1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________.
Commission file number 33-77444 and 333-11895
CINEMARK USA, INC.
(Exact name of Registrant as specified in its charter)
Texas 75-2206284
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7502 Greenville Ave., Suite 800, LB-9, Dallas, Texas 75231
(Address of principal executive offices) (Zip Code)
(214) 696-1644
(Registrant's telephone number including area code)
-------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The Registrant became subject to the filing requirements of the Securities
Exchange Act of 1934 on June 10, 1992.
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
1,500 shares of Class A Common Stock as of August 4, 1997
183,114 shares of Class B Common Stock (including options to
acquire 6,412 shares of Class B Common Stock exercisable
within 60 days of such date) as of August 4, 1997
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CINEMARK USA, INC. AND SUBSIDIARIES
Index
Page
----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
as of June 30, 1997 (unaudited)
and December 31, 1996 3
Condensed Consolidated Statements of Income
(unaudited) for the three and six month
periods ended June 30, 1997 and 1996 4
Condensed Consolidated Statements of Cash
Flows (unaudited) for the six month
periods ended June 30, 1997 and 1996 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7
PART II OTHER INFORMATION
Item 5. Other Information 13
Item 6(b). Reports on Form 8-K 13
SIGNATURES 17
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
1997 1996
(Unaudited)
------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 10,751,236 $ 14,081,226
Temporary cash investments 308,408 301,408
Inventories 1,872,616 1,296,323
Tax and other receivables 14,904,766 11,270,453
------------- -------------
Total current assets 27,837,026 26,949,410
THEATRE PROPERTIES AND EQUIPMENT 513,903,736 450,842,912
Less accumulated depreciation and amortization (83,111,304) (73,421,992)
------------- -------------
Theatre properties and equipment - net 430,792,432 377,420,920
OTHER ASSETS:
Certificates of deposit 1,525,852 1,525,852
Investments in and advances to affiliates 15,339,131 6,049,992
Intangible assets - net 4,996,923 5,417,049
Deferred charges and other - net 19,479,810 15,542,244
------------- -------------
Total other assets 41,341,716 28,535,137
------------- -------------
TOTAL $ 499,971,174 $ 432,905,467
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,012,228 $ 1,002,313
Accounts payable and accrued expenses 53,469,438 58,969,423
------------- -------------
Total current liabilities 54,481,666 59,971,736
LONG-TERM LIABILITIES:
Revolving credit agreement 58,000,000 70,000,000
12% senior notes - Cinemark USA, Inc. 1,630,000
9.625% senior subordinated notes - Cinemark USA, Inc. 276,424,292 199,137,042
12% senior subordinated notes-Cinemark Mexico (USA), Inc. 26,821,300 25,710,900
Deferred lease expenses 12,335,172 11,580,629
Theatre development advance and other 786,634 845,357
Deferred income taxes 7,127,172 5,926,609
------------- -------------
Total long-term liabilities 381,494,570 314,830,537
MINORITY INTERESTS IN SUBSIDIARIES 1,464,821 740,582
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, 233,913 and 233,176 shares issued, respectively 49,537,447 49,536,710
Additional paid-in capital 10,256,177 9,182,880
Unearned compensation - stock options (2,427,578) (2,434,717)
Retained earnings 40,525,092 32,391,591
Treasury stock, 57,211 and 54,965 Class B shares
at cost, respectively (24,198,890) (20,184,416)
Cumulative foreign currency translation adjustment (11,162,146) (11,129,451)
------------- -------------
Total shareholders' equity 62,530,117 57,362,612
------------- -------------
TOTAL $ 499,971,174 $ 432,905,467
============= =============
See accompanying Notes to Condensed Consolidated Financial Statements.
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CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
1997 1996 1997 1996
---- ---- ---- ----
REVENUES:
Admissions $ 64,490,037 $52,185,186 $129,483,037 $97,408,274
Concessions 35,927,736 28,864,195 71,127,941 53,506,210
Other 2,373,173 3,528,586 5,162,212 7,389,162
----------------------------------------------------
Total 102,790,946 84,577,967 205,773,190 158,303,646
COSTS AND EXPENSES:
Cost of operations:
Film rentals 32,647,469 26,332,580 63,928,263 46,915,669
Concession supplies 4,763,868 4,701,716 10,184,728 9,023,970
Salaries and wages 13,894,764 11,454,376 26,883,216 21,263,603
Facility leases 9,258,389 7,939,896 18,402,135 15,943,730
Advertising 2,237,354 2,041,542 5,163,808 4,172,706
Utilities and other 14,638,679 12,203,697 28,833,964 22,960,389
----------------------------------------------------
Total 77,440,523 64,673,807 153,396,114 120,280,067
General and administrative expenses 8,122,813 7,143,666 13,267,302 11,399,523
Depreciation and amortization 4,965,311 4,316,541 10,281,827 8,671,525
----------------------------------------------------
Total 90,528,647 76,134,014 176,945,243 140,351,115
----------------------------------------------------
OPERATING INCOME 12,262,299 8,443,953 28,827,947 17,952,531
OTHER INCOME (EXPENSE):
Interest expense (7,157,227) (4,423,234) (14,381,692) (9,351,787)
Amortization of debt issue cost (174,509) (164,886) (349,018) (323,700)
Amortization of bond discount (18,625) (46,039) (37,250) (91,124)
Interest Income 241,842 140,315 504,231 307,799
Other gains and losses (6,757) 3,696,212 (1,972) 3,696,212
Foreign currency exchange gain (loss) (56,547) (34,466) (23,684) (48,840)
Minority interests in subsidiaries 41,928 (8,810) 68,167 46,578
Equity in income of affiliates 321,708 244,279 433,399 401,499
----------------------------------------------------
Total (6,808,187) (596,629) (13,787,819) (5,363,363)
----------------------------------------------------
INCOME BEFORE INCOME TAXES
AND EXTRAORDINARY ITEMS 5,454,112 7,847,324 15,040,128 12,589,168
INCOME TAXES 2,378,072 3,535,308 6,850,881 5,425,513
----------------------------------------------------
INCOME BEFORE EXTRAORDINARY ITEMS 3,076,040 4,312,016 8,189,247 7,163,655
EXTRAORDINARY ITEMS:
Loss on early extinguishments of debt, net of
income tax benefit of $42,054 and $273,834 (55,746) (55,746) (334,685)
----------------------------------------------------
NET INCOME $ 3,020,294 $ 4,312,016 $ 8,133,501 $6,828,970
====================================================
EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE:
Before extraordinary item $ 16.37 $ 22.92 $ 43.58 $40.06
====================================================
Net income $ 16.07 $ 22.92 $ 43.28 $38.19
====================================================
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING 187,935 188,125 187,934 178,820
====================================================
See accompanying Notes to Condensed Consolidated Financial Statements.
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CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30,
-------------------------
1997 1996
---- ----
OPERATIONS:
Net Income $ 8,133,501 $ 6,828,970
Loss on early extinguishments of debt 608,519
Noncash items in net income :
Depreciation 9,793,689 7,164,166
Amortization 837,156 1,922,183
Deferred lease expenses 754,543 702,915
Amortization of prepaid leases 234,614
Deferred income tax expense 1,200,563 669,152
Debt issued for accrued interest 1,110,400 34,871
Amortization of debt discount 37,250
Amortized compensation - stock options 1,080,436 622,958
Equity in income of affiliate (433,399) (401,499)
Minority interests (68,167) (46,578)
Cash from (used for) operating working capital:
Inventories (576,293) (377,476)
Tax and other receivables (3,634,313) (1,395,899)
Accounts payable and accrued expenses (5,499,679) 7,778,861
Income taxes payable (1,648,629)
------------ -----------
Net cash from operations 12,970,301 22,462,514
INVESTING ACTIVITIES:
Additions to theatre properties (63,167,173) (70,245,126)
Increase in temporary cash investments (7,000) (6,900)
Increase in deferred issue costs and other assets (4,589,210) (2,164,612)
Increase in advances to affiliates (8,855,740) (181,054)
------------ -----------
Net cash used for investing activities (76,619,123) (72,597,692)
FINANCING ACTIVITIES:
Issuance of Senior Subordinated Notes 77,250,000
Retirement of Senior Notes (1,630,000)
Decrease in long-term debt (77,016,048) (37,013,558)
Increase in long-term debt 65,365,000 43,500,000
Decrease in notes payable to related parties (2,086,513)
Net proceeds from common stock issuance 38,562,509
Increase in additional paid in capital 636,106
Purchase of treasury stock (4,013,737)
Minority investment in subsidiaries, net 792,407
Decrease in theatre development advance (396,095) (356,046)
------------ -----------
Net cash from financing activities 60,351,527 43,242,498
FOREIGN CURRENCY TRANSLATION ADJUSTMENT (32,695) 83,220
------------ -----------
DECREASE IN CASH AND CASH EQUIVALENTS (3,329,990) (6,809,460)
CASH AND CASH EQUIVALENTS:
Beginning of period 14,081,226 13,649,724
------------ -----------
End of period $ 10,751,236 $ 6,840,264
============ ============
SUPPLEMENTAL INFORMATION:
Cash paid for interest $ 12,945,289 $ 10,889,589
============ ============
Cash paid for income taxes $ 4,889,984 $ 6,175,887
============ ============
See accompanying Notes to Condensed Consolidated Financial Statements.
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CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. INTERIM FINANCIAL STATEMENTS
The accompanying condensed consolidated financial statements have
been prepared by the Company, without audit, according to the rules and
regulations of the Securities and Exchange Commission. In the opinion of
management, these interim financial statements reflect all adjustments (which
include only normal recurring adjustments) necessary to state fairly the
financial position and results of operations as of and for the periods
indicated.
These financial statements should be read in conjunction with the
audited annual financial statements and the notes thereto for the year ended
December 31, 1996 included in the Annual Report filed on Form 10-K by the
Company under the Securities Exchange Act of 1934 on March 31, 1997.
Operating results for the three and six months ended June 30, 1997 are
not necessarily indicative of the results to be achieved for the full year.
2. FAS 52 - HIGHLY INFLATIONARY ECONOMIES
Beginning in 1997, generally accepted accounting principles require
that the U.S. dollar be used as the functional currency of the Company's
Mexican subsidiary for U.S. reporting purposes. As a result, fluctuations in
the peso during 1997 affecting the Company's investment in Mexico will be
charged to exchange gain or loss rather than to the cumulative adjustment
account.
3. FAS 128 - EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share", which will be effective for the Company for the quarter and annual
period ended December 31, 1997. SFAS No. 128 requires expanded disclosure of
earnings per share, including presentation of basic and diluted earnings per
share computations for income from continuing operations. The Company's
computations of primary and fully diluted earnings per share under APB Opinion
No. 15 for the three and six months ended June 30, 1997 and 1996 approximate
the computation of diluted earnings per share under SFAS No. 128.
4. SENIOR SUBORDINATED NOTES
In June 1997, the Company issued $75 million of Senior Subordinated
Notes, substantially identical to the existing Senior Subordinated Notes, at a
premium of $30.00 per $1,000 principal amount.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
The following table presents certain income statement items as a
percentage of revenues.
% OF REVENUES
-----------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
-------- -------- -------- --------
Revenues:
Admissions 62.7 61.7 62.9 61.5
Concessions 35.0 34.1 34.6 33.8
Other 2.3 4.2 2.5 4.7
-------- -------- -------- --------
Total revenues 100.0 100.0 100.0 100.0
Cost of operations 75.3 76.5 74.5 76.0
General and administrative expenses 7.9 8.5 6.5 7.2
Depreciation and amortization 4.8 5.1 5.0 5.5
Operating income 11.9 10.0 14.0 11.4
Interest expense 7.2 5.5 7.2 6.2
Income before income taxes
and extraordinary items 5.3 9.3 7.3 8.0
Net income 2.9 5.1 3.9 4.3
REVENUES
Revenues for the quarter ended June 30, 1997 increased to $102.8 million
from $84.6 million for the quarter ended June 30, 1996, an 21.5% increase. The
Company generated revenues for the six months ended June 30, 1997 (the "1997
period") of $205.8 million compared to $158.3 million for the six months ended
June 30, 1996 (the "1996 period), a 30.0% increase. The increase in revenues
for the second quarter and the 1997 period is primarily attributable to a 18.2%
increase in attendance as the result of the net addition of 156 screens since
the second quarter of 1996 and strong industry performance during the first
quarter of 1997. Revenues were also positively affected by a combined increase
of 9.4% in admissions and concessions per patron. Revenues per average screen
increased 12.3% to $139,318 in the 1997 period from $124,062 in the 1996
period.
COST OF OPERATIONS
Cost of operations, as a percentage of revenues, decreased to 75.3% in the
second quarter of 1997 from 76.5% in the second quarter of 1996. The decrease
as a percentage of revenues resulted from decreases during the quarter in
concession supplies as a percentage of concession revenues to 13.3% in 1997
from 16.3% in 1996 and a decrease in facility leases as a percentage of
revenues to 9.0% in 1997 from 9.4% in 1996.
Cost of operations, as a percentage of revenues, decreased to 74.5% in the
1997 period from 76.0% in the 1996 period. The decrease as a percentage of
revenues resulted from a decrease in concession supplies as a percentage of
concession revenues to 14.3% in
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1997 from 16.9% in 1996 and a decrease in facility leases as a percentage of
revenues to 8.9% in 1997 from 10.1% in 1996. These decreases were partially
offset by an increase during the period in film rentals as a percentage of
admission revenues to 49.4% in 1997 from 48.2% in 1996.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses, as a percentage of revenues,
decreased to 7.9% in the second quarter of 1997 from 8.5% in the second quarter
of 1996. For the 1997 period, general and administrative costs decreased as a
percentage of revenues to 6.5% from 7.2% for the 1996 period. The absolute
level of general and administrative expenses increased to $8.1 million in the
second quarter of 1997 from $7.1 million in the second quarter of 1996 and to
$13.3 million for the 1997 period from $11.4 million for the 1996 period. The
decrease, as a percentage of revenues, is attributed to a larger revenue base
resulting from screen additions and a strong slate of films in the first
quarter. The increase in general and administrative expenses is attributed to
costs (primarily salaries and wages) associated with the Company's expansion
program and compensation costs associated with the repurchase of non-qualified
stock options.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased 15.0% to $5.0 million in the
second quarter of 1997 from $4.3 million in the second quarter of 1996. For the
1997 period, depreciation and amortization increased 18.6% to $10.3 million
from $8.7 million in 1996. The increase is a result of the net addition of
$143.2 million in theatre property and equipment since the second quarter of
1996, a 49.8% increase. The difference in the percentage increase in
depreciation and amortization compared to the increase in theatre property and
equipment is a result of the timing of when the additions were placed in
service during the period.
INTEREST EXPENSE
Interest costs incurred, including amortization of debt issue cost and
debt discount, increased 42.0% during the second quarter of 1997 to $7.8
million (including capitalized interest to properties under construction) from
$5.5 million in the second quarter of 1996 (including capitalized interest).
Interest costs for the 1997 period, including amortization of debt issue cost
and debt discount, increased 39.8% to $15.6 million (including capitalized
interest) from $11.1 million in the 1996 period. The increase in interest costs
incurred for the first quarter of 1997 was due principally to an increase in
average debt outstanding resulting from borrowings under the Company's Credit
Facility and Senior Subordinated Notes.
INCOME TAXES
Income taxes decreased to $2.4 million for the second quarter of 1997 from
$3.5 million in the second quarter of 1996 and increased to $6.9 million for
the 1997 period from $5.4 million in the 1996 period. The Company's effective
tax rate for the second quarter of 1997 was 43.6% compared to 45.1% for the
second quarter of 1996. The effective tax rate for the 1997 period increased to
45.6% from 43.1% in 1996. The change in the effective tax rate was primarily a
result of the relative level of goodwill
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amortization and foreign losses. The effective tax rates reflect the full
reserve of the potential tax benefit associated with the loss incurred by
Cinemark Mexico.
OTHER GAINS AND LOSSES
Other gains and losses for the second quarter of 1996 and the 1996 period
of $3.7 million is primarily attributable to a gain from the settlement of
litigation.
NET INCOME
Net income of $3.0 million for the second quarter of 1997 and net income
of $4.3 million for the second quarter of 1996 included the consolidated losses
of Cinemark International of $.5 million (net of minority interest). Net income
of $8.1 million for the 1997 period and $6.8 million for the 1996 period
includes the consolidated losses of Cinemark International of $1.2 million (net
of minority interest) and $1.1 million (net of minority interest),
respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company's revenues are collected in cash, primarily through box office
receipts and the sale of concession items. Because its revenues are received in
cash prior to the payment of related expenses, the Company has an operating
"float" and, as a result, historically has not required traditional working
capital financing.
The Company's theatres are typically equipped with modern projection and
sound equipment, with approximately 68% of the screens operated by the Company
having been built in the past six years. The Company's investing activities
have been principally in connection with new theatre openings and acquisitions
of existing theatres and theatre circuits. From January 1, 1997 to August 4,
1997, the Company opened in the U.S. six theatres (73 screens)and has 11
theatres (142 screens) under construction. In addition, as of August 4, 1997,
the Company has 26 theatres (285 screens) scheduled to begin construction
within the next year for scheduled completion by the end of 1998. Certain of
these theatres will be megaplexes which may cost in excess of $15 million per
theatre. The Company currently estimates that its capital expenditures for the
development of these 500 screens in the U.S. in 1997 and 1998 will be
approximately $325 million. As of August 4, 1997, the Company had expended
approximately $73.9 million toward the development of these screens. The
Company plans to fund capital expenditures for its development form cash flow
from operations and borrowings under the Credit Facility. Actual expenditures
for theatre development and acquisitions during 1997 and 1998 are subject to
change based upon the availability of attractive opportunities for expansion of
the Company's theatre circuit.
On August 15, 1996, the Company issued $200 million of Senior Subordinated
Notes due 2008 (the "Subordinated Notes"). The Subordinated Notes bear interest
at the rate of 9 5/8% per annum, payable semi-annually on February 1 and
August 1 of each year. The Subordinated 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 Subordinated Notes (net of
discount, fees and expenses) were approximately $193.2 million. The proceeds
from the Subordinated Notes were used to repurchase 98.7% of the Company's $125
million 12% Senior Notes due 2002 ("Senior Notes") pursuant to a tender offer
which expired on August 15, 1996. The Senior Notes were purchased at a premium
of
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the $1,098.33 (including a consent fee of $25) per $1,000 principal amount,
plus accrued and unpaid interest up to the date of repurchase. Excess proceeds
were utilized to reduce borrowings under the Company's Credit Facility and for
general corporate purposes.
On June 2, 1997 the Company redeemed the remaining outstanding Senior
Notes ($1.6 million). The Senior Notes were redeemed at a premium of $1,060 per
$1,000 principal amount, plus accrued and unpaid interest up to the date of
redemption.
On June 26, 1997, the Company issued $75 million of Senior Subordinated
Notes due 2008 ("New Subordinated Notes"). The New Subordinated Notes are
substantially identical in all material respects to the Subordinated Notes,
including rate of interest. The New Subordinated Notes were issued at 103.0% of
the principal face amount (a premium of $30.00 per $1,000 principal amount).
The Company used $70 million of the proceeds to reduce the Company's
indebtedness under the Credit Facility.
On December 12, 1996, the Company replaced its existing credit facility
with the new credit facility ("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 $225.0 million in the aggregate. The Credit Facility is a reducing
revolving credit facility at the end of each quarter during the calendar year
2000, 2001, 2002 and 2003, requiring reductions in the aggregate commitment in
the amount of $8,437,500, $11,250,000, $14,062,500 and $22,500,000,
respectively. The Company is required to prepay all loans outstanding in excess
of the aggregate commitment from time to time. The Credit Facility is secured
by a pledge of a a majority of the issued and outstanding capital stock of the
Company. Pursuant to the terms of the Credit Facility, funds borrowed currently
bear interest at a rate per annum equal to the Offshore Rate (as defined in the
Credit Facility) or the Base Rate (as defined in the Credit Facility, as the
case may be), plus the Applicable Margin (as defined in the Credit Facility).
As of August 4, 1997, the Company had borrowed $68 million under the Credit
Facility and the effective interest rate on such borrowings was 6.6% per annum.
In April 1997, the Company repurchased an aggregate of 1,242 additional
shares of Class B Common Stock issued to option holders upon the exercise of
options in April 1996. The aggregate purchase price for such shares was $2.2
million. In May and June 1997, options to acquire an aggregate of 737 shares of
Class B Common Stock were repurchased by the Company for an aggregate purchase
price of $1.3 million.
In 1992, the Company formed Cinemark International, Inc. (f/k/a Cinemark
II, Inc.) ("Cinemark International") to develop and acquire theatres in
international markets. All of the Company's operations outside of the United
States and Canada will be conducted through Cinemark International, an
unrestricted subsidiary under the Company's Indenture governing the Senior
Subordinated Notes, and its subsidiaries. As of August 4, 1997, the Company has
contributed $56.3 million to the capital of Cinemark International to fund
theatre development principally in Latin America. Cinemark International plans
to invest up to an additional $50 million in international ventures,
principally in Latin America, over the next two to three years. The Company
anticipates that investments in excess of Cinemark International's available
cash will be funded by the Company or by debt or equity financing to be
provided by third parties directly to Cinemark International or its
subsidiaries.
In 1993, the Company incorporated Cinemark de Mexico, S.A. de C.V.
("Cinemark de Mexico") as an indirect subsidiary of Cinemark International to
pursue new development
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opportunities in Mexico. At of August 4, 1997, Cinemark International and New
Wave Investments AVV, an unaffiliated Aruba corporation owned by Mexican
citizens ("New Wave"), own 95.6% (95.0% on a fully diluted basis, including the
exercise of outstanding warrants) and 4.4% (4.4% on a fully diluted basis,
including the exercise of outstanding warrants), respectively, of the common
stock of Cinemark Mexico. At of August 4, 1997, the Company operated twelve
theatres (129 screens) and had three theatres (31 screens) under commitment
with executed leases which will begin construction during the remainder of
1997. In 1993 and 1994, Cinemark Mexico, which is the direct parent of Cinemark
de Mexico, issued $22.4 million principal amount of 12% Senior Subordinated
Notes due 2003 with detachable warrants.
Cinemark International entered into a joint venture agreement in November
1992 with a Chilean theatre operator. Cinemark Chile, S.A. currently operates
two theatres (13 screens), and as of August 4, 1997, has one theatre (12
screens) under construction and plans to begin construction on two theatres (20
screens) during the remainder of 1997. In December 1995, Cinemark entered into
a joint venture agreement with Argentine theatre operators to develop
state-of-the-art multiplex theatres in Argentina. The joint venture's business
is conducted through Cinemark Argentina, S.A., which is owned by Cinemark
Argentina Holdings, S.A. Cinemark International owns 50% of Cinemark Argentina
Holdings, S.A. Cinemark Argentina opened its first theatre (8 screens) in May
1997 and plans to begin construction on two additional theatres (21 screens)
during 1997. In January 1997, Cinemark International and its Chilean partner
entered into a joint venture agreement to develop state-of-the-art multiplex
theatres in Peru. The joint venture conducts its business through Cinemark del
Peru, S.A., which is 50% owned by Cinemark International and 50% owned by
Cinemark's Chilean partner. Cinemark del Peru, S.A. opened its first theatre
(12 screens) in July 1997.
In 1996, Cinemark LTDA, a Brazilian company ("Cinemark Brazil"), was
organized as an indirect subsidiary of Cinemark International. Cinemark Brazil
will develop modern multiplex theatres in Brazil. Cinemark Brazil opened its
first theatre (12 screens) in June 1997. Additionally, Cinemark Brazil has
begun or expects to begin construction on six theatres (64 screens) during
1997.
In September 1996, Cinemark International entered into a joint venture
agreement with a prominent Ecuadorian company, 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. Cinemark Ecuador expects to open two theatres (16 screens)
during 1997.
In February 1997, Cinemark International entered into a joint venture
agreement with Shochiku Co., Ltd., a Japanese distributor, exhibitor and
producer of movies ("Shochiku") to develop state-of-the-art multiplex theatres
in Japan. The joint venture will conduct its business through Shochiku Cinemark
Theatres, which is 26.7% owned by Cinemark International, 26.7% owned by
Shochiku, and the remaining 46.6% owned by a consortium of prominent Japanese
companies. Shochiku Cinemark Theatres opened its first theatre (7 screens) in
March 1997.
Cinemark Mexico Exchange Offer
As of September 30, 1996, Cinemark Mexico had outstanding (I) $22.4
million aggregate principal amount of Cinemark Mexico Notes and (ii) warrants
to purchase 379,073
11
12
shares of common stock of the Company (the "Warrants"). On September 30, 1996,
Cinemark Mexico completed the Exchange Offer pursuant to which Cinemark Mexico
and the holders of all of the Cinemark Mexico Notes exchanged all of the
Cinemark Mexico Notes for a new issuance of the New Mexico Notes. The form and
terms of the New Mexico Notes are identical in all material respects to the
Cinemark Mexico Notes except that interest on the New Mexico Notes may, on each
interest payment date from February 1, 1997 through and including February 1,
2000, be paid at the option of Cinemark Mexico in cash or through the issuance
of additional notes of the same series (the "Additional Notes"). If the Company
elects to pay accrued interest in Additional Notes in lieu of cash, interest
during the relevant interest period shall accrue at the rate of 13% per annum.
Holders of Warrants to purchase 22,222 shares of Common Stock of Cinemark
Mexico elected not to participate in the Exchange Offer. The purpose of the
Exchange Offer was to exchange New Securities for all outstanding Cinemark
Mexico Notes in order to improve Cinemark Mexico's and Cinemark de Mexico's
financial and operating flexibility. The Company exercised its option to pay
Additional Notes for the interest periods ended February 1, 1997 and August 1,
1997.
In connection with the Exchange Offer, the Company obtained the consent of
the holders of the Cinemark Mexico Notes to amend the Indenture. The Company
executed that certain Third Supplemental Indenture dated September 30, 1996
(the "Third Supplemental Indenture") which, among other things, (i) provided
for the issuance of the New Mexico Notes and the Additional Notes and (ii)
amended certain restrictions relating to financial ratios with which the
Company must comply. The Indenture requires Cinemark Mexico to maintain a Cash
Flow Coverage Ratio (as defined in the Indenture) of 2.0 to 1.0 beginning after
December 31, 1999.
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13
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
Supplemental schedules specified by the Senior Notes indenture:
Condensed Consolidating Balance Sheet
(unaudited) as of June 30, 1997
Condensed Consolidating Statement of
Income (unaudited) for the six months
ended June 30, 1997
Condensed Consolidating Statement of
Cash Flow (unaudited) for the six months
ended June 30, 1997
ITEM 6(b) REPORTS ON FORM 8-K
No reports have been filed by Registrant during the
quarter for which this report is filed.
13
14
CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JUNE 30, 1997
(Unaudited)
Restricted Unrestricted
Subsidiaries Subsidiaries Eliminations TOTAL
------------ ------------ ------------ -----
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,764,838 $ 6,986,398 $ -- $ 10,751,236
Temporary cash investments 308,408 308,408
Inventories 1,541,295 331,321 1,872,616
Tax and other receivables 25,939,130 9,188,362 (20,222,726) 14,904,766
------------- ------------- ------------- -------------
Total current assets 31,245,263 16,814,489 (20,222,726) 27,837,026
THEATRE PROPERTIES AND EQUIPMENT 470,325,427 43,578,309 513,903,736
Less accumulated depreciation and amortization (80,136,887) (2,974,417) (83,111,304)
------------- ------------- ------------- -------------
Theatre properties and equipment - net 390,188,540 40,603,892 430,792,432
OTHER ASSETS:
Certificates of deposit 1,525,852 1,525,852
Investments in and advances to affiliates 21,206,273 13,850,341 (19,717,483) 15,339,131
Intangible assets - net 7,243,839 (2,246,916) 4,996,923
Deferred charges and other - net 14,666,032 6,236,946 (1,423,168) 19,479,810
------------- ------------- ------------- -------------
Total other assets 44,641,996 20,087,287 (23,387,567) 41,341,716
------------- ------------- ------------- -------------
TOTAL $ 466,075,799 $ 77,505,668 $ (43,610,293) $ 499,971,174
============= ============= ============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,012,228 $ -- $ -- $ 1,012,228
Accounts payable and accrued expenses 48,449,669 25,875,381 (20,855,612) 53,469,438
------------- ------------- ------------- -------------
Total current liabilities 49,461,897 25,875,381 (20,855,612) 54,481,666
LONG-TERM LIABILITIES:
Senior credit agreement 58,000,000 58,000,000
9.625% senior subordinated notes - Cinemark USA, Inc. 276,424,292 276,424,292
12% senior subordinated notes-Cinemark Mexico (USA), Inc. 26,821,300 26,821,300
Deferred lease expenses 11,839,945 495,227 12,335,172
Theatre development advance 786,634 786,634
Deferred income taxes 6,654,302 1,263,042 (790,172) 7,127,172
------------- ------------- ------------- -------------
Total long-term liabilities 353,705,173 28,579,569 (790,172) 381,494,570
MINORITY INTERESTS IN SUBSIDIARIES 378,612 1,086,209 1,464,821
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, 233,913 shares issued 49,537,447 1,000 (1,000) 49,537,447
Additional paid-in capital 10,256,177 38,264,208 (38,264,208) 10,256,177
Unearned compensation - stock options (2,427,578) (2,427,578)
Retained earnings (deficit) 40,525,092 (5,113,344) 5,113,344 40,525,092
Treasury stock, 57,211 Class B shares (24,198,890) (24,198,890)
Cumulative foreign currency translation adjustment (11,162,146) (11,187,355) 11,187,355 (11,162,146)
------------- ------------- ------------- -------------
Total shareholders' equity 62,530,117 21,964,509 (21,964,509) 62,530,117
------------- ------------- ------------- -------------
TOTAL $ 466,075,799 $ 77,505,668 $ (43,610,293) $ 499,971,174
============= ============= ============= =============
Note: "Restricted Subsidiaries" and "Unrestricted Subsidiaries" are defined in
the Indenture for the Senior Subordinated Notes dated August 15, 1996.
14
15
CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(Unaudited)
Restricted Unrestricted
Subsidiaries Subsidiaries Eliminations TOTAL
-------------- -------------- -------------- --------------
REVENUES:
Admissions $ 120,152,565 $ 9,330,472 $ -- $ 129,483,037
Concessions 66,308,159 4,819,782 71,127,941
Other 5,201,336 669,652 (708,776) 5,162,212
-------------- -------------- -------------- --------------
Total 191,662,060 14,819,906 (708,776) 205,773,190
COSTS AND EXPENSES:
Cost of operations:
Film rentals 59,745,250 4,183,013 63,928,263
Concession supplies 8,547,741 1,636,987 10,184,728
Salaries and wages 25,004,849 1,878,367 26,883,216
Facility leases 16,699,328 1,702,807 18,402,135
Advertising 4,817,344 346,464 5,163,808
Utilities and other 26,508,662 2,325,302 28,833,964
-------------- -------------- -------------- --------------
Total 141,323,174 12,072,940 153,396,114
General and administrative expenses 11,348,871 2,627,207 (708,776) 13,267,302
Depreciation and amortization 9,802,283 547,978 (68,434) 10,281,827
-------------- -------------- -------------- --------------
Total 162,474,328 15,248,125 (777,210) 176,945,243
-------------- -------------- -------------- --------------
OPERATING INCOME 29,187,732 (428,219) 68,434 28,827,947
OTHER INCOME (EXPENSE):
Interest expense (12,695,638) (1,686,054) (14,381,692)
Amortization of debt issue costs and debt discount (332,805) (53,463) (386,268)
Interest Income 112,967 391,264 504,231
Other gains (4,726) 2,754 (1,972)
Foreign currency exchange gain (23,574) (110) (23,684)
Minority interests (16,436) 84,603 68,167
Equity in income (loss) of affiliates (1,007,042) 333,399 1,107,042 433,399
-------------- -------------- -------------- --------------
Total (13,943,680) (951,071) 1,106,932 (13,787,819)
-------------- -------------- -------------- --------------
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM 15,244,052 (1,379,290) 1,175,366 15,040,128
INCOME TAXES 7,054,805 (203,924) 6,850,881
-------------- -------------- -------------- --------------
INCOME BEFORE EXTRAORDINARY ITEM 8,189,247 (1,175,366) 1,175,366 8,189,247
EXTRAORDINARY ITEM:
Loss on early extinguishment of debt, net of income tax
benefit of $42,054 (55,746) (55,746)
-------------- -------------- -------------- --------------
NET INCOME (LOSS) $ 8,133,501 ($ 1,175,366) $ 1,175,366 $ 8,133,501
============== ============== ============== ==============
Note: "Restricted Subsidiaries" and "Unrestricted Subsidiaries" are defined in
the Indenture for the Senior Suboridinated Notes dated August 15, 1996.
16
CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(Unaudited)
Restricted Unrestricted
Subsidiaries Subsidiaries Eliminations TOTAL
------------ ------------ ------------ -----
OPERATIONS:
Net income (loss) $ 8,133,501 $ (1,175,366) $ 1,175,366 $ 8,133,501
Noncash items in net income (loss):
Depreciation 9,246,927 546,762 9,793,689
Amortization 850,911 54,679 (68,434) 837,156
Deferred lease expenses 591,358 163,185 754,543
Amortization of prepaid leases 234,614 234,614
Deferred income tax (expense) benefit 37,880 1,162,683 1,200,563
Debt issued for accrued interest 1,110,400 1,110,400
Amortization of debt discount 37,250 37,250
Amortized compensation - stock option 1,080,436 1,080,436
Equity in income (loss) of affiliate 1,075,366 (333,399) (1,175,366) (433,399)
Minority interests 16,436 (84,603) (68,167)
Cash from (used for) operating working capital (21,718,900) 12,008,615 (9,710,285)
------------ ------------ ------------ ------------
Net cash from (used for) operations (648,835) 13,687,570 (68,434) 12,970,301
INVESTING ACTIVITIES:
Additions to theatre properties (48,887,839) (14,279,334) (63,167,173)
Increase in temporary cash investments (7,000) (7,000)
Decrease (increase) in deferred issue costs and other assets (1,906,608) (2,751,036) 68,434 (4,589,210)
Decrease (increase) in advances to affiliates (7,406,360) (8,699,380) 7,250,000 (8,855,740)
------------ ------------ ------------ ------------
Net cash used for investing activities (58,200,807) (25,736,750) 7,318,434 (76,619,123)
FINANCING ACTIVITIES:
Issuance of Senior Subordinated Notes 77,250,000 77,250,000
Retirement of Senior Notes (1,630,000) (1,630,000)
Decrease in long-term debt (77,016,048) (77,016,048)
Increase in long-term debt 65,365,000 65,365,000
Purchase of treasury stock (4,013,737) (4,013,737)
Minority investment in subsidiaries, net 792,407 792,407
Decrease in theatre development advance (396,095) (396,095)
Cinemark USA investment in Cinemark International 7,250,000 (7,250,000)
------------ ------------ ------------ ------------
Net cash from financing activities 59,559,120 8,042,407 (7,250,000) 60,351,527
FOREIGN CURRENCY TRANSLATION ADJUSTMENT (1,015) (31,680) (32,695)
------------ ------------ ------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 708,463 (4,038,453) (3,329,990)
CASH AND CASH EQUIVALENTS:
Beginning of period 3,056,375 11,024,851 14,081,226
------------ ------------ ------------ ------------
End of period $ 3,764,838 $ 6,986,398 $ 10,751,236
============ ============ ============ ============
SUPPLEMENTAL INFORMATION:
Cash paid for interest $ 12,513,941 $ 431,348 $ 12,945,289
============ ============ ============ ============
Cash paid for income taxes $ 4,889,984 $ 4,889,984
============ ============ ============ ============
Note: "Restricted Subsidiaries" and "Unrestricted Subsidiaries" are defined in
the Indenture for the Senior Suboridinated Notes dated August 15, 1996.
15
17
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: August 4, 1997
/s/ Jeffrey J. Stedman
---------------------------------------
Jeffrey J. Stedman
Vice President and
Chief Financial Officer
17
18
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
27 Financial Data Schedule