UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FormFORM 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, 2010
Commission File Number001-33401
CINEMARK HOLDINGS, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware | 20-5490327 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
3900 Dallas Parkway Suite 500 Plano, Texas | 75093 | |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Name of each exchange on which registered | |
Common Stock, par value $0.001 per share | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ox No þ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15 (d)15(d) of the Act. Yes o¨ No þx
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þx No o¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website,Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 ofRegulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ox No o¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K (§229.405 of this chapter) 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 thisForm 10-K or any amendment to thisForm 10-K. xo
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” inRule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | x | Accelerated filer | ¨ | ||||
Non-accelerated filer | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Act). Yes o¨ No þx
The aggregate market value of the voting and non-voting common equity owned by non-affiliates of the registrant on June 30, 2010,29, 2012, computed by reference to the closing price for the registrant’s common stock on the New York Stock Exchange on such date was $814,952,327 (61,973,561$2,397,026,127 (104,354,642 shares at a closing price per share of $13.15)$22.97).
As of February 25, 2011, 113,780,79921, 2013, 114,950,411 shares of common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the registrant’s definitive proxy statement, in connection with its 2011 Annual Meeting2013 annual meeting of Stockholders,stockholders, to be filed within 120 days of December 31, 2010,2012, are incorporated by reference into Part III,Items 10-14, of this annual report onForm 10-K.
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Item | 25 | |||||||
Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |||||||
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Item 8. | ||||||||
Item 9. | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure | |||||||
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Item 9B. | 50 | |||||||
PART III | ||||||||
Item 10. | ||||||||
Item 11. | ||||||||
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | |||||||
Item 13. | Certain Relationships and Related Transactions, and Director Independence | |||||||
Item 14. | ||||||||
PART IV | ||||||||
Item 15. | ||||||||
This annual report onForm 10-K includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.amended, or the Exchange Act. The “forward looking statements” include our current expectations, assumptions, estimates and projections about our business and our industry. They include statements relating to:
future revenues, expenses and profitability;
the future development and expected growth of our business;
projected capital expenditures;
attendance at movies generally or in any of the markets in which we operate;
the number or diversity of popular movies released and our ability to successfully license and exhibit popular films;
national and international growth in our industry;
competition from other exhibitors and alternative forms of entertainment; and
determinations in lawsuits in which we are defendants.
You can identify forward-looking statements by the use of words such as “may,” “should,” “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 forward-looking statements, you should carefully consider the risks and uncertainties described in the “Risk Factors” section in Item 1A of thisForm 10-K and elsewhere in thisForm 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 thisForm 10-K. Forward-looking statements contained in thisForm 10-K reflect our view only as of the date of thisForm 10-K. We undertake no obligation, other than as required by law, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Certain Definitions
Unless the context otherwise requires, all references to “we,” “our,” “us,” the “issuer” or “Cinemark” relate to Cinemark Holdings, Inc. and its consolidated subsidiaries. Unless otherwise specified, all operating and other statistical data for the U.S. include one theatre in Canada (that was sold during November 2010). All references to Latin America are to Brazil, Mexico, Argentina, Chile, Colombia, Argentina, Peru, Ecuador, Honduras, El Salvador, Nicaragua, Costa Rica, Panama and Guatemala. Unless otherwise specified, all operating and other statistical data are as of and for the year ended December 31, 2010.
12012.
Our Company
Cinemark Holdings, Inc. and subsidiaries, or the Company, is a leader in the motion picture exhibition industry, with theatres in the United States, (“or U.S.”), Brazil, Mexico, Argentina, Chile, Colombia, Argentina, Peru, Ecuador, Honduras, El Salvador, Nicaragua, Costa Rica, Panama and Guatemala. We also managed additional theatres in the U.S., Brazil and Colombia during the year ended December 31, 2010.
As of December 31, 2010,2012, we managed our business under two reportable operating segments —segments: U.S. markets and international markets. See Note 23 to the consolidated financial statements.
Cinemark Holdings, Inc. is a Delaware corporation incorporated on August 2, 2006. 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 onForm 10-K, quarterly reports onForm 10-Q and current reports onForm 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, or the Exchange Act, are available on our website free of charge under the heading “Investor Relations —– SEC Filings” as soon as practicable after such reports are filed or furnished electronically to the Securities and Exchange Commission.
Description of Business
We are a leaderone of the leaders in the motion picture exhibition industry in termsindustry. As of both attendance and the number of screens in operation. WeDecember 31, 2012, we operated 430465 theatres and 4,9455,240 screens in the U.S. and Latin America as of December 31, 2010, and approximately 241.2263.7 million patrons attended our theatres worldwide during the year ended December 31, 2010.2012. Our circuit is the third largest in the U.S. with 293298 theatres and 3,8323,916 screens in 39 states. We are the most geographically diverse circuit in Latin America with 137167 theatres and 1,1131,324 screens in 13 countries. Our modern theatre circuit features stadium seating in approximately 86% 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 significantsolid 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, whose years of industry experience range from 1416 to 5254 years and who have successfully navigated us through multiplemany industry and economic cycles.
Revenues, operating income and net income attributable to Cinemark Holdings, Inc. for the year ended December 31, 2010,2012, were $2,141.1$2,473.5 million, $292.8$383.7 million and $146.1$168.9 million, respectively. At December 31, 20102012 we had cash and cash equivalents of $465.0$742.7 million and long-term debt of $1,532.5$1,764.0 million. Approximately $422.8$250.0 million, or 27.6%14%, of our long-term debt accrues interest at variable rates and approximately $10.8$9.5 million of our long-term debt matures in 2011.
Currently, 100% of our first-run domestic theatres are fully digital and we began convertingcontinue to convert our circuit from film based to digital projection technology.international theatres, which are approximately 42% digital. Digital projection technology gives us greater flexibility in programming and facilitates the exhibition of live and pre-recorded alternative entertainment. We also developedcontinue to roll out our Cinemark XD Extreme Digital Cinema, or XD, which offers a premium experience auditorium concept utilizing large screens and the latest in digital projection and enhanced custom sound technologies, which we call our Cinemark XD Extreme Digital Cinema, or XD.technologies. The XD experience includeswall-to-wall andceiling-to-floor screens, wrap-around sound, plush seating 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, including3-D content, in the XD auditorium. We currently have 47109 XD auditoriums in our theatrescircuit and have plans to install 3540 to 4050 more XD auditoriums during 2011.
During late 2010, we introduced our NextGen concept, which featureswall-to-wall andceiling-to-floor screens and the latest digital projection and sound technologies in all of the auditoriums of a complex. These theatres generally also have an XD auditorium, which offers the wall-to-wall and ceiling-to-floor screen in a larger
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Motion Picture Exhibition Industry Overview
The motion picture exhibition industry began its transitionconversion to digital projection technology during 2009. Digital projection technology allows filmmakers the ability to showcase imaginative works of art exactly as they were intended, with incredible realism and detail and in a range of up to 35 trillion colors. Because digitalDigital features aren’tare not susceptible to scratching and fading,fading; therefore digital presentations will always remain clear and sharp for every time they are shown.screening. A digitally produced or digitally converted movie can be distributed to theatres via satellite, physical media, or fiber optic networks. The digitized movie is stored on a computer/server which “serves” it to a digital projector for each screening of the movie and due to itsthe format, it enables us to more efficiently move filmstitles between auditoriums within a theatre as demand increases or decreases for each film.
Digital projection also allows the presentation ofus to present 3-D content and alternative entertainment such as live and pre-recorded sports programs, concert events, the opera sports programs and other special live documentaries. Twenty-twopresentations. Thirty-five films released wide during 20102011 were available in3-D format, 33 films were available in 3-D format during 2012 and at least 3432 3-D films are currently expected to be released during 2011.2013. Three-dimensional technology offers a premium experience with crisp, bright, ultra-realistic images that immersecreate an immersive film experience for the patron into a film.patron. A premium is generally charged for a 3-D presentation.
The motion picture exhibition industry is also developing a distribution network that would allow for distribution of all digital content to theatres via satellite. We are participating in a joint venture with certain exhibitors and distributors called Digital Cinema Distribution Coalition, or DCDC, whose goal is to establish this satellite distribution network.
3-D presentation.
The U.S. motion picture exhibition industry has a track record of long-term growth, with box office revenues growing at an estimated CAGR of 3.6%2.3% from 20002001 to 2010.2011. Against this background of steady long-term growth, the exhibition industry has experienced periodic short-term increases and decreases in attendance, and consequently box office revenues.
The following table represents the results of a survey by Motion Picture Association of America, or MPAA, published during February 2011,March 2012, outlining the historical trends in U.S. box office performance for the ten year period from 20012002 to 2010:
U.S. Box | Average Ticket | |||||||||||
Year | Office Revenues | Attendance | Price | |||||||||
($ in billions) | (In billions) | |||||||||||
2001 | $ | 8.1 | 1.43 | $ | 5.66 | |||||||
2002 | $ | 9.1 | 1.57 | $ | 5.81 | |||||||
2003 | $ | 9.2 | 1.52 | $ | 6.03 | |||||||
2004 | $ | 9.3 | 1.50 | $ | 6.21 | |||||||
2005 | $ | 8.8 | 1.38 | $ | 6.41 | |||||||
2006 | $ | 9.2 | 1.40 | $ | 6.55 | |||||||
2007 | $ | 9.6 | 1.40 | $ | 6.88 | |||||||
2008 | $ | 9.6 | 1.34 | $ | 7.18 | |||||||
2009 | $ | 10.6 | 1.42 | $ | 7.50 | |||||||
2010 | $ | 10.6 | 1.34 | $ | 7.89 |
Year | U.S. Box | Attendance | Average Ticket Price | |||
2002 | $ 9.1 | 1.57 | $5.81 | |||
2003 | $ 9.2 | 1.52 | $6.03 | |||
2004 | $ 9.3 | 1.50 | $6.21 | |||
2005 | $ 8.8 | 1.38 | $6.41 | |||
2006 | $ 9.2 | 1.40 | $6.55 | |||
2007 | $ 9.6 | 1.40 | $6.88 | |||
2008 | $ 9.6 | 1.34 | $7.18 | |||
2009 | $10.6 | 1.42 | $7.50 | |||
2010 | $10.6 | 1.34 | $7.89 | |||
2011 | $10.2 | 1.28 | $7.93 |
Films leading the box office during the year ended December 31, 20102012 included the carryover ofAvatar,which grossed approximately $475 million in U.S. box office revenues during 2010 and new releases such asToy Story 3, Alice in Wonderland, Harry Potter and the Deathly Hallows: Part 1, Iron Man 2,The Avengers, The Dark Knight Rises, The Hunger Games, Skyfall, The Twilight Saga: Eclipse, Inception, Despicable Me, How to Train Your Dragon, Shrek Forever After, Clash ofBreaking Dawn Part 2, The Hobbit: An Unexpected Journey, Dr. Suess’ The Lorax, Madagascar 3: Europe’s Most Wanted, Men in Black 3, Taken 2, Snow White and the Titans,Huntsman, Safe House, The Karate Kid, Tangled, Grown Ups, Megamind, Tron: Legacy, Little Fockers, Vow, Brave, Prometheus,The FighterAmazing Spider-Man, Ice Age: Continental DriftandTrue Grit.The Bourne Legacy,
The film slate for 20112013 currently includes sequels such asRango,The Hunger Games: Catching Fire, The Hobbit: The Desolation of Smaug, Iron Man 3, The Hangover 3, Monsters University, Despicable Me 2, Fast Five, Thor, Pirates& Furious 6andA Good Day to Die Hardand original titles such asMan of the Caribbean: On Stranger Tides, Kung Fu Panda 2:Steel, Oz: The Kaboom of Doom, Cars 2, X Men: First Class, Transformers: Dark of the Moon, Harry PotterGreat and the Deathly Hollows: Part 2, Twilight: Breaking Dawn, Captain America: The First Avenger, Cowboys and Aliens, Puss in Boots, Happy Feet 2, Sherlock Holmes 2Powerful, Oblivion, Pacific Rim, Lone RangerandAlvin and the Chipmunks: Chipwrecked, World War Z,among other films.
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International box office revenue continuesrevenues continue to grow. According to MPAA, international box office revenues were $21.2$22.4 billion for the year ended December 31, 2010,2011, which is a result of increasing acceptance of movie going as a popular form of entertainment throughout the world,strong economies, ticket price increases and new theatre construction. According to MPAA, Latin American box office revenues were $2.1$2.6 billion for the year ended December 31, 2010,2011, representing a 25%24% increase from 2009.
Growth in Latin America is expected to continue to be fueled by a combination of robust economies, growing populations, an emerging middle class, attractive demographics (i.e., a significant teenage population), substantial retail development, and quality product from Hollywood, including an increasing number of 3-D films. In many Latin American countries particularlyincluding, Brazil, Argentina, Mexico, Colombia and Brazil,Chile, successful local film product can also provide incremental box office growth opportunities.
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, and film product offerings continue to expand.
Drivers of Continued Industry Success
We believe the following market trends will drive the continued growth and strength of our industry:
Importance of Theatrical Success in Establishing Movie Brands and Subsequent Markets.Theatrical exhibition is the primary distribution channel for new motion picture releases. A successful theatrical release
which “brands” a film is one of the major factors in determining its success in “downstream” markets, such as digital downloads, DVDs, network and syndicated television, video on-demand,pay-per-view television and the Internet.
Increased Importance of International Markets for Box Office Success.Success. International markets continue to be an increasingly important component of the overall box office revenues generated by Hollywood films, accounting for $21.2$22.4 billion, or approximately 67%69% of 20102011 total worldwide box office revenues according to MPAA. (As of the date of this report, 2012 industry data was not yet available.) With the continued growth of the international motion picture exhibition industry, we believe the relative contribution of markets outside North America will become even more significant. Many of the top U.S. films released recently also performed exceptionally well in international markets. Such films includedAvatarThe Avengers, which grossed approximately $1.5 billion$892.3 million in international markets, andor 59% of its worldwide box office,Harry Potter and the Deathly Hallows: Part 1Ice Age: Continental Drift, which grossed approximately $610$716.1 million in international markets.
Stable Long-Term Attendance Trends.We believe that long-term trends in motion picture attendance in the U.S. will continue to benefit the industry. Even during the recent recessionary period, attendance levels remained stable as consumers selected the theatre as a preferred value for their discretionary income. Although domestic attendance declined slightly in 2010, patronage trends during 2010 reflected increasing demand for products unique to the exhibition industry such as 3-D. With the motion picture exhibition industry’s transition to digital projection technology, the products offered by motion picture exhibitors continue to expand, attracting a broader base of patrons.
Convenient and Affordable Form ofOut-Of-Home Entertainment.Movie going continues to be one of the most convenient and affordable forms ofout-of-home entertainment, with an estimated average ticket price in the U.S. of $7.89$7.93 in 2010.2011. Average prices in 20102011 for other forms ofout-of-home entertainment in the U.S., including sporting events and theme parks, range from approximately $25.00$27.00 to $77.00 per ticket according to MPAA.
Innovation with Digital Technology. Our industry began its conversion to digital projection technology during 2009, which has allowed exhibitors to expand their product offerings. Digital technologyprojection allows the presentation of3-D content and alternative entertainment such as live and pre-recorded sports programs, concert events, the opera concert events and other special live documentaries.presentations. These additional programming alternatives may expand the industry’s customer base and increase patronage for exhibitors.
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We believe the following strengths allow us to compete effectively:
Disciplined Operating Philosophy.We generated operating income and net income attributable to Cinemark Holdings, Inc. of $292.8$383.7 million and $146.1$168.9 million, respectively, for the year ended December 31, 2010.2012. 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, controlling operating costs and effectively reacting to economic and market changes.
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, 2010,2012, we ranked either first or second based on box office revenues in 2524 out of our top 30 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 137167 theatres and 1,1131,324 screens in 13 countries. Our international screens generated revenues of $564.2$777.7 million, or 26.4%31.4% of our total revenue,revenues, for the year ended December 31, 2010.2012. We have successfully established a significant presence in major cities in the region, with theatres in twelvefourteen of the fifteen largest metropolitan areas. With a geographically diverse circuit, weWe are the largest exhibitor in Brazil and Argentina. Our geographic diversity makes us an important distribution
channel to the movie studios. Approximately 84%87% of our international screens offer stadium seating. 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 offerstate-of-the-art theatres, which we believe makes our theatres a preferred destination for moviegoers in our markets. We feature stadium seating in approximately 86% of our first run auditoriums. During 2010,2012, we increased the size of our circuit by adding138 129 new state-of-the-art screens worldwide.worldwide, while closing 41 screens. We currently have commitments to build 196open 287 additional new screens over the next three years. We planhave installed digital projection technology in 100% of our U.S. first-run auditoriums and approximately 42% of our international auditoriums, with plans to install digital projection technology in 100% of our international auditoriums. Currently, approximately 51% of our U.S. screens and 40% of our international auditoriums of which40-50% will bescreens are 3-D compatible. We also plan to convert our six existing IMAX screens to digital technology and purchase two additionalhave eight digital IMAX systems to convert two of our existing screens during 2011.screens. We currently have 47109 XD auditoriums in our theatres and have plans to install 3540 to 40 more50 additional XD auditoriums during 2011.2013. Our new NextGen theatre concept provides further credence to our commitment to provide a continuingstate-of-the-art movie-viewing experience to our patrons.
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 and effectively react to economic and market changes. Additionally, owning land and buildings for 4241 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 continue to pursue growth opportunities, support our debt payments and continue to make dividend payments to our stockholders. In addition, as of December 31, 2010,2012, we owned approximately 16.918.1 million shares of National CineMedia and had approximately 1.11.2 million options to purchase shares in Real D,of RealD, both of which offer us an additional source of cash flows. As of December 31, 2010,2012, we had cash and cash equivalents of $465.0$742.7 million.
Experienced Management.Led by Chairman and founder Lee Roy Mitchell, Chief Executive Officer Alan Stock, President; Chief Operating Officer Timothyand President, Tim Warner, Chief Financial Officer Robert Copple and President-International Valmir Fernandes, our management team has many years of theatre operating experience, ranging from 1416 to 5254 years, executing a focused strategy that has led to consistent operating results. This management team has successfully navigated us through many industry and economic cycles.
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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 focus on establishing and maintaining a leading position in the markets we currently serve. We also monitor economic and market trends to ensure we offer a broad range of products and prices that satisfy our patrons.
Continue to Focus on Operational Excellence.We will continue to focus on achieving operational excellence by controlling theatre operating costs and adequately training our staff 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 continued international expansion will remain focused primarily on Latin America through construction of modern,state-of-the-art theatres in growing urban markets. We have commitments to build eight13 new theatres with 5188 screens during 20112013 and fivethree new theatres with 3421 screens subsequent to 2011,2013, investing an additional $63$89 million in our Latin American markets. We also plan to install digital projection technology in all of our international auditoriums, which allows us to present3-D and alternative content in these markets. Approximately 40% of our international auditoriums
are 3-D compatible. We have also installed eight39 of our proprietary XD auditoriums in our international theatres and have plans to install approximately 20 to 25 additional XD auditoriums internationally during 2011.
Commitment to Digital Innovation. Our commitment to technological innovation has resulted in us having 1,363being 100% digital auditoriums in theour U.S. first-run auditoriums as of December 31, 2010, 1,1362012, approximately 49% of which are 3-D compatible. We also had 201553 digital auditoriums in our international markets as of December 31, 2010, all2012, 527 of which are 3-D compatible. See further discussion of our digital expansion at “Conversion to Digital Projection Technology”. We are planning to convert 100% of our worldwide circuit to digital projection technology, approximately40-50% of which will be 3-D compatible. We also plan to expand our XD auditorium footprint in various markets throughout the U.S. and in select international markets, which offers our patrons a premium movie-viewing experience.
Theatre Operations
As of December 31, 2010,2012, we operated 430465 theatres and 4,9455,240 screens in 39 states and 13 Latin American countries. Our theatres in 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 in Latin America are primarily located in major metropolitan markets, which we believe are generally underscreened. The following tables summarize the geographic locations of our theatre circuit as of December 31, 2010.
United States Theatres
Total | Total | |||||||
State | Theatres | Screens | ||||||
Texas | 79 | 1,030 | ||||||
California | 61 | 740 | ||||||
Ohio | 19 | 213 | ||||||
Utah | 14 | 177 | ||||||
Nevada | 10 | 154 | ||||||
Illinois | 9 | 128 | ||||||
Colorado | 8 | 127 | ||||||
Arizona | 7 | 106 | ||||||
Oregon | 7 | 102 | ||||||
Kentucky | 7 | 87 | ||||||
Pennsylvania | 6 | 89 | ||||||
Oklahoma | 6 | 71 |
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State | Total Theatres | Total Screens | ||||||
Texas | 80 | 1,051 | ||||||
California | 63 | 770 | ||||||
Ohio | 19 | 213 | ||||||
Utah | 16 | 203 | ||||||
Nevada | 10 | 154 | ||||||
Illinois | 9 | 128 | ||||||
Colorado | 8 | 127 | ||||||
Oregon | 7 | 102 | ||||||
Kentucky | 7 | 87 | ||||||
Pennsylvania | 6 | 95 | ||||||
Arizona | 6 | 90 | ||||||
Oklahoma | 6 | 71 | ||||||
Florida | 5 | 98 | ||||||
Louisiana | 5 | 74 | ||||||
Indiana | 5 | 48 | ||||||
New Mexico | 4 | 54 | ||||||
Virginia | 4 | 54 | ||||||
North Carolina | 4 | 41 | ||||||
Mississippi | 3 | 41 | ||||||
Iowa | 3 | 37 | ||||||
Arkansas | 3 | 36 | ||||||
South Carolina | 3 | 34 | ||||||
Washington | 2 | 30 | ||||||
Georgia | 2 | 27 | ||||||
New York | 2 | 27 | ||||||
South Dakota | 2 | 26 | ||||||
West Virginia | 2 | 22 | ||||||
Maryland | 1 | 24 | ||||||
Kansas | 1 | 20 | ||||||
Alaska | 1 | 16 | ||||||
Michigan | 1 | 16 | ||||||
New Jersey | 1 | 16 | ||||||
Missouri | 1 | 15 | ||||||
Massachusetts | 1 | 15 | ||||||
Tennessee | 1 | 14 | ||||||
Wisconsin | 1 | 14 | ||||||
Delaware | 1 | 10 | ||||||
Minnesota | 1 | 8 | ||||||
Montana | 1 | 8 | ||||||
|
|
|
| |||||
Total | 298 | 3,916 | ||||||
|
|
|
|
Total | Total | |||||||
State | Theatres | Screens | ||||||
Florida | 5 | 98 | ||||||
Louisiana | 5 | 74 | ||||||
Indiana | 5 | 48 | ||||||
New Mexico | 4 | 54 | ||||||
Virginia | 4 | 52 | ||||||
North Carolina | 4 | 41 | ||||||
Mississippi | 3 | 41 | ||||||
Iowa | 3 | 37 | ||||||
Arkansas | 3 | 36 | ||||||
Washington | 2 | 30 | ||||||
Georgia | 2 | 27 | ||||||
New York | 2 | 27 | ||||||
South Dakota | 2 | 26 | ||||||
South Carolina | 2 | 22 | ||||||
West Virginia | 2 | 22 | ||||||
Maryland | 1 | 24 | ||||||
Kansas | 1 | 20 | ||||||
Alaska | 1 | 16 | ||||||
Michigan | 1 | 16 | ||||||
New Jersey | 1 | 16 | ||||||
Missouri | 1 | 15 | ||||||
Tennessee | 1 | 14 | ||||||
Wisconsin | 1 | 14 | ||||||
Massachusetts | 1 | 12 | ||||||
Delaware | 1 | 10 | ||||||
Minnesota | 1 | 8 | ||||||
Montana | 1 | 8 | ||||||
Total | 293 | 3,832 | ||||||
Total | Total | |||||||
Country | Theatres | Screens | ||||||
Brazil | 49 | 409 | ||||||
Mexico | 31 | 296 | ||||||
Central America(1) | 12 | 83 | ||||||
Colombia | 12 | 68 | ||||||
Chile | 11 | 87 | ||||||
Argentina | 10 | 80 | ||||||
Peru | 8 | 64 | ||||||
Ecuador | 4 | 26 | ||||||
Total | 137 | 1,113 | ||||||
Country | Total Theatres | Total Screens | ||||||
Brazil | 56 | 454 | ||||||
Mexico | 31 | 290 | ||||||
Argentina | 20 | 176 | ||||||
Colombia | 18 | 99 | ||||||
Central America (1) | 14 | 96 | ||||||
Chile | 13 | 101 | ||||||
Peru | 10 | 76 | ||||||
Ecuador | 5 | 32 | ||||||
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Total | 167 | 1,324 | ||||||
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(1) | ||
Includes Honduras, El Salvador, Nicaragua, Costa Rica, Panama and Guatemala. |
We first entered Latin America when we began operating movie theatres in Chile in 1993 and Mexico in 1994. Since then, through our focused international strategy, we have developed into the most geographically diverse theatre circuit in the region. We have balanced our risk through a diversified international portfolio, currently operating theatres in twelvefourteen of the fifteen largest metropolitan areas in Latin America. In addition, we have achieved significant scale in Brazil, and Mexico,where we are the two largest Latin American economies,exhibitor, with 409454 screens in Brazil and 296 screens in Mexico as of December 31, 2010.
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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 film release dates, the related marketing campaigns and the expenditures related to marketing materials, television spots and other advertising outlets. The marketing campaign 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 theirits movies to the exhibitors located in that area generally based on demographics, the conditions, capacity and grossing potential of that particular area.each theatre, and licensing terms. We are the sole exhibitor in approximately 91% of the 247253 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 those offered to us by film distributors.
Internationally, our local film 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 mostup-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 1,1131,324 screens we operate in international markets, approximately 75%80% have no direct competition from other theatres.
Our film rental fees in the U.S. are generally based on a film’s box office receipts and either mutually agreed upon firm terms, a sliding scale formula, or a mutually agreed upon settlement, subject to the film licensing agreement.agreement with the film distributor. Under a firm terms formula, we pay the distributor a mutually agreed upon specified percentage of box office receipts. Under a sliding scale formula, we pay a percentage of box office revenues using a pre-determined matrix that is 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 fees are primarily based on mutually agreed upon firm terms that are based upon a specified percentage of box office receipts.
We regularly play art and independent films at many of our U.S. 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 increased interest in art, foreign and documentary films. High profile film festivals, such as the Sundance Film Festival, have contributed to interest in this genre. Recent hitsThe performance of films such asSilver Linings Playbook, The Kids are Alright, Black Swan,Best Exotic Marigold HotelandThe King’s SpeechMoonrise Kingdomhave demonstrated the box office potential of art and independent films.
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Concession sales are our second largest revenue source, representing approximately 30%31% of total revenues for each of the years ended December 31, 2008, 2009 and 2010.revenues. 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 and types of popcorn, soft drinks, coffees, juices, candy and quickly-prepared food, such as hot dogs, nachos and ice cream. Different varieties and flavors of candy and 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, which also allows us to quickly take advantage of national as well as regional 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. We periodically offer our loyal patrons opportunities to receive a discount on certain products by offering reusable popcorn tubs and soft drink cups that can be refilled at a discount off the regular price. | ||
• | Staff training.Employees are continually trained in | ||
• | Theatre design.Our theatres are designed to optimize efficiencies at the concession stands, which include multiple service stations throughout a theatre to facilitate serving | ||
• | 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 a weekly inventory of all concession products at each theatre to ensure proper stock levels are maintained for business. |
Pre-Feature Screen Advertising
In our domestic markets, our theatres are part of the in-theatre digital network operated by National CineMedia, LLC, or NCM. NCM’s primary activities that impact our theatres include: advertising through its
branded “First Look” pre-feature entertainment program, lobby promotions and displays;displays, live and pre-recorded networked and single-site meetings and events; and live and pre-recordedincluding 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, 2010,2012, we had an approximate 15%16% ownership interest in NCM. See Note 6 to the consolidated financial statements.
In manycertain of our international markets, we 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 of these 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.
Conversion to Digital Projection Technology
The motion picture exhibition industry began its conversion to digital projection technology during 2009.
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During 2007, we, AMC Entertainment Inc., or AMC, and Regal Entertainment Group, or 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. Digital cinema developments are managed by DCIP, subject to certain approvals by us, AMC and Regal with each of us having an equal voting interest in DCIP. DCIP’s wholly-owned subsidiary Kasima executed long-term deployment agreements with all of the major motion picture studios, under which Kasima receives a virtual print fee from such studios for each digital presentation. In accordance with these agreements, the digital projection systems deployed by Kasima comply with the technology and security specifications developed by the Digital Cinema Initiatives studio consortium. Kasima leases digital projection systems to us, AMC and Regal under master lease agreements that have an initial term of 12 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 the majority of our existing U.S. digital projection systems to DCIP. SubsequentSubsequently during 2010 and 2011, we sold additional U.S. digital projection systems to the contributions,DCIP. As of December 31, 2011, we continue to havehad a 33% voting interest in DCIP and have a 24.3% economic interest in DCIP. As of December 31, 2010, we had 1,3632012, 95% of our 3,916 U.S. auditoriums were digital, auditoriums in the U.S., 1,1363,515 of which are leased from Kasima and 1,923 of which are capable of exhibiting 3-D content. We ultimately expect to install digital projection systems in all of our auditoriums, with approximately
40-50% being 3-D compatible.
In our international markets, we continue to convert our auditoriums to digital projection technology. The digital projection systems we deploy are generally funded with operating cash flows generated by each international country. As of December 31, 2010,2012, we had 201553 digital auditoriums in our international markets, all527 of which are capable of exhibiting 3-D content. Similar to our domestic markets, we expect to install digital projection systems in all of our international auditoriums.
Digital Cinema Distribution Coalition
We are participating in a joint venture with Regal, AMC and certain distributors called Digital Cinema Distribution Coalition, or DCDC, whose goal is to seamlessly distribute all digital content to theatres via satellite.
Certain of the related agreements are in negotiation, however, we are currently testing equipment to be used for satellite distribution. The new distribution network will not only change how content is delivered to theatre sites but also enrich alternative product availability, such as live sports, concerts, and opera.
Marketing
In the U.S., we rely on Internet advertising and also newspaper directory film schedules. Radio and television advertising spots are used to promote certain motion pictures and special events. We exhibit previews of coming attractions and films we are currently playing as part of our pre-feature program. We offer patrons access to movie times, the ability to buy and print their tickets at home and purchase gift cards at our Web sitewebsitewww.cinemark.com. Customers subscribing to our weekly email receive targeted information about current and upcoming films at their preferred Cinemark theatre(s), including details about advanced tickets,ticket sales, special events, concerts and live broadcasts; as well as contests, promotions, and exclusive coupons for concession savings. We partner with film distributors to use monthly web contests to drive traffic to our Web sitewebsite and to ensure that customers visit often. In addition, we work with all of the film distributors on a regular basis 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. We are also developing an iPhone application in the U.S.have smart phone and tablet applications that will allow patrons to find theatres, check showtimes and purchase tickets.
Internationally, we exhibit upcoming and current film previews on screen, weon-screen, 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 ourand image and toas well as increase attendance levels at our theatres. Our customers are encouraged to register on our Web sitewebsite 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 has just introduced an iPhone application in Brazil ranking among the top ten downloads in Brazil’s local Apple stores.Brazil. The application allows consumers to check showtimes and purchase tickets for our Brazil theatres.
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We recently created a new offering to our patrons called CineMode. CineMode is an exclusive feature we offer with our smart phone and tablet applications that allows patrons the opportunity to earn rewards while being courteous during the show. Our innovative technology was designed to address texting and other cell phone distractions, which is the number one complaint of movie-goers. While in CineMode, the smart phone screen is automatically dimmed and patrons are prompted to silence their volume. If CineMode is enabled for the duration of the movie, patrons are rewarded with exclusive digital rewards and offers that can be used at their next visit to Cinemark. CineMode facilitates contact with our patrons and this initiative provides an opportunity for us to further improve our relationships with the studios and our vendors via couponing and promotions, such as discounted digital downloads. To date, more than two million patrons have already downloaded CineMode.
Online and Mobile Sales
Our patrons may purchase advance tickets for all of our domestic screens and approximately seventy-five percenta majority of our international screens by accessing our corporate Web sitewebsite atwww.cinemark.com.Advance tickets may also be purchased for our domestic screens atwww.fandango.com.Our iPhone application in Brazil currently offers,mobile phone and the iPhone application we are developing in the U.S. willtablet applications also offer patrons the
ability to purchase tickets. 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. 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, as well as Reserved Seating,reserved 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 functionsfunctionality and provide print at homeprint-at-home and mobile ticketing. In our international locations, we currently use other point of sale systems that have been developed 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.
Competition
We are a leaderone of the leaders in the motion picture exhibition industry in terms of both attendance and the number of screens in operation.industry. 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 91% of the 247253 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 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, the conditions, capacity and grossing potential of that particular area.each theatre, and licensing terms. Of the 1,1131,324 screens we operate outside of the U.S., approximately 75%80% 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, theatre capacity, quality of projection and sound equipment, film showtime availability, customer service quality, 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 securingvenues. Securing a potential site being dependentdepends upon factors such as committed investment and resources, theatre design and capacity, revenue and patron potential, and financial stability.
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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 next quarter or for the same period in the following year.
Corporate Operations
Our corporate headquarters is located in Plano, Texas. Personnel at our corporate headquarters provide oversight for our domestic and international theatres. Domestic personnelPersonnel at our corporate headquarters include our executive team and department heads in charge of film licensing, concessions,food and beverage, theatre operations, theatre construction and maintenance, real estate, human resources, marketing, legal, finance and accounting, audit and information systems support and marketing.support. Our U.S. operations are divided into sixteen regions, primarily organized geographically, each of which is headed by a region leader.
Employees
We have approximately 14,60013,500 employees in the U.S., approximately 10% of whom are full time employees and 90% of whom are part time employees. We have approximately 7,4009,000 employees in our international markets, approximately 63%58% of whom are full time employees and approximately 37%42% of whom are part time employees. Some of our U.S. employees are represented by unions under collective bargaining agreements, 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. The 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 atheatre-by-theatre andfilm-by-film basis. Consequently, exhibitors cannot enter into long-term arrangements with major distributors, but must negotiate for licenses on atheatre-by-theatre andfilm-by-film basis.
We are subject to various general regulations applicable to our operations including the Americans with Disabilities Act of 1990, or the ADA. We develop new theatres to be accessible to the disabled and we believe we are substantially compliant with current regulations relating to accommodating the disabled. Although we believe that our theatres comply with the ADA, we 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 closed captioning for patrons who are deaf or are severely hearing impaired.
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 currently have operations in the U.S., Brazil, Mexico, Argentina, Chile, Colombia, Argentina, Peru, Ecuador, Honduras, El Salvador, Nicaragua, Costa Rica, Panama and Guatemala, which are reflected in the consolidated
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| Item 1A.Risk Factors
|
Our business depends on both the availability of suitable films for exhibition in our theatres and the success of those films in our markets. Poor performance of films, the disruption in the production of 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 their 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 to supply the films shown in our theatres. The film distribution business is highly concentrated, with sixseven major film distributors accounting for approximately 82.7%85% of U.S. box office revenues and 47 of the top 50 grossing films during 2010.2012. Numerous antitrust cases and consent decrees resulting from these antitrust cases impact the distribution of films. The consent decrees bind certain major film distributors to license films to exhibitors on atheatre-by-theatre andfilm-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 sixseven 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.
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, theatre capacity, quality of projection and sound equipment, film showtime availability, customer service quality, and ticket prices. The principal competitive factors with respect to film licensing include the theatre’s location and its demographics, the condition, capacity and revenuegrossing 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 revenue growth.
We face competition for patrons from a number of alternative film distribution channels, such as digital downloads, 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, theme parks and sporting events, for our patrons’ leisure time and disposable income. A significant increase in popularity of these alternative film distribution channels or competing forms of entertainment could have an adverse effect on our business and results of operations.
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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,to consumers at home, an important downstream market, has decreased from approximately six months to approximately three to four months. If patrons choose to wait for a DVDan in-home release rather than attend a theatre for viewingto view the film, it may adversely impact our business and results of operations, financial condition and cash flows. Film studios have announced their intentionstarted to offer consumers a premium video on demandon-demand option for certain films 60 days following the theatrical release, which would also causecaused the release window to shrink further.further for certain films. We cannot assure you that these release windows, which are 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.
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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. If consumers’ discretionary income declines as a result of an economic downturn, our operations could be 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 results of operations.
Our foreign operations are subject to adverse regulations, economic instability and currency exchange risk.
We have 137167 theatres with 1,1131,324 screens in thirteen countries in Latin America. Brazil and Mexico represented approximately 14.8% and 3.3%13.3% of our consolidated 2010 revenues, respectively.2012 revenues. 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. 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 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, 2012, we had $1,764.0 million in long-term debt obligations, $150.2 million in capital lease obligations and $1,889.2 million in long-term operating lease obligations. We incurred interest expense of $123.7 million for the year ended December 31, 2012. We incurred $281.6 million of facility lease expense under operating leases for the year ended December 31, 2012 (the terms under these operating leases, excluding optional renewal periods, range from one to 25 years). Our substantial lease and debt obligations pose risk to you by:
making it more difficult for us to satisfy our obligations;
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;
impeding our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions and general corporate purposes;
subjecting us to the risk of increased sensitivity to interest rate increases on our variable rate debt, including our borrowings under our amended senior secured credit facility; and
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 amended 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 amended senior secured credit facility.
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 amended 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.
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, 2010,2012, we had an ownership interest in NCM of approximately 15%16%. 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, 20092011 and 2010,2012, the Company received approximately $5.7$5.9 million and $5.0$7.1 million in other revenues from NCM, respectively, and $20.8$24.2 million and $23.4$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 insufficient financing to obtain digital projectors and insufficient supply of digital projectors.projectors for our international locations.
We along with some of our competitors, began a roll-out of digital projection equipment for exhibiting feature filmsin our international theatres during 2009 and plan to continue our domestic roll-out through our joint venture DCIP. However, significant obstacles may exist that impact such a roll-out plan including the cost of digital projectors and the supply of projectorswhich has been funded by manufacturers. During 2010, DCIP completed its formation and a $660 million financing to facilitate
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projectors for our international theatres.theatres on commercially reasonable terms. Accordingly, the cost of digital projection systems and manufacturer limitations may delay our international deployment.
A failure to adapt to future technological innovations could impact our ability to compete effectively and could adversely affect our results of operations.
While we continue to convert our theatres to digital projection technology, new technological innovations continue to impact our industry. If we are unable to respond to or invest in changes in technology and the technological preferences of our customers, we may not be able to compete with other exhibitors or other entertainment venues, which could adversely affect our results of operations.
We are subject to uncertainties relating to future expansion plans, including our ability to identify suitable acquisition candidates or site 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 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 the U.S. and internationally. There is significant competition for new 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 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 cash flows. Further, our expansion programs may require financing above our existing borrowing capacity and operating cash flows. We cannot assure you that we will be able to obtain such financing or that such financing will be available to us on acceptable terms or at all.
If we do not comply with the Americans with Disabilities Act of 1990 and the safe harbor framework included in the 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,On November 15, 2004, we and 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 andentered into a consent order, which was entered byfiled with the U.S. District Court for the Northern District of Ohio, Eastern Division, on November 15, 2004.Division. 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
16
We are subject to impairment losses due to potential declines in 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, amortizing intangible asset carrying values, the age of a recently built theatre, competitive theatres in the marketplace, the impact of recent ticket price changes, available lease renewal options and other factors considered relevant in our assessment of impairment of individual theatre assets. Long-lived assets are evaluated for impairment on an individual theatre basis, which we believe is the lowest applicable level for which there are identifiable cash flows. When estimated fair value is determined to be lower than the carrying value of the theatre 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 eight times for the evaluations performed during 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 20092010, 2011 and 2010.2012. Significant judgment is involved in estimating cash flows and fair value. Management’s estimates, which fall under Level 3 of the U.S. GAAP fair value hierarchy as defined by Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic820-10-35, 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 of that theatre.
We have a significant amount of goodwill. We evaluate goodwill for impairment at the reporting unit level at least annually during the fourth quarter or whenever events or changes in circumstances indicate the carrying value of goodwill may not be fully recoverable. Goodwill impairment is evaluated for impairment using a two-step approach requiring us tounder which we 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 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 six and a half times for the evaluation performed during 2010 and seven and a half times for the evaluations performed during 2008, 20092011 and 2010.2012. Significant judgment is involved in estimating cash flows and fair value. Management’s estimates, which fall under Level 3 of the U.S. GAAP fair value hierarchy as defined by FASB ASC Topic820-10-35, are based on historical and projected operating performance, recent market transactions and current industry trading multiples. Declines in our stock price or market capitalization, declines in our attendance due to increased competition in certain regionsand/or countries or economic factors that lead to a decline in attendance in any given region or country could negatively affect our estimated fair values and could result in further impairments of goodwill. As of December 31, 2010, the carrying value of goodwill allocated to reporting units where2012, the estimated fair value was less thanof goodwill for all of our reporting units exceeded their carrying values by at least 10% more than the carrying value was approximately $77 million.
We also have a significant amount of tradename intangible assets. 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 fully 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 its estimated fair value. Significant judgment is involved in estimating market royalty rates and long-term revenue forecasts. Management’s estimates, which fall under Level 3 of the U.S. GAAP fair value hierarchy as defined by FASB ASC Topic820-10-35, are based on historical and projected revenue performance and industry trends. As of December 31, 2010, the carrying value of tradename intangible assets where2012, the estimated fair value was less thanof our tradename intangible assets exceeded their carrying values by at least 10% more than the carrying value was approximately $136 million.
17
The impairment or insolvency of othercertain financial institutions could adversely affect us.
We have exposure to different counterparties with regard to our interest rate swap agreements. These transactions expose us to credit risk in the event of a default by one or more of our counterparties to such agreements. We also have exposure to financial institutions used as depositories of our corporate cash balances. If our counterparties or financial institutions become impaired or insolvent, this could have an adverse impact on our 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.
Our ability to pay dividends is limited by our status as a holding company and the terms of our senior notes indentures, our senior subordinated notes indenture, and our amended senior secured credit facility, which restrict our ability to pay dividends and the ability of certain of our subsidiaries to pay dividends, directly or indirectly, to us. 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. The declaration of future dividends on our common stock, par value $0.001 per share, or Common Stock, will be at the discretion of our 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.
18
Provisions in our amended and restated certificate of incorporation and bylaws, as well as provisions of the Delaware General Corporation Law, could discourage unsolicited proposals to acquire us, even though such proposals may be beneficial to you. These provisions include:
authorization of our board of directors to issue shares of preferred stock without stockholder approval;
a board of directors classified into three classes of directors with the directors of each class having staggered, three-year terms;
provisions regulating the ability of our stockholders to nominate directors for election or to bring matters for action at annual meetings of our stockholders; and
provisions of Delaware law that restrict many business combinations and provide that directors serving on classified boards of directors, such as ours, may be removed only for cause.
Certain provisions of our 8.625% senior notes indenture, our 5.125% senior notes indenture, our 7.375% senior subordinated notes indenture and our amended senior secured credit facility may have the effect of delaying or preventing future transactions involving a “change of control.” A “change of control” would require us to make an offer to the holders of our 8.625% senior notes to repurchase all of the outstanding notes at a purchase price equal to 101% of the aggregate principal amount outstanding plus accrued and unpaid interest to the date of the purchase. A “change of control” would require us to make an offer to the holders of our 5.125% senior notes to repurchase all of the outstanding notes at a purchase price equal to 101% of the aggregate principal amount outstanding plus accrued and unpaid interest to the date of purchase. A “change of control”, as defined in the senior subordinated notes indenture, would require us 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. A “change of control” would also be an event of default under our amended senior secured credit facility.
The market price of our common stockCommon Stock may be volatile.
There can be no assurance that an active trading market for our common stockCommon Stock will continue. The securities markets have experienced extreme price and volume fluctuations in recent years and the market prices of the securities of companies have been particularly volatile. This market volatility, as well as general economic or political conditions, could reduce the market price of our common stockCommon Stock regardless of our operating performance. In addition, our operating results could be below the expectations of investment analysts and investors and, in response, the market price of our common stockCommon Stock may decrease significantly and prevent investors from reselling their shares of our common stockCommon Stock at or above a market price that is favorable to other stockholders. In the past, companies that have experienced volatility in the market price of their stock have been the subject of securities class action litigation. If we were the subject of securities class action litigation, it could result in substantial costs, liabilities and a diversion of management’s attention and resources.
Future sales of our common stockCommon Stock may adversely affect the prevailing market price.
If a large number of shares of our common stockCommon Stock is sold in the open market, or if there is a perception that such sales will occur, the trading price of our common stockCommon Stock could decrease. In addition, the sale of these shares could impair our ability to raise capital through the sale of additional common stock.Common Stock. As of December 31, 2010,2012, we had an aggregate of 182,889,297173,074,817 shares of our common stockCommon Stock authorized but unissued and not reserved for specific purposes. In general, we may issue all of these shares without any action or approval by our stockholders. We may issue shares of our common stockCommon Stock in connection with acquisitions.
As of December 31, 2010,2012, we had 113,750,844114,949,667 shares of our common stockCommon Stock outstanding. Of these shares, approximately 75,573,390103,023,739 shares were freely tradable. The remaining shares of our common stockCommon Stock were “restricted securities” as that term is defined in Rule 144 under the Securities Act. Restricted securities may not be resold in a public distribution except in compliance with the registration requirements of the Securities Act or pursuant to an exemption therefrom, including the exemptions provided by Regulation S and Rule 144 promulgated under the Securities Act.
We cannot predict whether substantial amounts of our common stockCommon Stock will be sold in the open market in anticipation of, or following, any divestiture by any of our existinglarge stockholders, our directors or executive officers of their shares of common stock.
As of December 31, 2010,2012, there were 9,786,6738,422,431 shares of our common stockCommon Stock reserved for issuance under our Amended and Restated 2006 Long Term Incentive Plan, of which 140,35622,022 shares of common stockCommon Stock were issuable
19
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.
|
As of December 31, 2010,2012, in the U.S., we operated 251257 theatres with 3,2413,329 screens pursuant to leases and own the land and building for 4241 theatres with 591587 screens. Our leases are generally entered into on a long-term basis with terms, including optional renewal periods, generally ranging from 20 to 45 years. As of December 31, 2010,2012, approximately 10% of our theatre leases in the U.S., covering 2425 theatres with 198189 screens, have remaining terms, including optional renewal periods, of less than six years. Approximately 10% of our theatre leases in the U.S., covering 2427 theatres with 199228 screens, have remaining terms, including optional renewal periods, of between six and 15 years and approximately 80% of our theatre leases in the U.S., covering 203205 theatres with 2,8442,912 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 also lease an office building in Plano, Texas for our corporate headquarters.
International
As of December 31, 2010,2012, internationally, we operated 137167 theatres with 1,1131,324 screens, all of which are leased. Our international leases are generally entered into on a long term basis with terms, including optional renewal periods, generally ranging from 5 to 40 years. The leases generally provide for contingent rental based upon operating results with an annual minimum. As of December 31, 2010,2012, approximately 6% of our international theatre leases, covering eight10 theatres with 6287 screens, have a remaining term,terms, including optional renewal periods, of less than six years. Approximately 39%41% of our international theatre leases, covering 5469 theatres and 446560 screens, have remaining terms, including optional renewal periods, of between six and 15 years and approximately 55%53% of our international theatre leases, covering 7588 theatres and 605677 screens, have remaining terms, including optional renewal periods, of more than 15 years. We also lease office space in eight regions in Latin America for our local management.
See Note 2223 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 nearing expiration, to determine whether to continue its operations.
20
claims and contractual disputes, some of which are covered by insurance or by indemnification from vendors. We believe our potential liability, with respect to these types of proceedings currently pending, is not material, individually or in the aggregate, to our financial position, results of operations and cash flows.
21
Not applicable.
PART II
Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
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Our common equity consists of common stock, which has traded on the New York Stock Exchange since April 24, 2007 under the symbol “CNK.” The following table sets forth the historical high and low sales prices per share of our common stock as reported by the New York Stock Exchange for the fiscal periodsyears indicated.
�� | ||||||||||||||||
Fiscal 2009 | Fiscal 2010 | |||||||||||||||
High | Low | High | Low | |||||||||||||
First Quarter (January 1 — March 31) | $ | 10.26 | $ | 6.75 | $ | 18.47 | $ | 14.08 | ||||||||
Second Quarter (April 1 — June 30) | $ | 11.49 | $ | 8.63 | $ | 19.80 | $ | 13.09 | ||||||||
Third Quarter (July 1 — September 30) | $ | 11.65 | $ | 9.50 | $ | 16.89 | $ | 12.73 | ||||||||
Fourth Quarter (October 1 — December 31) | $ | 14.85 | $ | 10.08 | $ | 18.81 | $ | 15.95 |
2011 | 2012 | |||||||||||||||
High | Low | High | Low | |||||||||||||
First Quarter (January 1 – March 31) | $ | 20.56 | $ | 16.70 | $ | 22.85 | $ | 17.93 | ||||||||
Second Quarter (April 1 – June 30) | $ | 22.09 | $ | 18.65 | $ | 24.45 | $ | 20.99 | ||||||||
Third Quarter (July 1 – September 30) | $ | 21.25 | $ | 17.10 | $ | 24.47 | $ | 22.34 | ||||||||
Fourth Quarter (October 1 – December 31) | $ | 21.00 | $ | 17.78 | $ | 27.50 | $ | 22.18 |
Holders of Common Stock
As of December 31, 2012, there were 117 stockholders147 holders of record of ourthe Company’s common stock.
Dividend Policy
In August 2007, we initiated a quarterly dividend policy, which was amended in November 2010. Below is a summary of dividends paiddeclared for the fiscal periods indicated:
Date Declared | Date of Record | Date Paid | Amount per Common Share (1) | Total Dividends (in millions) | ||||
02/24/11 | 03/04/11 | 03/16/11 | $0.21 | $24.0 | ||||
05/12/11 | 06/06/11 | 06/17/11 | $0.21 | 24.1 | ||||
08/04/11 | 08/17/11 | 09/01/11 | $0.21 | 24.2 | ||||
11/03/11 | 11/18/11 | 12/07/11 | $0.21 | 24.2 | ||||
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Total – Year ended December 31, 2011(2) | $96.5 | |||||||
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02/03/12 | 03/02/12 | 03/16/12 | $0.21 | $24.1 | ||||
05/11/12 | 06/04/12 | 06/19/12 | $0.21 | 24.3 | ||||
08/08/12 | 08/21/12 | 09/05/12 | $0.21 | 24.3 | ||||
11/06/12 | 11/21/12 | 12/07/12 | $0.21 | 24.6 | ||||
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Total – Year ended December 31, 2012(2) | $97.3 | |||||||
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(1) | ||||||||
Beginning with the dividend declared on November 2, 2010, our board of directors raised the quarterly dividend from $0.18 to $0.21 per common share. |
(2) | Includes amounts related to restricted stock unit awards that will not be paid until such awards vest. |
We, at the discretion of the board of directors and subject to applicable law, anticipate paying regular quarterly dividends on our common stock. The amount, if any, of the dividends to be paid in the future will depend upon our then available cash, anticipated cash needs, overall financial condition, loan agreement restrictions, future prospects for earnings and cash flows, as well as other relevant factors. See Item 7,. Management’s Discussion and Analysis of Financial Condition and Results of Operation — Liquidity and Capital Resources — Financing Activitiesfor a discussion of dividend restrictions under our debt agreements.
22
12/31/2007 | 3/31/2008 | 6/30/2008 | 9/30/2008 | 12/31/2008 | 3/31/2009 | 6/30/2009 | 9/30/2009 | 12/31/2009 | 3/31/2010 | 6/30/2010 | 9/30/2010 | 12/31/2010 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Cinemark Holdings, Inc. | $ | 100 | $ | 75 | $ | 77 | $ | 81 | $ | 44 | $ | 56 | $ | 68 | $ | 62 | $ | 86 | $ | 110 | $ | 79 | $ | 97 | $ | 104 | |||||||||||||||||||||||||||||||||||||||
S&P© 500 | 100 | 90 | 87 | 79 | 62 | 54 | 63 | 72 | 76 | 80 | 70 | 78 | 86 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Peer Group (2 Stocks)* | 100 | 105 | 84 | 78 | 56 | 65 | 89 | 92 | 91 | 80 | 79 | 91 | 81 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Information regarding securities authorized for issuance under the Company’s equitylong-term compensation plans as ofplan is incorporated by reference to the Company’s proxy statement for its annual stockholders meeting (under the heading “Board Committees — Compensation Committee report — Securities Authorized for Issuance under Equity Compensation Plans”) to be held on May 23, 2013 and to be filed with the SEC within 120 days after December 31, 2010:
Number of | Weighted Average | Number of Securities | ||||||||||
Securities to be | Exercise | Remaining Available for | ||||||||||
Issued upon | Price of | Future Issuance Under | ||||||||||
Exercise of | Outstanding | Equity Compensation Plans | ||||||||||
Outstanding | Options, Warrants | (Excluding Securities | ||||||||||
Options, Warrants | and | Reflected in the First | ||||||||||
Plan Category | and Rights | Rights | Column) | |||||||||
Equity compensation plans approved by security holders | 140,356 | $ | 7.63 | 9,786,673 | ||||||||
Equity compensation plans not approved by security holders | — | — | — | |||||||||
Total | 140,356 | $ | 7.63 | 9,786,673 | ||||||||
23
Year Ended December 31, | ||||||||||||||||||||
2006 | 2007 | 2008 | 2009 | 2010 | ||||||||||||||||
(Dollars in thousands, except per share data) | ||||||||||||||||||||
Statement of Operations Data: | ||||||||||||||||||||
Revenues: | ||||||||||||||||||||
Admissions | $ | 760,275 | $ | 1,087,480 | $ | 1,126,977 | $ | 1,293,378 | $ | 1,405,389 | ||||||||||
Concession | 375,798 | 516,509 | 534,836 | 602,880 | 642,326 | |||||||||||||||
Other | 84,521 | 78,852 | 80,474 | 80,242 | 93,429 | |||||||||||||||
Total revenues | $ | 1,220,594 | $ | 1,682,841 | $ | 1,742,287 | $ | 1,976,500 | $ | 2,141,144 | ||||||||||
Film rental and advertising | 405,987 | 589,717 | 612,248 | 708,160 | 769,698 | |||||||||||||||
Concession supplies | 59,020 | 81,074 | 86,618 | 91,918 | 97,484 | |||||||||||||||
Salaries and wages | 118,616 | 173,290 | 180,950 | 203,437 | 221,246 | |||||||||||||||
Facility lease expense | 161,374 | 212,730 | 225,595 | 238,779 | 255,717 | |||||||||||||||
Utilities and other | 144,808 | 191,279 | 205,814 | 222,660 | 239,470 | |||||||||||||||
General and administrative expenses | 67,768 | 79,518 | 90,788 | 96,497 | 109,045 | |||||||||||||||
Termination of profit participation agreement | — | 6,952 | — | — | — | |||||||||||||||
Total depreciation and amortization | 99,470 | 151,716 | 158,034 | 149,515 | 143,508 | |||||||||||||||
Impairment of long-lived assets | 28,537 | 86,558 | 113,532 | 11,858 | 12,538 | |||||||||||||||
(Gain) loss on sale of assets and other | 7,645 | (2,953 | ) | 8,488 | 3,202 | (431 | ) | |||||||||||||
Total cost of operations | 1,093,225 | 1,569,881 | 1,682,067 | 1,726,026 | 1,848,275 | |||||||||||||||
Operating income | $ | 127,369 | $ | 112,960 | $ | 60,220 | $ | 250,474 | $ | 292,869 | ||||||||||
Interest expense | $ | 109,328 | $ | 145,596 | $ | 116,058 | $ | 102,505 | $ | 112,444 | ||||||||||
Net income (loss) | $ | 2,310 | $ | 89,712 | $ | (44,430 | ) | $ | 100,756 | $ | 149,663 | |||||||||
Net income (loss) attributable to Cinemark Holdings, Inc. | $ | 841 | $ | 88,920 | $ | (48,325 | ) | $ | 97,108 | $ | 146,120 | |||||||||
Net income (loss) attributable to Cinemark Holdings, Inc. per share: | ||||||||||||||||||||
Basic | $ | 0.01 | $ | 0.87 | $ | (0.45 | ) | $ | 0.89 | $ | 1.30 | |||||||||
Diluted | $ | 0.01 | $ | 0.85 | $ | (0.45 | ) | $ | 0.87 | $ | 1.29 | |||||||||
24
Year Ended December 31, | ||||||||||||||||||||
2008 | 2009 | 2010 | 2011 | 2012 | ||||||||||||||||
(Dollars in thousands, except per share data) | ||||||||||||||||||||
Statement of Operations Data: | ||||||||||||||||||||
Revenues: | ||||||||||||||||||||
Admissions | $ | 1,126,977 | $ | 1,293,378 | $ | 1,405,389 | $ | 1,471,627 | $ | 1,580,401 | ||||||||||
Concession | 534,836 | 602,880 | 642,326 | 696,754 | 771,405 | |||||||||||||||
Other | 80,474 | 80,242 | 93,429 | 111,232 | 121,725 | |||||||||||||||
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Total revenues | $ | 1,742,287 | $ | 1,976,500 | $ | 2,141,144 | $ | 2,279,613 | $ | 2,473,531 | ||||||||||
Film rentals and advertising | 612,248 | 708,160 | 769,698 | 798,606 | 845,107 | |||||||||||||||
Concession supplies | 86,618 | 91,918 | 97,484 | 112,122 | 123,471 | |||||||||||||||
Salaries and wages | 180,950 | 203,437 | 221,246 | 226,475 | 247,468 | |||||||||||||||
Facility lease expense | 225,595 | 238,779 | 255,717 | 276,278 | 281,615 | |||||||||||||||
Utilities and other | 205,814 | 222,660 | 239,470 | 259,703 | 280,670 | |||||||||||||||
General and administrative expenses | 90,788 | 96,497 | 109,045 | 127,621 | 148,624 | |||||||||||||||
Total depreciation and amortization | 158,034 | 149,515 | 143,508 | 154,449 | 147,675 | |||||||||||||||
Impairment of long-lived assets | 113,532 | 11,858 | 12,538 | 7,033 | 3,031 | |||||||||||||||
(Gain) loss on sale of assets and other | 8,488 | 3,202 | (431 | ) | 8,792 | 12,168 | ||||||||||||||
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Total cost of operations | 1,682,067 | 1,726,026 | 1,848,275 | 1,971,079 | $ | 2,089,829 | ||||||||||||||
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Operating income | $ | 60,220 | $ | 250,474 | $ | 292,869 | $ | 308,534 | $ | 383,702 | ||||||||||
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Interest expense | $ | 116,058 | $ | 102,505 | $ | 112,444 | $ | 123,102 | $ | 123,665 | ||||||||||
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Net income (loss) | $ | (44,430 | ) | $ | 100,756 | $ | 149,663 | $ | 132,582 | $ | 171,420 | |||||||||
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Net income (loss) attributable to Cinemark Holdings, Inc. | $ | (48,325 | ) | $ | 97,108 | $ | 146,120 | $ | 130,557 | $ | 168,949 | |||||||||
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Net income (loss) attributable to Cinemark Holdings, Inc. per share: | ||||||||||||||||||||
Basic | $ | (0.45 | ) | $ | 0.89 | $ | 1.30 | $ | 1.15 | $ | 1.47 | |||||||||
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Diluted | $ | (0.45 | ) | $ | 0.87 | $ | 1.29 | $ | 1.14 | $ | 1.47 | |||||||||
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Dividends declared per common share | $ | 0.72 | $ | 0.72 | $ | 0.75 | $ | 0.84 | $ | 0.84 | ||||||||||
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Other Financial Data: Ratio of earnings to fixed charges (1) Cash flow provided by (used for): Operating activities Investing activities Financing activities Capital expenditures Year Ended December 31, 2008 2009 2010 2011 2012 — 1.84 x 2.10 x 2.00 x 2.44 x $ 257,294 $ 176,763 $ 264,751 $ 391,201 $ 395,205 (94,942 ) (183,130 ) (136,067 ) (247,067 ) (234,311 ) (135,091 ) 78,299 (106,650 ) (78,414 ) 63,424 (106,109 ) (124,797 ) (156,102 ) (184,819 ) (220,727 )
As of December 31, | ||||||||||||||||||||
2008 | 2009 | 2010 | 2011 | 2012 | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Balance Sheet Data: | ||||||||||||||||||||
Cash and cash equivalents | $ | 349,603 | $ | 437,936 | $ | 464,997 | $ | 521,408 | $ | 742,664 | ||||||||||
Theatre properties and equipment, net | 1,208,283 | 1,219,588 | 1,215,446 | 1,238,850 | 1,304,958 | |||||||||||||||
Total assets | 3,065,708 | 3,276,448 | 3,421,478 | 3,522,408 | 3,863,226 | |||||||||||||||
Total long-term debt and capital lease obligations, including current portion | 1,632,174 | 1,684,073 | 1,672,601 | 1,713,393 | 1,914,181 | |||||||||||||||
Equity | 824,227 | 914,628 | 1,033,152 | 1,023,639 | 1,094,984 |
Year Ended December 31, | ||||||||||||||||||||
2006 | 2007 | 2008 | 2009 | 2010 | ||||||||||||||||
Other Financial Data: | ||||||||||||||||||||
Ratio of earnings to fixed charges(1) | 1.09 | x | 1.96 | x | — | 1.84 | x | 2.10 | x | |||||||||||
Cash flow provided by (used for): | ||||||||||||||||||||
Operating activities | $ | 155,662 | $ | 276,036 | $ | 257,294 | $ | 176,763 | $ | 264,751 | ||||||||||
Investing activities(2) | (631,747 | ) | 93,178 | (94,942 | ) | (183,130 | ) | (136,067 | ) | |||||||||||
Financing activities | 439,977 | (183,715 | ) | (135,091 | ) | 78,299 | (106,650 | ) | ||||||||||||
Capital expenditures | (107,081 | ) | (146,304 | ) | (106,109 | ) | (124,797 | ) | (156,102 | ) |
As of December 31, | ||||||||||||||||||||
2006 | 2007 | 2008 | 2009 | 2010 | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Balance Sheet Data: | ||||||||||||||||||||
Cash and cash equivalents | $ | 147,099 | $ | 338,043 | $ | 349,603 | $ | 437,936 | $ | 464,997 | ||||||||||
Theatre properties and equipment, net | 1,324,572 | 1,314,066 | 1,208,283 | 1,219,588 | 1,215,446 | |||||||||||||||
Total assets | 3,171,582 | 3,296,892 | 3,065,708 | 3,276,448 | 3,421,478 | |||||||||||||||
Total long-term debt and capital lease obligations, including current portion | 2,027,480 | 1,644,915 | 1,632,174 | 1,684,073 | 1,672,601 | |||||||||||||||
Equity | 705,910 | 1,035,385 | 824,227 | 914,628 | 1,033,152 |
Year Ended December 31, | ||||||||||||||||||||
2006 | 2007 | 2008 | 2009 | 2010 | ||||||||||||||||
Operating Data: | ||||||||||||||||||||
United States(3) | ||||||||||||||||||||
Theatres operated (at period end) | 281 | 287 | 293 | 294 | 293 | |||||||||||||||
Screens operated (at period end) | 3,523 | 3,654 | 3,742 | 3,830 | 3,832 | |||||||||||||||
Total attendance (in 000s) | 118,714 | 151,712 | 147,897 | 165,112 | 161,174 | |||||||||||||||
International(4) | ||||||||||||||||||||
Theatres operated (at period end) | 115 | 121 | 127 | 130 | 137 | |||||||||||||||
Screens operated (at period end) | 965 | 1,011 | 1,041 | 1,066 | 1,113 | |||||||||||||||
Total attendance (in 000s) | 59,550 | 60,958 | 63,413 | 71,622 | 80,026 | |||||||||||||||
Worldwide(3)(4) | ||||||||||||||||||||
Theatres operated (at period end) | 396 | 408 | 420 | 424 | 430 | |||||||||||||||
Screens operated (at period end) | 4,488 | 4,665 | 4,783 | 4,896 | 4,945 | |||||||||||||||
Total attendance (in 000s) | 178,264 | 212,670 | 211,310 | 236,734 | 241,200 |
Year Ended December 31, | ||||||||||||||||||||
2008 | 2009 | 2010 | 2011 | 2012 | ||||||||||||||||
Operating Data: | ||||||||||||||||||||
United States (2) | ||||||||||||||||||||
Theatres operated (at period end) | 293 | 294 | 293 | 297 | 298 | |||||||||||||||
Screens operated (at period end) | 3,742 | 3,830 | 3,832 | 3,878 | 3,916 | |||||||||||||||
Total attendance (in 000s) | 147,897 | 165,112 | 161,174 | 158,486 | 163,639 | |||||||||||||||
International (3) | ||||||||||||||||||||
Theatres operated (at period end) | 127 | 130 | 137 | 159 | 167 | |||||||||||||||
Screens operated (at period end) | 1,041 | 1,066 | 1,113 | 1,274 | 1,324 | |||||||||||||||
Total attendance (in 000s) | 63,413 | 71,622 | 80,026 | 88,889 | 100,084 | |||||||||||||||
Worldwide (2)(3) | ||||||||||||||||||||
Theatres operated (at period end) | 420 | 424 | 430 | 456 | 465 | |||||||||||||||
Screens operated (at period end) | 4,783 | 4,896 | 4,945 | 5,152 | 5,240 | |||||||||||||||
Total attendance (in 000s) | 211,310 | 236,734 | 241,200 | 247,375 | 263,723 |
(1) | ||
For the purposes of calculating the ratio of earnings to fixed charges, earnings consist of income (loss) from continuing operations before |
(2) | ||
The data excludes certain theatres operated by us in the U.S. pursuant to management agreements that are not part of our consolidated operations. |
The data excludes certain theatres operated internationally through our affiliates that are not part of our consolidated operations. |
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Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
We are a leader in the motion picture exhibition industry, with theatres in the U.S., Brazil, Mexico, Argentina, Chile, Colombia, Ecuador, Peru, Honduras, El Salvador, Nicaragua, Costa Rica, Panama and Guatemala. As of December 31, 2010,2012, we managed our business under two reportable operating segments — U.S. markets and international markets. See Note 23 to the consolidated financial statements.
Revenues and Expenses
We generate revenues primarily from box office receipts and concession sales with additional revenues from screen advertising sales and other revenue streams, such as vendor marketing promotions, meeting rentals and electronic video games located in some of our theatres. Our contracts with NCM have assisted us in expanding our offerings to domestic advertisers and broadening ancillary revenue sources such as digital video monitor advertising, third party branding, and the use of our domestic theatres for alternative entertainment, such as live and pre-recorded sports programs, concert events, the opera sports programs, and other cultural events.special presentations. Films leading the box office during the year ended December 31, 20102012 included the carryover ofAvatar,which grossed approximately $475 million in U.S. box office revenues during 2010 and new releases such asToy Story 3, Alice in Wonderland, Harry Potter and the Deathly Hallows: Part 1, Iron Man 2,The Avengers, The Dark Knight Rises, The Hunger Games, Skyfall, The Twilight Saga: Eclipse, Inception, Despicable Me, How to Train Your Dragon, Shrek Forever After, Clash ofBreaking Dawn Part 2, The Hobbit: An Unexpected Journey, Dr. Suess’ The Lorax, Madagascar 3: Europe’s Most Wanted, Men in Black 3, Taken 2, Snow White and the Titans,Huntsman, Safe House, The Karate Kid, Tangled, Grown Ups, Megamind, Tron: Legacy, Little Fockers, Vow, Brave, Prometheus,The FighterAmazing Spider-Man, Ice Age: Continental DriftandTrue Grit.The Bourne Legacy, among other films. Our revenues are affected by changes in attendance and concession revenues per patron. Attendance is primarily affected by the quality and quantity of films released by motion picture studios. Films currently scheduled for release in 20112013 include sequels such asRango,The Hunger Games: Catching Fire, The Hobbit: The Desolation of Smaug, Iron Man 3, The Hangover 3, Monsters University, Despicable Me 2, Fast Five, Thor, Pirates of the Caribbean: On Stranger Tides, Kung Fu Panda 2: The Kaboom of Doom, Cars 2, X Men: First Class, Transformers: Dark of the Moon, Harry Potter and the Deathly Hollows: Part 2, Twilight: Breaking Dawn, Captain America: The First Avenger, Cowboys and Aliens, Puss in Boots, Happy Feet 2, Sherlock Holmes 2& Furious 6andAlvin A Good Day to Die Hardand the Chipmunks: Chipwreckedoriginal titles such asMan of Steel, Oz: The Great and Powerful, Oblivion, Pacific Rim, Lone Ranger, and World War Z,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. Film rental rates are generally negotiated on afilm-by-film andtheatre-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 volume rates.
Although salaries and wages include a fixed cost component (i.e. the minimum staffing costs to operate a theatre facility during non-peak periods), salaries and wages move in relation to revenues as theatre staffing is adjusted to respond to changes in attendance.
Facility lease expense is primarily a fixed cost at the theatre level as most of our facility leases require a fixed monthly minimum rent payment. Certain of our leases are subject to percentage rent only while others are subject to percentage rent in addition to their fixed monthly rent if a target annual revenue level is achieved. Facility lease expense as a percentage of revenues is also affected by the number of theatres under operating leases, the number of theatres under capital leases and the number of fee-owned theatres.
Utilities and other costs include certain costs that have both fixed and variable components such as utilities, property taxes, janitorial costs, repairs and maintenance and security services.
26
We prepare our consolidated financial statements in conformity with 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:
Revenue and Expense Recognition
Revenues are recognized when admissions and concession sales are received at the box office. 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. We record proceeds from the sale of gift cards and other advanced sale-type certificates in current liabilities and recognize admissions andor 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.
Film rental costs are accrued based on the applicable box office receipts and either mutually agreed upon firm terms or a sliding scale formula, which are generally established prior to the opening of the film, or estimates of the final mutually agreed upon settlement, which occurs at the conclusion of the film 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 a sliding scale formula, we pay a percentage of box office revenues using a pre-determined matrix that is 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. 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 can typically be estimated early in the film’s run. If actual settlements are different than those estimates, film rental costs are adjusted at that time. 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 aan annual target annual revenue level is achieved. Percentage rent expense is estimated and recorded for these theatres on a monthly basis if the theatre’s historical performance or forecasted performance indicates that the annual target revenue level will be reached. The estimate of percentage rent expense recorded during the year is based on historical and forecasted annual 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.at that time. We record the fixed minimum rent payments on a straight-line basis over the lease term.
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. Leasehold improvements for which we pay and to which we have title are amortized over the lesser of useful life or the lease term.
27
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;
future years budgeted theatre level cash flows;
theatre property and equipment carrying values;
amortizing intangible asset carrying values;
the age of a recently built theatre;
competitive theatres in the marketplace;
the impact of recent ticket price changes;
available lease renewal options; and
other factors considered relevant in our assessment of impairment of individual theatre assets.
Long-lived assets are evaluated for impairment on an individual theatre basis, 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 theatre’s useful life correlates with the available remaining lease period, which includes the probability of renewal periods for leased properties and a period of approximately twenty years for fee owned properties. If the estimated undiscounted cash flows are not sufficient to recover a long-lived asset’s carrying value, we then compare the carrying value of the asset group (theatre) with its estimated fair value. When estimated fair value is determined to be lower than the carrying value of the asset group (theatre), the asset group (theatre) is written down to its estimated fair value. Significant judgment is involved in estimating cash flows and fair value. Management’s estimates, which fall under Level 3 of the U.S. GAAP fair value hierarchy as defined by FASB ASC Topic820-10-35, are based on historical and projected operating performance, recent market transactions and current industry trading multiples. Fair value is determined based on a multiple of cash flows, which was eight times for the evaluations performed during 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 20092010, 2011 and 2010. 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 our stock price and the declines in our and our competitors’ market capitalizations that occurred during the fourth quarter of 2008.2012. 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 changes in circumstances indicate the carrying value of the goodwill may not be fully recoverable. 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. Management considers the reporting unit to be each of our sixteen regions in the U.S. and each of our eight international countries (Honduras, El Salvador, Nicaragua, Costa Rica, Panama and Guatemala are considered one reporting unit). 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 of the U.S. GAAP fair value hierarchy as defined by FASB ASC Topic820-10-35, are based on historical and projected operating performance, recent market transactions and current industry trading multiples. Fair value is determined based on a multiple of cash flows, which was six and a half times for the evaluation performed during 2010 and seven and a half times for the evaluations performed during 2008, 2009
28
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 fully 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 its estimated fair value. Significant judgment is involved in estimating market royalty rates and long-term revenue forecasts. Management’s estimates, which fall under Level 3 of the U.S. GAAP fair value hierarchy as defined by FASB ASC Topic820-10-35, are based on historical and projected revenue performance and industry trends. As of December 31, 2010, the carrying value of tradename intangible assets where2012, the estimated fair value was less thanof our tradename intangible assets exceeded their carrying values by at least 10% more than the carrying value was approximately $136 million.
Income Taxes
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 basis 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 evaluation of an uncertain tax position is a 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 financial statements. The tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Differences between tax positions 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 (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 interest and penalties on uncertain tax positions.
Accounting for Investment in National CineMedia, LLC and Related Agreements
We have an investment in NCM. 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 and the Exhibitor Services Agreement, or ESA, with NCM and received proceeds related to the modification of the ESA and the Company’s sale of certain of its shares in NCM. The ESA modification reflected a shift from circuit share expense under the prior Exhibitor Services Agreement, which obligated NCM to pay the Company a percentage of revenue, to a monthly theatre access fee, which significantly reduced the contractual amounts paid to the Company by NCM. The Company recorded the proceeds related to the ESA modification as deferred revenue, which is being amortized into other revenues over the life of the agreement using the units of revenue method. As a result of the proceeds received as part of the NCM, Inc. initial public offering, the Company had a negative basis in its original membership units in NCM (referred to herein as its Tranche 1 Investment). The Company does not recognize undistributed equity in the earnings on its Tranche 1 Investment until NCM’s future net earnings, less distributions received, surpass the amount of the excess distribution. The Company recognizes equity in earnings on its Tranche 1 Investment only to the extent it receives cash distributions from NCM. The Company believes that the accounting model provided by ASC 323-10-35-22 for recognition of equity investee losses in excess of an investor’s basis is analogous to the accounting for equity income subsequent to recognizing an excess distribution.
Pursuant to a Common Unit Adjustment Agreement dated as of February 13, 2007 between NCM, Inc. and Cinemark, AMC and Regal, collectively referred to as its Founding Members, annual adjustments to the common membership units are made primarily based on increases or decreases in the number of theatre screens operated and theatre attendance generated by each Founding Member. To account for the receipt of additional common units under the Common Unit Adjustment Agreement, the Company follows the guidance in ASC 323-10-35-29 (formerly EITF 02-18,Accounting for Subsequent Investments in an Investee after Suspension of Equity Loss Recognition) by analogy, which also refers to AICPA Technical Practice Aid 2220.14, which indicates that if a subsequent investment is made in an equity method investee that has experienced significant losses, the investor must determine if the subsequent investment constitutes funding of prior losses. The Company concluded that the construction or acquisition of new theatres that has led to the common unit adjustments equates to making additional investments in National CineMedia. The Company evaluated the receipt of the additional common units in National CineMedia and the assets exchanged for these additional units and has determined that the right to use its incremental new screens would not be considered funding of prior losses. The Company accounts for these additional common units (referred to herein as its Tranche 2 Investment) as a separate investment than its Tranche 1 Investment. The common units received are recorded at fair value as an increase in the Company’s investment in NCM with an offset to deferred revenue. The deferred revenue is amortized over the remaining term of the ESA. The Tranche 2 Investment is accounted for following the equity method, with undistributed equity earnings related to its Tranche 2 Investment included as a component of equity in income (loss) of affiliates and distributions received related to its Tranche 2 Investment are recorded as a reduction of its investment basis.
Recent Developments
Dividend Declaration
On February 24, 201112, 2013, our board of directors declared a cash dividend infor the amountfourth quarter of 2012 of $0.21 per common share payable to stockholders of record on March 4, 2011.2013. The dividend will be paid on March 16, 2011.
29
During February 2013, we entered into a stock purchase agreement with Grupo Cinemex, S.A. De C.V. pursuant to which we will sell our Mexican subsidiaries, which consist of 31 theatres and 290 screens. The sales price, which will be paid in Mexican pesos and is subject to certain closing date adjustments, will be approximately $125.0 million, based on the exchange rate on the date of this report. The transaction, which is subject to review by the Mexican Federal Competition Commission, is expected to close during the second half of 2013.
Results of Operations
The following table sets forth, for the periods indicated, the percentage of revenues represented byamounts for certain items reflected in our consolidated statements of operations:
Year Ended December 31, | ||||||||||||
2008 | 2009 | 2010 | ||||||||||
Operating data (in millions): | ||||||||||||
Revenues | ||||||||||||
Admissions | $ | 1,127.0 | $ | 1,293.4 | $ | 1,405.4 | ||||||
Concession | 534.8 | 602.9 | 642.3 | |||||||||
Other | 80.5 | 80.2 | 93.4 | |||||||||
Total revenues | 1,742.3 | 1,976.5 | 2,141.1 | |||||||||
Cost of operations | ||||||||||||
Film rentals and advertising | 612.2 | 708.2 | 769.7 | |||||||||
Concession supplies | 86.6 | 91.9 | 97.5 | |||||||||
Salaries and wages | 181.0 | 203.4 | 221.2 | |||||||||
Facility lease expense | 225.6 | 238.8 | 255.7 | |||||||||
Utilities and other | 205.8 | 222.7 | 239.5 | |||||||||
General and administrative expenses | 90.8 | 96.5 | 109.1 | |||||||||
Depreciation and amortization | 158.1 | 149.5 | 143.5 | |||||||||
Impairment of long-lived assets | 113.5 | 11.8 | 12.5 | |||||||||
(Gain) loss on sale of assets and other | 8.5 | 3.2 | (0.4 | ) | ||||||||
Total cost of operations | 1,682.1 | 1,726.0 | 1,848.3 | |||||||||
Operating income | $ | 60.2 | $ | 250.5 | $ | 292.8 | ||||||
Operating data as a percentage of total revenues: | ||||||||||||
Revenues | ||||||||||||
Admissions | 64.7 | % | 65.4 | % | 65.6 | % | ||||||
Concession | 30.7 | % | 30.5 | % | 30.0 | % | ||||||
Other | 4.6 | % | 4.1 | % | 4.4 | % | ||||||
Total revenues | 100.0 | % | 100.0 | % | 100.0 | % | ||||||
Cost of operations(1) | ||||||||||||
Film rentals and advertising | 54.3 | % | 54.8 | % | 54.8 | % | ||||||
Concession supplies | 16.2 | % | 15.2 | % | 15.2 | % | ||||||
Salaries and wages | 10.4 | % | 10.3 | % | 10.3 | % | ||||||
Facility lease expense | 12.9 | % | 12.1 | % | 11.9 | % | ||||||
Utilities and other | 11.8 | % | 11.3 | % | 11.2 | % | ||||||
General and administrative expenses | 5.2 | % | 4.9 | % | 5.1 | % | ||||||
Depreciation and amortization | 9.1 | % | 7.6 | % | 6.7 | % | ||||||
Impairment of long-lived assets | 6.5 | % | 0.6 | % | 0.6 | % | ||||||
(Gain) loss on sale of assets and other | 0.5 | % | 0.2 | % | (0.0 | )% | ||||||
Total cost of operations | 96.5 | % | 87.3 | % | 86.3 | % | ||||||
Operating income | 3.5 | % | 12.7 | % | 13.7 | % | ||||||
Average screen count (month end average) | 4,703 | 4,860 | 4,909 | |||||||||
Revenues per average screen (dollars) | $ | 370,469 | $ | 406,681 | $ | 436,181 | ||||||
Year Ended December 31, | ||||||||||||
2010 | 2011 | 2012 | ||||||||||
Operating data (in millions): | ||||||||||||
Revenues | ||||||||||||
Admissions | $ | 1,405.4 | $ | 1,471.6 | $ | 1,580.4 | ||||||
Concession | 642.3 | 696.8 | 771.4 | |||||||||
Other | 93.4 | 111.2 | 121.7 | |||||||||
|
|
|
|
|
| |||||||
Total revenues | 2,141.1 | 2,279.6 | 2,473.5 | |||||||||
Cost of operations | ||||||||||||
Film rentals and advertising | 769.7 | 798.6 | 845.1 | |||||||||
Concession supplies | 97.5 | 112.1 | 123.5 | |||||||||
Salaries and wages | 221.2 | 226.5 | 247.4 | |||||||||
Facility lease expense | 255.7 | 276.3 | 281.6 | |||||||||
Utilities and other | 239.5 | 259.7 | 280.7 | |||||||||
General and administrative expenses | 109.1 | 127.6 | 148.6 | |||||||||
Depreciation and amortization | 143.5 | 154.4 | 147.7 | |||||||||
Impairment of long-lived assets | 12.5 | 7.0 | 3.0 | |||||||||
(Gain) loss on sale of assets and other | (0.4 | ) | 8.8 | 12.2 | ||||||||
|
|
|
|
|
| |||||||
Total cost of operations | 1,848.3 | 1,971.0 | 2,089.8 | |||||||||
|
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|
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| |||||||
Operating income | $ | 292.8 | $ | 308.6 | $ | 383.7 | ||||||
|
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|
|
|
| |||||||
Operating data as a percentage of total revenues: | ||||||||||||
Revenues | ||||||||||||
Admissions | 65.6 | % | 64.6 | % | 63.9 | % | ||||||
Concession | 30.0 | % | 30.6 | % | 31.2 | % | ||||||
Other | 4.4 | % | 4.8 | % | 4.9 | % | ||||||
|
|
|
|
|
| |||||||
Total revenues | 100.0 | % | 100.0 | % | 100.0 | % | ||||||
|
|
|
|
|
| |||||||
Cost of operations(1) | ||||||||||||
Film rentals and advertising | 54.8 | % | 54.3 | % | 53.5 | % | ||||||
Concession supplies | 15.2 | % | 16.1 | % | 16.0 | % | ||||||
Salaries and wages | 10.3 | % | 9.9 | % | 10.0 | % | ||||||
Facility lease expense | 11.9 | % | 12.1 | % | 11.4 | % | ||||||
Utilities and other | 11.2 | % | 11.4 | % | 11.3 | % | ||||||
General and administrative expenses | 5.1 | % | 5.6 | % | 6.0 | % | ||||||
Depreciation and amortization | 6.7 | % | 6.8 | % | 6.0 | % | ||||||
Impairment of long-lived assets | 0.6 | % | 0.3 | % | 0.1 | % | ||||||
(Gain) loss on sale of assets and other | (0.0 | %) | 0.4 | % | 0.5 | % | ||||||
Total cost of operations | 86.3 | % | 86.5 | % | 84.5 | % | ||||||
Operating income | 13.7 | % | 13.5 | % | 15.5 | % | ||||||
|
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| |||||||
Average screen count (month end average) | 4,909 | 5,021 | 5,198 | |||||||||
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| |||||||
Revenues per average screen (dollars) | $ | 436,181 | $ | 454,051 | $ | 475,897 | ||||||
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(1) | ||
All costs are expressed as a percentage of total revenues, except film rentals and advertising, which are expressed as a percentage of admissions revenues and concession supplies, which are expressed as a percentage of concession revenues. |
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Revenues.Total revenues increased $164.6$193.9 million to $2,141.1$2,473.5 million for 20102012 from $1,976.5$2,279.6 million for 2009,2011, representing an 8.3%8.5% increase. The table below, presented by reportable operating segment, summarizes our year-over-year revenue performance and certain key performance indicators that impact our revenues.
U.S. Operating | International Operating | |||||||||||||||||||||||||||||||||||
Segment | Segment | Consolidated | ||||||||||||||||||||||||||||||||||
Year Ended | Year Ended | Year Ended | ||||||||||||||||||||||||||||||||||
December 31, | December 31, | December 31, | ||||||||||||||||||||||||||||||||||
% | % | % | ||||||||||||||||||||||||||||||||||
2010 | 2009 | Change | 2010 | 2009 | Change | 2010 | 2009 | Change | ||||||||||||||||||||||||||||
Admissions revenues(1) | $ | 1,044.7 | $ | 1,025.9 | 1.8 | % | $ | 360.7 | $ | 267.5 | 34.8 | % | $ | 1,405.4 | $ | 1,293.4 | 8.7 | % | ||||||||||||||||||
Concession revenues(1) | $ | 487.9 | $ | 485.2 | 0.6 | % | $ | 154.4 | $ | 117.7 | 31.2 | % | $ | 642.3 | $ | 602.9 | 6.5 | % | ||||||||||||||||||
Other revenues(1)(2) | $ | 44.3 | $ | 43.6 | 1.6 | % | $ | 49.1 | $ | 36.6 | 34.2 | % | $ | 93.4 | $ | 80.2 | 16.5 | % | ||||||||||||||||||
Total revenues(1)(2) | $ | 1,576.9 | $ | 1,554.7 | 1.4 | % | $ | 564.2 | $ | 421.8 | 33.8 | % | $ | 2,141.1 | $ | 1,976.5 | 8.3 | % | ||||||||||||||||||
Attendance(1) | 161.2 | 165.1 | (2.4 | )% | 80.0 | 71.6 | 11.7 | % | 241.2 | 236.7 | 1.9 | % | ||||||||||||||||||||||||
Revenues per average screen(2) | $ | 411,708 | $ | 408,017 | 0.9 | % | $ | 523,078 | $ | 401,828 | 30.2 | % | $ | 436,181 | $ | 406,681 | 7.3 | % |
U.S. Operating Segment | International Operating Segment | Consolidated | ||||||||||||||||||||||||||||||||||
Year Ended December 31, | Year Ended December 31, | Year Ended December 31, | ||||||||||||||||||||||||||||||||||
2012 | 2011 | % Change | 2012 | 2011 | % Change | 2012 | 2011 | % Change | ||||||||||||||||||||||||||||
Admissions revenues (1) | $ | 1,099.6 | $ | 1,033.6 | 6.4 | % | $ | 480.8 | $ | 438.0 | 9.8 | % | $ | 1,580.4 | $ | 1,471.6 | 7.4 | % | ||||||||||||||||||
Concession revenues (1) | $ | 546.2 | $ | 503.4 | 8.5 | % | $ | 225.2 | $ | 193.4 | 16.4 | % | $ | 771.4 | $ | 696.8 | 10.7 | % | ||||||||||||||||||
Other revenues(1)(2) | $ | 50.1 | $ | 46.5 | 7.7 | % | $ | 71.6 | $ | 64.7 | 10.7 | % | $ | 121.7 | $ | 111.2 | 9.4 | % | ||||||||||||||||||
Total revenues(1)(2) | $ | 1,695.9 | $ | 1,583.5 | 7.1 | % | $ | 777.6 | $ | 696.1 | 11.7 | % | $ | 2,473.5 | $ | 2,279.6 | 8.5 | % | ||||||||||||||||||
Attendance(1) | 163.6 | 158.5 | 3.2 | % | 100.1 | 88.9 | 12.6 | % | 263.7 | 247.4 | 6.6 | % |
(1) | ||
Amounts in millions. |
(2) | U.S. operating segment revenues include eliminations of intercompany transactions with the international operating segment. See Note 23 of our consolidated financial statements. |
• | ||
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• | International.The increase in admissions revenues of $42.8 million was primarily attributable to a 12.6% increase in attendance, partially offset by a 2.6% decrease in average ticket price from $4.93 for 2011 to $4.80 for 2012. The increase in concession revenues of $31.8 million was primarily attributable to the 12.6% increase in attendance and a 3.2% increase in concession revenues per patron from $2.18 for 2011 to $2.25 for 2012. The increase in attendance was primarily due to new theatres, including the ten theatres in Argentina acquired during August 2011. The decrease in average ticket price was primarily due to the unfavorable impact of exchange rates in certain countries in which we operate, partially offset by price increases. The increase in concession revenues per patron was primarily due to price increases, partially offset by the unfavorable impact of exchange rates in certain countries in which we operate. The 10.7% increase in other revenues was primarily due to increased screen advertising revenues in Brazil, Argentina and Mexico, partially offset by the unfavorable impact of exchange rates in certain countries in which we operate. |
Cost of Operations. The table below summarizes certain of our theatre operating costs by reportable operating segment (in millions).
U.S. Operating Segment | International Operating Segment | Consolidated | ||||||||||||||||||||||
Year Ended December 31, | Year Ended December 31, | Year Ended December 31, | ||||||||||||||||||||||
2012 | 2011 | 2012 | 2011 | 2012 | 2011 | |||||||||||||||||||
Film rentals and advertising | $ | 610.5 | $ | 574.2 | $ | 234.6 | $ | 224.4 | $ | 845.1 | $ | 798.6 | ||||||||||||
Concession supplies | 71.1 | 64.0 | 52.4 | 48.1 | 123.5 | 112.1 | ||||||||||||||||||
Salaries and wages | 174.2 | 167.5 | 73.2 | 59.0 | 247.4 | 226.5 | ||||||||||||||||||
Facility lease expense | 191.1 | 185.8 | 90.5 | 90.5 | 281.6 | 276.3 | ||||||||||||||||||
Utilities and other | 182.9 | 174.5 | 97.8 | 85.2 | 280.7 | 259.7 |
• | U.S.Film rentals and advertising costs were $610.5 million, or 55.5% of admissions revenues, for 2012 compared to $574.2 million, or 55.6% of admissions revenues, for 2011. The increase in film rentals and advertising costs of $36.3 million was primarily due to the $66.0 million increase in admissions revenues. Concession supplies expense was $71.1 million, or 13.0% of concession revenues, for 2012 compared to $64.0 million, or 12.7% of concession revenues, for 2011. The increase in the concession supplies rate was primarily due to increases in inventory procurement costs. |
Salaries and wages increased to $174.2 million for 2012 from $167.5 million for 2011 primarily due to new theatres. Facility lease expense increased to $191.1 million for 2012 from $185.8 million for 2011 primarily due to new theatres. Utilities and other costs increased to $182.9 million for 2012 from $174.5 million for 2011 primarily due to new theatres, increased equipment lease and personal property tax expenses related to digital and 3-D equipment, increased security expense and increased repairs and maintenance expense.
• | International.Film rentals and advertising costs were $234.6 million, or 48.8% of admissions revenues, for 2012 compared to $224.4 million, or 51.2% of admissions revenues, for 2011. The decrease in the film rentals and advertising rate is primarily due to the impact of the increased virtual print fees that we earn from studios on certain films played in our international locations. Concession supplies expense was $52.4 million, or 23.3% of concession revenues, for 2012 compared to $48.1 million, or 24.9% of concession revenues, for 2011. The decrease in the concessions supplies rate is due to the mix of products sold during 2012 compared to 2011 and the impact of concession price increases. Each of the expenses previously discussed were also impacted by the change in exchange rates in certain countries in which we operate. |
Salaries and wages increased to $73.2 million for 2012 from $59.0 million for 2011 primarily due to new theatres, including the ten theatres in Argentina acquired during August 2011 and increased wage rates. Facility lease expense was $90.5 million for 2012 and 2011. Utilities and other costs increased to $97.8 million for 2012 from $85.2 million for 2011 primarily due to new theatres, including the ten theatres in Argentina acquired during August 2011, increased janitorial costs and increased screen advertising commissions and related expenses. Each of the expenses previously discussed were also impacted by the change in exchange rates in certain countries in which we operate.
General and Administrative Expenses.General and administrative expenses increased to $148.6 million for 2012 from $127.6 million for 2011. The increase was primarily due to increased salaries and incentive compensation expense of approximately $7.7 million, increased share based awards compensation expense of $5.4 million, increased professional fees of $1.8 million and additional overhead expenses associated with the ten theatres in Argentina acquired in August 2011.
Depreciation and Amortization.Depreciation and amortization expense, including amortization of favorable/ unfavorable leases, was $147.7 million for 2012 compared to $154.4 million for 2011. The decrease was primarily due to the impact of accelerated depreciation taken on our domestic 35 millimeter projection systems that were replaced with digital projection systems during 2011. We recorded approximately $10.6 million of depreciation expense related to our domestic 35 millimeter projection systems during 2011. Our domestic 35 millimeter projection systems were fully depreciated as of December 31, 2011.
Impairment of Long-Lived Assets.We recorded asset impairment charges on assets held and used of $3.0 million for 2012 compared to $7.0 million for 2011. Impairment charges for 2012 were related to theatre properties, impacting fourteen of our twenty-four reporting units. Impairment charges for 2011 were related to theatre properties, impacting fourteen 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 market demographics, or adverse changes in the development or the conditions of the areas surrounding the theatre. See Notes 10 and 11 to our consolidated financial statements.
Loss on Sale of Assets and Other.We recorded a loss on sale of assets and other of $12.2 million during 2012 compared to $8.8 million during 2011. The loss recorded during 2012 included a $6.7 million lease termination reserve for a closed theatre and the retirement of certain theatre equipment that was replaced during
the year. The loss recorded during 2011 included a loss of $2.3 million related to a settlement for a previously terminated interest rate swap agreement, a loss of $1.0 million related to the sale of digital projection systems to DCIP and the write-off of theatre properties and equipment primarily as a result of theatre remodels.
Interest Expense.Interest costs incurred, including amortization of debt issue costs, were $123.7 million for 2012 compared to $123.1 million for 2011. See Note 13 to our consolidated financial statements for further discussion of our long-term debt.
Loss on Early Retirement of Debt. We recorded a loss on early retirement of debt of $5.6 million during 2012 related to the amendment and restatement of our senior secured credit facility. We recorded a loss on early retirement of debt of $4.9 million during 2011 related to the prepayment of approximately $157.2 million of the unextended portion of our term loan debt. The loss for the 2011 period included the write-off of $2.2 million of unamortized debt issue costs related to the portion of the term loan debt that was prepaid and the reclassification of $2.7 million from accumulated other comprehensive loss to earnings as a result of our determination that quarterly interest payments hedged by certain of our interest rate swap agreements are no longer probable to occur. See Note 13 to our consolidated financial statements for further discussion of our long-term debt.
Distributions from NCM.We recorded distributions received from NCM of $20.8 million during 2012 and $24.2 million during 2011, which were in excess of the carrying value of our Tranche 1 Investment. See Note 6 to our consolidated financial statements.
Loss on Marketable Securities — RealD.We recorded a loss on our investment in RealD of $12.6 million during 2011 due to an other-than-temporary impairment of our investment. The loss recorded represented the cumulative net unrealized holding losses we had previously recorded in accumulated other comprehensive loss. These cumulative net unrealized holding losses were recognized as a loss during 2011 due to the length of time and extent to which RealD’s stock price had been below our basis in the stock. See Note 8 to our consolidated financial statements.
Equity in Income of Affiliates.We recorded equity in income of affiliates of $13.1 million during 2012 and $5.7 million during 2011. The equity in income of affiliates recorded during 2012 primarily included approximately $4.4 million of income related to our equity investment in NCM (see Note 6 to our consolidated financial statements) and approximately $8.9 million of income related to our equity investment in DCIP (see Note 7 to our consolidated financial statements). The equity in income of affiliates recorded during 2011 primarily included approximately $5.4 million of income related to our equity investment in NCM and approximately $0.5 million of income related to our equity investment in DCIP.
Income Taxes.Income tax expense of $125.4 million was recorded for 2012 compared to $73.1 million recorded for 2011. The effective tax rate for 2012 was 42.2%. The effective tax rate for 2011 was 35.5%. See Note 21 to our consolidated financial statements.
Comparison of Years Ended December 31, 2011 and December 31, 2010
Revenues.Total revenues increased $138.5 million to $2,279.6 million for 2011 from $2,141.1 million for 2010, representing a 6.5% increase. The table below, presented by reportable operating segment, summarizes our year-over-year revenue performance and certain key performance indicators that impact our revenues.
U.S. Operating Segment | International Operating Segment | Consolidated | ||||||||||||||||||||||||||||||||||
Year Ended December 31, | Year Ended December 31, | Year Ended December 31, | ||||||||||||||||||||||||||||||||||
2011 | 2010 | % Change | 2011 | 2010 | % Change | 2011 | 2010 | % Change | ||||||||||||||||||||||||||||
Admissions revenues(1) | $ | 1,033.6 | $ | 1,044.7 | (1.1 | )% | $ | 438.0 | $ | 360.7 | 21.4 | % | $ | 1,471.6 | $ | 1,405.4 | 4.7 | % | ||||||||||||||||||
Concession revenues(1) | $ | 503.4 | $ | 487.9 | 3.2 | % | $ | 193.4 | $ | 154.4 | 25.3 | % | $ | 696.8 | $ | 642.3 | 8.5 | % | ||||||||||||||||||
Other revenues(1)(2) | $ | 46.5 | $ | 44.3 | 5.0 | % | $ | 64.7 | $ | 49.1 | 31.8 | % | $ | 111.2 | $ | 93.4 | 19.1 | % | ||||||||||||||||||
Total revenues(1)(2) | $ | 1,583.5 | $ | 1,576.9 | 0.4 | % | $ | 696.1 | $ | 564.2 | 23.4 | % | $ | 2,279.6 | $ | 2,141.1 | 6.5 | % | ||||||||||||||||||
Attendance(1) | 158.5 | 161.2 | (1.7 | )% | 88.9 | 80.0 | 11.1 | % | 247.4 | 241.2 | 2.6 | % |
(1) | Amounts in millions. |
(2) | U.S. operating segment revenues include eliminations of intercompany transactions with the international operating segment. See Note 23 of our consolidated financial statements. |
• | U.S.The decrease in admissions revenues of $11.1 million was primarily attributable to a 1.7% decrease in attendance, partially offset by a 0.6% increase in average ticket price from $6.48 for 2010 to $6.52 for 2011. The increase in concession revenues of $15.5 million was primarily attributable to a 5.0% increase in concession revenues per patron from $3.03 for 2010 to $3.18 for 2011, partially offset by the 1.7% decrease in attendance. The increase in average ticket price was primarily due to incremental 3-D and premium pricing and other price increases, and the increase in concession revenues per patron was primarily due to incremental sales and price increases. |
• | International.The increase in admissions revenues of $77.3 million was primarily attributable to an 11.1% increase in attendance and a 9.3% increase in average ticket price from $4.51 for 2010 to $4.93 for 2011. The increase in concession revenues of $39.0 million was primarily attributable to the 11.1% increase in attendance and a 13.0% increase in concession revenues per patron from $1.93 for 2010 to $2.18 for 2011. The increase in average ticket price was primarily due to incremental 3-D and premium pricing and other price increases and the favorable impact of exchange rates in certain countries in which we operate. The increase in concession revenues per patron was primarily due to price increases and the favorable impact of exchange rates in certain countries in which we operate. The | |
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U.S. | International Operating | |||||||||||||||||||||||
Operating Segment | Segment | Consolidated | ||||||||||||||||||||||
Year Ended | Year Ended | Year Ended | ||||||||||||||||||||||
December 31, | December 31, | December 31, | ||||||||||||||||||||||
2010 | 2009 | 2010 | 2009 | 2010 | 2009 | |||||||||||||||||||
Film rentals and advertising | $ | 586.6 | $ | 572.3 | $ | 183.1 | $ | 135.9 | $ | 769.7 | $ | 708.2 | ||||||||||||
Concession supplies | 59.1 | 61.9 | 38.4 | 30.0 | 97.5 | 91.9 | ||||||||||||||||||
Salaries and wages | 174.1 | 168.8 | 47.1 | 34.6 | 221.2 | 203.4 | ||||||||||||||||||
Facility lease expense | 181.9 | 178.8 | 73.8 | 60.0 | 255.7 | 238.8 | ||||||||||||||||||
Utilities and other | 161.5 | 163.5 | 78.0 | 59.2 | 239.5 | 222.7 |
U.S. Operating Segment | International Operating Segment | Consolidated | ||||||||||||||||||||||
Year Ended December 31, | Year Ended December 31, | Year Ended December 31, | ||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||||||
Film rentals and advertising | $ | 574.2 | $ | 586.6 | $ | 224.4 | $ | 183.1 | $ | 798.6 | $ | 769.7 | ||||||||||||
Concession supplies | 64.0 | 59.1 | 48.1 | 38.4 | 112.1 | 97.5 | ||||||||||||||||||
Salaries and wages | 167.5 | 174.1 | 59.0 | 47.1 | 226.5 | 221.2 | ||||||||||||||||||
Facility lease expense | 185.8 | 181.9 | 90.5 | 73.8 | 276.3 | 255.7 | ||||||||||||||||||
Utilities and other | 174.5 | 161.5 | 85.2 | 78.0 | 259.7 | 239.5 |
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and a decrease in the film rentals and advertising rate primarily due to fewer blockbuster films released in 2011. Concession supplies expense was $64.0 million, or 12.7% of concession revenues, for 2011 compared to $59.1 million, or 12.1% of concession revenues, for 2010. The increase in the concession supplies rate was primarily due to increases in inventory procurement costs. |
Salaries and wages decreased to $167.5 million for 2011 from $174.1 million for 2010 primarily due to the 1.7% decline in attendance and operating efficiencies achieved with reduced staffing levels. Facility lease expense increased to $185.8 million for 2011 from $181.9 million for 2010 primarily due to new theatres. Utilities and other costs increased to $174.5 million for 2011 from $161.5 million for 2010 primarily due to new theatres and increased expenses related to digital and 3-D equipment.
• | International.Film rentals and advertising costs were $224.4 million, or 51.2% of admissions revenues, for 2011 compared to $183.1 million, or 50.8% of admissions revenues, for 2010. The increase in film rentals and advertising costs of |
Salaries and wages increased to $221.2$59.0 million for 2011 from $47.1 million for 2010 from $203.4 million for 2009 primarily due to new theatres, increased minimum wages in both our U.S. and international segments,wage rates, increased staffing levels to support the 1.9%11.1% increase in attendance new theatre openings and the impact of exchange rates in certain countries in which we operate. Facility lease expense increased to $255.7$90.5 million for 20102011 from $238.8$73.8 million for 20092010 primarily due to new theatres, increased percentage rent relateddue to the 8.3%23.4% increase in revenues and the impact of exchange rates in certain countries in which we operate. Utilities and other costs increased to $239.5$85.2 million for 2011 from $78.0 million for 2010 from $222.7 million for 2009 primarily due to increased variable costs related to the 1.9% increase in attendance, increased costs related to new theatres, increased expenses related to 3-D equipment rental fees and the impact of exchange rates in certain countries in which we operate.
General and wagesAdministrative Expenses.General and administrative expenses increased to $174.1$127.6 million for 20102011 from $168.8$109.1 million for 20092010. The increase was primarily due to increased minimum wage ratessalaries and new theatre openings. Facility leaseincentive compensation expense of $5.0 million, increased to $181.9share based awards compensation expense of $1.3 million, for 2010 from $178.8increased professional fees of $2.1 million, for 2009 primarily due to new theatres. Utilities and other costs decreased to $161.5increased service charges of $1.0 million for 2010 from $163.5 million for 2009 primarily due to lower utility costs and property taxes, offset by increased3-D equipment rental fees.
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3-D equipment rental fees and the impact of exchange rates in certain countries in which we operate.
Impairment of Long-Lived Assets.We recorded asset impairment charges on assets held and used of $7.0 million for 2011 compared to $12.5 million for 2010 compared2010. Impairment charges for 2011 were related to $11.8 million for 2009.theatre properties, impacting fourteen of our twenty-four reporting units. Impairment charges for 2010 consisted of $10.8 million of theatre properties and $1.5 million of intangible assets, impacting eighteen of our twenty-four reporting units, and $0.2 million related to an equity investment that was written down to its estimated fair value. 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 its estimated fair value. The long-lived asset impairment charges recorded during each of the periods presented were specific to theatres that were directly and individually impacted by increased competition, adverse changes in market demographics, or adverse changes in the development or the conditions of the areas surrounding the theatre. See Notes 10 and 11 to our consolidated financial statements.
(Gain) Loss on Sale of Assets and Other.We recorded a loss on sale of assets and other of $8.8 million during 2011 compared to a gain on sale of assets and other of $0.4 million during 2010 compared2010. The loss recorded during 2011 included a loss of $2.3 million related to a settlement for a previously terminated interest rate swap
agreement, a loss onof $1.0 million related to the sale of assetsdigital projection systems to DCIP and otherthe write-off of $3.2 million during 2009.theatre properties and equipment primarily as a result of theatre remodels. The gain recorded during 2010 included a gain of $7.0 million related to the sale of a theatre in Canada and a gain of $8.5 million related to the sale of our interest in a profit sharing agreement related to another previously sold property in Canada, which were partially offset by a loss of $5.8 million for the write-off of an intangible asset associated with a vendor contract in Mexico that was terminated, a loss of $2.3 million for the write-off of intangible assets associated with our original IMAX license agreement that was terminated, a loss of $2.0 million that was recorded upon the contribution and sale of digital projection systems to DCIP and a loss of $0.9 million related to storm damage to a U.S. theatre. See Note 7 to our consolidated financial statements for discussion of DCIP. The loss recorded during 2009 was primarily related to the write-off of theatre equipment that was replaced.
Interest Expense.Interest costs incurred, including amortization of debt issue costs, were $123.1 million for 2011 compared to $112.4 million for 2010 compared to $102.5 million for 2009.2010. The increase was primarily due to increases in interest rates on our variable rate debt related to the amendment and extension of our former senior secured credit facility.facility in March 2010 and the refinancing in June 2011 of the unextended portion of our term loan debt outstanding with 7.375% senior subordinated notes due 2021. See Note 13 to our consolidated financial statements for further discussion of our long-term debt.
Loss on Early Retirement of Debt.Debt During 2009, we. We recorded a loss on early retirement of debt of $27.9$4.9 million as a result of the tender and call premiums paid and other feesduring 2011 related to the repurchaseprepayment of
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Distributions from NCM.We recorded distributions received from NCM of $24.2 million during 2011 and $23.4 million during 2010, and $20.8 million during 2009, which were in excess of the carrying value of our investment.Tranche 1 Investment. See Note 6 to our consolidated financial statements.
Loss on Marketable Securities — RealD.We recorded a loss on our investment in RealD of $12.6 million due to an other-than-temporary impairment of our investment. The loss recorded represented the cumulative net unrealized holding losses we had previously recorded in accumulated other comprehensive loss. These cumulative net unrealized holding losses were recognized as a loss during 2011 due to the length of time and extent to which RealD’s stock price had been below our basis in the stock. See Note 8 to our consolidated financial statements.
Equity in LossIncome (Loss) of Affiliates.We recorded equity in lossincome of affiliates of $5.7 million during 2011 compared to a loss of $3.4 million during 2010 compared2010. The equity in income of affiliates recorded during 2011 primarily included approximately $5.4 million of income related to $0.9our equity investment in NCM (see Note 6 to our consolidated financial statements) and approximately $0.5 million during 2009.of income related to our equity investment in DCIP (see Note 7 to our consolidated financial statements). The equity in loss of affiliates recorded during 2010 primarily included a loss of approximately $7.9 million related to our equity investment in DCIP (see Note 7 to our consolidated financial statements), offset by income of approximately $4.5 million related to our equity investment in NCM (see Note 6 to our consolidated financial statements). The equity in loss of affiliates recorded during 2009 included a loss of approximately $2.8 million related to our equity investment in DCIP offset by income of approximately $1.9 million related to our equity investment in NCM.
Income Taxes.Income tax expense of $57.8$73.1 million was recorded for 20102011 compared to $44.8$57.8 million recorded for 2009.2010. The effective tax rate for 2011 was 35.5%. The effective tax rate for 2010 was 27.9%. The effective tax rate for 2009 was 30.8%. See Note 21 to our consolidated financial statements.
U.S. Operating | International Operating | |||||||||||||||||||||||||||||||||||
Segment | 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 | % |
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U.S. | International 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 |
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Operating Activities
We primarily collect our revenues in cash, mainly through box office receipts and the sale of concessions. In addition, a majority of our theatres provide the patron a choice of using a credit card or debit card in place of cash. Because our revenues are received in cash prior to the payment of related expenses, we have an operating “float” and historically have not required traditional working capital financing. Cash provided by operating activities amounted to $257.3$264.8 million, $176.8$391.2 million and $264.8$395.2 million for the years ended December 31, 2008, 20092010, 2011 and 2010,2012, respectively. The decrease in the level of cashCash provided by operating activities for the year ended December 31, 2009 was2010 is lower primarily due to a higher film rental liability at December 31, 2009 attributable to the repurchasesignificant domestic box office performance during the latter part of approximately $419.4 million of our 9December 2009, whenAvatar was released.
3/4% senior discount notes, which included payment of $158.3 million of interest that had accreted on the senior discount notes since issuance during 2004. The principal portion of the repurchase is reflected as a financing activity.
Our investing activities have been principally related to the development and acquisition of theatres. New theatre openings and acquisitions historically have been financed with internally generated cash and by debt financing, including borrowings under our amended senior secured credit facility. Cash used for investing activities amounted to $94.9$136.1 million, $183.1$247.1 million and $136.1$234.3 million for the years ended December 31, 2008, 20092010, 2011 and 2010,2012, respectively. The increase in cashCash used for investing activities for the year ended December 31, 2009 was primarily due to2011 included the acquisition of fourten theatres in the U.S.Argentina for approximately $49.0$67.0 million (see Note 5 to the consolidated financial statements) and. Cash used for investing activities for the year ended December 31, 2012 included the acquisition of one theatre in Brazilthe U.S. for approximately $9.1 million.
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New | Existing | |||||||||||
Period | Theatres | Theatres | Total | |||||||||
Year Ended December 31, 2008 | $ | 69.9 | $ | 36.2 | $ | 106.1 | ||||||
Year Ended December 31, 2009 | $ | 36.5 | $ | 88.3 | $ | 124.8 | ||||||
Year Ended December 31, 2010 | $ | 54.5 | $ | 101.6 | $ | 156.1 |
Period | New Theatres | Existing Theatres | Total | |||||||||
Year Ended December 31, 2010 | $ | 54.5 | $ | 101.6 | $ | 156.1 | ||||||
Year Ended December 31, 2011 | $ | 73.5 | $ | 111.3 | $ | 184.8 | ||||||
Year Ended December 31, 2012 | $ | 104.9 | $ | 115.8 | $ | 220.7 |
During November 2012, we entered into an asset purchase agreement with Rave Real Property Holdco, LLC and certain of its subsidiaries, Rave Cinemas, LLC and RC Processing, LLC (collectively “Rave”), pursuant to which we will acquire 32 theatres with 483 screens located in 12 states. The estimated purchase price is approximately $240.0 million. The purchase price, the amount of which is subject to certain closing date adjustments, will consist of cash consideration and the assumption of certain liabilities. The transaction is expected to close during the first quarter of 2013, subject to the satisfaction of customary closing conditions for transactions of this type, including Department of Justice or Federal Trade Commission antitrust approval. We plan to use existing cash to fund the Rave acquisition.
We continue to invest in our U.S. theatre circuit. We built fivefour new theatres and 6359 screens, acquired one theatre with eight16 screens and closed sevenfour theatres with 6937 screens during the year ended December 31, 2010,2012, bringing our total domestic screen count to 3,832.3,916. At December 31, 2010,2012, we had signed commitments to open fournine new theatres and 51111 screens in domestic markets during 20112013 and open fourfive new theatres with 6067 screens subsequent to 2011.2013. We estimate the remaining capital expenditures for the development of these 111178 domestic screens will be approximately $48$123 million. Actual expenditures for continued theatre development and acquisitions are subject to change based upon the availability of attractive opportunities.
We also continue to expandinvest in our international theatre circuit. We built nineeight new theatres and 6754 screens and closed two theatres and 204 screens during the year ended December 31, 2010,2012, bringing our total international screen count to 1,113.1,324. At December 31, 2010,2012, we had signed commitments to open eight13 new theatres with 5188 screens in international markets during 20112013 and open fivethree new theatres with 3421 screens subsequent to 2011.2013. We estimate
the remaining capital expenditures for the development of these 85109 international screens will be approximately $63$89 million. Actual expenditures for continued theatre development and acquisitions are subject to change based upon the availability of attractive opportunities.
We plan to fund capital expenditures for our continued development with cash flow from operations, borrowings under our amended senior secured credit facility, and proceeds from debt issuances, sale leaseback transactions and/or sales of excess real estate.
Financing Activities
Cash provided by (used for) financing activities was $(135.1)$(106.7) million, $78.3$(78.4) million and $(106.7)$63.4 million during the years ended December 31, 2008, 20092010, 2011 and 2012, respectively. See Note 4 to the consolidated financial statements for a summary of dividends declared and paid during the years ended December 31, 2010, respectively.2011 and 2012. Cash provided by financing activities for the year ended December 31, 20092012 includes the net proceeds of $458.5$700.0 million from the amended senior secured credit facility and proceeds of $400.0 million from the issuance of our $470 million 8.625%5.125% senior notes due 2022, partially offset by $261.1 million used for the repurchaseuse of approximately $419.4 million of our 93/4% senior discount notes. The accreted interesta portion of these proceeds to pay off the repurchase of $158.3remaining $899.0 million is reflected as an operating activity.
We, at the discretion of the board of directors and subject to applicable law, anticipate paying regular quarterly dividends on our common stock. The amount, if any, of the dividends to be paid in the future will depend upon our
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We may from time to time, subject to compliance with our debt instruments, purchase our debt securities on the open market depending upon the availability and prices of such securities. Long-term debt consisted of the following as of December 31, 20092011 and 2010:
December 31, 2009 | December 31, 2010 | |||||||
Cinemark USA, Inc. term loan | $ | 1,083.6 | $ | 1,072.8 | ||||
Cinemark USA, Inc. 85/8% senior notes due 2019(1) | 458.9 | 459.7 | ||||||
Cinemark USA, Inc. 9% senior subordinated notes due 2013 | 0.2 | — | ||||||
Other long-term debt | 1.0 | — | ||||||
Total long-term debt | $ | 1,543.7 | $ | 1,532.5 | ||||
Less current portion | 12.2 | 10.8 | ||||||
Long-term debt, less current portion | $ | 1,531.5 | $ | 1,521.7 | ||||
December 31, 2011 | December 31, 2012 | |||||||
Cinemark USA, Inc. term loan | $ | 905.9 | $ | 700.0 | ||||
Cinemark USA, Inc. 8.625% senior notes due 2019(1) | 460.5 | 461.5 | ||||||
Cinemark USA, Inc. 5.125% senior notes due 2022 | — | 400.0 | ||||||
Cinemark USA, Inc. 7.375% senior subordinated notes due 2021 | 200.0 | 200.0 | ||||||
Hoyts General Cinema (Argentina) bank loan due 2013(2) | 5.8 | 2.5 | ||||||
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Total long-term debt | $ | 1,572.2 | $ | 1,764.0 | ||||
Less current portion | 12.1 | 9.5 | ||||||
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Long-term debt, less current portion | $ | 1,560.1 | $ | 1,754.5 | ||||
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(1) | ||
Includes the $470.0 million aggregate principal amount of the 8.625% senior notes net of the original issue discount, which was |
(2) | See Note 5 to our consolidated financial statements. |
As of December 31, 2010,2012, we had $150.0$100.0 million in available borrowing capacity on our revolving credit line.
As of December 31, 2010,2012, our long-term debt obligations, scheduled interest payments on long-term debt, future minimum lease obligations under non-cancelable operating and capital leases, scheduled interest payments under capital leases and other obligations for each period indicated are summarized as follows:
Payments Due by Period | ||||||||||||||||||||
Less than | After | |||||||||||||||||||
Contractual Obligations | Total | One Year | 1 - 3 Years | 4 - 5 Years | 5 Years | |||||||||||||||
(In millions) | ||||||||||||||||||||
Long-term debt(1) | $ | 1,542.8 | $ | 10.8 | $ | 174.6 | $ | 18.4 | $ | 1,339.0 | ||||||||||
Scheduled interest payments on long-term debt(2) | 580.7 | 91.4 | 175.8 | 164.7 | 148.8 | |||||||||||||||
Operating lease obligations | 1,795.2 | 200.1 | 396.5 | 370.9 | 827.7 | |||||||||||||||
Capital lease obligations | 140.2 | 7.3 | 17.6 | 22.5 | 92.8 | |||||||||||||||
Scheduled interest payments on capital leases | 100.4 | 13.9 | 25.3 | 21.3 | 39.9 | |||||||||||||||
Employment agreements | 11.4 | 3.8 | 7.6 | — | — | |||||||||||||||
Purchase commitments(3) | 121.8 | 44.8 | 75.1 | 0.5 | 1.4 | |||||||||||||||
Current liability for uncertain tax positions(4) | 1.9 | 1.9 | — | — | — | |||||||||||||||
Total obligations | $ | 4,294.4 | $ | 374.0 | $ | 872.5 | $ | 598.3 | $ | 2,449.6 | ||||||||||
Payments Due by Period (in millions) | ||||||||||||||||||||
Contractual Obligations | Total | Less Than One Year | 1 - 3 Years | 3 - 5 Years | After 5 Years | |||||||||||||||
Long-term debt(1) | $ | 1,772.5 | 9.5 | 14.0 | 14.0 | 1,735.0 | ||||||||||||||
Scheduled interest payments on long-term debt (2) | $ | 784.6 | 104.0 | 206.7 | 205.6 | 268.3 | ||||||||||||||
Operating lease obligations | $ | 1,889.2 | 225.8 | 449.7 | 406.5 | 807.2 | ||||||||||||||
Capital lease obligations | $ | 150.2 | 11.1 | 25.7 | 29.4 | 84.0 | ||||||||||||||
Scheduled interest payments on capital leases | $ | 85.1 | 14.2 | 24.8 | 19.2 | 26.9 | ||||||||||||||
Employment agreements | $ | 13.5 | 4.5 | 9.0 | — | — | ||||||||||||||
Purchase commitments (3) | $ | 227.2 | 155.5 | 70.5 | 0.5 | 0.7 | ||||||||||||||
Current liability for uncertain tax positions (4) | $ | 14.9 | 14.9 | — | — | — | ||||||||||||||
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Total obligations | $ | 4,937.2 | $ | 539.5 | $ | 800.4 | $ | 675.2 | $ | 2,922.1 | ||||||||||
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(1) | ||
Includes the 8.625% senior notes due 2019 in the aggregate principal amount of $470.0 million excluding the discount of |
(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, |
(3) | Includes estimated capital expenditures associated with the construction of new theatres to which we were committed as of December 31, |
(4) | The contractual obligations table excludes the long-term portion of our liability for uncertain tax positions of |
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On October 5, 2006, in connection with the Century Acquisition,December 18, 2012, Cinemark USA, Inc. entered into a senior secured credit facility that provided for a $1.12 billion term loanamended and a $150 million revolving credit line. On March 2, 2010, Cinemark USA, Inc. completed an amendment and extension to therestated its senior secured credit facility to primarily extendinclude a seven year $700.0 million term loan and a five year $100.0 million revolving credit line, referred to herein as the maturitiesAmended Senior Secured Credit Facility. The proceeds from the Amended Senior Secured Credit Facility, combined with a portion of the facility and make certain other modifications. Approximately $924.4 million ofproceeds from the 5.125% Senior Notes discussed below, were used to refinance Cinemark USA, Inc.’s then remaining outstanding $1,083.6Former Senior Secured Credit Facility, also discussed below. We incurred debt issue costs of approximately $12.0 million during the year ended December 31, 2012 related to the amendment and restatement. The term loan debtunder the Amended Senior Secured Credit Facility matures in December 2019. The revolving credit line, which was extended from an original maturity dateundrawn at closing and remained undrawn as of October 2013 to a maturity dateDecember 31, 2012, matures in December 2017. Quarterly principal payments in the amount of April 2016. The remaining$1.75 million are due on the term loan debt of $159.2 million that was not extended matures on the original maturity date of October 2013. Payments on the extended amount are due in equal quarterly installments of approximately $2.3 million beginning March 31, 20102013 through March 31, 2016September 2019 with the remaining principal amount of approximately $866.6$652.8 million due April 30, 2016. Payments on the original amount that was not extended are due in equal quarterly installments of approximately $0.4 million beginning March 31, 2010 through September 30, 2012 and increase to $37.4 million each calendar quarter from December 31, 2012 to June 30, 2013, with one final payment of approximately $42.6 million due at maturity18, 2019.
Interest on October 5, 2013. The amendment also imposed a 1.0% prepayment premium for one year on certain prepayments of the extended portion of the term loan debt.
Cinemark USA, Inc.’s obligations under the senior secured credit facilityAmended 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.
The senior secured credit facilityAmended 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;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
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The dividend restriction contained in the senior secured credit facilityAmended Senior Secured Credit Facility prevents usthe Company and any of ourits subsidiaries from paying a dividend or otherwise distributing cash to its stockholders unless (1) we arethe Company is not in default, and the distribution would not cause usCinemark USA, Inc. to be in default, under the senior secured credit facility;Amended Senior Secured Credit Facility; and (2) the aggregate amount of certain dividends, distributions, investments, redemptions and capital expenditures made since October 5, 2006,December 18, 2012, 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,December 18, 2012, (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,Amended Senior Secured Credit Facility, and (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.
At December 31, 2012, there was $700.0 million outstanding under the term loan and no borrowings outstanding under the revolving credit line. Cinemark USA, Inc. had $100.0 million in available borrowing capacity on the revolving credit line. The average interest rate on outstanding term loan borrowings under the Amended Senior Secured Credit Facility at December 31, 2012 was approximately 4.0% per annum.
5.125% Senior Notes
On June 29, 2009,December 18, 2012, Cinemark USA, Inc. issued $470.0$400.0 million aggregate principal amount of 8.625%5.125% senior notes due 2019 with an original issue discount2022, at par value, referred to herein as the 5.125% Senior Notes. A portion of approximately $11.5 million, resulting in proceeds of approximately $458.5 million. Thethe proceeds were primarilyused to refinance a portion of the Former Senior Secured Credit Facility as discussed above and a portion of the proceeds are expected to be used to fund the repurchase ofpurchase price for the remaining $419.4 million aggregate principal amount at maturity of Cinemark, Inc.’s 93/4% senior discount notes discussed below.Rave Acquisition (see Note 5) and for general corporate purposes. Interest on the 5.125% Senior Notes is payable on June 15 and December 15 of each year.year, beginning June 15, 2013. The senior notes mature on JuneDecember 15, 2019. As2022. We incurred debt issue costs of approximately $6.4 million in connection with the issuance during the year ended December 31, 2010, the carrying value of the senior notes was approximately $459.7 million.
The registration statement became effective on December 17, 2009. The exchanged registered senior notes do not have transfer restrictions.
secured credit facility. The senior notes5.125% Senior Notes and the guarantees are structurally subordinated to all existing and future debt and other liabilities of ourCinemark USA, Inc.’s subsidiaries that do not guarantee the senior notes.
The indenture to the 5.125% Senior Notes contains covenants that limit, among other things, the ability of Cinemark USA, Inc. and certain of its subsidiaries to (1) make investments or other restricted payments, including paying dividends, making other distributions or repurchasing subordinated debt or equity, (2) incur additional indebtedness and issue preferred stock, (3) enter into transactions with affiliates, (4) enter new lines of business, (5) merge or consolidate with, or sell all or substantially all of its assets to, another person and (6) create liens. As of December 31, 2012, Cinemark USA, Inc. could have distributed up to approximately $1,118.5 million to its parent company and sole stockholder, Cinemark Holdings, Inc., under the terms of the indenture to the 5.125% Senior Notes, subject to its available cash and other borrowing restrictions outlined in the indenture. 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 the 5.125% Senior 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. The indenture governing the 5.125% Senior Notes allows Cinemark USA, Inc. to incur additional indebtedness if it satisfies the coverage ratio specified in the indenture, after giving effect to the incurrence of the additional indebtedness, and in certain other circumstances. The required minimum coverage ratio is 2 to 1 and our actual ratio as of December 31, 2012 was 5.6 to 1.
Prior to December 15, 2017, Cinemark USA, Inc. may redeem all or any part of the 5.125% Senior Notes at its option at 100% of the principal amount plus a make-whole premium. After December 15, 2017, Cinemark USA, Inc. may redeem the 5.125% Senior Notes in whole or in part at redemption prices described in the 5.125% Senior Notes. In addition, Cinemark USA, Inc. may redeem up to 35% of the aggregate principal amount of the 5.125% Senior Notes from the net proceeds of certain equity offerings at the redemption price set forth in the senior notes.
Under a registration rights agreement entered into in conjunction with the issuance of the 5.125% Senior Notes, the Company and its guarantor subsidiaries are obligated to use its commercially reasonable best efforts to file a registration statement with the Securities and Exchange Commission, or the Commission, on or prior to 120 days from the issuance date, pursuant to which the Company will offer to exchange the 5.125% Senior Notes for substantially identical notes registered under the Securities Act of 1933, as amended, that will not contain terms restricting the transfer thereof or providing for registration rights. The Company will use its commercially reasonable best efforts to have the registration statement declared effective by the Commission on or prior to 210 days from the issuance date, or the Effective Date. The Company will use its commercially reasonable best efforts to issue on the earliest practicable date after the Effective Date, but not later than 30 days thereafter, exchange registered 5.125% Senior Notes in exchange for all 5.125% Senior Notes tendered prior thereto in the exchange offer. If the Company is obligated to file a shelf registration statement, the Company will use its commercially reasonable best efforts to file the shelf registration statement with the Commission on or prior to 30 days after such filing obligation arises (and in any event within 240 days after the closing of the 5.125% Senior Notes offering) and to cause the shelf registration statement to be declared effective by the Commission on or prior to 210 days after such obligation arises. The Company will use its commercially reasonable best efforts to keep the shelf registration statement effective for a period of one year after the closing of the 5.125% Senior Notes offering, subject to certain exceptions.
If (a) the Company fails to file the registration statement on or before the date specified, (b) if such registration statement is not declared effective by the Commission on or prior to the date specified for such effectiveness, (c) if the Company fails to consummate the exchange offer within 30 business days of the Effective Date with respect to the exchange offer registration statement or (d) if the date the shelf registration statement is declared effective by the Commission or the exchange offer registration statement thereafter ceases to be effective or usable during the periods specified in the registration rights agreement without being succeeded within two business days by a post-effective amendment to such registration statement that cures such failure and that is itself immediately declared effective (each such event a “Registration Default”), the Company will pay
additional interest to each holder of the 5.125% Senior Notes. Such additional interest, with respect to the first 90-day period immediately following the occurrence of any such Registration Default, shall equal an increase in the annual interest rate on the notes by 0.5% per annum.
The amount of the additional interest will increase by an additional 0.5% per annum with respect to each subsequent 90-day period relating to such Registration Default until all Registration Defaults have been cured, up to a maximum amount of additional interest for all Registration Defaults of 1.0% per annum. The 5.125% Senior Notes will not accrue additional interest from and after the second anniversary of the closing of the 5.125% Senior Notes offering even if the Company is not in compliance with its obligations under the registration rights agreement. The receipt of additional interest shall be the sole remedy available to holders of 5.125% Senior Notes as a result of one or more Registration Defaults. Following the cure of all Registration Defaults, the accrual of additional interest will cease.
7.375% Senior Subordinated Notes
On June 3, 2011, Cinemark USA, Inc. issued $200.0 million aggregate principal amount of 7.375% senior subordinated notes due 2021, at par value, referred to herein as the Senior Subordinated Notes. The proceeds, after payment of fees, were primarily used to fund the prepayment of the remaining $157.2 million of Cinemark USA, Inc.’s unextended portion of term loan debt under its former senior secured credit facility. Interest on the Senior Subordinated Notes is payable on June 15 and December 15 of each year. The Senior Subordinated Notes mature on June 15, 2021. We incurred debt issue costs of approximately $4.5 million during the year ended December 31, 2011 in connection with the issuance.
The Senior Subordinated Notes are fully and unconditionally guaranteed on a joint and several senior subordinated 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 other debt. The Senior Subordinated Notes and the guarantees are senior subordinated unsecured obligations and rank equally in right of payment with all of Cinemark USA, Inc.’s and a guarantor’s future senior subordinated indebtedness; are subordinate in right of payment to all of Cinemark USA, Inc.’s and a guarantor’s existing and future senior indebtedness, whether secured or unsecured, including Cinemark USA, Inc.’s obligations under its Amended Senior Secured Credit Facility, its 8.625% Senior Notes and its 5.125% Senior Notes; and structurally subordinate to all existing and future indebtedness and other liabilities of Cinemark USA, Inc.’s non-guarantor subsidiaries.
The indenture to the Senior Subordinated Notes contains covenants that limit, among other things, the ability of Cinemark USA, Inc. and certain of its subsidiaries to (1) make investments or other restricted payments, including paying dividends, making other distributions or repurchasing subordinated debt or equity, (2) incur additional indebtedness and issue preferred stock, (3) enter into transactions with affiliates, (4) enter new lines of business, (5) merge or consolidate with, or sell all or substantially all of its assets to, another person and (6) create liens. As of December 31, 2012, Cinemark USA, Inc. could have distributed up to approximately $1,107.4 million to its parent company and sole stockholder, Cinemark Holdings, Inc., under the terms of the indenture to the 7.375% Senior Notes, subject to its available cash and other borrowing restrictions outlined in the indenture. Upon a change of control, as defined in the indenture, 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. The indenture governing the Senior Subordinated Notes allows Cinemark USA, Inc. to incur additional indebtedness if it satisfies the coverage ratio specified in the indenture, after giving effect to the incurrence of the additional indebtedness, and in certain other circumstances. The required minimum coverage ratio is 2 to 1, and our actual ratio as of December 31, 2012 was 5.5 to 1.
Prior to June 15, 2016, Cinemark USA, Inc. may redeem all or any part of the Senior Subordinated Notes at its option at 100% of the principal amount plus a make-whole premium plus accrued and unpaid interest on the senior subordinated notes to the date of redemption. After June 15, 2016, Cinemark USA, Inc. may redeem the
Senior Subordinated Notes in whole or in part at redemption prices specified in the indenture. In addition, prior to June 15, 2014, Cinemark USA, Inc. may redeem up to 35% of the aggregate principal amount of the Senior Subordinated Notes from the net proceeds of certain equity offerings at the redemption price set forth in the indenture.
Cinemark USA, Inc. and its guarantor subsidiaries filed a registration statement with the Securities and Exchange Commission (the “Commission”) on July 27, 2011 pursuant to which Cinemark USA, Inc. offered to exchange the Senior Subordinated Notes for substantially similar registered Senior Subordinated Notes. The registration statement became effective August 4, 2011, and approximately $199.5 million of the notes were exchanged on September 7, 2011. The registered Senior Subordinated Notes, issued in the exchange, do not have transfer restrictions. Approximately $0.5 million of the notes were not exchanged as of December 31, 2012.
8.625% Senior Notes
On June 29, 2009, Cinemark USA, Inc. issued $470.0 million aggregate principal amount of 8.625% senior notes due 2019, referred to herein as the 8.625% Senior Notes, with an original issue discount of $11.5 million, resulting in proceeds of approximately $458.5 million. The proceeds were primarily used to fund the repurchase of the then remaining outstanding $419.4 million aggregate principal amount at maturity of Cinemark, Inc.’s 9.75% senior discount notes. Interest on the 8.625% Senior Notes is payable on June 15 and December 15 of each year. The 8.625% Senior Notes mature on June 15, 2019. The original issue discount is being amortized on the effective interest method over the term of the 8.625% Senior Notes. As of December 31, 2012, the carrying value of the 8.625% Senior Notes was $461.5 million.
Cinemark USA, Inc. filed a registration statement with the Securities and Exchange Commission on September 24, 2009 pursuant to which Cinemark USA, Inc. offered to exchange the 8.625% Senior Notes for substantially similar registered 8.625% Senior Notes. The registration statement became effective and the notes were exchanged on December 17, 2009. The registered 8.625% Senior Notes, issued in the exchange, do not have transfer restrictions.
The 8.625% Senior Notes are 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 8.625% Senior Notes and the guarantees are senior unsecured obligations and rank 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 8.625% Senior Notes and the guarantees are effectively subordinated to all of Cinemark USA, Inc.’s and its guarantor’s existing and future secured debt to the extent of the value of the assets securing such debt, including all borrowings under Cinemark USA, Inc.’s amended senior secured credit facility. The 8.625% 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 8.625% Senior Notes.
The indenture to the 8.625% 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. As of December 31, 2012, Cinemark USA, Inc. could have distributed up to approximately $1,060.2 million to its parent company and sole stockholder, Cinemark Holdings, Inc., under the terms of the indenture to the 8.625% Senior Notes, subject to its available cash and other borrowing restrictions outlined in the indenture. Upon a change of control of Cinemark Holdings, Inc. or Cinemark USA, Inc., Cinemark
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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 indenture governing the senior notes8.625% Senior Notes allows Cinemark USA, Inc. to incur additional indebtedness if we satisfyit satisfies the coverage ratio specified in the indenture, after giving effect to the incurrence of the additional indebtedness, and in certain other circumstances. The required minimum coverage ratio is 2 to 1 and our actual ratio as of December 31, 20102012 was 5.045.5 to 1.
Prior to June 15, 2014, Cinemark USA, Inc. may redeem all or any part of the senior notes8.625% 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 notes8.625% 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 notes8.625% Senior Notes from the net proceeds of certain equity offerings at the redemption price set forth in the senior notes.
Former Senior Secured Credit Facility
On March 31, 2004, Cinemark, Inc. issued approximately $577,173 aggregate principal amount at maturity of 93/4% senior discount notes due 2014. Interest on the notes accreted until March 15, 2009 up to their aggregate principal amount. Subsequently, cash interest accrued and was payable semi-annuallyOctober 5, 2006, in arrears on March 15 and September 15, commencing on September 15, 2009.
The prepayment did not impact the interest rate applicable to or the maturity of its 93/4% senior discount notes remaining outstanding.Cinemark USA, Inc.’s revolving credit line. The notice specified September 8, 2009 as the redemptionmaturity date at which timeof $73.5 million of Cinemark USA, Inc. paid approximately $18,564, consisting of a redemption price of 104.875%’s $150.0 million revolving credit line had been extended from October 2012 to March 2015. The maturity date of the face amountremaining $76.5 million of Cinemark USA, Inc.’s revolving credit line did not change and remained October 2012. The interest rate on the original revolving credit line accrued 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 ranged from 1.50% to 2.00% per annum. The interest rate on the extended revolving credit line 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 1.75% to 2.0% per annum, or (B) a “eurodollar rate” plus a margin that ranged from 2.75% to 3.0% per annum. The margin of the discount notesrevolving credit line was determined by the consolidated net senior secured leverage ratio as defined in the Former Senior Secured Credit Facility.
As a result of the prepayment made in June 2011, we wrote-off approximately $2.2 million in unamortized debt issue costs related to the unextended portion of term loan debt that was prepaid. In addition, we determined that a portion of the quarterly interest payments hedged by two of our then current interest rate swap agreements under cash flow hedges and the quarterly interest payments related to our previously terminated interest rate swap agreement were probable not to occur and therefore reclassified approximately $2.7 million of our accumulated other comprehensive loss related to these cash flow hedges to earnings, as a component of loss on early retirement of debt. These write-offs, combined with related fees, are reflected in loss on early retirement of debt for the year ended December 31, 2011.
On December 18, 2012, the remaining outstanding plus accrued and unpaid interest to, but not including, the redemption date. Cinemark, Inc. funded the redemptionterm loan of $899.0 million was paid in full with proceeds from the issuanceAmended Senior Secured Credit Facility combined with a portion of the Cinemark USA, Inc. senior notesproceeds from the 5.125% Senior Notes issuance, both of which are discussed above.
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As of December 31, 2010,2012, we arebelieve we were in full compliance with all agreements, including all related covenants, governing our outstanding debt.
Ratings
We are rated by nationally recognized rating agencies. The significance ofrating scales and methodologies used to derive individual ratings variesmay vary from agency to agency. However, companies’ assignedCredit ratings at the top end of the range have, in the opinion of certainare issued by credit rating agencies based on evaluations of our ability to pay back our outstanding debt and the strongest capacitylikelihood that we would default on that debt prior to its maturity. The credit ratings issued by the credit rating agencies represent the credit rating agency’s evaluation of both qualitative and quantitative information for repayment of debt or payment of claims, while companies atour company. The credit ratings that are issued are based on the bottom end of the range have the weakest capability.credit rating agency’s judgment and experience in determining what information should be considered in giving a rating to a particular company. 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 credit ratings, per category, which were current as of February 28, 2011.
Category | Moody’s | Standard and Poor’s | ||
Cinemark USA, Inc. Amended Senior Secured Credit Facility | ||||
Cinemark USA, Inc. 8.625% Senior Notes | B2 | BB- | ||
Cinemark USA, Inc. 5.125% Senior Notes | B2 | BB- | ||
Cinemark USA, Inc. 7.375% Senior Subordinated Notes | B3 | |||
With respect to the ratings issued by Moody’s as noted above, Moody’s defines these ratings as follows:
‘Ba1’ — Obligations rated Ba are judged to be speculative and are subject to substantial credit risk. The Prime-1 rating indicates the issuer has a superior ability to repay short-term debt.
‘B2’ — Obligations rated B are considered speculative and are subject to high credit risk. The Prime-2 portion of the rating indicates issuer has a strong ability to repay short-term debt.
‘B3’ — Obligations rated B are considered speculative and are subject to high credit risk. The Prime-3 portion of the rating indicates issuer has an acceptable ability to repay short-term debt.
With respect to the ratings issued by Standard and Poor’s as noted above, Standard and Poor’s defines these ratings as follows:
‘B’ — More vulnerable to adverse business, financial and economic conditions but currently has the capacity to meet financial commitments.
‘BB+’ — Considered highest speculative grade by market participants.
‘BB-’ — Less vulnerable in the near-term but faces major ongoing uncertainties to adverse business, financial and economic conditions.
New Accounting Pronouncements
In December 2009,July 2012, the Financial Accounting Standards Board (“FASB”)FASB issued Accounting Standards Update (“ASU”)No. 2009-17, “2012-02,Consolidations (Topic 810) Testing Indefinite-Lived Intangible Assets for Impairment, an amendment to FASB ASC Topic 350, Intangibles — ImprovementsGoodwill and Other (“ASU 2012-02”). The update provides an entity with the option first to Financial Reporting by Enterprises Involved with Variable Interest Entities” (“ASUNo. 2009-17”). This update changes how a reportingassess qualitative factors in determining whether it is more likely than not that the indefinite-lived intangible asset is impaired. After assessing the qualitative factors, if an entity determines whenthat it is not more likely than not that the indefinite-lived intangible asset is impaired, the entity is not required to take further action. If an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a reporting entityconcludes otherwise, then it is required to consolidate another entity is based on, among other things,determine the other entity’s purpose and design and the reporting entity’s ability to direct the activitiesfair value of the other entity that most significantly impactindefinite-lived intangible asset and perform the other entity’s economic performance.quantitative impairment test. ASUNo. 2009-17 requires a reporting entity to provide additional disclosures about its involvement with variable interest entities and any significant changes in risk exposure due to that involvement. A reporting entity is required to disclose how its involvement with a variable interest entity affects the reporting entity’s financial statements. ASUNo. 2009-17 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after NovemberSeptember 15, 2009, and interim periods within those fiscal years.2012. Early adoption was permitted. We adopteddo not expect the adoption of ASUNo. 2009-17 as of January 1, 2010, and its application had no impact on our consolidated financial statements.
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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 next quarter or for the same period in the following year.
Item 7A.Quantitative and Qualitative Disclosures About Market Risk
We have exposure to financial market risks, including changes in interest rates and foreign currency exchange rates.
Interest Rate Risk
We are currently party to variable rate debt facilities. An increase or decrease in interest rates would affect our interest expense relating to our variable rate debt facilities. At December 31, 2010,2012, there was an aggregate of approximately $422.8$250.0 million of variable rate debt outstanding under these facilities, which excludes $650.0$450.0 million of Cinemark USA, Inc.’s term loan debt that is hedged with the Company’s interest rate swap agreements as discussed below. Based on the interest rates in effect on the variable rate debt outstanding at December 31, 2010,2012, a 100 basis point increase in market interest rates would increase our annual interest expense by approximately $4.2$2.5 million.
All of our current 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 component of accumulated other comprehensive income (loss)loss and the ineffective portion reported in earnings.
Below is a summary of our current interest rate swap agreements:
Amount Hedged | Effective Date | Pay Rate | Receive Rate | Expiration Date | ||||||||
$ | 125,000 | August 2007 | 4.9220 | % | 3-month LIBOR | August 2012 | ||||||
$ | 100,000 | November 2008 | 3.6300 | % | 1-month LIBOR | November 2011 | ||||||
$ | 75,000 | November 2008 | 3.6300 | % | 1-month LIBOR | November 2012 | ||||||
$ | 175,000 | December 2010 | 1.3975 | % | 1-month LIBOR | September 2015 | ||||||
$ | 175,000 | December 2010 | 1.4000 | % | 1-month LIBOR | September 2015 |
Nominal Amount (in millions) | Effective Date | Pay | Receive Rate | Expiration Date | ||||
$175.0 | December 2010 | 1.3975% | 1-month LIBOR | September 2015 | ||||
$175.0 | December 2010 | 1.4000% | 1-month LIBOR | September 2015 | ||||
$100.0 | November 2011 | 1.7150% | 1-month LIBOR | April 2016 | ||||
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$450.0 |
The table below provides information about our fixed rate and variable rate long-term debt agreements as of December 31, 2010:
Average | ||||||||||||||||||||||||||||||||||||
Expected Maturity for the Twelve-Month Periods Ending December 31, | Interest | |||||||||||||||||||||||||||||||||||
2011 | 2012 | 2013 | 2014 | 2015 | Thereafter | Total | Fair Value | Rate | ||||||||||||||||||||||||||||
(In millions) | ||||||||||||||||||||||||||||||||||||
Fixed rate(1)(2) | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 1,120.0 | $ | 1,120.0 | $ | 1,159.2 | 7.0 | % | ||||||||||||||||||
Variable rate | 10.8 | 47.9 | 126.7 | 9.2 | 9.2 | 219.0 | 422.8 | 422.8 | 3.1 | % | ||||||||||||||||||||||||||
Total debt | $ | 10.8 | $ | 47.9 | $ | 126.7 | $ | 9.2 | $ | 9.2 | $ | 1,339.0 | $ | 1,542.8 | $ | 1,582.0 | ||||||||||||||||||||
Expected Maturity for the Twelve-Month Periods Ending December 31, (in millions) | Average Interest Rate | |||||||||||||||||||||||||||||||||||
2013 | 2014 | 2015 | 2016 | 2017 | Thereafter | Total | Fair Value | |||||||||||||||||||||||||||||
Fixed rate(1)(2) | $ | 2.5 | $ | — | $ | — | $ | — | $ | — | $ | 1,520.0 | $ | 1,522.5 | $ | 1,601.2 | 6.3 | % | ||||||||||||||||||
Variable rate | 7.0 | 7.0 | 7.0 | 7.0 | 7.0 | 215.0 | 250.0 | 250.0 | 3.2 | % | ||||||||||||||||||||||||||
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Total debt | $ | 9.5 | $ | 7.0 | $ | 7.0 | $ | 7.0 | $ | 7.0 | $ | 1,735.0 | $ | 1,772.5 | $ | 1,851.2 | ||||||||||||||||||||
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Includes |
(2) | Includes the 8.625% senior notes in the aggregate principal amount of $470.0 million, excluding the discount of |
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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. A 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., or 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, U.S. GAAP 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. Based upon our equity ownership in our international subsidiaries as of December 31, 2010,2012, holding everything else constant, a 10% immediate, simultaneous, unfavorable change in all of the foreign currency exchange rates to which we are exposed, would decrease the aggregate net book value of our investments in our international subsidiaries by approximately $47$51 million and would decrease the aggregate net income of our international subsidiaries for the years ended December 31, 20092010, 2011 and 20102012 by approximately $4$8 million, $9 million and $8$9 million, respectively.
Item 8.Financial Statements and Supplementary Data
The financial statements and supplementary data are listed on the Index onpage F-1 of thisForm 10-K. Such financial statements and supplementary data are included herein beginning onpage F-3.
Item 9.Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None. Item 9A.Controls and Procedures
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As of December 31, 2010,2012, under the supervision and with the participation of our principal executive officer and principal financial officer, we carried out an evaluation required by the Securities Exchange Act of 1934, as amended, or the 1934 Act of the effectiveness of the design and operation of our disclosure controls and procedures, as defined inRule 13a-15(e) of the 1934Exchange Act. Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of December 31, 2010,2012, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the 1934Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and were effective to provide reasonable assurance that such information is accumulated and communicated to
our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined inRule 13a-15(f) of the 1934Exchange 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.U.S. Management has assessed the effectiveness of our internal control over financial reporting as of December 31, 20102012 based on criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO, inInternal Control — Integrated Framework. As a result of this assessment, management concluded that, as of December 31, 2010,2012, our internal control over financial reporting was effective.
Certifications of our Chief Executive Officer and our Chief Financial Officer, which are required in accordance withRule 13a-14 of the Exchange Act, are attached as exhibits to this Annual Report. This “Controls and
45
The Company’s independent auditors,registered public accounting firm, 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 Control Over Financial Reporting
There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange ActRules 13a-15 that occurred during the quarter ended December 31, 20102012 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.
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None.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of
Cinemark Holdings, Inc.
Plano, Texas
We have audited the internal control over financial reporting of Cinemark Holdings, Inc. and subsidiaries (the “Company”) as of December 31, 2010,2012, 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, 2010,2012, 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 and financial statement schedule as of and for the year ended December 31, 20102012 of the Company and our report dated February 28, 20112013 expressed an unqualified opinion on those financial statements and financial statement schedule.
/s/Deloitte & Touche LLP
Dallas, Texas
February 28, 2011
472013
Incorporated by reference to the Company’s Proxy Statementproxy statement for its Annual Stockholders Meetingannual stockholders meeting (under the headings “Election of Directors”, “Section 16(a) Beneficial Ownership Reporting Compliance”, “Corporate Governance” and “Executive Officers”) to be held on May 12, 201123, 2013 and to be filed with the Securities and Exchange CommissionSEC within 120 days after December 31, 2010.
Item 11.Executive Compensation
Incorporated by reference to the Company’s Proxy Statementproxy statement for its Annual Stockholders Meetingannual stockholders meeting (under the heading “Executive Compensation”) to be held on May 12, 201123, 2013 and to be filed with the Securities and Exchange CommissionSEC within 120 days after December 31, 2010.
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Incorporated by reference to the Company’s Proxy Statementproxy statement for its Annual Stockholders Meetingannual stockholders meeting (under the headings “Security Ownership of Certain Beneficial Owners and Management”) to be held on May 12, 201123, 2013 and to be filed with the Securities and Exchange CommissionSEC within 120 days after December 31, 2010.
Item 13.Certain Relationships and Related Transactions, and Director Independence
Incorporated by reference to the Company’s Proxy Statementproxy statement for its Annual Stockholders Meetingannual stockholders meeting (under the heading “Certain Relationships and Related Party Transactions” and “Corporate Governance”) to be held on May 12, 201123, 2013 and to be filed with the Securities and Exchange CommissionSEC within 120 days after December 31, 2010.
Item 14.Principal Accountant Fees and Services
Incorporated by reference to the Company’s Proxy Statementproxy statement for its Annual Stockholders Meetingannual stockholders meeting (under the heading “Board Committees — Audit Committee — Fees Paid to Independent Registered Public Accounting Firm”) to be held on May 12, 201123, 2013 and to be filed with the Securities and Exchange CommissionSEC within 120 days after December 31, 2010.
(a) | Documents Filed as Part of this Report
(b)Exhibits See the accompanying Index beginning onpage E-1. (c)Financial Statement Schedules Schedule I — Condensed Financial Information of Registrant beginning onpage F-50. All schedules not identified above have been omitted because they are not required, are not applicable or the information is included in the consolidated financial statements or notes contained in this report.
Pursuant to the requirements of Section 13 or 15(d) of the
POWER OF ATTORNEY Each person whose signature appears below hereby severally constitutes and appoints Pursuant to the requirements of the
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 stockholders. An annual report and proxy material may be sent to our stockholders subsequent to the filing of thisForm 10-K. We shall furnish to the
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors of Cinemark Holdings, Inc. Plano, Texas We have audited the accompanying consolidated balance sheets of Cinemark Holdings, Inc. and subsidiaries (the “Company”) as of December 31, 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial 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 Holdings, Inc. and subsidiaries as of December 31, 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 reporting as of December 31, / Dallas, Texas February 28,
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
The accompanying notes are an integral part of the consolidated financial statements.
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF YEARS ENDED DECEMBER 31,
(In thousands, except per share data)
The accompanying notes are an integral part of the consolidated financial statements.
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF YEARS ENDED DECEMBER 31,
(In thousands)
The accompanying notes are an integral part of the consolidated financial statements.
YEARS ENDED DECEMBER 31,
(In thousands)
The accompanying notes are an integral part of the consolidated financial statements.
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012 (In thousands)
Supplemental information (see Note 20) The accompanying notes are an integral part of the consolidated financial statements. In thousands, except share and per share data
Business— Cinemark Holdings, Inc. and subsidiaries (the “Company”) is a leader in the motion picture exhibition industry, with theatres in the United States (“U.S.”), Brazil, Mexico, Argentina, Chile, Colombia, 2012. Principles of Consolidation— The consolidated financial statements include the accounts of Cinemark Holdings, Inc., its subsidiaries and its affiliates. Majority-owned subsidiaries that the Company has control of are consolidated while those affiliates of which the Company owns between 20% and 50% and does not control are accounted for under the equity method. Those affiliates of which the Company owns less than 20% are generally accounted for under the cost method, unless the Company is deemed to have the ability to exercise significant influence over the affiliate, in which case the Company would account for its investment under the equity method. The results of these subsidiaries and affiliates are included in the consolidated financial statements effective with their formation or from their dates of acquisition. Intercompany 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 Accounts Receivable— Accounts receivable, which are recorded at net realizable value, consists primarily of receivables related to screen advertising, receivables related to discounted tickets sold to retail locations, rebates earned from the Company’s beverage and other concession vendors and value-added and other tax receivables. Inventories— Concession and theatre supplies inventories are stated at the lower of cost Theatre Properties and Equipment— Theatre properties and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is provided using the straight-line method over the estimated useful lives of the assets as follows:
The Company reviews long-lived assets for impairment indicators on a quarterly basis or whenever events or changes in circumstances indicate the carrying amount of the assets may not be fully recoverable. The Company considers actual theatre level cash flows, future years budgeted theatre level cash flows, theatre property and equipment carrying values, amortizing intangible asset carrying values, the age of a recently built theatre, competitive theatres in the marketplace, the impact of recent ticket price changes, available lease renewal options and other factors considered relevant in its assessment of impairment of individual theatre assets. Long-lived assets are evaluated for impairment on an individual theatre basis, which the Company believes is the lowest applicable level for which there are identifiable cash flows. The impairment evaluation is based on the CINEMARK HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In thousands, except share and per share data estimated undiscounted cash flows from continuing use through the remainder of the theatre’s useful life. The remainder of the theatre’s useful life correlates with the available remaining lease period, which includes the probability of renewal
periods for leased properties and 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 may not be fully recoverable. The Company evaluates goodwill for impairment at the reporting unit level and has allocated goodwill to the reporting unit based on an estimate of its relative fair value. Management considers the reporting unit to be each of its sixteen regions in the U.S. and each of its eight international countries (Honduras, El Salvador, Nicaragua, Costa Rica, Panama and Guatemala are considered one reporting unit). Goodwill impairment is evaluated using a two-step approach requiring the Company to compute the fair value of a reporting unit and compare it with its carrying value. If the carrying value of the reporting unit exceeds its estimated fair value, a second step is performed to measure the potential goodwill impairment. Significant judgment is involved in estimating cash flows and fair value. Management’s estimates, which fall under Level 3 of the U.S. GAAP fair value hierarchy as defined by FASB ASC Topic820-10-35, are based on historical and projected operating performance, recent market transactions, and current industry trading multiples. Fair value is determined based on a multiple of cash flows, which was six and a half times for the evaluation performed during 2010 and seven and a half times for the evaluations performed during Indefinite-lived 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 fully 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 its estimated fair value. Significant judgment is involved in estimating market royalty rates and long-term revenue forecasts. Management’s estimates, which fall under Level 3 of the U.S. GAAP fair value hierarchy as defined by FASB ASC Topic820-10-35, are based on historical and projected revenue performance and industry trends.
CINEMARK HOLDINGS, 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:
Deferred Charges and Other Assets— Deferred charges and other assets consist of debt issue costs, long-term prepaid rents, construction Lease Accounting— The Company evaluates each lease for classification as either a capital lease or an operating lease. If substantially all of the benefits and risks of ownership have been transferred to the lessee, the Company 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 recognizes the lease expense on a straight-line basis over the lease term. The Company determines the straight-line rent expense impact of an operating lease upon inception of the lease. 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. If 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. At the end of the construction period, the Company determines if the transaction qualifies for sale-leaseback accounting treatment in regards to lease classification. If the Company receives a lease incentive payment from a landlord, the Company records the proceeds as a deferred lease incentive liability and amortizes the liability as a reduction in rent expense over the initial term of the respective lease. Deferred Revenues— Advances collected on long-term screen advertising, concession and other contracts are recorded as deferred revenues. In accordance with the terms of the agreements, the advances collected on such contracts are recognized during the period in which the advances are earned, which may differ from the period in which the advances are collected. Revenues 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 contracts.
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In thousands, except share and per share data Company is fully insured for workers compensation claims. As of December 31, Revenue and Expense Recognition— Revenues are recognized when admissions and concession sales are received at the box office. 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. The Company records
proceeds from the sale of gift cards and other advanced sale-type certificates in current liabilities and recognizes admissions Film rental costs are accrued based on the applicable box office receipts and either mutually agreed upon firm terms or a sliding scale formula, which are generally established prior to the opening of the film, or estimates of the final mutually agreed upon settlement, which occurs at the conclusion of the film 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 Accounting for Share Based Awards— The Company measures the cost of employee services received in exchange for an award of equity instruments based on the fair value of the award on the date of the grant. The grant date fair value is estimated using either an option-pricing model, consistent with the terms of the award, or a market observed price, if such a price exists. Such costs are 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 Company also estimates the number of instruments that will ultimately be Income Taxes —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 basis 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 evaluation of CINEMARK HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In thousands, except share and per share data 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 financial statements. The tax position is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Differences between tax positions 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 (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
Segments— Use of Estimates— The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the 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. 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 sheets in accumulated other comprehensive Fair Value Measurements — The Company also uses fair value measurements on a nonrecurring basis, primarily in the impairment evaluations for goodwill, intangible assets and other long-lived assets. SeeGoodwill and Other Intangible Assets andTheatre Properties and Equipment included above for discussion of such fair value measurements. CINEMARK HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In thousands, except share and per share data 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
In
The Company considers its unvested share based payment awards, which contain non-forfeitable rights to dividends, participating securities, and includes such participating securities in its computation of earnings per share pursuant to the two-class method. Basic earnings per share for the two classes of stock (common stock and unvested restricted stock) is calculated by dividing net income CINEMARK HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In thousands, except share and per share data The following table presents computations of basic and diluted earnings
In August 2007, the Company initiated a quarterly dividend policy, which was amended in November 2010. Below is a summary of dividends
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In thousands, except share and per share data
Acquisition of Rave Theatres During November 2012, the Company entered into an asset purchase agreement with Rave Real Property Holdco, LLC and certain of its subsidiaries, Rave Cinemas, LLC and RC Processing, LLC (collectively “Rave”), pursuant to which the Company will acquire 32 theatres with 483 screens located in 12 states. The estimated purchase price is approximately $240,000. The purchase price, the amount of which is subject to certain closing date adjustments, will consist of cash consideration and the assumption of certain liabilities. The transaction is expected to close during the first quarter of 2013, subject to the satisfaction of customary closing conditions for transactions of this type, including Department of Justice or Federal Trade Commission antitrust approval. Acquisition of Argentina Theatres During August 2011, the Company acquired The following table represents the fair value of the identifiable assets acquired and liabilities assumed
The weighted average review by the Argentina Comisión Nacional de Defensa de la Competencia (“CNDC”). Canada Dispositions During November 2010, the Company sold its one theatre in Canada for approximately $6,320 in cash CINEMARK HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In thousands, except share and per share data During November 2010, the Company also sold its interest in a profit sharing agreement related to a previously sold Canadian property. The Company received proceeds of approximately $8,493 and recorded a gain on sale of assets and other.
The Company has an investment in National CineMedia, LLC
contractual amounts paid to In consideration for NCM’s exclusive access to the Company’s theatre attendees for on-screen advertising and use of off-screen As a result of the application of a portion of the proceeds it received from the NCMI initial public offering, the Company had a negative basis in its original membership units in NCM, Common Unit Adjustments Pursuant to a Common Unit Adjustment Agreement dated as of February 13, 2007 between CINEMARK HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In thousands, except share and per share data operated and theatre attendance generated by other. During March 2010, NCM performed its annual common unit adjustment calculation under the Common Unit Adjustment Agreement. As a result of the calculation, the Company received an additional 1,757,548 common units of NCM, each of which is convertible into one share of NCM, Inc. common stock. The Company recorded the additional common units received at fair value as
common unit adjustment, which is reflected in (gain) loss on sale of assets and other on the consolidated statement of income. During March 2011, NCM performed its annual common unit adjustment calculation under the Common Unit Adjustment Agreement. As a result of the calculation, the Company received an additional 549,417 common units of NCM, each of which is convertible into one share of NCM, Inc. common stock. The Company recorded the additional common units received at fair value as part of its Tranche 2 Investment with a corresponding adjustment to deferred revenue of approximately $9,302. During March 2012, 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 598,724 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 part of its Tranche 2 Investment with a corresponding adjustment to deferred revenue of approximately $9,137. CINEMARK HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In thousands, except share and per share data As of December 31, Summary of Activity with NCM Below is a summary of activity with NCM included in the Company’s consolidated financial statements:
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In thousands, except share and per share data The tables below present summary financial information for NCM for the periods
On February 12, 2007, the Company, AMC On March 10, 2010, the Company signed a master equipment lease agreement and other related agreements (collectively the “Agreements”) with Kasima LLC (“Kasima”), which is an indirect subsidiary of DCIP and a related party to the Company. Upon signing the Agreements, the Company contributed the majority of its U.S. digital projection systems at a fair value of $16,380 to DCIP, which DCIP then contributed to Kasima. The net book value of the contributed equipment was approximately $18,090, and as a result, the Company recorded a loss of approximately $1,710,
which is reflected in (gain) loss on sale of assets and other on the consolidated statement of The Company has a variable interest in Kasima through the terms of its master equipment lease agreement; however, the Company has determined that it is not the primary beneficiary of Kasima, as the Company does not have the ability to direct the activities of Kasima that most significantly impact Kasima’s economic performance. CINEMARK HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In thousands, except share and per share data As of December 31, The Company accounts for its investment in DCIP and its subsidiaries under the equity method of accounting. Below is a rollforward of our investment in DCIP from January 1, 2010 through December 31, 2012:
Below is summary financial information for DCIP as of
and for the years ended December 31, 2010 and 2011. (Financial information for the year ended December 31, 2012 is not yet available.)
As a result of the Agreements, the Company income. The digital projection systems leased from Kasima CINEMARK HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In thousands, except share and per share data accelerating the depreciation of these existing 35 millimeter projection
The Company licenses3-D systems from During January, February and March 2011, the Company vested in an additional 136,952 RealD options in the aggregate by reaching additional target levels, as outlined in the license agreement. Upon vesting in these additional options, the Company recorded an increase in its investment in RealD and its deferred lease incentive liability of approximately During March 2011, the Company The deferred lease incentive liability recorded as a result of the option vesting events discussed above is reflected in other long-term liabilities on the consolidated balance sheets and is being amortized over the term of the license agreement, which is approximately seven and one-half years. The license agreement has a remaining term of approximately six years. During the year ended December 31, 2011, the Company recognized an other-than-temporary impairment on its investment in RealD due to the length of time and extent to which RealD’s quoted stock price had been below the Company’s basis in the stock. As a result of the other-than-temporary impairment, the Company reclassified approximately $12,610, which represented cumulative net unrealized holding losses, from accumulated other comprehensive loss to earnings. As of December 31, CINEMARK HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In thousands, except share and per share data Below is a rollforward of the
During April 2010, the Company’s partners in Colombia (the “Colombian Partners”) exercised an option available to them under an Exchange Option Agreement dated April 9, 2007 between the Company and the Colombian Partners. Under this option, which was contingent upon completion of an initial public offering of common stock by the Company, the Colombian Partners were entitled to exchange their shares in Cinemark Colombia S.A. for shares of the Company’s common stock (the “Colombia Share Exchange”). The number of shares to be exchanged was determined based on the Company’s equity value and the equity value of the Colombian Partners’ interest in Cinemark Colombia S.A., both of which are defined in the Exchange Option Agreement. As a result of the Colombia Share Exchange, on June 14, 2010, the Company issued 1,112,723 shares of its common stock to the Colombian Partners. The increase in the Company’s ownership interest in its Colombian subsidiary was accounted for as an equity transaction. The Company recorded an increase in additional-paid-in-capital of approximately $6,951, which represented the book value of the Colombian partners’ noncontrolling interest account of approximately $5,865 plus the Colombian partners’ share of accumulated other comprehensive loss of approximately $1,086. As a result of this transaction, the Company owns 100% of the shares in Cinemark Colombia S.A. During November 2010, the Company purchased its noncontrolling interests’ 20% share of Cinemark Panama S.A. (“Cinemark Panama”) for approximately $888 in cash. The transaction was accounted for as an equity transaction in accordance with ASC Topic
During May 2011, the Company purchased its Chilean partners’ 2.6% share of Cinemark Chile S.A. (“Cinemark Chile”) for approximately $1,443 in cash. The increase in the Company’s ownership interest in its Chilean subsidiary was accounted for as an equity transaction in accordance with ASC Topic 810-10-45-23. The Company recorded a decrease in additional paid-in-capital of approximately $1,402, which represented the difference between the cash paid and the book value of the Chilean partners’ noncontrolling interest account of approximately $917, plus the Chilean partners’ share of accumulated other comprehensive loss of approximately $485. As a result of this transaction, the Company owns 100% of the shares in Cinemark Chile. CINEMARK HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In thousands, except share and per share data
The Company’s goodwill was as follows:
As of December 31, intangible assets-net, consisted of the following:
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In thousands, except share and per share data Estimated aggregate future amortization expense for intangible assets is as follows:
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:
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. As of December 31, 2012, the estimated aggregate fair value of the long-lived assets impaired during the year ended December 31, 2012 was approximately $3,876.
As of December 31, deferred charges and other assets —
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In thousands, except share and per share data During the year ended December 31, 2012, the Company paid debt issue costs of $18,453 primarily related to the issuance of its 5.125% senior notes and the amendment and restatement of its senior secured credit facility. See Note 13 for discussion of long term debt activity.
As of December 31, long-term debt consisted of the following:
Amended Senior Secured Credit Facility On December 18, 2012, Cinemark USA, Inc. amended and restated its senior secured credit facility to include a seven year $700,000 term loan and a five year $100,000 revolving credit line, referred to herein as the Amended Senior Secured Credit Facility. The proceeds from the Amended Senior Secured Credit Facility, combined with a portion of the proceeds from the 5.125% Senior Notes discussed below, were used to refinance the Company’s Former Senior Secured Credit Facility, also discussed below. The Company incurred debt issue costs of approximately $12,000 during the year ended December 31, 2012 related to the amendment and restatement. The term loan under the Amended Senior Secured Credit Facility matures in December 2019. The revolving credit line, which was undrawn at closing and remained undrawn as of December 31, 2012, matures in December 2017. Quarterly principal payments in the amount of $1,750 are due on the term loan beginning March 2013 through September 2019 with the remaining principal of $652,750 due on December 18, 2019. Interest on the term loan accrues at Cinemark USA, Inc.’s option at: (A) the base rate equal to the higher of (1) the prime lending rate as set forth on the British Banking Association Telerate page 5, or (2) the federal funds effective rate from time to time plus 0.50%, plus a margin of 2.0% per annum, or (B) a “eurodollar rate” plus a margin of 3.0% per annum. Interest on the revolving credit line accrues, at Cinemark USA, Inc.’s option, at: (A) a base rate equal to the higher of (1) the prime lending rate as set forth on the British Banking Association Telerate page 5 and (2) the federal funds effective rate from time to time plus 0.50%, plus a margin that ranges from 1.00% to 1.75% per annum, or (B) a “eurodollar rate” plus a margin that ranges from 2.00% to 2.75% per annum. The margin of the revolving credit line is determined by the consolidated net senior secured leverage ratio as defined in the credit agreement. Cinemark USA, Inc.’s obligations under the Amended Senior Secured Credit Facility are guaranteed by Cinemark Holdings, Inc. and certain of Cinemark USA, Inc.’s domestic subsidiaries and are secured by CINEMARK HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In thousands, except share and per share data 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. The Amended 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. If Cinemark USA, Inc. has borrowings outstanding on the revolving credit line, it is required to satisfy a consolidated net senior secured leverage ratio covenant as determined in accordance with the Amended Senior Secured Credit Facility. The dividend restriction contained in the Amended Senior Secured Credit Facility prevents the Company and any of its subsidiaries from paying a dividend or otherwise distributing cash to its stockholders unless (1) the Company is not in default, and the distribution would not cause the Company to be in default, under the Amended Senior Secured Credit Facility; and (2) the aggregate amount of certain dividends, distributions, investments, redemptions and capital expenditures made since December 18, 2012, 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 December 18, 2012, (b) Cinemark USA, Inc.’s consolidated EBITDA minus 1.75 times its consolidated interest expense, each as defined in the Amended Senior Secured Credit Facility, and (c) certain other defined amounts. As of December 31, 2012, Cinemark USA, Inc. could have distributed up to approximately $1,409,000 to its parent company and sole stockholder, Cinemark Holdings, Inc., under the terms of the Amended Senior Secured Credit Facility, subject to its available cash and other borrowing restrictions outlined in the agreement. At December 31, 2012, there was $700,000 outstanding under the term loan and no borrowings outstanding under the revolving credit line. Cinemark USA, Inc. had $100,000 in available borrowing capacity on the revolving credit line. The average interest rate on outstanding term loan borrowings under the Amended Senior Secured Credit Facility at December 31, 2012 was approximately 4.0% per annum. 5.125% Senior Notes On December 18, 2012, Cinemark USA, Inc. issued $400,000 aggregate principal amount of 5.125% senior notes due 2022, at par value, referred to herein as the 5.125% Senior Notes. A portion of the proceeds were used to refinance a portion of the Former Senior Secured Credit Facility and a portion of the proceeds are expected to be used to fund the purchase price for the Rave Acquisition (see Note 5) and for general corporate purposes. Interest on the 5.125% Senior Notes is payable on June 15 and December 15 of each year, beginning June 15, 2013. The senior notes mature on December 15, 2022. The Company incurred debt issue costs of approximately $6,400 in connection with the issuance during the year ended December 31, 2012. The 5.125% Senior Notes are 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 5.125% Senior Notes and the guarantees are senior unsecured obligations and rank 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 5.125% Senior Notes and the guarantees are effectively CINEMARK HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In thousands, except share and per share data subordinated to all of Cinemark USA, Inc.’s and its guarantor’s existing and future secured debt to the extent of the value of the assets securing such debt, including all borrowings under Cinemark USA, Inc.’s amended senior secured credit facility. The 5.125% 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 senior notes. The indenture to the 5.125% Senior Notes contains covenants that limit, among other things, the ability of Cinemark USA, Inc. and certain of its subsidiaries to (1) make investments or other restricted payments, including paying dividends, making other distributions or repurchasing subordinated debt or equity, (2) incur additional indebtedness and issue preferred stock, (3) enter into transactions with affiliates, (4) enter new lines of business, (5) merge or consolidate with, or sell all or substantially all of its assets to, another person and (6) create liens. As of December 31, 2012, Cinemark USA, Inc. could have distributed up to approximately $1,118,500 to its parent company and sole stockholder, Cinemark Holdings, Inc., under the terms of the indenture to the 5.125% Senior Notes, subject to its available cash and other borrowing restrictions outlined in the indenture. 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 the 5.125% Senior 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. The indenture governing the 5.125% Senior Notes allows Cinemark USA, Inc. to incur additional indebtedness if it satisfies the coverage ratio specified in the indenture, after giving effect to the incurrence of the additional indebtedness, and in certain other circumstances. The required minimum coverage ratio is 2 to 1 and our actual ratio as of December 31, 2012 was 5.6 to 1. Prior to December 15, 2017, Cinemark USA, Inc. may redeem all or any part of the 5.125% Senior Notes at its option at 100% of the principal amount plus a make-whole premium. After December 15, 2017, Cinemark USA, Inc. may redeem the 5.125% Senior Notes in whole or in part at redemption prices described in the 5.125% Senior Notes. In addition, Cinemark USA, Inc. may redeem up to 35% of the aggregate principal amount of the 5.125% Senior Notes from the net proceeds of certain equity offerings at the redemption price set forth in the senior notes. Under a registration rights agreement entered into in conjunction with the issuance of the 5.125% Senior Notes, the Company and its guarantor subsidiaries are obligated to use its commercially reasonable best efforts to file a registration statement with the Securities and Exchange Commission, or the Commission, on or prior to 120 days from the issuance date, pursuant to which the Company will offer to exchange the 5.125% Senior Notes for substantially identical notes registered under the Securities Act of 1933, as amended, that will not contain terms restricting the transfer thereof or providing for registration rights. The Company will use its commercially reasonable best efforts to have the registration statement declared effective by the Commission on or prior to 210 days from the issuance date, or the Effective Date. The Company will use its commercially reasonable best efforts to issue on the earliest practicable date after the Effective Date, but not later than 30 days thereafter, exchange registered 5.125% Senior Notes in exchange for all 5.125% Senior Notes tendered prior thereto in the exchange offer. If the Company is obligated to file a shelf registration statement, the Company will use its commercially reasonable best efforts to file the shelf registration statement with the Commission on or prior to 30 days after such filing obligation arises (and in any event within 240 days after the closing of the 5.125% Senior Notes offering) and to cause the shelf registration statement to be declared effective by the Commission on or prior to 210 days after such obligation arises. The Company will use its commercially reasonable best efforts to keep the shelf registration statement effective for a period of one year after the closing of the 5.125% Senior Notes offering, subject to certain exceptions. If (a) the Company fails to file the registration statement on or before the date specified, (b) if such registration statement is not declared effective by the Commission on or prior to the date specified for such CINEMARK HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In thousands, except share and per share data effectiveness, (c) if the Company fails to consummate the exchange offer within 30 business days of the Effective Date with respect to the exchange offer registration statement or (d) if the date the shelf registration statement is declared effective by the Commission or the exchange offer registration statement thereafter ceases to be effective or usable during the periods specified in the registration rights agreement without being succeeded within two business days by a post-effective amendment to such registration statement that cures such failure and that is itself immediately declared effective (each such event a “Registration Default”), the Company will pay additional interest to each holder of the 5.125% Senior Notes. Such additional interest, with respect to the first 90-day period immediately following the occurrence of any such Registration Default, shall equal an increase in the annual interest rate on the notes by 0.5% per annum. The amount of the additional interest will increase by an additional 0.5% per annum with respect to each subsequent 90-day period relating to such Registration Default until all Registration Defaults have been cured, up to a maximum amount of additional interest for all Registration Defaults of 1.0% per annum. The 5.125% Senior Notes will not accrue additional interest from and after the second anniversary of the closing of the 5.125% Senior Notes offering even if the Company is not in compliance with its obligations under the registration rights agreement. The receipt of additional interest shall be the sole remedy available to holders of 5.125% Senior Notes as a result of one or more Registration Defaults. Following the cure of all Registration Defaults, the accrual of additional interest will cease. 7.375% Senior Subordinated Notes On June 3, 2011, Cinemark USA, Inc. issued $200,000 aggregate principal amount of 7.375% senior subordinated notes due 2021, at par value, referred to herein as the Senior Subordinated Notes. The proceeds, after payment of fees, were primarily used to fund the prepayment of the remaining $157,235 of the Company’s unextended portion of term loan debt under its former senior secured credit facility. Interest on the Senior Subordinated Notes is payable on June 15 and December 15 of each year. The Senior Subordinated Notes mature on June 15, 2021. The Company incurred debt issue costs of approximately $4,500 during the year ended December 31, 2011 in connection with the issuance. The Senior Subordinated Notes are fully and unconditionally guaranteed on a joint and several senior subordinated unsecured basis by certain of the Company’s subsidiaries that guarantee, assume or become liable with respect to any of the Company’s or a guarantor’s other debt. The Senior Subordinated Notes and the guarantees are senior subordinated unsecured obligations and rank equally in right of payment with all of the Company’s and a guarantor’s future senior subordinated indebtedness; are subordinate in right of payment to all of the Company’s and a guarantor’s existing and future senior indebtedness, whether secured or unsecured, including the Company’s obligations under its Amended Senior Secured Credit Facility, its 8.625% Senior Notes and its 5.125% Senior Notes; and structurally subordinate to all existing and future indebtedness and other liabilities of the Company’s non-guarantor subsidiaries. The indenture to the Senior Subordinated Notes contains covenants that limit, among other things, the ability of Cinemark USA, Inc. and certain of its subsidiaries to (1) make investments or other restricted payments, including paying dividends, making other distributions or repurchasing subordinated debt or equity, (2) incur additional indebtedness and issue preferred stock, (3) enter into transactions with affiliates, (4) enter new lines of business, (5) merge or consolidate with, or sell all or substantially all of its assets to, another person and (6) create liens. As of December 31, 2012, Cinemark USA, Inc. could have distributed up to approximately $1,107,400 to its parent company and sole stockholder, Cinemark Holdings, Inc., under the terms of the indenture to the 7.375% Senior Notes, subject to its available cash and other borrowing restrictions outlined in the indenture. Upon a change of control, as defined in the indenture, the Company would be required to make an CINEMARK HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In thousands, except share and per share data 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. The indenture governing the Senior Subordinated Notes allows Cinemark USA, Inc. to incur additional indebtedness if it satisfies the coverage ratio specified in the indenture, after giving effect to the incurrence of the additional indebtedness, and in certain other circumstances. The required minimum coverage ratio is 2 to 1, and our actual ratio as of December 31, 2012 was 5.5 to 1. Prior to June 15, 2016, Cinemark USA, Inc. may redeem all or any part of the Senior Subordinated Notes at its option at 100% of the principal amount plus a make-whole premium plus accrued and unpaid interest on the senior subordinated notes to the date of redemption. After June 15, 2016, Cinemark USA, Inc. may redeem the Senior Subordinated Notes in whole or in part at redemption prices specified in the indenture. In addition, prior to June 15, 2014, Cinemark USA, Inc. may redeem up to 35% of the aggregate principal amount of the Senior Subordinated Notes from the net proceeds of certain equity offerings at the redemption price set forth in the indenture. Cinemark USA, Inc. and its guarantor subsidiaries filed a registration statement with the Securities and Exchange Commission (the “Commission”) on July 27, 2011 pursuant to which Cinemark USA, Inc. offered to exchange the Senior Subordinated Notes for substantially similar registered Senior Subordinated Notes. The registration statement became effective August 4, 2011, and approximately $199,500 of the notes were exchanged on September 7, 2011. The registered Senior Subordinated Notes, issued in the exchange, do not have transfer restrictions. Approximately $500 of the notes were not exchanged as of December 31, 2012. 8.625% Senior Notes On June 29, 2009, Cinemark USA, Inc. issued $470,000 aggregate principal amount of 8.625% senior notes due 2019, referred to herein as the 8.625% Senior Notes, 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 the then remaining outstanding $419,403 aggregate principal amount at maturity of Cinemark, Inc.’s 9.75% senior discount notes. Interest on the 8.625% Senior Notes is payable on June 15 and December 15 of each year. The 8.625% Senior Notes mature on June 15, 2019. The original issue discount is being amortized on the effective interest method over the term of the 8.625% Senior Notes. As of December 31, 2012, the carrying value of the 8.625% Senior Notes was $461,464. Cinemark USA, Inc. filed a registration statement with the Securities and Exchange Commission on September 24, 2009 pursuant to which Cinemark USA, Inc. offered to exchange the 8.625% Senior Notes for substantially similar registered 8.625% Senior Notes. The registration statement became effective and the notes were exchanged on December 17, 2009. The registered 8.625% Senior Notes, issued in the exchange, do not have transfer restrictions. The 8.625% Senior Notes are 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 8.625% Senior Notes and the guarantees are senior unsecured obligations and rank 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 8.625% Senior Notes and the guarantees are effectively subordinated to all of Cinemark USA, Inc.’s and its guarantor’s existing and future secured debt to the extent of the value of the assets securing such debt, including all borrowings under Cinemark USA, Inc.’s amended senior secured credit facility. The 8.625% 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 8.625% Senior Notes. CINEMARK HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In thousands, except share and per share data The indenture to the 8.625% 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. As of December 31, 2012, Cinemark USA, Inc. could have distributed up to approximately $1,060,200 to its parent company and sole stockholder, Cinemark Holdings, Inc., under the terms of the indenture to the 8.625% Senior Notes, subject to its available cash and other borrowing restrictions outlined in the indenture. 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 the 8.625% Senior 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 indenture governing the 8.625% Senior Notes allows Cinemark USA, Inc. to incur additional indebtedness if it satisfies the coverage ratio specified in the indenture, after giving effect to the incurrence of the additional indebtedness, and in certain other circumstances. The required minimum coverage ratio is 2 to 1 and our actual ratio as of December 31, 2012 was 5.5 to 1. Prior to June 15, 2014, Cinemark USA, Inc. may redeem all or any part of the 8.625% 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 8.625% 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 8.625% Senior Notes from the net proceeds of certain equity offerings at the redemption price set forth in the 8.625% Senior Notes. Former Senior Secured Credit Facility On October 5, 2006, in connection with the Century Acquisition, Cinemark USA, Inc. entered into its former senior secured credit facility that provided for a seven year $1,120,000 term loan and a six year $150,000 revolving credit line. On March 2, 2010, the Company completed an amendment and extension to this former senior secured credit facility to primarily extend the maturities of the facility and make certain other modifications. Approximately $924,375 of the Company’s then remaining outstanding $1,083,600 term loan debt was extended from an original maturity date of October 2013 to a maturity date of April 2016. The then remaining term loan debt of $159,225 that was not extended continued to have a maturity date of October 2013. On June 3, 2011, the Company prepaid the remaining $157,235 of its unextended term loan debt utilizing a portion of the proceeds from the issuance of the Cinemark USA, Inc. 7.375% senior subordinated notes discussed above. There were no prepayment penalties incurred upon the prepayment of the term loan debt. Subsequent to the prepayment, the quarterly payments due on the term loan were approximately $2,311 per quarter through March 2016 with the remaining principal amount of approximately $866,602 due April 30, 2016. The prepayment did not impact the interest rate applicable to the remaining portion of the term loan debt, which 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 2.25% margin per annum, or (B) a “eurodollar rate” plus a 3.25% margin per annum. The prepayment did not impact the interest rate applicable to or the maturity of the Company’s revolving credit line. The maturity date of $73,500 of Cinemark USA, Inc.’s $150,000 revolving credit line had been CINEMARK HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In thousands, except share and per share data extended from October 2012 to March 2015. The maturity date of the remaining $76,500 of Cinemark USA, Inc.’s revolving credit line did not change and remained October 2012. The interest rate on the original revolving credit line accrued 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 ranged from 1.50% to 2.00% per annum. The interest rate on the extended revolving credit line 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 1.75% to 2.0% per annum, or (B) a “eurodollar rate” plus a margin that ranged from 2.75% to 3.0% per annum. The margin of the revolving credit line was determined by the consolidated net senior secured leverage ratio as defined in the Former Senior Secured Credit Facility. As a result of the prepayment made in June 2011, the Company wrote-off approximately $2,183 in unamortized debt issue costs related to the unextended portion of term loan debt that was prepaid. In addition, the Company determined that a portion of the quarterly interest payments hedged by two of its current interest rate swap agreements under cash flow hedges and the quarterly interest payments related to its previously terminated interest rate swap agreement were probable not to occur and therefore reclassified approximately $2,760 of its accumulated other comprehensive loss related to these cash flow hedges to earnings, as a component of loss on early retirement of debt. These write-offs, combined with related fees, are reflected in loss on early retirement of debt for the year ended December 31, 2011. On December 18, 2012, the remaining outstanding term loan of $898,955 was paid in full with proceeds from the Amended Senior Secured Credit Facility combined with a portion of the proceeds from the 5.125% Senior Notes issuance, both of which are discussed above. Fair Value of Long Term Debt The Company estimates the fair value of its long-term debt primarily using quoted market prices, which fall under Level 2 of the U.S. GAAP fair value hierarchy as defined by FASB ASC Topic 820-10-35. The carrying value of the Company’s long term debt was $1,764,010 and $1,572,221 as of December 31, 2012 and 2011, respectively. The fair value of the Company’s long term debt was $1,851,246 and $1,622,286 as of December 31, 2012 and 2011, respectively. Covenant Compliance and Debt Maturity As of December 31, 2012, the Company believes it was in full compliance with all agreements, including related covenants, governing its outstanding debt. The Company’s long-term debt at December 31, 2012 matures as follows:
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In thousands, except share and per share data
The Company is currently a party to three interest rate swap agreements that qualify for cash flow hedge accounting. No premium or discount was incurred upon the Company entering into any of its interest rate swap agreements because the pay rates and receive rates on the interest rate swap agreements represented prevailing rates for each counterparty at the time each of the interest rate swap agreements was consummated. The fair values of the interest rate swaps are recorded on the 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 loss and the ineffective portion reported in earnings. The changes in fair values are reclassified from accumulated other comprehensive loss into earnings in the same period that the hedged items affect earnings. For the years ended December 31, 2010, 2011 and 2012, the Company reclassified $11,771, $15,929 and $12,979, respectively, from accumulated other comprehensive loss into earnings. The valuation technique used to determine fair value is the income approach and under this approach, the Company uses projected future interest rates as provided by counterparties to the interest rate swap agreements and the fixed rates that the Company is obligated to pay under these agreements. Therefore, the Company’s measurements use significant unobservable inputs, which fall in Level 3 of the U.S. GAAP hierarchy as defined by FASB ASC Topic 820-10-35. Below is a summary of the Company’s interest rate swap agreements, all of which are designated as cash flow hedges, as of December 31, 2012:
The Company was previously a party to an interest rate swap agreement that was effective during 2007 with a counterparty that filed for bankruptcy during September 2008 and whose credit rating was downgraded as a result. Prior to the counterparty’s credit rating downgrade, the change in fair value of the interest rate swap was recorded as a component of accumulated other comprehensive loss. Subsequent to the counterparty’s credit rating downgrade, the change in fair value of the interest rate swap was recorded in earnings as a component of interest expense. The Company terminated the interest rate swap agreement during October 2008. The Company determined that the forecasted transactions hedged by this interest rate swap are still probable to occur, thus the total amount previously reported in accumulated other comprehensive loss related to this interest rate swap agreement of $18,147 was amortized on a straight-line basis to interest expense over the period during which the forecasted transactions were expected to occur, which was September 15, 2008 through August 13, 2012. The Company amortized approximately $4,633, $4,236 and $2,470 to interest expense during the years ended December 31, 2010, 2011 and 2012, respectively. See Note 15 for additional information about the Company’s fair value measurements related to its interest rate swap agreements. CINEMARK HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In thousands, except share and per share data
The Company determines fair value measurements in accordance with FASB ASC Topic 820, which establishes a fair value hierarchy under which an asset or liability is categorized based on the lowest level of input significant to its fair value measurement. The levels of input defined by FASB ASC Topic 820 are as follows:
Below is a summary of assets and liabilities measured at fair value on a recurring basis by the Company under FASB ASC Topic 820 as of December 31, 2012:
Below is a summary of assets and liabilities measured at fair value on a recurring basis by the Company under FASB ASC Topic 820 as of December 31, 2011:
Below is a reconciliation of the beginning and ending balance for assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3):
The Company also uses fair value measurements on a nonrecurring basis in the impairment evaluations of its long-lived assets (see Note 1 and Note 11 for further discussions). There were no changes in valuation techniques during the period. The fair value measurement for the Company’s investment in RealD transferred from Level 2 to Level 1 during the year ended December 31, 2011. Previous fair value estimates for the investment were based on RealD’s quoted stock price, discounted to reflect the impact of a lock-up period to which the Company was subject. The lock-up period expired during January 2011; therefore, the fair value CINEMARK HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In thousands, except share and per share data estimates for the investment subsequent to January 2011 were based on RealD’s stock price with no adjustments. See Note 8 for more information on the Company’s investment in RealD. There were no transfers in or out of Level 3 during the year ended December 31, 2012.
The accumulated other comprehensive loss account in stockholders’ equity of $23,682 and $37,698 at December 31, 2011 and 2012, respectively, includes the cumulative foreign currency losses of $11,325 and $31,330, respectively, from translating the financial statements of the Company’s international subsidiaries, the change in fair values of the Company’s interest rate swap agreements that are designated as hedges and the change in fair value of the Company’s available-for-sale securities. All foreign countries where the Company has operations are non-highly inflationary and the local currency is the same as the functional currency in all of the locations. Thus, any fluctuation in the currency results in a cumulative foreign currency translation adjustment recorded to accumulated other comprehensive loss. Below is a summary of the impact of translating the December 31, 2012 financial statements of certain of the Company’s international subsidiaries:
Below is a summary of the impact of translating the December 31, 2011 financial statements of certain of the Company’s international subsidiaries:
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In thousands, except share and per share data During May 2011, the Company’s ownership in its Chilean subsidiary increased from 97.4% to 100% as a result of the Company’s purchase of the noncontrolling interests’ shares of Cinemark Chile. As part of this transaction, the Company recorded the amount of accumulated other comprehensive loss previously allocated to the noncontrolling interest of $485, related to the translation of the Chilean financial statements into U.S. dollars, as an increase to accumulated other comprehensive loss with an offsetting decrease to additional paid-in-capital. See Note 9.
The Company had the following investments in and advances to affiliates at December 31:
Noncontrolling interests in subsidiaries of the Company were as follows at December 31:
Below is a summary of the impact of changes in the Company’s ownership interest in its subsidiaries on its equity:
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In thousands, except share and per share data
Common Stock —Common stockholders are entitled to vote on all matters submitted to a vote of the Company’s stockholders. Subject to the rights of holders of any then outstanding shares of the Company’s preferred stock, the Company’s common stockholders are entitled to any dividends that may be declared by the board of directors. The shares of the Company’s common stock are not subject to any redemption provisions. The Company has no issued and outstanding shares of preferred stock. The Company’s ability to pay dividends is effectively limited by its status as a holding company and the terms of its
During April 2010, the Company’s partners in Colombia (the “Colombian Partners”) exercised an option available to them under an Exchange Option Agreement dated April 9, 2007 between the Company and the Colombian Partners. Under this option, which was contingent upon completion of an initial public offering of common stock by the Company, the Colombian Partners were entitled to exchange their shares in Cinemark Colombia S.A. for shares of the Company’s common stock. The number of shares to be exchanged was determined based on the Company’s equity value and the equity value of the Colombian Partners’ interest in Cinemark Colombia S.A., both of which are defined in the Exchange Option Agreement. As a result of this exchange, on June 14, 2010, the Company issued 1,112,723 shares of its common stock to the Colombian Partners. See Note 9. Treasury Stock —Treasury stock represents shares of common stock repurchased by the Company and not yet retired. The Company has applied the cost method in recording its treasury shares. Below is a summary of the Company’s treasury stock activity for the years ended December 31,
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In thousands, except share and As of December 31,
Stock Options —
All outstanding stock options were fully vested as
of April 2, 2009. There were no options granted or forfeited during any of the periods presented. The total intrinsic value of options exercised during the years ended December 31, Options outstanding at December 31,
Restricted Stock — Below is a summary of restricted stock activity for the years ended December 31,
2012:
During the year ended December 31, The CINEMARK HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In thousands, except share and per share data The Company recorded total compensation expense of $4,928, $6,591 and $10,637 related to restricted stock awards during the years ended December 31, 2010, 2011 and 2012, respectively. Upon vesting, the Company receives an income tax deduction. The total fair value of shares vested during the years ended December 31, 2010, 2011 and 2012 was $3,272, $5,658 and $9,702, respectively. The Company recognized tax benefits of approximately $1,087, $2,188 and $4,075 related to shares that vested during the years ended December 2010, 2011 and 2012, respectively. As of December 31, 2012, the remaining unrecognized compensation expense related to these restricted stock awards was approximately $18,341. The weighted average period over which this remaining compensation expense will be recognized is approximately two years. Restricted Stock Units— During the years ended December 31,
Below is a table summarizing the potential number of shares that could vest under restricted stock unit awards granted during the years ended December 31,
During the year ended December 31, 2010, the Compensation Committee of the Company’s board of directors approved a modification of restricted stock unit awards granted to employees during 2008. The Compensation Committee also approved the cancellation and replacement of restricted stock unit awards granted CINEMARK HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In thousands, except share and per share data to the Company’s top five executive officers during 2008. Both the modification and the cancellation and replacement were accounted for as modifications of share based awards. As a result of these modifications, the Company recorded incremental compensation expense of approximately $435 during the year ended December 31, 2010, which During the year ended December 31, 2010, based upon additional information, the Company determined that the 12.5% IRR level During the During the year ended December 31, 2012, based upon additional information, the Company determined that the 12.5% IRR level was reached for the 2010 grant and recorded incremental compensation expense of approximately $1,609. The Company recorded total compensation expense of
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In thousands, except share and per share data
The following is provided as supplemental information to the consolidated statements of cash flows:
Income
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In thousands, except share and per share data A reconciliation between income tax expense and taxes computed by applying the applicable statutory federal income tax rate to income
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,
undistributed earnings of the foreign subsidiaries on which the Company has not recognized income taxes was approximately $339,000. Determination of the amount of any unrecognized deferred income tax liability on this temporary difference is not practicable because of the complexities of the hypothetical calculation. CINEMARK HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 liabilities as of December 31,
The Company’s foreign tax credit carryforwards begin expiring in 2015. Some foreign net operating losses will expire in the next reporting period; however, some losses may be carried forward indefinitely. State net operating losses may be carried forward for periods of between five and twenty years with the last expiring year being 2029.
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In 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,
2012:
The Company had The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and The Company is currently under audit in the non-U.S. tax jurisdictions of Brazil, Chile and Mexico. The Company is currently under examination by the Internal Revenue Service for the
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
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In thousands, except share and per share data to account for lease expenses on a straight-line basis, where lease payments are not made on such a basis.
Future minimum lease payments under noncancelable operating and capital leases that have initial or remaining terms in excess of one year at December 31,
Employment Agreements— On February 15, 2012, the Company’s Chief Executive Officer (“CEO”), Alan Stock, announced his retirement. As a result of the retirement, the Company’s employment agreement with Mr. Stock was effectively terminated. Mr. Stock served in a transitional role until May 1, 2012 and then became a consultant for the Company for a two-year period that ends April 30, 2014. Mr. Stock has retained his share based awards under their original vesting terms. Upon Mr. Stock’s retirement, the Company appointed Tim Warner as its CEO. Mr. Warner previously served as the Company’s President and Chief Operating Officer. In connection with his appointment as the CEO, the Company and Mr. Warner entered into an Amended and Restated Employment Agreement dated as of CINEMARK HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In thousands, except share and per share data March 30, 2012 (the “Amended and Restated Agreement”). The Amended and Restated Agreement amends and restates the Employment Agreement dated June 16, 2008 by and between the Company and Mr. Warner. The term of the Amended and Restated Agreement goes through April 1, 2014 and may be extended at the Company’s election for an additional one-year period upon six months prior written notice by the Company to Mr. Warner. The base salary stipulated in the Amended and Restated Agreement is subject to review during the term of the agreement for increase (but not decrease) each year by the Company’s Compensation Committee. Mr. Warner is eligible to receive annual cash incentive bonuses upon the Company meeting certain performance targets established by its Compensation Committee and will continue to be eligible to participate in and receive grants of equity incentive awards under the Company’s long-term incentive plan. 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 board of directors. Contribution payments of
Litigation and Litigation Settlements — 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, patent claims and contractual disputes, some of which are covered by insurance or by indemnification from vendors. The Company believes its potential liability with respect to these types of proceedings currently pending is not material, individually or in the aggregate, to the Company’s financial position, results of operations and cash flows.
The Company manages its international market and its U.S. market as separate reportable operating segments. The international segment consists of operations in Brazil, Mexico, Argentina, Chile, Colombia, CINEMARK HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In thousands, except share and per share data Below is a breakdown of select financial information by reportable operating segment:
The following table sets forth a reconciliation of net income
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In thousands, except share and per share data Financial Information About Geographic Areas Below is a breakdown of select financial information by geographic area:
Prior to March 2010, the Company leased one theatre from Plitt Plaza Joint Venture (“Plitt Plaza”) on amonth-to-month basis. Plitt Plaza is indirectly owned by Lee Roy Mitchell, the Company’s Chairman of the Board, who directly and indirectly owns approximately income. The Company manages The Company has an Aircraft Time Sharing Agreement with Copper Beech Capital, LLC to use, on occasion, a private aircraft owned by Copper Beech Capital, LLC. Copper Beech Capital, LLC is owned by Mr. Mitchell and his wife, Tandy Mitchell. The private aircraft is used by Mr. Mitchell and other executives who accompany Mr. Mitchell to business meetings for the Company. The Company reimburses Copper Beech Capital, LLC the actual costs of fuel usage and the expenses of the pilots, landing fees, storage fees and similar expenses incurred during the trip. For the years ended December 31, CINEMARK HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In thousands, except share and per share data The Company currently leases
The Company’s valuation allowance for deferred tax assets for the years ended December 31,
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In thousands, except share and per share data
On February
During February 2013, the Company entered into a stock purchase agreement with Grupo Cinemex, S.A. De C.V. pursuant to which the Company will sell its Mexican subsidiaries, which consist of 31 theatres and 290 screens. The sales price, which will be paid in Mexican pesos and is subject to certain closing date adjustments, will be approximately $125,000, based on the exchange rate on the date of this report. The transaction, which is subject to review by the Mexican Federal Competition Commission, is expected to close during the second half of 2013. Total revenues for the Company’s Mexican subsidiaries for the years ended December 31, 2010, 2011 and 2012 were $70,859, $74,448 and $75,333, respectively. ***** CINEMARK HOLDINGS, INC. PARENT COMPANY BALANCE SHEETS (In thousands, except share data) Assets Cash and cash equivalents Investment in subsidiaries Total assets Liabilities and equity Liabilities Accrued other current liabilities Other long-term liabilities Total liabilities Commitments and contingencies Equity Common stock, $0.001 par value: 300,000,000 shares authorized; 117,593,329 shares issued and 114,201,737 shares outstanding at December 31, 2011 and 118,502,752 shares issued and 114,949,667 shares outstanding at December 31, 2012 Additional paid-in-capital Treasury stock, 3,391,592 and 3,553,085 common shares at cost at December 31, 2011 and 2012, respectively Retained earnings Accumulated other comprehensive loss Total equity Total liabilities and equity The accompanying notes are an integral part of the consolidated financial statements. CINEMARK HOLDINGS, INC. PARENT COMPANY STATEMENTS OF YEARS ENDED DECEMBER 31,
(in thousands)
The accompanying notes are an integral part of the consolidated financial statements.
CINEMARK HOLDINGS, INC. PARENT COMPANY STATEMENTS OF YEARS ENDED DECEMBER 31,
(In thousands)
The accompanying notes are an integral part of the consolidated financial statements.
CINEMARK HOLDINGS, INC. PARENT COMPANY STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31,
(in thousands)
The accompanying notes are an integral part of the consolidated financial statements.
CINEMARK HOLDINGS, INC. NOTES TO PARENT COMPANY FINANCIAL STATEMENTS In thousands, except share and per share data
Cinemark Holdings, Inc. conducts substantially all of its operations through its subsidiaries. These statements should be read in conjunction with the Company’s consolidated statements and notes included elsewhere in this annual report on Form 10-K. There are significant restrictions over Cinemark Holdings, Inc.’s ability to obtain funds from its subsidiaries through dividends, loans or
In August 2007, Cinemark Holdings, Inc. initiated a quarterly dividend policy, which was amended in November 2010. Below is a summary of dividends
CINEMARK HOLDINGS, INC. NOTES TO PARENT COMPANY FINANCIAL STATEMENTS In thousands, except share and per share data
During the years ended December 31,
Cinemark Holdings, Inc. has no direct outstanding debt obligations, but its subsidiaries do. For a discussion of the debt obligations of Cinemark Holdings, Inc.’s subsidiaries, see Note 13 to the Company’s consolidated financial statements included elsewhere in this annual report onForm 10-K.
Cinemark Holdings, Inc.’s capital stock along with its
Cinemark Holdings, Inc. has no direct commitments and contingencies, but its subsidiaries do. See Note 22 of the Company’s consolidated financial statements included elsewhere in this annual report onForm 10-K.
EXHIBITS TO FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR CINEMARK HOLDINGS, INC. FOR FISCAL YEAR ENDED
EXHIBIT INDEX
E-18 |