SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
CINEMARK USA, INC.
(Exact name of Registrant as specified in its charter)
Texas 75-2206284
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
3900 Dallas Parkway
Suite 500
Plano, Texas 75093
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including area code: (972) 665-1000
Securities Registered pursuant to Section 12(b) of the Act:
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 X No ____
The Registrant became subject to the filing requirements of the
Securities Exchange Act of 1934 on June 10, 1992.
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
As of May 10, 2000, 1,500 shares of Class A Common Stock and 185,180
shares of Class B Common Stock (including options to acquire 7,803 shares of
Class B Common Stock exercisable within 60 days of such date) were outstanding.
CINEMARK USA, INC. AND SUBSIDIARIES
Index
Page
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
as of March 31, 2000 (unaudited)
and December 31, 1999 3
Condensed Consolidated Statements of Operations
(unaudited) for the three month
periods ended March 31, 2000 and 1999 4
Condensed Consolidated Statements of Cash
Flows (unaudited) for the three month
periods ended March 31, 2000 and 1999 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 14
PART II OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities and Use of Proceeds 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 19
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2000 1999
(Unaudited)
-------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 8,569,445 $ 8,872,157
Inventories 3,522,474 4,734,520
Co-op advertising and other receivables 13,410,645 12,067,471
Income tax receivable 1,271,257 2,036,146
Prepaid expenses and other 3,127,824 7,508,722
-------------------------------------
Total current assets 29,901,645 35,219,016
THEATRE PROPERTIES AND EQUIPMENT 1,142,720,534 1,107,786,308
Less accumulated depreciation and amortization (190,612,844) (173,827,249)
-------------------------------------
Theatre properties and equipment - net 952,107,690 933,959,059
OTHER ASSETS:
Investments in and advances to affiliates 3,460,411 2,289,553
Goodwill - net 18,248,009 18,619,715
Deferred charges and other - net 46,846,095 51,773,896
-------------------------------------
Total other assets 68,554,515 72,683,164
-------------------------------------
TOTAL $ 1,050,563,850 $ 1,041,861,239
=====================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 21,775,041 $ 21,420,579
Current income taxes payable 1,983,930 -
Accounts payable and other accrued expenses 99,546,225 128,611,615
-------------------------------------
Total current liabilities 123,305,196 150,032,194
LONG-TERM LIABILITIES:
Senior credit agreements 405,093,790 376,747,810
Senior subordinated notes 380,237,563 380,244,689
Deferred lease expenses 16,948,716 16,188,800
Deferred gain on sale leaseback 5,378,901 5,470,381
Deferred income taxes 12,791,170 18,088,004
Deferred revenues 14,976,490 1,426,472
-------------------------------------
Total long-term liabilities 835,426,630 798,166,156
MINORITY INTERESTS IN SUBSIDIARIES 30,495,045 29,812,343
SHAREHOLDERS' EQUITY:
Class A common stock, $.01 par value: 10,000,000 shares
authorized, 1,500 shares issued and outstanding 15 15
Class B common stock, no par value: 1,000,000 shares
authorized, 234,197 and 234,073 shares issued, respectively 49,537,731 49,537,607
Additional paid-in-capital 13,769,229 13,733,221
Unearned compensation - stock options (2,864,120) (3,131,680)
Retained earnings 53,578,966 59,140,652
Treasury stock, 57,245 and 57,211 Class B shares at cost,
respectively (24,232,890) (24,198,890)
Accumulated other comprehensive loss (28,451,952) (31,230,379)
-------------------------------------
Total shareholders' equity 61,336,979 63,850,546
-------------------------------------
TOTAL $ 1,050,563,850 $ 1,041,861,239
=====================================
See accompanying Notes to Condensed Consolidated Financial Statements.
3
CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED MARCH 31,
2000 1999
---------------------------------
REVENUES:
Admissions $ 112,486,845 $ 95,216,424
Concessions 52,124,057 46,777,297
Other 10,254,676 7,274,306
---------------------------------
Total 174,865,578 149,268,027
COSTS AND EXPENSES:
Cost of operations:
Film rentals and advertising 57,447,939 49,201,117
Concession supplies 9,713,238 7,494,034
Salaries and wages 21,649,486 19,337,983
Facility leases 26,633,985 20,572,916
Utilities and other 24,958,134 21,660,535
---------------------------------
Total 140,402,782 118,266,585
General and administrative expenses 10,011,893 7,993,500
Depreciation and amortization 14,215,453 11,332,785
Asset impairment loss 440,000 -
(Gain) loss on sale of assets 251,176 (66,906)
---------------------------------
Total 165,321,304 137,525,964
OPERATING INCOME 9,544,274 11,742,063
OTHER INCOME (EXPENSE):
Interest expense (16,889,952) (13,121,263)
Amortization of debt issue cost (201,869) (199,554)
Amortization of bond discount (43,625) (43,625)
Interest income 314,652 579,563
Foreign currency exchange gain (loss) 339,671 76,234
Equity in income of affiliates 58,356 55,859
Minority interests in subsidiaries (444,536) 730,402
---------------------------------
Total (16,867,303) (11,922,384)
---------------------------------
INCOME (LOSS) BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF AN ACCOUNTING CHANGE (7,323,029) (180,321)
Income taxes (benefit) (1,761,343) (10,025)
----------------------------------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF AN ACCOUNTING CHANGE (5,561,686) (170,296)
Cumulative effect of a change in an accounting principle - net of tax
benefit of $417,570 - (2,968,637)
----------------------------------
NET INCOME (LOSS) $ (5,561,686) $ (3,138,933)
==================================
EARNINGS PER SHARE:
Basic:
Income (loss) before cumulative effect of an accounting change $ (31.17) $ (0.95)
Cumulative effect of an accounting change - (16.65)
----------------------------------
Net Income (loss) $ (31.17) $ (17.60)
==================================
Diluted:
Income (loss) before cumulative effect of an accounting change $ (31.17) $ (0.95)
Cumulative effect of an accounting change - (16.65)
---------------------------------
Net Income (loss) $ (31.17) $ (17.60)
=================================
COMMON SHARES OUTSTANDING:
Basic:
Weighted average common shares outstanding 178,407 178,362
=================================
Diluted:
Weighted average common shares outstanding 178,407 178,362
Common equivalent shares for stock options - -
--------------------------------
Weighted average shares outstanding 178,407 178,362
=================================
See accompanying Notes to Condensed Consolidated Financial Statements.
4
CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
THREE MONTHS ENDED MARCH 31,
2000 1999
-----------------------------------
OPERATING ACTIVITIES:
Net Income (loss) $ (5,561,686) $ (3,138,933)
Noncash items in net income:
Depreciation 13,609,925 11,005,899
Amortization - goodwill and other assets 605,528 526,440
Loss on impairment of assets 440,000 -
Amortization of gain on sale leaseback (91,480) (88,438)
Deferred lease expenses 759,916 424,009
Amortization of prepaid leases 574,896 182,994
Deferred income tax expense (5,296,834) 4,598,168
Amortization of debt discount and premium (7,126) (7,128)
Amortized compensation - stock options 269,830 356,138
Compensation expense related to repurchase of stock options 103,584 -
(Gain) loss on sale of assets 251,176 (66,906)
Equity in income of affiliates (58,356) (55,859)
Minority interests in income (loss) of subsidiaries 444,536 (730,402)
Cumulative effect of an accounting change - 3,386,207
Cash provided by (used for) operating working capital:
Inventories 1,212,046 161,063
Co-op advertising and other receivables (1,343,174) (5,568,308)
Prepaid expenses and other 4,380,898 325,137
Accounts payable and accrued expenses (29,065,390) (32,404,006)
Income tax receivable/payable 2,748,819 (2,538,861)
------------------------------------
Net cash provided by (used for) operating activities (16,022,892) (23,632,786)
INVESTING ACTIVITIES:
Additions to Theatre properties and equipment (36,885,888) (38,876,156)
Sale of Theatre properties and equipment 7,042,268 66,906
Decrease in certificates of deposit - 1,834,258
Decrease in investments in and advances to affiliates (1,112,502) 8,240,602
Increase in deferred charges and other 4,116,813 (7,900,973)
-----------------------------------
Net cash provided by (used for) investing activities (26,839,309) (36,635,363)
FINANCING ACTIVITIES:
Decrease in long-term debt (16,862,281) (14,217,969)
Increase in long-term debt 45,562,723 73,679,561
Increase in deferred revenues 13,550,018 1,779,377
Purchase of treasury stock (34,000) -
Repurchase of stock options (67,452) -
Minority interests in subsidiaries, net 238,166 (7,638,346)
-----------------------------------
Net cash provided by (used for) financing activities 42,387,174 53,602,623
EFFECT OF EXCHANGE RATE CHANGES ON CASH 172,315 (433,944)
-----------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (302,712) (7,099,470)
CASH AND CASH EQUIVALENTS:
Beginning of period 8,872,157 25,645,868
-----------------------------------
End of period $ 8,569,445 $ 18,546,398
===================================
See accompanying Notes to Condensed Consolidated Financial Statements.
5
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Interim Financial Statements
The accompanying condensed consolidated financial statements have been
prepared by the Company, without audit, according to the rules and regulations
of the Securities and Exchange Commission. In the opinion of management, these
interim financial statements reflect all adjustments (which include only normal
recurring adjustments) necessary to state fairly the financial position and
results of operations as of and for the periods indicated. Certain
reclassifications have been made to March 31, 1999 amounts to conform with the
March 31, 2000 presentation.
These financial statements should be read in conjunction with the
audited annual financial statements and the notes thereto for the year ended
December 31, 1999 included in the Annual Report filed on Form 10-K by the
Company under the Securities Exchange Act of 1934 on March 30, 2000.
Operating results for the three months ended March 31, 2000 are not
necessarily indicative of the results to be achieved for the full year.
2. Foreign Currency Translation
The accumulated other comprehensive loss in shareholders' equity of
$28,451,952 and $31,230,379 at March 31, 2000 and December 31, 1999,
respectively, primarily relates to the unrealized adjustments from translating
the financial statements of Cinemark Brasil, S.A., Cinemark de Mexico, S.A. de
C.V. and Cinemark Chile, S.A. into U.S. dollars.
In 1999 and 2000, the Company was required to utilize the U.S. dollar as
the functional currency of Cinemark del Ecuador S.A. for U.S. reporting purposes
due to the highly inflationary economy of Ecuador. Thus, devaluations in the
sucre during 1999 and 2000 that affected the Company's investment were charged
to foreign currency exchange gain (loss) rather than to the accumulated other
comprehensive loss account as a reduction to shareholders' equity. At March 31,
2000, the total assets of Cinemark del Ecuador S.A. were approximately $4
million.
3. Comprehensive Loss
The following components are reflected in the Company's comprehensive
loss:
Three Months Ended
March 31,
2000 1999
------------------ ------------------
Net loss $(5,561,686) $(3,138,933)
Foreign currency translation adjustment 2,778,427 (10,433,944)
------------------ ------------------
Comprehensive loss $(2,783,259) $(13,572,877)
=================== ==================
6
4. (Gain) Loss on Sale of Assets
In 1999, the Company adopted Staff Accounting Bulletin (SAB) No. 101,
"Revenue Recognition in Financial Statements," requiring that gains and losses
on sale of assets be recorded as a component of operating income. The Company's
practice had been to classify these gains and losses as other income and
expense. As a result of the new accounting pronouncement, the Company has
reclassified the gain on sale of assets of $66,906 from other income and expense
to be included as a component of operating income in the first quarter of 1999.
The comparable amount in the first quarter of 2000 is a loss on sale of assets
of $251,176.
5. Accounting for Start-up Activities and Organization Costs
On January 1, 1999, the Company adopted Statement of Position (SOP) 98-5
requiring start-up activities and organization costs to be expensed as incurred.
The Company's practice had been to capitalize organization costs associated with
the organization of new entities as well as costs associated with forming
international joint ventures as deferred charges and to amortize them over the
anticipated life of the respective entity or venture. The adoption of this new
accounting pronouncement resulted in the aggregate write-off of the unamortized
organization costs of $3,386,207 on January 1, 1999. This charge was recorded as
a cumulative effect of a change in accounting principle as a one-time non cash
charge to income of $2,968,637 (net of tax) in the first quarter of 1999 as
follows:
United States $152,966
Mexico -
Brazil 552,488
Other Foreign Countries 2,263,183
-----------
$2,968,637
===========
6. Earnings Per Share
Basic net income (loss) per share is computed by dividing the net income
(loss) by the weighted average number of shares of Common stock of all classes
outstanding during the period. Diluted net income (loss) per share is computed
by dividing the net income (loss) by the weighted average number of shares of
Common stock and potential Common stock outstanding and options to purchase
Common stock using the treasury stock method. The dilutive effect of the options
to purchase Common stock are excluded from the computation of diluted net income
(loss) per share if their effect is antidilutive.
7. Supplemental Cash Flow Information
The following is provided as supplemental information to the consolidated
statements of cash flows:
Three Months Ended March 31,
2000 1999
---- ----
Cash paid for interest $25,901,452 $22,171,834
Cash paid for income taxes 493,256 288,267
7
8. Reporting Segments
The Company operates in a single industry as a motion picture exhibitor.
The Company is a multinational corporation with consolidated operations in the
United States, Canada, Mexico, Argentina, Brazil, Chile, Ecuador, Peru,
Honduras, El Salvador, Nicaragua, Costa Rica and Colombia. Revenues and
long-lived assets in the United States and other countries for the three months
ended March 31 are as follows:
Other Foreign
United States Mexico Brazil Countries Eliminations Consolidated
2000
Total revenues $127,733,849 $14,632,489 $15,207,868 $17,522,284 $(230,912) $174,865,578
=============== =============== =============== ================ ============== ==================
Long-lived assets,
net 743,642,188 65,023,896 65,049,250 78,392,356 - 952,107,690
=============== =============== =============== ================ ============== ==================
1999
Total revenues $114,820,158 $12,087,078 $9,225,861 $13,268,360 $(133,430) $149,268,027
=============== =============== =============== ================ ============== ==================
Long-lived assets,
net 624,436,974 54,486,748 45,893,367 74,907,490 - 799,724,579
=============== =============== =============== ================ ============== ==================
8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Results of Operations
The following table presents certain income statement items as a
percentage of revenues.
% of Revenues
Three Months Ended
March 31,
2000 1999
----------------------
Revenues:
Admissions 64.3 63.8
Concessions 29.8 31.3
Other 5.9 4.9
----- -----
Total revenues 100.0 100.0
Cost of operations 80.3 79.2
General and administrative expenses 5.7 5.4
Depreciation and amortization 8.1 7.6
Asset impairment loss 0.3 0.0
(Gain) loss on sale of assets 0.1 (0.0)
Operating income 5.5 7.9
Interest expense 9.8 9.0
Income (loss) before income taxes and
cumulative effect of an accounting change (4.2) (0.1)
Income (loss) before cumulative effect
of an accounting change (3.2) (0.1)
Net income (loss) (3.2) (2.1)
Revenues
Revenues for the quarter ended March 31, 2000 increased to $174.9
million from $149.3 million for the quarter ended March 31, 1999, a 17.1%
increase. The increase in revenues for the first quarter is primarily
attributable to a 10.3% increase in attendance as the result of the net addition
of 400 screens since the first quarter of 1999 and a 4.7% increase in revenues
per patron. Revenues per average screen decreased 1.9% to $63,829 for the first
quarter of 2000 from $65,065 for the first quarter of 1999.
Cost of Operations
Cost of operations, as a percentage of revenues, increased to 80.3% in
the first quarter of 2000 from 79.2% in the first quarter of 1999. The increase
as a percentage of revenues resulted from an increase in facility lease expense
as a percentage of revenues to 15.2% in 2000 from 13.8% in 1999 in addition to
an increase in concession supplies as a percentage of concession revenues to
18.6% in 2000 from 16.0% in 1999 as a result of the greater number of
international theatres in operation, offset by a decrease in salaries and wages
as a percentage of revenues to 12.4% in 2000 from 13.0% in 1999, a decrease in
film rentals and advertising expense as a percentage of admission revenues to
51.1% in 2000 from 51.7% in 1999 and a decrease in utilities and other expenses
as a percentage of revenues to 14.3% in 2000 from 14.5% in 1999.
General and Administrative Expenses
General and administrative expenses, as a percentage of revenues,
increased to 5.7% in the first quarter of 2000 as compared to 5.4% in the first
quarter of 1999. The absolute level of general and administrative expenses
9
increased to $10.0 million in the first quarter of 2000 from $8.0 million in the
first quarter of 1999. The increase in general and administrative expenses is
attributed to costs (primarily salaries and wages) associated with the continued
growth of the Company.
Depreciation and Amortization
Depreciation and amortization increased 25.7% to $14.2 million in the
first quarter of 2000 from $11.3 million in the first quarter of 1999. The
increase is a result of the net addition of $190.4 million in theatre property
and equipment since the first quarter of 1999, a 20.0% increase. The difference
in the percentage increase in depreciation and amortization compared to the
increase in theatre property and equipment is a result of the timing of when the
additions were placed in service during the period.
Asset Impairment Loss
The Company recorded asset impairment charges of $0.4 million in the
first quarter of 2000 pursuant to Statement of Financial Standards No. 121 (FASB
121). In accordance with FASB 121, the Company wrote down the assets of certain
theatres to their fair value.
Interest Expense
Interest costs incurred, including amortization of debt issue cost and
debt discount, increased 20.5% during the first quarter of 2000 to $17.6 million
(including capitalized interest to properties under construction) from $14.6
million (including capitalized interest). The increase in interest costs
incurred for the first quarter of 2000 was due principally to an increase in
average debt outstanding resulting from borrowings under the Company's Credit
Facility and increased interest rates on the Company's variable rate debt.
Income Taxes
An income tax benefit of $1,761,343 was recorded for the first quarter
of 2000 as compared to an income tax benefit of $10,025 in the first quarter of
1999. The Company's effective rate for the first quarter of 2000 was 24.1%
compared to 5.6% in the first quarter of 1999. The net increase is mainly due to
the benefit of the alternative minimum tax credit generated from losses carried
back to prior years.
Cumulative Effect of a Change in an Accounting Principle
The Company recorded a cumulative effect of a change in accounting
principle of $2.9 million (net of tax) in the first quarter of 1999 resulting
from the write off of the unamortized start-up activities and organization costs
due to the adoption of Statement of Position (SOP) 98-5.
Net Income (Loss)
The Company realized a net loss of $5.6 million for the first quarter of
2000 in comparison with a net loss of $3.1 million for the first quarter of
1999.
Seasonality
The Company's 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 Memorial Day to Labor Day and during the holiday season extending
from Thanksgiving 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 the Company's 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.
10
Liquidity and Capital Resources
The Company's revenues are collected in cash, primarily through box
office receipts and the sale of concession items. Because its revenues are
received in cash prior to the payment of related expenses, the Company has an
operating "float" and, as a result, historically has not required traditional
working capital financing.
The Company's theatres are typically equipped with modern projection and
sound equipment, with approximately 86% of the screens operated by the Company
having been built in the 1990's. The Company's investing activities have been
principally in connection with new theatre openings and acquisitions of existing
theatres and theatre circuits. As of May 10, 2000, the Company has opened 3
theatres (52 screens) and has 6 theatres (91 screens) under construction or
scheduled to open in the United States by the end of 2000. Certain of these
theatres will be megaplexes which may cost in excess of $15 million per theatre.
The Company is presently committed to opening 19 screens in the U.S. in 2001.
The Company currently estimates that its capital expenditures for the
development of these 162 screens in the U.S. in 2000 and 2001 will be
approximately $90 million. As of May 10, 2000, the Company had expended
approximately $42 million toward the development of these screens in the United
States. The Company plans to fund capital expenditures for its development from
cash flow from operations, borrowings under the Credit Facility and sale
leaseback transactions. As of May 10, 2000, the Company owned approximately $350
million of real estate and improvements resulting from the development of
megaplex facilities over the last several years. The Company plans to enter into
sale and leaseback transactions relating to certain of these facilities provided
the Company can secure favorable terms. Actual expenditures for theatre
development and acquisitions during 2000 and 2001 are subject to change based
upon the availability of attractive opportunities for expansion of the Company's
theatre circuit.
In August 1996, the Company issued $200 million principal amount of
Series B Senior Subordinated Notes which bear interest at a rate of 9-5/8% per
annum (the "Series B Notes"), payable semi-annually on February 1 and August 1
of each year. The Series B Notes were issued at 99.553% of the principal face
amount (a discount of $4.47 per $1,000 principal amount). The net proceeds to
the Company from the issuance of the Series B Notes (net of discount, fees and
expenses) were approximately $193.2 million. The proceeds from the Series B
Notes were used to repurchase 98.7% of the Company's $125 million aggregate
principal amount 12% Senior Notes due 2002 ( the "Senior Notes") pursuant to a
tender offer which expired on August 15, 1996. The Senior Notes were purchased
at a premium of $1,098.33 (including a consent fee of $25) per $1,000 principal
amount, plus accrued and unpaid interest up to the date of repurchase. Excess
proceeds were utilized to reduce borrowings under the Company's Credit Facility
and for general corporate purposes. On June 2, 1997 the Company redeemed the
remaining outstanding Senior Notes ($1.6 million). The Senior Notes were
redeemed at a premium of $1,060 per $1,000 principal amount, plus accrued and
unpaid interest up to the date of redemption.
In June 1997, the Company issued $75 million principal amount of Series
D Notes due 2008 which bear interest at a rate of 9-5/8% per annum (the "Series
D Notes"), payable semi-annually on February 1 and August 1 of each year. The
Series D Notes were issued at 103% of the principal face amount. The net
proceeds to the Company from the issuance of the Series D Notes (net of fees and
expenses) were approximately $77.1 million. The proceeds of the Series D Notes
were applied to reduce the Company's indebtedness under the Credit Facility.
In January 1998, the Company issued $105 million aggregate principal
amount of 8-1/2% Series A Senior Subordinated Notes due 2008 (the "Series A
Notes") pursuant to Rule 144A (the "Offering"). The net proceeds of the Offering
were used by the Company to reduce the Company's indebtedness under the Credit
Facility. The Company exchanged the Series A Notes on March 17, 1998 for 8-1/2%
Series B Senior Subordinated Notes (the "8-1/2% Series B Notes") which have been
registered under the Securities Act of 1933, as amended.
In February 1998, the Company replaced its existing credit facility with
a reducing, revolving credit agreement (the "Credit Facility") through a group
of banks for which Bank of America National Trust and Savings Association acts
as Administrative Agent. The Credit Facility provides for loans to the Company
of up to $350 million in the aggregate.
11
The Credit Facility is a reducing revolving credit facility, with
commitments automatically reduced each calendar quarter by $8,750,000,
$11,812,500, $13,125,000, $12,031,000 and $6,562,500 in calendar year 2001,
2002, 2003, 2004 and 2005, respectively. The Company is required to prepay all
loans outstanding in excess of the aggregate commitment as reduced pursuant to
the terms of the Credit Facility. Borrowings are secured by a pledge of a
majority of the issued and outstanding capital stock of the Company, and the
credit agreement requires that the Company maintains certain financial ratios;
restricts the payment of dividends, payment of subordinated debt prior to
maturity and issuance of preferred stock and other indebtedness; and other
restrictive covenants. Pursuant to the terms of the Credit Facility, funds
borrowed bear interest at a rate per annum equal to the Offshore Rate (as
defined in the Credit Facility) or the Base Rate (as defined in the Credit
Facility, as the case may be), plus the Applicable Margin (as defined in the
Credit Facility). As of May 10, 2000, the Company had borrowed $345 million
under the Credit Facility. The effective interest rate on such borrowings as of
May 10, 2000 is 8.3% per annum.
In February 1998, the Company completed a sale leaseback transaction
(the "Sale Leaseback") pursuant to which the Company sold the land, buildings
and site improvements of 12 theatre properties to special purpose entities for
an aggregate purchase price equal to approximately $131.5 million.
Simultaneously with the sale, the Company entered into operating leases for such
properties for a base term equal to approximately 20 years at a fixed aggregate
monthly rental payment of $1.1 million or $13.4 million annually.
In October 1998, the Company completed another sale leaseback
transaction (the "Second Sale Leaseback") pursuant to which the Company sold the
land, buildings and site improvements of one theatre property to a special
purpose entity for an aggregate purchase price equal to approximately $13.9
million. Simultaneously with the sale, the Company entered into an operating
lease for the property for a base term equal to approximately 20 years at a
fixed monthly rental payment of $119,000 or $1.4 annually.
In December 1999, the Company completed a third sale leaseback
transaction (the "Third Sale Leaseback") pursuant to which the Company sold the
land, building and site improvements of its corporate office property to a
special purpose entity for an aggregate purchase price equal to approximately
$20.3 million. Simultaneously with the sale, the Company entered into an
operating lease for approximately 60% of the property for a base term equal to
10 years at a fixed monthly rental payment of $114,000 or $1.4 million annually
for the first seven years and $123,000 or $1.5 million annually for the final
three years.
In February 2000, the Company repurchased 159 stock options from an
employee of the Company for $1,674 per option and repurchased 34 shares of its
Class B common stock as treasury stock from a former employee of the company at
$1,000 per share.
In 1992, the Company formed Cinemark International to develop and
acquire theatres in international markets. As of May 10, 2000, Cinemark
International, through its affiliates, operated 72 theatres (630 screens)
principally in Latin America. The following table summarizes the Company's and
Cinemark International's holdings in each international market, the number of
theatres and screens in such market as of May 10, 2000 and the number of
theatres and screens under construction in 2000.
Year of Operating Planned Openings Through 2000
Country Formation Ownership % Theatres/Screens Theatres/Screens
Mexico 1992 95% 22 theatres (209 screens) 4 theatres (38 screens)
Chile 1992 98% 11 theatres (89 screens) 1 theatre (4 screens)
Argentina 1995 100% 7 theatres (59 screens) 2 theatres (20 screens)
Brazil 1996 60% 20 theatres (181 screens) 4 theatres (39 screens)
Ecuador 1996 60% 2 theatres (16 screens) -
Peru 1996 100% 2 theatres (21 screens) -
Central America 1997 50% 7 theatres (45 screens) -
Colombia 1998 51% 1 theatre (10 screens) 1 theatre (6 screens)
United Kingdom 1998 100% N/A -
Taiwan 1998 51% N/A -
Germany 1999 100% N/A 1 theatre (13 screens)
Total 72 theatres (630 screens) 13 theatres (120 screens)
12
The Company, through Cinemark International and its affiliates, plans
to invest up to an additional $100 million in international ventures,
principally in Latin America and Europe, over the next three years. The Company
anticipates that investments in excess of Cinemark International's available
cash will be funded by the Company or by debt or equity financing to be provided
by third parties directly to Cinemark International or its subsidiaries.
In August 1998, the Company formed Cinemark Investments Corporation for
the purpose of financing its Brazilian operations by investing in foreign fixed
rate notes issued by Cinemark Brasil S.A., an indirect Brazilian subsidiary of
the Company. In September 1998, Cinemark Investments Corporation executed a
credit agreement with Bank of America that provides Cinemark Investments
Corporation up to $20 million in the aggregate under a revolving line of credit
facility (the Cinemark Investments Credit Agreement). The Cinemark Investments
Credit Agreement is secured by an assignment of certain fixed rate notes issued
by Cinemark Brasil S.A. to Cinemark Investments Corporation and an unconditional
guaranty by the Company. Pursuant to the terms of the Cinemark Investments
Credit Agreement, funds borrowed bear interest at a rate per annum equal to the
Offshore Rate or the Base Rate (both defined in the Cinemark Investments Credit
Agreement) as the case may be. As of May 12, 2000, Cinemark Investments
Corporation had borrowed $20 million under the Cinemark Investments Credit
Agreement, the proceeds of which were used to purchase fixed rate notes issued
by Cinemark Brasil S.A. bearing interest at 13.25%. The effective interest rate
on such borrowings as of May 10, 2000 is 8.4% per annum.
In September 1998, the Company incorporated Cinemark Theatres U.K.
Ltd., an English company, to develop state-of-the-art multiplex theatres in
the United Kingdom. Cinemark Theatres U.K. Ltd. is a wholly owned subsidiary of
the Company. Cinemark Theatres U.K. Ltd. expects to begin construction on 1
theatre (10 screens) in 2000.
In September 1998, Cinemark International entered into a joint venture
agreement with Core Pacific Ltd. to develop state-of-the-art multiplex theatres
in Taiwan, Republic of China. The joint venture will conduct its business
through Cinemark-Core Pacific Ltd. which is 50.1% owned by Cinemark
International and 49.9% owned by Core Pacific Ltd. Cinemark-Core Pacific Ltd.
expects to begin construction on four theatres (32 screens) during 2000.
In November 1998, Cinemark Mexico executed a credit agreement with Bank
of America National Trust and Savings Association (the Cinemark Mexico Credit
Agreement). The Cinemark Mexico Credit Agreement is a revolving credit facility
and provides for a loan to Cinemark Mexico of up to $30 million in the
aggregate. The Cinemark Mexico Credit Agreement is secured by a pledge of 65% of
the stock of Cinemark de Mexico S.A. de C.V. and an unconditional guaranty by
the Company. Pursuant to the terms of the Cinemark Mexico Credit Agreement,
funds borrowed bear interest at a rate per annum equal to the Offshore Rate (as
defined in the Cinemark Mexico Credit Agreement) or the Base Rate (as defined in
the Cinemark Mexico Credit Agreement), as the case may be, plus the Applicable
Margin (as defined in the Cinemark Mexico Credit Agreement). Cinemark Mexico
borrowed $30 million under the Cinemark Mexico Credit Agreement, the proceeds of
which were used to repay an intercompany loan of Cinemark Mexico from Cinemark
International. Cinemark International used the proceeds of such repayment to
repay all outstanding indebtedness under its then existing credit facility. The
effective interest rate on such borrowings as of May 10, 2000 is 7.6% per annum.
In September 1999, Cinemark International, through its wholly owned
subsidiary Cinemark Germany Gmbh, executed a lease agreement for a movie theatre
in Herne, Germany. The theatre (13 screens) is scheduled to open in December
2000.
In September 1999, Cinemark International acquired all of the shares of
its Argentine joint venture partner, Prodecine S.A., which held the remaining
50% of the shares of Cinemark Argentina S.A. Cinemark International paid $2.8
million in cash and delivered the following promissory notes bearing interest at
the rate of 10% per annum: (a) totaling US$2.5 million due January 2000, (b)
totaling US$2.5 million due April 2000, (c) totaling A$2.5 million pesos due
July 2000, (c) totaling A$3.5 million pesos due October 2000. The 100% interests
in Prodecine S.A., Cinemark Investments Argentina, S.A. and Cinemark Argentina,
S.A. held by Cinemark International were transferred to one of the Company's
subsidiaries in December 1999.
13
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company has limited exposure to financial market risks, including
changes in interest rates and other relevant market prices. The Company does not
have any derivative financial instruments in place as of March 31, 2000.
An increase or decrease in interest rates would affect interest costs
relating to the Company's variable rate credit facilities. The Company and/or
its subsidiaries are currently parties to such variable rate credit facilities.
At March 31, 2000, there was an aggregate of approximately $418 million of
variable rate debt outstanding under these facilities. The Company has no
interest rate swaps or other hedging facilities relating to these credit
facilities. These facilities represent approximately 52% of the Company's
outstanding long-term debt. Changes in interest rate do not have a direct impact
on interest expense relating to the remaining fixed rate debt facilities.
The table below provides information about the Company's fixed rate and
variable rate long-term debt agreements:
March 31, 2000 March 31, 2000 December 31, 1999 December 31, 1999
(in millions) Carrying Amount Fair Market Value Carrying Amount Fair Market Value
Long-term debt:
Fixed rate $389 $437 $392 $439
Average interest rate 9.3% 9.3%
Variable rate 418 429 386 394
Average interest rate 8.2% 8.1%
Long-term debt $807 $866 $778 $833
The Company is also exposed to market risk arising from changes in
foreign currency exchange rates as a result of its international operations.
Currency fluctuations result in the Company's reporting exchange gains or losses
or foreign currency translation adjustments relating to its international
subsidiaries depending on the inflationary environment of the country in which
the Company operates.
14
PART II. Other Information
Item 1. Legal Proceedings
The Company currently is a defendant in certain litigation proceedings
alleging certain violations of the Americans with Disabilities Act of 1990 (the
"ADA")relating to the accessibility of certain theatre seating to patrons using
wheelchairs. In August 1998, the federal district judge presiding over a case in
El Paso (lara, et al versus Cinemark USA, Inc.) granted plaintiffs motion for
summary judgement ruling the Company's stadium theatre design is in violation of
the ADA. The Company appealed this ruling to the Fifth Circuit Court of Appeals.
In April 2000, the Fifth Circuit Court of Appeals reversed the ruling of the
federal district judge and rendered judgement in favor of the Company holding
that the Company's theatre subject to the lawsuit complied with the ADA. The
Company is now seeking dismissals of similar cases pending in Texas. Although
the Company cannot predict the final resolution of this case or the outcome of
the other cases, management believes that the Company's potential liability with
respect to such proceedings is not material in the aggregate to the Company's
financial position, results of operations and cash flows.
Reference is also made to Item 3 of the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1999.
Item 2. Change in Securities and Use of Proceeds
Not Applicable
Item 3. Defaults upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
There have not been any matters submitted to a vote of security holders
during the first quarter of 2000 through the solicitation of proxies or
otherwise.
Item 5. Other Information
The Company intends that this report be governed by the "safe harbor"
provision of the Private Securities Litigation Reform Act of 1995 (the "PSLR
Act") with respect to statements that may be deemed to be forward-looking
statements under the PSLR Act. Such forward-looking statements may include, but
are not limited to, the Company and any of its subsidiaries' long-term theater
strategy. Actual results could differ materially from those indicated by such
forward-looking statements due to a number of factors.
Item 6. Exhibits and Reports on Form 8-K
a) Supplemental schedules specified by the Senior Notes indenture:
Condensed Consolidating Balance Sheet
(unaudited) as of March 31, 2000
Condensed Consolidating Statement of
Operations (unaudited) for the three months
ended March 31, 2000
Condensed Consolidating Statement of Cash Flow (unaudited)
for the three months ended March 31, 2000
b) Reports on Form 8-K
No reports have been filed by Registrant during the quarter
for which this report is filed.
15
CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF MARCH 31, 2000
(Unaudited)
Restricted Unrestricted
Group Group Eliminations TOTAL
-----------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,280,043 $ 6,289,402 $ - $ 8,569,445
Inventories 2,923,819 598,655 - 3,522,474
Co-op advertising and other receivables (17,060,318) 30,598,453 (127,490) 13,410,645
Tax receivable 1,205,239 66,018 - 1,271,257
Prepaid expenses and other 2,830,808 297,016 - 3,127,824
-----------------------------------------------------------------
Total current assets (7,820,409) 37,849,544 (127,490) 29,901,645
THEATRE PROPERTIES AND EQUIPMENT 1,015,502,155 127,218,379 - 1,142,720,534
Less accumulated depreciation and amortization (171,102,002) (19,510,842) - (190,612,844)
-----------------------------------------------------------------
Theatre properties and equipment - net 844,400,153 107,707,537 - 952,107,690
OTHER ASSETS:
Certificates of deposit - - - -
Investments in and advances to affiliates 113,228,615 732,676 (110,500,880) 3,460,411
Goodwill - net 10,018,059 8,229,950 - 18,248,009
Deferred charges and other - net 39,022,043 7,824,052 - 46,846,095
-----------------------------------------------------------------
Total other assets 162,268,717 16,786,678 (110,500,880) 68,554,515
-----------------------------------------------------------------
TOTAL $ 998,848,461 $ 162,343,759 $(110,628,370) $ 1,050,563,850
=================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,178,142 $20,596,899 $ - $ 21,775,041
Current income taxes payable 1,981,674 2,256 - 1,983,930
Accounts payable and other accrued expenses 88,751,790 10,921,925 (127,490) 99,546,225
-----------------------------------------------------------------
Total current liabilities 91,911,606 31,521,080 (127,490) 123,305,196
LONG-TERM LIABILITIES:
Senior credit agreements 362,281,839 42,811,951 - 405,093,790
Senior subordinated debt 380,237,563 - - 380,237,563
Deferred lease expenses 16,613,314 335,402 - 16,948,716
Deferred gain on sale leaseback 5,378,901 - - 5,378,901
Deferred income taxes 12,836,783 (45,613) - 12,791,170
Deferred revenues 14,865,501 110,989 - 14,976,490
---------------------------------------------------------------
Total long-term liabilities 792,213,901 43,212,729 - 835,426,630
MINORITY INTERESTS IN SUBSIDIARIES 5,897,217 24,597,828 - 30,495,045
SHAREHOLDERS' EQUITY:
Class A common stock, $.01 par value: 10,000,000 shares
authorized, 1,500 shares issued and outstanding 15 - - 15
Class B common stock, no par value: 1,000,000 shares
authorized, 234,197 shares issued 49,537,731 10,901,000 (10,901,000) 49,537,731
Additional paid-in-capital 13,728,565 99,640,544 (99,599,880) 13,769,229
Unearned compensation - stock options (2,864,120) - - (2,864,120)
Retained earnings 84,100,430 (30,521,464) - 53,578,966
Treasury stock, 57,245 Class B shares at cost (24,232,890) - - (24,232,890)
Accumulated other comprehensive loss (11,443,994) (17,007,958) - (28,451,952)
-----------------------------------------------------------------
Total shareholders' equity 108,825,737 63,012,122 (110,500,880) 61,336,979
-----------------------------------------------------------------
TOTAL $ 998,848,461 $ 162,343,759 $(110,628,370) $ 1,050,563,850
=================================================================
Note: "Restricted Group" and "Unrestricted Group" are defined in the
Indenture for the Senior Subordinated Notes.
16
CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(Unaudited)
Restricted Unrestricted
Group Group Eliminations TOTAL
----------------------------------------------------------------
REVENUES:
Admissions $94,102,537 $18,384,308 $ - $112,486,845
Concessions 46,264,121 5,859,936 - 52,124,057
Other 9,425,959 1,059,629 (230,912) 10,254,676
----------------------------------------------------------------
Total 149,792,617 25,303,873 (230,912) 174,865,578
COSTS AND EXPENSES:
Cost of operations:
Film rentals and advertising 48,356,784 9,091,155 - 57,447,939
Concession supplies 7,742,529 1,970,709 - 9,713,238
Salaries and wages 19,594,314 2,055,172 - 21,649,486
Facility leases 22,493,418 4,140,567 - 26,633,985
Utilities and other 22,637,332 2,551,714 (230,912) 24,958,134
----------------------------------------------------------------
Total 120,824,377 19,809,317 (230,912) 140,402,782
General and administrative expenses 8,074,732 1,937,161 - 10,011,893
Depreciation and amortization 11,096,584 3,118,869 - 14,215,453
Asset impairment loss 440,000 - - 440,000
(Gain) loss on sale of assets 251,201 (25) - 251,176
----------------------------------------------------------------
Total 140,686,894 24,865,322 (230,912) 165,321,304
OPERATING INCOME 9,105,723 438,551 - 9,544,274
OTHER INCOME (EXPENSE):
Interest expense (15,468,417) (1,421,535) - (16,889,952)
Amortization of debt issue cost (193,536) (8,333) - (201,869)
Amortization of bond discount (43,625) - - (43,625)
Interest income 248,268 66,384 - 314,652
Foreign currency exchange gain (loss) 129,763 209,908 - 339,671
Equity in income of affiliates 23,023 35,333 - 58,356
Minority interests in subsidiaries (444,820) 284 - (444,536)
----------------------------------------------------------------
Total (15,749,344) (1,117,959) - (16,867,303)
----------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES (6,643,621) (679,408) - (7,323,029)
Income taxes (benefit) (1,481,532) (279,811) - (1,761,343)
---------------------------------------------------------------
NET INCOME (LOSS) $(5,162,089) $ (399,597) $ - $ (5,561,686)
===============================================================
Note: "Restricted Group" and "Unrestricted Group" are defined in the
Indenture for the Senior Subordinated Notes.
17
CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(Unaudited)
Restricted Unrestricted
Group Group Eliminations TOTAL
---------------------------------------------------------------
OPERATING ACTIVITIES:
Net Income (loss) $ (5,162,089) $ (399,597) $ - $ (5,561,686)
Noncash items in net income:
Depreciation 10,803,559 2,806,366 - 13,609,925
Amortization - goodwill and other assets 293,025 312,503 - 605,528
Loss on impairment of assets 440,000 - - 440,000
Amortization of gain on sale leaseback (91,480) - - (91,480)
Deferred lease expenses 716,351 43,565 - 759,916
Amortization of prepaid leases 350,549 224,347 - 574,896
Deferred income tax expense (5,244,470) (52,364) - (5,296,834)
Amortization of debt discount and premium (7,126) - - (7,126)
Amortized compensation - stock options 269,830 - - 269,830
Compensation expense related to repurchase of
stock options 103,584 - - 103,584
(Gain) loss on sale of assets 251,201 (25) - 251,176
Equity in income of affiliates (23,023) (35,333) - (58,356)
Minority interests in income (loss) of subsidiaries 444,820 (284) - 444,536
Cash provided by (used for) operating working capital:
Inventories 508,287 703,759 - 1,212,046
Co-op advertising and other receivables (5,240,171) 4,011,329 (114,332) (1,343,174)
Prepaid expenses and other 4,529,332 (148,434) - 4,380,898
Accounts payable and accrued expenses (28,846,634) (333,088) 114,332 (29,065,390)
Income tax receivable/payable 2,812,581 (63,762) - 2,748,819
---------------------------------------------------------------
Net cash used for operating activities (23,091,874) 7,068,982 - (16,022,892)
INVESTING ACTIVITIES:
Additions to Theatre properties and equipment (29,790,462) (7,095,426) - (36,885,888)
Sale of Theatre properties and equipment 7,042,243 25 - 7,042,268
Decrease (increase) in other assets, investments in
and advances to affiliates 5,366,764 (2,362,453) - 3,004,311
---------------------------------------------------------------
Net cash provided by (used for) investing activities (17,381,455) (9,457,854) - (26,839,309)
FINANCING ACTIVITIES:
Decrease in long-term debt (15,073,696) (1,788,585) - (16,862,281)
Increase in long-term debt 42,606,648 2,956,075 - 45,562,723
Increase in deferred revenues 13,472,174 77,844 - 13,550,018
Purchase of treasury stock (34,000) - - (34,000)
Repurchase of stock options (67,452) - - (67,452)
Minority interests in subsidiaries, net (723,653) 961,819 - 238,166
---------------------------------------------------------------
Net cash provided by (used for) financing activities 40,180,021 2,207,153 - 42,387,174
EFFECT OF EXCHANGE RATE CHANGES ON CASH 62,985 109,330 - 172,315
---------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (230,323) (72,389) - (302,712)
CASH AND CASH EQUIVALENTS:
Beginning of period 2,510,366 6,361,791 - 8,872,157
---------------------------------------------------------------
End of period $ 2,280,043 $ 6,289,402 $ - $ 8,569,445
===============================================================
Note: "Restricted Group" and "Unrestricted Group" are defined in the
Indenture for the Senior Subordinated Notes.
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunder duly authorized.
CINEMARK USA, INC.
Registrant
DATE: May 10, 2000
/s/Robert Copple
Robert Copple
Senior Vice President and
Chief Financial Officer
19