SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
Amendment No. 1
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002
COMMISSION FILE NOS. 33-47040; 333-11895; 333-45417
CINEMARK USA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 75-2206284
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
3900 DALLAS PARKWAY
SUITE 500
PLANO, TEXAS 75093
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (972) 665-1000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
As of May 15, 2002, 1,500 shares of Class A Common Stock and 185,657
shares of Class B Common Stock (including 3,009 shares of Class B Common Stock
exercisable within 60 days of such date) were outstanding.
CINEMARK USA, INC. AND SUBSIDIARIES
INDEX
<Table>
<Caption>
Page
----
Explanatory Note 3
Special Note Regarding Forward Looking Statements 3
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (restated)
as of March 31, 2002 (unaudited)
and December 31, 2001 4
Condensed Consolidated Statements of Operations
(unaudited) for the three month periods
ended March 31, 2002 (restated) and 2001 5
Condensed Consolidated Statements of Cash
Flows (unaudited) for the three month
periods ended March 31, 2002 (restated) and 2001 6
Notes to Condensed Consolidated Financial
Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 15
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 24
PART II OTHER INFORMATION
Item 1. Legal Proceedings 25
Item 2. Changes in Securities and Use of Proceeds 25
Item 3. Defaults Upon Senior Securities 25
Item 4. Submission of Matters to a Vote of Security Holders 25
Item 5. Other Information 25
Item 6. Exhibits and Reports on Form 8-K 25
SIGNATURES 29
</Table>
2
EXPLANATORY NOTE
This Amendment No. 1 on Form 10-Q/A amends and restates the quarterly
report on Form 10-Q for the quarterly period ended March 31, 2002, to reflect
the restatement of the Company's condensed consolidated balance sheet at
December 31, 2001, and financial statements for the quarter ended March 31,
2002, filed with the SEC on May 15, 2002, of Cinemark USA, Inc.
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
This Amendment No. 1 on Form 10 Q/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.
3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<Table>
<Caption>
March 31, December 31,
2002 2001
---------------- ----------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 59,437,502 $ 50,199,223
Inventories 3,433,246 3,322,032
Accounts receivable 10,886,318 11,049,648
Income tax receivable 7,890,977 1,438,794
Prepaid expenses and other 3,224,980 3,246,829
---------------- ----------------
Total current assets 84,873,023 69,256,526
THEATRE PROPERTIES AND EQUIPMENT 1,196,315,287 1,201,334,337
Less accumulated depreciation and amortization (349,849,591) (334,927,920)
---------------- ----------------
Theatre properties and equipment - net 846,465,696 866,406,417
OTHER ASSETS
Goodwill - net 11,240,945 15,124,954
Investments in and advances to affiliates 3,210,382 4,447,003
Deferred tax asset -- 3,716,206
Deferred charges and other - net 32,239,269 37,592,644
---------------- ----------------
Total other assets 46,690,596 60,880,807
---------------- ----------------
TOTAL $ 978,029,315 $ 996,543,750
================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
(As restated, see Note 12)
CURRENT LIABILITIES
Current portion of long-term debt $ 59,126,699 $ 21,853,742
Accounts payable and accrued expenses 92,064,347 117,501,526
---------------- ----------------
Total current liabilities 151,191,046 139,355,268
LONG-TERM LIABILITIES
Senior credit agreements 344,244,081 378,914,750
Senior subordinated notes 380,180,547 380,187,674
Deferred lease expenses 23,286,590 22,832,388
Deferred gain on sale leasebacks 4,647,060 4,738,540
Deferred income taxes 6,634,491 --
Deferred revenues and other long-term liabilities 8,877,575 9,824,212
---------------- ----------------
Total long-term liabilities 767,870,344 796,497,564
MINORITY INTERESTS IN SUBSIDIARIES 36,442,960 35,353,662
SHAREHOLDERS' EQUITY
Class A Common Stock, $.01 par value: 10,000,000 shares
authorized, 1,500 shares issued and outstanding 15 15
Class B Common Stock, no par value: 1,000,000 shares
authorized, 239,893 shares issued and outstanding 49,543,427 49,543,427
Additional paid-in-capital 15,097,709 15,097,709
Unearned compensation - stock options (3,948,724) (4,226,004)
Retained earnings 51,537,242 44,696,299
Treasury stock, 57,245 Class B shares at cost (24,232,890) (24,232,890)
Accumulated other comprehensive loss (65,471,814) (55,541,300)
---------------- ----------------
Total shareholders' equity 22,524,965 25,337,256
---------------- ----------------
TOTAL $ 978,029,315 $ 996,543,750
================ ================
</Table>
See Notes to Condensed Consolidated Financial Statements
4
CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<Table>
<Caption>
THREE MONTHS ENDED MARCH 31,
2002 2001
--------------- ---------------
(As restated,
see Note 12)
REVENUES
Admissions $ 146,411,564 $ 127,838,738
Concession 69,286,218 57,843,747
Other 11,004,324 10,387,587
--------------- ---------------
Total 226,702,106 196,070,072
COSTS AND EXPENSES
Cost of operations:
Film rentals and advertising 74,962,492 65,308,423
Concession supplies 11,981,820 10,272,880
Salaries and wages 22,550,434 21,478,604
Facility leases 29,149,610 28,791,406
Utilities and other 28,607,876 26,687,718
--------------- ---------------
Total cost of operations 167,252,232 152,539,031
General and administrative expenses 10,643,017 9,842,940
Depreciation and amortization 17,166,781 16,608,564
Asset impairment loss 558,398 450,000
Loss on sale of assets and other 539,192 110,914
--------------- ---------------
Total 196,159,620 179,551,449
OPERATING INCOME 30,542,486 16,518,623
OTHER INCOME (EXPENSE)
Interest expense (14,740,312) (19,262,230)
Amortization of debt issue cost and debt discount (634,795) (643,128)
Interest income 483,339 369,644
Foreign currency exchange loss (220,997) (1,152,129)
Equity in income (loss) of affiliates 116,741 (37,678)
Minority interests in (income) loss of subsidiaries (876,471) 119,890
--------------- ---------------
Total (15,872,495) (20,605,631)
--------------- ---------------
INCOME (LOSS) BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF AN ACCOUNTING CHANGE 14,669,991 (4,087,008)
Income taxes (benefit) 4,439,269 (1,424,490)
--------------- ---------------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT
OF AN ACCOUNTING CHANGE 10,230,722 (2,662,518)
Cumulative effect of a change in accounting principle, net of income tax
benefit of $0 (3,389,779) --
--------------- ---------------
NET INCOME (LOSS) $ 6,840,943 $ (2,662,518)
=============== ===============
EARNINGS (LOSS) PER SHARE:
Basic:
Income (loss) before accounting change $ 55.56 $ (14.87)
Cumulative effect of an accounting change (18.41) --
--------------- ---------------
Net income (loss) $ 37.15 $ (14.87)
=============== ===============
Diluted:
Income (loss) before accounting change $ 54.56 $ (14.87)
Cumulative effect of an accounting change (18.24) --
--------------- ---------------
Net income (loss) $ 36.32 $ (14.87)
=============== ===============
</Table>
See Notes to Condensed Consolidated Financial Statements
5
CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<Table>
<Caption>
THREE MONTHS ENDED MARCH 31,
2002 2001
--------------- ---------------
(As restated,
see Note 12)
OPERATING ACTIVITIES
Net income (loss) $ 6,840,943 $ (2,662,518)
Noncash items in net income (loss):
Depreciation 16,957,553 15,918,706
Amortization of goodwill and other assets 209,228 689,858
Amortization of foreign advanced rents 497,963 690,048
Amortized compensation - stock options 277,280 206,860
Amortization of gain on sale leasebacks (91,480) (91,481)
Amortization of debt discount and premium (7,127) (7,127)
Amortization of debt issue costs 591,170 599,503
Loss on impairment of assets 558,398 450,000
Loss on sale of assets and other 539,192 110,914
Deferred lease expenses 454,202 554,281
Deferred income tax expenses 10,350,697 (2,139,418)
Equity in (income) loss of affiliates (116,741) 37,678
Minority interests in income (loss) of subsidiaries 876,471 (119,890)
Cumulative effect of an accounting change 3,389,779 --
Changes in assets and liabilities:
Inventories (111,214) 287,591
Accounts receivable 163,330 (1,988,336)
Prepaid expenses and other 21,849 134,048
Other assets 3,990,846 3,001,396
Advances with affiliates 853,362 405,539
Accounts payable and accrued expenses (26,383,816) (37,280,920)
Income tax receivable/payable (6,452,183) (223,595)
--------------- ---------------
Net cash provided by (used for) operating activities 13,409,702 (21,426,863)
INVESTING ACTIVITIES
Additions to theatre properties and equipment (8,656,770) (6,604,114)
Sale of theatre properties and equipment 1,504,441 3,159,517
Dividends/capital returned from affiliates 500,000 --
--------------- ---------------
Net cash used for investing activities (6,652,329) (3,444,597)
FINANCING ACTIVITIES
Increase in long-term debt 17,772,828 34,192,808
Decrease in long-term debt (15,170,540) (2,220,484)
Increase in minority investment in subsidiaries 421,855 226,117
Decrease in minority investment in subsidiaries (209,028) (2,093,286)
--------------- ---------------
Net cash provided by financing activities 2,815,115 30,105,155
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS (334,209) (151,653)
--------------- ---------------
INCREASE IN CASH AND CASH EQUIVALENTS 9,238,279 5,082,042
CASH AND CASH EQUIVALENTS:
Beginning of period 50,199,223 19,839,994
--------------- ---------------
End of period $ 59,437,502 $ 24,922,036
=============== ===============
</Table>
See Notes to Condensed Consolidated Financial Statements
6
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. THE COMPANY AND BASIS OF PRESENTATION
Cinemark USA, Inc. and its subsidiaries (the "Company") is one of the
leaders in the motion picture exhibition industry and owns or leases and
operates motion picture theatres in 33 states, Canada, Mexico, Argentina,
Brazil, Chile, Ecuador, Peru, Honduras, El Salvador, Nicaragua, Costa Rica,
Colombia and the United Kingdom. The Company operates 3,014 screens in 278
theatres and manages an additional 7 theatres (58 screens) at March 31, 2002.
The condensed consolidated financial statements have been prepared by
the Company, without audit, according to the rules and regulations of the
Securities and Exchange Commission. In the opinion of management, these interim
financial statements reflect all adjustments (which, except for the cumulative
effect of an accounting change, include only normal recurring adjustments)
necessary to state fairly the financial position and results of operations as of
and for the periods indicated. The condensed consolidated financial statements
include the accounts of Cinemark USA, Inc. and its subsidiaries. Majority-owned
subsidiaries that the Company controls are consolidated while those subsidiaries
of which the Company owns between 20% and 50% and does not control are accounted
for as affiliates under the equity method. The results of these subsidiaries and
affiliates are included in the financial statements effective with their
formation or from their dates of acquisition. Significant intercompany balances
and transactions are eliminated in the consolidation. Certain reclassifications
have been made to March 31, 2001 and December 31, 2001 amounts to conform to the
March 31, 2002 presentation.
These financial statements should be read in conjunction with the
audited annual financial statements and the notes thereto for the year ended
December 31, 2001, included in the Annual Report filed March 27, 2002 on Form
10-K and the amended Annual Report filed June 28, 2002 on Form 10-K/A by the
Company under the Securities Exchange Act of 1934. Operating results for the
three month period ended March 31, 2002 are not necessarily indicative of the
results to be achieved for the full year.
2. EARNINGS (LOSS) PER SHARE
Earnings (loss) per share are computed using the weighted average
number of shares of Class A and Class B Common Stock outstanding during each
period. The following table sets forth the computation of basic and diluted
earnings (loss) per share.
<Table>
<Caption>
Three Months Ended
March 31,
---------------------------------
2002 2001
--------------- ---------------
Income (loss) before cumulative effect of an accounting change $ 10,230,722 $ (2,662,518)
=============== ===============
Basic:
Weighted average Common shares outstanding 184,148 179,037
=============== ===============
Income (loss) before cumulative effect of an accounting change per Common share $ 55.56 $ (14.87)
=============== ===============
Diluted:
Weighted average Common shares outstanding 184,148 179,037
Common equivalent shares for stock options 3,365 --
--------------- ---------------
Weighted average Common and Common equivalent shares outstanding 187,513 179,037
=============== ===============
Income (loss) before cumulative effect of an accounting change per Common and
Common equivalent share $ 54.56 $ (14.87)
=============== ===============
</Table>
7
Basic income (loss) per share is computed by dividing the income (loss)
by the weighted average number of shares of Common Stock of all classes
outstanding during the period. Diluted income (loss) per share is computed by
dividing the income (loss) by the weighted average number of shares of Common
Stock and potential issuable Common Stock using the treasury stock method. The
dilutive effect of the options to purchase Common Stock is excluded from the
computation of diluted income (loss) per share if their effect is antidilutive.
At March 31, 2001, 11,753 options to purchase Common Stock have been excluded
from the diluted income (loss) per share calculation as their effect would have
been antidilutive.
3. COMPREHENSIVE INCOME (LOSS)
Statement of Financial Accounting Standards (SFAS) No. 130 establishes
standards for reporting and display of comprehensive income (loss) and its
components in the financial statements. The following components are reflected
in the Company's comprehensive income (loss):
<Table>
<Caption>
Three Months Ended
March 31,
------------------------------
2002 2001
------------- -------------
Net income (loss) $ 6,840,943 $ (2,662,518)
Foreign currency translation adjustment (9,930,514) (3,063,383)
------------- -------------
Comprehensive loss $ (3,089,571) $ (5,725,901)
============= =============
</Table>
4. FOREIGN CURRENCY TRANSLATION
The accumulated other comprehensive loss in shareholders' equity of
$65,471,814 and $55,541,300 at March 31, 2002 and December 31, 2001,
respectively, primarily relates to the unrealized adjustments from translating
the financial statements of Cinemark Argentina, S.A., Cinemark Brasil, S.A.,
Cinemark Chile, S.A. and Cinemark de Mexico, S.A. de C.V. into U.S. dollars.
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. At March 31, 2002, the
floating rate was 3.0 pesos to the U.S. dollar. As a result, the effect of
translating the March 31, 2002 peso balances for assets and liabilities into
U.S. dollars is reflected as a cumulative foreign currency translation
adjustment to the accumulated other comprehensive loss account as an additional
reduction of shareholders' equity in the amount of $11.1 million at March 31,
2002. Income and expense accounts from January through March 2002 were converted
into U.S. dollars at the prevailing average floating rate for each of those
three months.
In 2001 and 2002, all foreign countries where the Company has
operations, including Argentina, were deemed non-highly inflationary. Thus, any
fluctuation in the currency results in the Company recording a cumulative
foreign currency translation adjustment to the accumulated other comprehensive
loss account as an increase or reduction to shareholders' equity.
8
5. SUPPLEMENTAL CASH FLOW INFORMATION
The following is provided as supplemental information to the condensed
consolidated statements of cash flows:
<Table>
<Caption>
Three Months Ended
March 31,
-----------------------------
2002 2001
------------- -------------
Cash paid for interest $ 23,270,639 $ 28,295,479
Cash paid for income taxes 764,884 796,030
</Table>
6. FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS
The Company operates in a single business segment as a motion picture
exhibitor. The Company is a multinational corporation with consolidated
operations in the United States, Canada, Mexico, Argentina, Brazil, Chile,
Ecuador, Peru, Honduras, El Salvador, Nicaragua, Costa Rica, Colombia and the
United Kingdom. Revenues in the United States and Canada, Mexico, Brazil and
other foreign countries for the three months ended March 31 are as follows:
<Table>
<Caption>
Three Months Ended
March 31,
--------------------------------
Revenues 2002 2001
-------------------------------- -------------- --------------
U.S. and Canada $ 169,061,159 $ 143,422,703
Mexico 22,051,762 16,750,662
Brazil 19,328,049 17,550,195
Other foreign countries 16,547,126 18,560,844
Eliminations (285,990) (214,332)
-------------- --------------
Total $ 226,702,106 $ 196,070,072
============== ==============
</Table>
Long-lived assets in the United States and Canada, Mexico, Brazil and
other foreign countries as of March 31 are as follows:
<Table>
<Caption>
March 31,
-------------------------------
Long-Lived Assets 2002 2001
-------------------------------- -------------- --------------
U.S. and Canada $ 656,610,712 $ 723,090,096
Mexico 77,439,104 70,836,242
Brazil 63,085,245 62,468,150
Other foreign countries 49,330,635 77,793,479
-------------- --------------
Total $ 846,465,696 $ 934,187,967
============== ==============
</Table>
7. ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company's condensed consolidated balance sheets as of March 31,
2002 and December 31, 2001 include an interest rate cap agreement recorded at
its fair value of $0.9 million and $1.1 million, respectively. This derivative
asset is recorded as a component of deferred charges and other on the Company's
condensed consolidated balance sheets. For the three month periods ended March
31, 2002 and 2001, a loss of $0.2 million and $0.7 million, respectively, has
been recorded as a component of interest expense in the condensed consolidated
statements of operations to recognize the decrease in the fair value of the
derivative asset.
9
8. ACCOUNTING FOR AMORTIZATION OF GOODWILL AND OTHER INTANGIBLE ASSETS
On January 1, 2002, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets".
This statement requires that goodwill and other intangible assets with
indefinite useful lives no longer be amortized, but instead be tested for
impairment at least annually.
The Company's goodwill at December 31, 2001 was as follows:
<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 adoption of this accounting pronouncement resulted in the aggregate
write down of goodwill to fair value as a cumulative effect of a change in
accounting principle on January 1, 2002 as follows:
<Table>
U.S. operations $ 27,226
Argentina operations 3,298,385
-----------
$ 3,325,611
===========
</Table>
The Company has recorded an additional impairment of goodwill in the
amount of $558,398 in the three month period ended March 31, 2002 (recorded as a
component of asset impairment loss in the condensed consolidated statement of
operations). The additional impairment of goodwill relates to a further
write-down of goodwill to fair value associated with the Company's Argentina
operations which continue to be impacted by the economic turmoil in the country.
Fair value for this goodwill reporting unit was estimated based on a multiple of
estimated cash flows for each of the individual Argentina properties. No
additional goodwill was acquired in the three month period ended March 31, 2002.
The Company's other intangible assets (included in deferred charges and
other on the Company's condensed consolidated balance sheet) at December 31,
2001 were as follows:
<Table>
<Caption>
Gross Carrying Accumulated Net Intangible
Other Intangible Assets Amount Amortization Asset Amount
-------------------------------- -------------- -------------- --------------
Capitalized licensing fees $ 9,000,000 $ (566,666) $ 8,433,334
Trademarks 147,919 (83,751) 64,168
Non-compete fee 72,403 (64,876) 7,527
Other intangible assets 40,406 (24,243) 16,163
-------------- -------------- --------------
$ 9,260,728 $ (739,536) $ 8,521,192
============== ============== ==============
</Table>
The adoption of this accounting pronouncement resulted in the aggregate
write down of other intangible assets with indefinite useful lives to fair value
as a cumulative effect of a change in accounting principle on January 1, 2002 as
follows:
<Table>
Trademarks $64,168
-------
$64,168
=======
</Table>
The Company's other intangible assets have indefinite useful lives
remaining but were not written down on January 1, 2002 since they are presently
recorded at or below their fair value. The Company's capitalized licensing fees
have a definite useful life and thus are continuing to be amortized over the
remaining useful life period. The Company's non-compete fee has a definite
useful life and thus is continuing to be amortized over the remaining useful
life period.
10
The Company's other intangible assets at March 31, 2002 are as follows:
<Table>
<Caption>
Gross Carrying Accumulated Net Intangible
Other Intangible Assets Amount Amortization Asset Amount
---------------------------------------------------- -------------- ------------- -------------
Amortized Intangible Assets:
Capitalized licensing fees $ 9,000,000 $ (691,666) $ 8,308,334
Non-compete fee 72,403 (68,103) 4,300
------------- ------------- -------------
$ 9,072,403 $ (759,769) $ 8,312,634
============= ============= =============
Unamortized Intangible Assets:
Trademarks $ 147,919 $ (147,919) $ --
Other intangible assets 40,406 (24,243) 16,163
------------- ------------- -------------
$ 188,325 $ (172,162) $ 16,163
============= ============= =============
Aggregate Amortization Expense:
For the three month period ended March 31, 2002 $ 209,228
=============
</Table>
Aggregate amortization expense for the three month period ended March
31, 2002 consists of $128,227 of amortization of other intangible assets and
$81,001 of amortization of other assets (both of which are included in deferred
charges and other on the Company's condensed consolidated balance sheet).
<Table>
Estimated Amortization Expense:
For the year ended December 31, 2002 $507,527
For the year ended December 31, 2003 500,000
For the year ended December 31, 2004 500,000
For the year ended December 31, 2005 500,000
For the year ended December 31, 2006 500,000
</Table>
The Company's non-compete fee will be fully amortized by December 31,
2002.
The impact on net income (loss) and earnings (loss) per share related
to the adoption of this accounting pronouncement is as follows:
<Table>
<Caption>
Three Months Ended
March 31,
-------------------------------
2002 2001
-------------- --------------
Reported net income (loss) $ 6,840,943 $ (2,662,518)
Add back: Cumulative effect of an accounting change 3,389,779 --
Add back: Goodwill amortization -- 359,046
Add back: Other intangible asset amortization -- 8,382
-------------- --------------
Adjusted net income (loss) $ 10,230,722 $ (2,295,090)
============== ==============
Basic earnings (loss) per share:
Reported net income (loss) $ 37.15 $ (14.87)
Add back: Cumulative effect of an accounting change 18.41 --
Add back: Goodwill amortization -- 2.01
Add back: Other intangible asset amortization -- .04
-------------- --------------
Adjusted net income (loss) $ 55.56 $ (12.82)
============== ==============
Diluted earnings (loss) per share:
Reported net income (loss) $ 36.32 $ (14.87)
Add back: Cumulative effect of an accounting change 18.24 --
Add back: Goodwill amortization -- 2.01
Add back: Other intangible asset amortization -- .04
-------------- --------------
Adjusted net income (loss) $ 54.56 $ (12.82)
============== ==============
</Table>
11
9. NEW ACCOUNTING PRONOUNCEMENTS
In August 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 143, "Accounting for
Asset Retirement Obligations". This statement requires the establishment of a
liability for an asset retirement obligation. This statement is effective for
financial statements issued for fiscal years beginning after June 15, 2002. The
Company is currently considering the impact, if any, that this statement will
have on the consolidated financial statements.
In October 2001, the Financial Accounting Standards Board issued SFAS
No. 144, "Accounting for the Impairment or Disposal of Long Lived Assets", which
supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
of Long-Lived Assets to be Disposed Of", and portions of APB No. 30, "Reporting
the Results of Operations - Reporting the Effects of Disposal of a Segment of
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions", and amends Accounting Research Bulletin No. 51, "Consolidated
Financial Statements". This statement generally conforms, among other things,
impairment accounting for assets to be disposed of including those in
discontinued operations and eliminates the exception to consolidation for which
control is likely to be temporary. This statement became effective for the
Company on January 1, 2002. The adoption of this statement did not have a
material effect on the consolidated financial statements.
In April 2002, the Financial Accounting Standards Board issued SFAS No.
145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections". This statement requires, among
other things, that gains and losses on the early extinguishment of debt be
classified as extraordinary only if they meet the criteria for extraordinary
treatment set forth in Accounting Principles Board Opinion No. 30. The
provisions of this statement related to classification of gains and losses on
the early extinguishment of debt are effective for fiscal years beginning after
May 15, 2002. The Company is currently considering the impact, if any, that this
statement will have on the consolidated financial statements.
10. RELATED PARTY TRANSACTIONS
During 2001, Cinemark Brasil, S.A. received additional capital from its
Brazilian shareholders in an aggregate amount equal to approximately $11.0
million (US dollar equivalent) in exchange for shares of common stock of
Cinemark Brasil, S.A. The contributions were made in July in the aggregate
amount of $5.0 million (US dollar equivalent) and in November in the aggregate
amount of $6.0 million (US dollar equivalent). The additional capital will be
used to fund development in Brazil and to reduce Cinemark Brasil, S.A.'s
outstanding indebtedness. After giving effect to the additional issuance of
common stock, Cinemark International's ownership interest was diluted to
approximately 53%. As part of the additional capitalization, the Company agreed
to give the Brazilian partners an option to exchange shares they own in Cinemark
Brasil, S.A. for shares of the class of the Company's common stock which is
registered in an initial public offering under the Securities Act of 1933, as
amended, occurring at any time prior to December 31, 2007. If the Brazilian
partners exercise their exchange option, the Company will obtain appraisals from
independent investment banks of the fair market value of the Company and of
Cinemark Brasil, S.A. The number of shares to be issued will be determined by
multiplying the number of shares of common stock owned by each Brazilian partner
by a fraction, the numerator of which is equal to the appraised value per share
of Cinemark Brasil, S.A. and the denominator of which is equal to the appraised
value per share of the Company's common stock.
11. 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.
12
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 this proceeding.
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.
On May 23, 2002, Robert Todd on behalf of Robert Preston Todd, his
minor child, and "all individuals who are deaf or are severely hearing impaired"
brought this case in the United States District Court for the Southern District
of Texas, Houston Division against several movie operators including, AMC
Entertainment, Inc., Regal Entertainment, Inc., the Company and Century Theaters
as well as eight movie production companies. The lawsuit alleges violation of
Title III of the ADA and the First Amendment to the Constitution of the United
States. Plaintiffs seek unspecified injunctive relief, unspecified declaratory
relief, unspecified monetary damages (both actual and punitive) and unspecified
attorneys' fees. The answer is not yet due. The Company plans to deny any
violation of law and to vigorously defend against all claims. 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.
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.
12. RESTATEMENT
Subsequent to the issuance of the Company's condensed consolidated
financial statements for the quarter ended March 31, 2002, 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
its Class A common stock and Staff Accounting Bulletin Topic 4.D., the Company
revised this fair value to $2,519 per share. As a result, the condensed
consolidated balance sheet at December 31, 2001 has been restated from amounts
previously reported to record additional unearned compensation of $3,338,225 at
that date. The unaudited condensed consolidated financial statements as of and
for the three months ended March 31, 2002 have been restated to record unearned
compensation of $3,948,724 as of March 31, 2002 and additional compensation
expense of $166,911 and a related income tax benefit of $65,680 for the three
months ended March 31, 2002.
13
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>
<Table>
<Caption>
As of and for the three
months ended March 31, 2002
---------------------------
As
Previously As
Reported Restated
---------- --------
Balance Sheet Data:
Deferred income taxes liability $ 6,700,171 $ 6,634,491
Additional paid-in capital 11,759,484 15,097,709
Unearned compensation - stock options (777,410) (3,948,724)
Statement of Operations Data:
Operating income $ 30,709,397 $ 30,542,486
Income taxes 4,504,949 4,439,269
Net income 6,942,174 6,840,943
Earnings per share - basic $ 37.70 $ 37.15
Earnings per share - diluted $ 37.37 $ 36.32
</Table>
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is an analysis of the financial condition and results of
operations of the Company. This analysis should be read in conjunction with the
Company's Condensed Consolidated Financial Statements, including the notes
thereto, appearing elsewhere in this report. As discussed in Note 12 to the
condensed consolidated financial statements as of and for the three months ended
March 31, 2002, the Company's management determined that it should revise the
fair value of employee stock options granted in December 2001 partly based on
the anticipated offering price per share of Class A Common Stock of the
Company's parent, Cinemark, Inc. The accompanying Management's Discussion and
Analysis has been revised to reflect the effects of this restatement.
OVERVIEW
The Company's revenues are generated primarily from box office
receipts, concession sales and screen advertising sales. Revenues are recognized
when admissions and concession sales are received at the box office and screen
advertising is shown at the theatres. The Company's revenues are affected by
changes in attendance and average admissions and concession revenues per patron.
Attendance is primarily affected by the commercial appeal of the films released
during the 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 condensed 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, judgments and assumptions that the Company believes are reasonable
based upon the information available. These estimates, judgments and assumptions
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the periods presented. The significant accounting policies which 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 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.
15
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 screenings 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.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the
percentage of total revenues represented by certain items reflected in the
Company's condensed consolidated statements of operations.
<Table>
<Caption>
% of Revenues
Three Months Ended
March 31,
-----------------------
2002 2001
--------- ---------
Revenues
Admissions 64.6% 65.2%
Concession 30.6 29.5
Other 4.8 5.3
--------- ---------
Total revenues 100.0 100.0
Cost of operations 73.8 77.8
General and administrative expenses 4.7 5.0
Depreciation and amortization 7.6 8.5
Asset impairment loss 0.2 0.2
Loss on sale of assets and other 0.2 0.1
--------- ---------
Total operating expenses 86.5 91.6
--------- ---------
Operating income 13.5 8.4
Interest expense (6.8) (10.1)
Income taxes (benefit) 2.0 (0.7)
Income (loss) before cumulative effect of an accounting change 4.5 (1.4)
Net income (loss) 3.0 (1.4)
</Table>
16
FIRST QUARTER ENDED MARCH 31, 2002 AND 2001
Revenues
Revenues for the first quarter ended March 31, 2002 increased to $226.7
million from $196.1 million for the first quarter ended March 31, 2001, a 15.6%
increase. The increase in revenues for the first quarter is primarily
attributable to a 14.7% increase in attendance and a 5.0% increase in concession
revenues per patron. Revenues per screen increased 12.8% to $75,492 in the first
quarter of 2002 from $66,952 in the first quarter of 2001.
Cost of Operations
Cost of operations, as a percentage of revenues, decreased to 73.8% in
the first quarter of 2002 from 77.8% in the first quarter of 2001. The decrease
as a percentage of revenues was primarily due to the 15.6% increase in revenues
and the Company's ability to effectively control its theatre operating costs
(many of which are of a fixed nature). The decrease as a percentage of revenues
resulted from a decrease in concession supplies as a percentage of concession
revenues to 17.3% in the first quarter of 2002 from 17.8% in the first quarter
of 2001 resulting from lower concession procurement costs and increased
concession volume rebates, a decrease in salaries and wages as a percentage of
total revenues to 9.9% in the first quarter of 2002 from 11.0% in the first
quarter of 2001, a decrease in facility lease expense as a percentage of total
revenues to 12.9% in the first quarter of 2002 from 14.7% in the first quarter
of 2001 and a decrease in utilities and other expenses as a percentage of
revenues to 12.6 % in the first quarter of 2002 from 13.6% in the first quarter
of 2001, partially offset by an increase in film rentals and advertising as a
percentage of admissions revenues to 51.2% in the first quarter of 2002 from
51.1% in the first quarter of 2001.
General and Administrative Expenses
General and administrative expenses, as a percentage of revenues,
decreased to 4.7% for the first quarter of 2002 from 5.0% for the first quarter
of 2001 primarily as a result of the 15.6% increase in revenues and the
Company's ability to effectively control its overhead costs. The absolute level
of general and administrative expenses increased to $10.6 million in the first
quarter of 2002 from $9.8 million in the first quarter of 2001. The increase in
the absolute level of general and administrative expenses is attributed to
increased accrued bonus expense.
Depreciation and Amortization
Depreciation and amortization as a percentage of revenues decreased to
7.6% for the first quarter of 2002 from 8.5% for the first quarter of 2001. The
decrease is primarily related to the 15.6% increase in revenues. The absolute
level of depreciation and amortization increased to $17.2 million in the first
quarter of 2002 from $16.6 million in the first quarter of 2001. The increase in
the absolute level of depreciation and amortization is primarily related to
depreciation on new additions and previously classified construction-in-progress
assets that have been placed in service.
Asset Impairment Loss
The Company recorded asset impairment charges of $0.6 million and $0.5
million in the first quarter of 2002 and 2001, respectively, pursuant to
Statement of Financial Accounting Standards No. 142 and No. 121, respectively,
related to assets held for use. The asset impairment charges recorded in the
first quarter of 2002 related to the write-down to fair value of goodwill
associated with the Company's Argentina operations. The asset impairment charges
recorded in the first quarter of 2001 related to the write-down to fair value of
properties associated with the Company's United States operations.
17
Interest Expense
Interest costs incurred, including amortization of debt issue cost and
debt discount, the mark-to-market adjustment to the interest rate cap agreement
and the capitalization of interest to properties under construction, decreased
22.6% in the first quarter of 2002 to $15.4 million from $19.9 million,
including the capitalization of interest, in the first quarter of 2001. The
decrease was due principally to a decrease in the average debt outstanding and
the average interest rates under the Company's long-term debt agreements.
Income Taxes (Benefit)
Income tax expense of $4.4 million was recorded for the first quarter
of 2002 as compared to an income tax benefit of $1.4 million in the first
quarter of 2001. The Company's effective tax rate for the first quarter of 2002
was 30.3% as compared to 34.9% for the first quarter of 2001. The change in the
effective tax rate is primarily due to the impact on the rate resulting from the
cumulative effect of the change in accounting principle offset by the effect of
the decrease in the tax rate for Cinemark de Mexico, S.A. de C.V.
Income (Loss) Before Cumulative Effect of an Accounting Change
The Company realized income before cumulative effect of an accounting
change of $10.2 million for the first quarter of 2002 in comparison with a loss
before cumulative effect of an accounting change of $2.7 million for the first
quarter of 2001. The increase in income in the first quarter of 2002 is
primarily related to the 15.6% increase in revenues and the decrease in interest
expense.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities
The Company's revenues are primarily collected in cash, through box
office receipts and concession sales. The Company is expanding the number of
theatres that provide the patron a choice of using a credit card, in place of
cash, which the Company converts to cash in approximately three to four days.
Because revenues are primarily received in cash prior to the payment of related
expenses, the Company has an operating "float" and, as a result, historically
has not required traditional working capital financing. Primarily due to the
lack of significant inventory and accounts receivable, the Company has typically
operated with a negative working capital position for its ongoing theatre
operations throughout the year.
Investing Activities
The Company's investing activities have been principally in connection
with the development and acquisition of additional theatres. New theatre
openings and acquisitions historically have been financed with internally
generated cash and by debt financing, including borrowings under the Company's
credit facility.
The Company continues to expand its U.S. theatre circuit. Since January
1, 2002, the Company has opened one new domestic theatre (4 screens) in Park
City, Utah which screens first run films and also acts as the home of the
Sundance Film Festival. As of March 31, 2002, the Company has one new theatre
(12 screens) and a five screen addition to an existing theatre scheduled to open
by the end of 2002 and has signed commitments for two new theatres (31 screens)
scheduled to open after 2002. As of March 31, 2002, the Company estimates that
the remaining capital expenditures for the development of its remaining theatre
and expansion commitments (48 screens) in the United States will be less than $5
million. Actual expenditures for theatre development and acquisitions are
subject to change based upon the availability of attractive opportunities for
expansion of the Company's theatre circuit. The Company plans to fund capital
expenditures for its continued development from cash flow from operations,
borrowings under the Credit Facility, proceeds from sale leaseback transactions
and/or
18
sales of excess real estate. As of March 31, 2002, the Company owned
approximately $275 million of real estate and improvements resulting from the
development of multiplex facilities over the last several years. Additionally,
the Company and/or its affiliates, may from time to time, subject to compliance
with the Company's debt instruments, purchase on the open market the Company's
debt securities depending upon the availability and prices of such securities.
The Company also continues to expand its international operations.
Since January 1, 2002, Cinemark International, through its subsidiaries, has
opened two new theatres (18 screens) and closed two screens at an existing
theatre. As of March 31, 2002, Cinemark International, through its subsidiaries,
has three new theatres (24 screens) under construction and scheduled to open in
international markets by the end of 2002. Although Cinemark International and
its subsidiaries are reviewing sites, there are no signed commitments to build
any theatres in international markets beyond 2002. Actual expenditures for
continued theatre development and acquisitions during 2002 and thereafter are
subject to change upon the availability of attractive opportunities for
expansion of the Company's international theatre circuit. The Company
anticipates that investments in excess of Cinemark International's available
cash will be funded by the Company or by debt or equity financing to be provided
by third parties directly to Cinemark International or its subsidiaries.
Financing Activities
As of March 31, 2002, the Company's long-term debt obligations, capital
lease obligations and future minimum lease obligations under non-cancelable
operating leases for each period indicated are summarized as follows:
PAYMENTS DUE BY PERIOD
<Table>
<Caption>
LESS THAN 1-3 4-5 AFTER
CONTRACTUAL OBLIGATIONS TOTAL 1 YEAR YEARS YEARS 5 YEARS
- ----------------------- -------- --------- ------ ------ --------
(IN MILLIONS)
Long-term debt........................ $ 783.6 $ 59.1 $248.0 $ 94.8 $ 381.7
Capital lease obligations............. 0.4 0.2 0.2 -- --
Operating lease obligations........... 1,541.7 103.1 210.0 210.0 1,018.6
</Table>
19
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.
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 31, 2002, the Company was
in full compliance with all agreements governing its 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 31, 2002, the aggregate
commitment available to the Company is $301.9 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 31,
2002, the Company had $263 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 31,
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.
20
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 31, 2002, $29 million is
outstanding under the Cinemark Mexico Credit Agreement and the effective
interest rate on such borrowing is 4.9% per annum.
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 31, 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.
21
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 31,
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.
22
NEW ACCOUNTING PRONOUNCEMENTS
In August 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 143, "Accounting for
Asset Retirement Obligations". This statement requires the establishment of a
liability for an asset retirement obligation. This statement is effective for
financial statements issued for fiscal years beginning after June 15, 2002. The
Company is currently considering the impact, if any, that this statement will
have on the consolidated financial statements.
In October 2001, the Financial Accounting Standards Board issued SFAS
No. 144, "Accounting for the Impairment or Disposal of Long Lived Assets", which
supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
of Long-Lived Assets to be Disposed Of", and portions of APB No. 30, "Reporting
the Results of Operations - Reporting the Effects of Disposal of a Segment of
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions", and amends Accounting Research Bulletin No. 51, "Consolidated
Financial Statements". This statement generally conforms, among other things,
impairment accounting for assets to be disposed of including those in
discontinued operations and eliminates the exception to consolidation for which
control is likely to be temporary. This statement became effective for the
Company on January 1, 2002. The adoption of this statement did not have a
material effect on the consolidated financial statements.
In April 2002, the Financial Accounting Standards Board issued SFAS No.
145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections". This statement requires, among
other things, that gains and losses on the early extinguishment of debt be
classified as extraordinary only if they meet the criteria for extraordinary
treatment set forth in Accounting Principles Board Opinion No. 30. The
provisions of this statement related to classification of gains and losses on
the early extinguishment of debt are effective for fiscal years beginning after
May 15, 2002. The Company is currently considering the impact, if any, that this
statement will have on the consolidated financial statements.
SEASONALITY
The Company's revenues have historically been seasonal, coinciding with
the timing of releases of motion pictures by the major distributors. Generally,
the most successful motion pictures have been released during the summer
extending from Memorial Day to Labor Day and during the holiday season extending
from Thanksgiving through year-end. The unexpected emergence of a hit film
during other periods can alter this seasonality trend. The timing of such film
releases can have a significant effect on the Company's results of operations,
and the results of one quarter are not necessarily indicative of results for the
next quarter or for the same period in the following year. 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.
23
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has exposure to financial market risks, including changes
in interest rates, foreign currency exchange rates and other relevant market
prices. The Company does not have any derivative financial instruments in place
as of March 31, 2002 that would have a material effect on the Company's
financial position, results of operations and cash flows.
An increase or decrease in interest rates would affect interest costs
relating to the Company's variable rate credit facilities. The Company and/or
its subsidiaries are currently parties to such variable rate credit facilities.
At March 31, 2002, there was an aggregate of approximately $403 million of
variable rate debt outstanding under these facilities. These facilities
represent approximately 51% of the Company's outstanding long-term debt. Changes
in interest rates do not have a direct impact on interest expense relating to
the remaining fixed rate debt facilities.
The table below provides information about the Company's fixed rate and
variable rate long-term debt agreements:
<Table>
<Caption>
Expected Maturity Date
As of March 31, 2002
------------------------------------------------------------------------------------------------------
March 31, March 31, March 31, March 31, March 31, Fair
(in millions) 2003 2004 2005 2006 2007 Thereafter Total Value
- ------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Long-term debt:
Fixed rate $ -- $ 0.1 $ -- $ 0.1 $ 0.1 $ 380.2 $ 380.5 $ 390.2
Average interest rate 9.3%
Variable rate $ 59.1 $ 156.2 $ 91.7 $ 92.2 $ 2.4 $ 1.5 $ 403.1 $ 400.4
Average interest rate 5.0%
Total debt $ 59.1 $ 156.3 $ 91.7 $ 92.3 $ 2.5 $ 381.7 $ 783.6 $ 790.6
</Table>
<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>
In December 2000, Cinema Properties, Inc., a wholly-owned subsidiary of
the Company, entered into the Cinema Properties Facility. Pursuant to the terms
of the Cinema Properties Facility, funds borrowed bear interest at a rate per
annum equal to LIBOR (as defined in the Cinema Properties Facility) plus 5.75%.
As part of the Cinema Properties Facility, in order to hedge against future
changes in interest rates, Cinema Properties, Inc. purchased from Lehman
Brothers Derivative Products Inc. an Interest Rate Cap Agreement with a notional
amount equal to $77 million with a five year term and a strike rate equal to the
excess of three month Libor over the strike price of 6.58%. Three month LIBOR as
of the date of closing was 6.58%. At March 31, 2002 and December 31, 2001, the
interest rate cap agreement is recorded at its fair value of $0.9 million and
$1.1 million, respectively. The Cinema Properties Facility provides the Company
with the unilateral ability to extend the maturity date two times for one year
each by paying extension fees of 1.5% and 3.0% of the outstanding borrowing,
respectively.
The Company is also exposed to market risk arising from changes in
foreign currency exchange rates as a result of the Company's 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 the Company's 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 the Company's
international subsidiaries as of March 31, 2002, holding everything else
constant, a 10% immediate unfavorable change in each of the foreign currency
exchange rates to which the Company is exposed would decrease the net fair value
of the Company's investments in the Company's international subsidiaries by
approximately $7 million.
24
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to Item 3 of the Company's Annual Report on Form 10-K
and the amended Annual Report on Form 10-K/A for the fiscal year ended December
31, 2001.
On May 23, 2002, Robert Todd, on behalf of Robert Preston Todd, his
minor child, and "all individuals who are deaf or are severely hearing impaired"
brought this case in the United States District Court for the Southern District
of Texas, Houston Division against several movie operators including, AMC
Entertainment, Inc., Regal Entertainment, Inc., the Company and Century Theaters
as well as eight movie production companies. The lawsuit alleges violation of
Title III of the ADA and the First Amendment to the Constitution of the United
States. Plaintiffs seek unspecified injunctive relief, unspecified declaratory
relief, unspecified monetary damages (both actual and punitive) and unspecified
attorneys' fees. The answer is not yet due. The Company plans to deny any
violation of law and to vigorously defend against all claims. 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.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There have not been any matters submitted to a vote of security holders
during the first three months of 2002 through the solicitation of proxies or
otherwise.
ITEM 5. OTHER INFORMATION
The Company intends that this report be governed by the "safe harbor"
provision of the Private Securities Litigation Reform Act of 1995 (the "PSLR
Act") with respect to statements that may be deemed to be forward-looking
statements under the PSLR Act. Such forward-looking statements may include, but
are not limited to, the Company and any of its subsidiaries' long-term theatre
strategy. Actual results could differ materially from those indicated by such
forward-looking statements due to a number of factors.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Supplemental schedules specified by the Senior Subordinated Notes
Indenture:
Condensed Consolidating Balance Sheets
(unaudited) as of March 31, 2002 (restated)
Condensed Consolidating Statements of
Operations (unaudited) for the three months
ended March 31, 2002 (restated)
Condensed Consolidating Statements of
Cash Flows (unaudited) for the three months
ended March 31, 2002 (restated)
b) Reports on Form 8-K
No reports have been filed by Registrant during the quarter
for which this report is filed.
25
CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF MARCH 31, 2002
(UNAUDITED)
<Table>
<Caption>
Restricted Unrestricted
Group Group Eliminations TOTAL
--------------- --------------- --------------- ---------------
(As restated,
see Note 12)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 28,109,333 $ 31,328,169 $ -- $ 59,437,502
Inventories 2,845,442 587,804 -- 3,433,246
Accounts receivable 5,615,743 6,459,196 (1,188,621) 10,886,318
Income tax receivable 5,650,745 2,240,232 -- 7,890,977
Prepaid expenses and other 2,905,043 1,444,937 (1,125,000) 3,224,980
--------------- --------------- --------------- ---------------
Total current assets 45,126,306 42,060,338 (2,313,621) 84,873,023
THEATRE PROPERTIES AND EQUIPMENT 955,982,483 240,332,804 -- 1,196,315,287
Less accumulated depreciation and amortization (298,957,930) (50,891,661) -- (349,849,591)
--------------- --------------- --------------- ---------------
Theatre properties and equipment - net 657,024,553 189,441,143 -- 846,465,696
OTHER ASSETS
Goodwill - net 7,897,512 3,343,433 -- 11,240,945
Investments in and advances to affiliates 169,348,272 1,531,173 (167,669,063) 3,210,382
Deferred tax asset -- -- -- --
Deferred charges and other - net 24,742,443 7,496,826 -- 32,239,269
--------------- --------------- --------------- ---------------
Total other assets 201,988,227 12,371,432 (167,669,063) 46,690,596
--------------- --------------- --------------- ---------------
TOTAL $ 904,139,086 $ 243,872,913 $ (169,982,684) $ 978,029,315
=============== =============== =============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 47,240,871 $ 11,885,828 $ -- $ 59,126,699
Current income taxes payable (102,097) 102,097 -- --
Accounts payable and accrued expenses 74,260,612 18,992,356 (1,188,621) 92,064,347
--------------- --------------- --------------- ---------------
Total current liabilities 121,399,386 30,980,281 (1,188,621) 151,191,046
LONG-TERM LIABILITIES
Senior credit agreements 251,743,364 92,500,717 -- 344,244,081
Senior subordinated debt 380,180,547 -- -- 380,180,547
Deferred lease expenses 22,848,337 438,253 -- 23,286,590
Deferred gain on sale leasebacks 4,647,060 -- -- 4,647,060
Deferred income taxes 5,919,177 715,314 -- 6,634,491
Deferred revenues and other long-term liabilities 8,077,158 1,925,417 (1,125,000) 8,877,575
--------------- --------------- --------------- ---------------
Total long-term liabilities 673,415,643 95,579,701 (1,125,000) 767,870,344
MINORITY INTERESTS IN SUBSIDIARIES 7,925,133 28,517,827 -- 36,442,960
SHAREHOLDERS' EQUITY
Class A Common Stock, $.01 par value: 10,000,000 shares
authorized, 1,500 shares issued and outstanding 15 -- -- 15
Class B Common Stock, no par value: 1,000,000 shares
authorized, 239,893 shares issued and outstanding 49,543,427 14,308,000 (14,308,000) 49,543,427
Additional paid-in-capital 15,097,709 153,361,063 (153,361,063) 15,097,709
Unearned compensation - stock options (3,948,724) -- -- (3,948,724)
Retained earnings 101,182,812 (49,645,570) -- 51,537,242
Treasury stock, 57,245 Class B shares at cost (24,232,890) -- -- (24,232,890)
Accumulated other comprehensive loss (36,243,425) (29,228,389) -- (65,471,814)
--------------- --------------- --------------- ---------------
Total shareholders' equity 101,398,924 88,795,104 (167,669,063) 22,524,965
--------------- --------------- --------------- ---------------
TOTAL $ 904,139,086 $ 243,872,913 $ (169,982,684) $ 978,029,315
=============== =============== =============== ===============
</Table>
Note: "Restricted Group" and "Unrestricted Group" are defined in the
Indenture for the Senior Subordinated Notes
26
CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2002
(UNAUDITED)
<Table>
<Caption>
Restricted Unrestricted
Group Group Eliminations TOTAL
-------------- -------------- -------------- --------------
(As restated,
see Note 12)
REVENUES $ 183,318,295 $ 46,412,371 $ (3,028,560) $ 226,702,106
COSTS AND EXPENSES
Cost of operations 134,847,485 35,433,307 (3,028,560) 167,252,232
General and administrative expenses 8,672,257 1,970,760 -- 10,643,017
Depreciation and amortization 13,248,226 3,918,555 -- 17,166,781
Asset impairment loss -- 558,398 -- 558,398
Loss on sale of assets and other 324,779 214,413 -- 539,192
-------------- -------------- -------------- --------------
Total 157,092,747 42,095,433 (3,028,560) 196,159,620
OPERATING INCOME 26,225,548 4,316,938 -- 30,542,486
OTHER INCOME (EXPENSE)
Interest expense (12,091,399) (2,648,913) -- (14,740,312)
Amortization of debt issue cost and debt discount (256,119) (378,676) -- (634,795)
Interest income 158,088 325,251 -- 483,339
Foreign currency exchange loss (60,922) (160,075) -- (220,997)
Equity in income of affiliates 1,587 115,154 -- 116,741
Minority interests in income of subsidiaries (441,703) (434,768) -- (876,471)
-------------- -------------- -------------- --------------
Total (12,690,468) (3,182,027) -- (15,872,495)
-------------- -------------- -------------- --------------
INCOME BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF AN ACCOUNTING CHANGE 13,535,080 1,134,911 -- 14,669,991
Income taxes 4,432,208 7,061 -- 4,439,269
-------------- -------------- -------------- --------------
INCOME BEFORE CUMULATIVE EFFECT
OF AN ACCOUNTING CHANGE 9,102,872 1,127,850 -- 10,230,722
Cumulative effect of a change in accounting principle,
net of income tax benefit of $0 (64,684) (3,325,095) -- (3,389,779)
-------------- -------------- -------------- --------------
NET INCOME (LOSS) $ 9,038,188 $ (2,197,245) $ -- $ 6,840,943
============== ============== ============== ==============
</Table>
Note: "Restricted Group" and "Unrestricted Group" are defined in the
Indenture for the Senior Subordinated Notes
27
CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2002
(UNAUDITED)
<Table>
<Caption>
Restricted Unrestricted
Group Group Eliminations TOTAL
-------------- -------------- -------------- --------------
(As restated,
see Note 12)
OPERATING ACTIVITIES
Net income (loss) $ 9,038,188 $ (2,197,245) $ -- $ 6,840,943
Noncash items in net income (loss):
Depreciation 13,078,041 3,879,512 -- 16,957,553
Amortization of other assets 170,185 39,043 -- 209,228
Amortization of foreign advanced rents 312,630 185,333 -- 497,963
Amortized compensation - stock options 277,280 -- -- 277,280
Amortization of gain on sale leasebacks (91,480) -- -- (91,480)
Amortization of debt discount and premium (7,127) -- -- (7,127)
Amortization of debt issue costs 212,494 378,676 -- 591,170
Loss on impairment of assets -- 558,398 -- 558,398
Loss on sale of assets and other 324,779 214,413 -- 539,192
Deferred lease expenses 461,912 (7,710) -- 454,202
Deferred income tax expenses 10,350,697 -- -- 10,350,697
Equity in income of affiliates (1,587) (115,154) -- (116,741)
Minority interests in income of subsidiaries 441,703 434,768 -- 876,471
Cumulative effect of an accounting change 64,684 3,325,095 -- 3,389,779
Change in assets and liabilities (26,235,902) (1,681,924) -- (27,917,826)
-------------- -------------- -------------- --------------
Net cash provided by operating activities 8,396,497 5,013,205 -- 13,409,702
INVESTING ACTIVITIES
Additions to theatre properties and equipment (5,447,665) (3,209,105) -- (8,656,770)
Sale of theatre properties and equipment 1,495,840 8,601 -- 1,504,441
Dividends/capital returned from affiliates -- 500,000 -- 500,000
-------------- -------------- -------------- --------------
Net cash used for investing activities (3,951,825) (2,700,504) -- (6,652,329)
FINANCING ACTIVITIES
Increase in long-term debt 17,505,311 267,517 -- 17,772,828
Decrease in long-term debt (12,550,521) (2,620,019) -- (15,170,540)
Increase in minority investment in subsidiaries -- 421,855 -- 421,855
Decrease in minority investment in subsidiaries (154,954) (54,074) -- (209,028)
-------------- -------------- -------------- --------------
Net cash provided by (used for) financing activities 4,799,836 (1,984,721) -- 2,815,115
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS (321,631) (12,578) -- (334,209)
-------------- -------------- -------------- --------------
INCREASE IN CASH AND CASH EQUIVALENTS 8,922,877 315,402 -- 9,238,279
CASH AND CASH EQUIVALENTS:
Beginning of period 19,186,456 31,012,767 -- 50,199,223
-------------- -------------- -------------- --------------
End of period $ 28,109,333 $ 31,328,169 $ -- $ 59,437,502
============== ============== ============== ==============
</Table>
Note: "Restricted Group" and "Unrestricted Group" are defined in the
Indenture for the Senior Subordinated Notes
28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunder duly authorized.
CINEMARK USA, INC.
Registrant
DATE: June 28, 2002
/s/ Alan W. Stock
--------------------------
Alan W. Stock
President
/s/ Robert Copple
--------------------------
Robert Copple
Chief Financial Officer
29