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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
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
Securities registered pursuant to Section 12(b) of the Act:
NONE
(TITLE OF CLASS)
Securities registered pursuant to Section 12(g) of the Act:
NONE
(TITLE OF CLASS)
Indicate by check mark 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
--- ---.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
[ X ] [ ________ ]
As of March 21, 2001, 1,500 shares of Class A Common stock and 185,955
shares of Class B Common stock (including options to acquire 8,418 shares of
Class B Common stock exercisable within 60 days of such date) were outstanding.
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INDEX
Page
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PART I..........................................................................................................1
Item 1: Business.........................................................................................1
(a) General Development of Business.............................................................1
(b) Financial Information About Segments........................................................2
(c) Narrative Description of Business...........................................................2
(d) Financial Information about Geographic Areas................................................12
(e) Available Information.......................................................................12
Item 2: Properties.......................................................................................12
Item 3: Legal Proceedings................................................................................13
Item 4: Submission of Matters to a Vote of Security Holders..............................................14
PART II.........................................................................................................14
Item 5: Market for Registrant's Common Equity and Related Stockholder Matters............................14
Item 6: Selected Financial Data..........................................................................14
Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operation.............16
Item 7A: Quantitative and Qualitative Disclosures About Market Risk...................................... 27
Item 8: Financial Statements and Supplementary Data......................................................28
Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.............28
PART III........................................................................................................29
Item 10: Directors and Executive Officers of the Registrant...............................................29
Item 11: Executive Compensation.......................................................................... 32
Item 12: Security Ownership of Certain Beneficial Owners and Management.................................. 36
Item 13: Certain Relationships and Related Transactions.................................................. 38
PART IV........................................................................................................ 40
Item 14: Exhibits, Financial Statement Schedules, and Reports on Form 8-K................................ 40
(a) Documents Filed as Part of this Report..................................................... 40
(b) Reports on Form 8-K........................................................................ 40
(c) Exhibits................................................................................... 40
(d) Financial Statement Schedules.............................................................. 40
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PART I
Item 1: Business
(a) General Development of Business
GENERAL
The Company is a world leader in the motion picture exhibition industry in
terms of both revenues and the number of screens in operation. In 2000, the
Company opened an aggregate of 19 theatres (224 screens) in the U.S. and
internationally. At March 21, 2001, the Company operated 2,938 screens in 273
theatres located in 33 states, Canada, Mexico, Argentina, Brazil, Chile,
Ecuador, Peru, Honduras, El Salvador, Nicaragua, Costa Rica and Colombia,
consisting of 2,583 screens in 231 "first run" theatres and 355 screens in 42
"discount" theatres. Of the Company's 2,938 screens, 2,576 (or 88%) have been
built by the Company since 1990, and, as a result, the Company believes it
operates one of the most modern theatre circuits in the industry. All of the
Company's theatres are multiplex facilities with approximately 89% of the
Company's screens located in theatres of eight or more screens. The Company
believes that its ratio of screens to theatres (10.8 to 1 at March 21, 2001) is
one of the highest in the industry. Approximately 63% of the Company's first run
screens are in stadium seating auditoriums. From its fiscal year ended December
31, 1995 through the fiscal year ended December 31, 2000, the Company has
increased consolidated revenues approximately 163% from $298.6 million to $786.3
million and has increased consolidated EBITDA (as defined herein) approximately
163% from $53.9 million to $142.0 million.
The Company's website is located at www.cinemark.com. By accessing the
Company's website, customers can view showtimes for all the Company's U.S.
theatres and may purchase tickets for 46 U.S. theatres (612 screens) operated by
the Company. Customers can also print at-home movie tickets for certain U.S.
theatres which allows them to bypass the box office.
The Company, a Texas corporation organized in 1987, maintains its principal
executive offices at 3900 Dallas Parkway, Suite 500, Plano, Texas 75093. Its
telephone number is (972) 665-1000.
DOMESTIC DEVELOPMENTS
In 2000, the Company opened eight theatres (131 screens) in the U.S. At
March 21, 2001, the Company operated 190 theatres (2,217 screens) in the U.S.
and Canada consisting of 1,862 screens in 148 "first run" theatres and 355
screens in 42 "discount" theatres. Of the Company's 190 theatres and 2,217
screens in the U.S. and Canada, all but one theatre (12 screens) in Vancouver,
Canada (which is operated by the Company through a subsidiary) are located in
the U.S. The Company believes that its ratio of screens to theatres in the U.S.
and Canada (11.7 to 1 at March 21, 2001) is the second highest of the ten
largest theatre circuits in the U.S. and is more than 50% higher than the
industry average. Approximately 60% of the Company's first run screens in the
U.S. and Canada are in stadium seating auditoriums.
FOREIGN DEVELOPMENTS
In 2000, the Company opened 11 theatres (93 screens) in four countries. At
March 21, 2001, the Company operated 83 theatres (721 screens) in Mexico,
Argentina, Brazil, Chile, Ecuador, Peru, Honduras, El Salvador, Nicaragua, Costa
Rica and Colombia. All of the theatres operated outside of the United States are
first run theatres which the Company believes are among the most modern in the
international market. The Company's ratio of screens to theatres in these
international markets is 8.7 to 1 at March 21, 2001. Approximately 73% of the
Company's international screens are in stadium seating auditoriums.
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(b) Financial Information About Segments
The Company is a unitary business as described above and as a result does
not break out its business into segments.
(c) Narrative Description of Business
GENERAL
The Company is a world leader in the motion picture exhibition industry in
terms of both revenues and the number of screens in operation. In 2000, the
Company opened an aggregate of 19 theatres (224 screens) in the U.S. and
internationally. At March 21, 2001, the Company operated 2,938 screens in 273
theatres located in 33 states, Canada, Mexico, Argentina, Brazil, Chile,
Ecuador, Peru, Honduras, El Salvador, Nicaragua, Costa Rica and Colombia,
consisting of 2,583 screens in 231 "first run" theatres and 355 screens in 42
"discount" theatres. Of the Company's 2,938 screens, 2,576 (or 88%) have been
built by the Company since 1990, and, as a result, the Company believes it
operates one of the most modern theatre circuits in the industry. All of the
Company's theatres are multiplex facilities with approximately 89% of the
Company's screens located in theatres of eight or more screens. The Company
believes that its ratio of screens to theatres (10.8 to 1 at March 21, 2001) is
one of the highest in the industry. Approximately 63% of the Company's first run
screens are in stadium seating auditoriums. From its fiscal year ended December
31, 1995 through the fiscal year ended December 31, 2000, the Company has
increased consolidated revenues approximately 163% from $298.6 million to $786.3
million and has increased consolidated EBITDA (as defined herein) approximately
163% from $53.9 million to $142.0 million.
The Company has introduced larger multiplex theatre facilities into areas
previously served by smaller theatres, thereby capturing moviegoers who seek
more attractive surroundings, wider variety of films, better customer service,
shorter lines, more convenient parking and a greater choice of seating to view
popular movies. Approximately 80% of the Company's U.S. first run theatres have
little or no direct competition within their respective film zones, which allows
the Company to select those pictures that it believes will be most successful in
its markets from those offered to it by distributors. Larger multiplex theatres
enable the Company to present films appealing to several segments of the
moviegoing public while serving patrons from common support facilities (such as
box office, concession areas, rest rooms and lobby). Larger multiplex facilities
also provide the Company with greater flexibility in staffing, movie scheduling
and equipment utilization while reducing congestion throughout the theatre. In
addition, larger multiplex facilities provide increased flexibility in
determining the length of time a film will be exhibited in the theatre. The
Company can lengthen the run of a film by switching it to a smaller auditorium
after peak demand has subsided and has the potential to generate higher profits
as film license agreements typically provide for a lower film rent to be paid
later in a film's run.
The Company believes the attractiveness, comfort and viewing experience
provided by its modern facilities result in the Company's theatres more often
being the preferred destination for moviegoers in its markets.
OVERVIEW OF THE THEATRE INDUSTRY
According to MPAA Worldwide Market Research, U.S. box office sales of
approximately $7.7 billion in 2000 was the ninth consecutive record year for the
industry. The Company believes the primary reason for the record years is the
increased investment in production and marketing of films as well as the
substantial construction of new multiplexes throughout America. The 2.9%
increase in 2000 box office sales as compared to 1999 is primarily a result of
increased average ticket prices as attendance decreased slightly compared to
1999. The following table represents the results of a survey by MPAA Worldwide
Market Research outlining the historical trends in U.S. theatre attendance,
average ticket prices and box office sales for the last ten years.
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U.S. Box
Attendance Average Office Sales
Year (Millions) Ticket Price (Millions)
------ ---------- ------------ ------------
1991 1,141 $ 4.21 $4,803
1992 1,173 $ 4.15 $4,871
1993 1,244 $ 4.14 $5,154
1994 1,292 $ 4.18 $5,396
1995 1,263 $ 4.35 $5,494
1996 1,339 $ 4.42 $5,912
1997 1,388 $ 4.59 $6,366
1998 1,481 $ 4.69 $6,949
1999 1,465 $ 5.08 $7,448
2000 1,421 $ 5.39 $7,661
Theatrical exhibition is the primary distribution channel for new motion
picture releases. The Company believes the successful theatrical release of a
movie abroad and in "downstream" distribution channels, such as home video and
pay-per-view, network and syndicated television, is largely dependent on its
successful theatrical release in the U.S. The Company further believes the
emergence of additional distribution channels has expanded the overall potential
revenue sources for motion picture distributors without adversely affecting
attendance at theatres as these additional distribution channels do not provide
an experience comparable to the social experience of viewing a movie in a
theatre. The Company believes the public will continue to recognize the
advantages of viewing a movie on a large screen with superior audio and visual
quality, while enjoying a variety of concessions and sharing the social
experience with a large audience in a comfortable theatre environment.
The Company believes certain demographic trends favor the theatre exhibition
industry. Information obtained from the U.S. Bureau of Census indicates the
number of 12 to 20 year olds in the U.S., the largest moviegoing segment of the
population, is projected to grow an aggregate of 9.2% through the year 2005.
According to the MPAA, the age group 12-24 represents approximately 28% of the
overall moviegoing public while the age group 25-39 accounts for approximately
32% of the overall moviegoing public. Furthermore, according to MPAA, the number
of patrons over 40 years old as a percentage of the total movie audience has
more than doubled from approximately 14% in 1986 to approximately 40% in 2000
and has more "frequent" moviegoers than any other age group. Frequent moviegoers
are those who attend at least 12 movies per year. The Company believes film
producers have recognized the importance of this segment of the population and
are producing an increased number of films primarily targeted to this more
mature audience.
Increased international distribution is also producing important sources of
revenue for film distributors and growth opportunities for exhibitors. According
to MPAA Worldwide Research, international box office sales of approximately $7.6
billion in 2000 represented a 6.6% increase as compared to 1999. The Company's
activities in international markets have been primarily directed toward Latin
America, where the Company believes it has successfully established a leading
presence in the region. According to MPAA, theatrical revenues in Mexico alone
soared 20% in 2000 as compared to 1999. The Company believes many international
markets for theatrical exhibition have historically been underserved due to
antiquated and/or run-down theatres, and that international markets will
continue to experience growth as additional multiplex theatres are introduced.
BUSINESS STRATEGY
The Company's growth has been primarily through new theatre development. As
a result, the Company believes it operates one of the most modern theatre
circuits in the industry. The Company also believes it is unique
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among major theatre exhibitors in the development and execution of the following
domestic and international business strategy:
Built in underserved U.S. markets. The Company has built modern multiplex
facilities in underserved mid-sized U.S. markets as well as in major U.S.
metropolitan areas. In such markets the Company frequently is the sole or
leading exhibitor in terms of first run screens operated within a film zone. The
Company believes it gains maximum access to film product, and thereby realizes a
competitive advantage, by locating its modern multiplex theatres in new and
existing film zones where little or no competition for film product exists.
Approximately 80% of the Company's U.S. first run theatres have little or no
direct competition within their respective film zones. Approximately 60% of the
Company's first run screens in the U.S. and Canada are in stadium seating
auditoriums. The Company has one multiplex theatre (12 screens) scheduled to
open by the end of 2001 and has a signed commitment for two multiplex theatres
(29 screens) scheduled to open after 2001.
Continue to maintain discount theatre niche in the U.S. The Company intends
to maintain its discount theatre operations (admission of $.50 to $2 per ticket)
in the U.S. to serve patrons who miss a film during its first run exhibition or
who may not be able to afford to attend first run theatres on a frequent basis.
The Company believes its discount theatres allow it to serve these segments of
the total moviegoing population, increasing the number of potential customers
beyond traditional first run moviegoers. The Company's multiplex discount
theatres offer many of the same amenities as its first run theatres, including
wall-to-wall screens, comfortable seating with cupholder armrests, digital sound
and multiple concession stands. As of March 21, 2001, approximately 16% of the
Company's screens in the U.S. and Canada were housed in discount theatres.
Continue to develop modern American-style theatres in underserved
international markets. The Company's activities in international markets have
been primarily directed toward Latin America, where the Company believes it has
successfully established a leading presence in the region. The Company believes
it was the first U.S. circuit to open American-style modern multiplex theatres
in Mexico and Chile, and has developed multiplex theatres directly or through
joint venture arrangements with local partners in Argentina, Brazil, Ecuador,
Honduras, Peru, El Salvador, Nicaragua, Costa Rica and Colombia. Approximately
73% of the Company's international screens are in stadium seating auditoriums.
The Company intends to develop multiplex theatres in underserved markets to
which it is currently committed directly or through joint venture arrangements
with local partners. The Company has seven multiplex theatres (76 screens)
scheduled to open subsequent to March 21, 2001 in international markets by the
end of 2001.
OPERATIONS
The Company's corporate office, which employed approximately 200 individuals
as of March 21, 2001, is responsible for theatre development and site selection,
lease negotiation, theatre design and construction, film licensing and
settlements, concession vendor negotiations and financial and accounting
activities. The Company's domestic theatre operations are divided into eight
geographic divisions, each of which is headed by a regional leader. The
Company's regional leaders have an average of 17 years experience in the movie
theatre industry and each is responsible for supervising approximately 12.5% of
the Company's theatre managers. Theatre managers are responsible for the
day-to-day operations of the Company's theatres including optimizing staffing,
developing innovative theatre promotions, preparing movie schedules, ordering
concession inventory, maintaining a clean and functioning facility and training
theatre staff.
To maintain quality and consistency within the Company's theatres, the
Company conducts regular inspections of each theatre and operates a program
which involves unannounced visits by unidentified customers who report on the
quality of service, film presentation and cleanliness of the theatre. The
Company has also created an innovative training program to enhance theatre
staff performance.
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Theatre Development
In 2000, the Company opened an aggregate of eight theatres (131 screens) in
the U.S. and 11 theatres (93 screens) internationally. As of March 21, 2001, the
Company had opened an additional three theatres (26 screens) internationally.
The Company has commitments to open only one theatre (12 screens) in the U.S.
and seven theatres (76 screens) internationally during the remainder of 2001, as
the Company has strategically reduced its future construction plans as a result
of the overbuilding and recent changes in the industry.
The Company has generally developed theatres in markets that were
underscreened as a result of changing demographic trends or that were served by
aging theatre facilities. Some of the factors the Company considers in
determining whether to develop a theatre in a particular location are the
market's population and average household income, the proximity to retail
corridors, convenient roadway access, the proximity to competing theatres and
the effect on the Company's existing theatres in the market, if any.
In 1998, the Company commenced a new branding campaign featuring a new
Cinemark logo and theatre design. New art deco graphic treatments and colors
were applied to the Cinemark name and theatres at that time. Richly hued reds
and gold, reminiscent of the golden age of Hollywood, replaced the traditional
bright colors. Additionally, the Company designed several prototype theatres,
each of which could be adapted to suit the size requirements of a particular
location and the availability of parking and to respond to competitive factors
or specific area demographics. The Company believes the fully designed
prototypes resulted in significant construction and operating cost savings.
The Company's theatres typically contain auditoriums consisting of 100 to
400 seats each and feature wall-to-wall screens, high back rocking chairs with
cupholder armrests, digital sound, multiple concession stands and video game
rooms. The Company's larger multiplex facilities typically will exceed 50,000
square feet, feature 14 or more screens with 75 foot screens in the largest
auditoriums, stadium seating, digital sound, a pizzeria, a coffee bar and a
large video arcade room. The majority of the films produced in the last four
years had digital soundtracks available as an alternative to the standard stereo
soundtrack. More than 90% of the Company's first run theatres have one or more
auditoriums with digital sound capabilities.
Film Licensing
Films are typically licensed from film distributors owned by major film
production companies and from independent film distributors that distribute
films for smaller production companies. For first run films, film distributors
typically establish geographic zones and offer each available film to one
theatre in each zone. The size of a film zone is generally determined by the
population density, demographics and box office potential of a particular market
or region and can range from a radius of three to five miles in major
metropolitan and suburban areas to up to fifteen miles in small towns. The
Company currently operates theatres in approximately 140 first run film zones in
the U.S. New film releases are licensed at the discretion of the film
distributors. In film zones where the Company has little or no direct
competition, the Company selects those pictures it believes will be most
successful. Approximately 80% of the Company's U.S. first run theatres have
little or no direct competition within their respective film zones. In film
zones where the Company faces competition, the Company usually licenses films on
an allocation basis. Under an allocation process, a particular distributor will
rotate films among exhibitors. For second run films, film distributors establish
availability on a market-by-market basis after the completion of exhibition at
first run theatres and permit each theatre within a market to exhibit such films
without regard to film zones.
The Company licenses films in the U.S. through its booking office located at
the Company's corporate headquarters in Plano, Texas. Most of the major motion
picture studios and distributors maintain offices in the Dallas, Texas
metropolitan area. The Company's film bookers have significant experience in the
theatre industry and have
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developed long-standing relationships with the film distributors. Each film
booker is responsible for a geographic region and maintains relationships with
representatives of each of the major motion picture studios and distributors
having responsibility for their respective geographic regions. The Company
licenses films from all of the major distributors and is not dependent on any
one studio for motion picture product.
Prior to negotiating for a film license, the Company's booking personnel
evaluate the prospects for the film. The criteria considered for each film
include cast, director, plot, performance of similar films, estimated film
rental costs, expected MPAA rating and the outlook for other upcoming films.
Successful licensing depends upon knowledge of the tastes of local residents.
A film license typically specifies a rental fee to be paid to the
distributor based on the higher result of either a gross receipts formula or a
theatre admissions revenue sharing formula. Under a gross receipts formula, the
distributor receives a specified percentage of box office receipts with the
percentage generally declining over the term of the run. First run film rental
percentages usually begin at 70% of box office receipts and gradually decline to
as low as 30% over a period of four to seven weeks. Second run film rental
percentages typically begin at 35% of box office receipts and often decline to
30% after the first week. Under the theatre admissions revenue sharing formula
(commonly known as the "90/10" clause), the distributor receives a specified
percentage (i.e., 90%) of the excess of box office receipts over a negotiated
reimbursement for theatre expenses. Most distributors follow an industry
practice of adjusting or renegotiating the terms of a film license subsequent to
exhibition based upon the film's success.
Concessions
Concession sales are the Company's second largest revenue source,
representing approximately 30% of total revenues for 2000. The Company has
devoted considerable management effort to increasing concession sales and
improving the operating income margins from concession sales. These efforts
include implementation of the following strategies:
o Optimization of product mix. The Company's primary concession products are
various sizes of popcorn, soft drinks and candy, all of which the Company sells
at each of its theatres; however, different varieties and brands of candy and
soft drinks are offered at theatres based on preferences in that particular
geographic region. The Company has also implemented "combo-meals," and "movie
meals" for children and senior citizens, both of which offer a pre-selected
assortment of concession products. The Company continues to introduce new
concession products designed to attract additional concession purchases.
o Staff training. Employees are continually trained in "cross-selling" and
"upselling" techniques. This training occurs through situational role-playing
conducted at the Company's "Customer Satisfaction University" as well as
continual on-the-job training. Individual theatre managers receive a portion of
their compensation based on concession sales at their theatres and are therefore
motivated to maximize concession sales.
o Theatre design. Newer theatres are designed to include at least two to
three concession stands, with each stand having multiple service stations to
make it easier to serve larger numbers of customers rapidly. Strategic placement
of large concession stands within theatres heightens their visibility, aids in
reducing the length of concession lines and improves traffic flow around the
concession stands.
o Cost control. The Company negotiates prices for its concession supplies
directly with concession vendors on a bulk rate basis and distributes its
concession supplies through a national concession contract distributor. The
concession distributor provides inventory and distribution services to the
theatres, which place volume orders directly with the concession distributor.
The concession distributor is paid a fee for such service equal to a percentage
of the Company's concession supply purchases. The Company believes utilization
of a concession distributor is more cost effective than establishing a
concession warehousing network owned by the Company.
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Marketing
In order to attract customers, the Company relies upon newspaper display
advertisements (substantially paid for by film distributors), newspaper
directory film schedules (generally paid for by the exhibitor) and Internet
advertising which has emerged as a strong media source to inform its patrons of
film titles and show times. Radio and television advertising spots (generally
paid for by film distributors) are used to promote certain motion pictures and
special events. The Company also exhibits previews in its theatres of coming
attractions and films presently playing on the other screens which it operates
in the same theatre or market.
In March 2000, the Company and five other major theatre companies formed
Fandango.com, the leading Internet and telephone movie portal which began
selling tickets over the Internet in the summer of 2000. The Company entered
into an Exclusive Ticketing Distribution Agreement and Advertising Agreement in
exchange for stock in the new company. By accessing the Company's website at
www.cinemark.com and then clicking on "Tickets and Showtimes", customers will be
sent to Fandango.com where they can view show times for all of the Company's
U.S. theatres and may purchase tickets to 46 U.S. theatres (612 screens)
operated by the Company. The Company was also the first major U.S. exhibitor to
introduce at-home movie ticket printing to its customers. Management believes
that Internet ticketing will significantly improve customer satisfaction, as
customers who purchase tickets over the Internet will be able to bypass the box
office by printing their tickets at home using bar code technology which can be
redeemed at the Company's theatres, or customers can pick up tickets at remote
kiosks or at dedicated box office windows. The Company expanded its internet
technology by becoming the first major U.S. movie theatre company to develop
wireless technology to access the Company's showtimes via the Fandango.com web
site by all Palm Pilot(TM) devices, including the new Palm VII. The Company, in
conjunction with Fandango.com, soon hopes to complete technology that will
permit customers to purchase tickets over the Internet using these wireless
devices.
New Revenue Sources
The Company believes that the advertising industry is beginning to recognize
the theatre exhibition industry as an important advertising medium as a result
of the demographics of theatre patrons. Accordingly, the Company was able to
enter into long-term advertising contracts for both rolling stock advertising
and screen slide advertising. The Company estimates these contracts to be worth
more than $50 million in advertising revenues to the Company through 2005.
The Company is also using its theatres for other specialty events. The large
screen and comfortable seating makes the Company's theatres an attractive venue
to hold corporate events, private parties, and in some instances simulcast or
pay-per-view events. Management believes the trend to use theatre auditoriums
for these functions during non-peak times is likely to increase.
Theatre Management
Each theatre is managed by one theatre manager and a number of assistant
managers. A typical ten screen theatre has approximately 40 employees, including
three to four assistant managers, while a 16-screen multiplex has approximately
125 employees, including eight assistant managers. The theatre manager is paid a
salary and a commission based upon concession sales. A theatre manager can
increase the profitability of the theatre and his/her own compensation by
ensuring that the staff is properly trained to encourage patrons to "trade up"
in size or purchase additional concession items. The goal of a theatre manager
is to operate a theatre in the most efficient and profitable manner in order to
be promoted from managing a smaller theatre to managing a larger multiplex.
The Company believes strongly in customer service and it promotes this
through employee empowerment. Each theatre employee is authorized to deal with
all customer needs and complaints in a variety of ways, including offering free
tickets or free concession items, if necessary. Prior to peak seasons, the
Company teaches its employees customer service at its "Customer Satisfaction
University" training program. The Customer Satisfaction
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University is an active training program consisting of role-playing exercises as
well as typical classroom instruction.
Management Information Systems
The Company has developed its own point of sale ("POS") management
information system to further enhance its ability to maximize revenues, control
costs and efficiently manage the Company's theatre circuit. The POS information
system provides corporate management with a detailed daily admission and
concession revenue report by the start of business the following morning. This
information allows management to make real-time adjustments to movie schedules,
prolong runs or increase the number of screens on which successful movies are
being played and substitute films when gross receipts cease to meet expected
goals. Real-time seating and box office information is available to box office
personnel, making it possible for theatre management to avoid overselling a
particular film and providing faster and more accurate response to customer
inquiries regarding showings and available seating. The POS information system
also tracks concession sales and provides weekly in-theatre inventory reports,
leading to better inventory management and control.
The Company also developed a "Next Generation" version of its current POS
system based upon a Windows platform which it began deploying in its theatres in
1999. This enhanced system, named CTS, has multiple language capabilities,
unlimited ticket pricing options, and the ability to process credit cards. The
Windows platform permits internet ticketing, the addition of barcode scanners,
pole displays, touch screens, credit card readers and other equipment specific
to individual country requirements.
INTERNATIONAL
The motion picture exhibition business has become increasingly global and
rising box office receipts from international markets indicate some
international markets are poised for growth. The Company believes its
experience in developing and operating multiplex theatres both domestically and
internationally provides it with a significant advantage in continuing to
develop multiplex facilities in international markets. The Company's strategy in
some of these markets is to form partnerships or joint ventures with local
operators, sharing risk and obtaining valuable market insight.
Cinemark International has been introducing state-of-the-art multiplex
theatres to "under-screened" international markets. In 2000, the Company opened,
through its subsidiaries, 11 theatres (93 screens) outside of the U.S. and
Canada. As of March 21, 2001, the Company, through its subsidiaries, operates 83
first-run theatres (721 screens) in Mexico, Argentina, Brazil, Chile, Ecuador,
Peru, Honduras, El Salvador, Nicaragua, Costa Rica and Colombia, with an
aggregate of seven theatres (76 screens) scheduled to open during the remainder
of 2001. Additionally, the Company, through a subsidiary, operates one first run
theatre (12 screens) in Vancouver, Canada.
Mexico
In July 1993, the Company, through its subsidiary Cinemark Mexico (USA),
Inc. ("Cinemark Mexico"), began developing state-of-the-art international
multiplex theatres comparable to theatres developed by the Company in the U.S.
Cinemark Mexico's operations are conducted through its subsidiary Cinemark de
Mexico, S.A. de C.V. As of March 21, 2001, Cinemark Mexico operates 24 theatres
(228 screens) and plans to open two theatres (28 screens) during the remainder
of 2001.
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Brazil
In August 1995, Cinemark LTDA was organized as an indirect subsidiary of
Cinemark International. In November 1997, Cinemark International, through a
wholly-owned subsidiary, entered into a joint venture agreement with Brazilian
strategic partners and converted Cinemark LTDA to a Brazilian corporation,
Cinemark Brasil S.A., which is owned approximately 60% indirectly by Cinemark
International and approximately 40% owned by Brazilian strategic partners. As of
March 21, 2001, Cinemark Brasil S.A. operates 25 theatres (228 screens) and
plans to open four theatres (37 screens) during the remainder of 2001.
Chile
In November 1992, Cinemark International entered into a joint venture
agreement with Conate, S.A., a Chilean movie theatre operator ("Conate"), to
develop state-of-the-art multiplex theatres in Chile. The joint venture provides
for the development of multiplex theatres and the licensing of the Company's
technology, trademark and name. The joint venture conducts its business through
Cinemark Chile S.A. The Company indirectly owns approximately 98% of Cinemark
Chile. As of March 21, 2001, Cinemark Chile, based in Santiago, Chile, operates
twelve theatres (88 screens) and plans to expand an existing theatre by 5
screens during the remainder of 2001.
Argentina
In December 1995, Cinemark International entered Argentina to develop
state-of-the-art multiplex theatres. The business is conducted through Cinemark
Argentina, S.A. and Prodecine S.A. de C.V. As of March 21, 2001, the Company,
through Cinemark Argentina, S.A. and Prodecine S.A. de C.V., operates nine
theatres (79 screens).
Central America
In January 1997, Cinemark International entered into a joint venture
agreement with Cines de Centroamerica to develop state-of-the-art multiplex
theatres throughout Central America. The joint venture conducts its business
through Cinemark Equity Holdings Corporation which is 50.1% owned by Cinemark
International. The joint venture also provides for the licensing of the
Company's technology, trademarks and name. As of March 21, 2001, the Central
American joint venture operates seven theatres (45 screens) in four Central
American countries (Honduras, El Salvador, Nicaragua and Costa Rica).
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Peru
In December 1996, Cinemark International entered Peru to develop
state-of-the-art multiplex theatres. The business is conducted through Cinemark
del Peru, S.A. As of March 21, 2001, Cinemark del Peru, S.A. operates two
theatres (21 screens).
Ecuador
In September 1996, Cinemark International entered into a joint venture
agreement with The Wright Group, a group of prominent Ecuadorian individuals and
companies, to develop state-of-the-art multiplex theatres in Ecuador. The joint
venture agreement provides for the licensing of the Company's technology,
trademark and name. The joint venture conducts its business through Cinemark del
Ecuador, S.A. ("Cinemark Ecuador") which is 60% owned by Cinemark International
and 40% owned by The Wright Group. As of March 21, 2001, Cinemark Ecuador
operates two theatres (16 screens).
Colombia
In December 1998, Cinemark International entered into a joint venture
agreement with Casa Editorial El Tiempo S.A., Tempora S.A. and Prodiscos S.A. to
develop state-of-the-art multiplex theatres in Colombia. The joint venture
conducts its business through Cinemark Colombia, S.A. which is owned 50.1% by
Cinemark International, and the remaining 49.9% is collectively owned by Casa
Editorial El Tiempo S.A., Tempora S.A. and Prodiscos S.A. As of March 21, 2001,
Cinemark Colombia operates two theatres (16 screens) and plans to open one
additional theatre (6 screens) during the remainder of 2001.
United Kingdom
In September 1998, Cinemark International 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
Cinemark International. As of March 21, 2001, Cinemark Theatres U.K. Ltd. has
begun construction on one theatre (10 screens).
Taiwan
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 conducts its business through
Cinemark-Core Pacific Ltd. which is 50.1% owned by Cinemark International and
49.9% owned by Core Pacific Ltd. As of March 21, 2001, Cinemark-Core Pacific
Ltd. has begun construction on one theatre (13 screens).
Canada
The Company, through its wholly-owned subsidiary Cinemark Theatres Canada,
operates one first run theatre (12 screens) in Vancouver, Canada.
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COMPETITION
The Company is one of the largest motion picture exhibitors in North America
in terms of both revenues and the number of screens in operation. The Company
competes against both local and national exhibitors, some of which may have
substantially greater financial resources than the Company.
In film zones where the Company has little or no direct competition
(approximately 80% of the Company's first run U.S. theatres), the Company
selects those pictures it believes will be most successful in its markets from
among those offered to it by distributors. Where the Company faces competition,
it usually licenses films based on an allocation process. The Company currently
operates in approximately 140 first run film zones in the U.S. The Company
believes no individual film zone is material to the Company. See "-- Operations
- -- Film Licensing." The Company believes the principal competitive factors with
respect to film licensing include capacity and location of an exhibitor's
theatre, theatre comfort, quality of projection and sound equipment, level of
customer service and licensing terms. The competition for customers is dependent
upon factors such as the availability of popular films, the location of
theatres, the comfort and quality of theatres and ticket prices. The Company
believes its admission prices at its first run and discount theatres are
competitive with admission prices of respective competing theatres.
The Company's theatres face competition from a number of other motion
picture exhibition delivery systems, such as network, syndicated and pay
television, pay-per-view and home video systems. The impact of such delivery
systems on the motion picture exhibition industry is difficult to determine, and
there can be no assurance existing or future alternative delivery systems will
not have an adverse impact on attendance. The Company's theatres also face
competition from other forms of entertainment competing for the public's leisure
time and disposable income.
COMPETITIVE CONDITIONS FACING BUSINESS
The multiplex building programs by many of the theatre companies during the
last five years has been, according to many industry analysts, too aggressive.
Most of the building programs were financed primarily with bank debt and debt
issuances resulting in increased operating and financial leverage. As a result
of high debt loads and the existence of underperforming theatres in their
theatre asset portfolio, several of the Company's competitors filed for
protection under Chapter 11 of the U.S. Bankruptcy Act during 2000 and the
beginning of 2001. Some of these companies have used the bankruptcy actions to
reject existing theatre leases which resulted in the closure of a number of
underperforming theatres throughout the United States. The Company believes the
potential closures may result in additional patronage at the Company's theatres
as well as potential reductions in the number of competitive film zones in which
the Company currently operates within the U.S.
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.
EMPLOYEES
As of March 21, 2001, the Company had approximately 8,000 employees in the
U.S., approximately 10% of whom are full time employees and 90% of whom are part
time employees. The Company is a party to collective bargaining agreements with
eight unions of which approximately 14 employees are members. The Company's
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international operations typically utilize union labor. The Company considers
its relations with its employees to be satisfactory.
REGULATION
The Company is subject to various general regulations applicable to its
operations including the Americans with Disabilities Act (the "ADA"). The
Company has established a program to review and evaluate the Company's existing
theatres and its specifications for new theatres and to make any changes to such
theatres and specifications required by the ADA. The Company develops new
theatres to be accessible to the disabled and believes it is in substantial
compliance where readily achievable with current regulations relating to
accommodating the disabled.
(d) Financial Information About Geographic Areas
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. See note 14 of the
Company's Notes to Consolidated Financial Statements for information on the
Company's revenues and long-lived assets in the United States and Canada,
Mexico, Brazil and other foreign countries for the three years ended December
31, 1998, 1999 and 2000.
(e) Available Information
The Company files reports, information statements and other information,
including this Annual Report on Form 10-K, with the Securities and Exchange
Commission (the "Commission"). Copies of such materials can be obtained by mail
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. You may also obtain information on the operation of the
Public Reference Room by calling the Commission at 1-800-SEC-0330. Additionally,
the Commission maintains an Internet site that contains reports, proxy and
information statements, and other information regarding issuers that file
electronically with the Commission at http://www.sec.gov.
Item 2: Properties
Of the 190 theatres (2,217 screens) operated by the Company in the U.S. and
Canada at March 21, 2001, 31 theatres (472 screens) were owned and 159 theatres
(1,745 screens) are leased pursuant to building leases. The Company's leases are
generally entered into on a long term basis with terms (including options)
generally ranging from 20 to 40 years. Approximately 6% of the Company's theatre
leases in the U.S. and Canada (covering 60 screens) have remaining terms
(including optional renewal periods) of less than five years and approximately
81% of the Company's theatre leases in the U.S. and Canada (covering 1,524
screens) have remaining optional terms (including optional renewal periods) of
more than 15 years. Rent is typically calculated as a percentage of box office
receipts or total theatre revenues, subject to an annual minimum. The Company
leases an office building in Plano, Texas for its corporate office. See note 10
of the Company's Notes to Consolidated Financial Statements for information with
respect to the Company's lease commitments.
As of March 21, 2001, the Company operated 83 theatres (721 screens) outside
of the U.S. and Canada, all of which are leased pursuant to ground or building
leases. The leases generally provide for contingent rental based upon operating
results (some of which are subject to an annual minimum). Generally, these
leases will include renewal options for various periods at stipulated rates. The
Company attempts to obtain lease terms that provide for build-to-suit
construction obligations of the landlord. No foreign leases have remaining terms
of less than five years, and approximately 90% of the Company's foreign leases
(660 screens) have remaining terms (including optional renewal periods) of more
than 15 years.
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The Company periodically reviews the profitability of each of its theatres,
particularly those whose lease terms are about to expire, to determine whether
to continue its operations. In 2000, the Company sold or closed (as a result of
the expiration or settlement of the lease term) approximately 20 screens. The
closings of these theatres did not have a material effect on the Company's
financial position, results of operations and cash flows.
Item 3: Legal Proceedings
El Paso Litigation
On December 10, 1997, Jose G. Lara, E.J. Lozano, Alfredo Juarez, G. Tim
Hervey, Earl L. Harbeck, Volar Center for Independent Living, Luis Enrique Chew,
Desert Adapt and Myra Murillo (the "Lara Case") filed suit in the United States
District Court, Western District of Texas, El Paso Division, against the Company
alleging certain violations of the Americans with Disabilities Act of 1990 (the
"ADA"). In August 1998, the district judge presiding over the case granted
plaintiffs motion for summary judgment ruling that 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 judgment in favor
of the Company holding that the Company's theatre subject to the Lara lawsuit
complied with the ADA. As a result of the Lara decision by the Fifth Circuit
Court of Appeals, similar cases filed in Austin, Houston, Beaumont and Mission,
Texas have been dismissed with prejudice.
DOJ Litigation
In March 1999, the DOJ filed suit in the United States District Court,
Northern District of Ohio, Eastern Division, against the Company alleging
certain violations of the ADA relating to patrons using wheelchairs. The Company
is vigorously defending this suit. Although the Company is unable to predict the
outcome of this litigation, management believes the Company's potential
liability with respect to such proceeding is not material in the aggregate to
the Company's financial position, results of operations and cash flows.
Oregon Litigation
On February 3, 2000, Barbara Cornilles, Edwin Cornilles, Dorothy Johnson,
Damara Paris, Stephen Purvis, George Scheler, Susan Teague, and Jackie Woltring
filed suit in The United States District Court for the District of Oregon
against the Company, Regal Cinemas, Inc., Century Theatres, Inc., and Carmike
Cinemas, Inc. alleging certain violations of the ADA relating to accessibility
of movie theatres for deaf patrons. The Company has filed an answer denying the
allegations. Although the Company is unable to predict the outcome of this
litigation, management believes the Company's potential liability with respect
to such proceeding is not material in the aggregate to the Company's financial
position, results of operations and cash flows.
Unsolicited Facsimile Litigation
Jerry Galow and Watson, Bishop, London & Galow, P.C., both individually and
on behalf of all others similarly situated v. Cinemark USA, Inc. and American
Blast Fax, Inc., Cause No. GN003299, in the 98th Judicial District Court of
Travis County, Texas. On or about November 14, 2000, Plaintiffs Jerry Galow and
Watson, Bishop, London & Galow, P.C. (the "plaintiffs") brought this alleged
class action on behalf of themselves and purportedly on behalf of all others
similarly situated. The plaintiffs are an individual and his law firm who allege
that they were sent unsolicited facsimile advertisements on behalf of the
Company in violation of federal and state law. The plaintiffs seek certification
of the case as a class action and the right to recover on their own behalf and
on behalf of the alleged class $500 per alleged violation, three times the
damages available for knowing and/or willful violations of those statutes, or
alternatively, punitive damages, and unspecified damages for the alleged
negligence per se of the Company. The Company was successful in having this case
moved to Collin County, Texas. The Company is vigorously defending this suit.
Although the Company is unable to predict the outcome of this litigation,
management believes the Company's potential liability with respect to such
proceeding is not material in the aggregate to the Company's financial position,
results of operations and cash flows.
From time to time, the Company is involved in other various legal
proceedings arising from the ordinary course of its business operations, such as
personal injury claims, employment matters and contractual disputes. The Company
believes its potential liability with respect to proceedings currently pending
is not material in the aggregate to the Company's financial position, results of
operations and cash flows.
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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 fourth quarter of the fiscal year covered by this report through the
solicitation of proxies or otherwise.
PART II
Item 5: Market for Registrant's Common Equity and Related Stockholder Matters
There is no established public trading market for the Company's Common
stock. As of March 21, 2001, there were 17 holders of record of the Company's
Common stock. The Company has not paid dividends on its Common stock and does
not expect to pay dividends on its Common stock in the foreseeable future. The
Subordinated Notes Indentures and the Credit Facility contain restrictions on
the Company's ability to pay dividends on its Common stock.
Item 6: Selected Financial Data
The following tables set forth selected consolidated financial data for the
Company for the periods and at the dates indicated for each of the five most
recent fiscal years ended December 31, 2000. This information should be read in
conjunction with Management's Discussion and Analysis of Financial Condition and
Results of Operations and the Company's Consolidated Financial Statements,
including the notes thereto, included elsewhere in this report.
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SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA(1)
Year Ended December 31,
-----------------------
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
(In thousands, except theatres, per share, screen and ratio data)
STATEMENT OF OPERATIONS DATA
(CONSOLIDATED):
Revenues $ 341,731 $ 434,598 $ 571,219 $ 712,604 $ 786,264
Theatre operating costs 262,138 322,462 433,259 553,482 613,007
General and administrative expenses 23,486 27,598 32,947 34,833 39,013
Depreciation and amortization 19,417 25,373 37,197 53,269 66,111
Asset impairment loss 2,382 2,214 9,950 3,720 3,872
(Gain) loss on sale of assets (10,998) (189) (2,266) 2,420 912
Operating income 45,306 57,140 60,131 64,881 63,348
Interest expense(2) 20,376 33,487 43,014 59,867 74,037
Income (loss) before extraordinary
items and cumulative effect of an
accounting change 14,616 15,019 11,009 4,004 (10,423)
Net income (loss)(3) 5,230 14,705 11,009 1,035 (10,423)
Diluted earnings (loss) per share:
Before extraordinary items and
cumulative effect of an accounting
change 79.93 80.45 59.01 20.88 (58.30)
Net income (loss) 28.60 78.77 59.01 5.40 (58.30)
Shares outstanding 180 178 178 178 179
OTHER FINANCIAL DATA (CONSOLIDATED):
Cash flow from (used for)
Operations $ 58,754 $ 61,577 $ 66,570 $ 97,365 $ 62,681
Investing activities (177,423) (229,302) (248,543) (228,484) (91,665)
Financing activities 119,690 185,424 175,907 115,104 40,174
Theatre level cash flow(4) 79,593 112,136 137,960 159,122 173,256
EBITDA(5) 61,186 87,313 107,457 128,233 141,978
Ratio of earnings to fixed
charges(6) 1.65x 1.49x 1.38x 1.06x 0.86x
OPERATING DATA:
United States and Canada
Theatres operated (at period end)(7) 158 155 173 185 190
Screens operated (at period end)(7) 1,339 1,437 1,813 2,102 2,217
Total attendance 63,774 74,592 85,693 90,996 92,425
International
Theatres operated (at period end)(8) 11 18 38 69 80
Screens operated (at period end)(8) 114 187 367 606 695
Total attendance 8,675 11,668 20,875 39,938 46,152
BALANCE SHEET DATA (CONSOLIDATED):
Cash and temporary cash investments $ 14,383 $ 32,120 $ 25,646 $ 8,872 $ 19,840
Theatre properties and equipment-net 377,421 548,942 749,692 933,959 950,135
Total assets 432,905 661,597 882,673 1,041,861 1,060,576
Total long-term debt, including
current portion 297,206 463,501 631,649 778,413 810,323
Shareholders' equity 57,363 69,982 75,800 63,851 48,910
- ----------
(1) Certain reclassifications have been made to December 31, 1996, 1997, 1998
and 1999 amounts to conform with the 2000 presentation.
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(2) Includes amortization of debt issue cost and debt discount and excludes
capitalized interest of $3.9 million, $2.2 million, $4.4 million, $4.3
million and $0.6 million in 1996, 1997, 1998, 1999 and 2000,
respectively.
(3) In 1996, an extraordinary loss of $9.0 million (net of related tax
benefit) was recognized in connection with the premium paid and the
write-off of the unamortized debt issue costs associated with the Senior
Notes repurchased. In 1997, an extraordinary loss on early
extinguishment of debt of $0.3 million (net of tax benefit) was
recorded. In 1999, a cumulative effect of a change in accounting
principle charge of $3.0 million (net of related tax benefit) was
recorded in connection with the Company's adoption of Statement of
Position (SOP) 98-5 requiring start-up activities and organization costs
to be expensed as incurred.
(4) Revenues less theatre operating costs (which is not a measure of
financial performance under generally accepted accounting principles)
("GAAP"). Theatre level cash flow is a financial measure commonly used
in the Company's industry and should not be construed as an alternative
to cash flow from operations (as determined in accordance with GAAP) as
an indicator of operating performance or as a measure of liquidity.
(5) Represents net income (loss) before depreciation and amortization, asset
impairment loss, (gain) loss on sale of assets, interest expense,
amortization of debt issue cost and debt discount, interest income,
foreign currency exchange gain (loss), equity in income (loss) of
affiliates, minority interests in (income) loss of subsidiaries, income
taxes, extraordinary items and cumulative effect of a change in
accounting principle, changes in deferred lease expense and accrued and
unpaid compensation expense relating to any stock option plans. EBITDA
is a financial measure commonly used in the Company's industry and
should not be construed as an alternative to cash flows from operating
activities (as determined in accordance with GAAP), as an indicator of
operating performance or as a measure of liquidity. Other definitions of
EBITDA may not be comparable with this calculation.
(6) For the purpose of calculating the ratio of earnings to fixed charges,
(i) earnings consist of income (loss) before income taxes, extraordinary
items and cumulative effect of a change in accounting principle plus
fixed charges excluding capitalized interest and (ii) fixed charges
consist of interest expense, capitalized interest, amortization of debt
issue and debt discount and the portion of rental expense which is
deemed to be representative of the interest factor.
(7) The data as of period end 1996, 1997, 1998, 1999 and 2000 excludes
certain theatres operated by the Company in the United States and Canada
pursuant to management agreements that are not part of the Company's
consolidated operations.
(8) The data as of period end 1996, 1997 and 1998 excludes certain theatres
operated internationally through affiliates of the Company that are not
part of the Company's consolidated operations.
Item 7: Management's Discussion and Analysis of Financial Condition and
Results of Operations
OVERVIEW
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 Consolidated Financial Statements, including the notes thereto,
appearing elsewhere in this report.
The Company's revenues are generated primarily from box office receipts
and concession sales. The Company's revenues are affected by changes in
attendance and average admission and concession revenues per patron. Attendance
is primarily affected by the commercial appeal of the films released during the
period or year reported. Since the Company's formation, attendance has grown
principally from the development and acquisition
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of theatres. The Company has generally experienced increases in average
admission and concession revenues per patron from ticket and concession price
increases as well as the development of theatres in markets that can support
higher ticket and concession prices. Additional revenues related to theatre
operations are generated by screen advertising, pay phones, ATM charges 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 based on a percentage of
admissions revenues as determined by film license agreements. Advertising cost
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. However, advertising
costs have remained relatively constant when expressed as a percentage of
revenues as screen growth results in the addition of new or larger directory ads
which help drive revenues. 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.
The results of operations of acquired theatres are included in the Company's
Consolidated Financial Statements from their date of acquisition. Fiscal years
ended December 31, 1998, 1999 and 2000 are not directly comparable due to the
effects of new theatre openings, acquired theatres and the impact of the debt
service associated with certain financings undertaken. Theatre closings have had
no significant effect on the operations of the Company.
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RESULTS OF OPERATIONS
Set forth below is a summary of operating revenues and expenses, certain
income statement items expressed as a percentage of revenues, average screen
count and revenues per average screen count for the three most recent fiscal
years ended December 31.
1998 1999 2000
---------- ---------- ----------
OPERATING DATA (in millions):
Revenues
Admissions $ 363.2 $ 459.3 $ 511.3
Concessions 192.1 221.1 235.7
Other 15.9 32.2 39.3
---------- ---------- ----------
Total revenues $ 571.2 $ 712.6 $ 786.3
========== ========== ==========
Cost of operations
Film rentals and advertising $ 197.2 $ 246.4 $ 271.0
Concession supplies 30.4 38.2 42.0
Salaries and wages 69.4 82.9 86.7
Facility leases 61.3 89.8 108.5
Utilities and other 75.0 96.2 104.8
---------- ---------- ----------
Total cost of operations $ 433.3 $ 553.5 $ 613.0
========== ========== ==========
OPERATING DATA AS A PERCENTAGE OF TOTAL REVENUES(1):
Revenues
Admissions
Concessions 63.6% 64.5% 65.0%
Other 33.6 31.0 30.0
Total revenues 2.8 4.5 5.0
---------- ---------- ----------
100.0 100.0 100.0
Cost of operations
Film rentals and advertising(1) 54.3 53.6 53.0
Concession supplies(1) 15.8 17.3 17.8
Salaries and wages 12.1 11.6 11.0
Facility leases 10.7 12.6 13.8
Utilities and other 13.1 13.5 13.3
Total cost of operations 75.8 77.7 77.9
General and administrative expenses 5.8 4.9 5.0
Depreciation and amortization 6.5 7.5 8.4
Asset impairment loss 1.7 0.5 0.5
(Gain) loss on sale of assets (0.4) 0.3 0.1
Operating income 10.5 9.1 8.1
Interest expense(2) 7.5 8.4 9.4
Net income (loss) before cumulative effect of an
accounting change 3.9 0.6 (1.3)
Net income (loss) 1.9 0.1 (1.3)
Year Ended December 31,
---------------------------------------------
1998 1999 2000
---------- ---------- ----------
Average screen count (month end average) 1,879 2,452 2,813
========== ========== ==========
Revenues per average screen count $ 303,991 $ 290,612 $ 279,541
========== ========== ==========
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(1) All costs are expressed as a percentage of total revenues, except film
rentals and advertising, which are expressed as a percentage of admissions
revenues, and concession supplies, which are expressed as a percentage of
concessions revenues.
(2) Includes amortization of debt issue cost and debt discount and excludes
capitalized interest of $4.4 million, $4.3 million and $0.6 million in 1998,
1999 and 2000, respectively.
COMPARISON OF YEARS ENDED DECEMBER 31, 2000 AND DECEMBER 31, 1999
Revenues. Revenues in 2000 increased to $786.3 million from $712.6 million,
a 10.3% increase. The increase in revenues is primarily attributable to a 5.8%
increase in attendance as the result of the first full year of operations of 528
screens opened in 1999 and the net addition of 204 screens in 2000. Revenues
were also positively impacted by an increase in admission and concession
revenues per patron of 3.7% and an increase in other revenues (primarily screen
advertising) of 22.0%. Revenues per average screen decreased 3.8% to $279,541
for 2000 from $290,612 for 1999.
Cost of Operations. Cost of operations, as a percentage of revenues,
increased to 77.9% in 2000 from 77.7% in 1999. The increase as a percentage of
revenues resulted from an increase in concession supplies as a percentage of
concession revenues to 17.8% in 2000 from 17.3% in 1999 primarily as a result of
the greater number of international theatres in operation and an increase in
facility lease expense as a percentage of revenues to 13.8% in 2000 from 12.6%
in 1999. These increases were partially offset by a decrease in film rentals and
advertising expense as a percentage of admission revenues to 53.0% in 2000 from
53.6% in 1999, a decrease in salaries and wages as a percentage of revenues to
11.0% in 2000 from 11.6% in 1999 and a decrease in utilities and other expense
as a percentage of revenues to 13.3% in 2000 from 13.5% in 1999.
General and Administrative Expenses. General and administrative expenses, as
a percentage of revenues, increased to 5.0% in 2000 from 4.9% in 1999. The
absolute level of general and administrative expenses increased to $39.0 million
for 2000 from $34.8 million for 1999. The increase in general and administrative
expenses is attributed to costs (primarily salaries and wages) associated with
the Company's foreign expansion program and the additional rent expense
associated with the Company's corporate office which was sold and leased back in
December 1999.
Depreciation and Amortization. Depreciation and amortization increased $12.8
million in 2000 to $66.1 million from $53.3 million in 1999, an increase of
24.0%. The increase is primarily a result of the net addition of $85.7 million
in theatre property and equipment during 2000, a 7.7% increase over 1999. 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 $3.9
million in 2000 and $3.7 million in 1999 pursuant to Statement of Financial
Accounting Standards No. 121 ("SFAS 121"). In accordance with SFAS 121, the
Company wrote down the assets of certain theatres to their fair value.
(Gain) Loss on Sale of Assets. The Company recorded a loss on sale of assets
of $0.9 million in 2000 and $2.4 million in 1999.
Interest Expense. Interest costs incurred, including amortization of debt
issue cost and debt discount, increased 16.4% to $74.7 million (including the
capitalization of $0.6 million of interest to properties under construction)
from $64.2 million in 1999 (including the capitalization of $4.3 million of
interest to properties under construction). The increase in interest costs
incurred during 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 facilities.
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Income Taxes. Income tax expense of $0.3 million was recorded in 2000 as
compared to income tax expense of $3.7 million in 1999. The Company's effective
tax rate for 2000 was (2.5%) as compared to 48.1% in 1999.
Net Income (Loss) Before Cumulative Effect of an Accounting Change. Net
income (loss) before cumulative effect of an accounting change was $(10.4)
million for 2000 and $4.0 million for 1999. The decrease is primarily related to
the increase in interest expense and depreciation and amortization expense in
2000 in comparison with 1999 partially offset by the reduction of income taxes
in 2000 in comparison with 1999.
COMPARISON OF YEARS ENDED DECEMBER 31, 1999 AND DECEMBER 31, 1998
Revenues. Revenues in 1999 increased to $712.6 million from $571.2
million, a 24.8% increase. The increase in revenues is primarily attributable to
a 18.4% increase in attendance as the result of the first full year of
operations of 585 screens opened in 1998 and the net addition of 528 screens in
1999. Revenues were also positively impacted by an increase in admission and
concession revenues per patron of 3.5% and an increase in other revenues
(primarily screen advertising). Revenues per average screen decreased 4.4% to
$290,612 for 1999 from $303,991 for 1998.
Cost of Operations. Cost of operations, as a percentage of revenues,
increased to 77.7% in 1999 from 75.8% in 1998. The increase as a percentage of
revenues resulted from an increase in concession supplies as a percentage of
concession revenues to 17.3% in 1999 from 15.8% in 1998 as a result of the
greater number of international theatres in operation, an increase in facility
lease expense as a percentage of revenues to 12.6% in 1999 from 10.7% in 1998
and an increase in utilities and other expense as a percentage of revenues to
13.5% in 1999 from 13.1% in 1998. These increases were partially offset by a
decrease in film rentals and advertising expense as a percentage of admission
revenues to 53.6% in 1999 from 54.3% in 1998 and a decrease in salaries and
wages expense as a percentage of revenues to 11.6% in 1999 from 12.1% in 1998.
General and Administrative Expenses. General and administrative
expenses, as a percentage of revenues, decreased to 4.9% in 1999 from 5.8% in
1998. The decrease is primarily attributable to the 24.8% increase in revenues
resulting from screen additions, increases in admissions and concessions per
patron and increased other revenues (primarily screen advertising). The absolute
level of general and administrative expenses increased to $34.8 million for 1999
from $32.9 million for 1998. The increase in general and administrative expenses
is attributed to costs (primarily salaries and wages) associated with the
Company's foreign expansion programs.
Depreciation and Amortization. Depreciation and amortization increased
$16.1 million in 1999 to $53.3 million from $37.2 million in 1998, an increase
of 43.3%. The increase is a result of the net addition of $219.5 million in
theatre property and equipment during 1999, a 24.7% increase over 1998. 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
$3.7 million in 1999 and $9.9 million in 1998 pursuant to Statement of Financial
Accounting Standards No. 121 ("SFAS 121"). In accordance with SFAS 121, the
Company wrote down the assets of certain theatres to their fair value.
(Gain) Loss on Sale of Assets. The Company recorded a loss on sale of
assets of $2.4 million in 1999 and a gain on sale of assets of $2.3 million in
1998.
Interest Expense. Interest costs incurred, including amortization of
debt issue cost and debt discount, increased 35.4% to $64.2 million (including
the capitalization of $4.3 million of interest to properties under construction)
from $47.4 million in 1998 (including the capitalization of $4.4 million of
interest to properties under construction). The increase in interest costs
incurred during 1999 was due principally to an increase in average debt
outstanding resulting from borrowings under the Company's Credit Facility.
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Income Taxes. Income taxes decreased to $3.7 million in 1999 compared
to $11.5 million in 1998. The Company's effective tax rate for 1999 decreased to
48.1% from 51.0% in 1998. The effective rates reflect a reduction in overall
foreign losses which are fully reserved and a reduction in other permanent
differences, primarily goodwill.
Net Income (Loss) Before Cumulative Effect of an Accounting Change. Net
income (loss) before cumulative effect of an accounting change was $4.0 million
for 1999 and $11.0 million for 1998. The decrease is primarily related to the
increase in interest expense and depreciation and amortization expense in 1999
in comparison with 1998 partially offset by the reduction in income taxes in
1999 in comparison with 1998.
INFLATION AND FOREIGN CURRENCY
The vast majority of the equipment and certain operating supplies and
construction interior finish items that the Company's international subsidiaries
use in their operations are imported from the U.S, whereas, principally all the
revenues and operating expenses of the Company's international subsidiaries are
transacted in the country's local currency.
Currency fluctuations result in the Company's reporting exchange gains
or losses or cumulative foreign currency translation adjustments relating to its
international subsidiaries depending on the inflationary environment of the
country in which the Company operates. Generally accepted accounting principles
require that the U.S. dollar be used as the functional currency for the
Company's subsidiaries that operate in highly inflationary economies.
In 1998, the Company was required to utilize the U.S. dollar as the
functional currency of Cinemark de Mexico, S.A. de C.V. for U.S. reporting
purposes in place of the peso due to the highly inflationary economy of Mexico.
Accordingly, devaluations in the peso during 1998 that affected the Company's
investment were charged to exchange gain (loss) rather than to the accumulated
other comprehensive loss account as a reduction of shareholders' equity. An
exchange gain of $567,206 was recognized in 1998 and is included in other income
(expense). In 1999, the economy of Mexico reverted back to a non-highly
inflationary status in which the peso again became the functional currency of
Cinemark de Mexico, S.A. de C.V. resulting in certain assets, liabilities and
equity accounts being restated at the current exchange rate. Accordingly,
changes in the peso have been recorded in the accumulated other comprehensive
loss account as a reduction of shareholders' equity during 1999 and 2000.
In 1998, the economy of Brazil reverted back to non-highly inflationary
status and the functional currency of Cinemark Brasil, S.A. changed from the
U.S. dollar to the Real. Accordingly, assets and liabilities of Cinemark Brasil,
S.A. are translated to U.S. dollars at year-end exchange rates (consistent with
all other non-highly inflationary consolidated foreign subsidiaries). Income and
expense items are translated at the average rates prevailing during the year. As
a result of the devaluation of the Real during 1998, 1999 and 2000, the Company
recorded a cumulative foreign currency translation adjustment to the accumulated
other comprehensive loss account resulting in a reduction of shareholder's
equity of $4.4 million, $11.0 million and $2.3 million in 1998, 1999 and 2000,
respectively.
In 1998, 1999 and a portion of 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 in place of the sucre due to the highly inflationary
economy of Ecuador. Thus, devaluations in the sucre during 1998, 1999 and a
portion of 2000 that affected the Company's investment were charged to exchange
gain (loss) rather than to the accumulated other comprehensive loss account as a
reduction of shareholders' equity. An exchange gain of $223,028, $74,078 and
$32,300 was recognized in 1998, 1999 and 2000 respectively, and is included in
other income (expense). In September 2000, the country of Ecuador officially
switched to the U.S. dollar as the functional currency, effectively eliminating
any exchange gain (loss) in the sucre on a going forward basis.
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In 2000, the remaining countries where the Company operates were not
deemed 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. At December 31, 2000, the
Company's Argentine and Ecuadorian subsidiaries were utilizing the U.S. dollar
as their local functional currency.
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. 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. The major film
distributors generally release during the summer and holiday seasons those films
which they anticipate will be the most successful. Consequently, the Company
typically generates higher revenues during such periods. The Company's cash flow
from operations amounted to $62.7 million, $97.4 million and $66.6 million in
2000, 1999 and 1998, respectively.
The Company's theatres are typically equipped with modern projection
and sound equipment, with approximately 88% of the screens operated by the
Company having been built since 1990. The Company's investing activities have
been principally in connection with new theatre openings and acquisitions of
existing theatres and theatre circuits and have amounted to $91.7 million,
$228.5 million and $248.5 million in 2000, 1999 and 1998, respectively. 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. Cash flow from financing activities amounted to $40.2
million, $115.1 million and $175.9 million in 2000, 1999 and 1998, respectively.
During 2000, the Company opened eight theatres (131 screens) and sold
or closed approximately 20 screens in the U.S. The Company currently estimates
that its capital expenditures for the development of these 41 screens in the
U.S. will be approximately $15 million. Actual expenditures for continued
theatre development and acquisitions during 2001 and thereafter are subject to
change based upon the availability of attractive opportunities for expansion of
the Company's theatre circuit. Additionally, the Company and/or its affiliates
may from time to time, subject to compliance with its debt instruments, purchase
on the open market the Company's debt securities depending upon the availability
and prices of such securities. 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 sales of
excess real estate. At the end of 2000, the Company owned approximately $270
million of real estate and improvements resulting from the development of
multiplex facilities over the last several years.
In August 1996, the Company issued $200 million principal amount of
9-5/8% Series A Senior Subordinated Notes (the "Series A Notes") to qualified
institutional buyers in reliance on Rule 144A of the Securities Act of 1933, as
amended (the "Securities Act"). The Series A 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 A Notes (net of
discount, fees and expenses) were approximately $193.2 million. In November
1996, the Company completed an offer to exchange $200 million principal amount
of 9-5/8% Series B Senior Subordinated Notes (the "Series B Notes") due 2008
which were registered under the Securities Act for a like principal amount of
the Series A Notes. Interest on the Series B Notes is payable semi-annually on
February 1 and August 1 of each year.
In June 1997, the Company issued $75 million principal amount of 9-5/8%
Series C Senior Subordinated Notes (the "Series C Notes") to qualified
institutional buyers in reliance on Rule 144A of the Securities Act. The
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Series C Notes were issued at 103% of the principal face amount. The net
proceeds to the Company from the issuance of the Series C Notes (net of
discount, fees and expenses) were approximately $77.1 million. In October 1997,
the Company completed an offer to exchange $75 million principal amount of
9-5/8% Series D Senior Subordinated Notes (the "Series D Notes") due 2008 which
were registered under the Securities Act for a like principal amount of the
Series C Notes. Interest on the Series D Notes is payable semi-annually on
February 1 and August 1 of each year.
In January 1998, the Company issued $105 million principal amount of
8-1/2% Series A Senior Subordinated Notes (the "Series A Notes") to qualified
institutional buyers in reliance on Rule 144A of the Securities Act. The Series
A Notes were issued at 99.0% of the principal face amount. The net proceeds to
the Company from the issuance of the Series A Notes (net of discount fees and
expenses) were approximately $103.8 million. In March 1998, the Company
completed an offer to exchange $105 million principal amount of 8-1/2% Series B
Senior Subordinated Notes (the "Series B Notes") due 2008 which were registered
under the Securities Act for a like principal amount of the Series A Notes.
Interest on the Series B Notes is payable semi-annually on February 1 and August
1 of each year.
In February 1998, the Company replaced its existing credit facility
with a reducing, revolving credit agreement ("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. The Credit Facility is a reducing,
revolving credit facility; with commitments automatically reduced each calendar
quarter by 2.5%, 3.75%, 5.0%, 6.25% and 6.25% of the aggregate $350 million 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 under the
Credit Facility are secured by a pledge of a majority of the issued and
outstanding Capital stock of the Company. Pursuant to the terms of the Credit
Facility, funds borrowed currently 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 March 21, 2001, the Company had
borrowed $293 million under the Credit Facility with the average interest rate
on such borrowings being 8.0% 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 a second 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 million 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 a fixed monthly rental payment of $123,000 or $1.5
million annually for the final three years.
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In December 2000, Cinema Properties, Inc., a wholly-owned Unrestricted
Subsidiary (as those terms are defined in the Credit Facility and the Senior
Subordinated Note Indentures), completed a $77 million loan transaction with
Lehman Brothers Bank, FSB (the "Cinema Properties Facility"). The Cinema
Properties Facility is a term loan with a December 31, 2003 maturity date.
Cinema Properties, Inc. has the ability to extend the maturity date two times
for one year each. 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 throughout 2003.
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 the applicable margin. Borrowings are secured by, among other
things, a mortgage placed on six of Cinema Properties, Inc.'s theatres and
certain equipment leases. Cinema Properties, Inc. has a separate legal
existence, separate assets, separate creditors and separate financial
statements. The assets of Cinema Properties, Inc. are not available to satisfy
the debts of any of the other entities included in these consolidated financial
statements. The Cinema Properties Facility also requires Cinema Properties, Inc.
to comply with an interest coverage ratio requirement. 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 three month LIBOR as of the date of closing. Three month
LIBOR as of the date of closing was 6.58%. The net proceeds from the loan (net
of fees and expenses) were $70.9 million. The proceeds were distributed to the
Company, and the Company used such funds to complete the Company's domestic
construction program for 2000 and to reduce outstanding debt under the Company's
existing Credit Facility. As of March 21, 2001, Cinema Properties has
outstanding $77 million under the Cinema Properties Facility, and the average
interest rate on such borrowing was 10.8% per annum.
In 1992, the Company formed Cinemark International to develop and
acquire theatres in international markets. As of March 21, 2001, Cinemark
International, through its affiliates, operated 83 theatres (721 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 March 21, 2001 and the number of
theatres and screens scheduled to open the remainder of 2001.
Planned openings
Year of Operating through 2001
Country Formation Ownership% Theatres/Screens Theatres/Screens
- ------- --------- ---------- ------------------------- -----------------------
Mexico(1) 1992 95% 24 theatres (228 screens) 2 theatres (28 screens)
Chile 1992 98% 12 theatres (88 screens) (5 screen expansion)
Argentina(2) 1995 100% 9 theatres (79 screens)
Brazil 1996 60% 25 theatres (228 screens) 4 theatres (37 screens)
Ecuador 1996 60% 2 theatres (16 screens)
Peru(3) 1996 100% 2 theatres (21 screens)
Central America 1997 50% 7 theatres (45 screens)
Colombia 1998 51% 2 theatres (16 screens) 1 theatre (6 screens)
United Kingdom 1998 100% N/A N/A
Taiwan 1998 51% N/A N/A
Germany 1999 100% N/A N/A
Total 83 theatres (721 screens) 7 theatres (76 screens)
1) The Company's interests in all of the companies located in Mexico have been
designated as a Restricted Subsidiary (as such term is defined in the
Company's debt agreements).
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(2) In 1999, Cinemark International assigned all of its interests in all of the
companies located in Argentina to a subsidiary of the Company. The Company
has designated these operating companies Restricted Subsidiaries (as such
term is defined in the Company's debt agreements).
(3) In 1999, Cinemark International assigned its interests in Peru to the
Company. The Company has designated this operating company as a Restricted
Subsidiary (as such term is defined in the Company's debt agreements).
The Company, through Cinemark International and its affiliates, plans
to invest up to an additional $50 million in international ventures 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 a portion of 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") due
September 2001. 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 as defined in the Cinemark Investments Credit Agreement) as the
case may be. As of March 21, 2001, 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 the Cinemark
Investment Corporation borrowings as of March 21, 2001 is 7.7% per annum.
In September 1998, Cinemark International 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 Cinemark International. Cinemark Theatres U.K. Ltd. has begun
construction on 1 theatre (10 screens) in 2001.
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 50.5% owned by Cinemark
International and 49.5% owned by Core Pacific Ltd. Cinemark-Core Pacific Ltd.
has begun construction on one theatre (10 screens) in 2001.
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 with
Bank of America National Trust and Savings. In September 2000, Cinemark Mexico
and the banks party to the Cinemark Mexico Credit Agreement executed an
amendment which among other things extended the maturity date
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of the Cinemark Mexico Credit Agreement and increased the rate of interest paid
on borrowings thereunder. Pursuant to the amendment, Cinemark Mexico is to make
principal payments of $500,000 in the third and fourth quarters of 2001,
$1,500,000 per quarter in 2002 and the remaining principal outstanding in
January 2003. As of March 21, 2001, Cinemark Mexico has outstanding $30 million
under the Cinemark Mexico Credit Agreement. The effective interest rate on such
borrowings as of March 21, 2001 is 8.4% per annum.
In December 1998, Cinemark International entered into a joint venture
agreement with Casa Editorial El Tiempo S.A., Tempora S.A. and Prodiscos S.A. to
develop state-of-the-art multiplex theatres in Colombia. The joint venture will
conduct its business through Cinemark Colombia, S.A. which is owned 50.1% by
Cinemark International, and the remaining 49.9% is collectively owned by Casa
Editorial El Tiempo S.A., Tempora S.A. and Prodiscos S.A. Cinemark Colombia,
S.A. currently operates two theatres (16 screens) and plans to open one
additional theatre (six screens) in 2001.
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 landlord for the project in Herne, Germany has initiated
insolvency proceedings in Berlin. The Company has filed claims against the
landlord and the bankruptcy estate in the bankruptcy proceedings. The Company is
unable to predict the outcome of these proceedings.
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. At December 31, 2000, all four notes and related
accrued interest have been paid.
In December 1999, the shareholders of Cinemark Brasil, S.A. agreed to
increase the capital of Cinemark Brasil, S.A. in the aggregate amount of
US$9,000,000. Cinemark International, through Cinemark Empreendimentos e
Participacoes, Ltda., funded US$2,686,000 in December 1999 and an additional
US$3,283,500 in April 2000. The remaining amounts were funded by the other
shareholders. The proceeds of the additional capital contribution were used for
the continued expansion of Cinemark Brasil, S.A.
Year 2000 Compliance
The Company recognized that the arrival of the Year 2000 posed a unique
worldwide challenge to the ability of all systems to recognize the date change
from December 31, 1999 to January 1, 2000, and like other companies, spent a
considerable amount of time prior to that date updating its computer
applications and business processes to ensure their continued functionality in
the Year 2000 and beyond.
Prior to January 1, 2000, the necessary modifications to the day-to-day
operating and reporting systems for all theatres in the U.S. and various
international corporate offices were successfully completed to ensure compliance
in the year 2000 and beyond.
New Accounting Pronouncements
On January 1, 1999 the Company adopted Statement of Position (SOP) 98-5
requiring start-up activities and organization costs to be expenses 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
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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.
Statement of Financial Accounting Standards No. 133 ("SFAS 133"),
"Accounting for Derivative Instruments and Hedging Activities", is effective for
the Company as of January 1, 2001. SFAS 133, as amended, establishes accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. Under SFAS
133, certain contracts that were not formerly considered derivatives may now
meet the definition of a derivative. Adoption of SFAS 133 did not have, and is
not expected to have, a significant impact on the financial position or results
of operations of the Company.
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. The Company undertakes no
obligation to publicly update such forward-looking statements to reflect
subsequent events or circumstances.
Item 7A: 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 December 31, 2000 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 December 31, 2000, there was an aggregate of approximately $430 million of
variable rate debt outstanding under these facilities. These facilities
represent approximately 53% 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:
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1999 1999 2000 2000
(in millions) Carrying Amount Fair Market Value Carrying Amount Fair Market Value
--------------- ----------------- --------------- -----------------
Long-term debt:
Fixed Rate $392 $439 $380 $404
Variable Rate $386 $394 $430 $435
---- ---- ---- ----
$778 $833 $810 $839
==== ==== ==== ====
The Company is exposed to market risk arising from changes in foreign
currency exchange rates as a result of its international operations. See Item 7
- - "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Results of Operations - Inflation and Foreign Currency," which
information is incorporated herein by reference.
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 the
applicable margin. 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 three month LIBOR as of the date of closing. The three month LIBOR as
of the date of closing was 6.58%. The fair value of the interest rate cap
approximates the carrying value of approximately $1.7 million at December 31,
2000.
Item 8: Financial Statements and Supplementary Data
The financial statements and supplementary data are listed on the Index
at F-1. Such financial statements and supplementary data are included herein
beginning on page F-3.
Item 9: Changes in and Disagreements on Accounting and Financial Disclosure
None.
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PART III
Item 10: Directors and Executive Officers of the Registrant
The Directors and executive officers of the Company are:
NAME AGE POSITION
---- --- --------
Lee Roy Mitchell* 64 Chairman of the Board; Chief Executive Officer; Director
Tandy Mitchell 50 Vice Chairman of the Board; Executive Vice President;
Secretary; Director
Alan W. Stock+ 40 President; Chief Operating Officer; Director
Robert D. Copple 42 Senior Vice President; Treasurer; Chief Financial Officer; Assistant
Secretary
Robert F. Carmony 43 Senior Vice President-Director of Operations
Margaret E. Richards 42 Vice President-Real Estate; Assistant Secretary
John Lundin 51 Vice President-Film Licensing
Walter Hebert 55 Vice President-Purchasing
Don Harton 43 Vice President-Construction
Randy Hester 48 Vice President-Marketing
Philip Wood 37 Vice President-Information Systems
Michael Cavalier 34 Vice President-General Counsel
W. Bryce Anderson*+ 58 Director
Heriberto Guerra, Jr.+ 51 Director
James A. Stern 50 Director
James L. Singleton+ 45 Director
Denny Rydberg 56 Director
- ----------
* Member Audit Committee
+ Member Compensation Committee
The Shareholders' Agreement (as defined herein) contains a voting agreement
pursuant to which Mr. Mitchell agreed to vote his share of Common stock of the
Company to elect designees of Cypress Advisors L.P. ("CALP") to the Board of
Directors of the Company. As of March 21, 2001, CALP had the right to designate
two board members. Additionally, the Shareholders' Agreement provides that the
Company must obtain the written consent of CALP for certain corporate acts.
The Directors of the Company are elected each year by the shareholders to
serve for a one-year term and until their successors are elected and qualified.
Directors of the Company are reimbursed for expenses actually incurred for each
Board meeting which they attend. In addition, Directors who are not employees of
the Company receive a fee of $1,000 for each meeting of the Board of Directors
attended by such person. The executive officers of the Company are elected by
the Board of Directors to serve at the discretion of the Board.
The following is a brief description of the business experience of the
Directors and executive officers of the Company for at least the past five
years. All compensation of Directors and officers is paid by the Company.
Lee Roy Mitchell has served as Chairman of the Board since March 1996 and
as Chief Executive Officer and a Director of the Company since its inception in
1987. Mr. Mitchell was Vice Chairman of the Board of Directors
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from March 1993 to March 1996 and was President of the Company from its
inception in 1987 until March 1993. From 1985 to 1987, Mr. Mitchell served as
President and Chief Executive Officer of a predecessor corporation. Mr. Mitchell
has served on the Board of Directors of the National Association of Theatre
Owners since 1991. Mr. Mitchell has been engaged in the motion picture
exhibition business for more than 37 years.
Tandy Mitchell has served as Vice Chairman of the Board since March 1996,
as a Director of the Company since April 1992, as Executive Vice President of
the Company since October 1989 and as Secretary of the Company since its
inception in 1987. Mrs. Mitchell was General Manager of the theatre division of
a predecessor corporation from 1985 to 1987. From 1978 to 1985, Mrs. Mitchell
was employed by Southwest Cinemas Corporation, most recently as Director of
Operations. Mrs. Mitchell is the wife of Lee Roy Mitchell.
Alan W. Stock has served as President of the Company since March 1993, as a
Director of the Company since April 1992 and as Chief Operating Officer of the
Company since March 1992. Mr. Stock was Senior Vice President of the Company
from October 1989 to March 1993. Mr. Stock was General Manager of the Company
from its inception in 1987 to March 1992. Mr. Stock was employed by the theatre
division of a predecessor corporation from January 1986 to December 1987 as
Director of Operations. From 1981 to 1985, he was employed by Consolidated
Theaters, most recently as District Manager.
Robert D. Copple has served as Senior Vice President and Chief Financial
Officer since August 2000 and acting Chief Financial Officer since March 2000.
From August 1997 to March 2000, Mr. Copple was President of PBA Development,
Inc., an investment management and venture capital company. From June 1993 to
July 1997, Mr. Copple was Director of Finance for the Company. Prior to joining
the Company, Mr. Copple was a Senior Manager with Deloitte & Touche, LLP where
he was employed from 1982 to 1993.
Robert F. Carmony has served as Senior Vice President-Director of
Operations since July 1997, as Vice President-Director of Operations since March
1996 and has served as Director of Operations of the Company since June 1988.
Prior to joining the Company, Mr. Carmony was owner of O.C. Enterprises, a
software development firm, from 1986 to 1988. Prior to forming his own software
company, Mr. Carmony worked for Plitt-Cineplex Odeon theatres from 1985 to 1986.
He worked as a Systems Analyst for Electronic Data Systems (EDS) from 1984 to
1985.
Margaret E. Richards has served as a Vice President and Assistant Secretary
of the Company since October 1989 and as Vice President-Real Estate since March
1994. Ms. Richards has been Director of Leasing of the Company since its
inception in 1987 and was employed by the theatre division of a predecessor
corporation in its real estate department from August 1986 to December 1987.
John Lundin has served as Vice President-Film Licensing of the Company
since September 2000. From September 1994 to September 1997, Mr. Lundin was a
film buyer for the Company and became the Head Film Buyer from 1997 to 1999.
Prior to joining the Company, Mr. Lundin was Vice President - Sales Manager of
Cannon Pictures. He has also held the positions of Vice President - Assistant
General Sales Manager for Columbia Pictures and Head Film Buyer for Litchfield
Theatres. Mr. Lundin has twenty-eight years of experience in the motion picture
exhibition business.
Walter Hebert has served as Vice President-Purchasing of the Company since
July 1997 and was the Director of Purchasing from October 1996 until July 1997.
Mr. Hebert was the President of 2 Day Video, Inc., a 21-store video chain that
was a subsidiary of the Company, from December 1995 until October 1996. Prior to
joining the Company, Mr. Hebert worked for Dillards Department Stores from 1973
to 1993, serving as a Divisional Merchandise Manager in the Arkansas Division
from 1981 until 1993.
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34
Don Harton has served as Vice President-Construction since July 1997. From
August 1996 to July 1997, Mr. Harton was Director of Construction of the
Company. Prior to joining the Company in August 1996, Mr. Harton was an
architect with Urban Architecture, where he was employed from October 1983 until
July 1996.
Randy Hester has served as Vice President-Marketing since July 1997. From
January 1989 to July 1997, Mr. Hester was Director of Corporate Development of
the Company. Prior to joining the Company in January 1989, Mr. Hester was Chief
Financial Officer of Presidio Theatres in Austin, Texas, where he was employed
from 1986 to 1989.
Philip Wood has served as Vice President-Information Systems since July
1997. From February 1988 to July 1997 Mr. Wood was MIS Director of the Company.
Prior to joining the Company in February 1988, Mr. Wood was a systems organizer
with Electronic Data Systems where he was employed from 1986 to 1988.
Michael Cavalier has served as Vice President-General Counsel of the
Company since July 1999. From July 1997 to July 1999, Mr. Cavalier was General
Counsel of the Company and from July 1993 to July 1997 was Associate General
Counsel of the Company. Prior to joining the Company in July 1993, Mr. Cavalier
was an associate attorney at the Dallas office of Akin, Gump, Strauss, Hauer &
Feld, L.L.P.
W. Bryce Anderson has served as a Director of the Company since June 1992.
Mr. Anderson is currently Chairman of the Board of Ennis Paint, Inc., an
industrial paint and plastics manufacturer, and is also Chairman of the Board
and CEO of Shawnee Steel Company. Mr. Anderson has been Chairman of the Board of
Directors of Ennis Steel Industries, Inc., a steel fabricator, since 1980 and
Chairman of the Board of Directors of Reflex Glass Bead Co., Inc., a
manufacturer of glass beads, since September 1990. Mr. Anderson was Chairman of
the Board of Centerline Industries, Inc., an industrial paint manufacturer, from
January 1989 to December 1992. From 1976 to 1989, Mr. Anderson was Chairman of
the Board of Directors and Chief Executive Officer of Ennis Paint Manufacturing,
Inc., an industrial paint manufacturer.
Heriberto Guerra, Jr. has served as a Director of the Company since
December 1993. Mr. Guerra is Executive Vice President-National Constituency
Relations for SBC Communications Inc. Mr. Guerra began his career with
Southwestern Bell in 1978 and has progressed through a number of positions in
customer services and external affairs. He also served as Managing
Director-Corporate Development for SBC Communications Inc. and as President of
Southwestern Bell International Development. Prior to that, he served in an
owner or manager capacity for various hotel, restaurant and movie theatre
businesses in Texas. Mr. Guerra is also a director of Cinemark Mexico (USA),
Inc., Play-By-Play Toys and Novelties, M.T.C., Inc. and The Congressional
Hispanic Caucus Institute. He also serves on the UTSA Development Board, The
Laredo National Bank Advisory Board, United States Hispanic Chamber of Commerce
Senior Executive Council Advisory Board and was Chairman for 2000 for the San
Antonio Hispanic Chamber of Commerce.
James A. Stern was elected Director of the Company in March 1996. Mr. Stern
has been Chairman of The Cypress Group L.L.C. ("Cypress Group") since its
formation in April 1994. Prior to joining Cypress Group, Mr. Stern spent his
entire career with Lehman Brothers Bank, FSB, an investment banking firm, most
recently as head of the Merchant Banking Group. He served as head of Lehman's
High Yield and Primary Capital Markets Groups, and was Co-Head of Investment
Banking. In addition, Mr. Stern was a member of the firm's Operating Committee.
Mr. Stern also serves on the board of directors of Amtrol, Inc., FNC Holdings,
WESCO International, Inc. and Lear Corporation.
James L. Singleton was elected Director of the Company in March 1996. Mr.
Singleton has been Vice Chairman of Cypress since its formation in April 1994.
Prior to joining Cypress Group, Mr. Singleton was a Managing Director with
Lehman Brothers Bank, FSB, an investment banking firm. Mr. Singleton also serves
on
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35
the board of directors of Genesis Health Ventures, Inc., William Scotsman, Inc.,
WESCO International, Inc., ClubCorp, Inc., Danka Business Systems PLC,
Homeruns.com and Thebault Company.
Denny Rydberg was elected Director of the Company in July 1997. Mr. Rydberg
has been President of Young Life since July 1993. Prior to joining Young Life,
Mr. Rydberg was Director of University Ministries at University Presbyterian
Church, Vice President of Youth Specialties and Director of Operations for
Inspirational Films.
Item 11: Executive Compensation
SUMMARY COMPENSATION TABLE
Long Term
Compensation
Annual Compensation Awards
----------------------------- ------------
Securities
Underlying All Other
Salary (A) Bonus Options/SARs Compensation
Name and Principal Position Year ($) ($) (#) ($)
- ------------------------------------------ ---- ---------- --------- ------------- ------------
Lee Roy Mitchell, Chairman of the Board 2000 431,378 -0- -- 12,700(B)
and Chief Executive Officer 1999 392,162 -0- -- 118,040(C)
1998 356,511 1,643,489 -- 118,040(C)
Alan W. Stock, President and Chief 2000 342,375 79,804(E) -- 7,875(D)
Operating Officer 1999 311,250 -0- -- 7,500(D)
1998 285,000 121,239(F) 300 7,500(D)
Tim Warner, President - 2000 277,640 64,715(E) 7,875(D)
Cinemark International 1999 252,400 -0- -- 7,500(D)
1998 200,000 97,842(F) 300 7,500(D)
Jerry Brand, Vice President - Film 2000 212,645(G) -0- 129,040(H)
Licensing 1999 222,400 -0- -- 7,500(D)
1998 200,000 63,800(F) 150 7,500(D)
Robert D. Copple, Senior Vice President 2000 250,000(J) 58,272(E) -- --
and Chief Financial Officer (I) 1999 -- -- -- --
1998 -- -- -- --
- ----------
(A) Amounts shown include cash and non-cash compensation earned and
received by executive officers as well as amounts earned but deferred
at the election of those officers.
(B) Represents a $1,950 annual contribution to the Company's 401(k) savings
plan and $10,500 representing the value of the use of a Company vehicle
for one year.
(C) Represents $98,844 of life insurance premiums paid by the Company for
the benefit of Mr. Mitchell, a $1,950 annual contribution to the
Company's 401(k) savings plan and $17,246 representing the value of the
use of a Company vehicle for one year.
(D) Represents the Company's annual contribution to the Company's 401(k)
savings plan.
(E) Bonuses were earned in 2000 but were paid in February 2001.
(F) Bonuses were earned in 1998, but were paid in February 1999.
(G) Mr. Brand retired from the Company in July and consulted with the
Company through December 2000. Includes $54,000 in consulting fees paid
by the Company to Mr. Brand.
(H) Represents $75,840 compensation relating to the value of stock options
exercised over the exercise price of $1.00 per share and $53,200
reimbursement for estimated tax obligations incurred upon exercise of
such stock options.
(I) Mr. Copple joined the Company in March 2000.
(J) Represents Mr. Copple's annualized salary. Mr. Copple was acting Chief
Financial Officer from March 2000 and became the Chief Financial
Officer in August 2000.
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Options/SAR Grants in Last Fiscal Year
There were no Options/SAR grants to the named Executive Officers for
fiscal year ended December 31, 2000.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
Number of
Securities Value of
Underlying Unexercised
Unexercised In-The-Money
Options/SARs at Options/SARs at
FY-End (#) FY-End ($)
Shares Acquired on Exercisable/ Exercisable/
Name Exercise (#) Value Realized ($) Unexercisable Unexercisable
Lee Roy Mitchell -- -- -- --
Alan W. Stock -- -- 1,937/180 (A)
Tim Warner -- -- 600/300 (A)
Jerry Brand(B) 160 -- -- ---
Robert D. Copple -- -- -- (A)
- ----------
(A) The Company has the right to call the shares issuable upon exercise of
the options for terminating employees. The call price increases over
the five year vesting period of the options.
(B) Mr. Brand retired from the Company in July 2000 and consulted with the
Company through December 2000. Mr. Brand exercised and received 160
shares of Class B Common stock.
401(k) PENSION PLAN
The Company sponsors a defined contribution savings plan (the "401(k)
Plan") whereby certain employees of the Company or its subsidiaries may (under
current administrative rules) elect to contribute, in whole percentages between
1% and 15% of such employee's compensation, provided no employee's elective
contribution shall exceed the amount permitted under Section 402(g) of the
Internal Revenue Code of 1986, as amended ($10,500 in 2000). A discretionary
matching contribution may be made by the Company annually. In 2000, the Company
made an aggregate $1.0 million discretionary match to the individual accounts.
The Company's matching contribution is subject to vesting and forfeiture. The
Company's contributions vest to individual accounts at the rate of twenty
percent (20%) per year beginning two years from the date of employment. After an
employee has worked for seven years, employees have full and immediate vesting
rights to all of the Company's matching contributions. The Company's
contributions to the accounts of the named Executive Officers are included in
the Summary Compensation Table.
EMPLOYMENT AGREEMENTS
Mr. and Mrs. Mitchell each have an employment agreement with the Company
which contains the terms described below.
Lee Roy Mitchell's 2000 base salary was $431,378 and will increase
thereafter at the rate of 10% per year. In addition, Mr. Mitchell (i) is
entitled to receive an annual bonus, subject to approval by the Board of
Directors,
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which together with base salary may not exceed $2 million, (ii) is reimbursed
for expenses incurred by him in connection with his duties, and (iii) receives
the use of an automobile of his choice to be replaced at his election every
three years, a club membership of his choice, a whole life insurance policy in
the amount of $3.3 million insuring his life during the period of his employment
and any other benefits generally available to the executives of the Company. The
maximum base salary and bonus which Mr. Mitchell is entitled to receive for any
calendar year is limited to $2 million and the payment of any bonus requires
Board of Directors approval. The employment agreement terminates on the earlier
of (i) Mr. Mitchell's death or permanent disability (except with respect to
amounts payable as described in the following sentence) or (ii) December 31,
2001. In the event of Mr. Mitchell's permanent disability, he will be entitled
to receive $10,000 per month for a period of 60 months.
Tandy Mitchell's 2000 base salary was $192,923 and will increase thereafter
at the rate of 10% per year. In addition, Mrs. Mitchell (i) is reimbursed for
expenses incurred by her in connection with her duties and (ii) receives the use
of an automobile of her choice to be replaced at her election every three years,
a whole life insurance policy in the amount of $1.0 million insuring her life
during the period of her employment and any other benefits generally available
to the executives of the Company. The employment agreement terminates on the
earlier of (i) Mrs. Mitchell's death or permanent disability or (ii) December
31, 2001.
The employment agreements of Mr. and Mrs. Mitchell provide that their
employment may be terminated by the unanimous decision of the Board of Directors
of the Company (other than the terminated party) for cause if the terminated
party is convicted of a felony and incarcerated or willfully refuses to perform
any of the duties required under the employment agreement for a period of 60
days after notice from the Board of Directors.
The employment of Mr. and Mrs. Mitchell will be deemed to be constructively
terminated if, among other things, there is a change of control (as defined in
Item 6(c) under Regulation 14A promulgated under the Securities Exchange Act of
1934, as amended) of the Company, a merger or consolidation of the Company, a
sale of all or substantially all of the assets of the Company, or if certain
changes related to their respective status or compensation by the Company occur.
In the event of termination of employment by the Company without cause, Mr. and
Mrs. Mitchell will be entitled to receive the amounts that would otherwise be
paid under their respective employment agreements for the remaining term of such
agreements.
The employment agreements of Mr. and Mrs. Mitchell further provide that
they will be indemnified against certain liabilities that may arise by reason of
their status or service as executive officers of the Company. The employment
agreements of Mr. and Mrs. Mitchell do not prohibit their engaging in activities
competitive with those of the Company, including the acquisition of theatres
(subject to fiduciary duties to the Company imposed by applicable law or
contractual obligation imposed upon Mr. Mitchell by the Shareholders'
Agreement). See "Certain Transactions--Cypress Investment."
STOCK OPTIONS
Employee Stock Option Plan
The Company has established a Nonqualified Stock Option Plan (the "Plan")
under which the Chief Executive Officer of the Company, in his sole discretion,
may grant employees of the Company options to purchase up to an aggregate of
10,685 shares of the Company's Class B Common stock. The Chief Executive Officer
of the Company has the ability to set the exercise price and the term (of up to
ten years) of the options. All options vest at the rate of one-fifth of the
total options granted per year generally beginning one year from the date of
grant, subject to acceleration by the Chief Executive Officer of the Company. An
employee's options are forfeited if the employee is terminated for cause. Upon
termination of an employee's employment with the Company and provided that no
public market exists for any class of Common stock of the Company at such time,
the Company
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has the option to repurchase any shares of Capital stock of the Company that
were acquired by the employee pursuant to the Plan at a specified formula price
based on theatre cash flow.
During 2000, there were no options granted under the Plan. During 2000,
there were 709 options exercised, 115 options forfeited and 159 options
repurchased by the Company. The aggregate purchase price for the options
repurchased by the Company was approximately $266,000. As of March 21, 2001,
there were outstanding under the Plan options to purchase 6,138 shares of the
Company's Class B Common stock.
Independent Director Stock Options
The Company has granted the unaffiliated Directors of the Company options
to purchase up to an aggregate of 900 shares of the Company's Class B Common
stock at an exercise price of $833.34 per share (the "Director Plan"). Effective
April 15, 1995, the Company amended the Director Options to reduce the aggregate
number of shares of Common stock issuable pursuant to the Director Options from
900 to 600 and to reduce the exercise price of the Director Options from $833.34
per share to $1.00 per share. The Director Options vested on June 1, 1997. The
options expire ten years from the date of grant. In December 1998, the Company
granted an unaffiliated Director of the Company options to purchase 200 shares
of the Company's Class B Common stock at an exercise price of $1.00 per share.
The options vest five years from the date of grant and expire ten years from the
date of grant. A Director's options are forfeited if the Director resigns or is
removed from the Board of Directors of the Company.
During 2000, there were no options granted, exercised or forfeited under
the Director Plan. As of March 21, 2001, there were outstanding options to
purchase 800 shares of the Company's Class B Common stock issued to Directors of
the Company.
Long Term Incentive Plan
In November 1998, the Board of Directors approved a Long Term Incentive
Plan (the "1998 Plan") under which the Compensation Committee, in its sole
discretion, may grant employees incentive stock options, non-qualified stock
options, stock appreciation rights, restricted stock awards performance units,
performance shares or phantom stock up to an aggregate of 9,794 shares of the
Company's Class B Common stock. The Compensation Committee has the discretion to
set the exercise price and the term (up to ten years) of the options. All awards
under the 1998 Plan vest at the rate of one-fifth of the total award per year
beginning one year from the date of grant, subject to acceleration by the
Compensation Committee. An employee's award under the 1998 Plan is forfeited if
the employee is terminated for cause. Upon termination of the employee's
employment with the Company, the Company has the option to repurchase the award
at the fair market value of the shares of Class B Common stock vested under such
award provided that no public market exists for any class of Common stock of the
Company.
In January 2000, the Company granted options to purchase 50 shares with an
exercise price of $1,674. The Company believes that the market value of a share
of Class B Common stock on the date of grant did not exceed the option price of
$1,674 and thus no compensation expense was recorded. During 2000, there were no
options exercised and there were 600 options forfeited under the 1998 Plan. As
of March 21, 2001, there were outstanding under the 1998 Plan options to
purchase 4,815 shares of the Company's Class B Common stock.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In January 1995, the Board of Directors established a Compensation
Committee of the Board to study senior management compensation and make
recommendations to the Board of Directors as a whole relating to said
compensation. Messrs. Stock, Anderson, Guerra and Singleton currently serve as
members of the Compensation Committee, with Mr. Stock being the only member who
is an officer or employee of the Company or any of its subsidiaries.
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39
Item 12: Security Ownership of Certain Beneficial Owners and Management
The following table and the accompanying footnotes set forth, as of March
21, 2001, the beneficial ownership of the Company's Common stock by (i) each
person who is known to the Company to own beneficially more than 5% of either
class of its outstanding Common stock, (ii) each director and named executive
officer, and (iii) all officers and Directors as a group:
Combined
Number of Percent
Names and Addresses(1) Title of Class Shares (2) Percent of Class of Classes
- ---------------------- -------------- ---------- ---------------- ----------
Lee Roy Mitchell(3) Class A Common stock 1,500 100.00%
3900 Dallas Parkway 24.37%
Suite 500 Class B Common stock 44,187 23.76%
Plano, TX 75093
CGI Equities, Ltd. Class A Common stock - -
3900 Dallas Parkway 17.87%
Suite 500 Class B Common stock 33,500 18.02%
Plano, TX 75093
Cypress Merchant Banking Class A Common stock -- --
Partners, L.P. 41.86%
65 East 55th St. Class B Common stock 78,469 42.20%
New York, NY 10022
Cypress Pictures Ltd. Class A Common stock -- --
c/o W.S. Walker Co. 2.18%
Second Floor Class B Common stock 4,079 2.19%
Caledonian House
Mary St., P.O. Box 265
George Town, Grand Cayman
Cayman Islands
The Mitchell Special Class A Common stock -- --
Trust 7.82%
3900 Dallas Parkway Class B Common stock 14,667 7.89%
Suite 500
Plano, TX 75093
Alan W. Stock(4) Class A Common stock -- --
3900 Dallas Parkway 1.03%
Suite 500 Class B Common stock 1,937 1.04%
Plano, TX 75093
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40
Robert Copple Class A Common stock -- --
3900 Dallas Parkway *
Suite 500 Class B Common stock 100 *
Plano, TX 75093
Tim Warner(5) Class A Common stock - --
3900 Dallas Parkway *
Suite 500 Class B Common stock 720 *
Plano, TX 75093
Jerry Brand (6) Class A Common stock -- --
3900 Dallas Parkway *
Suite 500 Class B Common stock 160 *
Plano, TX 75093
W. Bryce Anderson Class A Common stock -- --
P.O. Box 404 *
Ennis, TX 75120 Class B Common stock 200 *
Heriberto Guerra, Jr. Class A Common stock - --
1010 N. St. Mary's *
Room 1001 Class B Common stock 200 *
San Antonio, TX 78215
Directors and Officers as a Class A Common stock 1,500 100.00%
Group (17 persons) (7) 26.85%
Class B Common stock 48,832 26.28%
- ----------
* Less than 1%.
(1) Unless otherwise indicated, the Company believes the beneficial owner has
both sole voting and investment powers over such shares.
(2) As of March 21, 2001, 1,500 shares of Class A Common stock and 185,955
shares of Class B Common stock were issued and outstanding. Includes 8,418
shares of Class B Common stock issuable upon the exercise of options that
may be exercised within 60 days of the date of this Report.
(3) Does not include 15,937 shares of Class B Common stock held in trust for
the benefit of certain of Mr. Mitchell's grandchildren and 33,500 shares of
Class B Common stock owned for the benefit of Mr. Mitchell's descendants as
to which Mr. Mitchell disclaims beneficial ownership. Mr. Mitchell is the
co-trustee of such trusts.
(4) Includes 1,877 shares of Class B Common stock issuable upon the exercise of
options that may be exercised within 60 days of the date of this Report.
(5) Includes 720 shares of Class B Common stock issuable upon the exercise of
options that may be exercised within 60 days of the date of this Report.
(6) Mr. Brand retired from the Company in July 2000 and continued consulting
for the Company through December 2000.
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(7) Includes 4,395 shares of Class B Common stock issuable upon the exercise of
options that may be exercised within 60 days of the date of this Report.
Does not include 15,937 shares of Class B Common stock held in trust for
the benefit of certain of Mr. Mitchell's grandchildren and 33,500 shares of
Class B Common stock owned for the benefit of Mr. Mitchell's descendants,
as to which Mr. Mitchell disclaims beneficial ownership. Mr. Mitchell is
the co-trustee of such trusts.
COMMON STOCK
The rights of the holders of Class A and Class B Common stock are identical
except for voting and conversion rights. Each share of Class A Common stock is
entitled to one vote on all matters submitted to a vote of the Company's
shareholders. Class B Common stock is non-voting. Subject to contractual
limitations regarding conversion of Class B Common stock into Class A Common
stock contained in the Shareholders' Agreement and in Stock Transfer Restriction
Agreements between the Company and certain former employees, each share of Class
B Common stock is convertible at any time, at the option of and without cost to
the shareholder, into the same number of shares of Class A Common stock upon
surrender to the Company of the certificate or certificates evidencing the Class
B Common stock to be converted, together with a written notice of the election
of such shareholder to convert such shares into Class A Common stock. Holders of
Class A and Class B Common stock are entitled to receive pro rata per share such
dividends as the Board of Directors may from time to time declare out of funds
of the Company legally available for the payment of dividends. Upon liquidation,
dissolution or winding-up of the Company, the holders of Class A and Class B
Common stock are entitled to share ratably in all assets available for
distribution after payment in full of creditors. In a merger, consolidation or
other business combination, the consideration to be received per share by
holders of Class A and Class B Common stock must be identical, except that in
any such transaction in which shares of Common stock are distributed, such
shares may differ to the extent that voting rights differ among existing classes
of Common stock. See "Certain Relationships and Related Transactions --
Shareholders' Agreement"
Item 13: Certain Relationships and Related Transactions
MANAGEMENT AGREEMENTS
The Company currently manages certain theatres for affiliates under long
term management agreements. The Company provides all operating functions,
including film booking, accounting and the operation and maintenance of the
theatres, in the same manner as such functions are performed by Company
personnel for Company owned or leased theatres. The operating and maintenance
expenses of the theatres are paid by the owners of the theatres. The Company
receives a specified percentage of the gross revenues of the theatres managed by
the Company and in some cases a percentage of the theatre cash flow above
certain targeted amounts. The Company may in the future enter into additional
management agreements with affiliates and/or third parties to manage theatres.
Laredo Joint Venture
The Company manages one theatre (12 screens) for Laredo Theatre, Ltd.
("Laredo"). Lone Star Theatres, Inc. owns 25% of the limited partnership
interests in Laredo. The Company is the sole general partner and owns the
remaining limited partnership interests. Lone Star Theatres, Inc. is owned 100%
by Mr. David Roberts, who is Mr. Mitchell's son-in-law. The Company recorded
$186,521 of management fee revenues from Laredo in 2000.
Cinemark Partners II
The Company manages one theatre (17 screens) for Cinemark Partners II, Ltd.
("Cinemark Partners II"). On January 5, 1998, the Company purchased
approximately 31% of the limited partnership interests in Cinemark
38
42
Partners II for $3.1 million from the existing partners. Prior to such
acquisition, Mr. Mitchell owned 10.1% of the limited partnership interests in
Cinemark Partners II. Additionally, the Company purchased an additional 77.1
units for an aggregate purchase price of $3.7 million After consummating such
transactions, the Company owns approximately 51% of Cinemark Partners II.
Cinemark Partners I, Inc., a wholly-owned subsidiary of the Company, is the sole
general partner of Cinemark Partners II. Cinemark Partners I, Inc. owns 1% of
the limited partnership interests in Cinemark Partners II and the Company owns
50% of the limited partnership interests in Cinemark Partners II. The Company
recorded $287,590 of management fee revenues from Cinemark Partners II in 2000.
Cinemark Alberta
The Company manages one discount theatre (12 screens) for Cinemark Alberta,
Inc. ("Cinemark Alberta"). Cinemark Holdings Canada, Inc., a wholly-owned
subsidiary of Cinemark International, owns 50% of Cinemark Alberta. The Company
recorded $28,548 of management fee revenues from Cinemark Alberta in 2000.
Westward Ltd.
The Company manages two theatres (11 screens) for Westward Ltd. Westward
Ltd. is a Texas limited partnership of which Cinemark of Utah, Inc. is the
general partner and owns a 1% interest in Westward Ltd. Cinemark of Utah, Inc.
is 100% owned by Mr. Mitchell. Mr. Mitchell also owns a 48.425% limited partner
interest in Westward Ltd. The Company recorded management fee revenues of
$27,955 in 2000.
SHAREHOLDERS' AGREEMENT
The Company entered into the Shareholders' Agreement dated March 12, 1996
with Mr. Mitchell, his affiliates and Cypress (the "Shareholders' Agreement").
Among other things, the Shareholders' Agreement provides that, subject to
certain conditions, the Company must obtain (with certain exceptions) the
consent of CALP for certain corporate acts including, but not limited to,
amendments to the Articles of Incorporation of the Company, approval of annual
budgets under certain circumstances, asset dispositions or acquisitions in
excess of specified amounts, merger or consolidation of the Company, incurrence
of indebtedness over specified amounts, certain stock redemptions or dividends,
transactions with affiliates over specified amounts, certain management changes
or new compensation plans, financing theatres through limited partnerships,
settlements of litigation over specified amounts and issuance of Common stock
under certain conditions. The Shareholders' Agreement also provides that Cypress
may not convert its Class B Common stock to Class A Common stock unless certain
events occur such as a Change of Control (as defined in the Shareholders'
Agreement) or the consummation of a public offering of the Company's Common
stock. The above-described provisions terminate on the earlier of (i) the public
owning 25% or more of the Common stock of the Company, (ii) the merger of the
Company with and into any publicly traded company or (iii) ten years after the
date of the Shareholders' Agreement. The Shareholders' Agreement also contains a
voting agreement pursuant to which Mr. Mitchell agrees to vote his shares of
Common stock to elect certain designees of CALP to the Board of Directors of the
Company.
Mr. Mitchell also agreed that in the event any corporate opportunity is
presented to Mr. Mitchell or any of his affiliates to acquire or enter into any
business transaction involving the motion picture exhibition business that would
be significant to the Company, he would submit such opportunity to the Board of
Directors of the Company before taking any action.
The Shareholders' Agreement further provides that the shareholders agree to
form a new corporation as the parent corporation of the Company and to
contribute their respective shares for like shares of this new corporation. The
Company is currently pursuing plans to create such a holding company.
39
43
INDEMNIFICATION OF DIRECTORS
The Company has adopted provisions in its Articles of Incorporation and
Bylaws which provide for indemnification of its officers and Directors to the
maximum extent permitted under the Texas Business Corporation Act. In addition,
the Company has entered into separate indemnification agreements with each of
its Directors which requires the Company, among other things, to indemnify them
against certain liabilities that may arise by reason of their status or service
as directors to the maximum extent permitted under the Texas Business
Corporation Act. The Company has obtained an insurance policy providing for
indemnification of officers and Directors of the Company and certain other
persons against liabilities and expenses incurred by any of them in certain
stated proceedings and under certain stated conditions.
PART IV
Item 14: Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Documents Filed as Part of this Report
1. The financial statement schedules and related data listed in the
accompanying Index beginning on F-1 are filed as a part of this report.
2. The financial statement schedules beginning on S-1 are filed as a part
of this report.
3. The exhibits listed in the accompanying Index beginning on E-1 are filed
as a part of this report, which exhibits are bound separately.
(b) Reports on Form 8-K
The following reports on Form 8-K have been filed during the last quarter
of the period covered by this Report:
1. None.
(c) Exhibits
See the accompanying Index beginning on page E-1, which exhibits are bound
separately.
(d) Financial Statement Schedules
See the accompanying Index beginning on page F-1.
40
44
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: March 26, 2001 CINEMARK USA, INC.
BY: /s/ Alan W. Stock
----------------------------
Alan W. Stock, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Name Title Date
---- ----- ----
/s/ Lee Roy Mitchell Chairman of the Board of Directors March 26, 2001
- ------------------------------------ and Chief Executive Officer
Lee Roy Mitchell
/s/ Tandy Mitchell Director March 26, 2001
- ------------------------------------
Tandy Mitchell
/s/ Alan W. Stock Director March 26, 2001
- ------------------------------------
Alan W. Stock
/s/ Robert Copple Senior Vice President and Treasurer March 26, 2001
- ------------------------------------ (Chief Financial and Accounting Officer)
Robert Copple
/s/ W. Bryce Anderson Director March 26, 2001
- ------------------------------------
W. Bryce Anderson
/s/ Heriberto Guerra Director March 26, 2001
- ------------------------------------
Heriberto Guerra
/s/ James A. Stern Director March 26, 2001
- ------------------------------------
James A. Stern
/s/ James L. Singleton Director March 26, 2001
- ------------------------------------
James L. Singleton
/s/ Denny Rydberg Director March 26, 2001
- ------------------------------------
Denny Rydberg
Sig-1
45
Supplemental Information to be Furnished With Reports Filed Pursuant to Section
15(d) of the Act by Registrants which Have Not Registered Securities Pursuant to
Section 12 of the Act
No annual report or proxy material has been sent to the Company's
shareholders. An annual report and proxy material may be sent to the Company's
shareholders subsequent to the filing of this Form 10-K. The Company shall
furnish to the Securities and Exchange Commission copies of any annual report or
proxy material that is sent to the Company's shareholders.
42
46
CINEMARK USA, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
(ITEMS 8 AND 14 OF FORM 10-K) AND SUPPLEMENTAL SCHEDULES
- --------------------------------------------------------------------------------
Page
----
INDEPENDENT AUDITORS' REPORT OF DELOITTE & TOUCHE LLP F-2
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES:
Consolidated Balance Sheets, December 31, 1999 and 2000 F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1998, 1999 and 2000 F-5
Consolidated Statements of Shareholders' Equity and Comprehensive Income (Loss)
for the Years Ended December 31, 1998, 1999 and 2000 F-6
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1999 and 2000 F-7
Notes to Consolidated Financial Statements F-8
SUPPLEMENTAL SCHEDULES REQUIRED BY THE INDENTURES
FOR THE SENIOR SUBORDINATED NOTES:
Schedule
A. Consolidating Balance Sheet Information, December 31, 2000 S-1
B. Consolidating Statement of Operations Information for the Year Ended
December 31, 2000 S-2
C. Consolidating Statement of Cash Flows Information for the Year Ended
December 31, 2000 S-3
F-1
47
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Cinemark USA, Inc. and Subsidiaries
Plano, TX
We have audited the accompanying consolidated balance sheets of Cinemark USA,
Inc. and subsidiaries as of December 31, 1999 and 2000, and the related
consolidated statements of operations, shareholders' equity and comprehensive
income (loss), and cash flows for each of the three years in the period ended
December 31, 2000. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the financial
statements of a consolidated subsidiary in Brazil for the year ended December
31, 1998, which statements reflect total revenues constituting 5% of
consolidated total revenues for the year then ended. Those statements were
audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to the amounts included for this subsidiary
audited by other auditors, is based solely on the report of such other auditors.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the report of
the other auditors for 1998 provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors for
1998, such consolidated financial statements present fairly, in all material
respects, the financial position of Cinemark USA, Inc. and subsidiaries as of
December 31, 1999 and 2000, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States of
America.
As discussed in Note 1 to the consolidated financial statements, in 1999 the
Company changed its method of accounting for start-up activities and
organizational costs to conform with AICPA Statement of Position 98-5.
Our audits were conducted for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The supplemental schedules
of certain consolidating information listed in the index on page F-1 are
presented for the purpose of additional analysis of the basic consolidated
financial statements rather than to present the financial position, results of
operations and cash flows of the individual companies, and are not a required
part of the basic consolidated financial statements. These schedules are the
responsibility of the Company's management. Such schedules have been subjected
to the auditing procedures applied in our audits of the basic consolidated
financial statements and, in our opinion, are fairly stated in all material
respects when considered in relation to the basic consolidated financial
statements taken as a whole.
/s/ Deloitte & Touche LLP
Dallas, Texas
February 6, 2001
F-2
48
CINEMARK USA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 2000
================================================================================
ASSETS 1999 2000
CURRENT ASSETS
Cash and cash equivalents $ 8,872,157 $ 19,839,994
Inventories 4,734,520 3,734,955
Co-op advertising and other receivables 12,067,471 8,246,024
Income tax receivable 2,036,146 1,462,721
Prepaid expenses and other 7,508,722 3,591,666
---------------- ----------------
Total current assets 35,219,016 36,875,360
THEATRE PROPERTIES AND EQUIPMENT
Land 74,539,782 59,583,396
Buildings 287,010,013 304,139,913
Leasehold interests and improvements 298,888,849 343,347,473
Theatre furniture and equipment 406,899,420 460,891,679
Theatres under construction 40,448,244 25,544,558
---------------- ----------------
Total 1,107,786,308 1,193,507,019
Less accumulated depreciation and amortization 173,827,249 243,372,299
---------------- ----------------
Theatre properties and equipment - net 933,959,059 950,134,720
OTHER ASSETS
Goodwill - net 18,619,715 16,826,740
Investments in and advances to affiliates 2,289,553 6,932,208
Deferred charges and other - net 51,773,896 49,807,442
---------------- ----------------
Total other assets 72,683,164 73,566,390
---------------- ----------------
TOTAL $ 1,041,861,239 $ 1,060,576,470
================ ================
(Continued)
F-3
49
CINEMARK USA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 2000
================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY 1999 2000
CURRENT LIABILITIES
Current portion of long-term debt $ 21,420,579 $ 32,767,581
Accounts payable 53,086,805 28,438,827
Accrued film rentals 19,274,690 24,597,474
Accrued interest 17,956,313 19,856,463
Accrued payroll 5,946,610 10,597,640
Accrued property taxes and other current liabilities 32,347,197 32,998,459
---------------- ----------------
Total current liabilities 150,032,194 149,256,444
LONG-TERM LIABILITIES
Long-term debt, less current portion 756,992,499 777,555,162
Deferred income taxes 18,088,004 14,831,678
Deferred lease expenses 16,188,800 20,475,247
Deferred gain on sale leaseback 5,470,381 5,104,461
Deferred revenues and other long-term liabilities 1,426,472 16,752,114
---------------- ----------------
Total long-term liabilities 798,166,156 834,718,662
COMMITMENTS AND CONTINGENCIES (Note 10)
MINORITY INTERESTS IN SUBSIDIARIES 29,812,343 27,691,527
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,
234,073 and 234,782 shares issued and outstanding, respectively 49,537,607 49,538,316
Additional paid-in-capital 13,733,221 13,198,615
Unearned compensation - stock options (3,131,680) (1,956,944)
Retained earnings 59,140,652 48,717,567
Treasury stock, 57,211 and 57,245 Class B shares at cost, respectively (24,198,890) (24,232,890)
Accumulated other comprehensive loss (31,230,379) (36,354,842)
---------------- ----------------
Total shareholders' equity 63,850,546 48,909,837
---------------- ----------------
TOTAL $ 1,041,861,239 $ 1,060,576,470
================ ================
See notes to consolidated financial statements (Concluded)
F-4
50
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
================================================================================
1998 1999 2000
REVENUES
Admissions $ 363,206,268 $ 459,334,408 $ 511,305,524
Concessions 192,104,307 221,083,945 235,691,321
Other 15,908,337 32,185,843 39,267,012
--------------- --------------- ---------------
Total 571,218,912 712,604,196 786,263,857
COSTS AND EXPENSES
Cost of operations:
Film rentals and advertising 197,218,829 246,393,817 271,048,793
Concession supplies 30,377,832 38,180,316 41,993,761
Salaries and wages 69,375,351 82,870,409 86,680,128
Facility leases 61,281,370 89,808,343 108,488,605
Utilities and other 75,005,283 96,228,905 104,796,196
--------------- --------------- ---------------
Total cost of operations 433,258,665 553,481,790 613,007,483
General and administrative expenses 32,947,380 34,833,403 39,012,924
Depreciation and amortization 37,197,161 53,268,575 66,110,555
Asset impairment loss 9,950,088 3,720,390 3,872,126
(Gain) loss on sale of assets (2,266,320) 2,419,511 912,298
--------------- --------------- ---------------
Total 511,086,974 647,723,669 722,915,386
OPERATING INCOME 60,131,938 64,880,527 63,348,471
OTHER INCOME (EXPENSE)
Interest expense (42,083,479) (58,836,739) (72,977,272)
Amortization of debt issue cost and debt discount (930,101) (1,030,339) (1,059,949)
Interest income 2,818,246 1,980,743 1,044,835
Foreign currency exchange gain (loss) 790,234 (186,077) (467,154)
Equity in income (loss) of affiliates (190,330) 241,218 (7,493)
Minority interests in (income) loss of subsidiaries 1,940,476 662,456 (52,802)
--------------- --------------- ---------------
Total (37,654,954) (57,168,738) (73,519,835)
--------------- --------------- ---------------
INCOME (LOSS) BEFORE INCOME TAXES AND 22,476,984 7,711,789 (10,171,364)
CUMULATIVE EFFECT OF AN ACCOUNTING CHANGE
INCOME TAXES 11,468,455 3,707,717 251,721
--------------- --------------- ---------------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT 11,008,529 4,004,072 (10,423,085)
OF AN ACCOUNTING CHANGE
Cumulative effect of a change in accounting
principle, net of income tax benefit
of $417,570 -- (2,968,637) --
--------------- --------------- ---------------
NET INCOME (LOSS) $ 11,008,529 $ 1,035,435 $ (10,423,085)
=============== =============== ===============
EARNINGS (LOSS) PER SHARE
Income (loss) before accounting change $ 61.73 $ 22.45 $ (58.30)
Cumulative effect of a change in accounting principle -- (16.64) --
--------------- --------------- ---------------
Net income (loss) $ 61.73 $ 5.81 $ (58.30)
=============== =============== ===============
EARNINGS (LOSS) PER SHARE (ASSUMING DILUTION)
Income (loss) before accounting change $ 59.01 $ 20.88 $ (58.30)
Cumulative effect of a change in accounting principle -- (15.48) --
--------------- --------------- ---------------
Net income (loss) $ 59.01 $ 5.40 $ (58.30)
=============== =============== ===============
See notes to consolidated financial statements
F-5
51
CINEMARK USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
================================================================================
Class A Class B
Common Stock Common Stock
--------------------------- ---------------------------
Additional
Shares Shares Paid-in
Issued Amount Issued Amount Capital
BALANCE January 1, 1998 1,500 $ 15 234,013 $ 49,537,547 $ 10,201,882
Net income
Unearned compensation from stock options granted 3,587,500
Unearned compensation from stock options forfeited (49,590)
Amortization of unearned compensation
Stock options exercised, including tax benefit 60 60 33,899
Foreign currency translation adjustment
------------ ------------ ------------ ------------ ------------
BALANCE December 31, 1998 1,500 $ 15 234,073 $ 49,537,607 $ 13,773,691
Net income
Unearned compensation from stock options granted 17,040
Unearned compensation from stock options forfeited (57,510)
Amortization of unearned compensation
Foreign currency translation adjustment
------------ ------------ ------------ ------------ ------------
BALANCE December 31, 1999 1,500 $ 15 234,073 $ 49,537,607 $ 13,733,221
Net loss
Unearned compensation from stock options forfeited (362,298)
Amortization of unearned compensation
Shares repurchased by shareholder 103,584
Repurchase of options (67,575)
Repurchase of treasury stock
Stock options exercised, including tax benefit 709 709 (208,317)
Foreign currency translation adjustment
------------ ------------ ------------ ------------ ------------
BALANCE December 31, 2000 1,500 $ 15 234,782 $ 49,538,316 $ 13,198,615
============ ============ ============ ============ ============
Accumulated
Unearned Other
Compensation Retained Treasury Comprehensive
Stock Options Earnings Stock Income (Loss)
BALANCE January 1, 1998 $ (1,534,791) $ 47,096,688 $(24,198,890) $(11,120,575)
Net income 11,008,529
Unearned compensation from stock options granted (3,587,500)
Unearned compensation from stock options forfeited 37,193
Amortization of unearned compensation 863,772
Stock options exercised, including tax benefit
Foreign currency translation adjustment (6,076,123)
------------ ------------ ------------ ------------
BALANCE December 31, 1998 $ (4,221,326) $ 58,105,217 $(24,198,890) $(17,196,698)
Net income 1,035,435
Unearned compensation from stock options granted (17,040)
Unearned compensation from stock options forfeited 52,718
Amortization of unearned compensation 1,053,968
Foreign currency translation adjustment (14,033,681)
------------ ------------ ------------ ------------
BALANCE December 31, 1999 $ (3,131,680) $ 59,140,652 $(24,198,890) $(31,230,379)
Net loss (10,423,085)
Unearned compensation from stock options forfeited 168,482
Amortization of unearned compensation 1,006,254
Shares repurchased by shareholder
Repurchase of options
Repurchase of treasury stock (34,000)
Stock options exercised, including tax benefit
Foreign currency translation adjustment (5,124,463)
------------ ------------ ------------ ------------
BALANCE December 31, 2000 $ (1,956,944) $ 48,717,567 $(24,232,890) $(36,354,842)
============ ============ ============ ============
Comprehensive
Total Income (Loss)
BALANCE January 1, 1998 $ 69,981,876
Net income 11,008,529 $ 11,008,529
Unearned compensation from stock options granted --
Unearned compensation from stock options forfeited (12,397)
Amortization of unearned compensation 863,772
Stock options exercised, including tax benefit 33,959
Foreign currency translation adjustment (6,076,123) (6,076,123)
------------ ------------
BALANCE December 31, 1998 $ 75,799,616 $ 4,932,406
============
Net income 1,035,435 1,035,435
Unearned compensation from stock options granted --
Unearned compensation from stock options forfeited (4,792)
Amortization of unearned compensation 1,053,968
Foreign currency translation adjustment (14,033,681) (14,033,681)
------------ ------------
BALANCE December 31, 1999 $ 63,850,546 $(12,998,246)
============
Net loss (10,423,085) (10,423,085)
Unearned compensation from stock options forfeited (193,816)
Amortization of unearned compensation 1,006,254
Shares repurchased by shareholder 103,584
Repurchase of options (67,575)
Repurchase of treasury stock (34,000)
Stock options exercised, including tax benefit (207,608)
Foreign currency translation adjustment (5,124,463) (5,124,463)
------------ ------------
BALANCE December 31, 2000 $ 48,909,837 $(15,547,548)
============ ============
See notes to consolidated financial statements
F-6
52
CINEMARK USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
================================================================================
1998 1999 2000
OPERATING ACTIVITIES
Net income (loss) $ 11,008,529 $ 1,035,435 $ (10,423,085)
Noncash items in net income (loss):
Depreciation 35,798,680 51,960,793 63,943,131
Amortization - intangibles and other assets 2,162,415 2,163,621 3,052,873
Loss on impairment of assets 9,950,088 3,720,390 3,872,126
Amortization of gain on sale leaseback (271,458) (218,920) (365,920)
Deferred lease expenses 1,341,476 1,610,053 4,286,447
Amortization of foreign advanced rents 400,000 1,275,689 2,523,076
Amortization of debt discount and premium (36,840) (28,508) (28,507)
Amortized compensation - stock options 851,375 1,049,176 916,022
(Gain) loss on sale of assets (2,266,320) 2,419,511 912,298
Deferred income tax expenses 5,177,313 1,973,662 (3,256,326)
Equity in (income) loss of affiliates 190,330 (241,218) 7,493
Minority interests in income (loss) of subsidiaries (1,940,476) (662,456) 52,802
Cumulative effect of an accounting change -- 3,386,207 --
Cash provided by (used for) operating working capital:
Inventories (1,357,474) (1,142,815) 999,565
Co-op advertising and other receivables 723,824 346,817 3,821,447
Prepaid expenses and other (15,563,272) (5,050,770) 3,917,056
Accounts payable 912,926 24,790,961 (24,647,978)
Accrued liabilities 19,489,059 7,980,597 12,525,226
Income tax receivable -- 996,496 573,425
------------- ------------- -------------
Net cash provided by operating activities 66,570,175 97,364,721 62,681,171
INVESTING ACTIVITIES
Additions to theatre properties and equipment (387,905,629) (248,370,598) (113,080,618)
Sale of theatre properties and equipment 152,215,795 23,867,262 23,275,239
Decrease (increase) in investments in and advances to affiliates 4,127,536 9,150,762 (4,650,148)
Increase in other assets (16,980,804) (13,130,947) 2,790,706
------------- ------------- -------------
Net cash used for investing activities (248,543,102) (228,483,521) (91,664,821)
FINANCING ACTIVITIES
Issuance of Senior Subordinated Notes 103,950,000 -- --
Increase in long-term debt 315,888,000 180,750,458 210,453,907
Reductions of long-term debt (259,691,753) (51,676,027) (178,515,735)
Costs of debt financing -- (375,000) (4,607,226)
Increase (decrease) in deferred revenues and other long-term liabilities (2,483,533) 1,426,472 15,325,642
Minority investment in subsidiaries, net 18,209,865 (15,022,151) (2,173,618)
Common stock issued for options exercised 33,959 -- (207,608)
Repurchase of options -- -- (67,575)
Repurchase of treasury stock -- -- (34,000)
------------- ------------- -------------
Net cash provided by financing activities 175,906,538 115,103,752 40,173,787
EFFECT OF EXCHANGE RATE CHANGES
ON CASH AND CASH EQUIVALENTS (76,123) (758,663) (222,300)
------------- ------------- -------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (6,142,512) (16,773,711) 10,967,837
CASH AND CASH EQUIVALENTS:
Beginning of period 31,788,380 25,645,868 8,872,157
------------- ------------- -------------
End of period $ 25,645,868 $ 8,872,157 $ 19,839,994
============= ============= =============
SUPPLEMENTAL INFORMATION
See notes to consolidated financial statements
F-7
53
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business - Cinemark USA, Inc. with its subsidiaries (the "Company") is
a world leader in the motion picture exhibition industry that owns or leases and
operates motion picture theatres in 33 states, Canada, Mexico, Argentina,
Brazil, Chile, Ecuador, Peru, Honduras, El Salvador, Nicaragua, Costa Rica and
Colombia. The Company operates 2,912 screens in 270 theatres and manages an
additional three theatres (23 screens) at December 31, 2000.
Principles of Consolidation - The consolidated financial statements
include the accounts of Cinemark USA, Inc. and its subsidiaries. Majority-owned
subsidiaries are consolidated while those subsidiaries of which the Company owns
between 20% and 50% 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 December 31, 1998 and
1999 amounts to conform with the 2000 presentation.
Inventories - Concession and theatre supplies inventories are stated at
the lower of cost (first-in, first-out method) or market.
Theatre Properties and Equipment - Theatre properties and equipment are
stated at cost less accumulated depreciation and amortization. Property
additions include $4,397,643, $4,312,499 and $613,614 of interest incurred
during the development and construction of theatres capitalized in 1998, 1999
and 2000, respectively. Depreciation is provided using the straight-line method
over the estimated useful lives of the assets as follows: buildings - 18 to 40
years, theatre furniture and equipment - 5 to 15 years. Leasehold interests and
improvements are amortized using the straight-line method over the lesser of the
lease period or the estimated useful lives of the leasehold interests and
improvements. The Company determined that impairment charges of $9,950,088,
$3,720,390 and $3,872,126 were required for certain theatres in 1998, 1999 and
2000, respectively. The impairment charges were recognized in the fourth quarter
of 1998, the third and fourth quarters of 1999 and the first, second, third and
fourth quarters of 2000, respectively. For purposes of determining the
impairment amount, fair value of operating theatres was determined based on
discounted estimated cash flows.
Goodwill - The excess of cost over the fair values of the net assets of
theatre businesses acquired, less accumulated amortization ($2,789,751 and
$4,582,726 at December 31, 1999 and 2000, respectively) is recorded as goodwill.
For financial reporting purposes, these amounts are being amortized primarily
over 10 to 20 years, which approximate the remaining lease terms of the
businesses acquired.
Deferred Charges and Other Assets - Primarily consist of debt issue
costs, foreign advanced rents, construction advances and other deposits,
capitalized licensing fees, equipment to be placed in service, an interest rate
cap agreement and other intangible assets. Debt issue costs are amortized using
the straight-line method over the primary financing terms ended February 2003 to
July 2008. Foreign advanced rents represent advance payments of long-term
foreign leases which are expensed to facility lease expense generally over 10 to
20 years as leased facilities are utilized. The interest rate cap agreement is
amortized using the straight-line method over the five year life of the
agreement ending December 2005. Other intangible assets are amortized over the
respective lives of the trademarks, noncompete agreements or other intangible
asset agreements.
F-8
54
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Deferred Revenues - Advances collected on long-term screen advertising
and concession contracts are recorded as deferred revenues. The advances are
recognized as other revenues when earned.
Revenue and Expense Recognition - Revenues are recognized when
admissions and concessions sales are received 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. Advertising costs are expensed as incurred.
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
==========
Statement of Cash Flows - For purposes of reporting cash flows, cash
and cash equivalents consist of operating funds held in financial institutions,
petty cash held by the theatres and highly liquid investments with remaining
maturities of three months or less when purchased.
Use of Estimates - The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
reported amounts in the financial statements and accompanying notes. Actual
results could differ from those estimates.
Fair Values of Financial Instruments - In accordance with Statement of
Financial Accounting Standards (SFAS) No. 107, "Disclosures About Fair Value of
Financial Instruments", fair values of financial instruments are estimated by
the Company using available market information and other valuation methods. The
estimated fair value amounts for specific groups of financial instruments are
presented in Note 8. Values are based on available market quotes or estimates
using a discounted cash flow approach based on the interest rates currently
available for similar debt. The fair value of financial instruments for which
estimated fair value amounts are not specifically presented is estimated to
approximate the related recorded value.
F-9
55
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
New Accounting Pronouncements - Statement of Financial Accounting
Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and
Hedging Activities", is effective for the Company as of January 1, 2001. SFAS
133, as amended, establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities. Under SFAS 133, certain contracts that
were not formerly considered derivatives may now meet the definition of a
derivative. Adoption of SFAS 133 did not have, and is not expected to have, a
significant impact on the financial position or results of operations of the
Company.
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 per share:
(in thousands, except per share amounts) 1998 1999 2000
--------- --------- ---------
Net income (loss) $ 11,009 $ 1,035 $ (10,423)
========= ========= =========
Basic:
Weighted average Common shares outstanding 178,325 178,362 178,770
========= ========= =========
Earnings (loss) per Common share $ 61.73 $ 5.81 $ (58.30)
========= ========= =========
Diluted:
Weighted average Common shares outstanding 178,325 178,362 178,770
Common equivalent shares for stock options 8,213 13,391
--------- --------- ---------
Weighted average shares outstanding 186,538 191,753 178,770
========= ========= =========
Earnings (loss) per Common and Common equivalent share $ 59.01 $ 5.40 $ (58.30)
========= ========= =========
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. At December
31, 2000, 12,490 options to purchase Common stock have been excluded from the
diluted net income (loss) per share calculation as their effect would have been
antidilutive.
For additional disclosures regarding the Company's Capital stock and
related stock option plans see Note 12.
F-10
56
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. FOREIGN CURRENCY TRANSLATION
The accumulated other comprehensive loss in shareholders' equity of
$31,230,379 and $36,354,842 at December 31, 1999 and 2000, 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 1998, the Company was required to utilize the U.S. dollar as the
functional currency of Cinemark de Mexico, S.A. de C.V., for U.S. reporting
purposes in place of the peso due to the highly inflationary economy of Mexico.
Thus, devaluations in the peso during 1998 that affected the Company's
investment were charged to exchange gain (loss) rather than to the accumulated
other comprehensive loss account as a reduction of shareholders' equity. An
exchange gain of $567,206 was recognized in 1998 and is included in other income
(expense). In 1999, the economy of Mexico reverted back to a non-highly
inflationary status in which the peso again became the functional currency of
Cinemark de Mexico, S.A. de C.V. resulting in certain assets, liabilities and
equity accounts being restated at the current exchange rate. Thus, changes in
the peso have been recorded in the accumulated other comprehensive loss account
as a reduction of shareholders' equity during 1999 and 2000. At December 31,
2000, the total assets of Cinemark de Mexico, S.A. de C.V., were approximately
U.S.$75 million.
In 1998, the economy of Brazil became non-highly inflationary and the
functional currency of Cinemark Brasil, S.A. changed from the U.S. dollar to the
Real. Accordingly, assets and liabilities of Cinemark Brasil, S.A. are
translated to U.S. dollars at year-end exchange rates (consistent with all other
non-highly inflationary consolidated foreign subsidiaries). Income and expense
items are translated at the average rates prevailing during the year. As a
result of the devaluation of the Real during 1998, 1999 and 2000, the Company
recorded a cumulative foreign currency translation adjustment to the accumulated
other comprehensive loss account resulting in a reduction of shareholder's
equity of $4.4 million, $11.0 million and $2.3 million in 1998, 1999 and 2000,
respectively. At December 31, 2000, the total assets of Cinemark Brasil, S.A.
were approximately U.S.$75 million.
In 1998, 1999 and a portion of 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 in place of the sucre due to the highly inflationary
economy of Ecuador. Thus, devaluations in the sucre during 1998, 1999 and a
portion of 2000 that affected the Company's investment were charged to exchange
gain (loss) rather than to the accumulated other comprehensive loss account as a
reduction of shareholders' equity. An exchange gain of $223,028, $74,078 and
$32,300 was recognized in 1998, 1999 and 2000 respectively, and is included in
other income (expense). In September 2000, the country of Ecuador officially
switched to the U.S. dollar as the functional currency, effectively eliminating
any exchange gain (loss) in the sucre on a going forward basis. At December 31,
2000, the total assets of Cinemark del Ecuador, S.A. were approximately U.S.$5
million.
F-11
57
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. SUPPLEMENTAL CASH FLOW INFORMATION
The following is provided as supplemental information to the
consolidated statement of cash flows:
1998 1999 2000
----------- ----------- -----------
Interest paid $41,556,819 $61,253,543 $71,569,114
=========== =========== ===========
Income taxes paid (net of refunds) $ 7,715,397 $ 3,170,041 $ 2,462,369
=========== =========== ===========
Noncash investing and financing activities:
Issued note payable in acquisition of Prodecine S.A. de C.V. $11,000,000
===========
In December 1998, the Company acquired an additional 45% equity
interest in its Chilean operating Company (Cinemark Chile, S.A.) for $7.625
million. This acquisition increased the Company's ownership interest from 50% to
95% resulting in the Chilean subsidiary being consolidated with the Company's
operations effective January 1, 1999. The assets and liabilities of this former
equity interest that are included in the consolidation as of January 1, 1999 are
as follows:
Theatre properties and equipment, net $ 26,350,993
Goodwill 3,621,050
Net other assets 3,371,491
Long-term debt (17,718,534)
------------
Investment in affiliate $ 15,625,000
============
The Company's Central American operating entities (Cinemark Nicaragua y
Cia. Ltda., Cinemark Costa Rica, S.R.L., Cinemark El Salvador, S.A. de C.V. and
Cinemark Honduras, S.R.L.) were consolidated with the Company's operations
effective January 1, 1999. The assets and liabilities of these former equity
interests that are included in the consolidation as of January 1, 1999 are as
follows:
Theatre properties and equipment, net $ 5,000,000
Minority interest (2,495,000)
---------------
Investment in affiliate $ 2,505,000
===============
F-12
58
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. ACQUISITIONS AND INVESTMENTS IN FOREIGN SUBSIDIARIES
Cinemark USA, Inc. has made the following direct investments in its
foreign subsidiaries in 1999 and 2000, respectively.
(in millions) Argentine Peruvian Mexican Chilean Canadian
Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary
January 1, 1999 Capital contributed $ 13.1 $ 1.5 $ 21.0 $ -- $ 14.2
1999 Capital contribution 0.7 0.5 -- 18.5 --
1999 Return of Capital -- -- -- -- --
1999 Ownership transfer from Cinemark International 21.3 1.5 -- -- --
---------- ---------- ---------- ---------- ----------
December 31, 1999 Capital contributed $ 35.1 $ 3.5 $ 21.0 $ 18.5 $ 14.2
2000 Capital contribution 8.7 -- -- 2.2 --
2000 Return of Capital -- -- -- -- (9.8)
2000 Ownership transfer from Cinemark International -- -- -- -- --
---------- ---------- ---------- ---------- ----------
December 31, 2000 Capital contributed $ 43.8 $ 3.5 $ 21.0 $ 20.7 $ 4.4
========== ========== ========== ========== ==========
Ownership % as of December 31, 2000 100% 100% 95.6% 98.0% 100%
Approximately $3.6 million of goodwill was recorded in 1999 as part of
the investment in the Chilean subsidiary as an additional equity interest was
acquired from the Cinemark USA, Inc. joint venture partners at a cost in excess
of the fair value of the net assets acquired.
Cinemark International (a wholly-owned subsidiary of Cinemark USA,
Inc.) has made the following direct investments in its foreign subsidiaries in
1999 and 2000, respectively.
(in millions) Central
Brazilian Argentine Peruvian Ecuador American Colombian Taiwan
Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary
January 1, 1999 Capital contributed $ 26.0 $ 10.0 $ 1.5 $ 2.1 $ -- $ -- $ --
1999 Capital contribution 8.7 11.3 -- 0.3 3.5 2.1 0.2
1999 Return of Capital -- -- -- -- -- -- --
1999 Ownership transfer to
Cinemark USA, Inc. (21.3) (1.5)
--------- --------- --------- --------- --------- --------- ---------
December 31, 1999 Capital contributed $ 34.7 $ 0.0 $ 0.0 $ 2.4 $ 3.5 $ 2.1 0.2
2000 Capital contribution 3.2 -- -- -- -- -- 0.2
2000 Return of Capital -- -- -- -- -- -- --
2000 Ownership transfer to
Cinemark USA, Inc. -- -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
December 31, 2000 Capital contributed $ 37.9 $ 0 $ 0 $ 2.4 $ 3.5 $ 2.1 $ 0.4
========= ========= ========= ========= ========= ========= =========
Ownership % as of December 31, 2000 60% 0% 0% 60% 50.1% 51% 50.5%
Approximately $2.8 million of goodwill was recorded in 1999 as part of
the investment in the Argentine subsidiary as an additional equity interest was
acquired from the Cinemark International Argentine joint venture partners at a
cost in excess of the fair value of the net assets acquired.
F-13
59
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. INVESTMENTS IN AND ADVANCES TO AFFILIATES
The Company has the following investments in and advances to affiliates
at December 31:
1999 2000
---------- ----------
Entertainment Amusements Theatres- investment, at equity $1,150,825 $1,051,065
Brainerd Ltd. - investment, at equity 449,964 407,264
Cinemark Theatres Alberta, Inc. - investment, at equity 405,807 285,266
Fandango, Inc. - investment, at cost -- 4,233,333
Vectrix Corporation - investment, at cost -- 259,650
Other 282,957 695,630
---------- ----------
Total $2,289,553 $6,932,208
========== ==========
7. DEFERRED CHARGES AND OTHER ASSETS
Deferred charges and other assets at December 31 consist of the
following:
1999 2000
----------- -----------
Debt issue costs $ 8,042,147 $12,649,373
Intangible assets 322,438 389,438
----------- -----------
Total 8,364,585 13,038,811
Less accumulated amortization 2,609,482 3,601,855
----------- -----------
Net 5,755,103 9,436,956
Foreign advanced rents 27,941,972 23,261,266
Construction advances and other deposits 11,615,976 5,124,088
Capitalized licensing fees 2,575,000 4,350,000
Equipment to be placed in service 1,577,506 2,712,016
Interest rate cap agreement -- 1,694,000
Other 2,308,339 3,229,116
----------- -----------
Total $51,773,896 $49,807,442
=========== ===========
F-14
60
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. LONG-TERM DEBT
Long-term debt at December 31 consists of the following:
1999 2000
------------ ------------
Series B Senior Subordinated Notes due 2008,
discussed below $199,360,542 $199,435,042
Series D Senior Subordinated Notes due 2008,
discussed below 76,742,481 76,539,473
Series B Senior Subordinated Notes due 2008,
discussed below 104,141,667 104,241,667
Cinemark USA, Inc. Revolving credit line
of $350,000,000, discussed below 298,000,000 260,000,000
Cinemark Investments Corporation, Revolving credit line
of $20,000,000, discussed below 20,000,000 20,000,000
Cinemark Mexico (USA), Revolving credit line
of $30,000,000, discussed below 30,000,000 30,000,000
Cinema Properties, Inc. Note Payable with Lehman
Brothers Bank, FSB, discussed below -- 77,000,000
Cinemark Chile, S.A. Senior Notes Payable with Bank,
discussed below 17,114,870 15,293,556
Cinemark International Notes Payable with
Argentine Partners, discussed below 11,330,000 --
Cinemark Brasil, S.A. Notes Payable with Bank,
discussed below 7,550,785 13,352,486
Other long-term debt 14,172,733 14,460,519
------------ ------------
Total long-term debt 778,413,078 810,322,743
Less current portion 21,420,579 32,767,581
------------ ------------
Long-term debt, less current portion $756,992,499 $777,555,162
============ ============
In August 1996, the Company issued $200 million principal amount of
9-5/8% Series A Senior Subordinated Notes (the "Series A Notes") to qualified
institutional buyers in reliance on Rule 144A of the Securities Act of 1933, as
amended (the "Securities Act"). The Series A 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 A Notes (net of
discount, fees and expenses) were approximately $193.2 million. In November
1996, the Company completed an offer to exchange $200 million principal amount
of 9-5/8% Series B Senior Subordinated Notes (the "Series B Notes") due 2008
which were registered under the Securities Act for a like principal amount of
the Series A Notes. Interest on the Series B Notes is payable semi-annually on
February 1 and August 1 of each year.
In June 1997, the Company issued $75 million principal amount of 9-5/8%
Series C Senior Subordinated Notes (the "Series C Notes") to qualified
institutional buyers in reliance on Rule 144A of the Securities Act. The Series
C Notes were issued at 103% of the principal face amount. The net proceeds to
the Company from the issuance of the Series C Notes (net of discount, fees and
expenses) were approximately $77.1 million. In October 1997, the Company
completed an offer to exchange $75 million principal amount of 9-5/8% Series D
Senior Subordinated Notes (the "Series D Notes") due 2008 which were registered
under the Securities Act for a like principal amount of the Series C Notes.
Interest on the Series D Notes is payable semi-annually on February 1 and August
1 of each year.
F-15
61
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In January 1998, the Company issued $105 million principal amount of
8-1/2% Series A Senior Subordinated Notes (the "Series A Notes") to qualified
institutional buyers in reliance on Rule 144A of the Securities Act. The Series
A Notes were issued at 99.0% of the principal face amount. The net proceeds to
the Company from the issuance of the Series A Notes (net of discount fees and
expenses) were approximately $103.8 million. In March 1998, the Company
completed an offer to exchange $105 million principal amount of 8-1/2% Series B
Senior Subordinated Notes (the "Series B Notes") due 2008 which were registered
under the Securities Act for a like principal amount of the Series A Notes.
Interest on the Series B Notes is payable semi-annually on February 1 and August
1 of each year.
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. The Credit Facility is a
reducing revolving credit facility, with commitments automatically reduced each
calendar quarter by 2.5%, 3.75%, 5.0%, 6.25% and 6.25% of the aggregate $350
million in calendar year 2001, 2002, 2003, 2004 and 2005, respectively, until
the Credit Facility matures in 2006. The Company is required to prepay all loans
outstanding under the Credit Facility 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 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.
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). The effective interest
rate on such borrowings as of December 31, 2000 is 8.8% per annum.
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") due September 2001. 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 as defined in the Cinemark
Investments Credit Agreement) as the case may be. Cinemark Investments
Corporation 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 December 31, 2000 is 9.2% per annum.
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
F-16
62
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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. In September 2000, Cinemark Mexico and the banks party
to the Cinemark Mexico Credit Agreement executed an amendment which among other
things extended the maturity date of the Cinemark Mexico Credit Agreement and
increased the rate of interest paid on borrowings thereunder. Pursuant to the
amendment, Cinemark Mexico is to make principal payments of $500,000 in the
third and fourth quarters of 2001, $1,500,000 per quarter in 2002 and the
remaining principal outstanding in January 2003. The effective interest rate on
such borrowings as of December 31, 2000 is 9.7% per annum.
In December 2000, Cinema Properties, Inc., a wholly-owned Unrestricted
Subsidiary (as those terms are defined in the Credit Facility and the Senior
Subordinated Note Indentures), completed a $77 million loan transaction with
Lehman Brothers Bank, FSB (the "Cinema Properties Facility"). The Cinema
Properties Facility is a term loan with a December 31, 2003 maturity date.
Cinema Properties, Inc. has the ability to extend the maturity date two times
for one year each. At the lenders 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 throughout 2003.
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 the applicable margin. Borrowings are secured by, among other
things, a mortgage placed on six of Cinema Properties, Inc.'s theatres and
certain equipment leases. Cinema Properties, Inc. has a separate legal
existence, separate assets, separate creditors and separate financial
statements. The assets of Cinema Properties, Inc. are not available to satisfy
the debts of any of the other entities included in these consolidated financial
statements. The Cinema Properties Facility also requires Cinema Properties, Inc.
to comply with an interest coverage ratio requirement. 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 three month LIBOR as of the date of closing. Three month
LIBOR as of the date of closing was 6.58%. The net proceeds from the loan (net
of fees and expenses) were $70.9 million. The proceeds were distributed to the
Company, and the Company used such funds to complete the Company's domestic
construction program for 2000 and to reduce outstanding debt under the Company's
existing Credit Facility. As of December 31, 2000, the average interest rate on
such borrowing was 12.3% per annum.
Cinemark Chile, S.A. became a consolidated subsidiary of the company
effective January 1, 1999. Prior to that date, Cinemark Chile, S.A. had executed
four senior note payable agreements with a local bank for the U.S. dollar
equivalent of $6.0 million, $3.0 million, $4.5 million and $3.5 million in
December 1997, July 1998, November 1998 and December 1998, respectively. These
notes were each in Chilean pesos, adjusted for inflation, at the respective
borrowing dates. Interest is assessed for three notes at the 90-day TAB rate
(Chile's Central Bank interbank rate) plus 1.5% per annum, adjusted for
inflation, and for the other note (December 1998) at the 180-day TAB rate plus
1.5% per annum, adjusted for inflation, and is paid quarterly for three of the
notes and semi-annually for the December 1998 note. The term on all four notes
is five years with a two year grace period on principal. All four notes are
directly or indirectly guaranteed by Cinemark International. The effective
interest rates on the four notes as of December 31, 2000 are approximately 6.2%
per annum.
F-17
63
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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, (d) totaling A$3.5 million pesos due October 2000. At December 31,
2000, all four notes and related accrued interest had been paid.
Cinemark Brasil, S.A. currently has four main types of funding sources
executed through nine separate local and international banks. These include: a)
BNDES automatic in the amount of US$5.4 million executed October 1999 at a term
of 5 years with nine months grace period at a BNDES basket rate (which is a
multiple currency rate based on the rate at which the bank borrows) plus spread
totalling 14.5%, b) FINAME/BNDES facility executed December 1999 in the amount
of R$450,000 (equivalent to US$225,000) for a term of 3 years with 6 months
grace period at a BNDES basket rate plus spread totalling 14.4%, c) Import
financing executed between April 2000 through December 2000 in the amount of
US$6.3 million at a term of 120 to 365 days at a rate of libor +2.8-5.15%, d)
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 6 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. The
effective interest rates on these notes at December 31, 2000 are approximately
13.2% per annum.
Long-term debt at December 31, 2000, matures as follows: $32,767,581 in
2001; $16,533,885 in 2002; $175,225,762 in 2003; $91,476,362 in 2004;
$94,878,185 in 2005 and $399,440,968 thereafter.
The estimated fair value of the Company's long-term debt of $810.3
million at December 31, 2000, was approximately $840 million. Such amounts do
not include prepayment penalties which would be incurred upon the early
extinguishment of certain debt issues.
Debt Issue Costs - Debt issue costs of $8,042,147 and $12,649,373, net of
accumulated amortization of $2,498,618 and $3,346,706 related to the
Subordinated Notes, the Credit Facility, the Cinemark Investments Credit
Agreement, the Cinemark Mexico Credit Agreement, the Note Payable with Lehman
Brothers Bank, FSB and other debt agreements are included in deferred charges at
December 31, 1999 and 2000, respectively.
F-18
64
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. INCOME TAXES
Income tax expense below includes benefits from the cumulative effect
of a change in accounting principle in 1999 of $417,570 and consists of the
following:
1998 1999 2000
------------ ------------ ------------
Income (loss) before income taxes and cumulative
effect of an accounting change:
United States $ 22,182,145 $ 1,650,202 $(19,346,190)
Foreign 294,839 6,061,587 9,174,826
------------ ------------ ------------
Total 22,476,984 7,711,789 (10,171,364)
============ ============ ============
Current:
Federal $ 4,310,000 $ (1,173,611) $ (195,831)
Foreign income taxes 969,688 2,274,967 3,798,680
State 1,011,454 215,129 (94,801)
------------ ------------ ------------
Total current expense 6,291,142 1,316,485 3,508,048
Deferred:
Federal 4,221,438 (1,314,858) (5,630,239)
Foreign 656,442 3,586,790 2,439,635
State 299,433 (298,270) (65,723)
------------ ------------ ------------
Total deferred expense 5,177,313 1,973,662 (3,256,327)
------------ ------------ ------------
Income tax expense $ 11,468,455 $ 3,290,147 $ 251,721
============ ============ ============
A reconciliation between income tax expense and taxes computed by
applying the applicable statutory federal income tax rate to income before
income taxes follows:
1998 1999 2000
------------ ------------ ------------
Computed normal tax expense $ 7,866,944 $ 2,699,126 $ (3,559,977)
Goodwill amortization, not deductible for tax purposes 108,052 353,069 284,389
Foreign inflation adjustments - depreciation,
exchange gain/loss, interest (517,815) (796,699) (24,208)
State and local income taxes, net of federal income
tax effect 947,428 89,940 (185,248)
Undistributed foreign earnings 2,159,642 33,243 --
Adoption of APB 23 on prior undistributed earnings -- (2,167,642) --
Foreign subsidiaries losses not benefited 460,463 1,858,930 1,201,608
Foreign tax rate differential 273,994 1,366,220 1,091,943
Jobs tax credits (29,635) (56,569) 23,441
Other - net 199,382 (89,471) 1,419,773
------------ ------------ ------------
$ 11,468,455 $ 3,290,147 $ 251,721
============ ============ ============
F-19
65
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Deferred income taxes are provided in accordance with Statement of
Financial Accounting Standards No. 109 ("SFAS 109"). Deferred income taxes are
provided under the liability method related to temporary differences based on
tax laws and statutory rates in effect at December 31, 1999 and 2000. The tax
effects of significant temporary differences and tax loss and tax credit
carryforwards comprising the net long-term deferred income tax liability at
December 31, 1999 and 2000, consist of the following:
1999 2000
------------ ------------
Deferred liabilities:
Fixed assets $ 36,367,161 $ 46,694,060
Basis difference of assets acquired 84,835 84,835
Foreign currency adjustment 2,803,678 2,803,678
Other 2,500,550 3,536,756
------------ ------------
Total 41,756,224 53,119,329
------------ ------------
Deferred assets:
Deferred lease expense 4,672,756 6,292,645
Section 263(a) inventory adjustment 2,692,344 2,722,495
Amortization of unearned compensation 2,317,507 2,311,818
Self-insurance accruals 647,973 645,615
Asset impairment loss 6,346,305 7,105,860
Sale/leaseback gain 3,162,499 2,545,710
Deferred screen advertising -- 4,715,733
Foreign net operating loss carryforward 5,852,118 6,416,083
Valuation allowance - foreign net operating loss carryforward (4,863,297) (6,249,351)
Federal net operating loss carryforward -- 3,901,180
AMT credit carryforward 951,871 6,027,625
Other expenses, not currently deductible for tax purposes 1,888,144 1,852,238
------------ ------------
Total 23,668,220 38,287,651
------------ ------------
Net long-term deferred income tax liability $ 18,088,004 $ 14,831,678
============ ============
The Company's AMT credit carryforward may be carried forward
indefinitely. The foreign net operating losses will expire beginning in 2002,
however, some losses may be carried forward indefinitely. A valuation allowance
has been established for substantially all of these foreign net operating
losses. The unused portion of the federal net operating loss will expire in
2020.
Beginning January 1, 1999, management plans to reinvest the
undistributed earnings of its foreign subsidiaries located in Mexico, Peru,
Argentina and Honduras. As a result, for years beginning after 1998, deferred
U.S. federal income taxes are not provided on the undistributed earnings of
these foreign subsidiaries in accordance with Accounting Principles Board (APB)
Opinion No. 23.
The cumulative amount of undistributed earnings of these foreign
subsidiaries on which the Company has not provided deferred taxes is
$21,508,691.
10. COMMITMENTS AND CONTINGENCIES
Leases - The Company conducts a significant part of its theatre
operations in leased premises under noncancelable operating leases with terms of
5 to 30 years. In addition to the minimum annual lease payment, most of these
leases provide for contingent rentals based on operating results and require the
payment of taxes, insurance and other costs applicable to the property.
Generally, these leases include renewal options for various periods at
stipulated rates. Some leases also provide for escalating rent payments
throughout the lease term. Deferred lease expenses of $16,188,800 and
$20,475,247 at
F-20
66
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999 and 2000, respectively, have been provided to account for
lease expenses on a straight-line basis, where lease payments are not made on
such basis. Rent expense for the years ended December 31, 1998, 1999 and 2000
totaled $61,713,480, $89,931,024 and $109,898,692, respectively.
In February 1998, the Company completed a sale leaseback transaction with
affiliates of Primus Capital, L.L.C. (the "Sale Leaseback"). Pursuant to the
Sale Leaseback, the Company sold the land, buildings and site improvements of
twelve theatre properties to special purpose entities formed by Primus Capital,
L.L.C. for an aggregate purchase price equal to approximately $131.5 million
resulting in a gain on disposal of the properties of $3,790,759. In October
1998, the Company completed a second sale leaseback transaction with affiliates
of Primus Capital, L.L.C. (the "Second Sale Leaseback"). Pursuant to the Second
Sale Leaseback, the Company sold the land, building and site improvements of one
theatre property to a special purpose entity for an aggregate purchase price
equal to approximately $13.9 million resulting in a gain on disposal of the
property of $700,000. 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 for an
aggregate purchase price equal to approximately $20.3 million resulting in a
gain on disposal of the property of $1,470,000. The Company deferred the entire
gain of $5,960,759 from all three sale leaseback transactions and is recognizing
them evenly over the lives of the leases (ranging from 10 to 20 years). As of
December 31, 2000, $856,298 of the deferred gain has been recognized leaving an
aggregate deferred gain of $5,104,461. Future minimum payments under these
leases are due as follows: $16,175,438 in 2001, $16,175,438 in 2002, $16,175,438
in 2003, $16,175,438 in 2004, $16,175,438 in 2005 and $201,750,252 thereafter.
Future minimum payments under noncancelable capital leases and operating
leases (including leases under the aforementioned sale leaseback transactions)
with initial or remaining terms in excess of one year at December 31, 2000, are
due as follows:
Capital Operating
Leases Leases Totals
-------------- -------------- --------------
2001 ................................... $ 305,600 $ 98,516,116 $ 98,821,716
2002 ................................... 264,733 102,785,980 103,050,713
2003 ................................... 247,578 103,556,390 103,803,968
2004 ................................... -- 103,549,437 103,549,437
2005 ................................... -- 103,429,047 103,429,047
Thereafter ............................. -- 1,097,390,178 1,097,390,178
-------------- -------------- --------------
Total .................................. $ 817,911 $1,609,227,148 $1,610,045,059
============== ============== ==============
The aggregate future minimum payments under noncancelable capital leases
relates to leased equipment. The interest amount included in the aggregate
future minimum payments under noncancelable capital leases is $67,527 in the
aggregate.
Employment Agreements - As of December 31, 2000, the Company has employment
agreements with certain principal officers and a shareholder providing for total
minimum future annual payments in 2001 of $686,731. These employment agreements
terminate on the earlier of death, permanent disability or December 31, 2001.
F-21
67
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Retirement Savings Plan - The Company has a 401(k) profit sharing plan
for the benefit of all employees and makes contributions as determined annually
by the Board of Directors. Contributions of $828,890, $982,213 and $1,042,442
were recorded in 1998, 1999 and 2000, respectively. An additional liability of
$615,675 has been recorded at December 31, 2000 for additional contributions
related to years prior to 1999.
Letters of Credit and Collateral - The Company had outstanding letters
of credit of $1,240,508 and $996,438 in connection with property and liability
insurance coverage, sales tax and environmental matters at December 31, 1999 and
2000, respectively.
Litigation and Litigation Settlements - 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, TX (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 Lara lawsuit complied with the ADA. As
a result of the Lara decision by the Fifth Circuit Court of Appeals, similar
cases filed in Austin, Houston, Beaumont and Mission, Texas have been dismissed
with prejudice.
In March 1999, the DOJ filed suit in the United States District Court,
Northern District of Ohio, Eastern Division, against the Company alleging
certain violations of the ADA relating to patrons using wheelchairs. The Company
is vigorously defending this suit. Although the Company is unable to predict the
outcome of this litigation, management believes the Company's potential
liability with respect to such proceeding is not material in the aggregate to
the Company's financial position, results of operations and cash flows.
In February 2000, certain plaintiffs filed suit in the United States
District Court for the District of Oregon against the Company, Regal Cinemas,
Inc., Century Theatres, Inc., and Carmike Cinemas, Inc. alleging certain
violations of the ADA relating to accessibility of movie theatres for deaf
patrons. The Company has filed an answer denying the allegations. Although the
Company is unable to predict the outcome of this litigation, management believes
the Company's potential liability with respect to such proceeding is not
material in the aggregate to the Company's financial position, results of
operations and cash flows.
The Company is also currently a defendant in litigation proceedings
alleging unsolicited facsimile advertisements were sent by the Company in
violation of federal and state law. In November 2000, certain plaintiffs brought
this alleged class action on behalf of themselves and purportedly on behalf of
all others similarly situated. The plaintiffs are an individual and his law firm
who allege that they were sent unsolicited facsimile advertisements on behalf of
the Company in violation of federal and state law. The plaintiffs seek
certification of the case as a class action and the right to recover on their
own behalf and on behalf of the alleged class $500 per alleged violation, three
times the damages, and unspecified damages for the alleged negligence per se of
the Company. The Company was successful in having this case moved to Collin
County, Texas. The Company is vigorously defending this suit. Although the
Company is unable to predict the outcome of this litigation, management believes
the Company's potential liability with respect to such proceeding is not
material in the aggregate to the Company's financial position, results of
operations and cash flows.
From time to time, the Company is involved in other legal proceedings
arising from the ordinary course of its business operations, such as personal
injury claims, employment matters and contractual disputes. The Company also
believes that its potential liability with respect to other proceedings
currently pending is not material in the aggregate to the Company's financial
position, results of operations and cash flows.
11. MINORITY INTERESTS IN SUBSIDIARIES
Common Shareholders' Equity - Minority ownership interests in
subsidiaries of the Company are as follows at December 31:
1999 2000
----------- -----------
Cinemark Brasil, S.A. - 40% interest $18,073,974 $16,625,590
Cinemark Partners II - 49% interest 5,323,835 5,822,593
Cinemark Equity Holdings Corp. (Central America) -
49.9% interest 2,421,219 2,490,476
Cinemark Colombia, S.A. - 49% interest 2,009,627 1,551,712
Cinemark del Ecuador, S.A. - 40% interest 798,613 605,924
Others 1,185,075 595,232
----------- -----------
Total $29,812,343 $27,691,527
=========== ===========
F-22
68
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. CAPITAL STOCK
Common and Preferred Stocks - Class A Common shareholders have exclusive
voting rights. Class B Common shareholders have no voting rights except upon any
proposed amendments to the articles of incorporation. However, they may convert
at their option to Class A Common stock. In the event of any liquidation, the
Class A and Class B shareholders will be entitled to their pro rata share of
assets remaining after any preferred shareholders have received their
preferential amounts based on their respective shares held.
The Company has 1,000,000 shares of preferred stock, $1.00 par value,
authorized with none issued or outstanding. The rights and preferences of
preferred stock will be determined by the Board of Directors at the time of
issuance.
In February 2000, the Company repurchased 34 shares of its Class B Common
stock as treasury stock from a former employee of the Company.
Employee Stock Option Plan - Under terms of the Company's stock option
plan, nonqualified options to purchase up to 10,685 shares of the Company's
Class B Common stock may be granted to key employees. All options vest and are
exercisable over a period of five years from the date of grant and expire ten
years from the date of grant. A summary of the Company's Employee Stock Option
Plan activity and related information for the years ended December 31, 1998,
1999 and 2000 is as follows:
1998 1999 2000
----------------------------- ---------------------------- -----------------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
------------ -------------- ------------ -------------- ------------ --------------
Outstanding at January 1 7,165 $ 1 7,121 $ 1 7,121 $ 1
Granted 470 1 -- -- -- --
Forfeited (40) 1 -- -- (115) 1
Reissued 40 1 -- -- -- --
Exercised (60) 1 -- -- (709) 1
Repurchased (454) 1 -- -- (159) 1
------------ ------------ ------------ ------------ ------------ ------------
Outstanding at December 31 7,121 $ 1 7,121 $ 1 6,138 $ 1
============ ============ ============ ============ ============ ============
Options exercisable at December 31 6,449 $ 1 6,449 $ 1 5,782 $ 1
============ ============ ============ ============ ============ ============
The weighted average remaining contractual life of the 6,138 options
outstanding at December 31, 2000 is two years.
The Company believes that the market value of a share of Class B Common
stock on the date of grant for the 470 shares granted in January 1998 exceeded
the option price by approximately $1,800. As a result, the Company accrued
$846,000 for unearned compensation and has been amortizing this noncash expense
at a rate of $169,200 per year during the five year vesting period for the
options granted. The Company repurchased options to purchase 454 shares of Class
B Common stock held by a retiring employee in July 1998. The aggregate purchase
price for such options was approximately $817,000 which is included in salaries
and wages expense. The Company repurchased options to purchase 159 shares of
Class B Common stock held by an employee in February 2000. The aggregate
purchase price for such options was approximately $266,000, of which
approximately $198,000 is included in salaries and wages expense.
F-23
69
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Independent Director Stock Options - In 1993, the Company granted the
unaffiliated directors of the Company options to purchase up to an aggregate of
900 shares of the Company's Class B Common stock at an exercise price of $833.34
per share (the "Director Options"). In 1995, the Company amended the Director
Options to reduce the aggregate number of shares of Common stock issuable
pursuant to the Director Options from 900 to 600 shares and to reduce the
exercise price of the Director Options from $833.34 per share to $1.00 per
share. The options vested on June 1, 1997 and expire ten years from the date of
grant. A Director's options are forfeited if the Director resigns or is removed
from the Board of Directors of the Company.
A summary of the Company's Independent Directors Stock Option Plan
activity and related information for the years ended December 31, 1998, 1999 and
2000 is as follows:
1998 1999 2000
--------------------------- --------------------------- ---------------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
------------ ------------ ------------ ------------ ------------ ------------
Outstanding at January 1 600 $ 1 800 $ 1 800 $ 1
Granted 200 1 -- -- -- --
Forfeited -- -- -- -- -- --
Exercised -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Outstanding at December 31 800 $ 1 800 $ 1 800 $ 1
============ ============ ============ ============ ============ ============
Options exercisable at December 31 600 $ 1 600 $ 1 600 $ 1
============ ============ ============ ============ ============ ============
The weighted average remaining contractual life of the 800 options
outstanding at December 31, 2000 is four years.
The Company believes that the market value of a share of Class B Common
stock on the date of grant for the 200 shares granted in December 1998 exceeded
the option price by approximately $2,099. As a result, the Company accrued
$419,800 for unearned compensation and has been amortizing this noncash expense
at a rate of $83,960 per year during the five year vesting period for the
options granted.
Long-Term Incentive Plan - In November 1998, the Board approved a
Long-Term Incentive Plan (the "1998 Plan") under which the Compensation
Committee of the Board of Directors, in its sole discretion, may grant employees
incentive stock options, non-qualified stock options, stock appreciation rights,
restricted stock awards performance units, performance shares or phantom stock
up to an aggregate of 9,794 shares of the Company's Class B Common stock. The
Compensation Committee has the discretion to set the exercise price and the term
(up to ten years) of the options. All awards under the 1998 Plan vest at the
rate of one-fifth of the total award per year beginning one year from the date
of grant, subject to acceleration by the Compensation Committee. An employee's
award under the 1998 Plan is forfeited if the employee is terminated for cause.
Upon termination of the employee's employment with the Company, the Company has
the option to repurchase the award at the fair market value of the shares of
Class B common stock vested under such award provided that no public market
exists for any class of Common stock of the Company.
F-24
70
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A summary of the Company's Long-Term Incentive Stock Option Plan activity
and related information for the years ended December 31, 1998, 1999 and 2000 is
as follows:
1998 1999 2000
----------------------------- ----------------------------- ----------------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
------------ -------------- ------------ -------------- ------------ --------------
Outstanding at January 1 -- $ -- 5,450 $ 1,674 5,365 $ 1,674
Granted 5,450 1,674 40 1,674 50 1,674
Forfeited -- -- (125) 1,674 (600) 1,674
Exercised -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Outstanding at December 31 5,450 $ 1,674 5,365 $ 1,674 4,815 $ 1,674
============ ============ ============ ============ ============ ============
Options exercisable at December 31 -- $ -- 816 $ 1,674 1,916 $ 1,674
============ ============ ============ ============ ============ ============
The weighted average remaining contractual life of the 4,815 options
outstanding at December 31, 2000 is eight years.
The Company believes that the market value of a share of Class B Common
stock on the date of grant for the 5,450 shares granted in December 1998
exceeded the option price by approximately $426. As a result, the Company
accrued $2,321,700 for unearned compensation and has been amortizing the noncash
expense at a rate of $464,340 per year during the five year vesting period for
the options granted. The Company believes that the market value of a share of
Class B Common stock on the date of grant for the 40 options granted in January
1999 exceeded the option price by approximately $426. As a result, the Company
accrued $17,040 for unearned compensation and has been amortizing this non-cash
expense at a rate of $3,408 per year during the five year vesting period for the
options granted. The Company believes the market value of a share of Class B
Common stock on the date of grant for the 50 options granted in January 2000 did
not exceed the option price of $1,674 and thus no compensation expense was
recorded. The long-term incentive options expire ten years from the date of
grant.
The excess of the estimated fair market value of the stock at the dates
of the grant over the exercise price of the various options are accounted for as
additional paid-in-capital and as unearned compensation, which is amortized to
operations over the vesting period. As a result of the above grants, unearned
compensation of $3,587,500, $17,040 and $0 was recorded in 1998, 1999 and 2000,
respectively. Compensation expense under these stock option plans was $851,375,
$1,049,176 and $1,114,454 in 1998, 1999 and 2000, respectively, of which,
$198,432 of the compensation expense recorded in 2000 reflected actual
compensation expense (as opposed to non-cash amortization) paid out to an
employee upon the repurchase of options by the Company.
The Company applies APB Opinion 25 and related interpretations in
accounting for the Company's stock option plans, as described below. Had
compensation costs for the Company's stock option plans been determined based on
the fair value at the date of grant for awards under the plans consistent with
the method of Statement of Financial Accounting Standards (SFAS) No. 123,
utilizing the Black-Scholes option pricing model, the effect on income and
earnings per share would not have changed from the amounts presented in the
financial statements. The results are substantially the same pursuant to SFAS
No. 123 as a result of the value of the underlying stock at the date of grant
being significantly higher than the exercise price of all the options issued
prior to 2000 and due to the insignificant number of options granted in 2000.
F-25
71
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. OTHER RELATED PARTY TRANSACTIONS
In addition to transactions discussed in other notes to the financial
statements, the following transactions with related companies are included in
the Company's financial statements:
1998 1999 2000
---------- ---------- ----------
Facility lease expense - theatre and equipment leases with
shareholder affiliates $ 272,135 $ 295,171 $ 268,101
Video game machine income - a subsidiary of an affiliate 2,529,156 2,679,490 2,714,817
Management fees for property and theatre management 148,263 81,794 164,884
14. FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS
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 Canada, Mexico, Brazil
and other foreign countries for the years ended December 31 are as follows:
1998 1999 2000
------------- ------------- -------------
Revenues
U.S. and Canada $ 489,801,593 $ 556,592,053 $ 598,578,168
Mexico 45,338,437 56,123,717 61,907,651
Brazil 30,034,637 39,971,020 60,740,586
Other Foreign Countries 6,295,271 60,601,933 66,593,322
Eliminations (251,026) (684,527) (1,555,870)
------------- ------------- -------------
Total $ 571,218,912 $ 712,604,196 $ 786,263,857
============= ============= =============
Long-lived Assets
U.S. and Canada $ 595,193,682 $ 746,317,091 $ 735,698,077
Mexico 49,446,248 61,202,181 69,110,248
Brazil 63,636,903 60,792,003 68,294,098
Other Foreign Countries 41,414,997 65,647,784 77,032,297
------------- ------------- -------------
Total $ 749,691,830 $ 933,959,059 $ 950,134,720
============= ============= =============
F-26
72
CINEMARK USA, INC. AND SUBSIDIARIES
SUPPLEMENTAL SCHEDULE A
CONSOLIDATING BALANCE SHEET INFORMATION
DECEMBER 31, 2000
================================================================================
RESTRICTED UNRESTRICTED
ASSETS GROUP GROUP ELIMINATIONS CONSOLIDATED
CURRENT ASSETS
Cash and cash equivalents $ 1,636,348 $ 18,203,646 $ 19,839,994
Inventories 2,923,745 811,210 3,734,955
Co-op advertising and other receivables (261,898) 8,924,273 (416,351) 8,246,024
Income tax receivable 895,015 567,706 1,462,721
Prepaid expenses and other 2,648,753 942,913 -- 3,591,666
--------------- --------------- --------------- ---------------
Total current assets 7,841,963 29,449,748 (416,351) 36,875,360
THEATRE PROPERTIES AND EQUIPMENT (net) 733,404,042 216,730,678 950,134,720
OTHER ASSETS
Goodwill - net 9,038,104 7,788,636 16,826,740
Investments in and advances to affiliates 163,987,906 774,080 (157,829,778) 6,932,208
Deferred charges and other - net 34,421,417 15,386,025 49,807,442
--------------- --------------- --------------- ---------------
Total other assets 207,447,427 23,948,741 (157,829,778) 73,566,390
--------------- --------------- --------------- ---------------
TOTAL $ 948,693,432 $ 270,129,167 $ (158,246,129) $ 1,060,576,470
=============== =============== =============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 1,274,552 $ 31,493,029 $ 32,767,581
Accounts payable 23,218,722 5,220,105 28,438,827
Accrued film rentals 21,126,827 3,470,647 24,597,474
Accrued interest 18,299,224 1,557,239 19,856,463
Accrued payroll 9,581,783 1,015,857 10,597,640
Accrued property taxes and
other current liabilities 28,422,431 4,992,379 (416,351) 32,998,459
--------------- --------------- --------------- ---------------
Total current liabilities 101,923,539 47,749,256 (416,351) 149,256,444
LONG-TERM LIABILITIES
Long-term debt, less current portion 676,240,196 101,314,966 -- 777,555,162
Deferred income taxes 14,877,291 (45,613) 14,831,678
Deferred lease expenses 20,009,150 466,097 20,475,247
Deferred gain on sale leaseback 5,104,461 -- 5,104,461
Deferred revenues and other
long-term liabilities 16,761,916 (9,802) -- 16,752,114
--------------- --------------- --------------- ---------------
Total long-term liabilities 732,993,014 101,725,648 -- 834,718,662
COMMITMENTS AND CONTINGENCIES (Note 10) --
MINORITY INTERESTS IN SUBSIDIARIES 6,090,574 21,600,953 27,691,527
SHAREHOLDERS' EQUITY
Common stock 49,538,331 13,062,000 (13,062,000) 49,538,331
Additional paid-in-capital 13,198,615 144,767,778 (144,767,778) 13,198,615
Unearned compensation - stock options (1,956,944) (1,956,944)
Retained earnings (deficit) 84,685,858 (35,233,291) (735,000) 48,717,567
Treasury stock (24,232,890) -- (24,232,890)
Distributions -- (735,000) 735,000 --
Accumulated other comprehensive loss (13,546,665) (22,808,177) (36,354,842)
--------------- --------------- --------------- ---------------
Total shareholders' equity 107,686,305 99,053,310 (157,829,778) 48,909,837
--------------- --------------- --------------- ---------------
TOTAL $ 948,693,432 $ 270,129,167 $ (158,246,129) $ 1,060,576,470
=============== =============== =============== ===============
Note: "Restricted Group" and "Unrestricted Group" are defined in the Indenture
for the Senior Subordinated Notes.
S-1
73
CINEMARK USA, INC. AND SUBSIDIARIES
SUPPLEMENTAL SCHEDULE B
CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
YEAR ENDED DECEMBER 31, 2000
================================================================================
RESTRICTED UNRESTRICTED
GROUP GROUP ELIMINATIONS CONSOLIDATED
------------- ------------- ------------- -------------
REVENUES $ 684,842,319 $ 102,977,408 $ (1,555,870) $ 786,263,857
COSTS AND EXPENSES
Cost of operations 533,004,646 81,558,707 (1,555,870) 613,007,483
General and administrative expenses 31,194,204 7,818,720 39,012,924
Depreciation and amortization 52,811,219 13,299,336 66,110,555
Asset impairment loss 3,872,126 -- 3,872,126
Loss on sale of assets 813,533 98,765 912,298
------------- ------------- ------------- -------------
Total 621,695,728 102,775,528 (1,555,870) 722,915,386
OPERATING INCOME 63,146,591 201,880 -- 63,348,471
OTHER INCOME (EXPENSE)
Interest expense (66,622,680) (6,354,592) -- (72,977,272)
Amortization of debt issue cost and debt discount (963,503) (96,446) (1,059,949)
Interest income 538,074 506,761 -- 1,044,835
Foreign currency exchange gain (loss) 375,884 (843,038) -- (467,154)
Equity in income (loss) of affiliates 10,540 (18,033) (7,493)
Dividend income 735,000 -- (735,000) --
Minority interests in (income) loss of subsidiaries (1,375,921) 1,323,119 (52,802)
------------- ------------- ------------- -------------
Total (67,302,606) (5,482,229) (735,000) (73,519,835)
------------- ------------- ------------- -------------
LOSS BEFORE INCOME TAXES (4,156,015) (5,280,349) (735,000) (10,171,364)
INCOME TAXES (BENEFIT) 420,646 (168,925) -- 251,721
------------- ------------- ------------- -------------
NET LOSS $ (4,576,661) $ (5,111,424) $ (735,000) $ (10,423,085)
============= ============= ============= =============
Note: "Restricted Group" and "Unrestricted Group" are defined in the Indenture
for the Senior Subordinated Notes.
S-2
74
CINEMARK USA, INC. AND SUBSIDIARIES
SUPPLEMENTAL SCHEDULE C
CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
YEAR ENDED DECEMBER 31, 2000
================================================================================
RESTRICTED UNRESTRICTED
GROUP GROUP ELIMINATIONS CONSOLIDATED
OPERATING ACTIVITIES
Net loss $ (4,576,661) $ (5,111,424) $ (735,000) $ (10,423,085)
Noncash items in net loss:
Depreciation 51,389,432 12,553,699 63,943,131
Amortization - intangibles and other assets 2,210,790 842,083 3,052,873
Loss on impairment of assets 3,872,126 3,872,126
Amortization of gain on sale leaseback (365,920) -- -- (365,920)
Deferred lease expenses 4,112,187 174,260 4,286,447
Amortization of foreign advanced rents 1,639,963 883,113 2,523,076
Amortization of debt discount and premium (28,507) (28,507)
Amortized compensation - stock options 916,022 -- -- 916,022
(Gain) loss on sale of assets 813,533 98,765 -- 912,298
Deferred income tax expenses (3,203,962) (52,364) (3,256,326)
Equity in (income) loss of affiliates (10,540) 18,033 -- 7,493
Minority interests in income (loss) of subsidiaries 1,375,921 (1,323,119) -- 52,802
Cash provided by (used for) operating working capital (32,605,699) 29,794,440 -- (2,811,259)
------------- ------------- ------------- -------------
Net cash provided by (used for) operating activities 25,538,685 37,877,486 (735,000) 62,681,171
INVESTING ACTIVITIES
Additions to theatre properties and equipment (91,533,509) (21,547,109) (113,080,618)
Sale of theatre properties and equipment 23,063,388 211,851 23,275,239
Transfer of theatre properties and equipment 97,679,985 (97,679,985) --
Decrease (increase) in other assets, investments in and
advances to affiliates (30,558,870) 27,964,428 735,000 (1,859,442)
------------- ------------- ------------- -------------
Net cash provided by (used for) investing activities (1,349,006) (91,050,815) 735,000 (91,664,821)
FINANCING ACTIVITIES
Increase in long-term debt 120,624,955 89,828,952 210,453,907
Reductions of long-term debt (159,253,417) (19,262,318) (178,515,735)
Costs of debt financing -- (4,607,226) -- (4,607,226)
Increase (decrease) in deferred revenues
and other long-term liabilities 15,368,590 (42,948) 15,325,642
Minority investment in subsidiaries, net (1,461,397) (712,221) (2,173,618)
Impact from stock and option transactions (309,183) -- (309,183)
------------- ------------- ------------- -------------
Net cash provided by (used for) financing activities (25,030,452) 65,204,239 -- 40,173,787
EFFECT OF EXCHANGE RATE CHANGES
ON CASH AND CASH EQUIVALENTS (33,245) (189,055) (222,300)
------------- ------------- ------------- -------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (874,018) 11,841,855 -- 10,967,837
CASH AND CASH EQUIVALENTS:
Beginning of period 2,510,366 6,361,791 8,872,157
------------- ------------- ------------- -------------
End of period $ 1,636,348 $ 18,203,646 $ -- $ 19,839,994
============= ============= ============= =============
Note: "Restricted Group" and "Unrestricted Group" are defined in the Indenture
for the Senior Subordinated Notes.
S-3
75
EXHIBITS
TO
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR
CINEMARK USA, INC.
FOR FISCAL YEAR ENDED
DECEMBER 31, 2000
76
EXHIBIT INDEX
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER DESCRIPTION REFERENCE TO
- ------ ----------- ----------------
3.1(a) Amended and Restated Articles of Incorporation of the Company Exhibit 3.1(a) to the
filed with the Texas Secretary of State on June 3, 1992 Company's Annual Report
(file 33-47040) on Form
10-K filed March 31, 1993
3.1(b) Articles of Merger filed with the Texas Secretary of State on Exhibit 3.1(b) to the
June 27, 1988 merging Gulf Drive-In Theatres, Inc. and Company's Registration
Cinemark of Louisiana, Inc. into the Company Statement (file 33-47040)
on Form S-1 filed on
April 9, 1992
3.1(c) Articles of Merger filed with the Texas Secretary of State Exhibit 3.1(d) to the
dated October 27, 1989 merging Premiere Cinemas Corp. into the Company's Registration
Company Statement (file 33-47040)
on Form S-1 filed on
April 9, 1992
3.1(d) Articles of Merger filed with the Texas Secretary of State Exhibit 3.1(e) to the
dated October 27, 1989 merging Tri-State Entertainment Company's Registration
Incorporated into the Company Statement (file 33-47040)
on Form S-1 filed on
April 9, 1992
3.1(e) Articles of Merger filed with the Texas Secretary of State on Exhibit 3.1(f) to the
December 27, 1990 merging Cinema 4, Inc. into the Company Company's Registration
Statement (file 33-47040) on
form S-1 filed on April 9,
1992
3.1(f) Articles of Merger filed with the Texas Secretary of State on Exhibit 3.1(f) to the
December 27, 1990 merging Cinema 4, Inc. into the Company Company's Annual Report
(file 33-47040) on Form
10-K filed March 31, 1993
3.2(a) Bylaws of the Company, as amended Exhibit 3.2 to the
Company's Registration
Statement (file 33-47040)
on Form S-1 filed on
April 9, 1992
3.2(b) Amendment to Bylaws of the Company dated March 12, 1996 Exhibit 3.2(b) to the
Company's Annual Report
(file 33-47040) on Form
10-K filed March 26, 1997
E-1
77
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER DESCRIPTION REFERENCE TO
- ------ ----------- ----------------
10.1(a) Indenture for Series B Notes, with form of Series B Note Exhibit 4.1 to the
attached. Company's Registration
Statement (file 33-41895)
on Form S-4 filed
September 13, 1996
10.1(b) Indenture dated June 26, 1997 between the Company and U.S. Exhibit 4.1 to the
Trust Company of Texas, N.A. governing the Notes, with a form Company's Registration
of Series C Note attached Statement (file
333-32949) on Form S-4
filed August 6, 1997
10.2 Indenture dated January 14, 1998 between the Company and U.S. Exhibit 4.1 to the
Trust Company of Texas, N.A. governing the Notes, with a form Company's Registration
of Series A Note attached Statement (file
333-45417) on Form S-4
filed February 2, 1998
10.3(a) Management Agreement between the Company and Cinemark II, Inc. Exhibit 10.6(c) to the
("Cinemark II") dated as of June 10, 1992. Company's Annual Report
(file 33-47040) on Form
10-K filed March 31, 1993.
10.3(b) Management Agreement, dated as of July 28, 1993, between the Exhibit 10.7 to Cinemark
Company and Cinemark Mexico (USA). Mexico (USA)'s
Registration Statement (file
33-72114) on Form S-4 filed on
November 24, 1994.
10.3(c) Management Agreement, dated as of September 10, 1992, between Exhibit 10.8 to Cinemark
the Company and Cinemark de Mexico. Mexico (USA)'s
Registration Statement (file
33-72114) on Form S-4 filed on
November 24, 1994.
10.3(d) Management Agreement dated December 10, 1993 between Laredo Exhibit 10.14(b) to the
Joint Venture and the Company. Company's Annual Report
(file 33-47040) on form
10-K filed March 31, 1994.
E-2
78
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER DESCRIPTION REFERENCE TO
- ------ ----------- ----------------
10.3(e) Management Agreement dated September 1, 1994 Exhibit 10.4(i) to the
between Cinemark Partners II, Ltd. and the Company's Annual Report
Company. (file 33-47040) on Form
10-K filed March 29, 1995.
10.4(a) Employment Agreement dated as of October 17, 1991 Exhibit 10.11(a) to the
between the Company and Lee Roy Mitchell. Company's Registration
Statement (file 33-47040)
on Form S-1 filed on April 9,
1992.
10.4(b) First Amendment to Employment Agreement dated as Exhibit 10.11(b) to the
of April 7, 1992 between the Company and Lee Roy Company's Registration
Mitchell. Statement (file 33-47040)
on Form S-1 filed on
April 9, 1992.
10.4(c) Employment Agreement dated as of October 17, 1991 Exhibit 10.11(c) to the
between the Company and Tandy Mitchell. Company's Registration
Statement (file 33-47040)
on Form S-1 filed on April 9,
1992.
10.4(d) First Amendment to Employment Agreement dated as Exhibit 10.11(d) to the
of April 7, 1992 between the Company and Tandy Company's Registration
Mitchell. Statement (file 33-47040)
on Form S-1 filed on
April 9, 1992.
10.4(e) Second Amendment to Employment Agreement between Exhibit 10.11(e) to the
the Company and Lee Roy Mitchell dated as of Company's Annual Report
June 10, 1992. (file 33-47040) on Form
10-K filed March 31, 1993.
10.5(a) 1991 Nonqualified Stock Option Plan of Cinemark Exhibit 10.14 to the
USA, Inc. Company's Registration
Statement (file 33-47040)
on Form S-1 filed on April 9,
1992.
E-3
79
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER DESCRIPTION REFERENCE TO
- ------ ----------- ----------------
10.5(b) Cinemark Mexico Nonqualified Stock Option Plan. Exhibit 10.9 to Cinemark
Mexico (USA)'s
Registration Statement
(file 33-72114) on Form
S-4 filed on November 24,
1994.
10.6(a) License Agreement dated December 10, 1993 between Exhibit 10.14(c) to the
Laredo Joint Venture and the Company. Company's Annual Report
(file 33-47040) on Form
10-K filed March 31, 1994
10.6(b) License Agreement dated September 1, 1994 between Exhibit 10.10(c) to the
Cinemark Partners II, Ltd. and the Company. Company's Annual Report
(file 33-47040) on Form
10-K filed March 29, 1995.
10.7(a) Tax Sharing Agreement between the Company and Exhibit 10.22 to the
Cinemark II dated as of June 10, 1992. Company's Annual Report
(file 33-47040) on Form
10-K filed March 31, 1993.
10.7(b) Tax Sharing Agreement dated as of July 28, 1993, Exhibit 10.10 to Cinemark
between the Company and Cinemark Mexico (USA). Mexico (USA)'s
Registration Statement
(33-72114) on Form S-4
filed on November 24,
1994.
10.8(a) Indemnification Agreement between the Company and Exhibit 10.23(a) to the
Lee Roy Mitchell dated as of July 13, 1992. Company's Annual Report
(file 33-47040) on Form
10-K filed March 31, 1993.
10.8(b) Indemnification Agreement between the Company and Exhibit 10.23(b) to the
Tandy Mitchell dated as of July 13, 1992. Company's Annual Report
(file 33-47040) on Form
10-K filed March 31, 1993.
10.8(c) Indemnification Agreement between the Company and Exhibit 10.23(d) to the
Alan W. Stock dated as of July 13, 1992. Company's Annual Report
(file 33-47040) on Form
10-K filed March 31, 1993.
E-4
80
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER DESCRIPTION REFERENCE TO
- ------ ----------- ----------------
10.8(d) Indemnification Agreement between the Company and Exhibit 10.23(f) to the
W. Bryce Anderson dated as of July 13, 1992. Company's Annual Report
(file 33-47040) on Form
10-K filed March 31, 1993.
10.8(e) Indemnification Agreement between the Company and Exhibit 10.23(g) to the
Sheldon I. Stein dated as of July 13, 1992. Company's Annual Report
(file 33-47040) on Form
10-K filed March 31, 1993.
10.8(f) Indemnification Agreement between the Company and Exhibit 10.13(f) to the
Heriberto Guerra dated as of December 3, 1993 Company's Registration
Statement (file 333-11895)
on Form S-4 filed September
13, 1996
10.9(a) Second Amended and Restated Credit Agreement dated Exhibit 10.9(a) to the
as of February 12, 1998 among the Banks and the Company's Annual Report
Agent. (file 333-45417, 333-11895
and 33-47040) on Form 10K
filed March 27, 1998
10.9(b) Pledge Agreement dated as of February 12, 1998 Exhibit 10.9(b) to the
executed by the pledgors listed on the signature Company's Annual Report
page thereto for the benefit of the Agent and the (file 333-45417, 333-11895
Banks. and 33-47040) on Form 10K
filed March 27, 1998
10.9(c) Note of the Company dated as of February 12, 1998 Exhibit 10.9(c) to the
in the original principal amount of $50,000,000 Company's Annual Report
payable to the order of Bank of America National (file 333-45417, 333-11895
Trust and Savings Association and 33-47040) on Form 10K
filed March 27, 1998
10.9(d) Note of the Company dated as of February 12, 1998n Exhibit 10.9(d) to the
in the original principal amount of $50,000,000 Company's Annual Report
payable to the order of NationsBank of Texas, N.A. (file 333-45417, 333-11895
and 33-47040) on Form 10K
filed March 27, 1998
E-5
81
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER DESCRIPTION REFERENCE TO
- ------ ----------- ----------------
10.9(e) Note of the Company dated as of February 12, 1998 Exhibit 10.9(e) to the
in the original principal amount of $30,000,000 Company's Annual Report
payable to the order of BankBoston, N.A. (file 333-45417, 333-11895
and 33-47040) on Form 10K
filed March 27, 1998
10.9(f) Note of the Company dated as of February 12, 1998 Exhibit 10.9(f) to the
in the original principal amount of $30,000,000 Company's Annual Report
payable to the order of Fleet Bank, N.A. (file 333-45417, 333-11895
and 33-47040) on Form 10K
filed March 27, 1998
10.9(g) Note of the Company dated as of February 12, 1998 Exhibit 10.9(g) to the
in the original principal amount of $15,000,000 Company's Annual Report
payable to the order of The Fuji Bank, Limited (file 333-45417, 333-11895
and 33-47040) on Form 10K
filed March 27, 1998
10.9(h) Note of the Company dated as of February 12, 1998 Exhibit 10.9(h) to the
in the original principal amount of $15,000,000 Company's Annual Report
payable to the order of Bank of New York (file 333-45417, 333-11895
and 33-47040) on Form 10K
filed March 27, 1998
10.9(i) Note of the Company dated as of February 12, 1998 Exhibit 10.9(i) to the
in the original principal amount of $30,000,000 Company's Annual Report
payable to the order of CIBC, Inc. (file 333-45417, 333-11895
and 33-47040) on Form 10K
filed March 27, 1998
10.9(j) Note of the Company dated as of February 12, 1998 Exhibit 10.9(j) to the
in the original principal amount of $30,000,000 Company's Annual Report
payable to the order of Bank of Nova Scotia (file 333-45417, 333-11895
and 33-47040) on Form 10K
filed March 27, 1998
E-6
82
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER DESCRIPTION REFERENCE TO
- ------ ----------- ----------------
10.9(k) Note of the Company dated as of February 12, 1998 Exhibit 10.9(k) to the
in the original principal amount of $25,000,000 Company's Annual Report
payable to the order of Comerica Bank-Texas (file 333-45417, 333-11895
and 33-47040) on Form 10K
filed March 27, 1998
10.9(l) Note of the Company dated as of February 12, 1998 Exhibit 10.9(l) to the
in the original principal amount of $15,000,000 Company's Annual Report
payable to the order of First Hawaiian Bank (file 333-45417, 333-11895
and 33-47040) on Form 10K
filed March 27, 1998
10.9(m) Note of the Company dated as of February 12, 1998 Exhibit 10.9(m) to the
in the original principal amount of $15,000,000 Company's Annual Report
payable to the order of Bank of Montreal (file 333-45417, 333-11895
and 33-47040) on Form 10K
filed March 27, 1998
10.9(n) Note of the Company dated as of February 12, 1998 Exhibit 10.9(n) to the
in the original principal amount of $15,000,000 Company's Annual Report
payable to the order of PNC Bank (file 333-45417, 333-11895
and 33-47040) on Form 10K
filed March 27, 1998
10.9(o) Note of the Company dated as of February 12, 1998 Exhibit 10.9(o) to the
in the original principal amount of $15,000,000 Company's Annual Report
payable to the order of Sumitoto Bank, Limited (file 333-45417, 333-11895
and 33-47040) on Form 10K
filed March 27, 1998
10.9(p) Note of the Company dated as of February 12, 1998 Exhibit 10.9(p) to the
in the original principal amount of $15,000,000 Company's Annual Report
payable to the order of Union Bank of California, (file 333-45417, 333-11895
N.A. and 33-47040) on Form 10K
filed March 27, 1998
E-7
83
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER DESCRIPTION REFERENCE TO
- ------ ----------- ----------------
10.9(q) First Amendment to Second Amended and Restated Exhibit 10.9(q) to the
Credit Agreement dated as of February 12, 1998 Company's Annual Report
among the Banks and the Agent (file 333-45417, 333-11895
and 33-47040) on Form 10K
filed March 27, 1998
10.9(r) Second Amendment to Second Amended and Restated Exhibit 10.9(r) to the
Credit Agreement dated as of February 12, 1998 Company's Annual Report
among the Banks and the Agent (file 33-47040) on Form
10K filed March 31, 1999
10.9(s) Intercompany Subordination Agreement dated Exhibit 10.9(s) to the
November 16, 1998 Company's Annual Report
(file 33-47040) on Form
10K filed March 31, 1999
10.9(t) Third Amendment to Second Amended and Restated Exhibit 10.9(t) to the
Credit Agreement dated as of February 12, 1998 Company's Annual Report
among the Banks and the Agent (file 33-47040) on Form
10K filed March 31, 1999
10.10(a) Letter Agreements with directors of the Company Exhibit 10.15 to the
regarding stock options. Company's Annual Report
(file 33-47040) on Form
10-K filed March 31, 1993.
10.10(b) Letter Agreements with directors of the Company Exhibit 10.15(c) to the
amending stock options Company's Registration
Statement (file 333-11895)
on Form S-4 filed September
13, 1996
10.10(c) Letter Agreement with directors of the Company Exhibit 10.10(c) to the
regarding stock options Company's Annual Report
(file 33-47040) on Form
10K filed March 31, 1999
10.11(a) Credit Agreement dated November 16, 1998 between Exhibit 10.11(a) to the
Cinemark Mexico (USA), Inc., Bank of America Company's Annual Report
National Trust and Savings Association, as (file 33-47040) on Form
Administrative Agent, and the Financial 10K filed March 31, 1999
Institutions party thereto
E-8
84
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER DESCRIPTION REFERENCE TO
- ------ ----------- ----------------
10.11(b) Guaranty of Cinemark Mexico (USA) by Cinemark USA, Exhibit 10.11(b) to the
Inc. Company's Annual Report
(file 33-47040) on Form
10K filed March 31, 1999
10.11(d) First Amendment to Credit Agreement dated Page _____
September 29, 2000 between Cinemark Mexico (USA),
Inc., Bank of America N.A. and the Financial
Institutions party thereto
10.11(c) Intercompany Subordination Agreement dated Exhibit 10.11(c) to the
November 16, 1998 Company's Annual Report
(file 33-47040) on Form
10K filed March 31, 1999
10.12 Senior Secured Credit Agreement dated December 4, Exhibit 10.18 to the
1995 among Cinemark II, Cinemark Mexico (USA) and Company's Annual Report
Cinemark de Mexico (file 33-47040) on Form
10-K filed April 1, 1996
10.13(a) Credit Agreement dated September 11, 1998 between Exhibit 10.13(a) to the
Cinemark Investments Corporation, Bank of America Company's Annual Report
National Trust and Savings Association, as (file 33-47040) on Form
Administrative Agent, NationsBank, N.A., as 10K filed March 31, 1999
Syndication Agent, and the other financial
institutions party thereto
10.13(b) Cinemark Investments Corporation FRN Pledge Exhibit 10.13(b) to the
Agreement dated September 11, 1998 Company's Annual Report
(file 33-47040) on Form
10K filed March 31, 1999
10.13(c) Guaranty of Cinemark Investments Corporation by Exhibit 10.13(c) to the
Cinemark USA Company's Annual Report
(file 33-47040) on Form
10K filed March 31, 1999
10.14 Shareholders' Agreement dated March 12, 1996 among Exhibit 10.19(b) to the
the Company, Mr. Mitchell, Cypress Merchant Company's Annual Report
Banking Partners L.P., Cypress Pictures Ltd. and (file 33-47040) on Form
Mr. Mitchell and Mr. Don Hart as Co-Trustees of 10-K filed April 1, 1996
certain trusts signatory thereto
10.15(a) Loan Agreement dated December 15, 2000 between Page ______
Cinema Properties, Inc. and Lehman Brothers Bank,
FSB
10.15(b) Promissory Note of Cinema Properties, Inc. dated
as of December 15, 2000 in the original principal
amount of $77,000,000 payable to the order of
Lehman Brothers Bank, FSB
12 Calculation of Earnings to Fixed Charges. Page ______
E-9
85
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER DESCRIPTION REFERENCE TO
- ------ ----------- ----------------
21 Subsidiaries of the Registrant Page ______
E-10