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, 2002
Commission File Nos. 33-47040; 333-11895; 333-45417
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
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 ____
As of May 15, 2002, 1,500 shares of Class A Common Stock and 185,657
shares of Class B Common Stock (including 3,009 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, 2002 (unaudited)
and December 31, 2001 3
Condensed Consolidated Statements of Operations
(unaudited) for the three month periods
ended March 31, 2002 and 2001 4
Condensed Consolidated Statements of Cash
Flows (unaudited) for the three month
periods ended March 31, 2002 and 2001 5
Notes to Condensed Consolidated Financial
Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 12
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 20
PART II OTHER INFORMATION
Item 1. Legal Proceedings 22
Item 2. Changes in Securities and Use of Proceeds 22
Item 3. Defaults Upon Senior Securities 22
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 22
SIGNATURES 26
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2002 2001
(Unaudited)
------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 59,437,502 $ 50,199,223
Inventories 3,433,246 3,322,032
Co-op advertising and other receivables 10,886,318 11,049,648
Income tax receivable 7,890,977 1,438,794
Prepaid expenses and other 3,224,980 3,246,829
------------------------------------
Total current assets 84,873,023 69,256,526
THEATRE PROPERTIES AND EQUIPMENT 1,196,315,287 1,201,334,337
Less accumulated depreciation and amortization (349,849,591) (334,927,920)
------------------------------------
Theatre properties and equipment - net 846,465,696 866,406,417
OTHER ASSETS
Goodwill - net 11,240,945 15,124,954
Investments in and advances to affiliates 3,210,382 4,447,003
Deferred tax asset - 3,716,206
Deferred charges and other - net 32,239,269 37,592,644
------------------------------------
Total other assets 46,690,596 60,880,807
------------------------------------
TOTAL $ 978,029,315 $ 996,543,750
====================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 59,126,699 $ 21,853,742
Accounts payable and accrued expenses 92,064,347 117,501,526
------------------------------------
Total current liabilities 151,191,046 139,355,268
LONG-TERM LIABILITIES
Senior credit agreements 344,244,081 378,914,750
Senior subordinated notes 380,180,547 380,187,674
Deferred lease expenses 23,286,590 22,832,388
Deferred gain on sale leasebacks 4,647,060 4,738,540
Deferred income taxes 6,700,171 -
Deferred revenues and other long-term liabilities 8,877,575 9,824,212
------------------------------------
Total long-term liabilities 767,936,024 796,497,564
MINORITY INTERESTS IN SUBSIDIARIES 36,442,960 35,353,662
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, 239,893 shares issued and outstanding 49,543,427 49,543,427
Additional paid-in-capital 11,759,484 11,759,484
Unearned compensation - stock options (777,410) (887,779)
Retained earnings 51,638,473 44,696,299
Treasury stock, 57,245 Class B shares at cost (24,232,890) (24,232,890)
Accumulated other comprehensive loss (65,471,814) (55,541,300)
------------------------------------
Total shareholders' equity 22,459,285 25,337,256
------------------------------------
TOTAL $ 978,029,315 $ 996,543,750
====================================
See Notes to Condensed Consolidated Financial Statements
3
CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED MARCH 31,
2002 2001
------------------------------------
REVENUES
Admissions $ 146,411,564 $ 127,838,738
Concession 69,286,218 57,843,747
Other 11,004,324 10,387,587
------------------------------------
Total 226,702,106 196,070,072
COSTS AND EXPENSES
Cost of operations:
Film rentals and advertising 74,962,492 65,308,423
Concession supplies 11,981,820 10,272,880
Salaries and wages 22,550,434 21,478,604
Facility leases 29,149,610 28,791,406
Utilities and other 28,607,876 26,687,718
------------------------------------
Total cost of operations 167,252,232 152,539,031
General and administrative expenses 10,476,106 9,842,940
Depreciation and amortization 17,166,781 16,608,564
Asset impairment loss 558,398 450,000
Loss on sale of assets and other 539,192 110,914
------------------------------------
Total 195,992,709 179,551,449
OPERATING INCOME 30,709,397 16,518,623
OTHER INCOME (EXPENSE)
Interest expense (14,740,312) (19,262,230)
Amortization of debt issue cost and debt discount (634,795) (643,128)
Interest income 483,339 369,644
Foreign currency exchange loss (220,997) (1,152,129)
Equity in income (loss) of affiliates 116,741 (37,678)
Minority interests in (income) loss of subsidiaries (876,471) 119,890
------------------------------------
Total (15,872,495) (20,605,631)
------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF AN ACCOUNTING CHANGE 14,836,902 (4,087,008)
Income taxes (benefit) 4,504,949 (1,424,490)
------------------------------------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT
OF AN ACCOUNTING CHANGE 10,331,953 (2,662,518)
Cumulative effect of a change in accounting principle, net of income tax
benefit of $0. (3,389,779) -
------------------------------------
NET INCOME (LOSS) $ 6,942,174 $ (2,662,518)
====================================
EARNINGS (LOSS) PER SHARE:
Basic:
Income (loss) before accounting change $ 56.11 $ (14.87)
Cumulative effect of an accounting change (18.41) -
------------------------------------
Net income (loss) $ 37.70 $ (14.87)
====================================
Diluted:
Income (loss) before accounting change $ 55.61 $ (14.87)
Cumulative effect of an accounting change (18.24) -
------------------------------------
Net income (loss) $ 37.37 $ (14.87)
====================================
See Notes to Condensed Consolidated Financial Statements
4
CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
THREE MONTHS ENDED MARCH 31,
2002 2001
------------------------------------
OPERATING ACTIVITIES
Net income (loss) $ 6,942,174 $ (2,662,518)
Noncash items in net income (loss):
Depreciation 16,957,553 15,918,706
Amortization of goodwill and other assets 209,228 689,858
Amortization of foreign advanced rents 497,963 690,048
Amortized compensation - stock options 110,369 206,860
Amortization of gain on sale leasebacks (91,480) (91,481)
Amortization of debt discount and premium (7,127) (7,127)
Loss on impairment of assets 558,398 450,000
Loss on sale of assets and other 539,192 110,914
Deferred lease expenses 454,202 554,281
Deferred income tax expenses 10,416,377 (2,139,418)
Equity in (income) loss of affiliates (116,741) 37,678
Minority interests in income (loss) of subsidiaries 876,471 (119,890)
Cumulative effect of an accounting change 3,389,779 -
Cash provided by (used for) operating working capital:
Inventories (111,214) 287,591
Co-op advertising and other receivables 163,330 (1,988,336)
Prepaid expenses and other 21,849 134,048
Accounts payable and accrued expenses (26,383,816) (37,280,920)
Income tax receivable/payable (6,452,183) (223,595)
------------------------------------
Net cash provided by (used for) operating activities 7,974,324 (25,433,301)
INVESTING ACTIVITIES
Additions to theatre properties and equipment (8,656,770) (6,604,114)
Sale of theatre properties and equipment 1,504,441 3,159,517
Decrease in investments in and advances to affiliates 1,353,362 405,539
Decrease in deferred charges and other 4,582,016 3,600,899
------------------------------------
Net cash provided by (used for) investing activities (1,216,951) 561,841
FINANCING ACTIVITIES
Increase in long-term debt 17,772,828 34,192,808
Decrease in long-term debt (15,170,540) (2,220,484)
Minority investment in subsidiaries, net 212,827 (1,867,169)
------------------------------------
Net cash provided by financing activities 2,815,115 30,105,155
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS (334,209) (151,653)
------------------------------------
INCREASE IN CASH AND CASH EQUIVALENTS 9,238,279 5,082,042
CASH AND CASH EQUIVALENTS:
Beginning of period 50,199,223 19,839,994
------------------------------------
End of period $ 59,437,502 $ 24,922,036
====================================
See Notes to Condensed Consolidated Financial Statements
5
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The Company and Basis of Presentation
Cinemark USA, Inc. and its subsidiaries (the "Company") is a world
leader in the motion picture exhibition industry and owns or leases and operates
motion picture theatres in 33 states, Canada, Mexico, Argentina, Brazil, Chile,
Ecuador, Peru, Honduras, El Salvador, Nicaragua, Costa Rica, Colombia and the
United Kingdom. The Company operates 3,014 screens in 278 theatres and manages
an additional 7 theatres (58 screens) at March 31, 2002.
The condensed consolidated financial statements have been prepared by
the Company, without audit, according to the rules and regulations of the
Securities and Exchange Commission. In the opinion of management, these interim
financial statements reflect all adjustments (which, except for the cumulative
effect of an accounting change, include only normal recurring adjustments)
necessary to state fairly the financial position and results of operations as of
and for the periods indicated. The condensed consolidated financial statements
include the accounts of Cinemark USA, Inc. and its subsidiaries. Majority-owned
subsidiaries that the Company controls are consolidated while those subsidiaries
of which the Company owns between 20% and 50% and does not control are accounted
for as affiliates under the equity method. The results of these subsidiaries and
affiliates are included in the financial statements effective with their
formation or from their dates of acquisition. Significant intercompany balances
and transactions are eliminated in the consolidation. Certain reclassifications
have been made to March 31, 2001 and December 31, 2001 amounts to conform to the
March 31, 2002 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, 2001, included in the Annual Report filed March 27, 2002 on Form
10-K by the Company under the Securities Exchange Act of 1934. Operating results
for the three month period ended March 31, 2002 are not necessarily indicative
of the results to be achieved for the full year.
2. Earnings (Loss) Per Share
Earnings (loss) per share are computed using the weighted average number
of shares of Class A and Class B Common Stock outstanding during each period.
The following table sets forth the computation of basic and diluted earnings
(loss) per share.
Three Months Ended
March 31,
---------
2002 2001
---- ----
Income (loss) before cumulative effect of an accounting change $10,331,953 $(2,662,518)
=========== ============
Basic:
Weighted average Common shares outstanding 184,148 179,037
=========== ============
Income (loss) before cumulative effect of an accounting change per Common share $56.11 $(14.87)
=========== ============
Diluted:
Weighted average Common shares outstanding 184,148 179,037
Common equivalent shares for stock options 1,651 -
----------- ------------
Weighted average Common and Common equivalent shares outstanding 185,799 179,037
=========== ============
Income (loss) before cumulative effect of an accounting change per Common and
Common equivalent share $55.61 $(14.87)
=========== ============
6
Basic income (loss) per share is computed by dividing the income (loss)
by the weighted average number of shares of Common Stock of all classes
outstanding during the period. Diluted income (loss) per share is computed by
dividing the income (loss) by the weighted average number of shares of Common
Stock and potential Common Stock outstanding using the treasury stock method.
The dilutive effect of the options to purchase Common Stock is excluded from the
computation of diluted income (loss) per share if their effect is antidilutive.
At March 31, 2001, 11,753 options to purchase Common Stock have been excluded
from the diluted income (loss) per share calculation as their effect would have
been antidilutive.
3. Comprehensive Income (Loss)
Statement of Financial Accounting Standards (SFAS) No. 130 establishes
standards for reporting and display of comprehensive income (loss) and its
components in the financial statements. The following components are reflected
in the Company's comprehensive income (loss):
Three Months Ended
March 31,
---------
2002 2001
---- ----
Net income (loss) $ 6,942,174 $(2,662,518)
Foreign currency translation adjustment (9,930,514) (3,063,383)
------------ ------------
Comprehensive loss $(2,988,340) $(5,725,901)
============ ============
4. Foreign Currency Translation
The accumulated other comprehensive loss in shareholders' equity of
$65,471,814 and $55,541,300 at March 31, 2002 and December 31, 2001,
respectively, primarily relates to the unrealized adjustments from translating
the financial statements of Cinemark Argentina, S.A., Cinemark Brasil, S.A.,
Cinemark Chile, S.A. and Cinemark de Mexico, S.A. de C.V. into U.S. dollars.
During the majority of 2001, the country of Argentina utilized the peso
as its functional currency with it pegged at a rate of 1.0 peso to the U.S.
dollar. As a result of economic turmoil which began in December 2001, the
Argentine government announced several restrictions on currency conversions in
early January 2002 as part of a "Public Emergency Bill and Amendment of
Convertibility Law" ("Convertibility Law"). The Convertibility Law set forth a
dual exchange rate system with a "commercial rate" and a "market rate"
established. The commercial rate of 1.4 pesos to the U.S. dollar was to be
utilized to settle all exports and certain essential imports. The market rate
traded for the first time on January 11, 2002 and closed at a rate of 1.7 pesos
to the U.S. dollar. As a result, the effect of translating the December 31, 2001
peso balances for assets and liabilities into U.S. dollars at the first known
free-floating market rate as of January 11, 2002 (1.7 pesos to the U.S. dollar)
was reflected as a cumulative foreign currency translation adjustment to the
accumulated other comprehensive loss account as a reduction of shareholders'
equity in the amount of $19.1 million at December 31, 2001. Income and expense
accounts from January through November 2001 were converted into U.S. dollars at
the exchange rate of 1.0 peso to the U.S. dollar and income and expense accounts
in December 2001 were converted into U.S. dollars at the exchange rate of 1.7
pesos to the U.S. dollar. On January 14, 2002, the Argentine government unified
the commercial rate and the market rate into one floating rate which is
presently in use. At March 31, 2002, the floating rate was 3.0 pesos to the U.S.
dollar. As a result, the effect of translating the March 31, 2002 peso balances
for assets and liabilities into U.S. dollars is reflected as a cumulative
foreign currency translation adjustment to the accumulated other comprehensive
loss account as an additional reduction of shareholders' equity in the amount of
$11.1 million at March 31, 2002. Income and expense accounts from January
through March 2002 were converted into U.S. dollars at the prevailing average
floating rate for each of those three months.
In 2001 and 2002, all foreign countries where the Company has
operations, including Argentina, were deemed non-highly inflationary. Thus, any
fluctuation in the currency results in the Company recording a cumulative
foreign currency translation adjustment to the accumulated other comprehensive
loss account as an increase or reduction to shareholders' equity.
7
5. Supplemental Cash Flow Information
The following is provided as supplemental information to the condensed
consolidated statements of cash flows:
Three Months Ended
March 31,
---------
2002 2001
---- ----
Cash paid for interest $23,270,639 $28,295,479
Cash paid for income taxes 764,884 796,030
6. Financial Information About Geographic Areas
The Company operates in a single business segment 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, Colombia and the
United Kingdom. Revenues in the United States and Canada, Mexico, Brazil and
other foreign countries for the three months ended March 31 are as follows:
Three Months Ended
March 31,
---------
Revenues 2002 2001
-------- ---- ----
U.S. and Canada $169,061,159 $143,422,703
Mexico 22,051,762 16,750,662
Brazil 19,328,049 17,550,195
Other foreign countries 16,547,126 18,560,844
Eliminations (285,990) (214,332)
------------- -------------
Total $226,702,106 $196,070,072
============= =============
Long-lived assets in the United States and Canada, Mexico, Brazil and
other foreign countries as of March 31 are as follows:
March 31,
---------
Long-Lived Assets 2002 2001
----------------- ---- ----
U.S. and Canada $656,610,712 $723,090,096
Mexico 77,439,104 70,836,242
Brazil 63,085,245 62,468,150
Other foreign countries 49,330,635 77,793,479
------------ ------------
Total $846,465,696 $934,187,967
============ ============
7. Accounting for Derivative Instruments and Hedging Activities
The Company's condensed consolidated balance sheets as of March 31, 2002
and December 31, 2001 include an interest rate cap agreement recorded at its
fair value of $0.9 million and $1.1 million, respectively. This derivative asset
is recorded as a component of deferred charges and other on the Company's
condensed consolidated balance sheets. For the three month periods ended March
31, 2002 and 2001, a loss of $0.2 million and $0.7 million, respectively, has
been recorded as a component of interest expense in the condensed consolidated
statements of operations to recognize the decrease in the fair value of the
derivative asset.
8
8. Accounting for Amortization of Goodwill and Other Intangible Assets
On January 1, 2002, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets".
This statement requires that goodwill and other intangible assets with
indefinite useful lives no longer be amortized, but instead be tested for
impairment at least annually.
The Company's goodwill at December 31, 2001 was as follows:
Gross Carrying Accumulated Net Goodwill
Goodwill Amount Amortization Amount
-------- ------ ------------ ------
U.S. operations $ 9,313,165 $(4,004,427) $ 5,308,738
Argentina operations 5,162,418 (893,308) 4,269,110
Chile operations 3,663,883 (732,777) 2,931,106
Peru operations 3,270,000 (654,000) 2,616,000
----------- ------------ -----------
$21,409,466 $(6,284,512) $15,124,954
=========== ============ ===========
The adoption of this accounting pronouncement resulted in the aggregate
write down of goodwill to fair value as a cumulative effect of a change in
accounting principle on January 1, 2002 as follows:
U.S. operations $ 27,226
Argentina operations 3,298,385
-----------
$3,325,611
===========
The Company has recorded an additional impairment of goodwill in the
amount of $558,398 in the three month period ended March 31, 2002 (recorded as a
component of asset impairment loss in the condensed consolidated statement of
operations). The additional impairment of goodwill relates to a further
write-down of goodwill to fair value associated with the Company's Argentina
operations which continue to be impacted by the economic turmoil in the country.
Fair value for this goodwill reporting unit was estimated based on a multiple of
estimated cash flows for each of the individual Argentina properties. No
additional goodwill was acquired in the three month period ended March 31, 2002.
The Company's other intangible assets (included in deferred charges and
other on the Company's condensed consolidated balance sheet) at December 31,
2001 were as follows:
Gross Carrying Accumulated Net Intangible
Other Intangible Assets Amount Amortization Asset Amount
----------------------- ------ ------------ ------------
Capitalized licensing fees $9,000,000 $(566,666) $8,433,334
Trademarks 147,919 (83,751) 64,168
Non-compete fee 72,403 (64,876) 7,527
Other intangible assets 40,406 (24,243) 16,163
---------- ---------- ----------
$9,260,728 $(739,536) $8,521,192
========== ========== ==========
The adoption of this accounting pronouncement resulted in the aggregate
write down of other intangible assets with indefinite useful lives to fair value
as a cumulative effect of a change in accounting principle on January 1, 2002 as
follows:
Trademarks $64,168
-------
$64,168
=======
The Company's other intangible assets have indefinite useful lives
remaining but were not written down on January 1, 2002 since they are presently
recorded at or below their fair value. The Company's capitalized licensing fees
have a definite useful life and thus are continuing to be amortized over the
remaining useful life period. The Company's non-compete fee has a definite
useful life and thus is continuing to be amortized over the remaining useful
life period.
9
The Company's other intangible assets at March 31, 2002 are as follows:
Gross Carrying Accumulated Net Intangible
Other Intangible Assets Amount Amortization Asset Amount
----------------------- ------ ------------ ------------
Amortized Intangible Assets:
Capitalized licensing fees $9,000,000 $(691,666) $8,308,334
Non-compete fee 72,403 (68,103) 4,300
---------- ---------- ----------
$9,072,403 $(759,769) $8,312,634
========== ========== ==========
Unamortized Intangible Assets:
Trademarks $147,919 $(147,919) $ -
Other intangible assets 40,406 (24,243) 16,163
-------- ---------- -------
$188,325 $(172,162) $16,163
======== ========== =======
Aggregate Amortization Expense:
For the three month period ended March 31, 2002 $209,228
========
Aggregate amortization expense for the three month period ended March
31, 2002 consists of $128,227 of amortization of other intangible assets and
$81,001 of amortization of other assets (both of which are included in deferred
charges and other on the Company's condensed consolidated balance sheet).
Estimated Amortization Expense:
For the year ended December 31, 2002 $507,527
For the year ended December 31, 2003 500,000
For the year ended December 31, 2004 500,000
For the year ended December 31, 2005 500,000
For the year ended December 31, 2006 500,000
The Company's non-compete fee will be fully amortized by December 31,
2002.
The impact on net income (loss) and earnings (loss) per share related to
the adoption of this accounting pronouncement is as follows:
Three Months Ended
March 31,
---------
2002 2001
---- ----
Reported net income (loss) $ 6,942,174 $(2,662,518)
Add back: Cumulative effect of an accounting change 3,389,779 -
Add back: Goodwill amortization - 359,046
Add back: Other intangible asset amortization - 8,382
----------- ------------
Adjusted net income (loss) $10,331,953 $(2,295,090)
=========== ============
Basic earnings (loss) per share:
Reported net income (loss) $37.70 $(14.87)
Add back: Cumulative effect of an accounting change 18.41 -
Add back: Goodwill amortization - 2.01
Add back: Other intangible asset amortization - .04
------ --------
Adjusted net income (loss) $56.11 $(12.82)
====== ========
Diluted earnings (loss) per share:
Reported net income (loss) $37.37 $(14.87)
Add back: Cumulative effect of an accounting change 18.24 -
Add back: Goodwill amortization - 2.01
Add back: Other intangible asset amortization - .04
------ --------
Adjusted net income (loss) $55.61 $(12.82)
====== ========
10
9. New Accounting Pronouncements
In August 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 143, "Accounting for
Asset Retirement Obligations". This statement requires the establishment of a
liability for an asset retirement obligation. This statement is effective for
financial statements issued for fiscal years beginning after June 15, 2002. The
Company is currently considering the impact, if any, that this statement will
have on the consolidated financial statements.
In October 2001, the Financial Accounting Standards Board issued SFAS
No. 144, "Accounting for the Impairment or Disposal of Long Lived Assets", which
supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
of Long-Lived Assets to be Disposed Of", and portions of APB No. 30, "Reporting
the Results of Operations - Reporting the Effects of Disposal of a Segment of
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions", and amends Accounting Research Bulletin No. 51, "Consolidated
Financial Statements". This statement generally conforms, among other things,
impairment accounting for assets to be disposed of including those in
discontinued operations and eliminates the exception to consolidation for which
control is likely to be temporary. This statement became effective for the
Company on January 1, 2002. The adoption of this statement did not have a
material effect on the consolidated financial statements.
In April 2002, the Financial Accounting Standards Board issued SFAS No.
145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections". This statement requires, among
other things, that gains and losses on the early extinguishment of debt be
classified as extraordinary only if they meet the criteria for extraordinary
treatment set forth in Accounting Principles Board Opinion No. 30. The
provisions of this statement related to classification of gains and losses on
the early extinguishment of debt are effective for fiscal years beginning after
May 15, 2002. The Company is currently considering the impact, if any, that this
statement will have on the consolidated financial statements.
10. Related Party Transactions
During 2001, Cinemark Brasil, S.A. received additional capital from its
Brazilian shareholders in an aggregate amount equal to approximately $11.0
million (US dollar equivalent) in exchange for shares of common stock of
Cinemark Brasil, S.A. The contributions were made in July in the aggregate
amount of $5.0 million (US dollar equivalent) and in November in the aggregate
amount of $6.0 million (US dollar equivalent). The additional capital will be
used to fund development in Brazil and to reduce Cinemark Brasil, S.A.'s
outstanding indebtedness. After giving effect to the additional issuance of
common stock, Cinemark International's ownership interest was diluted to
approximately 53%. As part of the additional capitalization, the Company agreed
to give the Brazilian partners an option to exchange shares they own in Cinemark
Brasil, S.A. for shares of the class of the Company's common stock which is
registered in an initial public offering under the Securities Act of 1933, as
amended, occurring at any time prior to December 31, 2007. If the Brazilian
partners exercise their exchange option, the Company will obtain appraisals from
independent investment banks of the fair market value of the Company and of
Cinemark Brasil, S.A. The number of shares to be issued will be determined by
multiplying the number of shares of common stock owned by each Brazilian partner
by a fraction, the numerator of which is equal to the appraised value per share
of Cinemark Brasil, S.A. and the denominator of which is equal to the appraised
value per share of the Company's common stock.
11
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following is an analysis of the financial condition and results of
operations of the Company. This analysis should be read in conjunction with the
Company's Condensed Consolidated Financial Statements, including the notes
thereto, appearing elsewhere in this report.
Overview
The Company's revenues are generated primarily from box office receipts,
concession sales and screen advertising sales. Revenues are recognized when
admissions and concession sales are received at the box office and screen
advertising is shown at the theatres. The Company's revenues are affected by
changes in attendance and average admissions and concession revenues per patron.
Attendance is primarily affected by the commercial appeal of the films released
during the period reported. Additional revenues related to theatre operations
are generated from vendor marketing programs, pay phones, ATM machines and
electronic video games installed in video arcades located in some of the
Company's theatres.
Film rentals and advertising, concession supplies and salaries and wages
vary directly with changes in revenues. These expenses have historically
represented approximately 65% of all theatre operating expenses and
approximately 50% of revenues. Film rental costs are accrued based on the
applicable box office receipts and estimates of the final settlement pursuant to
the film license agreements. Advertising cost, which is expensed as incurred, is
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 ads is based on the size of the directory. The Company purchases
concession supplies to replace units sold. Although salaries and wages include a
fixed component of cost (i.e. the minimum staffing cost to operate a theatre
facility during non-peak periods), salaries and wages move in relation to
revenues as theatre staffing is adjusted to handle attendance volume.
Conversely, facility lease expense is primarily a fixed cost at the
theatre level as the Company's facility leases generally require a fixed monthly
minimum rent payment. Facility lease expense as a percentage of revenues is also
affected by the number of leased versus fee owned facilities.
Utilities and other costs include certain costs that are fixed such as
property taxes, certain costs which are variable such as liability insurance,
and certain costs that possess both fixed and variable components such as
utilities, repairs and maintenance and security services.
Critical Accounting Policies
We prepare the condensed consolidated financial statements of the
Company in conformity with accounting principles generally accepted in the
United States of America. As such, we are required to make certain estimates,
judgments and assumptions that we believe are reasonable based upon the
information available. These estimates, judgments 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 financial
results include the following:
Revenue and Expense Recognition
Revenues are recognized when admissions and concession sales are
received at the box office and screen advertising is shown at the theatres. Film
rental costs are accrued based on the applicable box office receipts and
estimates of the final settlement pursuant to the film license agreements. If
actual settlements are higher than those estimated, additional film rental costs
would be required in the future. Advertising costs are expensed as incurred.
12
Deferred Revenues
Advances collected on long-term screen advertising and concession
contracts are recorded as deferred revenues. The advances collected on screen
advertising contracts are recognized as other revenues in the period earned
which may differ from the period the advance was collected. The advances
collected on concession contracts are recognized as a reduction to concession
supplies expense in the period earned which may differ from the period the
advance was collected.
Asset Impairment Loss
The Company reviews long-lived assets, including goodwill, for
impairment in conjunction with the preparation of the Company's quarterly
consolidated financial statements and 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 flow, future years
budgeted theatre level cash flow, theatre property and equipment values,
goodwill values, competitive theatres in the marketplace, the sharing of a
market with other Company theatres, the age of a recently built theatre and
other factors in its assessment of impairment of individual theatre assets.
Assets are evaluated for impairment on an individual theatre basis or a group of
theatres that share the same marketplace, which the Company's management
believes is the lowest applicable level for which there are identifiable cash
flows. The impairment evaluation is based on the estimated cash flows from
continuing use through the remainder of the theatre's useful life. The remainder
of the useful life correlates with the available remaining lease period for
leased properties and a period of twenty years for fee owned properties. If
actual future cash flows differ from those estimated in the Company's impairment
evaluation, additional impairment charges may be required in the future.
Results of Operations
The following table sets forth, for the periods indicated, the
percentage of total revenues represented by certain items reflected in the
Company's condensed consolidated statements of operations.
% of Revenues
Three Months Ended
March 31,
---------
2002 2001
---- ----
Revenues
Admissions 64.6% 65.2%
Concession 30.6 29.5
Other 4.8 5.3
----- -----
Total revenues 100.0 100.0
Cost of operations 73.8 77.8
General and administrative expenses 4.6 5.0
Depreciation and amortization 7.6 8.5
Asset impairment loss 0.3 0.2
Loss on sale of assets and other 0.2 0.1
---- ----
Total operating expenses 86.5 91.6
---- ----
Operating income 13.5 8.4
Interest expense (6.8) (10.1)
Income taxes (benefit) 1.9 (0.7)
Income (loss) before cumulative effect of an accounting change 4.6 (1.4)
Net income (loss) 3.1 (1.4)
13
First quarter ended March 31, 2002 and 2001
Revenues
Revenues for the first quarter ended March 31, 2002 increased to $226.7
million from $196.1 million for the first quarter ended March 31, 2001, a 15.6%
increase. The increase in revenues for the first quarter is primarily
attributable to a 14.7% increase in attendance and a 5.0% increase in concession
revenues per patron. Revenues per screen increased 12.8% to $75,492 in the first
quarter of 2002 from $66,952 in the first quarter of 2001.
Cost of Operations
Cost of operations, as a percentage of revenues, decreased to 73.8% in
the first quarter of 2002 from 77.8% in the first quarter of 2001. The decrease
as a percentage of revenues was primarily due to the 15.6% increase in revenues
and the Company's ability to effectively control its theatre operating costs
(many of which are of a fixed nature). The decrease as a percentage of revenues
resulted from a decrease in concession supplies as a percentage of concession
revenues to 17.3% in the first quarter of 2002 from 17.8% in the first quarter
of 2001 resulting from lower concession procurement costs and increased
concession volume rebates, a decrease in salaries and wages as a percentage of
total revenues to 9.9% in the first quarter of 2002 from 11.0% in the first
quarter of 2001, a decrease in facility lease expense as a percentage of total
revenues to 12.9% in the first quarter of 2002 from 14.7% in the first quarter
of 2001 and a decrease in utilities and other expenses as a percentage of
revenues to 12.6 % in the first quarter of 2002 from 13.6% in the first quarter
of 2001, partially offset by an increase in film rentals and advertising as a
percentage of admissions revenues to 51.2% in the first quarter of 2002 from
51.1% in the first quarter of 2001.
General and Administrative Expenses
General and administrative expenses, as a percentage of revenues,
decreased to 4.6% for the first quarter of 2002 from 5.0% for the first quarter
of 2001 primarily as a result of the 15.6% increase in revenues and the
Company's ability to effectively control its overhead costs. The absolute level
of general and administrative expenses increased to $10.5 million in the first
quarter of 2002 from $9.8 million in the first quarter of 2001. The increase in
the absolute level of general and administrative expenses is attributed to
increased accrued bonus expense.
Depreciation and Amortization
Depreciation and amortization as a percentage of revenues decreased to
7.6% for the first quarter of 2002 from 8.5% for the first quarter of 2001. The
decrease is primarily related to the 15.6% increase in revenues. The absolute
level of depreciation and amortization increased to $17.2 million in the first
quarter of 2002 from $16.6 million in the first quarter of 2001. The increase in
the absolute level of depreciation and amortization is primarily related to
depreciation on new additions and previously classified construction-in-progress
assets that have been placed in service.
Asset Impairment Loss
The Company recorded asset impairment charges of $0.6 million and $0.5
million in the first quarter of 2002 and 2001, respectively, pursuant to
Statement of Financial Accounting Standards No. 142 and No. 121, respectively,
related to assets held for use. The asset impairment charges recorded in the
first quarter of 2002 related to the write-down to fair value of goodwill
associated with the Company's Argentina operations. The asset impairment charges
recorded in the first quarter of 2001 related to the write-down to fair value of
properties associated with the Company's United States operations.
14
Interest Expense
Interest costs incurred, including amortization of debt issue cost and
debt discount, the mark-to-market adjustment to the interest rate cap agreement
and the capitalization of interest to properties under construction, decreased
22.6% in the first quarter of 2002 to $15.4 million from $19.9 million,
including the capitalization of interest, in the first quarter of 2001. The
decrease was due principally to a decrease in the average debt outstanding and
the average interest rates under the Company's long-term debt agreements.
Income Taxes (Benefit)
Income tax expense of $4.5 million was recorded for the first quarter of
2002 as compared to an income tax benefit of $1.4 million in the first quarter
of 2001. The Company's effective tax rate for the first quarter of 2002 was
30.4% as compared to 34.9% for the first quarter of 2001. The change in the
effective tax rate is primarily due to the impact on the rate resulting from the
cumulative effect of the change in accounting principle offset by the effect of
the decrease in the tax rate for Cinemark de Mexico, S.A. de C.V.
Income (Loss) Before Cumulative Effect of an Accounting Change
The Company realized income before cumulative effect of an accounting
change of $10.3 million for the first quarter of 2002 in comparison with a loss
before cumulative effect of an accounting change of $2.7 million for the first
quarter of 2001. The increase in income in the first quarter of 2002 is
primarily related to the 15.6% increase in revenues and the decrease in interest
expense.
Liquidity and Capital Resources
Operating Activities
The Company's revenues are primarily collected in cash, through box
office receipts and concession sales. The Company is expanding the number of
theatres that provide the patron a choice of using a credit card, in place of
cash, which the company converts to cash in approximately three to four days.
Because revenues are primarily 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. Primarily due to the
lack of significant inventory and accounts receivable, the Company has typically
operated with a negative working capital position for its ongoing theatre
operations throughout the year.
Investing Activities
The Company's investing activities have been principally in connection
with the development and acquisition of additional theatres. New theatre
openings and acquisitions historically have been financed with internally
generated cash and by debt financing, including borrowings under the Company's
credit facility.
The Company continues to expand its U.S. theatre circuit. Since January
1, 2002, the Company has opened one new domestic theatre (4 screens) in Park
City, Utah which screens first run films and also acts as the home of the
Sundance Film Festival. As of March 31, 2002, the Company has one new theatre
(12 screens) and a five screen addition to an existing theatre scheduled to open
by the end of 2002 and has signed commitments for two new theatres (31 screens)
scheduled to open after 2002. As of March 31, 2002, the Company estimates that
the remaining capital expenditures for the development of its remaining theatre
and expansion commitments (48 screens) in the United States will be less than $5
million. Actual expenditures for theatre development and acquisitions are
subject to change based upon the availability of attractive opportunities for
expansion of the Company's theatre circuit. The Company plans to fund capital
expenditures for its continued development from cash flow from operations,
borrowings under the Credit Facility, proceeds from sale leaseback transactions
and/or
15
sales of excess real estate. As of March 31, 2002, the Company owned
approximately $275 million of real estate and improvements resulting from the
development of multiplex facilities over the last several years. Additionally,
the Company and/or its affiliates, may from time to time, subject to compliance
with the Company's debt instruments, purchase on the open market the Company's
debt securities depending upon the availability and prices of such securities.
The Company also continues to expand its international operations. Since
January 1, 2002, Cinemark International, through its subsidiaries, has opened
two new theatres (18 screens) and closed two screens at an existing theatre. As
of March 31, 2002, Cinemark International, through its subsidiaries, has three
new theatres (24 screens) under construction and scheduled to open in
international markets by the end of 2002. The Company estimates that the
remaining capital expenditures for the development of its remaining
international theatre commitments (24 screens) will be approximately $10
million. Although Cinemark International and its subsidiaries are reviewing
sites, there are no signed commitments to build any theatres in international
markets beyond 2002. Actual expenditures for continued theatre development and
acquisitions during 2002 and thereafter are subject to change upon the
availability of attractive opportunities for expansion of the Company's
international theatre circuit. 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.
Financing Activities
The Company has outstanding three issues of senior subordinated notes:
(i) $200 million in 9-5/8% Series B Subordinated Notes due 2008; (ii) $75
million in 9-5/8% Series D Subordinated Notes due 2008; and (iii) $105 million
in 8-1/2% Series B Subordinated Notes 2008. Interest on each issue is payable
semi-annually on February 1 and August 1 of each year. The indentures governing
the senior subordinated notes contain covenants that limit, among other things,
dividends, transactions with affiliates, investments, sale of assets, mergers
and repurchase of the Company's capital stock. Upon a change in control, the
Company would be required to make an offer to repurchase the senior subordinated
notes at a price equal to 101% of the principal amount outstanding plus accrued
and unpaid interest through the date of repurchase. The indentures governing the
senior subordinated notes allow the Company to incur permitted indebtedness if
it satisfies the coverage ratio specified in each indenture, both at the time of
incurrence and after giving effect to the incurrence of the additional
indebtedness. These notes are registered and are unsecured obligations
subordinated in right of payment to the credit facility or other senior
indebtedness. If the Company were in default under the credit facility or other
senior indebtedness, it would generally not be allowed to make payments on the
senior subordinated notes until the defaults have been cured or waived.
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 provided for an initial commitment
of $350 million which is automatically reduced each quarter by 2.5%, 3.75%,
5.0%, 6.25% and 6.25% of the aggregate $350 million in 2001, 2002, 2003, 2004
and 2005, respectively, until the Credit Facility matures in 2006. As of March
31, 2002, the aggregate commitment available to the Company is $301.9 million.
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 under the Credit Facility are secured by a pledge of a majority of
the issued and outstanding capital stock of the Company and guarantees by
material subsidiaries. The Credit Facility requires the Company to maintain
certain financial ratios; restricts the payment of dividends, payment of
subordinated debt prior to maturity and issuance of preferred stock and other
indebtedness; and contains other restrictive covenants typical for agreements of
this type. Funds borrowed pursuant to the Credit Facility currently bear
interest at a rate per annum equal to the Offshore Rate or the Base Rate, as the
case may be, plus the Applicable Margin (as defined in the Credit Facility). As
of March 31, 2002, $263 million is outstanding under the Credit Facility and the
effective interest rate on such borrowing is 3.7% per annum.
16
In September 1998, Cinemark Investments Corporation borrowed $20 million
under the Cinemark Investments Credit Agreement. In September 2001, Cinemark
Investments Corporation repaid the $20 million Cinemark Investments Credit
Agreement at maturity.
In November 1998, Cinemark Mexico (USA), Inc. 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 Cinemark
Holdings Mexico S. de R.L. de C.V. and an unconditional guarantee 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 or the
Base Rate, as the case may be, plus the Applicable Margin (as defined in the
Cinemark Mexico Credit Agreement). Cinemark Mexico is required to make principal
payments of $1.5 million per quarter in 2002 with the remaining principal
outstanding of $23 million due in January 2003. As of March 31, 2002, $29
million is outstanding under the Cinemark Mexico Credit Agreement and the
effective interest rate on such borrowing is 4.9% per annum.
In December 1999, the Company completed a sale leaseback transaction
pursuant to which the Company sold the land, building and site improvements of
its corporate office property to a third party 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 ten years at a fixed monthly rental
payment of $114,000 or $1.4 million annually for the first seven years and a
fixed monthly rental payment of $123,000 or $1.5 million annually for the final
three years. The Company has two options to extend the office lease; five years
for the first option and ten years for the second option. The fixed monthly
rental during the second extension is 95% of the fair rental value.
In December 2000, Cinema Properties, Inc., a wholly-owned Subsidiary,
borrowed $77 million from Lehman Brothers Bank, FSB (the "Cinema Properties
Facility"). The Cinema Properties Facility is a term loan maturing on December
31, 2003. Cinema Properties, Inc. has the unilateral ability to extend the
maturity date two times for one year each by paying extension fees of 1.5% and
3.0% of the outstanding borrowing, respectively. At the lender's discretion,
Cinema Properties, Inc. may be required to make principal payments of $1.5
million in the third and fourth quarters of 2002 with the remaining principal
outstanding in December 2003. Funds borrowed pursuant to the Cinema Properties
Credit Facility currently bear interest at a rate per annum equal to LIBOR plus
5.75%. Borrowings are secured by, among other things, a mortgage placed on six
of Cinema Properties, Inc.'s theatres and certain equipment leases. The Cinema
Properties Facility requires Cinema Properties, Inc. to comply with certain
interest coverage ratios and contains other restrictive covenants typical of
agreements of this type. Cinema Properties, Inc. also purchased from Lehman
Brothers Derivative Products Inc. an Interest Rate Cap Agreement with a notional
amount equal to $77 million with a five year term and a strike rate equal to the
excess of three month LIBOR over the strike price of 6.58%. Three month LIBOR as
of the date of closing was 6.58%. As of March 31, 2002, $77 million is
outstanding under the Cinema Properties Facility and the effective interest rate
on such borrowing is 7.7% per annum.
Cinemark Brasil, S.A. currently has five main types of funding sources
executed with local and international banks. These are: a) BNDES automatic in
the amount of US$4.7 million executed October 1999 at a term of 5 years with a
nine month grace period at a BNDES basket rate (which is a multiple currency
rate based on the rate at which the bank borrows) plus spread amounting to
14.5%, b) BNDES automatic in the amount of US$2.3 million executed November 2001
at a term of 5 years with a one year grace period at a BNDES basket rate plus
spread amounting to 13.8%, c) FINAME/BNDES facility executed December 1999 in
the amount of R$450,000 (equivalent to US$190,000) for a term of 3 years with a
six month grace period at a BNDES basket rate plus spread amounting to 13.0%, d)
Import financing executed between April 2001 through February 2002 in the amount
of US$6.3 million at a term of 360 to 365 days at an average rate of 8.2%, e)
Project developer financing executed between September 2000 through December
2000 in the amount of US$1.8 million for a term of 5 years with a six month
grace period at a rate of TJLP+5%. Each of these sources have varying guarantees
including comfort letters from Cinemark International, promissory notes for up
to 130% of the value, a revenue reserve account and equipment collateral. As of
March 31, 2002, $13.4 million is outstanding and the effective interest rate on
such borrowing is approximately 11.7% per annum.
17
During 2001, Cinemark Brasil, S.A. received additional capital from its
Brazilian shareholders in an aggregate amount equal to approximately $11.0
million (US dollar equivalent) in exchange for shares of common stock of
Cinemark Brasil, S.A. The contributions were made in July in the aggregate
amount of $5.0 million (US dollar equivalent) and in November in the aggregate
amount of $6.0 million (US dollar equivalent). The additional capital will be
used to fund development in Brazil and to reduce Cinemark Brasil, S.A.'s
outstanding indebtedness. After giving effect to the additional issuance of
common stock, Cinemark International's ownership interest was diluted to
approximately 53%. As part of the additional capitalization, the Company agreed
to give the Brazilian partners an option to exchange shares they own in Cinemark
Brasil, S.A. for shares of the class of the Company's common stock which is
registered in an initial public offering under the Securities Act of 1933, as
amended, occurring at any time prior to December 31, 2007. If the Brazilian
partners exercise their exchange option, the Company will obtain appraisals from
independent investment banks of the fair market value of the Company and of
Cinemark Brasil, S.A. The number of shares to be issued will be determined by
multiplying the number of shares of common stock owned by each Brazilian partner
by a fraction, the numerator of which is equal to the appraised value per share
of Cinemark Brasil, S.A. and the denominator of which is equal to the appraised
value per share of the Company's common stock.
In March 2002, Cinemark Chile, S.A. entered into a Debt Acknowledgement,
Rescheduling and Joint Guarantee and Co-Debt Agreement with Scotiabank Sud
Americano and three local banks. Under this agreement, Cinemark Chile, S.A.
borrowed the U.S. dollar equivalent of $10.6 million in Chilean pesos (adjusted
for inflation pursuant to Unidades de Fomento). Cinemark Chile, S.A. is required
to make 24 equal quarterly installments of principal plus accrued and unpaid
interest, commencing March 31, 2002. The indebtedness is secured by a first
priority commercial pledge of the shares of Cinemark Chile, S.A., a chattel
mortgage over Cinemark Chile, S.A.'s personal property and by guarantees issued
by Cinemark International, L.L.C. and Chile Films S.A., a shareholder of
Cinemark Chile, S.A. The agreement requires Cinemark Chile, S.A. to maintain
certain financial ratios and contains other restrictive covenants typical for
agreements of this type such as a limitation on dividends. Funds borrowed under
this agreement bear interest at the Banking Rate, 90 day TAB rate (360 day TAB
rate with respect to one of the four banks), as published by the Association of
Banks and Financial Institutions Act plus 2%. As of March 31, 2002, $10.1
million is outstanding under this agreement and the effective rate on such
borrowing is 7.7% per annum.
As of March 31, 2002, the Company's long-term debt obligations, capital
lease obligations and future minimum lease obligations under non-cancelable
operating leases for each period indicated are summarized as follows:
Payments Due by Period
----------------------
(in millions)
-------------
Less than After
Contractual Obligations Total 1 year 1-3 years 4-5 years 5 years
------------------------------------------------------------------------------------------------------
Long-term debt $ 783.6 $ 59.1 $248.0 $94.8 $ 381.7
Capital lease obligations 0.4 0.2 0.2 - -
Operating lease obligations 1,541.7 103.1 210.0 210.0 1,018.6
18
New Accounting Pronouncements
In August 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 143, "Accounting for
Asset Retirement Obligations". This statement requires the establishment of a
liability for an asset retirement obligation. This statement is effective for
financial statements issued for fiscal years beginning after June 15, 2002. The
Company is currently considering the impact, if any, that this statement will
have on the consolidated financial statements.
In October 2001, the Financial Accounting Standards Board issued SFAS
No. 144, "Accounting for the Impairment or Disposal of Long Lived Assets", which
supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
of Long-Lived Assets to be Disposed Of", and portions of APB No. 30, "Reporting
the Results of Operations - Reporting the Effects of Disposal of a Segment of
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions", and amends Accounting Research Bulletin No. 51, "Consolidated
Financial Statements". This statement generally conforms, among other things,
impairment accounting for assets to be disposed of including those in
discontinued operations and eliminates the exception to consolidation for which
control is likely to be temporary. This statement became effective for the
Company on January 1, 2002. The adoption of this statement did not have a
material effect on the consolidated financial statements.
In April 2002, the Financial Accounting Standards Board issued SFAS No.
145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections". This statement requires, among
other things, that gains and losses on the early extinguishment of debt be
classified as extraordinary only if they meet the criteria for extraordinary
treatment set forth in Accounting Principles Board Opinion No. 30. The
provisions of this statement related to classification of gains and losses on
the early extinguishment of debt are effective for fiscal years beginning after
May 15, 2002. The Company is currently considering the impact, if any, that this
statement will have on the consolidated financial statements.
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.
Other Issues
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 theatre
strategy. Actual results could differ materially from those indicated by such
forward-looking statements due to a number of factors.
19
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company has exposure to financial market risks, including changes in
interest rates, foreign currency exchange rates and other relevant market
prices. The Company does not have any derivative financial instruments in place
as of March 31, 2002 that would have a material effect on the Company's
financial position, results of operations and cash flows.
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, 2002, there was an aggregate of approximately $403 million of
variable rate debt outstanding under these facilities. These facilities
represent approximately 51% of the Company's outstanding long-term debt. Changes
in interest rates 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:
Expected Maturity Date
As of March 31, 2002
--------------------
March 31, March 31, March 31, March 31, March 31, Fair
(in millions) 2003 2004 2005 2006 2007 Thereafter Total Value
- ------------- ---- ---- ---- ---- ---- ---------- ----- ------
Long-term debt:
Fixed rate $ - $ 0.1 $ - $ 0.1 $0.1 $380.2 $380.5 $390.2
Average interest rate 9.3%
Variable rate $59.1 $156.2 $91.7 $92.2 $2.4 $1.5 $403.1 $400.4
Average interest rate 5.0%
Total debt $59.1 $156.3 $91.7 $92.3 $2.5 $381.7 $783.6 $790.6
Expected Maturity Date
As of December 31, 2001
-----------------------
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Fair
(in millions) 2002 2003 2004 2005 2006 Thereafter Total Value
- ------------- ---- ---- ---- ---- ---- ---------- ----- ------
Long-term debt:
Fixed rate $ - $ 0.1 $ 0.1 $ 0.1 $ - $380.2 $380.5 $395.3
Average interest rate 9.3%
Variable rate $21.8 $173.2 $91.3 $95.6 $18.3 $0.3 $400.5 $405.0
Average interest rate 5.5%
Total debt $21.8 $173.3 $91.4 $95.7 $18.3 $380.5 $781.0 $800.3
In December 2000, Cinema Properties, Inc., a wholly-owned subsidiary of
the Company, entered into the Cinema Properties Facility. Pursuant to the terms
of the Cinema Properties Facility, funds borrowed bear interest at a rate per
annum equal to LIBOR (as defined in the Cinema Properties Facility) plus 5.75%.
As part of the Cinema Properties Facility, in order to hedge against future
changes in interest rates, Cinema Properties, Inc. purchased from Lehman
Brothers Derivative Products Inc. an Interest Rate Cap Agreement with a notional
amount equal to $77 million with a five year term and a strike rate equal to the
excess of three month Libor over the strike price of 6.58%. Three month LIBOR as
of the date of closing was 6.58%. At March 31, 2002 and December 31, 2001, the
interest rate cap agreement is recorded at its fair value of $0.9 million and
$1.1 million, respectively. The Cinema Properties Facility provides the Company
with the unilateral ability to extend the maturity date two times for one year
each by paying extension fees of 1.5% and 3.0% of the outstanding borrowing,
respectively.
20
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 (losses)
or foreign currency translation adjustments relating to its international
subsidiaries depending on the inflationary environment of the country in which
the Company operates.
21
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Item 3 of the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 2001.
Item 2. Changes 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 three months of 2002 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 theatre
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 Subordinated Notes
Indenture:
Condensed Consolidating Balance Sheets
(unaudited) as of March 31, 2002
Condensed Consolidating Statements of
Operations (unaudited) for the three months
ended March 31, 2002
Condensed Consolidating Statements of Cash Flows
(unaudited) for the three months ended March 31, 2002
b) Reports on Form 8-K
No reports have been filed by Registrant during the
quarter for which this report is filed.
22
CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF MARCH 31, 2002
(Unaudited)
Restricted Unrestricted
Group Group Eliminations TOTAL
-------------- ------------- -------------- ---------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 28,109,333 $ 31,328,169 $ - $ 59,437,502
Inventories 2,845,442 587,804 - 3,433,246
Co-op advertising and other receivables 5,615,743 6,459,196 (1,188,621) 10,886,318
Income tax receivable 5,650,745 2,240,232 - 7,890,977
Prepaid expenses and other 2,905,043 1,444,937 (1,125,000) 3,224,980
-----------------------------------------------------------------
Total current assets 45,126,306 42,060,338 (2,313,621) 84,873,023
THEATRE PROPERTIES AND EQUIPMENT 955,982,483 240,332,804 - 1,196,315,287
Less accumulated depreciation and amortization (298,957,930) (50,891,661) - (349,849,591)
-----------------------------------------------------------------
Theatre properties and equipment - net 657,024,553 189,441,143 - 846,465,696
OTHER ASSETS
Goodwill - net 7,897,512 3,343,433 - 11,240,945
Investments in and advances to affiliates 169,348,272 1,531,173 (167,669,063) 3,210,382
Deferred tax asset - - - -
Deferred charges and other - net 24,742,443 7,496,826 - 32,239,269
-----------------------------------------------------------------
Total other assets 201,988,227 12,371,432 (167,669,063) 46,690,596
-----------------------------------------------------------------
TOTAL $ 904,139,086 $243,872,913 $(169,982,684) $ 978,029,315
=================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 47,240,871 $ 11,885,828 $ - $ 59,126,699
Current income taxes payable (102,097) 102,097 - -
Accounts payable and accrued expenses 74,260,612 18,992,356 (1,188,621) 92,064,347
-----------------------------------------------------------------
Total current liabilities 121,399,386 30,980,281 (1,188,621) 151,191,046
LONG-TERM LIABILITIES
Senior credit agreements 251,743,364 92,500,717 - 344,244,081
Senior subordinated debt 380,180,547 - - 380,180,547
Deferred lease expenses 22,848,337 438,253 - 23,286,590
Deferred gain on sale leasebacks 4,647,060 - - 4,647,060
Deferred income taxes 5,984,857 715,314 - 6,700,171
Deferred revenues and other long-term liabilities 8,077,158 1,925,417 (1,125,000) 8,877,575
-----------------------------------------------------------------
Total long-term liabilities 673,481,323 95,579,701 (1,125,000) 767,936,024
MINORITY INTERESTS IN SUBSIDIARIES 7,925,133 28,517,827 - 36,442,960
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, 239,893 shares issued and outstanding 49,543,427 14,308,000 (14,308,000) 49,543,427
Additional paid-in-capital 11,759,484 153,361,063 (153,361,063) 11,759,484
Unearned compensation - stock options (777,410) - - (777,410)
Retained earnings 101,284,043 (49,645,570) - 51,638,473
Treasury stock, 57,245 Class B shares at cost (24,232,890) - - (24,232,890)
Accumulated other comprehensive loss (36,243,425) (29,228,389) - (65,471,814)
-----------------------------------------------------------------
Total shareholders' equity 101,333,244 88,795,104 (167,669,063) 22,459,285
-----------------------------------------------------------------
TOTAL $ 904,139,086 $243,872,913 $(169,982,684) $ 978,029,315
=================================================================
Note: "Restricted Group" and "Unrestricted Group" are defined in the
Indenture for the Senior Subordinated Notes
23
CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2002
(Unaudited)
Restricted Unrestricted
Group Group Eliminations TOTAL
-------------- ------------- -------------- ---------------
REVENUES $ 183,318,295 $ 46,412,371 $ (3,028,560) $ 226,702,106
COSTS AND EXPENSES
Cost of operations 134,847,485 35,433,307 (3,028,560) 167,252,232
General and administrative expenses 8,505,346 1,970,760 - 10,476,106
Depreciation and amortization 13,248,226 3,918,555 - 17,166,781
Asset impairment loss - 558,398 - 558,398
Loss on sale of assets and other 324,779 214,413 - 539,192
-----------------------------------------------------------------
Total 156,925,836 42,095,433 (3,028,560) 195,992,709
OPERATING INCOME 26,392,459 4,316,938 - 30,709,397
OTHER INCOME (EXPENSE)
Interest expense (12,091,399) (2,648,913) - (14,740,312)
Amortization of debt issue cost and debt discount (256,119) (378,676) - (634,795)
Interest income 158,088 325,251 - 483,339
Foreign currency exchange loss (60,922) (160,075) - (220,997)
Equity in income of affiliates 1,587 115,154 - 116,741
Minority interests in income of subsidiaries (441,703) (434,768) - (876,471)
-----------------------------------------------------------------
Total (12,690,468) (3,182,027) - (15,872,495)
-----------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF AN ACCOUNTING CHANGE 13,701,991 1,134,911 - 14,836,902
Income taxes 4,497,888 7,061 - 4,504,949
-----------------------------------------------------------------
INCOME BEFORE CUMULATIVE EFFECT
OF AN ACCOUNTING CHANGE 9,204,103 1,127,850 - 10,331,953
Cumulative effect of a change in accounting principle,
net of income tax benefit of $0. (64,684) (3,325,095) - (3,389,779)
-----------------------------------------------------------------
NET INCOME (LOSS) $ 9,139,419 $ (2,197,245) $ - $ 6,942,174
=================================================================
Note: "Restricted Group" and "Unrestricted Group" are defined in the
Indenture for the Senior Subordinated Notes
24
CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2002
(Unaudited)
Restricted Unrestricted
Group Group Eliminations TOTAL
-------------- ------------- -------------- ---------------
OPERATING ACTIVITIES
Net income (loss) $ 9,139,419 $ (2,197,245) $ - $ 6,942,174
Noncash items in net income (loss):
Depreciation 13,078,041 3,879,512 - 16,957,553
Amortization of other assets 170,185 39,043 - 209,228
Amortization of foreign advanced rents 312,630 185,333 - 497,963
Amortized compensation - stock options 110,369 - - 110,369
Amortization of gain on sale leasebacks (91,480) - - (91,480)
Amortization of debt discount and premium (7,127) - - (7,127)
Loss on impairment of assets - 558,398 - 558,398
Loss on sale of assets and other 324,779 214,413 - 539,192
Deferred lease expenses 461,912 (7,710) - 454,202
Deferred income tax expenses 10,416,377 - - 10,416,377
Equity in income of affiliates (1,587) (115,154) - (116,741)
Minority interests in income of subsidiaries 441,703 434,768 - 876,471
Cumulative effect of an accounting change 64,684 3,325,095 - 3,389,779
Cash provided by (used for) operating working capital:
Inventories (224,490) 113,276 - (111,214)
Co-op advertising and other receivables (270,631) 433,961 - 163,330
Prepaid expenses and other (354,061) 375,910 - 21,849
Accounts payable and accrued expenses (20,220,193) (6,163,623) - (26,383,816)
Income tax receivable/payable (6,345,435) (106,748) - (6,452,183)
-----------------------------------------------------------------
Net cash provided by operating activities 7,005,095 969,229 - 7,974,324
INVESTING ACTIVITIES
Additions to theatre properties and equipment (5,447,665) (3,209,105) - (8,656,770)
Sale of theatre properties and equipment 1,495,840 8,601 - 1,504,441
Decrease in other assets, investments in
and advances to affiliates 1,391,402 4,543,976 - 5,935,378
-----------------------------------------------------------------
Net cash provided by (used for) investing activities (2,560,423) 1,343,472 - (1,216,951)
FINANCING ACTIVITIES
Increase in long-term debt 17,505,311 267,517 - 17,772,828
Decrease in long-term debt (12,550,521) (2,620,019) - (15,170,540)
Minority investment in subsidiaries, net (154,954) 367,781 212,827
-----------------------------------------------------------------
Net cash provided by (used for) financing activities 4,799,836 (1,984,721) - 2,815,115
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS (321,631) (12,578) - (334,209)
-----------------------------------------------------------------
INCREASE IN CASH AND CASH EQUIVALENTS 8,922,877 315,402 - 9,238,279
CASH AND CASH EQUIVALENTS:
Beginning of period 19,186,456 31,012,767 - 50,199,223
-----------------------------------------------------------------
End of period $ 28,109,333 $ 31,328,169 $ - $ 59,437,502
=================================================================
Note: "Restricted Group" and "Unrestricted Group" are defined in the
Indenture for the Senior Subordinated Notes
25
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 15, 2002
/s/Alan W. Stock
----------------
Alan W. Stock
President
/s/Robert Copple
----------------
Robert Copple
Chief Financial Officer
26