) | | | — | | | | (227 | ) |
| Minority interests in income (loss) of subsidiaries | | | 1,067 | | | | (143 | ) | | | — | | | | 924 | |
| Changes in assets and liabilities | | | (3,313 | ) | | | (12,048 | ) | | | 46,160 | | | | 30,799 | |
| | | |
| Net cash provided by operating activities | | | 123,442 | | | | 17,447 | | | | 23,080 | | | | 163,969 | |
| | | | | | | | | | | | | | | | | |
| INVESTING ACTIVITIES | | | | | | | | | | | | | | | | |
| Additions to theatre properties and equipment | | | (65,056 | ) | | | (10,549 | ) | | | — | | | | (75,605 | ) |
| Proceeds from sale of theatre properties and equipment | | | 1,087 | | | | 230 | | | | — | | | | 1,317 | |
| Purchase of shares in National CineMedia | | | — | | | | (7,329 | ) | | | — | | | | (7,329 | ) |
| Dividends/capital returned from affiliates | | | 23,080 | | | | — | | | | (23,080 | ) | | | — | |
| | | |
| Net cash used for investing activities | | | (40,889 | ) | | | (17,648 | ) | | | (23,080 | ) | | | (81,617 | ) |
| | | | | | | | | | | | | | | | | |
| FINANCING ACTIVITIES | | | | | | | | | | | | | | | | |
| Capital contribution from parent | | | 5,000 | | | | — | | | | — | | | | 5,000 | |
| Proceeds from long-term debt | | | 10 | | | | 650 | | | | — | | | | 660 | |
| Repayments of long-term debt | | | (2,656 | ) | | | (4,015 | ) | | | — | | | | (6,671 | ) |
| Debt issue costs | | | (239 | ) | | | — | | | | — | | | | (239 | ) |
| Increase in minority investment in subsidiaries | | | 27 | | | | 128 | | | | — | | | | 155 | |
| Decrease in minority investment in subsidiaries | | | (1,062 | ) | | | (291 | ) | | | — | | | | (1,353 | ) |
| | | |
| Net cash provided by (used for) financing activities | | | 1,080 | | | | (3,528 | ) | | | — | | | | (2,448 | ) |
| | | | | | | | | | | | | | | | | |
| Effect of exchange rate changes on cash and cash equivalents | | | 706 | | | | 1,342 | | | | — | | | | 2,048 | |
| | | |
| | | | | | | | | | | | | | | | | |
| INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | | | 84,339 | | | | (2,387 | ) | | | — | | | | 81,952 | |
| | | | | | | | | | | | | | | | | |
| CASH AND CASH EQUIVALENTS: | | | | | | | | | | | | | | | | |
| Beginning of period | | | 77,184 | | | | 23,044 | | | | — | | | | 100,228 | |
| | | |
| End of period | | $ | 161,523 | | | $ | 20,657 | | | $ | — | | | $ | 182,180 | |
| | | |
| | | | | | | | | | | | | | | | | |
| | | Restricted | | Unrestricted | | | | |
| | | Group | | Group | | Eliminations | | Consolidated |
Operating activities | | | | | | | | | | | | | | | | |
| Net income | | $ | 127,170 | | | $ | 11,803 | | | $ | (5,886 | ) | | $ | 133,087 | |
| Adjustments to reconcile net income to cash provided by operating activities and other | | | 149,055 | | | | 34,043 | | | | — | | | | 183,098 | |
| Changes in assets and liabilities | | | 74,612 | | | | (24,091 | ) | | | — | | | | 50,521 | |
| | | |
| Net cash provided by operating activities | | | 350,837 | | | | 21,755 | | | | (5,886 | ) | | | 366,706 | |
| | | | | | | | | | | | | | | | | |
Investing activities | | | | | | | | | | | | | | | | |
| Additions to theatre properties and equipment | | | (124,797 | ) | | | — | | | | — | | | | (124,797 | ) |
| Proceeds from sale of theatre properties and equipment | | | 2,178 | | | | — | | | | — | | | | 2,178 | |
| Acquisition of theatres in the U.S. | | | (48,950 | ) | | | — | | | | — | | | | (48,950 | ) |
| Acquisition of theatres in Brazil | | | (9,061 | ) | | | — | | | | — | | | | (9,061 | ) |
| Investment in joint venture — DCIP | | | — | | | | (2,500 | ) | | | — | | | | (2,500 | ) |
| | | |
| Net cash used for investing activities | | | (180,630 | ) | | | (2,500 | ) | | | — | | | | (183,130 | ) |
| | | | | | | | | | | | | | | | | |
Financing activities | | | | | | | | | | | | | | | | |
| Capital contribution from parent | | | 19,650 | | | | — | | | | — | | | | 19,650 | |
| Dividends paid to parent | | | (510,600 | ) | | | (5,886 | ) | | | 5,886 | | | | (510,600 | ) |
| Payroll taxes paid as a result of immaculate option exercises | | | (8,972 | ) | | | — | | | | — | | | | (8,972 | ) |
| Proceeds from issuance of senior notes | | | 458,532 | | | | — | | | | — | | | | 458,532 | |
| Payment of debt issue costs | | | (13,003 | ) | | | — | | | | — | | | | (13,003 | ) |
| Repayments of long-term debt | | | (12,605 | ) | | | — | | | | — | | | | (12,605 | ) |
| Payments on capital leases | | | (6,064 | ) | | | — | | | | — | | | | (6,064 | ) |
| Other | | | (2,416 | ) | | | — | | | | — | | | | (2,416 | ) |
| | | |
| Net cash used for financing activities | | | (75,478 | ) | | | (5,886 | ) | | | 5,886 | | | | (75,478 | ) |
| | | | | | | | | | | | | | | | | |
Effect of exchange rate changes on cash and cash equivalents | | | 16,401 | | | | — | | | | — | | | | 16,401 | |
| | | |
| | | | | | | | | | | | | | | | | |
Increase in cash and cash equivalents | | | 111,130 | | | | 13,369 | | | | — | | | | 124,499 | |
Cash and cash equivalents: | | | | | | | | | | | | | | | | |
| Beginning of year | | | 294,117 | | | | 19,121 | | | | — | | | | 313,238 | |
| | | |
| End of year | | $ | 405,247 | | | $ | 32,490 | | | $ | — | | | $ | 437,737 | |
| | | |
Note: “Restricted Group” and “Unrestricted Group” are defined in the IndenturesIndenture for the senior subordinateddiscount notes.
S-3S-4
EXHIBITS
TO
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR
CINEMARK USA, INC.
FOR FISCAL YEAR ENDED
DECEMBER 31, 20052009
E - 1E-1
EXHIBIT INDEX
| | | |
| Number | | Exhibit Title |
| 3.1 | | Amended and Restated Articles of Incorporation of the Company filed with the Texas Secretary of State on Septemberdated June 3, 1992 (incorporated by reference to Exhibit 3.1(a)3.1 to the Company’s Annual ReportCinemark USA, Inc.’s Registration Statement on Form 10-K (FileS-4, File No. 033-47040)333-162105, filed on September 24, 2009). |
| 3.2 | | Second Amended and Restated Certificate of Incorporation of Cinemark Holdings, Inc. dated April 9, 2007 (incorporated by reference to Exhibit 3.1 to Amendment No. 2 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed on April 9, 2007). |
| 3.3 | | Second Amended and Restated Certificate of Incorporation of Cinemark, Inc. dated April 2, 2004 (incorporated by reference to Exhibit 3.1 to Cinemark, Inc.’s Registration Statement on Form S-4, File No. 333- 116292, filed June 30, 1993)8, 2004). |
| 3.4 | | |
3.2(a) | | Amended and Restated Bylaws of the Company, as amended (incorporated by reference to Exhibit 3.4(a) to Cinemark USA, Inc.’s Registration Statement on Form S-4, File No. 333-162105, filed on September 24, 2009). |
| 3.5(a) | | Amended and Restated Bylaws of Cinemark Holdings, Inc. dated April 9, 2007 (incorporated by reference to Exhibit 3.2 to Amendment No. 2 to the Company’s Registration Statement on Form S-1, (FileFile No. 033-47040)333-140390, filed on April 9, 1992)2007). |
| 3.5(b) | | |
3.2(b) | | First Amendment to the Amended and Restated Bylaws of the CompanyCinemark Holdings, Inc. dated March 12, 1996April 16, 2007 (incorporated by reference to Exhibit 3.2(b) to the Company’s Annual ReportAmendment No. 4 to our Registration Statement on Form 10-K (FileS-1, File No. 033-47040)333-140390, filed March 6, 1997)April 19, 2007). |
| 3.6 | | Amended and Restated Bylaws of Cinemark, Inc. dated April 2, 2004 (incorporated by reference to Exhibit 3.2 to Cinemark, Inc.’s Registration Statement on Form S-4, File No. 333-116292, filed June 8, 2004). |
4.2(a)4.1(a) | | Indenture, dated February 11, 2003as of June 29, 2009, between the CompanyCinemark USA, Inc. and TheWells Fargo Bank, of New York Trust Company of Florida, N.A. governing the 9% Senior Subordinated Notes8.625% senior notes due 2019 issued thereunder (incorporated by reference to Exhibit 10.2(b)4.1 to the Company’s AnnualCinemark Holdings, Inc.’s Current Report on Form 10-K (File8-K, File No. 033-47040)001-33401, filed March 19, 2003)July 6, 2009). |
| 4.1(b) | | Form of 8.625% senior notes due 2019 (contained in the indenture listed as Exhibit 4.1(a) above). |
4.2(b)4.2 | | First Supplemental IndentureExchange and Registration Rights Agreement, dated asJune 29, 2009, by and among Cinemark USA, Inc. and the guarantors and the initial purchasers of May 7, 2003 between the Company, the subsidiary guarantors party thereto and The Bank of New York Trust Company of Florida, N.A.8.625% senior notes (incorporated by reference to Exhibit 4.2(i)4.2 to the Company’s Registration Statement on Form S-4 (File No. 333-104940) filed May 28, 2003). |
| | |
4.2(c) | | Second Supplemental Indenture dated as of November 11, 2004 between the Company, the subsidiary guarantors party thereto and The Bank of New York Trust Company of Florida, N.A. (incorporated by reference to the Company’s AnnualCinemark Holdings Inc.’s Current Report on Form 10-K (File8-K, File No. 033-047040)001-33401, filed March 29, 2005)July 6, 2009). |
| | |
4.2(d) | | Form of 9% Note (contained in the Indenture listed as Exhibit 4.2(a) above) (incorporated by reference to Exhibit 10.2(b) to the Company’s Annual Report on Form 10-K (File 033-47040) filed March 19, 2003). |
| | |
| 10.1(a) | | Management Agreement, dated as of July 28, 1993, between the Company and Cinemark Mexico (USA) (incorporated by reference to Exhibit 10.1(a) to Cinemark, Inc.’s Registration Statement on Form S-1 (File No. 333-88618) filed May 17, 2002). |
| | |
10.1(b) | | Management Agreement, dated as of September 10, 2002, between Cinemark USA, Inc. and Cinemark de Mexico (incorporated by reference to Exhibit 10.8 to Cinemark Mexico (USA)’s Registration Statement on Form S-4 (File No. 033-72114) filed on November 24, 1994). |
| | |
10.1(c) | | Management Agreement, dated December 10, 1993, between Laredo Theatre, Ltd. and the CompanyCinemark USA, Inc. (incorporated by reference to Exhibit 10.14(b) to the Company’sCinemark USA, Inc.’s Annual Report on Form 10-K, (FileFile No. 033-47040)033-47040, filed June 30,March 31, 1994). |
| | |
10.1(d)10.1(b) | | First Amendment to Management Agreement of Laredo Theatre, Ltd., effective as of December 10, 2003, between CNMK Texas Properties, Ltd. (successor in interest to Cinemark USA, Inc.) and Laredo Theatre Ltd. (incorporated by reference to Exhibit 10.1(d) to Cinemark, Inc.’s Registration Statement on Form S-4, (FileFile No. 333-116292)333-116292, filed SeptemberJune 8, 2004). |
| | |
10.1(e) | | Management Agreement, dated September 1, 1994, between Cinemark Partners II, Ltd. and the Company (incorporated by reference to Exhibit 10.4(i) to the Company’s Annual Report on Form 10-K (File No. 033-47040) filed March 29, 1995). |
| | |
10.1(f) | | First Amendment to Management Agreement of Cinemark Partners II, Ltd. dated as of January 5, 1998 by and between Cinemark USA, Inc. and Cinemark Partners II, Ltd. (incorporated by reference to Exhibit 10.1(f) to the Cinemark, Inc.’s Registration Statement on Form S-4 (File No. 333-116292) filed September 8, 2004). |
| | |
10.1(g) | | Management Services Agreement dated April 10, 2003 between Greeley Partners L.P. and CNMK Texas Properties, Ltd. (incorporated by reference to Exhibit 10.1(g) to Cinemark, Inc.’s Registration Statement on Form S-4 (File No. 333-116292) filed September 8, 2004). |
| | |
10.2+10.2(a) | | Amended and Restated Agreement to Participate in Profits and Losses, dated as of March 12, 2004, between Cinemark USA, Inc. and Alan W. Stock (incorporated by reference to Exhibit 10.2 to the Company’sCinemark USA, Inc.’s Quarterly Report on Form 10-Q, (FileFile No. 033-47040)033-47040, filed May 14, 2004). |
| +10.2(b) | | Termination Agreement to Amended and Restated Agreement to Participate in Profits and Losses, dated as of May 3, 2007, by and between Cinemark USA, Inc. and Alan W. Stock (incorporated by reference to Exhibit 10.2 to Cinemark Holdings, Inc.’s Current Report on Form 8K, File No. 001-33401, filed May 3, 2007). |
10.3(a)10.3 | | License Agreement, dated December 10, 1993, between Laredo Joint Venture and the CompanyCinemark USA, Inc. (incorporated by reference to Exhibit 10.14(c) to the Company’sCinemark USA, Inc.’s Annual Report on Form 10-K, (FileFile No. 033-47040) filed June 30, 1994). |
| | |
10.3(b) | | License Agreement, dated September 1, 1994, between Cinemark Partners II, Ltd. and the Company (incorporated by reference to Exhibit 10.10(c) to the Company’s Annual Report on Form 10-K (File No. 033-47040)033-47040, filed March 29, 1995)31, 1994). |
| | |
E - 2
| | |
| 10.4(a) | | Tax Sharing Agreement, between the CompanyCinemark USA, Inc. and Cinemark International, L.L.C. (f/k/a Cinemark II, Inc. ),), dated as of June 10, 1992 (incorporated by reference to Exhibit 10.22 to the Company’sCinemark USA, Inc.’s Annual Report on Form 10-K, (FileFile No. 033-47040)033-47040, filed June 30,March 31, 1993). |
| | |
| 10.4(b) | | Tax Sharing Agreement, dated as of July 28, 1993, between the CompanyCinemark USA, Inc. and Cinemark Mexico (USA) (incorporated by reference to Exhibit 10.10 to Cinemark Mexico (USA)’s Registration Statement on Form S-4, (FileFile No. 033-72114)033-72114, filed on November 24, 1993). |
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| +10.5(a) | | Indemnification Agreement, between the Company and Lee Roy Mitchell, dated as of July 13, 1992 (incorporated by reference to Exhibit 10.23(a) to the Company’s Annual Report on Form 10-K (File No. 033-47040) filed June 30, 1993). |
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10.5(b) | | Indemnification Agreement, between the Company and Tandy Mitchell, dated as of July 13, 1992 (incorporated by reference to Exhibit 10.23(b) to the Company’s Annual Report on Form 10-K (File No. 033-47040) filed June 30, 1993). |
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10.5(c) | | Indemnification Agreement, between the Company and Alan Stock, dated as of July 13, 1992 (incorporated by reference to Exhibit 10.23(d) to the Company’s Annual Report on Form 10-K (File No. 033-47040) filed June 30, 1993). |
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10.5(d) | | Indemnification Agreement, between the Company and W. Bryce Anderson, dated as of July 13, 1992 (incorporated by reference to Exhibit 10.23(f) to the Company’s Annual Report on Form 10-K (File No. 033-47040) filed June 30, 1993). |
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10.5(e) | | Indemnification Agreement, between the Company and Sheldon I. Stein, dated as of July 13, 1992 (incorporated by reference to Exhibit 10.23(g) to the Company’s Annual Report on Form 10-K (File No. 033-47040) filed June 30, 1993). |
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10.5(f) | | Indemnification Agreement, between the Company and Heriberto Guerra, dated as of December 3, 1993 (incorporated by reference to Exhibit 10.23(f) to the Company’s Annual Report on Form 10-K (File No. 033-11895) filed September 13, 1996). |
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10.6(a) | | Senior Secured Credit Agreement dated December 4, 1995 among Cinemark International, L.L.C. (f/k/a Cinemark II, Inc., Cinemark Mexico (USA) and Cinemark de Mexico (incorporated by reference to Exhibit 10.18 to the Company’s Annual Report on Form 10-K (File No. 033-47040) filed April 1, 1996). |
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10.6(b) | | First Amendment to Senior Secured Credit Agreement, dated as of September 30, 1996, by and among Cinemark II, Inc., Cinemark Mexico (USA), Inc. and Cinemark de Mexico, S.A. de C.V. (incorporated by reference to Exhibit 10.11(b) to Cinemark, Inc.’s Registration Statement on Form S-1 (File No. 333-88618) filed on May 17, 2002). |
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10.6(c) | | Second Amendment to Senior Secured Credit Agreement, dated as of September 28, 2000, by and among Cinemark II, Inc., Cinemark Mexico (USA), Inc. and Cinemark de Mexico, S.A. de C.V. (incorporated by reference to Exhibit 10.11(c) to Cinemark, Inc.’s Registration Statement on Form S-1 (File No. 333-88618) filed on May 17, 2002). |
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10.7(a) | | Employment Agreement, datedeffective as of March 12, 2004,December 15, 2008, by and between Cinemark Holdings, Inc. and Lee Roy Mitchell (incorporated by reference to Exhibit 10.14(a)10.5(q) to the Company’s QuarterlyCinemark Holdings, Inc.’s Annual Report on Form 10-Q (File10-K, File No. 033-47040)001-33401, filed May 14, 2004)March 13, 2009). |
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10.7(b)+10.5(b) | | Employment Agreement, dated as of March 12, 2004,June 16, 2008, between Cinemark Holdings, Inc. and Alan Stock (incorporated by reference to Exhibit 10.14(b)10.1 to the Company’sCinemark Holdings, Inc.’s Quarterly Report on Form 10-Q, (FileFile No. 033-47040)333-140390, filed May 14, 2004)August 8, 2008). |
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10.7(c)+10.5(c) | | Employment Agreement, dated as of March 12, 2004,June 16, 2008, between Cinemark Holdings, Inc. and TimTimothy Warner (incorporated by reference to Exhibit 10.14(c)10.2 to the Company’sCinemark Holdings, Inc.’s Quarterly Report on Form 10-Q, (FileFile No. 033-47040)333-140390, filed May 14, 2004)August 8, 2008). |
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10.7(d)+10.5(d) | | Employment Agreement, dated as of March 12, 2004,June 16, 2008, between Cinemark Holdings, Inc. and Robert Copple (incorporated by reference to Exhibit 10.14(d)10.3 to the Company’sCinemark Holdings, Inc.’s Quarterly Report on Form 10-Q, (FileFile No. 033-47040)333-140390, filed May 14, 2004)August 8, 2008). |
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10.7(e)+10.5(e) | | Employment Agreement, dated as of March 12, 2004,June 16, 2008, between Cinemark Holdings, Inc. and Michael Cavalier (incorporated by reference to Exhibit 10.4 to Cinemark Holdings, Inc.’s Quarterly Report on Form 10-Q, File No. 333-140390, filed August 8, 2008). |
| +10.5(f) | | Employment Agreement, dated as of December 15, 2008, between Cinemark Holdings, Inc. and Lee Roy Mitchell (incorporated by reference to Exhibit 10.5 (q) to Cinemark Holdings, Inc.’s Annual Report on Form 10-K, File No. 001-33401, filed March 13, 2009). |
| +10.5(g) | | Employment Agreement, dated as of December 15, 2008, between Cinemark Holdings, Inc. and Rob Carmony (incorporated by reference to Exhibit 10.14(e)10.5 (r) to the Company’s QuarterlyCinemark Holdings, Inc.’s Annual Report on Form 10-Q (File10-K, File No. 033-47040)001-33401, filed May 14, 2004)March 13, 2009). |
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10.7(f)+10.5(h) | | Employment Agreement, dated as of March 12, 2004,December 15, 2008, between Cinemark Holdings, Inc. and Tandy MitchellJohn Lundin (incorporated by reference to Exhibit 10.14(f)10.5 (s) to the Company’sCinemark Holdings, Inc.’s Annual Report on Form 10-K, File No. 001-33401, filed March 13, 2009). |
| +10.5(i) | | Employment agreement, dated as of April 7, 2009, between Cinemark Holdings, Inc. and Steven Bunnell (incorporated by reference to Exhibit 10.1 to Cinemark Holdings, Inc.’s Quarterly Report on Form 10-Q, (FileFile No. 033-47040)001-33401, filed May 14, 2004)August 7, 2009). |
| +10.5(j) | | Employment Agreement, dated as of February 15, 2010, between Cinemark Holdings, Inc. and Valmir Fernandes (incorporated by reference to Exhibit 10.5(u) to Cinemark Holdings, Inc.’s Annual Report on Form 10-K, File No. 001-33401, filed March 10, 2010). |
E - 3E-2
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10.8(a)Number | | Amended and Restated Exhibit Title |
| 10.6(a) | | Credit Agreement, dated April 2, 2004,as of October 5, 2006, among Cinemark Holdings, Inc., Cinemark, Inc., CNMK Holdings, Inc., the Company, the several lenders from time to time parties thereto, Lehman Brothers Inc. and Goldman Sachs Credit Partners LP, as Joint Legal Arrangers, Goldman Sachs Credit Partners LP, as Syndication Agent, Deutsche Bank Securities, Inc., The Bank of New York, General Electric Capital Corporation and CIBC Inc. as Documentation Agents and Lehman Commercial Paper Inc. as Administrative Agent (incorporated by reference to Exhibit 10.15 to the Company’s Quarterly Report on Form 10-Q (File No. 033-47040) filed May 14, 2004). |
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10.8(b) | | First Amendment to the Amended and Restated Credit Agreement, dated August 18, 2004, among Cinemark, Inc., CNMK Holdings,Holding, Inc., Cinemark USA, Inc., the several lendersbanks and other financial institutions or entities from time to time parties thereto,to the Agreement, Lehman Brothers Inc. and Goldman Sachs Credit Partners LP,Morgan Stanley Senior Funding, Inc., as Joint Lead Arrangers, Goldman Sachs Credit Partners LP,joint lead arrangers and joint bookrunners, Morgan Stanley Senior Funding, Inc., as Syndication Agent, Deutsche Bank Securities, Inc., The Bank of New York,syndication agent, BNP Paribas and General Electric Capital Corporation and CIBC Inc. as Documentation Agentsco-documentation agents, and Lehman Commercial Paper Inc. as Administrative Agent (incorporated by reference to Exhibit 10.15(b) to the Company’s Quarterly Report on Form 10-Q (File No. 033-47040) filed May 13, 2005). |
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10.9 | | Amended and Restated Guaranty and Collateral Agreement, dated April 2, 2004, among Cinemark, Inc., CNMK Holdings Inc., the Company and certain of it subsidiaries in favor of Lehman Commercial Paper Inc., as administrative agent (incorporated by reference to Exhibit 10.1610.5 to Current Report on Form 8-K, File No. 000-47040, filed by Cinemark USA, Inc. on October 12, 2006). |
| 10.6(b) | | First Amendment to Credit Agreement, dated as of March 14, 2007, among Cinemark Holdings, Inc., Cinemark, Inc., CNMK Holding, Inc., Cinemark USA, Inc., the Company’sseveral banks and other financial institutions or entities from time to time parties thereto, Lehman Brothers Inc. and Morgan Stanley Senior Funding, Inc., as joint lead arrangers and joint bookrunners, Morgan Stanley Senior Funding, Inc., as syndication agent, BNP Paribas and General Electric Capital Corporation, as co-documentation agents, and Lehman Commercial Paper Inc., as administrative agent (incorporated by reference to Exhibit 10.6(b) to Amendment No. 1 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed March 16, 2007). |
| 10.6(c) | | Second Amendment to Credit Agreement dated as of January 29, 2010 by and among Lehman Commercial Paper Inc. (“Lehman”), a debtor and debtor in possession under chapter 11 of the Bankruptcy Code as Administrative Agent, the Required Lenders, Barclay’s Bank PLC, as successor Administrative Agent, Cinemark USA, Inc. and each Loan Party (incorporated by reference to Exhibit 10.6(c) to Cinemark Holdings, Inc.’s Annual Report on Form 10-K , File No. 333-140390, filed on March 10, 2010). |
| 10.6(d) | | Third Amendment to Credit Agreement dated as of March 2, 2010 by and among Cinemark Holdings, Inc., Cinemark USA, Inc., Barclays Bank PLC and the Required Lenders (incorporated by reference to Exhibit 10.1 to Cinemark Holdings, Inc.’s Current Report on Form 8-K , File No. 001-33401, filed on March 8, 2010). |
| 10.6(e) | | Guarantee and Collateral Agreement, dated as of October 5, 2006, among Cinemark Holdings, Inc., Cinemark, Inc., CNMK Holding, Inc., Cinemark USA, Inc. and each subsidiary guarantor party thereto (incorporated by reference to Exhibit 10.6 to Current Report on Form 8-K, File No. 000-47040, filed by Cinemark USA, Inc. on October 12, 2006). |
| +10.7(a) | | Cinemark Holdings, Inc. 2006 Long Term Incentive Plan, dated December 22, 2006 (incorporated by reference to Exhibit 10.7(a) to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed February 1, 2007). |
| +10.7(b) | | First Amendment to Cinemark Holdings, Inc. 2006 Long Term Incentive Plan, dated December 22, 2006 (incorporated by reference to Exhibit 10.1 to Cinemark Holdings, Inc.’s Current Report on Form 8K, File No. 001-33401, filed November 15, 2007). |
| +10.7(c) | | Amended and Restated Cinemark Holdings, Inc. 2006 Long Term Incentive Plan (incorporated by reference to Exhibit 4.1 to Cinemark Holdings, Inc.’s Quarterly Report on Formform 10-Q, (FileFile No. 033-47040)001-33401, filed May 14, 2004)9, 2008). |
| 10.8 | | Exhibitor Services Agreement, dated as of February 13, 2007, by and between National CineMedia, LLC and Cinemark USA, Inc. (incorporated by reference to Exhibit 10.8 to Amendment No. 1 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed March 16, 2007). |
| 10.9 | | Third Amended and Restated Limited Liability Company Operating Agreement, dated as of February 12, 2007, by and between Cinemark Media, Inc., American Multi-Cinema, Inc., Regal CineMedia, LLC and National CineMedia, Inc. (incorporated by reference to Exhibit 10.9 to Amendment No. 1 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed March 16, 2007). |
| 10.10(a) | | Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Century Stadium 14, Sacramento, CA (incorporated by reference to Exhibit 10.10(a) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.10(b) | | First Amendment, dated as of September 1, 2000, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Century Stadium 14, Sacramento, CA (incorporated by reference to Exhibit 10.10(b) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.10(c) | | Second Amendment, dated as of April 15, 2005, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Century Stadium 14, Sacramento, CA(incorporated by reference to Exhibit 10.10(c) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.10(d) | | Third Amendment, dated as of September 29, 2005, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Century Stadium 14, Sacramento, CA (incorporated by reference to Exhibit 10.10(d) to Amendment No. 3 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 18, 2007). |
| 10.10(e) | | Fourth Amendment, dated as of August 7, 2006, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Century Stadium 14, Sacramento, CA (incorporated by reference to Exhibit 10.10(e) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.11(a) | | Indenture of Lease, dated as of December 1, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Century Laguna 16, Elk Grove, CA (incorporated by reference to Exhibit 10.11(a) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.11(b) | | First Amendment, dated as of September 1, 2000, to Indenture of Lease, dated as of December 1, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Century Laguna 16, Elk Grove, CA (incorporated by reference to Exhibit 10.11(b) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.11(c) | | Second Amendment, dated as of April 15, 2005, to Indenture of Lease, dated as of December 1, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Century Laguna 16, Elk Grove, CA (incorporated by reference to Exhibit 10.11(c) to Amendment No. 3 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 18, 2007). |
| 10.11(d) | | Third Amendment, dated as of September 29, 2005, to Indenture of Lease, dated as of December 1, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Century Laguna 16, Elk Grove, CA (incorporated by reference to Exhibit 10.11(d) to Amendment No. 3 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 18, 2007). |
| 10.11(e) | | Fourth Amendment, dated as of August 7, 2006, to Indenture of Lease, dated as of December 1, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Century Laguna 16, Elk Grove, CA (incorporated by reference to Exhibit 10.11(e) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
E-3
| | | |
10.10(a)Number | | Exhibit Title |
| 10.12(a) | | Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Century Capitol 16, San Jose, CA (incorporated by reference to Exhibit 10.12(a) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.12(b) | | First Amendment, dated as of September 1, 2000, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Century Capitol 16, San Jose, CA (incorporated by reference to Exhibit 10.12(b) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.12(c) | | Second Amendment, dated as of April 15, 2005, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Century Capitol 16, San Jose, CA (incorporated by reference to Exhibit 10.12(c) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.12(d) | | Third Amendment, dated as of September 29, 2005, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Century Capitol 16, San Jose, CA (incorporated by reference to Exhibit 10.12(d) to Amendment No. 3 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 18, 2007). |
| 10 .12(e) | | Fourth Amendment, dated as of August 7, 2006, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Century Capitol 16, San Jose, CA (incorporated by reference to Exhibit 10.12(e) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.13(a) | | Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Century 10 Berryessa, San Jose, CA (incorporated by reference to Exhibit 10.13(a) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.13(b) | | First Amendment, dated as of September 1, 2000, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Century 10 Berryessa, San Jose, CA (incorporated by reference to Exhibit 10.13(b) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.13(c) | | Second Amendment, dated as of April 15, 2005, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Century 10 Berryessa, San Jose, CA (incorporated by reference to Exhibit 10.13(c) to Amendment No. 3 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 18, 2007). |
| 10.13(d) | | Third Amendment, dated as of September 29, 2005, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Century 10 Berryessa, San Jose, CA (incorporated by reference to Exhibit 10.13(d) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.13(e) | | Fourth Amendment, dated as of August 7, 2006, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Century 10 Berryessa, San Jose, CA (incorporated by reference to Exhibit 10.13(e) to Amendment No. 3 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 18, 2007). |
| 10.14(a) | | Indenture of Lease, dated as of December 1, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Century 14, Folsom, CA (incorporated by reference to Exhibit 10.14(a) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.14(b) | | First Amendment, dated as of September 1, 2000, to Indenture of Lease, dated as of December 1, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Century 14, Folsom, CA (incorporated by reference to Exhibit 10.14(b) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.14(c) | | Second Amendment, dated as of April 15, 2005, to Indenture of Lease, dated as of December 1, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Century 14, Folsom, CA (incorporated by reference to Exhibit 10.14(c) to Amendment No. 3 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 18, 2007). |
| 10.14(d) | | Third Amendment, dated as of September 29, 2005, to Indenture of Lease, dated as of December 1, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Century 14, Folsom, CA (incorporated by reference to Exhibit 10.14(d) to Amendment No. 3 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 18, 2007). |
| 10.14(e) | | Fourth Amendment, dated as of August 7, 2006, to Indenture of Lease, dated as of December 1, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Century 14, Folsom, CA (incorporated by reference to Exhibit 10.14(e) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.15(a) | | Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of Nevada, Inc., as tenant, for Cinedome 12, Henderson, NV (incorporated by reference to Exhibit 10.15(a) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.15(b) | | First Amendment, dated as of September 1, 2000, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of Nevada, Inc., as tenant, for Cinedome 12, Henderson, NV (incorporated by reference to Exhibit 10.15(b) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.15(c) | | Second Amendment, dated as of April 15, 2005, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of Nevada, Inc., as tenant, for Cinedome 12, Henderson, NV (incorporated by reference to Exhibit 10.15(c) to Amendment No. 3 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 18, 2007). |
| 10.15(d) | | Third Amendment, dated as of September 29, 2005, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of Nevada, Inc., as tenant, for Cinedome 12, Henderson, NV (incorporated by reference to Exhibit 10.15(d) to Amendment No. 3 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 18, 2007). |
E-4
| | |
| Number | | Exhibit Title |
| 10.15(e) | | Fourth Amendment, dated as of August 7, 2006, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of Nevada, Inc., as tenant, for Cinedome 12, Henderson, NV (incorporated by reference to Exhibit 10.15(e) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.16(a) | | Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Century Park 12, Redwood City, CA (incorporated by reference to Exhibit 10.16(a) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.16(b) | | First Amendment, dated as of September 1, 2000, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Century Park 12, Redwood City, CA (incorporated by reference to Exhibit 10.16(b) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.16(c) | | Second Amendment, dated as of April 15, 2005, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Century Park 12, Redwood City, CA (incorporated by reference to Exhibit 10.16(c) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.16(d) | | Third Amendment, dated as of September 29, 2005, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Century Park 12, Redwood City, CA (incorporated by reference to Exhibit 10.16(d) to Amendment No. 3 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 18, 2007). |
| 10.16(e) | | Fourth Amendment, dated as of August 7, 2006, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Century Park 12, Redwood City, CA (incorporated by reference to Exhibit 10.16(e) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.17(a) | | Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Century 8, North Hollywood, CA (incorporated by reference to Exhibit 10.17(a) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.17(b) | | First Amendment, dated as of September 1, 2000, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Century 8, North Hollywood, CA (incorporated by reference to Exhibit 10.17(b) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.17(c) | | Second Amendment, dated as of April 15, 2005, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Century 8, North Hollywood, CA (incorporated by reference to Exhibit 10.17(c) to Amendment No. 3 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 18, 2007). |
| 10.17(d) | | Third Amendment, dated as of September 29, 2005, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Century 8, North Hollywood, CA (incorporated by reference to Exhibit 10.17(d) to Amendment No. 3 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 18, 2007). |
| 10.17(e) | | Third Amendment, dated as of August 7, 2006, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Century 8, North Hollywood, CA (incorporated by reference to Exhibit 10.17(e) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.18(a) | | Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Century Plaza 10, S. San Francisco, CA (incorporated by reference to Exhibit 10.18(a) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.18(b) | | First Amendment, dated as of October 31, 1996, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Century Plaza 10, S. San Francisco, CA (incorporated by reference to Exhibit 10.18(b) to Amendment No. 3 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 18, 2007). |
| 10.18(c) | | Second Amendment, dated as of September 1, 2000, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Century Plaza 10, S. San Francisco, CA (incorporated by reference to Exhibit 10.18(c) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.18(d) | | Third Amendment, dated as of April 15, 2005, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Century Plaza 10, S. San Francisco, CA (incorporated by reference to Exhibit 10.18(d) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.18(e) | | Fourth Amendment, dated as of September 29, 2005, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Century Plaza 10, S. San Francisco, CA (incorporated by reference to Exhibit 10.18(e) to Amendment No. 3 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 18, 2007). |
| 10.18(f) | | Fifth Amendment, dated as of August 7, 2006, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Century Plaza 10, S. San Francisco, CA (incorporated by reference to Exhibit 10.18(f) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.19(a) | | Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Cinedome 8, Freemont, CA (incorporated by reference to Exhibit 10.19(a) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.19(b) | | First Amendment, dated as of September 1, 2000, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Cinedome 8, Freemont, CA (incorporated by reference to Exhibit 10.19(b) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
E-5
| | |
| Number | | Exhibit Title |
| 10.19(c) | | Second Amendment, dated as of April 15, 2005, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Cinedome 8, Freemont, CA (incorporated by reference to Exhibit 10.19(c) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.19(d) | | Third Amendment, dated as of September 29, 2005, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Cinedome 8, Freemont, CA (incorporated by reference to Exhibit 10.19(d) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.19(e) | | Fourth Amendment, dated as of August 7, 2006, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Cinedome 8, Freemont, CA (incorporated by reference to Exhibit 10.19(e) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.20(a) | | Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Cinedome 7, Newark, CA (incorporated by reference to Exhibit 10.20(a) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.20(b) | | First Amendment, dated as of September 1, 2000, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Cinedome 7, Newark, CA (incorporated by reference to Exhibit 10.20(b) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.20(c) | | Second Amendment, dated as of April 15, 2005, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Cinedome 7, Newark, CA (incorporated by reference to Exhibit 10.20(c) to Amendment No. 3 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 18, 2007). |
| 10.20(d) | | Third Amendment, dated as of September 29, 2005, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Cinedome 7, Newark, CA(incorporated by reference to Exhibit 10.20(d) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.20(e) | | Fourth Amendment, dated as of August 7, 2006, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Cinedome 7, Newark, CA (incorporated by reference to Exhibit 10.20(e) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.21(a) | | Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Century Cinema 16, Mountain View, CA (incorporated by reference to Exhibit 10.21(a) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.21(b) | | First Amendment, dated as of September 1, 2000, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Century Cinema 16, Mountain View, CA (incorporated by reference to Exhibit 10.21(b) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.21(c) | | Second Amendment, dated as of April 15, 2005, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Century Cinema 16, Mountain View, CA (incorporated by reference to Exhibit 10.21(c) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.21(d) | | Third Amendment, dated as of September 29, 2005, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Century Cinema 16, Mountain View, CA (incorporated by reference to Exhibit 10.21(d) to Amendment No. 3 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 18, 2007). |
| 10.21(e) | | Fourth Amendment, dated as of August 7, 2006, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Century Cinema 16, Mountain View, CA (incorporated by reference to Exhibit 10.21(e) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.22(a) | | Indenture of Lease, dated as of September 30, 1995, by and between Sycal Properties, Inc. (succeeded by Syufy Properties, Inc.), as landlord and Century Theatres of California, Inc., as tenant, for Cinearts 5, Pleasant Hill, CA (incorporated by reference to Exhibit 10.22(a) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.22(b) | | First Amendment, dated as of September 1, 2000, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Cinearts 5, Pleasant Hill, CA (incorporated by reference to Exhibit 10.22(b) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.22(c) | | Second Amendment, dated as of April 15, 2005, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Cinearts 5, Pleasant Hill, CA (incorporated by reference to Exhibit 10.22(c) to Amendment No. 3 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 18, 2007). . |
| 10.22(d) | | Third Amendment, dated as of September 29, 2005, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Cinearts 5, Pleasant Hill, CA (incorporated by reference to Exhibit 10.22(d) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.22(e) | | Fourth Amendment, dated as of August 7, 2006, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Cinearts 5, Pleasant Hill, CA (incorporated by reference to Exhibit 10.22(e) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.23(a) | | Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Century 24, San Jose, CA (incorporated by reference to Exhibit 10.23(a) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
E-6
| | |
| Number | | Exhibit Title |
| 10.23(b) | | First Amendment, dated as of September 1, 2000, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Century 24, San Jose, CA (incorporated by reference to Exhibit 10.23(b) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.23(c) | | Second Amendment, dated as of April 15, 2005, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Century 24, San Jose, CA (incorporated by reference to Exhibit 10.23(c) to Amendment No. 3 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 18, 2007). |
| 10.23(d) | | Third Amendment, dated as of September 29, 2005, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Century 24, San Jose, CA (incorporated by reference to Exhibit 10.23(d) to Amendment No. 3 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 18, 2007). |
| 10.23(e) | | Fourth Amendment, dated as of August 7, 2006, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Century 24, San Jose, CA (incorporated by reference to Exhibit 10.23(e) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.24(a) | | Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Cinedome 8, Napa, CA (incorporated by reference to Exhibit 10.24(a) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.24(b) | | First Amendment, dated as of September 1, 2000, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Cinedome 8, Napa, CA (incorporated by reference to Exhibit 10.24(b) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.24(c) | | Second Amendment, dated as of April 15, 2005, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Cinedome 8, Napa, CA (incorporated by reference to Exhibit 10.24(c) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.24(d) | | Third Amendment, dated as of September 29, 2005, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Cinedome 8, Napa, CA (incorporated by reference to Exhibit 10.24(d) to Amendment No. 3 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 18, 2007). |
| 10.24(e) | | Fourth Amendment, dated as of August 7, 2006, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Cinedome 8, Napa, CA (incorporated by reference to Exhibit 10.24(e) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.25(a) | | Lease Agreement, dated as of April 10, 1998, by and between Dyer Triangle LLC, as landlord and Century Theatres, Inc., as tenant, for Century 25 Union Landing, Union City, CA (incorporated by reference to Exhibit 10.25(a) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.25(b) | | First Amendment, dated as of April 15, 2005, to Lease Agreement, dated as of April 10, 1998, by and between Dyer Triangle LLC, as landlord and Century Theatres, Inc., as tenant, for Century 25 Union Landing, Union City, CA (incorporated by reference to Exhibit 10.25(b) to Amendment No. 3 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 18, 2007). |
| 10.25(c) | | Second Amendment, dated as of September 29, 2005, to Lease Agreement, dated as of April 10, 1998, by and between Dyer Triangle LLC, as landlord and Century Theatres, Inc., as tenant, for Century 25 Union Landing, Union City, CA (incorporated by reference to Exhibit 10.25(c) to Amendment No. 3 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 18, 2007). |
| 10.25(d) | | Third Amendment, dated as of August 5, 2006, to Lease Agreement, dated as of April 10, 1998, by and between Dyer Triangle LLC, as landlord and Century Theatres, Inc., as tenant, for Century 25 Union Landing, Union City, CA (incorporated by reference to Exhibit 10.25(d) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.26(a) | | Indenture of Lease, dated as of March 7, 1997, by and between Syufy Enterprises, L.P., as landlord and Century Theatres, Inc., as tenant, for Century Sparks, Sparks, NV (incorporated by reference to Exhibit 10.26(a) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.26(b) | | First Amendment, dated as of April 15, 2005, to Indenture of Lease, dated as of March 7, 1997, by and between Syufy Enterprises, L.P., as landlord and Century Theatres, Inc., as tenant, for Century Sparks, Sparks, NV (incorporated by reference to Exhibit 10.26(b) to Amendment No. 3 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 18, 2007). |
| 10.26(c) | | Second Amendment, dated as of September 29, 2005, to Indenture of Lease, dated as of March 7, 1997, by and between Syufy Enterprises, L.P., as landlord and Century Theatres, Inc., as tenant, for Century Sparks, Sparks, NV (incorporated by reference to Exhibit 10.26(c) to Amendment No. 3 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 18, 2007). |
| 10.26(d) | | Third Amendment, dated as of August 7, 2006, to Indenture of Lease, dated as of March 7, 1997, by and between Syufy Enterprises, L.P., as landlord and Century Theatres, Inc., as tenant, for Century Sparks, Sparks, NV (incorporated by reference to Exhibit 10.26(d) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.27(a) | | Lease Agreement, dated as of October 1, 1996, by and between Syufy Enterprises, L.P.(succeeded by Stadium Promenade LLC), as landlord and Century Theatres, Inc., as tenant, for Century Stadium 25, Orange, CA (incorporated by reference to Exhibit 10.27(a) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.27(b) | | First Amendment, dated as of April 15, 2005, to Lease Agreement, dated as of October 1, 1996, by and between Syufy Enterprises, L.P.(succeeded by Stadium Promenade LLC), as landlord and Century Theatres, Inc., as tenant, for Century Stadium 25, Orange, (incorporated by reference to Exhibit 10.27(b) to Amendment No. 3 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 18, 2007). |
| 10.27(c) | | Second Amendment, dated as of September 29, 2005, to Lease Agreement, dated as of October 1, 1996, by and between Syufy Enterprises, L.P.(succeeded by Stadium Promenade LLC), as landlord and Century Theatres, Inc., as tenant, for Century Stadium 25, Orange, (incorporated by reference to Exhibit 10.27(c) to Amendment No. 3 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 18, 2007). |
E-7
| | |
| Number | | Exhibit Title |
| 10.27(d) | | Third Amendment, dated as of August 5, 2006, to Lease Agreement, dated as of October 1, 1996, by and between Syufy Enterprises, L.P.(succeeded by Stadium Promenade LLC), as landlord and Century Theatres, Inc., as tenant, for Century Stadium 25, Orange, (incorporated by reference to Exhibit 10.27(d) to Amendment No. 3 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 18, 2007). |
| 10.28(a) | | Indenture of Lease, dated as of July 1, 1996, by and between Synm Properties Inc.(succeeded by Syufy Properties, Inc.), as landlord and Century Theatres, Inc., as tenant, Century Rio 24, Albuquerque, NM(incorporated by reference to Exhibit 10.28(a) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.28(b) | | First Amendment, dated as of April 15, 2005, to Indenture of Lease, dated as of July 1, 1996, by and between Synm Properties Inc.(succeeded by Syufy Properties, Inc.), as landlord and Century Theatres, Inc., as tenant, Century Rio 24, Albuquerque, NM (incorporated by reference to Exhibit 10.28(b) to Amendment No. 3 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 18, 2007). |
| 10.28(c) | | Second Amendment, dated as of September 29, 2005, to Indenture of Lease, dated as of July 1, 1996, by and between Synm Properties Inc.(succeeded by Syufy Properties, Inc.), as landlord and Century Theatres, Inc., as tenant, Century Rio 24, Albuquerque, NM (incorporated by reference to Exhibit 10.28(c) to Amendment No. 3 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 18, 2007). |
| 10.28(d) | | Third Amendment, dated as of August 7, 2006, to Indenture of Lease, dated as of July 1, 1996, by and between Synm Properties Inc.(succeeded by Syufy Properties, Inc.), as landlord and Century Theatres, Inc., as tenant, Century Rio 24, Albuquerque, NM (incorporated by reference to Exhibit 10.28(d) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.29(a) | | Indenture of Lease, dated as of September 3, 1996, by and between Syufy Enterprises, L.P., as landlord and Century Theatres, Inc., as tenant, for Century 14, Roseville, CA (incorporated by reference to Exhibit 10.29(a) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.29(b) | | First Amendment, dated as of April 15, 2005, to Indenture of Lease, dated as of September 3, 1996, by and between Syufy Enterprises, L.P., as landlord and Century Theatres, Inc., as tenant, for Century 14, Roseville, CA (incorporated by reference to Exhibit 10.29(b) to Amendment No. 3 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 18, 2007). |
| 10.29(c) | | Second Amendment, dated as of September 29, 2005, to Indenture of Lease, dated as of September 3, 1996, by and between Syufy Enterprises, L.P., as landlord and Century Theatres, Inc., as tenant, for Century 14, Roseville, CA (incorporated by reference to Exhibit 10.29(c) to Amendment No. 3 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 18, 2007). |
| 10.29(d) | | Third Amendment, dated as of August 7, 2006, to Indenture of Lease, dated as of September 3, 1996, by and between Syufy Enterprises, L.P., as landlord and Century Theatres, Inc., as tenant, for Century 14, Roseville, CA (incorporated by reference to Exhibit 10.29(d) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.30(a) | | Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of Nevada, Inc., as tenant, for Rancho Santa Fe 16, Las Vegas, NV (incorporated by reference to Exhibit 10.30(a) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.30(b) | | First Amendment, dated as of September 1, 2000, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of Nevada, Inc., as tenant, for Rancho Santa Fe 16, Las Vegas, NV (incorporated by reference to Exhibit 10.30(b) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.30(c) | | Second Amendment, dated as of September 30, 2006, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of Nevada, Inc., as tenant, for Rancho Santa Fe 16, Las Vegas, NV (incorporated by reference to Exhibit 10.30(c) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.31(a) | | Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Century Stadium 16, Ventura, CA (incorporated by reference to Exhibit 10.31(a) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.31(b) | | First Amendment, dated as of October 1, 1996, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Century Stadium 16, Ventura, CA (incorporated by reference to Exhibit 10.31(b) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.31(c) | | Second Amendment, dated as of September 1, 2000, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Century Stadium 16, Ventura, CA (incorporated by reference to Exhibit 10.31(c) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.31(d) | | Third Amendment, dated as of April 15, 2005, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Century Stadium 16, Ventura, CA (incorporated by reference to Exhibit 10.31(d) to Amendment No. 3 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 18, 2007). |
| 10.31(e) | | Fourth Amendment, dated as of August 7, 2006, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Century Stadium 16, Ventura, CA (incorporated by reference to Exhibit 10.31(e) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.32(a) | | Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Northridge 14, Salinas, CA (incorporated by reference to Exhibit 10.32(a) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.32(b) | | First Amendment, dated as of September 1, 2000, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Northridge 14, Salinas, CA (incorporated by reference to Exhibit 10.32(b) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.32(c) | | Second Amendment, dated as of October 1, 2001, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Northridge 14, Salinas, CA (incorporated by reference to Exhibit 10.32(c) to Amendment No. 3 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 18, 2007). |
E-8
| | |
| Number | | Exhibit Title |
| 10.32(d) | | Third Amendment, dated as of August 7, 2006, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Northridge 14, Salinas, CA (incorporated by reference to Exhibit 10.32(d) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.33(a) | | Indenture of Lease, dated as of September 30, 1995, by and between Syut Properties, Inc. (succeeded by Syufy Enterprises, L.P.), as landlord and Century Theatres of Utah, Inc., as tenant, for Century 16, Salt Lake City, UT (incorporated by reference to Exhibit 10.33(a) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.33(b) | | First Amendment, dated as of January 4, 1998, to Indenture of Lease, dated as of September 30, 1995, by and between Syut Properties, Inc. (succeeded by Syufy Enterprises, L.P.), as landlord and Century Theatres of Utah, Inc., as tenant, for Century 16, Salt Lake City, UT (incorporated by reference to Exhibit 10.33(b) to Amendment No. 3 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 18, 2007). |
| 10.33(c) | | Second Amendment, dated as of September 1, 2000, to Indenture of Lease, dated as of September 30, 1995, by and between Syut Properties, Inc. (succeeded by Syufy Enterprises, L.P.), as landlord and Century Theatres of Utah, Inc., as tenant, for Century 16, Salt Lake City, UT (incorporated by reference to Exhibit 10.33(c) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.33(d) | | Third Amendment, dated as of April 15, 2005, to Indenture of Lease, dated as of September 30, 1995, by and between Syut Properties, Inc. (succeeded by Syufy Enterprises, L.P.), as landlord and Century Theatres of Utah, Inc., as tenant, for Century 16, Salt Lake City, UT (incorporated by reference to Exhibit 10.33(d) to Amendment No. 3 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 18, 2007). |
| 10.33(e) | | Fourth Amendment, dated as of April 15, 2005, to Indenture of Lease, dated as of September 30, 1995, by and between Syut Properties, Inc. (succeeded by Syufy Enterprises, L.P.), as landlord and Century Theatres of Utah, Inc., as tenant, for Century 16, Salt Lake City, UT (incorporated by reference to Exhibit 10.33(e) to Amendment No. 3 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 18, 2007). |
| 10.33(f) | | Fourth Amendment, dated as of August 7, 2006, to Indenture of Lease, dated as of September 30, 1995, by and between Syut Properties, Inc. (succeeded by Syufy Enterprises, L.P.), as landlord and Century Theatres of Utah, Inc., as tenant, for Century 16, Salt Lake City, UT (incorporated by reference to Exhibit 10.33(f) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.34(a) | | Indenture of Lease, dated as of April 17, 1998, by and between Syufy Enterprises, L.P., as landlord and Century Theatres, Inc., as tenant, for Century Larkspur, Larkspur, CA (incorporated by reference to Exhibit 10.34(a) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.34(b) | | First Amendment, dated as of April 30, 2003, to Indenture of Lease, dated as of April 17, 1998, by and between Syufy Enterprises, L.P., as landlord and Century Theatres, Inc., as tenant, for Century Larkspur, Larkspur, CA (incorporated by reference to Exhibit 10.34(b) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.34(c) | | Second Amendment, dated as of April 15, 2005, to Indenture of Lease, dated as of April 17, 1998, by and between Syufy Enterprises, L.P., as landlord and Century Theatres, Inc., as tenant, for Century Larkspur, Larkspur, CA (incorporated by reference to Exhibit 10.34(c) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.34(d) | | Third Amendment, dated as of September 29, 2005, to Indenture of Lease, dated as of April 17, 1998, by and between Syufy Enterprises, L.P., as landlord and Century Theatres, Inc., as tenant, for Century Larkspur, Larkspur, CA (incorporated by reference to Exhibit 10.34(d) to Amendment No. 3 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 18, 2007). |
| 10.34(e) | | Fourth Amendment, dated as of August 7, 2006, to Indenture of Lease, dated as of April 17, 1998, by and between Syufy Enterprises, L.P., as landlord and Century Theatres, Inc., as tenant, for Century Larkspur, Larkspur, CA (incorporated by reference to Exhibit 10.34(e) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.35(a) | | Indenture of Lease, dated as of August 1, 1997, by and between Syufy Enterprises, L.P., as landlord and Century Theatres, Inc., as tenant, for Century Park Lane 16, Reno, NV (incorporated by reference to Exhibit 10.35(a) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.35(b) | | First Amendment, dated as of April 15, 2005, to Indenture of Lease, dated as of August 1, 1997, by and between Syufy Enterprises, L.P., as landlord and Century Theatres, Inc., as tenant, for Century Park Lane 16, Reno, NV (incorporated by reference to Exhibit 10.35(b) to Amendment No. 3 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 18, 2007). |
| 10.35(c) | | Second Amendment, dated as of September 29, 2005, to Indenture of Lease, dated as of August 1, 1997, by and between Syufy Enterprises, L.P., as landlord and Century Theatres, Inc., as tenant, for Century Park Lane 16, Reno, NV (incorporated by reference to Exhibit 10.35(c) to Amendment No. 3 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 18, 2007). |
| 10.35(d) | | Third Amendment, dated as of August 7, 2006, to Indenture of Lease, dated as of August 1, 1997, by and between Syufy Enterprises, L.P., as landlord and Century Theatres, Inc., as tenant, for Century Park Lane 16, Reno, NV (incorporated by reference to Exhibit 10.35(d) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.36(a) | | Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Century 16, Sacramento, CA (incorporated by reference to Exhibit 10.36(a) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.36(b) | | First Amendment, dated as of September 1, 2000, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Century 16, Sacramento, CA (incorporated by reference to Exhibit 10.36(b) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.36(c) | | Second Amendment, dated as of October 1, 2001, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Century 16, Sacramento, CA (incorporated by reference to Exhibit 10.36(c) to Amendment No. 3 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 18, 2007). |
| 10.36(d) | | Third Amendment, dated as of April 15, 2005, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Century 16, Sacramento, CA (incorporated by reference to Exhibit 10.36(d) to Amendment No. 3 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 18, 2007). |
| 10.36(e) | | Fourth Amendment, dated as of September 29, 2005, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Century 16, Sacramento, CA (incorporated by reference to Exhibit 10.36(e) to Amendment No. 3 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 18, 2007). |
E-9
| | |
| Number | | Exhibit Title |
| 10.36(f) | | Fifth Amendment, dated as of August 7, 2006, to Indenture of Lease, dated as of September 30, 1995, by and between Syufy Enterprises, L.P., as landlord and Century Theatres of California, Inc., as tenant, for Century 16, Sacramento, CA (incorporated by reference to Exhibit 10.36(f) to Amendment No. 5 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 20, 2007). |
| 10.37(a) | | Lease Agreement, dated as of October 31, 1997, by and between Sycal Properties, Inc. (succeeded by 150 Pelican LLC), as landlord and Century Theatres, Inc., as tenant, for office building situated at 150 Pelican Way, San Rafael, CA (incorporated by reference to Exhibit 10.37(a) to Amendment No. 3 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 18, 2007). |
| 10.37(b) | | First Amendment, dated as of December 1, 1998, to Lease Agreement, dated as of October 31, 1997, by and between Sycal Properties, Inc. (succeeded by 150 Pelican LLC), as landlord and Century Theatres, Inc., as tenant, for office building situated at 150 Pelican Way, San Rafael, CA (incorporated by reference to Exhibit 10.37(b) to Amendment No. 3 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 18, 2007). |
| 10.37(c) | | Second Amendment, dated as of October 4, 2006, to Lease Agreement, dated as of October 31, 1997, by and between Sycal Properties, Inc. (succeeded by 150 Pelican LLC), as landlord and Century Theatres, Inc., as tenant, for office building situated at 150 Pelican Way, San Rafael, CA (incorporated by reference to Exhibit 10.37(c) to Amendment No. 3 to Cinemark Holdings, Inc.’s Registration Statement on Form S-1, File No. 333-140390, filed April 18, 2007). |
| 10.38 | | Stock Purchase Agreement, dated as of August 18, 2004,7, 2006, by and among Cinemark Empreendimentos e Participacoes, Ltda, Venture II EquityUSA, Inc, Cinemark Holdings, Corporation,Inc., Syufy Enterprises LP, Century Theatres, Inc. and KristalCentury Theatres Holdings, LimitedLLC (incorporated by reference to Exhibit 10.20(a)10.1 to Cinemark, Inc.’s Quarterlycurrent Report on Form 10-Q (File No. 333-116292)8-K, File No, 000-47040, filed May 13, 2005). |
| | |
10.10(b) | | Stock Purchase Agreement dated as ofby Cinemark USA, Inc. on August 18, 2004, among Cinemark Empreendimentos e Participacoes, Ltda, Prona Global Ltd., Messrs. Edgar Gleich, Riccardo Arduini, Moises Pinsky, Eduardo Alalou, and Robert Luis Leme Klabin (incorporated by reference to Exhibit 10.20(b) to Cinemark, Inc.’s Quarterly Report on Form 10-Q (File No. 333-116292) filed May 13, 2005)11, 2006). |
| | |
| *12 | | Calculation of Earnings to Fixed Charges |
| | Charges. |
| *21 | | Subsidiaries of the RegistrantCinemark USA, Inc. |
| *23.1 | | Consent of National CineMedia, LLC. |
| *31.1 | | Certification of Alan Stock, Chief Executive Officer, of Cinemark USA, Inc. Pursuantpursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | |
| *31.2 | | Certification of Robert Copple, Chief Financial Officer, of Cinemark USA, Inc. Pursuantpursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | |
| *32.1 | | Certification of theAlan Stock, Chief Executive Officer, of Cinemark USA, Inc. PursuantChief 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 theRobert Copple, Chief Financial Officer, of Cinemark USA, Inc. PursuantChief Executive Officer, pursuant to 18 U.S.C. Section 1350, as added by Section 906 of the Sarbanes-Oxley Act of 2002. |
* Filed herewith
| | |
| * | | Filed herewith. |
|
| + | | Any management contract, compensatory plan or arrangement. |
E - 4E-10