SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
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 27, 2002, 1,500 shares of Class A Common Stock and 185,647
shares of Class B Common Stock (including options to acquire 2,999 shares of
Class B Common Stock exercisable within 60 days of such date) were outstanding.
INDEX
<Table>
<Caption>
Page
----
Explanatory Note................................................................................................1
Special Note Regarding Forward Looking Statements...............................................................1
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................................................9
(e) Available Information.......................................................................10
Item 2: Properties.......................................................................................10
Item 3: Legal Proceedings................................................................................10
Item 4: Submission of Matters to a Vote of Security Holders..............................................11
PART II.........................................................................................................11
Item 5: Market for Registrant's Common Equity and Related Stockholder Matters............................11
Item 6: Selected Financial Data..........................................................................11
Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations............14
Item 7A: Quantitative and Qualitative Disclosures About Market Risk...................................... 25
Item 8: Financial Statements and Supplementary Data......................................................26
Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.............26
PART III........................................................................................................27
Item 10: Directors and Executive Officers of the Registrant...............................................27
Item 11: Executive Compensation.......................................................................... 31
Item 12: Security Ownership of Certain Beneficial Owners and Management.................................. 35
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
</Table>
EXPLANATORY NOTE
This Amendment No. 1 to Cinemark USA, Inc.'s Annual Report on Form 10-K for
the year ended December 31, 2001 (see Note 17 to consolidated financial
statements) is being filed to reflect the restatement of the Company's financial
statements as of December 31, 2001 in the Annual Report on Form 10-K filed with
the Securities and Exchange Commission on March 27, 2002.
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
This Amendment No. 1 on Form 10-K/A includes "forward-looking statements"
based on the Company's current expectations, assumptions, estimates and
projections about the Company's business and industry. They include statements
relating to:
o future revenues, expenses and profitability;
o the future development and expected growth of the Company's business;
o projected capital expenditures;
o attendance at movies generally, or in any of the markets in which the
Company operates, the number or diversity of popular movies released or
the Company's inability to successfully license and exhibit popular
films;
o competition from other exhibitors; and
o determinations in lawsuits in which the Company is a defendant.
You can identify forward-looking statements by the use of words such as
"may," "should," "will," "could," "estimates," "predicts," "potential,"
"continue," "anticipates," "believes," "plans," "expects," "future" and
"intends" and similar expressions which are intended to identify forward-looking
statements. These statements are not guarantees of future performance and are
subject to risks, uncertainties and other factors, some of which are beyond the
Company's control and difficult to predict and could cause actual results to
differ materially from those expressed or forecasted in the forward-looking
statements. In evaluating these forward-looking statements, you should carefully
consider the risks and uncertainties described in this report. These
forward-looking statements reflect the Company's view only as of the date of
this report. All forward-looking statements attributable to the Company or
persons acting on its behalf are expressly qualified in their entirety by the
cautionary statements contained throughout this report. The company undertakes
no current obligation to publicly update such forward-looking statements to
reflect subsequent events or circumstances.
PART I
Item 1: Business
(a) General Development of Business
GENERAL
Cinemark USA, Inc. and its subsidiaries (the "Company") is one of the
leaders in the motion picture exhibition industry in terms of both revenues and
the number of screens in operation. In 2001, the Company opened ten new theatres
(106 screens), acquired one theatre (6 screens) and closed five theatres (24
screens) on a worldwide basis. As of March 27, 2002 the Company operates 3,020
screens in 279 theatres located in 33 states, Canada, Mexico, Argentina, Brazil,
Chile, Ecuador, Peru, Honduras, El Salvador, Nicaragua, Costa Rica, Colombia and
the United Kingdom, consisting of 2,664 screens in 237 "first run" theatres and
356 screens in 42 "discount" theatres. Of the Company's 3,020 screens, 1,917 (or
63%) were built by the Company since 1996, and, as a result, the Company
believes it operates one of the most modern theatre circuits in the industry.
The Company's ratio of screens to theatres is 10.8 to 1 at March 27, 2002.
Approximately 67% of the Company's first run screens are in stadium seating
auditoriums. For the fiscal year ended December 31, 2001, the Company had
revenues of $853.7 million and EBITDA (as defined in note 5 to Selected
Consolidated Financial and Operating Data) of $170.0 million, representing a
19.9% EBITDA margin. During this same twelve month period, the Company's
operating income was $57.6 million and its net loss was $4.0 million. From its
fiscal year ended December 31, 1996 through the fiscal year ended December 31,
2001, the Company has increased revenues approximately 150% from $341.7 million
to $853.7 million and has increased EBITDA approximately 178% from $61.2 million
to $170.0 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 United
States ("U.S.") theatres and may purchase tickets for 67 U.S. theatres (956
screens) operated by the Company. Customers can also print at-home movie tickets
for ten U.S. theatres which allows the customer 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 2001, the Company opened one new theatre (12 screens), acquired one
theatre (6 screens) and closed four theatres (18 screens) in the U.S. As of
March 27, 2002, the Company operates 189 theatres (2,221 screens) in the U.S.
and Canada consisting of 1,865 screens in 147 "first run" theatres and 356
screens in 42 "discount" theatres. All but one theatre (12 screens), which is
located in Vancouver, Canada, are located in the U.S. As of March 27, 2002, the
Company's ratio of screens to theatres in the U.S. and Canada is 11.8 to 1. The
industry average of screens to theatres is believed to be approximately 6.3 to
1. Approximately 64% of the Company's first run screens in the U.S. and Canada
are in stadium seating auditoriums.
1
FOREIGN DEVELOPMENTS
In 2001, the Company opened 9 new theatres (94 screens) in five countries
and closed one theatre (6 screens). As of March 27, 2002, the Company operates
90 first run theatres (799 screens) in Mexico, Argentina, Brazil, Chile,
Ecuador, Peru, Honduras, El Salvador, Nicaragua, Costa Rica, Colombia and the
United Kingdom. All of the Company's international theatres have been built by
the Company since 1993, which the Company believes makes its international
operations among the most modern in the international market. As of March 27,
2002, the Company's ratio of screens to theatres in these international markets
is 8.9 to 1. Approximately 74% of the Company's international screens are in
stadium seating auditoriums.
(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. See note 14 of the Company's Notes to
Consolidated Financial Statements for financial information about geographic
areas of the Company's business.
(c) Narrative Description of Business
BUSINESS STRATEGY
The Company's growth has been primarily through new theatre development.
Since 1996, the Company has built 1,917 screens (or 63%) of its current screen
count. 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 among
major theatre exhibitors in the development and execution of the following
domestic and international business strategy:
Non-competitive U.S. markets. The Company has historically built modern
theatres 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 theatres in new and existing film zones
where little or no competition for film product exists. Approximately 83% of the
Company's U.S. first run theatres have no direct competition within their
respective film zones, which allows the Company to select those pictures that it
believes will be the most successful in its markets from those offered to it by
distributors. The Company presently has theatres in 13 of the top 25 U.S.
"Designated Market Areas" as defined by Nielson Media Research. As a result of
the overbuilt status of the U.S. market today, generally acknowledged by most
theatre exhibitors, the Company has significantly scaled back its future
expansion program in U.S. markets and is highly selective on new markets. Since
January 1, 2002, the Company has opened one new U.S. theatre (4 screens) in Park
City, Utah which screens first run films and also acts as the home of the
Sundance Film Festival. As of March 27, 2002, the Company has one new theatre
(12 screens) and a five screen addition to an existing theatre under
construction which are scheduled to open in the U.S. by the end of 2002 and has
signed commitments for two new theatres (31 screens) scheduled to open after
2002.
Discount theatre niche in the U.S. The majority of the Company's discount
screens were originally opened as discount theatres. The Company created its
discount theatre operations (admission of $.50 to $2 per ticket) in the U.S. to
serve an alternative market of patrons which extends the life of a film past the
first run screening. By serving this alternative market of patrons in its
discount theatres, the Company has been able to successfully increase the number
of potential customers beyond traditional first run moviegoers. In 2001, the
Company's discount theatre attendance increased 11% compared to attendance in
2000. The Company's discount theatres, approximately 71% of which have been
built by the Company, 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.
Selective building in heavily populated 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 significant presence in most of the major cities in Latin America. The Company
has also strategically diversified its international portfolio in an effort to
balance its risk and become the predominant Pan American exhibition company. The
Company believes it was the first U.S. circuit to open American-style
state-of-the-art theatres in Mexico and Chile, and has developed similar
multiplex theatres directly or through joint venture arrangements with local
partners in other Latin American countries, including Argentina, Brazil,
Ecuador, Peru, Honduras, El Salvador, Nicaragua, Costa Rica and Colombia. The
Company presently has theatres in 11 of the top 13 populated cities in Latin
America. Approximately 74% of the Company's international screens are in stadium
seating auditoriums. The Company intends to continue to develop state-of-the-art
multiplex theatres in underserved international markets, emphasizing Latin
America, under a selective expansion program primarily utilizing internally
generated funds in those countries. Since January 1, 2002, the Company has
opened two new theatres (18 screens) and closed two screens at an existing
theatre. As of March 27, 2002, the Company has three new theatres (24 screens)
scheduled to open in international markets by the end of 2002. Although the
Company is reviewing sites, the Company has no signed commitments to build any
theatres in international markets beyond 2002.
2
OPERATIONS
The Company's corporate office, which employs approximately 185 individuals
as of March 27, 2002, is responsible for theatre operations support, film
licensing and settlements, human resources, finance and accounting, operational
audit, theatre maintenance and construction, internet and information systems,
lease site planning and marketing. The Company's domestic theatre operations are
divided into eleven regions, each of which is headed by a region leader. Each
region leader is responsible for supervising approximately 9% of the Company's
theatre managers.
The Company conducts regular inspections of each theatre and operates a
program involving unannounced visits by unidentified customers who report on the
quality of service, film presentation and cleanliness of the theatre to maintain
quality and consistency within the Company's theatres.
Film Licensing
Films are typically licensed from film distributors that are owned by major
film production companies or from independent film distributors that distribute
films for smaller production companies. For new release films, film distributors
typically establish geographic zones and offer each available film to one
theatre in each zone. The size of a film zone is generally determined by the
population density, demographics and box office potential of a particular market
or region. A film zone can range from a radius of three to five miles in major
metropolitan and suburban areas to up to fifteen miles in small towns. The
Company currently operates theatres in 142 first-run film zones in North
America. New film releases are licensed at the discretion of the film
distributors. Approximately 83% of the Company's North American first-run
theatres have no direct competition within their respective film zones, which
allows the Company to select those pictures that it believes will be the most
successful in its markets from those offered to the Company by distributors. The
Company usually licenses films on an allocation basis in film zones where it
faces competition. A particular distributor will rotate films among exhibitors
under an allocation process that enables film distributors to charge a premium
rental rate in these zones. Films are released to discount theatres once the
attendance levels substantially drop off at the first run theatres. For discount
films, film distributors generally establish availability on a market-by-market
basis after the completion of exhibition at first run theatres and permit each
theatre within a market to exhibit such films without regard to film zones.
Unlike the Company's North American operations, distributors in the
Company's international markets do not allocate film to a single theatre in a
geographic film zone. Rather, competitive theatres can play the same films at
the same time as other theatres. The Company's theatre personnel focus on
providing excellent customer service, and the Company provides a modern facility
with the most up-to-date sound systems, comfortable stadium style seating and
other amenities typical of modern American-style multiplexes which the Company
believes gives it a competitive advantage in markets where there are competing
theatres. Of the 90 theatres the Company operates outside of North America,
approximately 88% of these theatres do not have direct competition.
The Company's film rental licenses typically state that rental fees are
based on either mutually agreed upon firm terms established prior to the opening
of the picture or on a mutually agreed settlement upon the conclusion of the
picture run. Under a firm terms formula, the Company pays the distributor a
specified percentage of box office receipts, with the percentages declining over
the term of the run. Firm term film rental fees are generally the greater of (i)
60% or 70% of box office admissions, gradually declining to as low as 30% over a
period of four to seven weeks versus (ii) a specified percentage (i.e. 90%) of
the excess of box office receipts over a negotiated allowance for theatre
expenses (commonly known as a 90-10 clause). The settlement process allows for
negotiation upon the conclusion of the picture run based upon how a film
actually performs. In international markets, film rental percentages can vary
between 35% and 60% of box office revenues and gradually decline over a similar
period as in the U.S.
Film rental costs are accrued based on the applicable box office receipts
and either the mutually agreed upon firm terms or estimates of the final
settlement depending upon the film licensing arrangement. Estimates are made
based on the expected success of a film over the length of its run. The success
of a film can typically be determined a few weeks after a film is released when
initial box office performance of the film is known. Accordingly, final
settlements typically approximate estimates since box office receipts are known
at the time the estimate is made and the expected success of a film over the
length of its run can typically be estimated early in the film's run at the time
the estimate is made. The final film settlement amount is negotiated at the
conclusion of the film's run based upon how a film actually performs. If actual
settlements are higher than those estimated, additional film rental costs are
recorded at the time of settlement.
Concessions
Concession sales are the Company's second largest revenue source,
representing approximately 30% of total revenues for 2001. Concession sales have
a much higher margin than admissions sales. The Company has devoted
3
considerable management effort to increase concession sales and improve their
operating margins. 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. Different varieties and
flavors of candy and soft drinks are offered at theatres based on preferences in
that particular geographic region. The Company has also implemented specially
priced "combo- meals" for all patrons as well as "movie meals" targeted toward
children and senior citizens. The Company periodically introduces new concession
products designed to attract additional concession purchases.
o Staff training. Employees are continually trained in "suggestive-selling"
and "upselling" techniques. This training occurs through situational
role-playing conducted at the Company's "Customer Satisfaction University" as
well as continuing on-the-job training as part of concession promotions and
sales contests. 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. Modern theatres are designed to optimize efficiencies at
the concession stands, which includes multiple service stations to make it
easier to serve larger numbers of customers rapidly. Strategic placement of
large concession stands within theatres heightens 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 and manufacturers on a bulk rate basis and
distributes its concession supplies through a national distribution network. The
concession distributor provides inventory and distribution services to the
theatres, which place volume orders directly to replenish stock. The concession
distributor is paid a percentage fee for this service. The Company believes
utilization of a concession distributor is more cost effective than establishing
a concession warehousing network owned by the Company.
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 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.
Additionally, the marketing department focuses on maximizing the revenue
generation opportunities of the Company's theatres, including the following:
o Advertising. The Company believes that the advertising industry
recognizes the value of in-theatre advertising as an important medium due to the
demographics of theatre patrons. Recent research has shown that movie audiences
have a 78% retention rate for advertisements seen in a movie theatre by a
captive audience which exceeds the retention rate for television, radio or print
advertising. In order to effectively realize and manage this opportunity, the
Company entered into advertising contracts in 2000 for rolling stock and screen
slide advertising. The Company is also exploring additional revenue sources such
as digital video monitor advertising, virtual poster cases and third party
branding. The Company has used theatres for simulcast concerts, pay-per-view
sporting events and cultural events. Management believes the trend to use
theatre auditoriums for non-film events during non-peak times will increase,
which will add revenue and attract new audiences to its theatres while not
significantly increasing costs.
4
o Sales. In 2001, the Company formed a new marketing sales department to
oversee the development and implementation of a comprehensive theatre rental
effort. Recognizing the large lobbies, comfortable seating, big screen and sound
capabilities make the Company's theatres an attractive venue to hold corporate
events, private parties, private screenings and team building meetings, this new
sales division is charged with increasing theatre rental income in "dark time"
when the theatre is normally closed. Management believes additional revenues
will be generated from this effort.
Internet
The Company has been very successful using the internet to provide patrons
access to movie times, the ability to buy tickets and even print their tickets
at home. The internet is quickly becoming the primary way to check movie times,
replacing the traditional newspaper source. Patrons are now able to purchase
advance tickets from 67 U.S. theatres (956 screens) operated by the Company and
print tickets at home for ten theatres by simply accessing the Company's website
at WWW.CINEMARK.COM. Additional distribution of this information and purchasing
ability is available to patrons by accessing WWW.FANDANGO.COM.
The Company's internet initiatives help improve customer satisfaction, as
customers who purchase tickets over the internet are often able to bypass lines
at the box office by printing their tickets at home using bar code technology or
picking up their tickets at kiosks in the theatre lobby. The Company was the
first major exhibitor to introduce the technology to print their tickets at home
and also the first major exhibitor to make showtimes available for patrons
utilizing wireless technology using Personal Digital Assistants (PDA's), also
known as Palm(R) hand held computers. Management feels the Company is leading
the way in customer service at the theatre and also on the internet.
Management Information Systems
The Company 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 real-time admissions and concession revenue
reports. This information allows management to make real-time adjustments to
movie schedules, extend 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 in-theatre
inventory reports, leading to better inventory management and control. The
Company upgraded this POS system to a Windows platform which it began deploying
in its theatres in 1999. This enhanced system has multiple language
capabilities, numerous ticket pricing options, integrates internet ticket sales
and has the ability to process credit cards. The Windows platform also permits
the addition of barcode scanners, pole displays, touch screens, credit card
readers and other equipment specific to individual country requirements.
OVERVIEW OF THE THEATRE INDUSTRY
For the first time in history, single year theatrical film box office in
the U.S. exceeded the $8 billion mark, reaching a total of $8.4 billion in 2001,
according to the Hollywood Reporter. The new high at the national box office
improved 9% from the previous record of $7.7 billion set in 2000 and continued
the longest expansion in movie business history as revenue increased for an
unprecedented tenth straight year, according to the Hollywood Reporter. The
Company believes the primary reason for the record years is the increased
investment in production and marketing of films by the film distributors as well
as the construction of new megaplexes throughout the U.S. The 9% increase in
2001 box office sales as compared to 2000 is a result of both increased
attendance and average ticket prices. The following table represents the results
of a survey by Motion Picture Association of America
5
("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.
<Table>
<Caption>
U.S. Box
Attendance Average Office Sales
Year (Millions) Ticket Price (Millions)
---- ---------- ------------ ------------
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
2001 1,490 $5.62 $8,400
</Table>
Theatrical exhibition is the primary distribution channel for new motion
picture releases. The Company believes the successful theatrical release of a
movie in "downstream" distribution channels, such as home video, DVD, network,
syndicated and pay-per-view television, is largely dependent on its successful
theatrical release in the U.S. The Company further believes these ancillary
distribution channels have 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 prefer the experience 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.
Increased international distribution is also producing important sources of
revenue for film distributors and growth opportunities for exhibitors. According
to Global Entertainment and Media Worldwide Market Research, Latin America will
be the fastest growing region in the world for consumer-level spending on movies
with average yearly growth of 10% through 2005. The Company believes many
international markets for theatrical exhibition have historically been
underserved due to antiquated or run-down theatres, and that international
markets, especially those in Latin America, will continue to experience growth
as additional state-of-the-art stadium seating theatres are introduced.
INTERNATIONAL OPERATIONS
The Company's success in developing and operating new theatres
internationally provides a sound foundation for continued selective development
of state-of-the-art multiplex facilities in international markets. The Company's
strategy in some of these markets is to form partnerships or joint ventures with
local business groups, thereby sharing risk and obtaining valuable market
insight.
The Company has been successfully introducing American-style
state-of-the-art multiplex theatres to underserved international markets since
1993. The Company's activities in international markets have been primarily
directed toward Latin America, where the Company believes it has successfully
established a significant presence in most of the major cities in Latin America.
The Company has also strategically diversified its international portfolio in an
effort to balance its risk and become the predominant Pan American exhibition
company. In 2001, the Company opened, through its subsidiaries, nine new
theatres (94 screens) in five countries outside of the U.S. and Canada. Since
January 1, 2002, the Company, through its subsidiaries, has opened two new
theatres (18 screens) and closed two screens at an existing theatre. As of March
27, 2002,
6
the Company, through its subsidiaries, operates 90 first-run theatres (799
screens) in Mexico, Argentina, Brazil, Chile, Ecuador, Peru, Honduras, El
Salvador, Nicaragua, Costa Rica, Colombia and the United Kingdom. The Company
intends to continue to develop state-of-the-art multiplex theatres in
underserved international markets, emphasizing Latin America, under a selective
expansion program primarily utilizing internally generated funds in those
countries. As of March 27, 2002, the Company, through its subsidiaries, has
three new theatres (24 screens) scheduled to open in international markets by
the end of 2002 and has no signed commitments to build any theatres in
international markets beyond 2002. The Company also provides management services
for one first run theatre (13 screens) in Taiwan for a company in which Cinemark
International owns a 14% equity interest. Approximately 74% of the Company's
international screens are in stadium seating auditoriums.
Mexico
In July 1993, the Company, through its subsidiary Cinemark Mexico (USA),
Inc. ("Cinemark Mexico"), began developing state-of-the-art multiplex theatres
in Mexico. Cinemark Mexico's operations are conducted through its subsidiary,
Cinemark de Mexico, S.A. de C.V. The Company, through its subsidiaries, owns
approximately 95% of Cinemark de Mexico, S.A. de C.V. As of March 27, 2002,
Cinemark Mexico operates 26 theatres (256 screens).
Brazil
In August 1995, Cinemark LTDA was organized as a subsidiary of Cinemark
International. In November 1997, Cinemark International, through a wholly-owned
subsidiary, entered into a joint venture agreement with Brazilian partners and
converted Cinemark LTDA to a Brazilian corporation, Cinemark Brasil, S.A., to
develop state-of-the-art multiplex theatres in Brazil. Cinemark Brasil, S.A. is
approximately 53% owned by Cinemark International and approximately 47% owned by
Brazilian joint venture partners. As of March 27, 2002, Cinemark Brasil, S.A.
operates 29 theatres (264 screens).
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 conducts
its business through Cinemark Chile, S.A. The Company, through its subsidiaries,
owns approximately 97% of Cinemark Chile, S.A. As of March 27, 2002, Cinemark
Chile operates eleven theatres (88 screens).
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 27, 2002, 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 and 49.9% owned by Cines de Centroamerica. As of March 27, 2002,
Cinemark Equity Holdings Corporation, through its subsidiaries, operates seven
theatres (43 screens) in four Central American countries (Honduras, El Salvador,
Nicaragua and Costa Rica) and plans to open one new theatre (8 screens) in
Panama by the end of 2002.
7
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 27, 2002, Cinemark del Peru, S.A. operates two
theatres (21 screens) and plans to open one new theatre (9 screens) by the end
of 2002.
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 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 27, 2002, 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 50.1% owned by
Cinemark International and 49.9% collectively owned by Casa Editorial El Tiempo
S.A., Tempora S.A. and Prodiscos S.A. As of March 27, 2002, Cinemark Colombia
operates three theatres (22 screens).
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. In 2001, Cinemark Theatres U.K., Ltd.
signed a management agreement with UCI (a local theatre operator) to operate its
theatres. As of March 27, 2002, Cinemark Theatres U.K., Ltd. operates one
theatre (10 screens) and plans to open one new theatre (7 screens) by the end of
2002.
COMPETITION
The Company is one of the leading motion picture exhibitors in terms of
both revenues and the number of screens in operation. The Company competes
against local, national and international exhibitors.
In film zones where the Company has no direct competition (approximately
83% of the Company's first run U.S. theatres), the Company selects those
pictures it believes will be the 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 also face competition from a number of other motion
picture exhibition delivery systems, such as home video, DVD, network,
syndicated and pay-per-view television. The Company does not believe that these
additional distribution channels have adversely affected theatre attendance;
however, there can be no assurance existing or future alternative delivery
systems will not have an adverse impact on attendance. The
8
Company's theatres also face competition from other forms of entertainment
competing for the public's leisure time and disposable income.
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. The seasonality of the
release of successful films, however, has become less pronounced in recent years
with the release of major motion pictures occurring more evenly throughout the
year.
EMPLOYEES
As of March 27, 2002, 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 fourteen employees are members. Some of the
Company's international operations utilize union labor. The Company considers
its relations with its employees to be satisfactory.
REGULATION
The distribution of motion pictures is largely regulated by federal and
state antitrust laws and has been the subject of numerous antitrust cases. The
Company has never been a party to any of such cases, but the manner in which it
can license films from certain major film distributors is subject to consent
decrees resulting from these cases. Consent decrees bind certain major film
distributors and require the films of such distributors to be offered and
licensed to exhibitors, including the Company, on a theatre-by-theatre and
film-by-film basis. Consequently, exhibitors cannot assure themselves of a
supply of films by entering long-term arrangements with major distributors, but
must negotiate for licenses on a film-by-film and theatre-by-theatre basis.
The Company is subject to various general regulations applicable to its
operations including the Americans with Disabilities Act (the "ADA"). The
Company develops new theatres to be accessible to the disabled and believes it
is in substantial compliance with current regulations relating to accommodating
the disabled. Although the Company believes that its theatres comply with the
ADA, the Company is a party to lawsuits which claim that its handicapped seating
arrangements do not comply with the ADA. See Item 3 - Legal Proceedings.
The Company's theatre operations are also subject to federal, state and
local laws governing such matters as wages, working conditions, citizenship,
health and sanitation requirements and licensing.
(d) Financial Information about Geographic Areas
The Company operates in a single business segment as a motion picture
exhibitor. The Company is a multinational corporation with consolidated
operations in the U.S., Canada, Mexico, Argentina, Brazil, Chile, Ecuador, Peru,
Honduras, El Salvador, Nicaragua, Costa Rica, Colombia and the United Kingdom as
of March 27, 2002. 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 U.S. and Canada, Mexico, Brazil and other foreign countries for the three
years ended December 31, 1999, 2000 and 2001.
9
(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 from the
Company's website or 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. The Company's website is located at WWW.CINEMARK.COM.
Item 2: Properties
Of the 189 theatres (2,221 screens) operated by the Company in the U.S. and
Canada at March 27, 2002, 32 theatres (476 screens) were owned and 157 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 renewal
options) generally ranging from 20 to 40 years. Approximately 8% of the
Company's theatre leases in the U.S. and Canada (covering 78 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 1,519 screens) have remaining 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 27, 2002, the Company operated 90 theatres (799 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 international leases have remaining
terms (including optional renewal periods) of less than five years, and
approximately 89% of the Company's international leases (708 screens) have
remaining terms (including optional renewal periods) of more than 15 years.
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 2001, the Company sold or closed (as a result of
the expiration or settlement of the lease term) five theatres (24 screens). The
closing 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
DOJ Litigation
In March 1999, the Department of Justice filed suit in the U.S. District
Court, Northern District of Ohio, Eastern Division, against the Company alleging
certain violations of the ADA relating to its wheelchair seating arrangements
and seeking remedial action. An Order granting Summary Judgement to the Company
was issued by the presiding federal judge in November 2001. The Department of
Justice has filed a Notice of Appeal with the United States Court of Appeals for
the Sixth Circuit. However, if the Company ultimately loses the Department of
Justice litigation, its financial position, results of operations and cash flows
may be materially and adversely affected. The Company is unable to predict the
outcome of this litigation or the range of potential loss, however, management
believes that based upon current precedent the Company's potential liability
with respect to such proceeding is not material in the aggregate to its
financial position, results of operations and cash flows. Accordingly, the
Company has not established a reserve for loss in connection with this
proceeding.
Austin, TX Litigation
In August 2001, David Wittie, Rona Schnall, Ron Cranston, Jennifer McPhail,
Peggy Garaffa and ADAPT of Texas filed suit in the 201st Judicial District Court
of Travis County, Texas alleging certain violations of the Human Resources Code,
the Texas Architectural Barriers Act, the Texas Accessibility Standards and the
Deceptive Trade Practices Act relating to accessibility of movie theatres for
patrons using wheelchairs at two theatres located in the Austin, Texas market.
The plaintiffs are seeking remedial action and unspecified damages. The Company
has filed an answer denying the allegations and is vigorously defending this
suit. The Company is unable to predict the outcome of this litigation or the
range of potential loss, however, management believes that based upon current
precedent the Company's potential liability with respect to such proceeding is
not material in the aggregate to its financial position, results of operations
and cash flows. Accordingly, the Company has not established a reserve for loss
in connection with this proceeding.
10
Mission, TX Litigation
In July 2001, Sonia-Rivera-Garcia and Valley Association for Independent
Living filed suit in the 93rd Judicial District Court of Hidalgo County, Texas
alleging certain violations of the Human Resources Code, the Texas Architectural
Barriers Act, the Texas Accessibility Standards and the Deceptive Trade
Practices Act relating to accessibility of movie theatres for patrons using
wheelchairs at one theatre located in the Mission, Texas market. The plaintiffs
are seeking remedial action and unspecified damages. The Company has filed an
answer denying the allegations and is vigorously defending this suit. The
Company is unable to predict the outcome of this litigation or the range of
potential loss, however, management believes that based upon current precedent
the Company's potential liability with respect to such proceeding is not
material in the aggregate to its financial position, results of operations and
cash flows. Accordingly, the Company has not established a reserve for loss in
connection with this proceeding.
The plaintiffs in the DOJ litigation, Austin, Texas litigation and Mission,
Texas litigation have argued that the theatres must provide wheelchair seating
locations with viewing angles to the screen that are at the median or better
than all seats in the auditorium. To date, three courts have rejected that
position. In two of the three courts, the Company was the defendant, and the
courts have found the Company's theatres to comply with the ADA; Lara v.
Cinemark USA, Inc., United States Court of Appeals for the Fifth Circuit; United
States of America v. Cinemark USA, Inc., United States District Court for the
Northern District of Ohio. The third case, Oregon Paralyzed Veterans of America
v. Regal Cinemas, Inc., United States District Court for the District of Oregon,
adopted the reasoning established in Lara and granted summary judgment in favor
of Regal Cinemas, Inc.
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, most of
which are covered by insurance. The Company believes its potential liability
with respect to proceedings currently pending is not material in the aggregate
to its financial position, results of operations and cash flows.
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 Shareholder Matters
There is no established public trading market for the Company's Common
Stock. As of March 27, 2002, there were 41 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.
In October 2001, the Company issued an aggregate of 2,918 shares of Class B
Common Stock to 9 employees pursuant to exercises of stock options issued under
the Company's 1991 Nonqualified Stock Option Plan. In December 2001, the Company
issued (i) an aggregate of 1,993 shares of Class B Common Stock to 15 employees
pursuant to exercises of stock options issued under the Company's 1991
Nonqualified Stock Option Plan and (ii) 200 shares of Class B Common Stock to a
former director of the Company pursuant to an exercise under a director stock
option plan. The exercise price for the 5,111 shares of Class B Common Stock was
$1.00 per share. See Executive Compensation - Stock Options.
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, 2001. 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.
11
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA(1)
<Table>
<Caption>
Year Ended December 31,
----------------------------------------------------------------------------
1997 1998 1999 2000 2001
------------ ------------ ------------ ------------ ------------
STATEMENT OF OPERATIONS DATA (In thousands, except per share, theatres and screen data)
(CONSOLIDATED):
Revenues $ 434,598 $ 571,219 $ 712,604 $ 786,264 $ 853,658
Theatre operating costs 322,462 433,259 553,482 613,007 646,705
General and administrative expenses 27,598 32,947 34,833 39,013 42,690
Depreciation and amortization 25,373 37,197 53,269 66,111 73,544
Asset impairment loss 2,214 9,950 3,720 3,872 20,723
(Gain) loss on sale of assets and other (189) (2,266) 2,420 912 12,408
Operating income 57,140 60,131 64,881 63,348 57,589
Interest expense(2) 33,487 43,014 59,867 74,037 70,931
Income (loss) before extraordinary
items and cumulative effect of an
accounting change 15,019 11,009 4,004 (10,423) (4,021)
Net income (loss)(3) 14,705 11,009 1,035 (10,423) (4,021)
Diluted earnings (loss) per share:
Before extraordinary items and
cumulative effect of an accounting
change 80.45 59.01 20.88 (58.30) (22.40)
Net income (loss) 78.77 59.01 5.40 (58.30) (22.40)
BALANCE SHEET DATA (CONSOLIDATED):
Cash and cash equivalents $ 32,120 $ 25,646 $ 8,872 $ 19,840 $ 50,199
Theatre properties and equipment-net 548,942 749,692 933,959 950,135 866,406
Total assets 661,597 882,673 1,041,861 1,060,576 996,544
Total long-term debt, including
current portion 463,501 631,649 778,413 810,323 780,956
Shareholders' equity 69,982 75,800 63,851 48,910 25,337
OTHER FINANCIAL DATA (CONSOLIDATED):
Cash flow from (used for)
Operating activities $ 57,934 $ 52,173 $ 92,102 $ 54,796 $ 87,122
Investing activities (225,659) (234,146) (223,044) (94,886) (33,799)
Financing activities 185,424 175,907 114,927 51,280 (21,513)
Theatre level cash flow(4) 112,136 137,960 159,122 173,256 206,953
EBITDA(5) 87,313 107,457 128,233 141,978 169,980
OPERATING DATA:
U.S. and Canada
Theatres operated (at period end)(6) 155 173 185 190 188
Screens operated (at period end)(6) 1,437 1,813 2,102 2,217 2,217
Total attendance 74,592 85,693 90,996 92,425 100,022
International
Theatres operated (at period end)(7) 18 38 69 80 88
Screens operated (at period end)(7) 187 367 606 695 783
Total attendance 11,668 20,875 39,938 46,152 53,853
Worldwide
Theatres operated (at period end) 173 211 254 270 276
Screens operated (at period end) 1,624 2,180 2,708 2,912 3,000
Total attendance 86,260 106,568 130,934 138,577 153,875
</Table>
12
(1) Certain reclassifications have been made to December 31, 1997, 1998,
1999 and 2000 amounts to conform with the 2001 presentation.
(2) Includes amortization of debt issue cost and debt discount and excludes
capitalized interest of $2.2 million, $4.4 million, $4.3 million, $0.6
million and $0.2 million in 1997, 1998, 1999, 2000 and 2001,
respectively.
(3) 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
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.
Other definitions of theatre level cash flow may not be comparable with
this calculation.
(5) Represents net income (loss) before depreciation and amortization,
asset impairment loss, (gain) loss on sale of assets and other,
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 (benefit), 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 net earnings or cash flows from operations (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) The data as of period end 1997, 1998, 1999, 2000 and 2001 excludes
certain theatres operated by the Company in the U.S. and Canada
pursuant to management agreements that are not part of the Company's
consolidated operations.
(7) The data as of period end 1997, 1998, 1999, 2000 and 2001 excludes
certain theatres operated internationally through affiliates of the
Company that are not part of the Company's consolidated operations.
13
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, concession sales and screen advertising sales. Revenues are recognized
when admissions and concession sales are received at the box office and screen
advertising is shown at the theatres. The Company's revenues are affected by
changes in attendance and average admissions and concession revenues per patron.
Attendance is primarily affected by the commercial appeal of the films released
during the year reported. Since the Company's formation, attendance has grown
primarily through new theatre development. Additional revenues related to
theatre operations are generated by 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 accrued based on the
applicable box office receipts and either the mutually agreed upon firm terms or
estimates of the final settlement depending upon the film licensing
arrangement. Advertising cost, which is expensed as incurred, is primarily
fixed at the theatre level as daily movie directories placed in newspapers
represent the largest component of advertising costs. The monthly cost of these
ads is based on, among other things, the size of the directory and the frequency
and size of the newspaper's circulation. The Company purchases concession
supplies to replace units sold. Although salaries and wages include a fixed
component of cost (i.e. the minimum staffing cost to operate a theatre facility
during non-peak periods), salaries and wages move in relation to revenues as
theatre staffing is adjusted to handle attendance volume.
Conversely, facility lease expense is primarily a fixed cost at the theatre
level as the Company's facility leases generally require a fixed monthly minimum
rent payment. Facility lease expense as a percentage of revenues is also
affected by the number of leased versus fee owned facilities.
Utilities and other costs include certain costs that are fixed such as
property taxes, certain costs which are variable such as liability insurance,
and certain costs that possess both fixed and variable components such as
utilities, repairs and maintenance and security services.
CRITICAL ACCOUNTING POLICIES
The Company prepares the consolidated financial statements of the Company
in conformity with accounting principles generally accepted in the United States
of America. As such, the Company is required to make certain estimates,
judgements and assumptions that it believes are reasonable based upon the
information available. These estimates, judgements and assumptions affect the
reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the periods
presented. The significant accounting policies which the Company believes are
the most critical to aid in fully understanding and evaluating its reported
financial results include the following:
Revenue and Expense Recognition
Revenues are recognized when admissions and concession sales are received
at the box office and screen advertising is shown at the theatres. Film rental
costs are accrued based on the applicable box office receipts and either the
mutually agreed upon firm terms or estimates of the final settlement depending
upon the film licensing arrangement. Estimates are made based on the expected
success of a film over the length of its run. The success of a film can
typically be determined a few weeks after a film is released when initial box
office performance of the film is known. Accordingly, final settlements
typically approximate estimates since box office receipts are known and the
expected success of a film over the length of its run can typically be estimated
early in the film's run. The final film settlement amount is negotiated at the
conclusion of the film's run based upon how a film actually performs. If actual
settlements are higher than those estimated, additional film rental costs are
recorded at the time of settlement. Advertising costs are expensed as incurred.
14
Deferred Revenues
Advances collected on long-term screen advertising and concession contracts
are recorded as deferred revenues. The advances collected on screen advertising
contracts are recognized as other revenues in the period earned based primarily
on the Company's attendance counts or screening depending on the agreements.
The periods when the Company recognizes revenues may differ from the period the
advance was collected. The advances collected on concession contracts are
recognized as a reduction to concession supplies expense in the period earned
which may differ from the period the advance was collected.
Asset Impairment Loss
The Company reviews long-lived assets, including goodwill, for impairment
in conjunction with the preparation of the Company's quarterly consolidated
financial statements and whenever events or changes in circumstances indicate
the carrying amount of the assets may not be fully recoverable. The Company
considers actual theatre level cash flow, future years budgeted theatre level
cash flow, theatre property and equipment values, goodwill values, competitive
theatres in the marketplace, theatre operating cash flows compared to annual
long-term lease payments, the sharing of a market with other Company theatres,
the age of a recently built theatre and other factors in its assessment of
impairment of individual theatre assets. The impairment evaluation is based on
the estimated cash flows from theatres from continuing use through the remainder
of the theatre's useful life. The remainder of the useful life correlates with
the available remaining lease period for leased properties and a period of
twenty years for fee owned properties. If actual future cash flows differ from
those estimated in the Company's impairment evaluation, additional impairment
charges may be required in the future.
15
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.
<Table>
<Caption>
1999 2000 2001
-------- -------- --------
OPERATING DATA (in millions):
Revenues
Admissions $ 459.3 $ 511.3 $ 548.9
Concession 221.1 235.7 257.6
Other 32.2 39.3 47.2
-------- -------- --------
Total revenues $ 712.6 $ 786.3 $ 853.7
======== ======== ========
Cost of operations:
Film rentals and advertising $ 246.4 $ 271.0 $ 288.1
Concession supplies 38.2 42.0 44.9
Salaries and wages 82.9 86.7 90.8
Facility leases 89.8 108.5 114.7
Utilities and other 96.2 104.8 108.2
-------- -------- --------
Total cost of operations $ 553.5 $ 613.0 $ 646.7
======== ======== ========
OPERATING DATA AS A PERCENTAGE OF TOTAL REVENUES(1):
Revenues
Admissions 64.5% 65.0% 64.3%
Concession 31.0 30.0 30.2
Other 4.5 5.0 5.5
-------- -------- --------
Total revenues 100.0 100.0 100.0
Cost of operations:
Film rentals and advertising(1) 53.6 53.0 52.5
Concession supplies(1) 17.3 17.8 17.4
Salaries and wages 11.6 11.0 10.6
Facility leases 12.6 13.8 13.4
Utilities and other 13.5 13.3 12.7
Total cost of operations 77.7 77.9 75.8
General and administrative expenses 4.9 5.0 5.0
Depreciation and amortization 7.5 8.4 8.6
Asset impairment loss 0.5 0.5 2.4
Loss on sale of assets and other 0.3 0.1 1.5
Operating income 9.1 8.1 6.7
Interest expense(2) 8.4 9.4 8.3
Net income (loss) before cumulative effect of an
accounting change 0.6 (1.3) (0.5)
Net income (loss) 0.1 (1.3) (0.5)
</Table>
<Table>
<Caption>
Year Ended December 31,
------------------------------
1999 2000 2001
-------- -------- --------
Average screen count (month end average) 2,452 2,813 2,954
-------- -------- --------
Revenues per average screen count $290,612 $279,541 $288,961
======== ======== ========
</Table>
(1) All costs are expressed as a percentage of total revenues, except film
rentals and advertising, which are expressed as a percentage of admissions
revenues, and concession supplies, which are expressed as a percentage of
concession revenues.
(2) Includes amortization of debt issue cost and debt discount and excludes
capitalized interest of $4.3 million, $0.6 million and $0.2 million in
1999, 2000 and 2001, respectively.
16
COMPARISON OF YEARS ENDED DECEMBER 31, 2001 AND DECEMBER 31, 2000
Revenues. Revenues in 2001 increased to $853.7 million from $786.3 million
in 2000, an 8.6% increase. The increase in revenues is primarily attributable to
an 11.0% increase in attendance, partially the result of the first full year of
operation of the 204 net screens added in 2000 and the net addition of 88 new
screens in 2001. Revenues were also positively impacted by an increase in other
revenues (primarily screen advertising) of 20.0%. Revenues per average screen
increased 3.3% to $288,961 for 2001 from $279,541 for 2000.
Cost of Operations. Cost of operations, as a percentage of revenues,
decreased to 75.8% in 2001 from 77.9% in 2000. The decrease as a percentage of
revenues resulted from a decrease in film rentals and advertising as a
percentage of admissions revenues to 52.5% in 2001 from 53.0% in 2000 resulting
from reduced advertising and promotion costs, a decrease in concession supplies
as a percentage of concession revenues to 17.4% in 2001 from 17.8% in 2000
resulting from lower concession procurement costs and increased concession
volume rebates, a decrease in salaries and wages as a percentage of total
revenues to 10.6% in 2001 from 11.0% in 2000, a decrease in facility lease
expense as a percentage of total revenues to 13.4% in 2001 from 13.8% in 2000
and a decrease in utilities and other expenses as a percentage of revenues to
12.7% in 2001 from 13.3% in 2000.
General and Administrative Expenses. General and administrative expenses,
as a percentage of revenues, of 5.0% in 2001 remained consistent with 2000.
General and administrative expenses increased to $42.7 million for 2001 from
$39.0 million for 2000 due to costs, primarily salaries and wages, associated
with the Company's international expansion program and increased accrued bonus
expense.
Depreciation and Amortization. Depreciation and amortization as a
percentage of total revenues increased to 8.6% in 2001 from 8.4% in 2000. The
increase is primarily related to depreciation on new additions and previously
classified construction-in-progress assets that were placed in service in 2001.
Asset Impairment Loss. The Company recorded asset impairment charges of
$20.7 million in 2001 and $3.9 million in 2000 pursuant to Statement of
Financial Accounting Standards ("SFAS") No. 121 related to assets held for use.
All of the impairment charges recorded in 2001 and 2000 were in the U.S. except
for an impairment charge of $1.7 million recorded in Brazil in 2001. In
accordance with SFAS No. 121, the Company wrote down these assets to their fair
value.
Loss on Sale of Assets and Other. The Company recorded a loss on sale of
assets and other of $12.4 million in 2001 and $0.9 million in 2000. Included in
loss on sale of assets and other in 2001 is a charge of $7.2 million to write
down one property to be disposed of in the U.S. to fair value and a charge of
$1.5 million to write down one property to be disposed of in Argentina to fair
value.
Interest Expense. Interest costs incurred, including amortization of debt
issue cost and debt discount and the capitalization of $0.2 million of interest
to properties under construction, decreased 4.8% to $71.1 million in 2001 from
$74.7 million in 2000, including the capitalization of $0.6 million of interest
to properties under construction. The decrease in interest costs incurred during
2001 was due principally to a decrease in average debt outstanding resulting
from borrowings under the Company's credit facility and lower interest rates on
its variable rate debt facilities.
Income Taxes (Benefit). An income tax benefit of $14.1 million was recorded
in 2001 in comparison with income tax expense of $0.3 million in 2000. The
Company's effective tax rate for 2001 increased to 77.8% from (2.5)% in 2000.
The change in the effective tax rate is mainly due to inflation adjustments on
foreign assets and the benefit for state loss carryforwards.
Loss Before Cumulative Effect of an Accounting Change. Loss before
cumulative effect of an accounting change decreased to $4.0 million for 2001
from $10.4 million for 2000 primarily due to the income tax benefit recorded in
2001.
17
COMPARISON OF YEARS ENDED DECEMBER 31, 2000 AND DECEMBER 31, 1999
Revenues. Revenues in 2000 increased to $786.3 million from $712.6 million
in 1999, 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 operation
of the 528 net screens added in 1999 and the net addition of 204 new screens in
2000. Revenues were also positively impacted by an increase in admissions 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 admissions revenues to 53.0% in 2000 from
53.6% in 1999 resulting from reduced advertising and promotion costs, 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 expenses 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.
General and administrative expenses increased to $39.0 million for 2000 from
$34.8 million for 1999 due to costs (primarily salaries and wages) associated
with the Company's international expansion program and the additional rent
expense associated with its corporate office which was sold and leased back in
December 1999.
Depreciation and Amortization. Depreciation and amortization as a
percentage of revenues increased to 8.4% in 2000 from 7.5% in 1999. The increase
is primarily a result of the net addition of $85.7 million in theatre property
and equipment during 2000 and depreciation on previously classified
construction-in-progress assets that were placed in service in 2000.
Asset Impairment Loss. The Company recorded asset impairment charges of
$3.9 million in 2000 and $3.7 million in 1999 pursuant to SFAS No. 121 related
to assets held for use. All of the impairment charges recorded in 2000 and 1999
were in the U.S. In accordance with SFAS No. 121, the Company wrote down the
assets of these properties to their fair value.
Loss on Sale of Assets and Other. The Company recorded a loss on sale of
assets and other 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 and the capitalization of $0.6 million of interest
to properties under construction, increased 16.4% to $74.7 million in 2000 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 its variable rate debt facilities.
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. The change in the
effective tax rate is mainly due to the benefit of the U.S. loss offset by
foreign income, goodwill and other permanent items.
Income (Loss) Before Cumulative Effect of an Accounting Change. Income
(Loss) before cumulative effect of an accounting change decreased to $(10.4)
million for 2000 from $4.0 million for 1999 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.
18
INFLATION AND FOREIGN CURRENCY
The majority of the equipment and certain construction interior finish
items and other operating supplies the Company's international subsidiaries use
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.
GAAP requires that the Company's subsidiaries use the currency of the
primary economic environment in which they operate as their functional currency.
If a subsidiary of the Company operates in a highly inflationary economy, GAAP
requires that the U.S. dollar be used as the functional currency for the
subsidiary. Foreign currency fluctuations result in the Company reporting
foreign currency exchange gains (losses) or cumulative foreign currency
translation adjustments relating to its international subsidiaries depending on
the inflationary environment of the country in which the subsidiary operates.
The accumulated other comprehensive loss account in shareholders'
equity of $36,354,842 and $55,541,300 at December 31, 2000 and 2001,
respectively, primarily relates to the cumulative foreign currency adjustments
from translating the financial statements of Cinemark Argentina, S.A., Cinemark
Brasil, S.A., Cinemark de Mexico, S.A. de C.V. and Cinemark Chile, S.A. into
U.S. dollars.
In 1999, the economy of Mexico became non-highly inflationary and the
functional currency of Cinemark de Mexico, S.A. de C.V. changed from the U.S.
dollar to the peso. Thus, assets and liabilities of Cinemark de Mexico, S.A. de
C.V. are now translated at year-end exchange rates and income and expense
accounts are now translated at the average rates prevailing during the year
(consistent with other non-highly inflationary consolidated foreign
subsidiaries). Accordingly, changes in the peso have been recorded in the
accumulated other comprehensive loss account as a reduction of shareholders'
equity in 2000 and 2001.
In 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. Devaluations in the sucre during 1999 and a portion of 2000 that
affected the Company's investment were charged to foreign currency exchange gain
(loss) rather than to the accumulated other comprehensive loss account as a
reduction of shareholders' equity. A foreign currency exchange gain of $74,078
and $32,300 was recognized in 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 its official currency, thereby eliminating any
foreign currency exchange gain (loss) from operations in Ecuador on a going
forward basis.
In 1999, 2000 and for the majority of 2001, the country of Argentina
utilized the peso as its functional currency with it pegged at a rate of 1.0
peso to the U.S. dollar. As a result of economic turmoil which began in December
2001, the Argentine government announced several restrictions on currency
conversions and transfers of funds abroad in early January 2002. The Argentine
government ended the peso-dollar parity regime and established a dual exchange
rate system, with a "commercial rate" and a "market rate". The commercial rate
of 1.4 pesos to the U.S. dollar was to be utilized to settle all exports and
certain essential imports. The market rate traded for the first time on January
11, 2002 and closed at a rate of 1.7 pesos to the U.S. dollar. As a result, the
effect of translating the December 31, 2001 peso balances for assets and
liabilities into U.S. dollars at the first known free-floating market rate as of
January 11, 2002 (1.7 pesos to the U.S. dollar) is reflected as a cumulative
foreign currency translation adjustment to the accumulated other comprehensive
loss account as a reduction of shareholders' equity in the amount of $19.1
million at December 31, 2001. Income and expense accounts from January through
November 2001 were converted into U.S. dollars at the exchange rate of 1.0 peso
to the U.S. dollar and income and expense accounts in December 2001 were
converted into U.S. dollars at the exchange rate of 1.7 pesos to the U.S.
dollar. On January 14, 2002, the Argentine government unified the commercial
rate and the market rate into one floating rate which is presently in use.
In 1999, 2000 and 2001, the remaining countries where the Company
operates, including Argentina, were deemed non-highly inflationary. Any
fluctuation in the currency results in the Company recording a cumulative
foreign currency translation adjustment to the accumulated other comprehensive
loss account as a reduction of shareholders' equity.
19
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities. The Company primarily collects its revenues in
cash, primarily through box office receipts and the sale of concession supplies.
The Company is expanding the number of theatres that provide the patron a choice
of using a credit card, in place of cash, which the Company converts to cash in
approximately three to four days. Because the Company's revenues are received in
cash prior to the payment of related expenses, the Company has an operating
"float" and, as a result, historically has not required traditional working
capital financing. The Company typically operates with a negative working
capital position for its ongoing theatre operations throughout the year
primarily because of the lack of significant inventory and accounts receivable.
Cash flow provided by (used for) operating activities, as reflected in the
Consolidated Statements of Cash Flows, amounted to $92.1 million, $54.8 million
and $87.1 million in 1999, 2000 and 2001, respectively.
Investing Activities. The Company's investing activities have been
principally related to the development and acquisition of additional theatres.
New theatre openings and acquisitions historically have been financed with
internally generated cash and by debt financing, including borrowings on the
Company's credit facility. Cash flow provided by (used for) investing
activities, as reflected in the Consolidated Statements of Cash Flows, amounted
to $(223.0) million, $(94.9) million and $(33.8) million in 1999, 2000 and 2001,
respectively.
The Company is continuing to expand its U.S. theatre circuit. During
2001, the Company opened one new theatre with 12 screens, acquired one theatre
with 6 screens and closed four theatres with 18 screens in the U.S. Since
January 1, 2002, the Company has opened one new domestic theatre with four
screens, in Park City, Utah, which screens first run films and also acts as the
home of the Sundance Film Festival. The Company currently has one new theatre
with 12 screens and a five screen addition to an existing theatre scheduled to
open by the end of 2002. The Company also has signed commitments for two new
theatres with 31 screens scheduled to open after 2002. The Company estimates
that the capital expenditures for the development of these 48 remaining screens
in the U.S. will be approximately $5 million. Actual expenditures for continued
theatre development and acquisitions during 2002 and thereafter are subject to
change based upon the availability and terms of attractive opportunities. The
Company plans to fund capital expenditures for continued development from cash
flow from operations, borrowings under the Credit Facility, proceeds from sale
leaseback transactions and/or sales of excess real estate. As of December 31,
2001, the Company owns approximately $275 million of real estate and
improvements resulting from the development of multiplex theatres over the last
several years. Additionally, from time to time, subject to compliance with the
Company's instruments, the Company may purchase on the open market the Company's
debt securities depending upon the availability and prices of such securities.
Financing Activities. Cash flow provided by (used for) financing
activities amounted to $114.9 million, $51.3 million and $(21.5) million in
1999, 2000 and 2001, respectively.
As of December 31, 2001, the Company's long-term debt obligations,
capital lease obligations and future minimum lease obligations under
non-cancelable operating leases for each period indicated are summarized as
follows:
PAYMENTS DUE BY PERIOD
<Table>
<Caption>
LESS THAN 1-3 4-5 AFTER
CONTRACTUAL OBLIGATIONS TOTAL 1 YEAR YEARS YEARS 5 YEARS
- ----------------------- -------- --------- ------ ------ --------
(IN MILLIONS)
Long-term debt........................ $ 781.0 $ 21.9 $264.7 $114.0 $ 380.4
Capital lease obligations............. 0.5 0.3 0.2 -- --
Operating lease obligations........... 1,567.3 102.5 209.9 210.2 1,044.7
</Table>
SENIOR SUBORDINATED NOTES
The Company has outstanding three issues of senior subordinated notes:
(1) $200 million in 9 5/8% Series B Senior Subordinated Notes due 2008; (2) $75
million in 9 5/8% Series D Senior Subordinated Notes due 2008; and (3) $105
million in 8 1/2% Series B Senior Subordinated Notes due 2008. Interest in each
issue is payable semi-annually on February 1 and August 1 of each year.
The indentures governing the senior subordinated notes contain covenants
that limit, among other things, dividends, transactions with affiliates,
investments, sale of assets, mergers, repurchases of the Company's capital
stock, liens and additional indebtedness. Upon a change of control, the Company
would be required to make an offer to repurchase the senior subordinated notes
at a price equal to 101% of the principal amount outstanding plus accrued and
unpaid interest through the date of repurchase. The indentures governing the
senior subordinated notes allow the Company to incur additional indebtedness if
the Company satisfies the coverage ratio specified in each indenture, both at
the time of incurrence and after giving effect to the incurrence of the
additional indebtedness, and in certain other circumstances.
20
The senior subordinated notes are general unsecured obligations
subordinated in right of payment to the credit agreement or other senior
indebtedness. Generally, if the Company is in default under the senior credit
facility and other senior indebtedness, the Company would not be allowed to make
payments on the senior subordinated notes until the defaults have been cured or
waived. If the Company fails to make any payments when due or within the
applicable grace period, the Company would be in default under the indentures
governing the senior subordinated notes. As of March 27, 2002, the Company was
in full compliance with all agreements governing our outstanding debt.
REVOLVING CREDIT FACILITY
In February 1998, the Company entered into a reducing revolving credit
facility with a group of banks for which Bank of America, N.A. acts as
administrative agent. The credit facility provided for an initial commitment of
$350 million which is automatically reduced each quarter by 2.5%, 3.75%, 5.0%,
6.25% and 6.25% of the aggregate $350 million in 2001, 2002, 2003, 2004 and
2005, respectively, until maturity in 2006. As of March 27, 2002, the aggregate
commitment available to the Company is $315.0 million. Borrowings under the
credit facility are secured by a pledge of all of the stock of the Company and
guarantees by material subsidiaries. The credit facility requires the Company to
maintain certain financial ratios; restricts the payment of dividends, payment
of subordinated debt prior to maturity and issuance of preferred stock and other
indebtedness; and contains other restrictive covenants typical for agreements of
this type. Funds borrowed pursuant to the credit facility bear interest at a
rate per annum equal to the Offshore Rate or the Base Rate, as the case may be,
plus the Applicable Margin (as defined in the credit facility). As of March 27,
2002, the Company had $266 million outstanding under the credit facility and the
effective interest rate on such borrowings is 3.7% per annum.
CINEMA PROPERTIES TERM LOAN
In December 2000, Cinema Properties, Inc., a wholly owned subsidiary
that is not subject to restrictions imposed by the credit facility or the
indenture governing the senior subordinated notes, borrowed a $77 million 3-year
term loan from Lehman Brothers Bank, FSB (the "Cinema Properties Facility"),
which matures on December 31, 2003. 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. Any remaining principal outstanding
matures on December 31, 2003. Cinema Properties, Inc. has the unilateral ability
to extend the maturity date two times for one year each by paying extension fees
of 1.5% and 3.0% of the outstanding borrowing, respectively. Funds borrowed
pursuant to the Cinema Properties Facility bear interest at a rate per annum
equal to LIBOR plus 5.75%. Borrowings are secured by, among other things, a
mortgage placed on six of Cinema Properties, Inc.'s theatres and certain
equipment leases. The Cinema Properties Facility requires Cinema Properties,
Inc. to comply with certain interest coverage ratios and contains other
restrictive covenants typical of agreements of this type. Cinema Properties,
Inc. 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 Company's other consolidated
entities. Cinema Properties, Inc. also purchased from Lehman Brothers Derivative
Products Inc. an Interest Rate Cap Agreement with a notional amount equal to $77
million with a five year term and a strike rate equal to the excess of three
month LIBOR over the strike price of 6.58%. Three month LIBOR as of the date of
closing was 6.58%. As of March 27, 2002, $77 million is outstanding under the
Cinema Properties Facility and the effective interest rate on such borrowing is
7.7% per annum. A portion of the proceeds from this offering will be used to pay
off the Cinema Properties Facility.
SALE AND LEASEBACK
In December 1999, the Company sold the land, building and site
improvements of the Company's corporate office property to a third party special
purpose entity for an aggregate purchase price equal to approximately $20.3
million. Simultaneously with the sale, the Company entered into an operating
lease for approximately 60% of the property for a base term equal to ten years
at a fixed monthly rental payment of $114,000 or $1.4 million annually for the
first seven years and a fixed monthly rental payment of $123,000 or $1.5 million
annually for the final three years. The Company has two options to extend the
office lease; five years for the first option and ten years for the second
option. The fixed monthly rental during the first extension is $130,612 or $1.6
million annually. The fixed monthly rental during the second extension is 95% of
the fair rental value.
21
INTERNATIONAL OPERATIONS
In 1992, the Company formed Cinemark International to develop and
acquire theatres in international markets. During 2001, Cinemark International,
through its subsidiaries, opened nine new theatres (94 screens) and closed one
theatre (6 screens). Since January 1, 2002, Cinemark International, through its
subsidiaries, has opened two new theatres (18 screens) and closed two screens at
an existing theatre. As of March 27, 2002, Cinemark International, through its
subsidiaries, operates 90 theatres (799 screens), principally in Latin America.
As of March 27, 2002, Cinemark International, through its subsidiaries, has
three new theatres (24 screens) under construction and scheduled to open in
international markets by the end of 2002. Although Cinemark International and
its subsidiaries are reviewing sites, there are no signed commitments to build
any theatres in international markets beyond 2002. 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 27, 2002 and the number of theatres and screens in such market scheduled
to open the remainder of 2002.
<Table>
<Caption>
Planned openings
Year of Operating through 2002
Country Formation Ownership% Theatres/Screens Theatres/Screens
- ------- --------- ---------- ---------------- ----------------
Mexico 1992 95% 26 theatres (256 screens)
Chile 1992 97% 11 theatres (88 screens)
Argentina 1995 100% 9 theatres (79 screens)
Brazil 1995 53% 29 theatres (264 screens)
Ecuador 1996 60% 2 theatres (16 screens)
Peru 1996 100% 2 theatres (21 screens) 1 theatre (9 screens)
Central America 1997 50.1% 7 theatres (43 screens) 1 theatre (8 screens)
Colombia 1998 51% 3 theatres (22 screens)
United Kingdom 1998 100% 1 theatre (10 screens) 1 theatre (7 screens)
Total 90 theatres (799 screens) 3 theatres (24 screens)
</Table>
The Company also provides management services for one theatre (13
screens) in Taiwan for a company in which Cinemark International owns a 14%
equity interest.
The Company estimates that the remaining capital expenditures for the
development of its remaining international theatre commitments (24 screens) will
be approximately $10 million. Actual expenditures for continued theatre
development and acquisitions during 2002 and thereafter are subject to change
based upon the availability of attractive opportunities for expansion of the
Company's international theatre circuit. The Company anticipates that
investments in excess of Cinemark International's available cash will be funded
by the Company or by debt or equity financing to be provided by third parties
directly to Cinemark International or its subsidiaries.
CINEMARK INVESTMENTS CREDIT AGREEMENT
In September 1998, Cinemark Investments Corporation borrowed $20 million
pursuant to a credit agreement with Bank of America National Trust and Savings
Association. In September 2001, Cinemark Investments Corporation repaid the $20
million at maturity.
22
CINEMARK MEXICO REVOLVING CREDIT FACILITY
In November 1998, Cinemark Mexico (USA), Inc. executed a credit
agreement with Bank of America National Trust and Savings Association (the
"Cinemark Mexico Credit Agreement"). The Cinemark Mexico Credit Agreement is a
revolving credit facility and provides for a loan to Cinemark Mexico of up to
$30 million in the aggregate. The Cinemark Mexico Credit Agreement is secured by
a pledge of 65% of the stock of Cinemark de Mexico, S.A. de C.V. and Cinemark
Holdings Mexico S. de R.L. de C.V. and an unconditional guarantee by the
Company. Pursuant to the terms of the Cinemark Mexico Credit Agreement, funds
borrowed bear interest at a rate per annum equal to the Offshore Rate or the
Base Rate, as the case may be, plus the Applicable Margin (as defined in the
Cinemark Mexico Credit Agreement). Cinemark Mexico is required to make principal
payments of $1.5 million per quarter in 2002 with the remaining principal
outstanding of $23 million due in January 2003. As of March 27, 2002, $29
million is outstanding under the Cinemark Mexico Credit Agreement and the
effective interest rate on such borrowing is 4.4% per annum.
CINEMARK BRASIL NOTES PAYABLE
Cinemark Brasil S.A. currently has five main types of funding sources
executed with local and international banks. These include:
(1) BNDES (Banco Nacional de Desenvolvimento Economico e Social (the
Brazilian National Development Bank)) credit line in the U.S. dollar
equivalent in Brazilian reais of US$4.7 million executed in October 1999
with a term of 5 years (with a nine month grace period) and accruing
interest at a BNDES basket rate, which is a multiple currency rate based on
the rate at which the bank borrows, plus a spread amounting to 14.5%;
(2) BNDES credit line in the U.S. dollar equivalent in Brazilian reais
of US$2.3 million executed in November 2001 with a term of 5 years (with a
one year grace period) and accruing interest at a BNDES basket rate plus a
spread amounting to 13.8%;
(3) BNDES credit lines, through FINAME (Fundo de Financiamento para
Aquisicao de Maquinas e Equipamentos Industriais (the Government Agency for
Equipment Financing)) in the U.S. dollar equivalent in Brazilian reais of
US$190,000 executed in December 1999 with a term of 3 years (with a six
month grace period) and accruing interest at a BNDES basket rate plus a
spread amounting to 13.0%;
(4) Import financing executed with several banks from April 2001
through February 2002 in the amount of US$6.3 million with a term of 360 to
365 days and accruing interest at an average rate of 8.2% per annum; and
(5) Project developer financing executed with two engineering
companies in September 2000 in the amount of US$1.8 million with a term of
5 years (with a six month grace period) and accruing interest at a rate of
TJLP+5% (Taxa de Juros de Longo Prazo (a long term interest rate published
by the Brazilian government)).
These sources are secured by a variety of instruments, including comfort
letters from Cinemark International, promissory notes for up to 130% of the
value, a revenue reserve account and equipment collateral. As of March 27, 2002,
an aggregate of $13.4 million was outstanding and the average effective interest
rate on such borrowing is approximately 11.7% per annum.
CINEMARK BRASIL EQUITY FINANCING
During 2001, Cinemark Brasil S.A. received additional capital from its
Brazilian shareholders in an aggregate amount equal to approximately the U.S.
dollar equivalent in Brazilian reais of $11.0 million in exchange for shares of
common stock of Cinemark Brasil S.A. The contributions were made in July in the
aggregate amount of $5.0 million (US dollar equivalent) and in November in the
aggregate amount of $6.0 million (US dollar equivalent). The additional capital
will be used to fund development in Brazil and to reduce Cinemark Brasil S.A.'s
outstanding indebtedness. After giving effect to the additional issuance of
common stock, Cinemark International's ownership interest was diluted to
approximately 53%. As part of the additional capitalization, the Company agreed
to give the Company's Brazilian partners an option to exchange shares they own
in Cinemark Brasil S.A. for shares of the class of the Company's common stock to
be registered in an initial public offering under the Securities Act occurring
any time prior to December 31, 2007.
23
CINEMARK CHILE NOTES PAYABLE
On March 26, 2002, Cinemark Chile S.A. entered into a Debt
Acknowledgement, Rescheduling and Joint Guarantee and Co-Debt Agreement with
Scotiabank Sud Americano and three local banks. Under this agreement, Cinemark
Chile S.A. borrowed the U.S. dollar equivalent of approximately $10.6 million in
Chilean pesos (adjusted for inflation pursuant to the Unidades de Fomento).
Cinemark Chile S.A. is required to make 24 equal quarterly installments of
principal plus accrued and unpaid interest, commencing March 27, 2002. The
indebtedness is secured by a first priority commercial pledge of the shares of
Cinemark Chile S.A., a chattel mortgage over Cinemark Chile's personal property
and by guarantees issued by Cinemark International, L.L.C. and Chile Films S.A.,
a shareholder of Cinemark Chile S.A. The agreement requires Cinemark Chile S.A.
to maintain certain financial ratios and contains other restrictive covenants
typical for agreements of this type such as a limitation on dividends. Funds
borrowed under this agreement bear interest at the Banking Rate, 90 day TAB rate
(360 day TAB rate with respect to one of the four banks), as published by the
Association of Banks and Financial Institutions Act plus 2%. As of March 27,
2002, $10.1 million is outstanding under this agreement and the effective
interest rate on such borrowing is 7.7% per annum.
CREDIT RATINGS
In August 2000, Standard and Poor's lowered the rating on the Company's
three series of senior subordinated notes due 2008 from B to B-, and in December
2000, Moody's Investor Services lowered the rating on these notes from B2 to
Caa2. These downgrades have had no effect on the Company's compliance of, or the
interest rates payable under, existing agreements governing the Company's debt.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which, as amended, is effective for fiscal
years beginning after June 15, 2000. Therefore, the Company adopted SFAS No. 133
for its fiscal year beginning January 1, 2001. SFAS No. 133 establishes
accounting and reporting standards for derivative instruments that require every
derivative to be recorded on the balance sheet as an asset or liability measured
at its fair value. The statement also defines the accounting for the change in
the fair value of derivatives depending on their intended use. The Company's
derivative activity primarily relates to an interest rate cap agreement that has
not been designated as a hedge and therefore does not qualify for hedge
accounting as described in note 8 of the Company's Notes to Consolidated
Financial Statements. The Company previously recorded the fair value of the
interest rate cap agreement as an asset when acquired in December 2000.
Therefore, no transition adjustment was necessary upon adoption of SFAS No. 133.
The decrease in the fair value of the interest rate cap agreement during 2001 of
approximately $0.6 million has been recorded in the statement of operations as
interest expense.
In July 2001, the Financial Accounting Standards Board issued SFAS No.
142, "Goodwill and Other Intangible Assets". This statement requires that
goodwill and other intangible assets with indefinite useful lives no longer be
amortized, but instead be tested for impairment at least annually. This
statement is effective for all fiscal years beginning after December 15, 2001.
The statement became effective for the Company on January 1,
24
2002. See note 2 of the Company's Notes to Consolidated Financial Statements for
disclosure of the impact in 2002 upon adoption.
In August 2001, the Financial Accounting Standards Board issued SFAS
No. 143, "Accounting for Asset Retirement Obligations". This statement requires
the establishment of a liability for an asset retirement obligation. This
statement is effective for financial statements issued for fiscal years
beginning after June 15, 2002. The Company is currently considering the impact,
if any, that this statement will have on the consolidated financial statements.
In October 2001, the Financial Accounting Standards Board issued SFAS
No. 144, "Accounting for the Impairment or Disposal of Long Lived Assets", which
supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
of Long-Lived Assets to be Disposed Of", and portions of APB No. 30, "Reporting
the Results of Operations - Reporting the Effects of Disposal of a Segment of
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions", and amends Accounting Research Bulletin No. 51, "Consolidated
Financial Statements". This statement generally conforms, among other things,
impairment accounting for assets to be disposed of including those in
discontinued operations and eliminates the exception to consolidation for which
control is likely to be temporary. This statement became effective for the
Company on January 1, 2002. The adoption of this statement did not have a
material effect on the consolidated financial statements.
Item 7A: Quantitative and Qualitative Disclosures About Market Risk
The Company has some 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, 2001 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, 2001, there was an aggregate of approximately $401 million of
variable rate debt outstanding under these facilities. These facilities
represent approximately 51% of the Company's outstanding long-term debt. Changes
in interest rate do not have a direct impact on interest expense relating to the
remaining fixed rate debt facilities.
25
The table below provides information about the Company's fixed rate and
variable rate long-term debt agreements:
<Table>
<Caption>
Expected Maturity Date
As of December 31, 2001
------------------------------------------------------------------------------------------------------
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Fair
(in millions) 2002 2003 2004 2005 2006 Thereafter Total Value
- ------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Long-term debt:
Fixed rate $ -- $ 0.1 $ 0.1 $ 0.1 $ -- $ 380.2 $ 380.5 $ 395.3
Average interest rate 9.3%
Variable rate $ 21.8 $ 173.2 $ 91.3 $ 95.6 $ 18.3 $ 0.3 $ 400.5 $ 405.0
Average interest rate 5.5%
Total debt $ 21.8 $ 173.3 $ 91.4 $ 95.7 $ 18.3 $ 380.5 $ 781.0 $ 800.3
</Table>
<Table>
<Caption>
Expected Maturity Date
As of December 31, 2000
------------------------------------------------------------------------------------------------------
Dec 31, Dec 31, Dec 31, Dec 31, Dec 31, Fair
(in millions) 2001 2002 2003 2004 2005 Thereafter Total Value
- ------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Long-term debt:
Fixed rate $ 0.1 $ -- $ 0.1 $ -- $ 0.1 $ 380.2 $ 380.5 $ 404.4
Average interest rate 9.3%
Variable rate $ 32.7 $ 16.5 $ 175.1 $ 91.5 $ 94.8 $ 19.2 $ 429.8 $ 434.9
Average interest rate 9.2%
Total debt $ 32.8 $ 16.5 $ 175.2 $ 91.5 $ 94.9 $ 399.4 $ 810.3 $ 839.3
</Table>
In December 2000, Cinema Properties, Inc., a wholly-owned subsidiary,
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 plus 5.75%. As part of the Cinema Properties Facility, in order to hedge
against future changes in interest rates, Cinema Properties, Inc. purchased from
Lehman Brothers Derivative Products Inc. an Interest Rate Cap Agreement with a
notional amount equal to $77 million with a five year term and a strike rate
equal to the excess of three month LIBOR over the strike price of 6.58%. Three
month LIBOR as of the date of closing was 6.58%. The interest rate cap agreement
is recorded at its fair value of approximately $1.1 million at December 31,
2001.
The Company is also exposed to market risk arising from changes in
foreign currency exchange rates as a result of its international operations.
Generally accepted accounting principles in the U.S. require that the Company's
subsidiaries use the currency of the primary economic environment in which they
operate as their functional currency. If the Company's subsidiary operates in a
highly inflationary economy, generally accepted accounting principles in the
U.S. require that the U.S. dollar be used as the functional currency for the
subsidiary. Currency fluctuations result in the Company reporting exchange gains
(losses) or foreign currency translation adjustments relating to its
international subsidiaries depending on the inflationary environment of the
country in which the Company's subsidiary operates. Based upon the Company's
equity ownership in its international subsidiaries as of December 31, 2001,
holding everything else constant, a 10% immediate unfavorable change in each of
the foreign currency exchange rates to which the Company are exposed would
decrease the net fair value of its investments in its international subsidiaries
by approximately $7 million.
Item 8: Financial Statements and Supplementary Data
The financial statements and supplementary data are listed on the Index
on page 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.
26
PART III
Item 10: Directors and Executive Officers of the Registrant
The Directors and executive officers of the Company are:
<Table>
<Caption>
NAME AGE POSITION
Lee Roy Mitchell* 65 Chairman of the Board; Chief Executive Officer; Director
Tandy Mitchell[GRAPHIC OMITTED] 51 Vice Chairman of the Board; Executive Vice President;
Secretary; Director
Alan Stock+ 41 President; Chief Operating Officer; Director
Robert Copple 43 Senior Vice President; Treasurer; Chief Financial Officer;
Assistant Secretary; Director
Robert Carmony 44 Senior Vice President-Operations
Margaret Richards 43 Vice President-Real Estate; Assistant Secretary
John Lundin 52 Vice President-Film Licensing
Walter Hebert, III 56 Vice President-Purchasing
Don Harton 44 Vice President-Construction
Michael Cavalier 35 Vice President-General Counsel
Terrell Falk 51 Vice President-Marketing and Communications
W. Bryce Anderson*+ 59 Director
Heriberto Guerra, Jr.+ 52 Director
James Stern 51 Director
James Singleton+ 46 Director
Denny Rydberg 57 Director
William Spiegel 39 Director
</Table>
- ----------
* 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 Class A 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 27, 2002, 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, independent directors 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 from March 1993
to March 1996 and was President of the Company from its inception in 1987 until
March 1993.
27
From 1985 to 1987, Mr. Mitchell served as President and Chief Executive Officer
of a predecessor corporation. Since March 1999, Mr. Mitchell has served as a
director of Texas Capital Bancshares, Inc., a bank holding company. 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 nearly 45 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 and the sister of
Walter Hebert, III.
Alan 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 Copple has served as Senior Vice President, Treasurer and Chief
Financial Officer of the Company since August 2000 and as a Director of the
Company since September 2001. Mr. Copple was acting Chief Financial Officer of
the Company from March 2000 to August 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 Carmony has served as Senior Vice President-Operations since July
1997, as Vice President-Operations since March 1996 and 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 Richards has served as Vice President-Real Estate since March 1994
and as a Vice President and Assistant Secretary of the Company since October
1989. 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, as Head Film Buyer of the Company from September 1997 to
September 2000 and was a film buyer for the Company from September 1994 to
September 1997. Prior to joining the Company, Mr. Lundin was Vice President -
General 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 nearly thirty years of experience
in the motion picture exhibition business.
Walter Hebert, III 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. Mr. Hebert is the brother of Tandy Mitchell.
28
Don Harton has served as Vice President-Construction of the Company 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.
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.
Terrell Falk has served as Vice President-Marketing and Communications of
the Company since April 2001. From March 1998 to April 2001, Ms. Falk was
Director of Large Format Theatres of the Company, in which role she oversaw the
marketing and operations of the Company's IMAX theatres. From March 1995 until
joining the Company, she was Vice President of Marketing for JQH Film
Entertainment, a large format film production and distribution company, where
she oversaw film marketing, distribution and production. Prior to this, Ms. Falk
was Director of Marketing for the Houston Museum of Natural Science and Wortham
IMAX Theatre from February 1982 to March 1995.
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
past Chairman of the Board of Directors of Reflex Glass Bead Co., Inc., a
manufacturer of glass beads. 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 Vice President-State Legislative Affairs 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 Executive Vice President-National
Constituency Relations and 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., The Congressional Hispanic
Caucus Institute, The Cuban American National Council, Inc., UTSA Development
Board, El Centro Del Barrio of San Antonio, Adelante! A U.S. Education
Leadership Fund, SAMMinistries, M.T.C., Inc., the Humane Society/SPCA of San
Antonio and Bexar County, and served as Chairman 2000 for the San Antonio
Hispanic Chamber of Commerce. He also serves on the Advisory Boards for Laredo
National Bank and Conceptual MindWorks, Inc. and sits on the executive committee
for the Free Trade Alliance San Antonio. Mr. Guerra is also a member of The
United States Hispanic Chamber of Commerce Senior Executive Council Advisory
Board.
James Stern has served as a Director of the Company since March 1997. 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, 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.
29
James Singleton has served as a Director of the Company since March 1996.
Mr. Singleton has been Vice Chairman of The Cypress Group L.L.C. ("Cypress
Group") since its formation in April 1994. Prior to joining Cypress Group, Mr.
Singleton was a Managing Director with Lehman Brothers, an investment banking
firm. Mr. Singleton also serves on the Board of Directors of WESCO
International, Inc., ClubCorp, Inc., Danka Business Systems PLC, Homeruns.com
and the L.P. Thebault Company.
Denny Rydberg has served as a Director of the Company since 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.
William Spiegel has served as a Director of the Company since September
2001. Mr. Spiegel is a Managing Director with The Cypress Group L.L.C. ("Cypress
Group"). He has been with Cypress Group since its formation in 1994. Prior to
joining Cypress Group, he was a member of the Merchant Banking Group at Lehman
Brothers. Over the course of his career, he has worked on private equity
transactions in a wide range of industries. Mr. Spiegel currently manages
Cypress Group's efforts in the healthcare and financial services industries. Mr.
Spiegel has been actively involved with the Company since March 1996. Mr.
Spiegel is also a Director of Medpointe Inc. and Montpelier Re Holdings Ltd.
30
Item 11: Executive Compensation
SUMMARY COMPENSATION TABLE
<Table>
<Caption>
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 2001 474,516 1,525,484(E) -- 223,285(B)
and Chief Executive Officer 2000 431,378 -0- -- 12,700(C)
1999 392,162 -0- -- 118,040(D)
Alan Stock, President and Chief Operating 2001 366,341 198,899(E) -- 267,308(F)
Officer 2000 342,375 79,804(K) -- 7,875(J)
1999 311,250 -0- -- 7,500(J)
Tim Warner, President - Cinemark International 2001 297,075 161,291(E) -- 336,445(G)
2000 277,640 64,715(K) -- 7,875(J)
1999 252,400 -0- -- 7,500(J)
Robert Copple, Senior Vice President and Chief 2001 267,500 145,235(E) 700(N) 138,274(H)
Financial Officer (L) 2000 250,000(M) 58,272(K) -- --
1999 -- -- -- --
Robert Carmony, Senior Vice President-Operations 2001 257,881 140,012(E) -- 225,827(I)
2000 241,010 56,177(K) -- 7,875(J)
1999 219,100 -- -- 7,500(J)
</Table>
- ----------
(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, $15,940 representing the value of the use of a Company vehicle
for one year, $98,844 for 2001 life insurance premiums and $106,551 for
2000 life insurance premiums and interest on such premiums paid in 2001
by the Company for the benefit of Mr. Mitchell.
(C) Represents a $1,950 annual contribution to the Company's 401(k) savings
plan and $10,750 representing the value of the use of a Company vehicle
for one year.
(D) Represents a $1,950 annual contribution to the Company's 401(k) savings
plan, $17,246 representing the value of the use of a Company vehicle
for one year and $98,844 of life insurance premiums paid by the Company
for the benefit of Mr. Mitchell.
(E) Bonuses were earned in 2001 but were paid in 2002.
(F) Represents a $4,590 annual contribution to the Company's 401(k) savings
plan, $156,194 of compensation relating to the value of stock options
exercised for 475 shares of Class B Common Stock over the $1.00 per
share exercise price and a $106,524 reimbursement for estimated tax
obligations incurred upon the exercise of such stock options.
31
(G) Represents a $4,590 annual contribution to the Company's 401(k) savings
plan, $197,298 of compensation relating to the value of stock options
exercised for 600 shares of Class B Common Stock over the $1.00 per
share exercise price and a $134,557 reimbursement for estimated tax
obligations incurred upon the exercise of such stock options.
(H) Represents $82,208 of compensation relating to the value of stock
options exercised for 250 shares of Class B Common Stock over the $1.00
per share exercise price and a $56,066 reimbursement for estimated tax
obligations incurred upon the exercise of such stock options.
(I) Represents a $4,590 annual contribution to the Company's 401(k) savings
plan, $131,532 of compensation relating to the value of stock options
exercised for 400 shares of Class B Common Stock over the $1.00 per
share exercise price and an $89,705 reimbursement for estimated tax
obligations incurred upon the exercise of such stock options.
(J) Represents the Company's annual contribution to the Company's 401(k)
savings plan.
(K) Bonuses were earned in 2000 but were paid in February 2001.
(L) Mr. Copple joined the Company in March 2000.
(M) Represents Mr. Copple's annualized salary. Mr. Copple was acting Chief
Financial Officer from March 2000 to August 2000 and became Senior Vice
President and Chief Financial Officer in August 2000.
(N) In October 2001 the Company granted Mr. Copple options to purchase an
aggregate of 250 shares of Class B Common Stock under the Cinemark 1991
Nonqualified Stock Option Plan at an exercise price of $1.00 per share.
On the date of grant, the Class B Common Stock had a market value of
$330 per share. These options were immediately vested and such options
were exercised by Mr. Copple. See Footnote H. On December 28, 2001, the
Company granted Mr. Copple options to purchase 450 shares of Class B
Common Stock at an exercise price of $330 per share. The Company
believed that on the date of grant, the Class B Common Stock had a
market value of $330 per share. In connection with the initial public
offering of its parent company, Cinemark, Inc., and Staff Accounting
Bulletin Topic 4.D., the Company revised the market value of a share of
the Class B Common Stock for the December 2001 option grants to $2,519
which exceeded the option price of $330 by $2,189 per share. These
options vest 20% per year for five years.
32
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
<Table>
<Caption>
Potential Realizable Value at
Assumed Annual Rate of
Number of Securities Percent of total Exercise or base Expiration Stock Price Appreciation for
Underlying Options/SARs options/SARs granted to price ($/Sh) Date Option Term(2)
Name granted (#) employees in fiscal year 5% 10%
Lee Roy Mitchell -- -- n/a n/a $ -- $ --
Alan Stock -- -- n/a n/a -- --
Tim Warner -- -- n/a n/a -- --
Robert Copple(1) 250 25.24% $ 1 n/a 134,136 213,736
450 14.02% $330 12/2011 1,697,934 2,791,637
Robert Carmony -- -- n/a n/a -- --
</Table>
(1) In October 2001 the Company granted Mr. Copple options to purchase an
aggregate of 250 shares of Class B Common Stock under the Cinemark 1991
Nonqualified Stock Option Plan at an exercise price of $1.00 per share.
On the date of grant, the Class B Common Stock had a market value of
$330 per share. These options were immediately vested and such options
were exercised by Mr. Copple. On December 28, 2001, the Company granted
Mr. Copple options to purchase 450 shares of Class B Common Stock at an
exercise price of $330 per share. The Company believed that on the date
of grant, the Class B Common Stock had a market value of $330 per
share. In connection with the initial public offering of its parent
company, Cinemark, Inc., and Staff Accounting Bulletin Topic 4.D., the
Company revised the market value of the Class B Common Stock for the
December 2001 option grants to $2,519 which exceeded the option price
of $330 by $2,189 per share. These options vest 20% per year for five
years.
(2) Amounts shown as potential realizable values are based on compounded
annual rates of share price appreciation of five and ten percent over
the 10-year term of the options, as mandated by rules of the
Securities and Exchange Commission, and are not indicative of expected
share price performance. Actual gains, if any, on share option
exercises are dependent on future performance of the overall market
conditions, as well as the option holders' continued employment through
the vesting period. The amounts reflected in this table may not
necessarily be achieved or may be exceeded. The indicated amounts are
net of the option exercise price but before taxes that may be payable
upon exercise.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
<Table>
<Caption>
Number of Securities
Underlying Value of Unexercised
Unexercised In-The-Money
Options/SARs at Options/SARs at
FY-End (#) FY-End ($)
Shares Acquired on Exercisable/ Exercisable/
Name Exercise (#) Value Realized ($) Unexercisable Unexercisable
Lee Roy Mitchell -- -- -- --
Alan Stock 475 156,194 180/120 (A)
Tim Warner 600 197,298 180/120 (A)
Robert Copple 250 82,208 0/450 (A)
Robert Carmony 400 131,532 180/120 (A)
</Table>
- ----------
(A) The Company has the right to call the shares issued or issuable upon
exercise of the options for terminating employees. The call price is
equal to the fair market value of the 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 2001). A discretionary
matching contribution may be made by the Company annually. In 2001, the Company
made an aggregate $0.7 million discretionary match to the individual accounts
related to fiscal year 2000. 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 six years, employees have full
and immediate vesting rights
33
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 had an employment agreement with the Company
which contained the terms described below.
Lee Roy Mitchell's 2001 base salary was $474,516. In addition, Mr. Mitchell
(i) was entitled to receive an annual bonus, subject to approval by the Board of
Directors, 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. Pursuant to the terms of the
agreement, Lee Roy Mitchell's employment agreement expired on December 31, 2001.
Lee Roy Mitchell continues to be employed by the Company.
Tandy Mitchell's 2001 base salary was $212,215. In addition, Mrs. Mitchell
(i) was 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
million insuring her life during the period of her employment and any other
benefits generally available to the executives of the Company. Pursuant to the
terms of the agreement, Tandy Mitchell's employment agreement expired on
December 31, 2001. Tandy Mitchell continues to be employed by the Company.
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 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.
In October 2001, the Company granted options to purchase 258 shares with an
exercise price of $1.00 per share. The Company believes that the market value of
a share of Class B Common Stock on the date of grant exceeded the option price
by $329. These options were immediately vested and exercised which resulted in
$84,882 of compensation expense being recorded at that time. In October 2001,
all remaining unvested options under this Plan were vested and exercised prior
to year end. We recognized additional compensation expense of approximately
$185,000 for this accelerated vesting. During 2001, there were 4,911 options
exercised and 1,485 options forfeited. As of March 27, 2002, there were no
outstanding options to purchase shares of the Company's Class B Common Stock
under the Plan as all outstanding options were either exercised or forfeited in
2001.
34
Independent Director Stock Options
The Company has granted the unaffiliated Directors of the Company options
to purchase up to an aggregate of 800 shares of the Company's Class B Common
Stock at an exercise price of $1.00 per share (the "Director Plan"). 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 2001, there were 200 director options exercised and no options
granted or forfeited under the Director Plan. As of March 27, 2002, there were
outstanding options to purchase 600 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 adopted, and in February 1999 the
shareholders approved, a Long Term Incentive Plan (the "Long Term Incentive
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 Long Term Incentive 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 Long Term Incentive
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 as determined by the Board of Directors if no
public market exists for any class of Common Stock of the Company.
In December 2001, the Company granted options to purchase 1,525 shares of
Class B Common Stock with an exercise price of $330 per share. The Company
believed that the market value of a share of Class B Common Stock, on the date
of grant was $330. In connection with the offering of Class A Common Stock of
the Company's parent, Cinemark, Inc., and Staff Accounting Bulletin Topic 4.D.,
the Company revised the market value of a share of Class B Common Stock to
$2,519 which exceeded the option price of $330 by $2,189 per share. As a result,
the Company accrued $3,338,225 for unearned compensation and will begin
amortizing this noncash expense in January 2002 at a rate of $667,645 per year
during the five year vesting period of the options granted. During 2001, there
were no options exercised and 525 options were forfeited under the Long Term
Incentive Plan. As of March 27, 2002, there were outstanding under the Long Term
Incentive Plan options to purchase 5,815 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.
Item 12: Security Ownership of Certain Beneficial Owners and Management
The following table and the accompanying footnotes set forth, as of March
27, 2002, 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:
35
<Table>
<Caption>
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 51.71%
Suite 500 Class B Common Stock 93,724 51.31%
Plano, TX 75093
CGI Equities, Ltd. Class A Common Stock -- --
3900 Dallas Parkway 17.90%
Suite 500 Class B Common Stock 33,500 18.04%
Plano, TX 75093
Cypress Merchant Class A Common Stock -- --
Banking Partners, L.P. 41.93%
65 East 55th St. Class B Common Stock 78,469 42.27%
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 2.20%
Caledonian House
Mary St., P.O. Box 265
George Town, Grand
Cayman
Cayman Islands
The Mitchell Special Class A Common Stock -- --
Trust 7.84%
3900 Dallas Parkway Class B Common Stock 14,667 7.90%
Suite 500
Plano, TX 75093
Tandy Mitchell(4) Class A Common Stock 1,500 100.00% 43.06%
3900 Dallas Parkway
Suite 500 Class B Common Stock 77,787 42.59%
Plano, TX 75093
Alan Stock(5) Class A Common Stock -- --
3900 Dallas Parkway *
Suite 500 Class B Common Stock 655 *
Plano, TX 75093
Robert Copple Class A Common Stock -- --
3900 Dallas Parkway *
Suite 500 Class B Common Stock 350 *
Plano, TX 75093
Tim Warner(6) Class A Common Stock -- --
3900 Dallas Parkway *
Suite 500 Class B Common Stock 780 *
Plano, TX 75093
Robert Carmony(7) Class A Common Stock -- --
3900 Dallas Parkway *
Suite 500 Class B Common Stock 580 *
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 -- --
175 E. Houston, #`10H50 *
San Antonio, TX 78205 Class B Common Stock 200 *
Directors and Officers as Class A Common Stock 1,500 100.00%
a Group (17 persons) (8) 53.93%
Class B Common Stock 98,485 53.55%
</Table>
* 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 27, 2002, 1,500 shares of Class A Common Stock and 185,647
shares of Class B Common Stock were issued and outstanding. Includes 2,999
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. As of March 27,
2002, there was 1 holder of record of the Company's Class A Common Stock
and there were 40 holders of record of Class B Common Stock.
36
(3) Includes 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 held by CGI Equities, Ltd. for the benefit of Mr.
Mitchell's descendants. Mr. Mitchell serves as co-trustee of the trusts for
the benefit of certain of Mr. Mitchell's grandchildren and, together with
Mrs. Mitchell, controls the general partner of CGI Equities, Ltd. Includes
100 shares of Class B Common Stock owned by Tandy Mitchell. Mr. Mitchell
disclaims beneficial ownership of all shares other than 44,187 shares of
Class B Common Stock and 1,500 shares of Class A Common Stock directly held
by Mr. Mitchell.
(4) Includes 33,500 shares of Class B Common Stock owned by CGI Equities, Ltd.,
1,500 shares of Class A Common Stock and 44,187 shares of Class B Common
Stock owned by Lee Roy Mitchell, and 100 shares of Class B Common Stock
owned by Tandy Mitchell. Lee Roy and Tandy Mitchell each control the
general partner of CGI Equities, Ltd. Mrs. Mitchell disclaims beneficial
ownership of all shares other than 100 shares of Class B Common Stock that
she owns of record.
(5) Includes 180 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) Includes 180 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.
(7) Includes 180 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.
(8) Includes 1,255 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,
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 held by CGI Equities, Ltd. for the benefit of Mr. Mitchell's
descendants, as to which Mr. Mitchell (and in the case of 33,500 shares of
Class B Common Stock, Mrs. Mitchell,) disclaims beneficial ownership.
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 employees and 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"
37
Item 13: Certain Relationships and Related Transactions
CERTAIN AGREEMENTS
The Company manages one theatre with 12 screens for Laredo Theatre, Ltd.
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. Under the agreement, management fees
are paid by Laredo to the Company at a rate of 5% of theatre revenues in each
year up to $50,000,000 and 3% of theater revenues in each year in excess of
$50,000,000. The Company received $180,366 of management fee revenues and
dividends of $487,500 from Laredo in 2001. In 2001, Laredo distributed dividends
of $162,500 to Lone Star Theatres in accordance with the terms of the limited
partnership agreement. All such amounts are included in the Company's
consolidated financial statements with the intercompany amounts eliminated in
consolidation.
The Company managed two theatres with 11 screens for Westward Ltd. in 2001.
Westward is a Texas limited partnership of which Cinemark of Utah, Inc. is the
general partner and owns a 1% interest in Westward. Cinemark of Utah, Inc. is
100% owned by Mr. Mitchell. Mr. Mitchell also owns a 48.425% limited partner
interest in Westward. Under the agreement, management fees are paid by Westward
to the Company at a rate of 3% of theatre revenues. The Company recorded $29,325
of management fee revenues from Westward in 2001. The term ends in November
2002, however, we have the option to renew for one or more five-year periods.
One of the two theatres managed by the Company was closed by Westward in
February 2002.
The Company manages one theatre with eight screens for Mitchell Theatres.
Mitchell Theatres is 100% owned by members of Mr. Mitchell's family. Under the
agreement, management fees are paid by Mitchell Theatres to the Company at a
rate of 5% of theatre revenues. The Company recorded $21,389 of management fee
revenues from Mitchell Theatres in 2001. The term ends in November 2003.
However, we have the option to renew for one or more five-year periods.
The Company leased one theatre with 7 screens from Plitt Plaza joint
venture in 2001. Plitt Plaza is indirectly owned by Lee Roy Mitchell. The term
of the lease expires in July 2003, however we have 2 five-year renewal options.
The annual rent is approximately $264,000 plus certain taxes, maintenance
expenses, insurance, and a percentage of gross admission and concession receipts
in excess of certain amounts. The Company recorded $272,341 of facility lease
expense payable to Plitt Plaza joint venture during 2001.
PROFIT PARTICIPATION
The Company entered into a profit participation agreement with Alan Stock,
the Company's President, pursuant to which Mr. Stock receives a profit interest
in two recently built theatres after the Company has recovered its capital
investment in these theatres plus borrowing costs. Under this agreement,
operating losses and disposition losses for any year are allocated 100% to the
Company. Operating profits and disposition profits for these theatres for any
fiscal year are allocated first to the Company to the extent of its total
operating losses and losses from any disposition of these theatres. Thereafter,
net cash from operations from these theatres or from any disposition of these
theatres is paid first to the Company until such payments equal the Company's
investment in these theatres, plus interest, and then 51% to the Company and 49%
to Mr. Stock. In the event that Mr. Stock's employment is terminated without
cause, profits will be distributed according to this formula without regard to
the Company's investment. No amounts have been paid to Mr. Stock to date
pursuant to the profit participation agreement. The Company does not intend to
enter into similar arrangements with the Company's executive officers in the
future.
38
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 Cypress 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 Cypress 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 may form
a new corporation as the parent corporation of the Company and to contribute
their respective shares for like shares of this new corporation.
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.
39
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 page F-1 are filed as a part of this
report.
2. The financial statement schedules beginning on page S-1 are filed as a
part of this report.
3. The exhibits listed in the accompanying Index beginning on page E-1
are filed as a part of this report, which exhibits are bound
separately.
(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:
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
CINEMARK USA, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
(ITEMS 8 AND 14 OF FORM 10-K) AND SUPPLEMENTAL SCHEDULES
<Table>
<Caption>
Page
----
INDEPENDENT AUDITORS' REPORT OF DELOITTE & TOUCHE LLP F-2
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES:
Consolidated Balance Sheets, December 31, 2000 and 2001 (restated) F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1999, 2000 and 2001 F-5
Consolidated Statements of Shareholders' Equity and Comprehensive Income (Loss) for
the Years Ended December 31, 1999, 2000, and 2001 (restated) F-6
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 2000 and 2001 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, 2001 (restated) S-1
B. Consolidating Statement of Operations Information for the Year Ended
December 31, 2001 S-2
C. Consolidating Statement of Cash Flows Information for the Year Ended
December 31, 2001 S-3
SUPPLEMENTAL FINANCIAL STATEMENT SCHEDULES
Schedule II - Valuation and Qualifying Accounts S-4
</Table>
F-1
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, 2000 and 2001, 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, 2001. Our audits also included the financial statement Schedule
II-Valuation and Qualifying Accounts listed in the index on page F-1. These
financial statements and financial statement Schedule II are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and financial statement Schedule II based on our
audits.
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 provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Cinemark USA, Inc. and subsidiaries
as of December 31, 2000 and 2001, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2001, in
conformity with accounting principles generally accepted in the United States of
America. Also, in our opinion, such financial statement Schedule II, when
considered in relation to the basic consolidated financial statements taken as
a whole, presents fairly in all material respects, the information set forth
therein.
As discussed in Note 17, the Company restated shareholders' equity at December
31, 2001, to reflect additional unearned compensation related to stock options.
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 2001 consolidated
financial statements and, in our opinion, are fairly stated in all material
respects when considered in relation to the basic 2001 consolidated financial
statements taken as a whole.
/s/ Deloitte & Touche LLP
Dallas, Texas
February 8, 2002 (June 27, 2002, as to the restatement of shareholders' equity
described in Note 17)
F-2
CINEMARK USA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 2001
- --------------------------------------------------------------------------------
<Table>
<Caption>
ASSETS 2000 2001
CURRENT ASSETS
Cash and cash equivalents $ 19,839,994 $ 50,199,223
Inventories 3,734,955 3,322,032
Accounts receivable 8,246,024 11,049,648
Income tax receivable 1,462,721 1,438,794
Prepaid expenses and other 3,591,666 3,246,829
-------------- --------------
Total current assets 36,875,360 69,256,526
THEATRE PROPERTIES AND EQUIPMENT
Land 67,645,774 63,463,978
Buildings 306,634,606 314,423,663
Leasehold interests and improvements 343,347,473 352,294,695
Theatre furniture and equipment 460,891,679 466,953,793
Theatres under construction 14,987,487 4,198,208
-------------- --------------
Total 1,193,507,019 1,201,334,337
Less accumulated depreciation and amortization 243,372,299 334,927,920
-------------- --------------
Theatre properties and equipment - net 950,134,720 866,406,417
OTHER ASSETS
Goodwill - net 16,826,740 15,124,954
Investments in and advances to affiliates 6,932,208 4,447,003
Deferred tax asset -- 3,716,206
Deferred charges and other - net 49,807,442 37,592,644
-------------- --------------
Total other assets 73,566,390 60,880,807
-------------- --------------
TOTAL $1,060,576,470 $ 996,543,750
============== ==============
</Table>
(Continued)
F-3
CINEMARK USA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 2001
- --------------------------------------------------------------------------------
<Table>
<Caption>
LIABILITIES AND SHAREHOLDERS' EQUITY 2000 2001
CURRENT LIABILITIES
Current portion of long-term debt $ 32,767,581 $ 21,853,742
Accounts payable 28,438,827 31,109,661
Accrued film rentals 24,597,474 23,581,478
Accrued interest 19,856,463 16,167,137
Accrued payroll 10,597,640 13,142,023
Accrued property taxes 15,219,543 14,028,991
Accrued other current liabilities 17,778,916 19,472,236
-------------- --------------
Total current liabilities 149,256,444 139,355,268
LONG-TERM LIABILITIES
Long-term debt, less current portion 777,555,162 759,102,424
Deferred income taxes 14,831,678 --
Deferred lease expenses 20,475,247 22,832,388
Deferred gain on sale leasebacks 5,104,461 4,738,540
Deferred revenues and other long-term liabilities 16,752,114 9,824,212
-------------- --------------
Total long-term liabilities 834,718,662 796,497,564
COMMITMENTS AND CONTINGENCIES (Note 10)
MINORITY INTERESTS IN SUBSIDIARIES 27,691,527 35,353,662
SHAREHOLDERS' EQUITY (as restated, see Note 17)
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,
234,782 and 239,893 shares issued and outstanding, respectively 49,538,316 49,543,427
Additional paid-in-capital 13,198,615 15,097,709
Unearned compensation - stock options (1,956,944) (4,226,004)
Retained earnings 48,717,567 44,696,299
Treasury stock, 57,245 Class B shares at cost (24,232,890) (24,232,890)
Accumulated other comprehensive loss (36,354,842) (55,541,300)
-------------- --------------
Total shareholders' equity 48,909,837 25,337,256
-------------- --------------
TOTAL $1,060,576,470 $ 996,543,750
============== ==============
</Table>
See notes to consolidated financial statements (Concluded)
F-4
CINEMARK USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001
- --------------------------------------------------------------------------------
<Table>
<Caption>
1999 2000 2001
REVENUES
Admissions $ 459,334,408 $ 511,305,524 $ 548,920,177
Concession 221,083,945 235,691,321 257,603,165
Other 32,185,843 39,267,012 47,135,126
-------------- -------------- --------------
Total 712,604,196 786,263,857 853,658,468
COSTS AND EXPENSES
Cost of operations:
Film rentals and advertising 246,393,817 271,048,793 288,110,760
Concession supplies 38,180,316 41,993,761 44,924,307
Salaries and wages 82,870,409 86,680,128 90,808,558
Facility leases 89,808,343 108,488,605 114,736,525
Utilities and other 96,228,905 104,796,196 108,125,244
-------------- -------------- --------------
Total cost of operations 553,481,790 613,007,483 646,705,394
General and administrative expenses 34,833,403 39,012,924 42,689,638
Depreciation and amortization 53,268,575 66,110,555 73,543,846
Asset impairment loss 3,720,390 3,872,126 20,723,274
Loss on sale of assets and other 2,419,511 912,298 12,407,696
-------------- -------------- --------------
Total 647,723,669 722,915,386 796,069,848
OPERATING INCOME 64,880,527 63,348,471 57,588,620
OTHER INCOME (EXPENSE)
Interest expense (58,836,739) (72,977,272) (68,368,292)
Amortization of debt issue cost and debt discount (1,030,339) (1,059,949) (2,562,328)
Interest income 1,980,743 1,044,835 1,492,492
Foreign currency exchange loss (186,077) (467,154) (1,976,979)
Equity in income (loss) of affiliates 241,218 (7,493) (4,471,983)
Minority interests in (income) loss of subsidiaries 662,456 (52,802) 162,573
-------------- -------------- --------------
Total (57,168,738) (73,519,835) (75,724,517)
-------------- -------------- --------------
INCOME (LOSS) BEFORE INCOME TAXES AND 7,711,789 (10,171,364) (18,135,897)
CUMULATIVE EFFECT OF AN ACCOUNTING CHANGE
INCOME TAXES (BENEFIT) 3,707,717 251,721 (14,114,629)
-------------- -------------- --------------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT 4,004,072 (10,423,085) (4,021,268)
OF AN ACCOUNTING CHANGE
Cumulative effect of a change in accounting principle, net of tax
benefit of $417,570 (2,968,637) -- --
-------------- -------------- --------------
NET INCOME (LOSS) $ 1,035,435 $ (10,423,085) $ (4,021,268)
============== ============== ==============
EARNINGS (LOSS) PER SHARE - Basic
Income (loss) before accounting change $ 22.45 $ (58.30) $ (22.40)
Cumulative effect of a change in accounting principle (16.64) -- --
-------------- -------------- --------------
Net income (loss) $ 5.81 $ (58.30) $ (22.40)
============== ============== ==============
EARNINGS (LOSS) PER SHARE - Diluted
Income (loss) before accounting change $ 20.88 $ (58.30) $ (22.40)
Cumulative effect of a change in accounting principle (15.48) -- --
-------------- -------------- --------------
Net income (loss) $ 5.40 $ (58.30) $ (22.40)
============== ============== ==============
</Table>
See notes to consolidated financial statements
F-5
CINEMARK USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)
YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001
- --------------------------------------------------------------------------------
<Table>
<Caption>
Class A Class B
Common Stock Common Stock
-------------- --------------------
Additional Unearned
Shares Shares Paid-in Compensation
Issued Amount Issued Amount Capital Stock Options
BALANCE January 1, 1999 1,500 $ 15 234,073 $49,537,607 $13,773,691 $ (4,221,326)
Net income
Unearned compensation from stock options granted 17,040 (17,040)
Unearned compensation from stock options forfeited (57,510) 52,718
Amortization of unearned compensation 1,053,968
Foreign currency translation adjustment
------ ------ ------- ----------- ----------- -------------
BALANCE December 31, 1999 1,500 $ 15 234,073 $49,537,607 $13,733,221 $ (3,131,680)
Net loss
Unearned compensation from stock options forfeited (362,298) 168,482
Amortization of unearned compensation 1,006,254
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 $ (1,956,944)
Net loss
Unearned compensation from stock options granted
(as restated, See Note 17) 3,423,107 (3,423,107)
Unearned compensation from stock options forfeited (143,392) 143,392
Amortization of unearned compensation 1,010,655
Stock options exercised, including tax benefit 5,111 5,111 (1,380,621)
Foreign currency translation adjustment
------ ------ ------- ----------- ----------- -------------
BALANCE December 31, 2001 (as restated, See
Note 17) 1,500 $ 15 239,893 $49,543,427 $15,097,709 $ (4,226,004)
====== ====== ======= =========== =========== =============
</Table>
<Table>
<Caption>
Accumulated
Other
Retained Treasury Comprehensive Comprehensive
Earnings Stock Loss Total Income (Loss)
BALANCE January 1, 1999 $ 58,105,217 $(24,198,890) $ (17,196,698) $ 75,799,616
Net income 1,035,435 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) (14,033,681)
------------ ------------ ------------- ------------ -------------
BALANCE December 31, 1999 $ 59,140,652 $(24,198,890) $ (31,230,379) $ 63,850,546 $ (12,998,246)
=============
Net loss (10,423,085) (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) (34,000)
Stock options exercised, including tax benefit (207,608)
Foreign currency translation adjustment (5,124,463) (5,124,463) (5,124,463)
------------ ------------ ------------- ------------ -------------
BALANCE December 31, 2000 $ 48,717,567 $(24,232,890) $ (36,354,842) $ 48,909,837 $ (15,547,548)
=============
Net loss (4,021,268) (4,021,268) (4,021,268)
Unearned compensation from stock options granted
(as restated, See Note 17) --
Unearned compensation from stock options forfeited --
Amortization of unearned compensation 1,010,655
Stock options exercised, including tax benefit (1,375,510)
Foreign currency translation adjustment (19,186,458) (19,186,458) (19,186,458)
------------ ------------ ------------- ------------ -------------
BALANCE December 31, 2001 (as restated, See
Note 17) 44,696,299 $(24,232,890) $ (55,541,300) $ 25,337,256 $ (23,207,726)
============ ============ ============= ============ =============
</Table>
See notes to consolidated financial statements
F-6
CINEMARK USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001
- --------------------------------------------------------------------------------
<Table>
<Caption>
1999 2000 2001
OPERATING ACTIVITIES
Net income (loss) $ 1,035,435 $ (10,423,085) $ (4,021,268)
Noncash items in net income (loss):
Depreciation 51,960,793 63,943,131 70,978,308
Amortization of goodwill and other assets 2,163,621 3,052,873 2,565,538
Amortization of gain on sale leasebacks (218,920) (365,920) (365,921)
Amortization of foreign advanced rents 1,275,689 2,523,076 2,345,095
Amortization of debt discount and premium (28,508) (28,507) (28,508)
Amortization of debt issue costs 855,839 885,449 2,387,828
Amortized compensation - stock options 1,049,176 916,022 1,010,655
Loss on impairment of assets 3,720,390 3,872,126 20,723,274
Loss on sale of assets and other 2,419,511 912,298 12,407,696
Deferred lease expenses 1,610,053 4,286,447 2,357,141
Deferred income tax expenses 1,973,662 (3,256,326) (18,547,884)
Equity in (income) loss of affiliates (241,218) 7,493 4,471,983
Minority interests in income (loss) of subsidiaries (662,456) 52,802 (162,573)
Common Stock issued for options exercised, including tax benefit -- (207,608) (1,375,510)
Cumulative effect of an accounting change 3,386,207 -- --
Change in assets and liabilities:
Inventories (1,142,815) 999,565 412,923
Accounts receivable 346,817 3,821,447 (2,803,624)
Prepaid expenses and other (5,050,770) 3,917,056 344,837
Other assets (13,986,786) 1,905,257 4,746,176
Advances with affiliates 7,691,402 430,185 (1,671,098)
Accounts payable 24,790,961 (24,647,978) 2,670,834
Accrued liabilities 8,157,069 1,626,445 (11,347,641)
Income tax receivable 996,496 573,425 23,927
-------------- -------------- --------------
Net cash provided by operating activities 92,101,648 54,795,673 87,122,188
INVESTING ACTIVITIES
Additions to theatre properties and equipment (248,370,598) (113,080,618) (40,351,680)
Sale of theatre properties and equipment 23,867,262 23,275,239 6,867,953
Investment in affiliates (47,017) (5,233,333) (379,373)
Dividends/capital returned from affiliates 1,506,377 153,000 63,693
-------------- -------------- --------------
Net cash used for investing activities (223,043,976) (94,885,712) (33,799,407)
FINANCING ACTIVITIES
Increase in long-term debt 180,750,458 210,453,907 93,236,439
Reductions of long-term debt (51,676,027) (178,515,735) (122,574,508)
Costs of debt financing (375,000) (4,607,226) --
Increase in deferred revenues 1,250,000 26,224,423 --
Increase in minority investment in subsidiaries 9,584,770 2,500,102 11,429,373
Decrease in minority investment in subsidiaries (24,606,921) (4,673,720) (3,604,665)
Repurchase of options -- (67,575) --
Repurchase of treasury stock -- (34,000) --
-------------- -------------- --------------
Net cash provided by (used for) financing activities 114,927,280 51,280,176 (21,513,361)
EFFECT OF EXCHANGE RATE CHANGES
ON CASH AND CASH EQUIVALENTS (758,663) (222,300) (1,450,191)
-------------- -------------- --------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (16,773,711) 10,967,837 30,359,229
CASH AND CASH EQUIVALENTS:
Beginning of period 25,645,868 8,872,157 19,839,994
-------------- -------------- --------------
End of period $ 8,872,157 $ 19,839,994 $ 50,199,223
============== ============== ==============
SUPPLEMENTAL INFORMATION (Note 5)
</Table>
See notes to consolidated financial statements
F-7
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business - Cinemark USA, Inc. and its subsidiaries (the "Company") is one
of the leaders in the motion picture exhibition industry that owns or leases and
operates 276 motion picture theatres (3,000 screens) in 33 states, Canada,
Mexico, Argentina, Brazil, Chile, Ecuador, Peru, Honduras, El Salvador,
Nicaragua, Costa Rica and Colombia as of December 31, 2001. The Company also
manages an additional four theatres (27 screens) in the United States ("U.S.")
and provides management services for one theatre (13 screens) in Taiwan at
December 31, 2001.
Principles of Consolidation - The consolidated financial statements include
the accounts of Cinemark USA, Inc. and its subsidiaries. Majority-owned
subsidiaries that the Company has control of are consolidated while those
subsidiaries of which the Company owns between 20% and 50% and does not control
are accounted for as affiliates under the equity method. The results of these
subsidiaries and affiliates are included in the financial statements effective
with their formation or from their dates of acquisition. Significant
intercompany balances and transactions are eliminated in consolidation. Certain
reclassifications have been made to December 31, 1999 and 2000 amounts to
conform to the 2001 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 $4,312,499, $613,614 and $215,704 of interest incurred during
the development and construction of theatres capitalized in 1999, 2000 and 2001,
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. Amortization of leasehold
interests and improvements is provided using the straight-line method over the
lesser of the lease period or the estimated useful lives of the leasehold
interests and improvements.
Goodwill - The excess of cost over the fair values of the net assets of
theatre businesses acquired, less accumulated amortization ($4,582,726 and
$6,284,512 at December 31, 2000 and 2001, respectively) is recorded as goodwill.
For financial reporting purposes through December 31, 2001, these amounts were
being amortized primarily over 10 to 20 year periods, which approximates the
remaining lease terms of the businesses acquired. In accordance with Statement
of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and other
Intangible Assets", beginning January 1, 2002, goodwill will no longer be
amortized, but instead be tested for impairment at least annually. See note 2
for disclosure of the impact in 2002 upon adoption of this new accounting
pronouncement.
Deferred Charges and Other - Deferred charges and other primarily consist
of debt issue costs, foreign advanced rents, capitalized licensing fees,
construction advances and other deposits, 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 ending
February 2003 to July 2008. Capitalized licensing fees are amortized using the
straight-line method over fifteen years reflecting the estimated economic life
of the asset being licensed. 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. For financial
reporting purposes through December 31, 2001, other intangible assets have been
amortized over the respective lives of the trademarks, noncompete agreements or
other intangible asset agreements. In accordance with SFAS No. 142, "Goodwill
and Other Intangible Assets", beginning January 1, 2002, other intangible assets
with indefinite useful lives will no longer be amortized, but instead be tested
for impairment at least annually. See note 2 for disclosure of the impact in
2002 upon adoption of this new accounting pronouncement.
F-8
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 collected
on screen advertising contracts are recognized as other revenues when earned
based primarily on the Company's attendance counts or screenings depending on
the agreements. The advances collected on concession contracts are recognized as
a reduction to concession supplies expense when earned.
Revenue and Expense Recognition - Revenues are recognized when admissions
and concession sales are received at the box office and screen advertising is
shown at the theatres. Film rental costs are accrued based on the applicable box
office receipts and either the mutually agreed upon firm terms or estimates of
the final settlement depending upon the film licensing arrangement. Estimates
are made based on the expected success of a film over the length of its run. The
success of a film can typically be determined a few weeks after a film is
released when initial box office performance of the film is known. Accordingly,
final settlements typically approximate estimates since box office receipts are
known at the time the estimate is made and the expected success of a film over
the length of its run can typically be estimated early in the film's run. The
final film settlement amount is negotiated at the conclusion of the film's run
based upon how a film actually performs. If actual settlements are higher than
those estimated, additional film rental costs are recorded at the time of
settlement. Advertising costs are expensed as incurred. Advertising expenses for
the years ended December 31, 1999, 2000, and 2001 totaled $18,374,600,
$17,931,796 and $14,622,336, respectively.
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, judgements and assumptions that affect
the reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the periods
presented. Actual results could differ from those estimates.
Fair Values 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.
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 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 benefit) in the first quarter of 1999 as follows:
<Table>
U.S. operations $ 152,966
Argentina operations 603,166
Brazil operations 552,488
Other foreign operations 1,660,017
----------
$2,968,637
==========
</Table>
F-9
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which, as amended, is effective for fiscal
years beginning after June 15, 2000. Therefore, the Company adopted SFAS No. 133
for its fiscal year beginning January 1, 2001. SFAS No. 133 establishes
accounting and reporting standards for derivative instruments that require every
derivative to be recorded on the balance sheet as an asset or liability measured
at its fair value. The statement also defines the accounting for the change in
the fair value of derivatives depending on their intended use. The Company's
derivative activity primarily relates to an interest rate cap agreement as
described in note 8 that has not been designated as a hedge and therefore does
not qualify for hedge accounting. The Company previously recorded the fair value
of the interest rate cap agreement as an asset when acquired in December 2000.
Therefore, no transition adjustment was necessary upon adoption of SFAS No. 133.
The decrease in the fair value of the interest rate cap agreement during 2001 of
approximately $0.6 million has been recorded in the statement of operations as
interest expense.
In July 2001, the Financial Accounting Standards Board issued SFAS No. 142,
"Goodwill and Other Intangible Assets". This statement requires that goodwill
and other intangible assets with indefinite useful lives no longer be amortized,
but instead be tested for impairment at least annually. This statement is
effective for all fiscal years beginning after December 15, 2001. The statement
became effective for the Company on January 1, 2002.
The Company's goodwill at December 31, 2001 is as follows:
<Table>
<Caption>
Gross Carrying Accumulated Net Goodwill
Goodwill Amount Amortization Amount
- -------- -------------- ------------- ------------
U.S. operations $ 9,313,165 $ (4,004,427) $ 5,308,738
Argentina operations 5,162,418 (893,308) 4,269,110
Chile operations 3,663,883 (732,777) 2,931,106
Peru operations 3,270,000 (654,000) 2,616,000
-------------- ------------- ------------
$ 21,409,466 $ (6,284,512) $ 15,124,954
============== ============= ============
</Table>
The Company has recorded amortization expense on goodwill of $1,322,869,
$1,792,975 and $1,701,786 in 1999, 2000 and 2001, respectively.
The amount of amortization expense that would have been recorded in future
years if SFAS No. 142 was not adopted on January 1, 2002 is as follows:
<Table>
2002 1,402,275
2003 1,402,275
2004 1,402,275
2005 1,353,148
2006 1,328,703
2007 1,328,703
2008 1,328,703
2009 1,282,873
2010 1,069,955
2011 1,069,955
2012 1,069,955
2013 946,960
2014 139,174
-----------
$15,124,954
===========
</Table>
F-10
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The adoption of this accounting pronouncement will result in the aggregate
write down of goodwill to fair value as a cumulative effect of a change in
accounting principle on January 1, 2002 as follows:
<Table>
U.S. operations $ 27,226
Argentina operations 3,298,385
----------
$3,325,611
==========
</Table>
The Company's intangible assets (included in deferred charges and other)
are $87,858 at December 31, 2001. The adoption of this accounting pronouncement
will result in a $64,168 write down of intangible assets with indefinite useful
lives to fair value as a cumulative effect of a change in accounting principle
on January 1, 2002.
In August 2001, the Financial Accounting Standards Board issued SFAS No.
143, "Accounting for Asset Retirement Obligations". This statement requires the
establishment of a liability for an asset retirement obligation. This statement
is effective for financial statements issued for fiscal years beginning after
June 15, 2002. The Company is currently considering the impact, if any, that
this statement will have on the consolidated financial statements.
In October 2001, the Financial Accounting Standards Board issued SFAS No.
144, "Accounting for the Impairment or Disposal of Long Lived Assets", which
supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
of Long-Lived Assets to be Disposed Of", and portions of APB No. 30, "Reporting
the Results of Operations - Reporting the Effects of Disposal of a Segment of
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions", and amends Accounting Research Bulletin No. 51, "Consolidated
Financial Statements". This statement generally conforms, among other things,
impairment accounting for assets to be disposed of including those in
discontinued operations and eliminates the exception to consolidation for which
control is likely to be temporary. This statement became effective for the
Company on January 1, 2002. The adoption of this statement did not have a
material effect on the consolidated financial statements.
3. 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:
<Table>
<Caption>
(in thousands, except per share amounts) 1999 2000 2001
---------- ---------- ----------
Net income (loss) $ 1,035 $ (10,423) $ (4,021)
========== ========== ==========
Basic:
Weighted average Common shares outstanding 178,362 178,770 179,531
========== ========== ==========
Earnings (loss) per Common share $ 5.81 $ (58.30) $ (22.40)
========== ========== ==========
Diluted:
Weighted average Common shares outstanding 178,362 178,770 179,531
Common equivalent shares for stock options 13,391 -- --
---------- ---------- ----------
Weighted average shares outstanding 191,753 178,770 179,531
========== ========== ==========
Earnings (loss) per Common and Common equivalent share $ 5.40 $ (58.30) $ (22.40)
========== ========== ==========
</Table>
F-11
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 issuable 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 and 2001, 12,490 and 10,630 options to
purchase Common Stock (calculated on a weighted average for the year basis) have
been excluded from the diluted net income (loss) per share calculation,
respectively, as their effect would have been antidilutive. See note 12 for
additional disclosures regarding the Company's capital stock and related stock
option plans.
4. FOREIGN CURRENCY TRANSLATION
The accumulated other comprehensive loss account in shareholders' equity of
$36,354,842 and $55,541,300 at December 31, 2000 and 2001, respectively,
primarily relates to the cumulative foreign currency adjustments from
translating the financial statements of Cinemark Argentina, S.A., Cinemark
Brasil, S.A., Cinemark de Mexico, S.A. de C.V. and Cinemark Chile, S.A. into
U.S. dollars.
In 1999, the economy of Mexico became non-highly inflationary and the
functional currency of Cinemark de Mexico, S.A. de C.V. changed from the U.S.
dollar to the peso. Thus, assets and liabilities of Cinemark de Mexico, S.A. de
C.V. are now translated at year-end exchange rates and income and expense
accounts are now translated at the average rates prevailing during the year
(consistent with other non-highly inflationary consolidated foreign
subsidiaries). Accordingly, changes in the peso have been recorded in the
accumulated other comprehensive loss account as a reduction of shareholders'
equity in 2000 and 2001. At December 31, 2001, the total assets of Cinemark de
Mexico, S.A. de C.V., were approximately U.S.$93 million.
In 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. Devaluations in the sucre during 1999 and a portion of 2000 that
affected the Company's investment were charged to foreign currency exchange gain
(loss) rather than to the accumulated other comprehensive loss account as a
reduction of shareholders' equity. A foreign currency exchange gain of $74,078
and $32,300 was recognized in 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 its official currency, thereby eliminating any
foreign currency exchange gain (loss) from operations in Ecuador on a going
forward basis. At December 31, 2001, the total assets of Cinemark del Ecuador,
S.A. were approximately U.S.$4 million.
F-12
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In 1999, 2000 and for the majority of 2001, the country of Argentina
utilized the peso as its functional currency with it pegged at a rate of 1.0
peso to the U.S. dollar. As a result of economic turmoil which began in December
2001, the Argentine government announced several restrictions on currency
conversions and transfers of funds abroad in early January 2002. The Argentine
government ended the peso-dollar parity regime and established a dual exchange
rate system, with a "commercial rate" and a "market rate". The commercial
rate of 1.4 pesos to the U.S. dollar was to be utilized to settle all exports
and certain essential imports. The market rate traded for the first time on
January 11, 2002 and closed at a rate of 1.7 pesos to the U.S. dollar. As a
result, the effect of translating the December 31, 2001 peso balances for assets
and liabilities into U.S. dollars at the first known free-floating market rate
as of January 11, 2002 (1.7 pesos to the U.S. dollar) is reflected as a
cumulative foreign currency translation adjustment to the accumulated other
comprehensive loss account as a reduction of shareholders' equity in the amount
of $19.1 million at December 31, 2001. Income and expense accounts from January
through November 2001 were converted into U.S. dollars at the exchange rate of
1.0 peso to the U.S. dollar and income and expense accounts in December 2001
were converted into U.S. dollars at the exchange rate of 1.7 pesos to the U.S.
dollar. On January 14, 2002, the Argentine government unified the commercial
rate and the market rate into one floating rate which is presently in use.
In 1999, 2000 and 2001, the remaining countries where the Company operates,
including Argentina, were deemed non-highly inflationary. Any fluctuation in the
currency results in the Company recording a cumulative foreign currency
translation adjustment to the accumulated other comprehensive loss account as a
reduction of shareholders' equity.
5. SUPPLEMENTAL CASH FLOW INFORMATION
The following is provided as supplemental information to the consolidated
statement of cash flows:
<Table>
<Caption>
1999 2000 2001
------------ ------------ ------------
Interest paid $ 61,253,543 $ 71,569,114 $ 71,359,828
============ ============ ============
Income taxes paid (net of refunds) $ 3,170,041 $ 2,462,369 $ 3,287,018
============ ============ ============
Noncash investing and financing activities:
Issued note payable in Argentine acquisition $ 11,000,000
============
</Table>
6. INVESTMENTS IN AND ADVANCES TO AFFILIATES
The Company has the following investments in and advances to affiliates at
December 31:
<Table>
<Caption>
2000 2001
---------- ----------
Entertainment Amusement Enterprises, Inc. - investment, at equity $1,051,065 $1,052,279
Brainerd Ltd. - investment, at equity 407,264 312,289
Cinemark Theatres Alberta, Inc. - investment, at equity 285,266 267,136
Fandango, Inc. - investment, at equity 4,233,333 171,000
Cinemark - Core Pacific, Ltd. (Taiwan) - investment, at equity -- 697,082
Other 955,280 1,947,217
---------- ----------
Total $6,932,208 $4,447,003
========== ==========
</Table>
The Company recorded a write-down in its investment in Fandango, Inc. of
$4,062,333 in 2001 as the investment was written down to estimated market value.
At December 31, 2000 the Company owned approximately 300,000 shares of Fandango,
Inc. (a privately held on-line movie ticketing company with no public market for
its stock) at a value of $4,233,333. In 2001, an independent third party capital
injection was made to Fandango, Inc. that was valued at $0.57 per share. Based
on this third party capital injection, the Company's stock in Fandango was
determined to have a value of $171,000 (300,000 shares X $.57 per share), which
was considered to be an impairment that was other than temporary. As a result,
the Company recorded a write-down of $4,062,333 in its investment.
F-13
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. DEFERRED CHARGES AND OTHER
Deferred charges and other at December 31 consist of the following:
<Table>
<Caption>
2000 2001
------------ ------------
Debt issue costs $ 12,649,373 $ 12,649,373
Capitalized licensing fees 4,500,000 9,000,000
Other intangible assets 389,438 389,438
------------ ------------
Total 17,538,811 22,038,811
Less accumulated amortization 3,751,855 6,504,447
------------ ------------
Net 13,786,956 15,534,364
Foreign advanced rents 23,261,266 13,512,149
Construction advances and other deposits 5,124,088 1,645,613
Equipment to be placed in service 2,712,016 1,699,339
Interest rate cap agreement 1,694,000 1,136,457
Other 3,229,116 4,064,722
------------ ------------
Total $ 49,807,442 $ 37,592,644
============ ============
</Table>
8. LONG-TERM DEBT
Long-term debt at December 31 consists of the following:
<Table>
<Caption>
2000 2001
------------ ------------
Series B Senior Subordinated Notes due 2008,
discussed below $199,435,042 $199,509,542
Series D Senior Subordinated Notes due 2008,
discussed below 76,539,473 76,336,465
Series B Senior Subordinated Notes due 2008,
discussed below 104,241,667 104,341,667
Cinemark USA, Inc. Revolving credit line
of $350,000,000, discussed below 260,000,000 258,000,000
Cinemark Investments Corporation, Revolving credit line
of $20,000,000, discussed below 20,000,000 --
Cinemark Mexico (USA), Revolving credit line
of $30,000,000, discussed below 30,000,000 29,000,000
Cinema Properties, Inc. Note Payable with Lehman
Brothers Bank, FSB, discussed below 77,000,000 77,000,000
Cinemark Chile, S.A. Notes Payable with Bank,
discussed below 15,293,556 10,763,393
Cinemark Brasil, S.A. Notes Payable with Bank,
discussed below 13,352,486 14,202,549
Other long-term debt 14,460,519 11,802,550
------------ ------------
Total long-term debt 810,322,743 780,956,166
Less current portion 32,767,581 21,853,742
------------ ------------
Long-term debt, less current portion $777,555,162 $759,102,424
============ ============
</Table>
F-14
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 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 (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. As of December 31, 2001, the aggregate commitment available to
the Company is $315.0 million. 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. The Credit Facility requires the Company to maintain certain financial
ratios; restricts the payment of dividends, payment of subordinated debt prior
to maturity and issuance of preferred stock and other indebtedness; and contains
other restrictive covenants typical for agreements of this type. Funds borrowed
pursuant to the Credit Facility currently bear interest at a rate per annum
equal to the Offshore Rate (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
borrowing as of December 31, 2001 is 4.5% per annum.
F-15
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In September 1998, 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. which currently
bear interest at 14.0%. In September 2001, Cinemark Investments Corporation
repaid the $20 million Cinemark Investments Credit Agreement at maturity.
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. 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 required to make principal payments of $1.5 million per quarter in
2002 with the remaining principal outstanding of $23.0 million due in January
2003. The effective interest rate on such borrowing as of December 31, 2001 is
4.6% 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 maturing on December 31, 2003. Cinema
Properties, Inc. has the unilateral ability to extend the maturity date two
times for one year each by paying extension fees of 1.5% and 3.0% of the
outstanding borrowing, respectively. At the lender's discretion, Cinema
Properties, Inc. may be required to make principal payments of $1.5 million in
the third and fourth quarters of 2002 with the remaining principal outstanding
in December 2003. Funds borrowed pursuant to the Cinema Properties Credit
Facility currently bear interest at a rate per annum equal to LIBOR (as defined
in the Cinema Properties Facility) plus 5.75%. Borrowings are secured by, among
other things, a mortgage placed on six of Cinema Properties, Inc.'s theatres and
certain equipment leases. The Cinema Properties Facility requires Cinema
Properties, Inc. to comply with certain interest coverage ratios and contains
other restrictive covenants typical of agreements of this type. 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 and to reduce outstanding debt under the
Company's existing Credit Facility. 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 consolidated with the Company. Cinema
Properties, Inc. purchased from Lehman Brothers Derivative Products, Inc. an
Interest Rate Cap Agreement with a notional amount equal to $77 million with a
five year term and a strike rate equal to the excess of three month LIBOR over
the strike price of 6.58% (See note 2). Three month LIBOR as of the date of
closing was 6.58%. The interest rate cap agreement is recorded at its fair value
of approximately $1.1 million at December 31, 2001. The effective interest rate
on such borrowing as of December 31, 2001 is 7.6% per annum.
F-16
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Cinemark Chile, S.A. 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. Cinemark International directly or indirectly guarantees all four
notes. The effective interest rate on the four notes as of December 31, 2001 is
approximately 7.7% per annum.
Cinemark Brasil, S.A. currently has the following outstanding types of
loans: 1) BNDES automatic (a government sourced loan issued through local banks
for development financing) in the amount of U.S.$5.9 million maturing at the end
of 2006 at a BNDES basket rate (which is a multiple currency rate based on the
rate at which the bank borrows) amounting to 11.2%, 2) Import financings
executed through five local and international banks in the amount of U.S.$6.8
million maturing on the basis of 360 or 365 days at interest rates varying from
6.8% to 11.8%, 3) Project developer financing executed between September 2000
through December 2000 in the amount of U.S.$1.6 million, maturing December 2005
at a rate of 10% based on a spread over the "TJLP", a locally issued bank rate.
Each of these sources have varying guarantees including comfort letters from
Cinemark International, promissory notes, a revenue reserve account and
equipment collateral. The effective interest rate on these notes at December 31,
2001 is approximately 12.9% per annum.
Long-term debt at December 31, 2001, matures as follows: $21,853,742 in
2002; $173,305,029 in 2003; $91,381,073 in 2004; $95,600,833 in 2005;
$18,365,940 in 2006 and $380,449,549 thereafter.
The estimated fair value of the Company's long-term debt of $781.0 million
at December 31, 2001, was approximately $800 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 $12,649,373 and $12,649,373, net of
accumulated amortization of $3,346,706 and $5,636,201 at December 31, 2000 and
2001, respectively, 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 and other.
F-17
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. INCOME TAXES
Income tax expense (benefit) below includes benefits from the cumulative
effect of a change in accounting principle in 1999 of $417,570 and consists of
the following:
<Table>
<Caption>
1999 2000 2001
------------ ------------ ------------
Income (loss) before income taxes and cumulative
effect of an accounting change:
U.S $ 1,650,202 $(19,346,190) $(19,205,463)
Foreign 6,061,587 9,174,826 1,069,566
------------ ------------ ------------
Total 7,711,789 (10,171,364) (18,135,897)
============ ============ ============
Current:
Federal (1,173,611) (195,831) (2,958,614)
Foreign income taxes 2,274,967 3,798,679 4,568,671
State 215,129 (94,801) 59,860
------------ ------------ ------------
Total current expense 1,316,485 3,508,047 1,669,917
Deferred:
Temporary differences
Federal (1,314,858) (5,630,239) (2,638,940)
Foreign 3,586,790 2,439,635 (11,298,230)
State (298,270) (65,722) (1,847,376)
------------ ------------ ------------
Total deferred expense 1,973,662 (3,256,326) (15,784,546)
------------ ------------ ------------
Income tax expense (benefit) $ 3,290,147 $ 251,721 $(14,114,629)
============ ============ ============
</Table>
A reconciliation between income tax expense (benefit) and taxes computed by
applying the applicable statutory federal income tax rate to income before
income taxes follows:
<Table>
<Caption>
1999 2000 2001
------------ ------------ ------------
Computed normal tax expense $ 2,699,126 $ (3,559,977) $ (6,347,564)
Goodwill amortization, not deductible for tax purposes 353,069 284,389 375,616
Foreign inflation adjustments - depreciation, exchange
gain/loss, interest (796,699) (24,208) (242,526)
Inflation adjustment of foreign assets -- -- (10,339,018)
State and local income taxes, net of federal income
tax benefit 89,940 (185,248) (1,787,517)
Undistributed foreign earnings 33,243 -- --
Adoption of APB 23 on prior undistributed earnings (2,167,642) -- --
Foreign subsidiaries losses not benefited 1,858,930 1,201,608 2,963,052
Foreign tax rate differential 1,366,220 1,091,943 1,812,838
Jobs tax credits (56,569) 23,441 46,467
Other - net (89,471) 1,419,773 (595,977)
------------ ------------ ------------
Income tax expense (benefit) $ 3,290,147 $ 251,721 $(14,114,629)
============ ============ ============
</Table>
F-18
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Deferred income taxes are provided in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109. Taxes are provided under the
liability method for temporary differences between revenue and expenses that are
recognized for tax return and financial reporting purposes. The tax effects of
significant temporary differences and tax loss and tax credit carryforwards
comprising the net long-term deferred income tax (asset) liability at December
31, 2000 and 2001, consist of the following:
<Table>
<Caption>
2000 2001
------------ ------------
Deferred liabilities:
Fixed assets $ 46,694,060 $ 37,409,581
Basis difference of assets acquired 84,835 84,835
FAS 52 adjustment 2,803,678 2,803,678
Other 3,536,756 2,197,431
------------ ------------
Total 53,119,329 42,495,525
------------ ------------
Deferred assets:
Deferred lease expenses 6,292,645 8,501,387
Section 263(a) inventory adjustment 2,722,495 3,091,756
Amortization of unearned compensation 2,311,818 845,025
Self-insurance accruals 645,615 757,793
Asset impairment loss 7,105,860 14,377,386
Sale/leasebacks gain 2,545,710 2,405,746
Deferred screen advertising 4,715,733 2,859,497
Foreign tax loss carryforward 6,416,083 11,111,559
Federal tax loss carryforward 3,901,180 7,111,399
AMT credit carryforward 6,027,625 4,383,646
Other expenses, not currently deductible for tax purposes 1,852,238 2,588,026
------------ ------------
Total 44,537,002 58,033,220
------------ ------------
Net long-term deferred income tax (asset) liability
before valuation allowance 8,582,327 (15,537,695)
Valuation allowance 6,249,351 11,821,489
------------ ------------
Net long-term deferred income tax (asset) liability $ 14,831,678 $ (3,716,206)
============ ============
</Table>
In 2001, the Company recorded $2,763,338 of income tax benefit as a
cumulative foreign currency translation adjustment to the accumulated other
comprehensive loss account as a reduction of shareholders' equity.
In 2001, management concluded the operations of Mexico would continue to be
profitable for the Company. As a result, the Company reviewed its deferred tax
assets and liabilities for amounts that would have previously been subject to a
valuation allowance and thus not reflected within its inventory of deferred tax
assets and liabilities. Mexico requires the tax basis of non-monetary assets be
annually adjusted for inflation. Accordingly, the Mexican tax basis of
non-monetary assets has been adjusted for inflation and the valuation allowance
associated with the deferred tax asset has been removed. These revisions
resulted in a 2001 benefit to income taxes of $10,339,018.
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. The federal net operating loss will
expire in 2020.
In March 2002, the Job Creation and Worker Assistance Act (the "Act") was
signed into law. Among the many provisions of this Act, the Company will be
allowed to carryback the tax loss incurred in 2001 to 1996 to recover regular
taxes paid. The impact of this Act has not been reflected in the calculation of
deferred taxes.
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 Opinion No. 23.
The cumulative amount of undistributed earnings of these foreign
subsidiaries on which the Company has not recognized income taxes is
approximately $26 million.
F-19
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company's valuation allowance increased from $6,249,351 at December 31,
2000 to $11,821,489 at December 31, 2001. This change was primarily due to
foreign tax loss carryforwards and unearned compensation that was previously
recognized for U.S. GAAP purposes that the Company does not believe they have a
more likely than not opportunity to utilize.
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 payments, 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 $20,475,247 and
$22,832,388 at December 31, 2000 and 2001, 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, is as
follows:
<Table>
<Caption>
1999 2000 2001
---- ---- ----
Fixed rent expense $74,191,987 $ 86,226,132 $ 91,095,537
Contingent rent expense 15,616,356 22,262,473 23,640,988
----------- ------------ ------------
Facility lease expense $89,808,343 $108,488,605 $114,736,525
Corporate office rent expense 122,681 1,410,087 1,400,166
----------- ------------ ------------
Total rent expense $89,931,024 $109,898,692 $116,136,691
=========== ============ ============
</Table>
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 third party 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 third party 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 to a third party special purpose entity 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, 2001, $1,222,219 of the deferred gain has been recognized leaving
an aggregate deferred gain of $4,738,540 remaining to be amortized. Future
minimum payments under these leases are due as follows: $16,175,438 in 2002,
$16,175,438 in 2003, $16,175,438 in 2004, $16,175,438 in 2005, $16,175,438 in
2006 and $171,534,940 thereafter.
Future minimum payments under noncancelable capital leases (recorded in
accrued other current liabilities) and operating leases (including leases under
the aforementioned sale leaseback transactions) with initial or remaining terms
in excess of one year at December 31, 2001, are due as follows:
<Table>
<Caption>
Capital Operating
Leases Leases Totals
-------------- -------------- --------------
2002 ................ $ 243,007 $ 102,479,712 $ 102,722,719
2003 ................ 220,401 105,040,090 105,260,491
2004 ................ -- 104,934,013 104,934,013
2005 ................ -- 105,326,588 105,326,588
2006 ................ -- 104,835,470 104,835,470
Thereafter .......... -- 1,044,733,379 1,044,733,379
-------------- -------------- --------------
Total ............... $ 463,408 $1,567,349,252 $1,567,812,660
============== ============== ==============
</Table>
F-20
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Employment Agreements - Pursuant to the terms of the agreements, the
Company's two employment agreements with a principal officer and a shareholder
expired on December 31, 2001. The principal officer and that shareholder
continue to be employed by the Company.
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. Contribution payments of $935,666 and $697,848 were made
in 2000 (for plan year 1999) and 2001 (for plan year 2000), respectively. A
liability of $1,067,671 has been recorded at December 31, 2001 for contribution
payments to be made in 2002 (for plan year 2001).
Letters of Credit and Collateral - The Company had outstanding letters of
credit of $996,438 and $448,888 in connection with property and liability
insurance coverage, sales tax and other environmental matters at December 31,
2000 and 2001, 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 accessibility of
movie theatres for handicapped and deaf patrons.
In March 1999, the Department of Justice filed suit in the U.S. District
Court, Northern District of Ohio, Eastern Division, against the Company alleging
certain violations of the ADA relating to the Company's wheelchair seating
arrangements and seeking remedial action. An Order granting Summary Judgment to
the Company was issued in November 2001. The Department of Justice has filed a
Notice of Appeal with the Sixth Circuit Court of Appeals. If the Company loses
this litigation, our financial position, results of operations and cash flows
may be materially and adversely affected. The Company is unable to predict the
outcome of this litigation or the range of potential loss, however, management
believes that based upon current precedent 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. Accordingly,
the Company has not established a reserve for loss in connection with this
proceeding.
In February 2000, Barbara Cornilles, Edwin Cornilles, Dorothy Johnson,
Damara Paris, Stephen Purvis, George Scheler, Susan Teague and Jackie Woltring
filed suit in the U.S. 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. An Order granting Summary Judgement to the Company
was issued by a federal magistrate judge in December 2001 which was ratified by
the federal district judge in March 2002. In April 2002, the plaintiffs agreed
not to appeal the summary judgement ruling.
In August 2001, David Wittie, Rona Schnall, Ron Cranston, Jennifer McPhail,
Peggy Garaffa and ADAPT of Texas filed suit in the 201st Judicial District Court
of Travis County, Texas alleging certain violations of the Human Resources Code,
the Texas Architectural Barriers Act, the Texas Accessibility Standards and the
Deceptive Trade Practices Act relating to accessibility of movie theatres for
patrons using wheelchairs at two theatres located in the Austin, Texas market.
The plaintiffs are seeking remedial action and unspecified damages. The Company
has filed an answer denying the allegations and is vigorously defending this
suit. The Company is unable to predict the outcome of this litigation or the
range of potential loss, however, management believes that based upon current
precedent 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. Accordingly, the Company has not established a
reserve for loss in connection with the proceeding.
F-21
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In July 2001, Sonia-Rivera-Garcia and Valley Association for Independent
Living filed suit in the 93rd Judicial District Court of Hidalgo County, Texas
alleging certain violations of the Human Resources Code, the Texas Architectural
Barriers Act, the Texas Accessibility Standards and the Deceptive Trade
Practices Act relating to accessibility of movie theatres for patrons using
wheelchairs at one theatre located in the Mission, Texas market. The plaintiffs
are seeking remedial action and unspecified damages. The Company has filed an
answer denying the allegations and is vigorously defending this suit. The
Company is unable to predict the outcome of this litigation or the range of
potential loss, however, management believes that based upon current precedent
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. Accordingly, the Company has not established a
reserve for loss in connection with this proceeding.
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, most of
which are covered by insurance. 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.
11. MINORITY INTERESTS IN SUBSIDIARIES
Common Shareholders' Equity - Minority ownership interests in subsidiaries
of the Company are as follows at December 31:
<Table>
<Caption>
2000 2001
------------ ------------
Cinemark Brasil, S.A. - 47.2% interest $ 16,625,590 $ 23,014,621
Cinemark Partners II - 49.2% interest 5,822,593 5,954,244
Cinemark Equity Holdings Corp. (Central America) -
49.9% interest 2,490,476 2,627,419
Cinemark Colombia, S.A. - 49.0% interest 1,551,712 1,343,431
Cinemark del Ecuador, S.A. - 40.0% interest 605,924 685,872
Cinemark de Mexico, S.A. de C.V. - 5.0% interest 17,880 1,188,022
Others 577,352 540,053
------------ ------------
Total $ 27,691,527 $ 35,353,662
============ ============
</Table>
F-22
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. CAPITAL STOCK
Common and Preferred Stocks - Class A and Class B shareholders have
exclusive voting rights. Class B Common Stock shareholders have no voting rights
except upon any proposed amendments to the articles of incorporation. However,
they may convert their Class B Common Stock at their option to Class A Common
Stock. In the event of any liquidation, the Class A and Class B Common Stock
shareholders will be entitled to their pro rata share of assets remaining after
any preferred stock shareholders have received their preferential amounts based
on their respective shares held.
The Company has 1,000,000 shares of preferred stock, $1.00 par value,
authorized with none issued or outstanding. The rights and preferences of
preferred stock will be determined by the Board of Directors at the time of
issuance.
The Company's ability to pay dividends is effectively limited by its status
as a holding company and the terms of its indentures and certain of its other
debt instruments, which significantly restrict the ability of certain of the
Company's subsidiaries to pay dividends directly or indirectly to the Company.
Furthermore, certain of the Company's foreign subsidiaries currently have a
deficit in retained earnings which prevents the Company from declaring and
paying dividends from those subsidiaries.
Employee Stock Option Plan - Under terms of the Company's 1991 Nonqualified
Stock Option Plan, nonqualified options to purchase up to 10,685 shares of the
Company's Class A 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 1991
Nonqualified Stock Option Plan activity and related information for the years
ended December 31, 1999, 2000 and 2001 is as follows:
<Table>
<Caption>
1999 2000 2001
----------------------- ------------------------ ------------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
------ -------------- ------ -------------- ------ --------------
Outstanding at January 1 7,121 $ 1 7,121 $ 1 6,138 $ 1
Granted -- -- -- -- 258 1
Forfeited -- -- (115) 1 (1,485) 1
Exercised -- -- (709) 1 (4,911) 1
Repurchased -- -- (159) 1 -- --
------ -------------- ------ -------------- ------ --------------
Outstanding at December 31 7,121 $ 1 6,138 $ 1 -- $ --
====== ============== ====== ============== ====== ==============
Options exercisable at December 31 6,449 $ 1 5,782 $ 1 -- $ --
====== ============== ====== ============== ====== ==============
</Table>
The Company repurchased options to purchase 159 shares of Class A Common
Stock held by an employee in February 2000. The aggregate purchase price for
such options was $266,166, of which $198,432 is included in salaries and wages
expense. The Company believes that the market value of a share of Class A Common
Stock on the date of grant for the 258 shares granted in October 2001 exceeded
the option price by approximately $329. These options were immediately vested
and exercised which resulted in $84,882 of compensation expense being recorded
at that time. In October 2001, all remaining unvested options under this Plan
were vested with additional compensation expense of approximately $185,000
recorded at that time.
F-23
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Independent Director Stock Options - The Company has granted the
unaffiliated directors of the Company options to purchase up to an aggregate of
800 shares of the Company's Class A Common Stock at an exercise price of $1.00
per share (the "Director Options"). 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.
A summary of the Company's Independent Directors Stock Option Plan activity
and related information for the years ended December 31, 1999, 2000 and 2001 is
as follows:
<Table>
<Caption>
1999 2000 2001
----------------------- ----------------------- ------------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
------ -------------- ------ -------------- ------ --------------
Outstanding at January 1 800 $ 1 800 $ 1 800 $ 1
Granted -- -- -- -- -- --
Forfeited -- -- -- -- -- --
Exercised -- -- -- -- (200) 1
------ -------------- ------ -------------- ------ --------------
Outstanding at December 31 800 $ 1 800 $ 1 600 $ 1
====== ============== ====== ============== ====== ==============
Options exercisable at December 31 600 $ 1 600 $ 1 400 $ 1
====== ============== ====== ============== ====== ==============
</Table>
The weighted average remaining contractual life of the 600 options
outstanding at December 31, 2001 is three years.
Long-Term Incentive Plan - In November 1998, the Board approved a Long-Term
Incentive Plan (the "Long Term Incentive 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 A 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 Long Term Incentive 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 Long Term Incentive 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 A Common Stock vested under such award as
determined in accordance with the Long Term Incentive Plan.
F-24
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A summary of the Company's Long Term Incentive Plan activity and related
information for the years ended December 31, 1999, 2000 and 2001 is as follows:
<Table>
<Caption>
1999 2000 2001
------------------------ ------------------------ ------------------------
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 4,815 $ 1,674
Granted 40 1,674 50 1,674 1,525 330
Forfeited (125) 1,674 (600) 1,674 (525) 1,674
Exercised -- -- -- -- -- --
------ -------------- ------ -------------- ------ --------------
Outstanding at December 31 5,365 $ 1,674 4,815 $ 1,674 5,815 $ 1,322
====== ============== ====== ============== ====== ==============
Options exercisable at December 31 816 $ 1,674 1,916 $ 1,674 2,591 $ 1,674
====== ============== ====== ============== ====== ==============
</Table>
The weighted average remaining contractual life of the 5,815 options
outstanding at December 31, 2001 is seven years.
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 Company believed the market value on the date of grant of the 1,525 options
granted in December 2001 did not exceed the exercise price of $330 per share and
therefore no compensation expense was recorded. As discussed in Note 17, the
Company restated its 2001 financial statements to recognize additional unearned
compensation related to options granted in December 2001. In connection with the
initial public offering of the Class A Common Stock of the Company's parent,
Cinemark, Inc., and Staff Accounting Bulletin Topic 4.D., the Company has
revised the market value per share for the 1,525 options granted in December
2001 to $2,519 which exceeded the option price of $330 by $2,189 per share. As a
result, the Company accrued $3,338,225 for additional unearned compensation and
will begin amortizing this noncash expense in January 2002 at a rate of $667,645
per year during the five year vesting period of the options granted. The
long-term incentive options expire ten years from the date of grant.
For all options, the excess of the estimated fair market value
of the stock at the dates of the grant over the exercise price is 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 $17,040, $0 and $3,423,107 was recorded in 1999, 2000 and 2001,
respectively. Compensation expense under these stock option plans was
$1,049,176, $1,114,454 and $1,010,655 in 1999, 2000 and 2001, 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. 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, the Company's net income and
earnings per share would have been reduced to the proforma amounts indicated
below:
<Table>
<Caption>
1999 2000 2001
---- ---- ----
Net income (loss) As reported $1,035,435 $(10,423,085) $(4,021,268)
Proforma 635,505 (10,823,866) (4,422,475)
Earnings (loss) per share:
Basic As reported $ 5.81 $ (58.30) $ (22.40)
Proforma 3.56 (60.55) (24.63)
Diluted As reported $ 5.40 $ (58.30) $ (22.40)
Proforma 3.31 (60.55) (24.63)
</Table>
The weighted average fair value per share of these stock options granted in
1999, 2000 and 2001 was $1,018 (all of which had exercise prices less than
market value at the date of grant), $592 (all of which had an exercise price
that equaled the market value at the date of grant) and $2,320 (all of which had
exercise prices less than market value at the date of grant), respectively. The
following assumptions were used in the calculation of fair value: dividend yield
of 0 percent; an expected life of 10 years; expected volatility of 45 percent;
and risk-free interest rates of 4.4 percent.
F-25
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
During 2000 and 2001, the Company experienced actual tax deductible
compensation that was less than the compensation amounts recorded for book
purposes. The income tax effect of this difference was recorded as a reduction
of shareholders' equity only to the extent of previous increases in accordance
with paragraph 17 of APB No. 25 as follows:
<Table>
2000 $ 208,317
==========
2001 $1,380,621
==========
</Table>
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:
<Table>
<Caption>
1999 2000 2001
---------- ---------- ----------
Facility lease expense - theatre and equipment leases
with shareholder affiliates $ 295,171 $ 268,101 $ 272,341
Video game machine revenues - a subsidiary of an affiliate 2,679,490 2,714,817 2,558,693
Management fee revenues for property and theatre management:
Equity investees 184,781 136,926 148,798
Other related parties -- 27,955 50,714
</Table>
The Company manages one theatre with 12 screens for Laredo Theatre, Ltd.
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. Under the agreement, management fees
are paid by Laredo to the Company at a rate of 5% of theatre revenues in each
year up to $50,000,000 and 3% of theater revenues in each year in excess of
$50,000,000. The Company received $180,366 of management fee revenues and
dividends of $487,500 from Laredo in 2001. In 2001, Laredo distributed dividends
of $162,500 to Lone Star Theatres in accordance with the terms of the limited
partnership agreement. All such amounts are included in the Company's
consolidated financial statements with the intercompany amounts eliminated in
consolidation.
The Company managed two theatres with 11 screens for Westward Ltd. in 2001.
Westward is a Texas limited partnership of which Cinemark of Utah, Inc. is the
general partner and owns a 1% interest in Westward. Cinemark of Utah, Inc. is
100% owned by Mr. Mitchell. Mr. Mitchell also owns a 48.425% limited partner
interest in Westward. Under the agreement, management fees are paid by Westward
to the Company at a rate of 3% of theatre revenues. The Company recorded $29,325
of management fee revenues from Westward in 2001. The term ends in November
2002, however, we have the option to renew for one or more five-year periods.
One of the two theatres managed by the Company was closed by Westward in
February 2002.
The Company managed one theatre with eight screens for Mitchell Theatres.
Mitchell Theatres is 100% owned by members of Mr. Mitchell's family. Under the
agreement, management fees are paid by Mitchell Theatres to the Company at a
rate of 5% of theatre revenues. The Company recorded $21,389 of management fee
revenues from Mitchell Theatres in 2001. The term ends in November 2003.
However, we have the option to renew for one or more five-year periods.
The Company leases one theatre with 7 screens from Plitt Plaza joint
venture. Plitt Plaza is indirectly owned by Lee Roy Mitchell. The term of the
lease expires in July 2003, however we have 2 five-year renewal options. The
annual rent is approximately $264,000 plus certain taxes, maintenance expenses,
insurance, and a percentage of gross admission and concession receipts in excess
of certain amounts. The Company recorded $272,341 of facility lease expense
payable to Plitt Plaza, Inc. during 2001.
During 2001, Cinemark Brasil S.A. received additional capital from its
Brazilian shareholders in an aggregate amount equal to approximately $11.0
million (US dollar equivalent) in exchange for shares of common stock of
Cinemark Brasil S.A. The contributions were made in July in the aggregate amount
of $5.0 million (US dollar equivalent) and in November in the aggregate amount
of $6.0 million (US dollar equivalent). The additional capital will be used to
fund development in Brazil and to reduce Cinemark Brasil S.A.'s outstanding
indebtedness. After giving effect to the additional issuance of common stock,
Cinemark International's ownership interest was diluted to approximately 53%. As
part of the additional capitalization, the Company agreed to give the Brazilian
partners an option to exchange shares they own in Cinemark Brasil S.A. for
shares of the class of the Company's common stock which is registered in an
initial public offering under the Securities Act of 1933, as amended, occurring
at any time prior to December 31, 2007. If the Brazilian partners exercise their
exchange option, the Company will obtain appraisals from independent investment
banks of the fair market value of the Company and of Cinemark Brasil S.A. The
F-26
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
number of shares to be issued will be determined by multiplying the number of
shares of common stock owed by each Brazilian partner by a fraction, the
numerator of which is equal to the appraised value per share of Cinemark Brasil
S.A. and the denominator of which is equal to the appraised value per share of
the Company's common stock.
The Company entered into a profit participation agreement with its
President, Alan Stock, pursuant to which Mr. Stock receives a profit interest in
two recently built theatres after the Company recovered its capital investment
in these theatres plus its borrowing costs. Under this agreement, operating
losses and disposition losses for any year are allocated 100% to the Company.
Operating profits and disposition profits for these theatres for any fiscal year
are allocated first to the Company to the extent of total operating losses and
losses from any disposition of these theatres. Thereafter, net cash from
operations from these theatres or from any disposition of these theatres is paid
first to the Company until such payments equal the Company's investment in these
theatres, plus interest, and then 51% to the Company and 49% to Mr. Stock. In
the event that Mr. Stock's employment is terminated without cause, profits will
be distributed according to this formula without first allowing the Company to
recoup its investment plus interest thereon. No amounts have been paid
to Mr. Stock to date pursuant to the profit participation agreement. Upon
completion of this offering, the Company will have the option to purchase Mr.
Stock's interest in the theatres for a price equal to the fair market value of
the profit interest, as determined by an independent appraiser. The Company does
not anticipate exercising this option in connection with this offering. The
Company does not intend to enter into similar arrangements with its executive
officers in the future.
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 Cypress 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 Cypress 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 may form
a new corporation as the parent corporation of the Company and to contribute
their respective shares for like shares of this new corporation.
F-27
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS
The Company operates in a single business segment as a motion picture
exhibitor. The Company is a multinational corporation with consolidated
operations in the U.S., Canada, Mexico, Argentina, Brazil, Chile, Ecuador, Peru,
Honduras, El Salvador, Nicaragua, Costa Rica and Colombia as of December 31,
2001. Revenues in the U.S. and Canada, Mexico, Brazil and other foreign
countries for the years ended December 31 are as follows:
<Table>
<Caption>
1999 2000 2001
-------------- -------------- --------------
Revenues
U.S. and Canada $ 556,592,053 $ 597,913,928 $ 644,095,881
Mexico 56,123,717 61,907,651 77,266,984
Brazil 39,971,020 60,740,586 62,188,321
Other foreign countries 60,601,933 66,593,322 71,101,287
Eliminations (684,527) (891,630) (994,005)
-------------- -------------- --------------
Total $ 712,604,196 $ 786,263,857 $ 853,658,468
============== ============== ==============
</Table>
Long-lived assets in the U.S. and Canada, Mexico, Brazil and other foreign
countries as of December 31 are as follows:
<Table>
Long-Lived Assets
U.S. and Canada $ 746,317,091 $ 735,698,077 $ 667,881,369
Mexico 61,202,181 69,110,248 78,036,408
Brazil 60,792,003 68,294,098 62,080,875
Other foreign countries 65,647,784 77,032,297 58,407,765
-------------- -------------- --------------
Total $ 933,959,059 $ 950,134,720 $ 866,406,417
============== ============== ==============
</Table>
15. ASSET IMPAIRMENT LOSS
The Company reviews long-lived assets, including goodwill, for impairment
in conjunction with the preparation of the Company's quarterly consolidated
financial statements and whenever events or changes in circumstances indicate
the carrying amount of the assets may not be fully recoverable. The Company
considers actual theatre level cash flow, future years budgeted theatre level
cash flow, theatre property and equipment values, goodwill values, competitive
theatres in the marketplace, theatre operating cash flows compared to annual
long-term lease payments, the sharing of a market with other Company theatres,
the age of a recently built theatre and other factors in its assessment of
impairment of individual theatre assets. The impairment evaluation is based on
the estimated cash flows from theatres from continuing use through the remainder
of the theatre's useful life. The remainder of the useful life correlates with
the available remaining lease period for leased properties and a period of
twenty years for fee owned properties.
The Company wrote down the assets of certain properties to be held and
used to their fair value by recording impairment charges of $3,720,390,
$3,872,126 and $20,723,274 in 1999, 2000 and 2001, respectively. The impairment
charges were recognized in the third and fourth quarters of 1999, the first,
second, third, and fourth quarters of 2000 and the first and fourth quarters of
2001, respectively. All of the impairment charges recorded were in the U.S.
except for an impairment charge of $1,712,750 recorded in Brazil in the fourth
quarter of 2001.
F-28
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16. LOSS ON SALE OF ASSETS AND OTHER
The Company recorded a loss on sale of assets and other in the amount of
$2,419,511, $912,298 and $12,407,696 in 1999, 2000, and 2001, respectively.
Included in loss on sale of assets and other in 2001 is a charge of $7,217,975
to write down one property to be disposed of in the U.S. to fair value and a
charge of $1,471,947 to write down one property to be disposed of in Argentina
to fair value.
17. RESTATEMENT
Subsequent to the issuance of the Company's 2001 consolidated financial
statements, the Company's management determined that it should revise the fair
value of employee stock options granted during December 2001. This determination
was based in part on the timing between the original valuation and the proposed
initial public offering of common stock by the Company's parent, Cinemark, Inc.
The Company's management believed that on the date of grant the common stock had
a fair value of $330 per share. In connection with the parent Company's public
offering of common stock and Staff Accounting Bulletin Topic 4.D., the Company
revised this fair value to $2,519 per share. As a result, the 2001 financial
statements have been restated from amounts previously reported to record
additional unearned compensation of $3,338,225 as of December 31, 2001.
A summary of the significant effects of the restatement is as follows:
<Table>
<Caption>
As of December 31, 2001
-----------------------
As
Previously As
Reported Restated
Balance Sheet Data:
Additional paid-in-capital $11,759,484 $15,097,709
Unearned compensation - stock options (887,779) (4,226,004)
</Table>
F-29
CINEMARK USA, INC. AND SUBSIDIARIES
SUPPLEMENTAL SCHEDULE A
CONSOLIDATING BALANCE SHEET INFORMATION
DECEMBER 31, 2001
- --------------------------------------------------------------------------------
<Table>
<Caption>
RESTRICTED UNRESTRICTED
GROUP GROUP ELIMINATIONS CONSOLIDATED
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 19,186,456 $ 31,012,767 $ -- $ 50,199,223
Inventories 2,620,952 701,080 3,322,032
Accounts receivable 5,345,112 6,754,509 (1,049,973) 11,049,648
Income tax receivable (774,891) 2,213,685 1,438,794
Prepaid expenses and other 2,550,982 695,847 3,246,829
-------------- -------------- -------------- --------------
Total current assets 28,928,611 41,377,888 (1,049,973) 69,256,526
THEATRE PROPERTIES AND EQUIPMENT - net 676,224,772 190,181,645 866,406,417
OTHER ASSETS
Goodwill - net 7,924,738 7,200,216 15,124,954
Investments in and advances to affiliates 166,938,389 2,677,677 (165,169,063) 4,447,003
Deferred tax asset 3,716,206 -- 3,716,206
Deferred charges and other - net 28,862,726 8,729,918 37,592,644
-------------- -------------- -------------- --------------
Total other assets 207,442,059 18,607,811 (165,169,063) 60,880,807
-------------- -------------- -------------- --------------
TOTAL $ 912,595,442 $ 250,167,344 $ (166,219,036) $ 996,543,750
============== ============== ============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 6,240,871 $ 15,612,871 $ -- $ 21,853,742
Current income tax payable (182,298) 182,298 --
Accounts payable 21,852,828 9,256,833 31,109,661
Accrued film rentals 18,889,758 4,691,720 23,581,478
Accrued interest 15,443,772 723,365 16,167,137
Accrued payroll 11,999,760 1,142,263 13,142,023
Accrued property taxes 12,364,648 1,664,343 14,028,991
Accrued other current liabilities 14,324,848 6,197,361 (1,049,973) 19,472,236
-------------- -------------- -------------- --------------
Total current liabilities 100,934,187 39,471,054 (1,049,973) 139,355,268
LONG-TERM LIABILITIES
Long-term debt, less current portion 667,976,248 91,126,176 759,102,424
Deferred income taxes (715,314) 715,314 --
Deferred lease expenses 22,386,425 445,963 22,832,388
Deferred gain on sale leasebacks 4,738,540 -- 4,738,540
Deferred revenues and other long-term liabilities 7,682,349 2,141,863 9,824,212
-------------- -------------- -------------- --------------
Total long-term liabilities 702,068,248 94,429,316 -- 796,497,564
COMMITMENTS AND CONTINGENCIES (Note 10) --
MINORITY INTERESTS IN SUBSIDIARIES 7,638,384 27,715,278 35,353,662
SHAREHOLDERS' EQUITY (as restated, see Note 17)
Class A Common Stock 15 -- 15
Class B Common Stock 49,543,427 14,308,000 (14,308,000) 49,543,427
Additional paid-in-capital 15,097,709 150,861,063 (150,861,063) 15,097,709
Unearned compensation - stock options (4,226,004) -- (4,226,004)
Retained earnings (deficit) 92,144,624 (47,448,325) 44,696,299
Treasury stock (24,232,890) -- (24,232,890)
Accumulated other comprehensive loss (26,372,258) (29,169,042) (55,541,300)
-------------- -------------- -------------- --------------
Total shareholders' equity 101,954,623 88,551,696 (165,169,063) 25,337,256
-------------- -------------- -------------- --------------
TOTAL $ 912,595,442 $ 250,167,344 $ (166,219,036) $ 996,543,750
============== ============== ============== ==============
</Table>
Note: "Restricted Group" and "Unrestricted Group" are defined in the Indenture
for the Senior Subordinated Notes.
S-1
CINEMARK USA, INC. AND SUBSIDIARIES
SUPPLEMENTAL SCHEDULE B
CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
YEAR ENDED DECEMBER 31, 2001
- --------------------------------------------------------------------------------
<Table>
<Caption>
RESTRICTED UNRESTRICTED
GROUP GROUP ELIMINATIONS CONSOLIDATED
REVENUES $ 703,711,233 $ 161,548,658 $ (11,601,423) $ 853,658,468
COSTS AND EXPENSES
Cost of operations 530,305,723 128,001,094 (11,601,423) 646,705,394
General and administrative expenses 34,766,091 7,923,547 42,689,638
Depreciation and amortization 58,847,346 14,696,500 73,543,846
Asset impairment loss 19,010,524 1,712,750 20,723,274
Loss on sale of assets and other 6,877,899 5,529,797 12,407,696
------------- ------------- ------------- -------------
Total 649,807,583 157,863,688 (11,601,423) 796,069,848
OPERATING INCOME 53,903,650 3,684,970 -- 57,588,620
OTHER INCOME (EXPENSE)
Interest expense (55,598,945) (12,769,347) -- (68,368,292)
Amortization of debt issue cost and debt discount (1,024,475) (1,537,853) (2,562,328)
Interest income 500,584 991,908 -- 1,492,492
Foreign currency exchange gain (loss) 379,598 (2,356,577) -- (1,976,979)
Equity in loss of affiliates (4,415,744) (56,239) (4,471,983)
Minority interests in (income) loss of subsidiaries (1,456,088) 1,618,661 162,573
------------- ------------- ------------- -------------
Total (61,615,070) (14,109,447) -- (75,724,517)
------------- ------------- ------------- -------------
LOSS BEFORE INCOME TAXES (7,711,420) (10,424,477) -- (18,135,897)
INCOME TAX BENEFIT (13,917,594) (197,035) -- (14,114,629)
------------- ------------- ------------- -------------
NET INCOME (LOSS) $ 6,206,174 $ (10,227,442) $ -- $ (4,021,268)
============= ============= ============= =============
</Table>
Note: "Restricted Group" and "Unrestricted Group" are defined in the Indenture
for the Senior Subordinated Notes.
S-2
CINEMARK USA, INC. AND SUBSIDIARIES
SUPPLEMENTAL SCHEDULE C
CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
YEAR ENDED DECEMBER 31, 2001
- --------------------------------------------------------------------------------
<Table>
<Caption>
RESTRICTED UNRESTRICTED
GROUP GROUP ELIMINATIONS CONSOLIDATED
------------ ------------ ------------ ------------
OPERATING ACTIVITIES
Net income (loss) $ 6,206,174 $(10,227,442) $ -- $ (4,021,268)
Noncash items in net income (loss):
Depreciation 56,595,579 14,382,729 70,978,308
Amortization of goodwill and other assets 2,251,767 313,771 2,565,538
Amortization of gain on sale leasebacks (365,921) -- (365,921)
Amortization of foreign advanced rents 1,539,678 805,417 2,345,095
Amortization of debt discount and premium (28,508) (28,508)
Amortization of debt issue costs 849,975 1,537,853 -- 2,387,828
Amortized compensation - stock options 1,010,655 -- 1,010,655
Loss on impairment of assets 19,010,524 1,712,750 20,723,274
Loss on sale of assets and other 6,877,899 5,529,797 12,407,696
Deferred lease expenses 2,377,275 (20,134) 2,357,141
Deferred income tax expenses (19,308,811) 760,927 (18,547,884)
Equity in (income) loss of affiliates 4,415,744 56,239 4,471,983
Minority interests in income (loss) of subsidiaries 1,456,088 (1,618,661) (162,573)
Common Stock issued for options exercised,
including tax benefit (1,375,510) -- (1,375,510)
Changes in assets and liabilities (21,976,496) 14,352,830 -- (7,623,666)
------------ ------------ ------------ ------------
Net cash provided by operating activities 59,536,112 27,586,076 -- 87,122,188
INVESTING ACTIVITIES
Additions to theatre properties and equipment (24,980,586) (15,371,094) (40,351,680)
Sale of theatre properties and equipment 6,613,942 254,011 6,867,953
Investments in affiliates -- (379,373) -- (379,373)
Dividends/capital returned from affiliates -- 63,693 -- 63,693
------------ ------------ ------------ ------------
Net cash used for investing activities (18,366,644) (15,432,763) -- (33,799,407)
FINANCING ACTIVITIES
Increase in long-term debt 84,522,270 8,714,169 93,236,439
Reductions of long-term debt (107,791,392) (14,783,116) (122,574,508)
Increase in minority investment in subsidiaries 348,217 11,081,156 -- 11,429,373
Decrease in minority investment in subsidiaries (256,495) (3,348,170) -- (3,604,665)
------------ ------------ ------------ ------------
Net cash provided by (used for) financing activities (23,177,400) 1,664,039 -- (21,513,361)
EFFECT OF EXCHANGE RATE CHANGES
ON CASH AND CASH EQUIVALENTS (441,960) (1,008,231) (1,450,191)
------------ ------------ ------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS 17,550,108 12,809,121 -- 30,359,229
CASH AND CASH EQUIVALENTS:
Beginning of period 1,636,348 18,203,646 19,839,994
------------ ------------ ------------ ------------
End of period $ 19,186,456 $ 31,012,767 $ -- $ 50,199,223
============ ============ ============ ============
</Table>
Note: "Restricted Group" and "Unrestricted Group" are defined in the Indenture
for the Senior Subordinated Notes.
S-3
CINEMARK USA AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001
<Table>
<Caption>
VALUATION
ALLOWANCE
DEFERRED
TAX ASSETS
-----------
Balance January 1, 1999............................... $ 3,137,927
Additions........................................... 2,692,250
Deductions.......................................... (966,880)
-----------
Balance December 31, 1999............................. $ 4,863,297
Additions........................................... 1,694,048
Deductions.......................................... (307,994)
-----------
Balance December 31, 2000............................. $ 6,249,351
Additions........................................... 5,596,219
Deductions.......................................... (24,081)
-----------
Balance December 31, 2001............................. $11,821,489
===========
</Table>
S-4
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: June 28, 2002 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.
<Table>
<Caption>
Name Title Date
---- -----
/s/ Lee Roy Mitchell Chairman of the Board of Directors June 28, 2002
- --------------------------------------- and Chief Executive Officer
Lee Roy Mitchell
/s/ Tandy Mitchell Director June 28, 2002
- ---------------------------------------
Tandy Mitchell
/s/ Alan W. Stock Director June 28, 2002
- ---------------------------------------
Alan W. Stock
/s/ Robert Copple Senior Vice President and Treasurer June 28, 2002
- --------------------------------------- (Chief Financial and Accounting
Robert Copple Officer); Director
/s/ W. Bryce Anderson Director June 28, 2002
- ---------------------------------------
W. Bryce Anderson
/s/ Heriberto Guerra Director June 28, 2002
- ---------------------------------------
Heriberto Guerra
/s/ James A. Stern Director June 28, 2002
- ---------------------------------------
James A. Stern
/s/ James L. Singleton Director June 28, 2002
- ---------------------------------------
James L. Singleton
/s/ William Spiegel Director June 28, 2002
- ---------------------------------------
William Spiegel
/s/ Denny Rydberg Director June 28, 2002
- ---------------------------------------
Denny Rydberg
</Table>
Sig-1
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/A. 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.
EXHIBITS
TO
FORM 10-K/A
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, 2001
EXHIBIT INDEX
<Table>
<Caption>
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 June Exhibit 3.1(b) to the
27, 1988 merging Gulf Drive-In Theatres, Inc. and Cinemark of Company's
Louisiana, Inc. into the Company Registration 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 dated Exhibit 3.1(d) to the
October 27, 1989 merging Premiere Cinemas Corp. into the Company's
Company Registration 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 dated Exhibit 3.1(e) to the
October 27, 1989 merging Tri-State Entertainment Incorporated into Company's
the Company Registration 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
</Table>
E-1
<Table>
<Caption>
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER DESCRIPTION REFERENCE TO
- ------ ----------- ------------
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
10.1(a) Indenture for Series B Notes, with form of Series B Note attached. Exhibit 4.1 to the
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. Trust Exhibit 4.1 to the
Company of Texas, N.A. governing the Notes, with a form of Series Company's
C Note attached Registration 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 of Company's
Series A Note attached Registration Statement
(file 333-45417) on
Form S-4 filed
February 2, 1998
10.3(a) Management Agreement between the Company and Cinemark II, Exhibit 10.6(c) to the
Inc. ("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
Company and Cinemark Mexico (USA). Cinemark 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
the Company and Cinemark de Mexico. Cinemark Mexico
(USA)'s Registration
Statement (file 33-
72114) on Form S-4
filed on November 24,
1994.
</Table>
E-2
<Table>
<Caption>
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER DESCRIPTION REFERENCE TO
- ------ ----------- ------------
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.
10.3(e) Management Agreement dated September 1, 1994 between Exhibit 10.4(i) to the
Cinemark Partners II, Ltd. and the Company. Company's Annual
Report (file 33-47040)
on Form 10-K filed
March 29, 1995.
10.4(a) Employment Agreement dated as of October 17, 1991 between the Exhibit 10.11(a) to 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 of April 7, Exhibit 10.11(b) to the
1992 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(c) Employment Agreement dated as of October 17, 1991 between the Exhibit 10.11(c) to 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 of April 7, Exhibit 10.11(d) to the
1992 between the Company and Tandy Mitchell. Company's
Registration Statement
(file 33-47040) on
Form S-1 filed on
April 9, 1992.
10.4(e) Second Amendment to Employment Agreement between the Exhibit 10.11(e) to the
Company and Lee Roy Mitchell dated as of June 10, 1992. Company's Annual
Report (file 33-47040)
on Form 10-K filed
March 31, 1993.
</Table>
E-3
<Table>
<Caption>
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER DESCRIPTION REFERENCE TO
- ------ ----------- ------------
10.5(a) 1991 Nonqualified Stock Option Plan of Cinemark USA, Inc. Exhibit 10.14 to the
Company's
Registration Statement
(file 33-47040) on
Form S-1 filed on April
9, 1992.
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 Laredo Joint Exhibit 10.14(c) to the
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 Cinemark Exhibit 10.10(c) to the
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 Cinemark II Exhibit 10.22 to the
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, between the Exhibit 10.10 to
Company and Cinemark Mexico (USA). Cinemark 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 Lee Roy Exhibit 10.23(a) to the
Mitchell dated as of July 13, 1992. Company's Annual
Report (file 33-47040)
on Form 10-K filed
March 31, 1993.
</Table>
E-4
<Table>
<Caption>
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER DESCRIPTION REFERENCE TO
- ------ ----------- ------------
10.8(b) Indemnification Agreement between the Company and Tandy Exhibit 10.23(b) to the
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 Alan W. Exhibit 10.23(d) to the
Stock dated as of July 13, 1992. Company's Annual
Report (file 33-47040)
on Form 10-K filed
March 31, 1993.
10.8(d) Indemnification Agreement between the Company and W. Bryce Exhibit 10.23(f) to the
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 Sheldon I. Exhibit 10.23(g) to the
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 Heriberto Exhibit 10.13(f) to the
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 as of Exhibit 10.9(a) to the
February 12, 1998 among the Banks and the Agent. Company's Annual
Report (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 executed by the Exhibit 10.9(b) to the
pledgors listed on the signature page thereto for the benefit of the Company's Annual
Agent and the Banks. Report (file 333-45417,
333-11895 and 33-
47040) on Form 10K
filed March 27, 1998
</Table>
E-5
<Table>
<Caption>
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER DESCRIPTION REFERENCE TO
- ------ ----------- ------------
10.9(c) Note of the Company dated as of February 12, 1998 in the original Exhibit 10.9(c) to the
principal amount of $50,000,000 payable to the order of Bank of Company's Annual
America National Trust and Savings Association Report (file 333-45417,
333-11895 and 33-
47040) on Form 10K
filed March 27, 1998
10.9(d) Note of the Company dated as of February 12, 1998n in the original Exhibit 10.9(d) to the
principal amount of $50,000,000 payable to the order of Company's Annual
NationsBank of Texas, N.A. Report (file 333-45417,
333-11895 and 33-
47040) on Form 10K
filed March 27, 1998
10.9(e) Note of the Company dated as of February 12, 1998 in the original Exhibit 10.9(e) to the
principal amount of $30,000,000 payable to the order of Company's Annual
BankBoston, N.A. Report (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 in the original Exhibit 10.9(f) to the
principal amount of $30,000,000 payable to the order of Fleet Bank, Company's Annual
N.A. Report (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 in the original Exhibit 10.9(g) to the
principal amount of $15,000,000 payable to the order of The Fuji Company's Annual
Bank, Limited Report (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 in the original Exhibit 10.9(h) to the
principal amount of $15,000,000 payable to the order of Bank of Company's Annual
New York Report (file 333-45417,
333-11895 and 33-
47040) on Form 10K
filed March 27, 1998
</Table>
E-6
<Table>
<Caption>
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER DESCRIPTION REFERENCE TO
- ------ ----------- ------------
10.9(i) Note of the Company dated as of February 12, 1998 in the original Exhibit 10.9(i) to the
principal amount of $30,000,000 payable to the order of CIBC, Inc. Company's Annual
Report (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 in the original Exhibit 10.9(j) to the
principal amount of $30,000,000 payable to the order of Bank of Company's Annual
Nova Scotia Report (file 333-45417,
333-11895 and 33-
47040) on Form 10K
filed March 27, 1998
10.9(k) Note of the Company dated as of February 12, 1998 in the original Exhibit 10.9(k) to the
principal amount of $25,000,000 payable to the order of Comerica Company's Annual
Bank-Texas Report (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 in the original Exhibit 10.9(l) to the
principal amount of $15,000,000 payable to the order of First Company's Annual
Hawaiian Bank Report (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 in the original Exhibit 10.9(m) to the
principal amount of $15,000,000 payable to the order of Bank of Company's Annual
Montreal Report (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 in the original Exhibit 10.9(n) to the
principal amount of $15,000,000 payable to the order of PNC Bank Company's Annual
Report (file 333-45417,
333-11895 and 33-
47040) on Form 10K
filed March 27, 1998
</Table>
E-7
<Table>
<Caption>
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER DESCRIPTION REFERENCE TO
- ------ ----------- ------------
10.9(o) Note of the Company dated as of February 12, 1998 in the original Exhibit 10.9(o) to the
principal amount of $15,000,000 payable to the order of Sumitoto Company's Annual
Bank, Limited Report (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 in the original Exhibit 10.9(p) to the
principal amount of $15,000,000 payable to the order of Union Bank Company's Annual
of California, N.A. Report (file 333-45417,
333-11895 and 33-
47040) on Form 10K
filed March 27, 1998
10.9(q) First Amendment to Second Amended and Restated Credit Exhibit 10.9(q) to the
Agreement dated as of February 12, 1998 among the Banks and the Company's Annual
Agent Report (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 Credit Exhibit 10.9(r) to the
Agreement dated as of February 12, 1998 among the Banks and the Company's Annual
Agent Report (file 33-47040)
on Form 10K filed
March 31, 1999
10.9(s) Intercompany Subordination Agreement dated November 16, 1998 Exhibit 10.9(s) to the
Company's Annual
Report (file 33-47040)
on Form 10K filed
March 31, 1999
10.9(t) Third Amendment to Second Amended and Restated Credit Exhibit 10.9(t) to the
Agreement dated as of February 12, 1998 among the Banks and the Company's Annual
Agent Report (file 33-47040)
on Form 10K filed
March 31, 1999
10.9(u) Pledge Agreement dated as of January 27, 1999 between Cinemark Exhibit 10.9(u) to the
Mexico (USA), Inc. and the Banks, with the acknowledgment of Company's Annual Report
Cinemark de Mexico, S.A. de C.V. (file 33-47040) on Form
10K filed March 27, 2002
</Table>
E-8
<Table>
<Caption>
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER DESCRIPTION REFERENCE TO
- ------ ----------- ------------
10.9(v) First Amendment to Pledge Agreement between Cinemark Mexico Exhibit 10.9(v) to the
(USA), Inc. and the Banks, with the acknowledgment of Cinemark Company's Annual
de Mexico, S.A. de C.V., dated as of May 30, 2001 Report (file 33-47040)
on Form 10K filed
March 27, 2002.
10.9(w) Second Amendment to Pledge Agreement between Cinemark Exhibit 10.9(w) to the
Mexico (USA), Inc. and the Banks, with the acknowledgment of Company's Annual
Cinemark de Mexico, S.A. de C.V., dated as of September 26, 2001 Report (file 33-47040)
on Form 10K filed
March 27, 2002.
10.9(x) Pledge Agreement dated as of September 28, 2001 between Exhibit 10.9(x) to the
Cinemark Mexico (USA), Inc. and the Banks, with the Company's Annual
acknowledgment of Cinemark Holdings Mexico, S. de R.L. de C.V. Report (file 33-47040)
on Form 10K filed
March 27, 2002.
10.10(a) Letter Agreements with directors of the Company regarding stock Exhibit 10.15 to the
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 amending stock Exhibit 10.15(c) to the
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 regarding stock Exhibit 10.10(c) to the
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 Cinemark Exhibit 10.11(a) to the
Mexico (USA), Inc., Bank of America National Trust and Savings Company's Annual
Association, as Administrative Agent, and the Financial Institutions Report (file 33-47040)
party thereto on Form 10K filed
March 31, 1999
10.11(b) Guaranty of Cinemark Mexico (USA) by Cinemark USA, Inc. Exhibit 10.11(b) to the
Company's Annual
Report (file 33-47040)
on Form 10K filed
March 31, 1999
10.11(c) Intercompany Subordination Agreement dated November 16, 1998 Exhibit 10.11(c) to the
Company's Annual
Report (file 33-47040)
on Form 10K filed
March 31, 1999
10.11(d) First Amendment to Credit Agreement dated September 29, 2000 Exhibit 10.11(d) to the
between Cinemark Mexico (USA), Inc., Bank of America N.A. and Company's Annual
the Financial Institutions party thereto Report (file 33-47040)
on Form 10K filed
March 26, 2001
</Table>
E-9
<Table>
<Caption>
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER DESCRIPTION REFERENCE TO
- ------ ----------- ------------
10.12 Senior Secured Credit Agreement dated December 4, 1995 among Exhibit 10.18 to the
Cinemark II, Cinemark Mexico (USA) and Cinemark de Mexico Company's Annual
Report (file 33-47040)
on Form 10-K filed
April 1, 1996
10.13(a) Credit Agreement dated September 11, 1998 between Cinemark Exhibit 10.13(a) to the
Investments Corporation, Bank of America National Trust and Company's Annual
Savings Association, as Administrative Agent, NationsBank, N.A., Report (file 33-47040)
as Syndication Agent, and the other financial institutions party on Form 10K filed
thereto March 31, 1999
10.13(b) Cinemark Investments Corporation FRN Pledge Agreement dated Exhibit 10.13(b) to the
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 Cinemark USA Exhibit 10.13(c) to the
Company's Annual
Report (file 33-47040)
on Form 10K filed
March 31, 1999
10.14 Shareholders' Agreement dated March 12, 1996 among the Exhibit 10.19(b) to the
Company, Mr. Mitchell, Cypress Merchant Banking Partners L.P., Company's Annual
Cypress Pictures Ltd. and Mr. Mitchell and Mr. Don Hart as Co- Report (file 33-47040)
Trustees of certain trusts signatory thereto on Form 10-K filed
April 1, 1996
10.15(a) Loan Agreement dated December 15, 2000 between Cinema Exhibit 10.15(a) to the
Properties, Inc. and Lehman Brothers Bank, FSB Company's Annual
Report (file 33-47040)
on Form 10K filed
March 26, 2001
10.15(b) Promissory Note of Cinema Properties, Inc. dated as of December Exhibit 10.15(b) to the
15, 2000 in the original principal amount of $77,000,000 payable to Company's Annual
the order of Lehman Brothers Bank, FSB Report (file 33-47040)
on Form 10K filed
March 26, 2001
*12 Calculation of Earnings to Fixed Charges.
21 Subsidiaries of the Registrant Exhibit 21 to the
Company's Annual
Report (file
33-47040) on Form
10K filed
March 27, 2002.
</Table>
- ----------
* filed herewith
E-10