e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2010
Commission File Number: 001-33401
CINEMARK HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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20-5490327 |
(State or other jurisdiction
of incorporation or organization)
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(I.R.S. Employer
Identification No.) |
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3900 Dallas Parkway
Suite 500
Plano, Texas
(Address of principal executive offices)
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75093
(Zip Code) |
Registrants 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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).
Yes o No þ
As of October 31, 2010, 113,443,019 shares of common stock were issued and outstanding.
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
2
Cautionary Statement Regarding Forward-Looking Statements
Certain matters within this Quarterly Report on Form 10Q include forwardlooking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements included in this Form 10Q, other than
statements of historical fact, may constitute forward-looking statements. Forward-looking
statements can be identified 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. Forward-looking statements may involve known and
unknown risks, uncertainties and other factors that may cause the actual results or performance to
differ from those projected in the 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 our control and difficult to predict and could cause actual results to differ materially
from those expressed or forecasted in the forward-looking statements. For a description of the
risk factors, please review the Risk Factors section or other sections in the Companys Annual
Report on Form 10-K filed March 10, 2010 and quarterly reports on Form 10-Q, filed with the
Securities and Exchange Commission. All forward-looking statements are expressly qualified in their
entirety by such risk factors. We undertake no obligation, other than as required by law, to update
or revise any forward-looking statements, whether as a result of new information, future events or
otherwise.
3
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data, unaudited)
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September 30, |
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December 31, |
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2010 |
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2009 |
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Assets |
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Current assets |
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Cash and cash equivalents |
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$ |
430,467 |
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$ |
437,936 |
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Inventories |
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9,594 |
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9,854 |
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Accounts receivable |
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38,807 |
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33,110 |
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Income tax receivable |
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13,731 |
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13,025 |
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Current deferred tax asset |
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3,344 |
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3,321 |
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Prepaid expenses and other |
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11,013 |
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10,051 |
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Total current assets |
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506,956 |
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507,297 |
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Theatre properties and equipment |
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1,996,860 |
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1,936,535 |
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Less accumulated depreciation and amortization |
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807,669 |
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716,947 |
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Theatre properties and equipment net |
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1,189,191 |
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1,219,588 |
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Other assets |
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Goodwill |
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1,120,866 |
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1,116,302 |
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Intangible assets net |
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332,770 |
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342,998 |
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Investment in NCM |
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65,638 |
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34,232 |
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Investment in DCIP |
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9,875 |
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640 |
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Investment in Real D |
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15,994 |
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Investments in and advances to affiliates |
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2,918 |
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2,889 |
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Deferred charges and other assets net |
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68,103 |
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52,502 |
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Total other assets |
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1,616,164 |
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1,549,563 |
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Total assets |
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$ |
3,312,311 |
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$ |
3,276,448 |
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Liabilities and equity |
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Current liabilities |
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Current portion of long-term debt |
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$ |
10,836 |
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$ |
12,227 |
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Current portion of capital lease obligations |
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7,280 |
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7,340 |
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Current liability for uncertain tax positions |
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2,528 |
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13,229 |
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Accounts payable and accrued expenses |
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195,499 |
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248,036 |
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Total current liabilities |
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216,143 |
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280,832 |
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Long-term liabilities |
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Long-term debt, less current portion |
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1,524,293 |
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1,531,478 |
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Capital lease obligations, less current portion |
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129,991 |
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133,028 |
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Deferred tax liability |
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111,704 |
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124,823 |
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Liability for uncertain tax positions |
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17,322 |
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18,432 |
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Deferred lease expenses |
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30,530 |
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27,698 |
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Deferred revenue NCM |
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231,393 |
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203,006 |
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Other long-term liabilities |
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55,543 |
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42,523 |
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Total long-term liabilities |
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2,100,776 |
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2,080,988 |
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Commitments and contingencies (see Note 21) |
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Equity |
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Cinemark Holdings, Inc.s stockholders equity: |
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Common stock, $0.001 par value: 300,000,000 shares authorized,
116,797,378 shares issued and 113,437,519 shares outstanding at September 30, 2010; and
114,222,523 shares issued and 110,917,105 shares outstanding at December 31, 2009 |
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117 |
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114 |
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Additional paid-in-capital |
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1,031,673 |
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1,011,667 |
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Treasury stock, 3,359,859 and 3,305,418 shares, at cost, at September 30, 2010
and December 31, 2009, respectively |
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(44,725 |
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(43,895 |
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Retained deficit |
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(13,423 |
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(60,595 |
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Accumulated other comprehensive income (loss) |
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9,752 |
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(7,459 |
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Total Cinemark Holdings, Inc.s stockholders equity |
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983,394 |
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899,832 |
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Noncontrolling interests |
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11,998 |
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14,796 |
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Total equity |
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995,392 |
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914,628 |
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Total liabilities and equity |
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$ |
3,312,311 |
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$ |
3,276,448 |
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The accompanying notes are an integral part of the condensed consolidated financial statements.
4
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, unaudited)
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Three months ended September 30, |
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Nine months ended September 30, |
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2010 |
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2009 |
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2010 |
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2009 |
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Revenues |
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Admissions |
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$ |
367,662 |
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$ |
322,915 |
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$ |
1,063,737 |
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$ |
941,886 |
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Concession |
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170,130 |
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152,938 |
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488,464 |
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441,895 |
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Other |
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22,443 |
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20,972 |
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64,034 |
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56,352 |
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Total revenues |
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560,235 |
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496,825 |
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1,616,235 |
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1,440,133 |
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Cost of operations |
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Film rentals and advertising |
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200,495 |
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175,993 |
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582,864 |
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513,945 |
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Concession supplies |
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26,565 |
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23,485 |
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73,465 |
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67,229 |
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Salaries and wages |
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56,823 |
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52,675 |
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165,615 |
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149,095 |
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Facility lease expense |
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66,587 |
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61,545 |
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191,292 |
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176,478 |
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Utilities and other |
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64,310 |
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61,341 |
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177,179 |
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164,237 |
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General and administrative expenses |
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28,113 |
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23,517 |
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78,589 |
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68,980 |
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Depreciation and amortization |
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34,805 |
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38,207 |
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103,395 |
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111,875 |
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Amortization of favorable/unfavorable leases |
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179 |
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301 |
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595 |
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970 |
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Impairment of long-lived assets |
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1,022 |
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3,146 |
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6,057 |
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8,115 |
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Loss on sale of assets and other |
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7,548 |
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944 |
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11,906 |
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2,402 |
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Total cost of operations |
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486,447 |
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441,154 |
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1,390,957 |
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1,263,326 |
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Operating income |
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73,788 |
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55,671 |
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225,278 |
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176,807 |
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Other income (expense) |
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Interest expense |
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(28,938 |
) |
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(25,893 |
) |
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(83,553 |
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(77,006 |
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Interest income |
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1,807 |
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1,036 |
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4,240 |
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3,805 |
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Foreign currency exchange gain |
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|
682 |
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|
383 |
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|
762 |
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|
921 |
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Loss on early retirement of debt |
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(1,083 |
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(27,878 |
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Distributions from NCM |
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4,263 |
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4,162 |
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15,541 |
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15,768 |
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Equity in loss of affiliates |
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(1,842 |
) |
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(35 |
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(4,997 |
) |
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(1,055 |
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Total other expense |
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(24,028 |
) |
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(21,430 |
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(68,007 |
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(85,445 |
) |
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Income before income taxes |
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49,760 |
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34,241 |
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157,271 |
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91,362 |
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Income taxes |
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15,877 |
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|
12,186 |
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45,918 |
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31,149 |
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Net income |
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$ |
33,883 |
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$ |
22,055 |
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$ |
111,353 |
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$ |
60,213 |
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Less: Net income attributable to noncontrolling
interests |
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|
551 |
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|
1,044 |
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|
3,246 |
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|
2,967 |
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Net income attributable to Cinemark Holdings, Inc. |
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$ |
33,332 |
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$ |
21,011 |
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$ |
108,107 |
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$ |
57,246 |
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Weighted average shares outstanding |
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Basic |
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|
112,179 |
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|
108,549 |
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|
111,317 |
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108,499 |
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Diluted |
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112,516 |
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|
110,372 |
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111,764 |
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|
110,075 |
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Earnings per share attributable to Cinemark Holdings, Inc.s common
stockholders |
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Basic |
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$ |
0.29 |
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$ |
0.19 |
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$ |
0.96 |
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$ |
0.52 |
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Diluted |
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$ |
0.29 |
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|
$ |
0.19 |
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|
$ |
0.96 |
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|
$ |
0.52 |
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Dividends declared per common share |
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$ |
0.18 |
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$ |
0.18 |
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$ |
0.54 |
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$ |
0.54 |
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|
The accompanying notes are an integral part of the condensed consolidated financial statements.
5
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)
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Nine months ended September 30, |
|
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|
2010 |
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|
2009 |
|
Operating activities |
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|
|
|
|
|
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|
Net income |
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$ |
111,353 |
|
|
$ |
60,213 |
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|
Adjustments to reconcile net income to cash provided by operating activities: |
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Depreciation |
|
|
100,246 |
|
|
|
108,782 |
|
Amortization of intangible and other assets and unfavorable leases |
|
|
3,744 |
|
|
|
4,063 |
|
Amortization of long-term prepaid rents |
|
|
1,247 |
|
|
|
1,074 |
|
Amortization of debt issue costs |
|
|
3,533 |
|
|
|
3,583 |
|
Amortization of deferred revenues, deferred lease incentives and other |
|
|
(4,844 |
) |
|
|
(3,479 |
) |
Amortization of accumulated other comprehensive loss related to interest rate
swap agreement |
|
|
3,475 |
|
|
|
3,475 |
|
Amortization of bond discount |
|
|
578 |
|
|
|
180 |
|
Impairment of long-lived assets |
|
|
6,057 |
|
|
|
8,115 |
|
Share based awards compensation expense |
|
|
5,179 |
|
|
|
3,419 |
|
Loss on sale of assets and other |
|
|
9,873 |
|
|
|
2,402 |
|
Loss on contribution and sale of digital projection systems to DCIP |
|
|
2,033 |
|
|
|
|
|
Write-off of unamortized debt issue costs related to early retirement of debt |
|
|
|
|
|
|
6,337 |
|
Accretion of interest on senior discount notes |
|
|
|
|
|
|
8,085 |
|
Deferred lease expenses |
|
|
2,776 |
|
|
|
3,189 |
|
Deferred income tax expenses |
|
|
(13,005 |
) |
|
|
(13,694 |
) |
Equity in loss of affiliates |
|
|
4,997 |
|
|
|
1,055 |
|
Interest paid on repurchased senior discount notes |
|
|
|
|
|
|
(158,349 |
) |
Tax benefit related to stock option exercises |
|
|
1,904 |
|
|
|
|
|
Increase in deferred revenue related to new U.S. beverage agreement |
|
|
|
|
|
|
6,550 |
|
Distributions from equity investees |
|
|
3,292 |
|
|
|
1,725 |
|
Changes in assets and liabilities |
|
|
(88,563 |
) |
|
|
(16,054 |
) |
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
153,875 |
|
|
|
30,671 |
|
|
|
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
|
|
|
Additions to theatre properties and equipment |
|
|
(88,256 |
) |
|
|
(85,603 |
) |
Proceeds from sale of theatre properties and equipment |
|
|
3,994 |
|
|
|
721 |
|
Acquisition of theatres in the U.S. |
|
|
|
|
|
|
(48,950 |
) |
Acquisition of theatres in Brazil |
|
|
|
|
|
|
(9,061 |
) |
Investment in joint venture DCIP, net of cash distributions |
|
|
(1,510 |
) |
|
|
(2,500 |
) |
|
|
|
|
|
|
|
Net cash used for investing activities |
|
|
(85,772 |
) |
|
|
(145,393 |
) |
|
|
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
|
|
Proceeds from stock option exercises |
|
|
5,559 |
|
|
|
372 |
|
Payroll taxes paid as a result of noncash stock option exercises and restricted stock withholdings |
|
|
(416 |
) |
|
|
|
|
Dividends paid to stockholders |
|
|
(60,671 |
) |
|
|
(58,949 |
) |
Repurchase of senior discount notes |
|
|
|
|
|
|
(261,054 |
) |
Proceeds from issuance of senior notes |
|
|
|
|
|
|
458,532 |
|
Payment of debt issue costs |
|
|
(8,849 |
) |
|
|
(12,601 |
) |
Repayments of long-term debt |
|
|
(9,144 |
) |
|
|
(9,436 |
) |
Payments on capital leases |
|
|
(5,422 |
) |
|
|
(4,410 |
) |
Other |
|
|
(387 |
) |
|
|
(874 |
) |
|
|
|
|
|
|
|
Net cash provided by (used for)
financing activities |
|
|
(79,330 |
) |
|
|
111,580 |
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
3,758 |
|
|
|
12,642 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
|
|
(7,469 |
) |
|
|
9,500 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
Beginning of period |
|
|
437,936 |
|
|
|
349,603 |
|
|
|
|
|
|
|
|
End of period |
|
$ |
430,467 |
|
|
$ |
359,103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental information (See Note 17)
The accompanying notes are an integral part of the condensed consolidated financial statements.
6
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
1. The Company and Basis of Presentation
Cinemark Holdings, Inc. and subsidiaries (the Company) is a leader in the motion picture
exhibition industry, with theatres in the United States (U.S.), Canada, Brazil, Mexico, Chile,
Colombia, Argentina, Ecuador, Peru, Honduras, El Salvador, Nicaragua, Costa Rica, Panama and
Guatemala. The Company also managed additional theatres in the U.S., Brazil, and Colombia during
the nine months ended September 30, 2010.
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 of a recurring
nature necessary to state fairly the financial position and results of operations as of, and for,
the periods indicated. Majority-owned subsidiaries that the Company has control of are consolidated
while those affiliates of which the Company owns between 20% and 50% and does not control are
accounted for under the equity method. Those affiliates of which the Company owns less than 20% are
generally accounted for under the cost method, unless the Company is deemed to have the ability to
exercise significant influence over the affiliate, in which case the Company would account for its
investment under the equity method. The results of these subsidiaries and affiliates are included
in the condensed consolidated financial statements effective with their formation or from their
dates of acquisition. Intercompany balances and transactions are eliminated in consolidation.
These condensed consolidated financial statements should be read in conjunction with the
audited annual consolidated financial statements and the notes thereto for the year ended December
31, 2009, included in the Annual Report on Form 10-K filed March 10, 2010 by the Company under the
Securities Exchange Act of 1934, as amended (the Exchange Act). Operating results for the nine
months ended September 30, 2010 are not necessarily indicative of the results to be achieved for
the full year.
2. New Accounting Pronouncements
In December 2009, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU) No. 2009-17, Consolidations (Topic 810) Improvements to Financial
Reporting by Enterprises Involved with Variable Interest
Entities (ASU No. 2009-17). ASU No.
2009-17 changes how a reporting entity determines when an entity that is insufficiently capitalized
or is not controlled through voting (or similar rights) should be consolidated. The determination
of whether a reporting entity is required to consolidate another entity is based on, among other
things, the other entitys purpose and design and the reporting entitys ability to direct the
activities of the other entity that most significantly impact the other entitys economic
performance. ASU No. 2009-17 requires a reporting entity to provide additional disclosures about
its involvement with variable interest entities and any significant changes in risk exposure due to
that involvement. A reporting entity is required to disclose how its involvement with a variable
interest entity affects the reporting entitys financial statements. ASU No. 2009-17 is effective
for fiscal years beginning after November 15, 2009, and interim periods within those fiscal years.
The Company adopted ASU No. 2009-17 as of January 1, 2010, and its application had no impact on the
Companys condensed consolidated financial statements.
In January 2010, the FASB issued ASU No. 2010-06, Fair Value Measurements and Disclosures:
Improving Disclosures about Fair Value Measurements (ASU No. 2010-06), which amends FASB ASC
Topic 820-10, Fair Value Measurements and Disclosures. The update requires additional disclosures
for transfers in and out of Levels 1 and 2 and for activity in Level 3 and clarifies certain other
existing disclosure requirements. The Company adopted ASU No. 2010-06 beginning January 1, 2010.
This update did not have a significant impact on the Companys disclosures.
In August 2010, the FASB issued ASU No. 2010-21, Accounting for Technical Amendments to
Various SEC Rules and Schedules (ASU No. 2010-21). This update amends various SEC paragraphs in
the FASB Accounting Standards Codification pursuant to SEC Final Rule, Technical Amendments to
Rules Forms, Schedules and Codification of Financial Reporting Policies. The adoption of ASU No.
2010-21 did not affect the Companys condensed consolidated financial statements.
In August 2010, the FASB issued ASU No. 2010-22, Accounting for Various Topics (ASU No.
2010-22), which amends various SEC paragraphs based on external comments received and the issuance
of SAB 112. SAB 112 was issued to bring existing SEC guidance into conformity with ASC Topic 805,
Business Combination and ASC
7
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
Topic 810 Consolidation. The adoption of ASU No. 2010-22 did not affect the Companys condensed
consolidated financial statements.
3. Earnings Per Share
The Company considers its unvested share based payment awards, which contain non-forfeitable rights
to dividends, participating securities, and includes such participating securities in its
computation of earnings per share pursuant to the two-class method. Basic earnings per share for
the two classes of stock (common stock and unvested restricted stock) is calculated by dividing net
income by the weighted average number of shares of common stock and unvested restricted stock
outstanding during the reporting period. Diluted earnings per share is calculated using the
weighted average number of shares of common stock and unvested restricted stock plus the
potentially dilutive effect of common equivalent shares outstanding determined under both the two
class method and the treasury stock method. For the three and nine months ended September 30, 2009,
basic and diluted earnings per share were the same under both the two class method and the treasury
stock method. For the three months ended September 30, 2010, basic and diluted earnings per share
was $0.29 under the two class method compared to $0.30 under the treasury stock method. For the
nine months ended September 30, 2010, basic earnings per share was $0.96 under the two class method
compared to $0.97 under the treasury stock method. For the nine months ended September 30, 2010,
diluted earnings per share was the same under the two class method and the treasury stock method.
The following table presents computations of basic and diluted earnings per share under the
two class method:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
September 30, |
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Cinemark Holdings, Inc. |
|
$ |
33,332 |
|
|
$ |
21,011 |
|
|
$ |
108,107 |
|
|
$ |
57,246 |
|
Earnings allocated to participating share-based awards (1) |
|
|
(368 |
) |
|
|
(142 |
) |
|
|
(979 |
) |
|
|
(318 |
) |
|
|
|
Net income attributable to common stockholders |
|
$ |
32,964 |
|
|
$ |
20,869 |
|
|
$ |
107,128 |
|
|
$ |
56,928 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator (shares in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average common stock outstanding |
|
|
112,179 |
|
|
|
108,549 |
|
|
|
111,317 |
|
|
|
108,499 |
|
Common equivalent shares for stock options |
|
|
182 |
|
|
|
1,770 |
|
|
|
236 |
|
|
|
1,515 |
|
Common equivalent shares for restricted stock units |
|
|
155 |
|
|
|
53 |
|
|
|
211 |
|
|
|
61 |
|
|
|
|
Diluted |
|
|
112,516 |
|
|
|
110,372 |
|
|
|
111,764 |
|
|
|
110,075 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share attributable to common stockholders |
|
$ |
0.29 |
|
|
$ |
0.19 |
|
|
$ |
0.96 |
|
|
$ |
0.52 |
|
|
|
|
Diluted earnings per share attributable to common stockholders |
|
$ |
0.29 |
|
|
$ |
0.19 |
|
|
$ |
0.96 |
|
|
$ |
0.52 |
|
|
|
|
|
|
|
(1) |
|
For the three months ended September 30, 2010 and 2009, a weighted average of
approximately 1,251 and 767 shares of unvested restricted stock, respectively, are considered
participating securities. For the nine months ended September 30, 2010 and 2009, a weighted
average of approximately 1,017 and 606 shares of unvested restricted stock, respectively, are
considered participating securities. |
4. Buyout of Colombia Noncontrolling Interest
During April 2010, the Companys partners in Colombia (the Colombian Partners) exercised an
option available to them under an Exchange Option Agreement dated April 9, 2007 between the Company
and the Colombian Partners (the Exchange Option Agreement). Under this option, which was
contingent upon completion of an initial public offering of common stock by the Company, the
Colombian Partners were entitled to exchange their shares in Cinemark Colombia S.A. for shares of
the Companys common stock (the Colombia Share Exchange). The number of shares to be exchanged
was determined based on the Companys equity value and the equity value of the Colombian Partners
interest in Cinemark Colombia S.A., both of which are defined in the Exchange Option
Agreement. As a result of the Colombia Share Exchange, on June 14, 2010, the Company issued
1,112,723 shares of its common stock to the Colombian Partners. The increase in the Companys
ownership interest in its Colombian subsidiary was accounted for as an equity transaction. The
Company recorded an increase in additional-paid-in-capital of approximately $6,951, which
represented the book value of the Colombian partners noncontrolling interest account of
approximately $5,865 plus the Colombian partners share of accumulated other comprehensive loss of
approximately $1,086. As a result of this transaction, the Company owns 100% of the shares in
Cinemark Colombia S.A.
8
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
5. Equity
Below is a summary of changes in stockholders equity attributable to Cinemark Holdings, Inc.,
noncontrolling interests and total equity for the nine months ended September 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cinemark |
|
|
|
|
|
|
|
|
|
Holdings, Inc. |
|
|
|
|
|
|
|
|
|
Stockholders |
|
|
Noncontrolling |
|
|
Total |
|
|
|
Equity |
|
|
Interests |
|
|
Equity |
|
Balance at January 1, 2010 |
|
$ |
899,832 |
|
|
$ |
14,796 |
|
|
$ |
914,628 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Colombia Share Exchange (see Note 4) |
|
|
5,865 |
|
|
|
(5,865 |
) |
|
|
|
|
Share based awards compensation expense |
|
|
5,179 |
|
|
|
|
|
|
|
5,179 |
|
Stock repurchases related to restricted stock that vested during the nine months ended September
30, 2010 |
|
|
(299 |
) |
|
|
|
|
|
|
(299 |
) |
Exercise of stock options, net of stock withholdings |
|
|
5,442 |
|
|
|
|
|
|
|
5,442 |
|
Tax benefit related to stock option exercises |
|
|
1,904 |
|
|
|
|
|
|
|
1,904 |
|
Dividends paid to stockholders (1) |
|
|
(60,671 |
) |
|
|
|
|
|
|
(60,671 |
) |
Dividends accrued on unvested restricted stock unit awards (1) |
|
|
(264 |
) |
|
|
|
|
|
|
(264 |
) |
Dividends paid to noncontrolling interests |
|
|
|
|
|
|
(387 |
) |
|
|
(387 |
) |
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
108,107 |
|
|
|
3,246 |
|
|
|
111,353 |
|
Fair value adjustments on interest rate swap
agreements, net of taxes of $137 |
|
|
(226 |
) |
|
|
|
|
|
|
(226 |
) |
Amortization of accumulated other comprehensive loss
on terminated swap agreement |
|
|
3,475 |
|
|
|
|
|
|
|
3,475 |
|
Fair value adjustments on available-for-sale securities |
|
|
1,356 |
|
|
|
|
|
|
|
1,356 |
|
Foreign currency translation adjustment |
|
|
13,694 |
|
|
|
208 |
|
|
|
13,902 |
|
|
|
|
Balance at September 30, 2010 |
|
|
983,394 |
|
|
|
11,998 |
|
|
|
995,392 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cinemark |
|
|
|
|
|
|
|
|
|
Holdings, Inc. |
|
|
|
|
|
|
|
|
|
Stockholders |
|
|
Noncontrolling |
|
|
Total |
|
|
|
Equity |
|
|
Interests |
|
|
Equity |
|
Balance at January 1, 2009 |
|
$ |
811,256 |
|
|
$ |
12,971 |
|
|
$ |
824,227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share based awards compensation expense |
|
|
3,419 |
|
|
|
|
|
|
|
3,419 |
|
Exercise of stock options |
|
|
372 |
|
|
|
|
|
|
|
372 |
|
Dividends paid to stockholders (2) |
|
|
(58,949 |
) |
|
|
|
|
|
|
(58,949 |
) |
Dividends accrued on unvested restricted stock unit awards (2) |
|
|
(142 |
) |
|
|
|
|
|
|
(142 |
) |
Dividends paid to noncontrolling interests |
|
|
|
|
|
|
(780 |
) |
|
|
(780 |
) |
Purchase of noncontrolling interest share of an Argentina subsidiary |
|
|
23 |
|
|
|
(117 |
) |
|
|
(94 |
) |
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
57,246 |
|
|
|
2,967 |
|
|
|
60,213 |
|
Fair value adjustments on interest rate swap agreements,
net of taxes of $1,672 |
|
|
2,762 |
|
|
|
|
|
|
|
2,762 |
|
Amortization of accumulated other comprehensive loss on terminated swap agreement |
|
|
3,475 |
|
|
|
|
|
|
|
3,475 |
|
Foreign currency translation adjustment |
|
|
47,148 |
|
|
|
1,061 |
|
|
|
48,209 |
|
|
|
|
Balance at September 30, 2009 |
|
$ |
866,610 |
|
|
$ |
16,102 |
|
|
$ |
882,712 |
|
|
|
|
|
|
|
(1) |
|
On February 25, 2010, the Companys board of directors declared a cash dividend
for the fourth quarter of 2009 in the amount of $0.18 per
share of common stock payable to stockholders of record on March 5, 2010. The dividend was paid
on March 19, 2010 in the total amount of approximately $20,046. On May 13, 2010, the Companys
board of directors declared a cash dividend for the first quarter of 2010 in the amount of $0.18
per share of common stock payable to stockholders of record on June 4, 2010. The dividend was
paid on June 18, 2010 in the total amount of approximately $20,209. On July 29, 2010, the
Companys board of directors declared a cash dividend for the second quarter of 2010 in the
amount of $0.18 per share of common stock payable to stockholders of record on August 17, 2010.
The dividend was paid on September 1, 2010 in the total amount of approximately $20,416. |
|
(2) |
|
On February 13, 2009, the Companys board of directors declared a cash dividend for
the fourth quarter of 2008 in the amount of $0.18 per share of common stock payable to
stockholders of record on March 5, 2009. The dividend was paid on March 20, 2009 in the total
amount of approximately $19,595. On May 13, 2009, the Companys board of directors declared a
cash dividend for the first quarter of 2009 in the amount of $0.18 per share of common stock
payable to stockholders of record on June 2, 2009. The dividend was paid on June 18, 2009 in
the total amount of approximately $19,674. On July 29, 2009, the Companys board of directors
declared a cash dividend for the second quarter of 2009 in the amount of $0.18 per share of
common stock payable to stockholders of record on August 17, 2009. The dividend was paid on
September 1, 2009 in the total amount of approximately $19,680. |
9
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
6. Acquisition of U.S. Theatres
On March 18, 2009, the Company acquired four theatres with 82 screens from Muvico
Entertainment L.L.C. in an asset purchase for $48,950 in cash. The acquisition resulted in an
expansion of the Companys U.S. theatre base, as three of the theatres are located in Florida and
one theatre is located in Maryland. The Company incurred approximately $113 in transaction costs,
which are reflected in general and administrative expenses on the condensed consolidated statement
of income for the nine months ended September 30, 2009.
The transaction was accounted for by applying the acquisition method. The following table
represents the identifiable assets acquired and liabilities assumed that have been recognized by
the Company in its condensed consolidated balance sheet as of the date of acquisition:
|
|
|
|
|
Theatre properties and equipment |
|
$ |
25,575 |
|
Brandname |
|
|
3,500 |
|
Noncompete agreement |
|
|
1,630 |
|
Goodwill |
|
|
44,565 |
|
Unfavorable lease |
|
|
(3,600 |
) |
Capital lease liability (for one theatre) |
|
|
(22,720 |
) |
|
|
|
|
Total |
|
$ |
48,950 |
|
|
|
|
|
The brandname and noncompete agreement are presented as intangible assets and the unfavorable
lease is presented as other long-term liabilities on the Companys condensed consolidated balance
sheets. The weighted average remaining amortization period for these intangible assets and the
unfavorable lease are 8.1 years and 8.5 years, respectively. Goodwill represents excess of the
costs of acquiring these theatres over amounts assigned to assets acquired, including intangible
assets, and liabilities assumed. The goodwill recorded is fully deductible for tax purposes.
7. Investment in National CineMedia
Below is a summary of activity with NCM included in the Companys condensed consolidated
financial statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment |
|
|
Deferred |
|
|
Distributions |
|
|
Equity |
|
|
Other |
|
|
Cash |
|
|
|
in NCM |
|
|
Revenue |
|
|
from NCM |
|
|
Earnings |
|
|
Revenue |
|
|
Received |
|
Balance as of December 31, 2009 |
|
$ |
34,232 |
|
|
$ |
(203,006 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receipt of common units due to annual
common unit adjustment |
|
|
30,683 |
|
|
|
(30,683 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Change of interest gain due to 2010
extraordinary common unit adjustment |
|
|
271 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues earned under exhibitor
services agreement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,666 |
) |
|
|
3,666 |
|
Receipt of excess cash distributions |
|
|
(2,686 |
) |
|
|
|
|
|
|
(12,474 |
) |
|
|
|
|
|
|
|
|
|
|
15,160 |
|
Receipt under tax receivable agreement |
|
|
(477 |
) |
|
|
|
|
|
|
(3,067 |
) |
|
|
|
|
|
|
|
|
|
|
3,544 |
|
Equity in earnings |
|
|
3,615 |
|
|
|
|
|
|
|
|
|
|
|
(3,615 |
) |
|
|
|
|
|
|
|
|
Amortization of deferred revenue |
|
|
|
|
|
|
2,296 |
|
|
|
|
|
|
|
|
|
|
|
(2,296 |
) |
|
|
|
|
|
|
|
Balance as of and for the period
ended September 30, 2010 |
|
$ |
65,638 |
|
|
$ |
(231,393 |
) |
|
$ |
(15,541 |
) |
|
$ |
(3,615 |
) |
|
$ |
(5,962 |
) |
|
$ |
22,370 |
|
|
|
|
During March 2010, NCM performed its annual common unit adjustment calculation under the
Common Unit Adjustment Agreement. As a result of the calculation, the Company received an
additional 1,757,548 common units of NCM, each of which is convertible into one share of NCM, Inc.
common stock. The Company recorded the additional common units received at fair value as an
investment with a corresponding adjustment to deferred revenue of $30,683. The common unit
adjustment resulted in a change in the Companys ownership percentage in NCM from approximately
15.0% to 16.3%. Subsequent to the annual common unit adjustment discussed above, in May 2010, one
of NCMs other founding members completed an acquisition of another theatre circuit that required
an extraordinary common unit adjustment calculation by NCM in accordance with the Common Unit
Adjustment Agreement. As a
10
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
result of this extraordinary common unit adjustment, the founding member was granted additional
common units of NCM, which resulted in dilution of the Companys ownership interest in NCM from
16.3% to 15.4%. The Company recognized a change of interest gain of approximately $271 during the
nine months ended September 30, 2010 as a result of this extraordinary common unit adjustment,
which is reflected net of other losses in loss on sale of assets and other on the condensed
consolidated statement of income.
As of September 30, 2010, the Company owned a total of 16,946,503 common units of NCM. The
Company continues to account for its investment in NCM under the equity method of accounting.
During the nine months ended September 30, 2010 and September 30, 2009, the Company recorded equity
earnings of approximately $3,615 and $1,387, respectively.
Pursuant to the terms of the Exhibitor Services Agreement, the Company recorded other
revenues, excluding the amortization of deferred revenue, of approximately $3,666 and $4,336 during
the nine months ended September 30, 2010 and 2009, respectively. These amounts include the per
patron and per digital advertising screen theatre access fee and theatre rental revenue, net of
amounts due to NCM for on-screen advertising time provided to the Companys beverage concessionaire
of $7,806 and $7,168, respectively.
Below is summary financial information for NCM for the three and nine months ended September
30, 2010:
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Nine Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
September 30, 2010 |
|
|
September 30, 2010 |
|
Gross revenues |
|
$ |
125,717 |
|
|
$ |
309,373 |
|
Operating income |
|
$ |
67,081 |
|
|
$ |
136,791 |
|
Net earnings |
|
$ |
52,530 |
|
|
$ |
92,723 |
|
8. Investment in Digital Cinema Implementation Partners
On February 12, 2007, the Company, AMC Entertainment Inc. and Regal Entertainment Group
entered into a joint venture known as Digital Cinema Implementation Partners LLC (DCIP) to
facilitate the implementation of digital cinema in the Companys theatres and to establish
agreements with major motion picture studios for the financing of digital cinema.
During January 2010, the Company contributed $500 to DCIP. On March 10, 2010, the Company
signed a master equipment lease agreement and other related agreements (collectively the
agreements) with Kasima LLC (Kasima), which is an indirect subsidiary of DCIP and a related
party to the Company. Upon signing the agreements, the Company contributed cash of $1,201 and
digital projection systems at a fair value of $16,380 to DCIP (collectively the contributions),
which DCIP then contributed to Kasima. The net book value of the contributed equipment was
approximately $18,090, and as a result, the Company recorded a loss of approximately $1,710, which
is reflected in loss on sale of assets and other on the condensed consolidated statement of income
for the nine months ended September 30, 2010. On April 24, 2010, the Company sold digital
projection systems with a net book value of
approximately $1,520 to Kasima for approximately $1,197, resulting in an additional loss of
approximately $323, which is reflected in loss on sale of assets and other on the condensed
consolidated statement of income for the nine months ended September 30, 2010. The Company has made
subsequent cash capital contributions of $866 and received distributions of $1,068 from DCIP since
the date of the agreements. As of September 30, 2010, the Company continues to have a 33% voting
interest in DCIP and has a 24.3% economic interest in DCIP.
The Company has a variable interest in Kasima through the terms of its master equipment lease
agreement; however, the Company has determined that it is not the primary beneficiary of Kasima,
as the Company does not have the ability to direct the activities of Kasima that most significantly
impact Kasimas economic performance. The Company accounts for its investment in DCIP and its
subsidiaries under the equity method of accounting. During the nine months ended September 30, 2010
and 2009, the Company recorded equity losses of $8,644 and $2,508, respectively, relating to this
investment. Below is a summary of activity with DCIP for the nine months ended September 30, 2010:
11
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
|
|
|
|
|
|
|
Investment in |
|
|
|
DCIP |
|
Balance as of December 31, 2009 |
|
$ |
640 |
|
Cash contributions to DCIP |
|
|
2,567 |
|
Equipment contributions to DCIP, at fair value |
|
|
16,380 |
|
Distributions received from DCIP |
|
|
(1,068 |
) |
Equity in losses |
|
|
(8,644 |
) |
|
|
|
|
Balance as of September 30, 2010 |
|
$ |
9,875 |
|
|
|
|
|
As a result of these agreements, the Company will continue to roll out digital projection
systems to a majority of its first run U.S. theatres. The digital projection systems will be leased
from Kasima under an operating lease with an initial term of twelve years that contains ten
one-year fair value renewal options. The equipment lease agreement also contains a fair value
purchase option. Under the equipment lease agreement, the Company pays minimum annual rent of one
thousand dollars per digital projection system for the first six and a half years from the
effective date of the agreement and minimum annual rent of three thousand dollars per digital
projection system beginning at six and a half years from the effective date through the end of the
lease term. The Company may also be subject to various types of other rent if such digital
projection systems do not meet minimum performance requirements as outlined in the agreements.
Certain of the other rent payments are subject to either a monthly or an annual maximum. As of
September 30, 2010, the Company had 998 digital projection systems being leased under the master
equipment lease agreement with Kasima. The Company recorded equipment lease expense of
approximately $434 and $685 during the three and nine months ended September 30, 2010,
respectively, which is included in utilities and other costs on the condensed consolidated
statement of income.
The digital projection systems leased from Kasima will replace a majority of the Companys
existing 35 millimeter projection systems in its U.S. theatres. Therefore, upon signing the
agreements, the Company began accelerating the depreciation of these existing 35 millimeter
projection systems, based on the estimated two year replacement timeframe. The Company recorded
depreciation expense of approximately $5,981 on its domestic 35 millimeter projectors during the
nine months ended September 30, 2010. The net book value of the existing 35 millimeter projection
systems to be replaced was approximately $13,391 as of September 30, 2010.
9. Investment in Real D
Under its license agreement with Real D, the Company earns options to purchase shares of
common stock once it has installed a certain number of 3-D systems as outlined in the license
agreement. During June 2010, the Company reached the first target level and vested in 407,593
options to purchase shares of common stock in Real D, which have an exercise price of $0.00667
(Real D Options). Upon vesting in these options, the Company recorded an investment in Real D of
approximately $6,521, which represents the estimated fair value of the options, with an offset to
deferred lease incentive liability. The fair value of the options was determined using Real Ds
initial public offering price, which falls under Level 2 of the U.S. GAAP fair value hierarchy as
defined by ASC Topic 820-10-35. The
deferred lease incentive liability, which is reflected in other long-term liabilities on the
condensed consolidated balance sheet as of September 30, 2010, is being amortized over the
remaining term of the license agreement, which is approximately seven and one-half years.
During September 2010, the Company vested in an additional 499,708 Real D options by reaching
the second target level and a pro-rata portion of the third target level, as outlined in the
license agreement. Upon vesting in these additional 499,708 options, the Company increased its
investment in Real D and its deferred lease incentive by approximately $8,117, which represented
the estimated fair value of the Real D options. The fair value measurements were based upon Real
Ds closing stock prices on the dates of vesting, discounted to reflect the impact of the lock-up
period to which the Company is subject until January 2011. The discount applied was based on the
volatility of closing stock prices for Real Ds peer group for a similar duration as the remaining
lock-up period. These fair value measurements fall under Level 2 of the U.S. GAAP fair value
hierarchy as defined by ASC Topic 820-10-35.
Prior to the completion of Real Ds initial public offering, the Company accounted for its
investment in Real D as a cost method investment. Subsequent to the completion of Real Ds initial
public offering, which occurred during July 2010, the Company is accounting for its investment in
Real D as a marketable security. The Company has determined that its Real D options are available
for sale securities in accordance with ASC Topic 320-10-35-1,
12
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
therefore unrealized holding gains and losses are reported as a component of accumulated other
comprehensive income (loss) until realized.
As of September 30, 2010, the Company had vested in a total of 907,301 Real D options, with an
estimated fair value of $15,994. The fair value of the Real D options as of September 30, 2010 was
determined based upon the closing price of Real Ds common stock on that date, discounted to
reflect the lock-up period to which the Company is subject until January 2011, which falls under
Level 2 of the U.S. GAAP fair value hierarchy as defined by ASC Topic 820-10-35. During the three
and nine months ended September 30, 2010, the Company recorded an unrealized holding gain of
approximately $1,356 as a component of accumulated other comprehensive income (loss).
Under the license agreement, the Company can earn up to an additional 315,478 Real D options
as it meets additional 3-D system installation targets as outlined in the license agreement.
10. Treasury Stock and Share Based Awards
Treasury Stock Treasury stock represents shares of common stock repurchased by the Company
and not yet retired. The Company has applied the cost method in recording its treasury shares.
During the nine months ended September 30, 2010, the Company repurchased 2,719 shares of common
stock at a cost of $0.001 per share as a result of restricted stock forfeitures. The Company also
repurchased 35,298 shares of common stock at an aggregate cost of $531 as a result of the noncash
exercises of stock options by employees. In a noncash exercise of stock options, the exercise price
for the shares to be held by employees and the related minimum tax withholdings are satisfied with
stock withholdings. As part of these noncash exercises, employees exercised a total of 54,114
options and of this amount, 35,298 shares were repurchased by the Company to satisfy the exercise
price and tax liabilities. The remaining 18,816 shares were issued to the employees. The Company
repurchased the 35,298 shares at market value, which ranged from $14.85 to $15.17 per share, and
represented the closing price of the Companys common stock on the day prior to each date of
repurchase. The Company also repurchased 16,424 shares at market value on the dates of repurchase
at a cost of $299 as a result of the election by employees to have the Company withhold shares of
restricted stock to satisfy their tax liabilities upon vesting in restricted stock. All of these
repurchases were done in accordance with the Amended and Restated 2006 Long Term Incentive Plan
(Restated Incentive Plan). As of September 30, 2010, the Company had no plans to retire any
shares of treasury stock.
Stock Options A summary of stock option activity and related information for the nine
months ended September 30, 2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
|
|
|
Number of |
|
|
Weighted Average |
|
|
Grant Date Fair |
|
|
Aggregate Intrinsic |
|
|
|
Options |
|
|
Exercise Price |
|
|
Value |
|
|
Value |
|
Outstanding at December 31, 2009 |
|
|
1,231,892 |
|
|
$ |
7.63 |
|
|
$ |
3.51 |
|
|
|
|
|
Exercised |
|
|
(782,824 |
) |
|
$ |
7.63 |
|
|
$ |
3.51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2010 |
|
|
449,068 |
|
|
$ |
7.63 |
|
|
$ |
3.51 |
|
|
$ |
3,804 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at September 30, 2010 |
|
|
449,068 |
|
|
$ |
7.63 |
|
|
$ |
3.51 |
|
|
$ |
3,804 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total intrinsic value of options exercised during the nine month period ended
September 30, 2010 was $6,634. The Company recognized a tax benefit of approximately $1,904 related
to the options exercised during the nine months ended September 30, 2010.
As of September 30, 2010, there was no remaining unrecognized compensation expense related to
outstanding stock options and all outstanding options fully vested on April 2, 2009. Options
outstanding at September 30, 2010 have an average remaining contractual life of approximately four
years.
Restricted Stock - During the nine months ended September 30, 2010, the Company granted
679,308 shares of restricted stock to directors and employees of the Company. The fair value of the
restricted stock granted was determined based on the market value of the Companys stock on the
dates of grant, which ranged from $13.15 to $18.47 per share. The Company assumed forfeiture rates
ranging from zero to 5% for the restricted stock awards. The
13
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
restricted stock granted to directors vests over periods ranging from six months to one year and
the restricted stock granted to employees vest over four years based on continued service.
Below is a summary of restricted stock activity for the nine months ended September 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
Shares of |
|
|
Average |
|
|
|
Restricted |
|
|
Grant Date |
|
|
|
Stock |
|
|
Fair Value |
|
Outstanding at December 31, 2009 |
|
|
764,078 |
|
|
$ |
11.10 |
|
Granted |
|
|
679,308 |
|
|
$ |
17.94 |
|
Forfeited |
|
|
(2,719 |
) |
|
$ |
11.03 |
|
Vested |
|
|
(189,885 |
) |
|
$ |
12.64 |
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2010 |
|
|
1,250,782 |
|
|
$ |
14.58 |
|
|
|
|
|
|
|
|
|
Unvested restricted stock at
September 30, 2010 |
|
|
1,250,782 |
|
|
$ |
14.58 |
|
|
|
|
|
|
|
|
|
The Company recorded compensation expense of $3,507 related to these restricted stock
awards during the nine months ended September 30, 2010. As of September 30, 2010, the remaining
unrecognized compensation expense related to restricted stock awards was $13,823 and the weighted
average period over which this remaining compensation expense will be recognized is approximately
three years. Upon vesting, the Company receives an income tax deduction. The total fair value of
shares that vested during the nine months ended September 30, 2010 was $3,260. The Company
recognized a tax benefit of approximately $1,229 related to these vested shares. The recipients of
restricted stock are entitled to receive dividends and to vote their respective shares, however the
sale and transfer of the restricted shares is prohibited during the restriction period.
Restricted Stock Units During the nine months ended September 30, 2010, the Company granted
restricted stock units representing 396,432 hypothetical shares of common stock under the Restated
Incentive Plan. The restricted stock units vest based on a combination of financial performance
factors and continued service. The financial performance factors are based on an implied equity
value concept that determines an internal rate of return (IRR) during the three fiscal year
period ending December 31, 2012 based on a formula utilizing a multiple of Adjusted EBITDA subject
to certain specified adjustments (as defined in the restricted stock unit award agreement). The
financial performance factors for the restricted stock units have a threshold, target and maximum
level of payment opportunity. If the IRR for the three year period is at least 8.5%, which is the
threshold, one-third of the restricted stock units vest. If the IRR for the three year period is at
least 10.5%, which is the target, two-thirds of the restricted stock units vest. If the IRR for the
three year period is at least 12.5%, which is the maximum, 100% of the restricted stock units vest.
Grantees are eligible to receive a ratable portion of the common stock issuable if the IRR is
within the targets previously noted. All payouts of restricted stock units that vest will be
subject to an additional service requirement and will be paid in the form of common stock if the
participant continues to provide services through March 31, 2014, which is the fourth anniversary
of the grant date. Restricted stock unit award participants are eligible to receive dividend
equivalent payments if and at the time the restricted stock unit awards are paid out.
Below is a table summarizing the potential number of shares that could vest under restricted
stock unit awards granted during the nine months ended September 30, 2010 at each of the three
target levels of financial performance (excluding forfeiture assumptions):
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
Shares |
|
|
Value at |
|
|
|
Vesting |
|
|
Grant |
|
at IRR of at least 8.5% |
|
|
132,144 |
|
|
$ |
2,423 |
|
at IRR of at least 10.5% |
|
|
264,288 |
|
|
$ |
4,847 |
|
at IRR of at least 12.5% |
|
|
396,432 |
|
|
$ |
7,271 |
|
Due to the fact that the IRR for the three year performance period could not be
determined at the time of grant, the Company estimated that the most likely outcome is the
achievement of the mid-point IRR level. The Company assumed a forfeiture rate of 5% for the
restricted stock unit awards. If during the service period, additional information becomes
available to lead the Company to believe a different IRR level will be achieved for the three year
14
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
performance period, the Company will reassess the number of units that will vest for the grant and
adjust its compensation expense accordingly on a prospective basis over the remaining service
period.
During the nine months ended September 30, 2010, the Compensation Committee of the Companys
board of directors approved a modification of restricted stock unit awards granted to employees
during 2008. The Compensation Committee also approved the cancellation and replacement of
restricted stock unit awards granted to the Companys top five executive officers during 2008. Both
the modification and the cancellation and replacement were accounted for as modifications of share
based awards. As a result of these modifications, the Company recorded incremental compensation
expense of approximately $435 during the nine months ended September 30, 2010, which represents the
difference between the grant date fair value and the modification date fair value of these awards
for the portion of the service period that has been satisfied. The service period for the modified
awards did not change. The Company will record additional incremental compensation expense of $261
over the remaining service period.
No restricted stock unit awards have vested. There were no forfeitures of restricted stock
unit awards during the nine months ended September 30, 2010. The Company recorded compensation
expense of $1,672 related to these restricted stock unit awards during the nine months ended
September 30, 2010, including the aforementioned $435 related to the modification of the 2008
restricted stock unit awards. As of September 30, 2010, the Company had restricted stock units
outstanding that represented a total of 884,042 hypothetical shares of common stock, net of actual
cumulative forfeitures of 19,919 units, assuming the maximum IRR of at least 12.5% is achieved for
all of the grants. As of September 30, 2010, the remaining unrecognized compensation expense
related to the outstanding restricted stock unit awards was $6,071, which assumes the mid-point IRR
level will be achieved for all of the restricted stock units outstanding. The weighted average
period over which this remaining compensation expense will be recognized is approximately three
years.
11. Long-Term Debt Activity
Senior Notes
On June 29, 2009, Cinemark USA, Inc. issued $470,000 aggregate principal amount of 8.625%
senior notes due 2019 with an original issue discount of $11,468, resulting in proceeds of
approximately $458,532. The proceeds were primarily used to fund the repurchase of the remaining
$419,403 aggregate principal amount at maturity of Cinemark, Inc.s 9 3/4% senior discount notes
discussed below. Interest is payable on June 15 and December 15 of each year beginning December 15,
2009. The senior notes mature on June 15, 2019. As of September 30, 2010, the carrying value of the
senior notes was $459,475.
Cash Tender Offer and Subsequent Call of Cinemark, Inc.s 9 3/4% Senior Discount Notes due 2014
On June 15, 2009, Cinemark, Inc. commenced a cash tender offer for any and all of its 9 3/4%
senior discount notes due 2014, of which $419,403 aggregate principal amount at maturity remained
outstanding. In connection with the tender offer, Cinemark, Inc. solicited consents to adopt
proposed amendments to the indenture to eliminate substantially all restrictive covenants and
certain events of default provisions. On June 29, 2009, approximately $402,459 aggregate principal
amount at maturity of the 9 3/4% senior discount notes were tendered and repurchased by the Company
for approximately $433,415, including accrued interest of $11,336 and tender premiums paid of
$19,620. The Company funded the repurchase with the proceeds from the issuance of the Cinemark USA,
Inc. senior notes discussed above. On August 3, 2009, the Company delivered to the Bank of New York
Trust Company N.A., as trustee, a notice to redeem the $16,944 aggregate principal amount at
maturity of the Companys 9 3/4% senior discount notes remaining outstanding. The notice specified
September 8, 2009 as the redemption date, at which time the Company paid approximately $18,564,
consisting of a redemption price of 104.875% of the face amount of the discount notes remaining
outstanding plus accrued and unpaid interest to, but not including, the redemption date. The
Company funded the redemption with proceeds from the issuance of the Cinemark USA, Inc. senior
notes discussed above. The Company recorded a loss on early retirement of debt of approximately
$27,878 during the nine months ended September 30, 2009, which included tender and call premiums
paid, other fees and the write-off of unamortized debt issue costs.
Amendment and Extension of Senior Secured Credit Facility
On March 2, 2010, the Company completed an amendment and extension to its existing senior
secured credit
15
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
facility to primarily extend the maturities of the facility and make certain other modifications.
Approximately $924,375 of the Companys then remaining outstanding $1,083,600 term loan debt was
extended from an original maturity date of October 2013 to a maturity date of April 2016. The
remaining term loan debt of $159,225 that was not extended matures on the original maturity date of
October 2013. Payments on the extended amount are due in equal quarterly installments of $2,311
through March 31, 2016 with the remaining principal amount of $866,602 due April 30, 2016. Payments
on the original amount that was not extended are due in equal quarterly installments of
approximately $398 beginning March 31, 2010 through September 30, 2012 and increase to
approximately $37,418 each calendar quarter from December 31, 2012 to June 30, 2013 with one final
payment of approximately $42,593 at maturity on October 5, 2013. The amendment also imposed a 1.0%
prepayment premium for one year on certain prepayments of the extended portion of the term loan
debt. As of September 30, 2010, there was $1,075,473 outstanding under the term loan. The interest
rate on the original term loan debt that was not extended accrues interest, at Cinemark USA, Inc.s
option, at: (A) the base rate equal to the higher of (1) the prime lending rate as set forth on the
British Banking Association Telerate page 5, or (2) the federal funds effective rate from time to
time plus 0.50% (the base rate), plus a margin that ranges from 0.50% to 0.75% per annum, or (B)
a eurodollar rate plus a margin that ranges from 1.50% to 1.75%, per annum. The margin of the
original term loan debt that was not extended is determined by the applicable corporate credit rating. The interest rate
on the extended portion of the term loan debt accrues interest, at Cinemark USA, Inc.s option at:
(A) the base rate equal to the higher of (1) the prime lending rate as set forth on the British
Banking Association Telerate page 5, or (2) the federal funds effective rate from time to time plus
0.50%, plus a 2.25% margin per annum, or (B) a eurodollar rate plus a 3.25% margin per annum.
In addition, the maturity date of $73,500 of Cinemark USA, Inc.s $150,000 revolving credit
line has been
extended from October 2012 to March 2015. The maturity date of the remaining $76,500 of
Cinemark USA, Inc.s revolving credit line did not change and remains October 2012. As of September
30, 2010, the Company had no borrowings outstanding under the revolving credit line. The interest
rate on the original revolving credit line accrues interest, at Cinemark USA, Inc.s option, at:
(A) a base rate equal to the higher of (1) the prime lending rate as set forth on the British
Banking Association Telerate page 5 and (2) the federal funds effective rate from time to time plus
0.50%, plus a margin that ranges from 0.50% to 1.00% per annum, or (B) a eurodollar rate plus a
margin that ranges from 1.50% to 2.00% per annum. The interest rate on the extended revolving
credit line accrues interest, at Cinemark USA, Inc.s option at: (A) the base rate equal to the
higher of (1) the prime lending rate as set forth on the British Banking Association Telerate page
5, or (2) the federal funds effective rate from time to time plus 0.50%, plus a margin that ranges
from 1.75% to 2.0% per annum, or (B) a eurodollar rate plus a margin that ranges from 2.75% to
3.0% per annum. The margin of the revolving credit line is determined by the consolidated net
senior secured leverage ratio as defined in the credit agreement.
The Company incurred debt issue costs of approximately $8,849 during the nine months ended
September 30, 2010 related to the amendment and extension of its senior secured credit facility.
These costs will be amortized over the remaining term of the facility.
Fair Value of Long-Term Debt
The Company estimates the fair value of its long-term debt primarily using quoted market
prices, which fall under Level 2 of the U.S. GAAP fair value hierarchy as defined by FASB ASC Topic
820-10-35. The carrying value of the Companys long-term debt was $1,535,129 and $1,543,705 as of
September 30, 2010 and December 31, 2009, respectively. The fair value of the Companys long-term
debt was $1,568,593 and $1,513,838 as of September 30, 2010 and December 31, 2009, respectively.
12. Interest Rate Swap Agreements
As
of September 30, 2010, the Company had two interest rate swap
agreements that cover $300,000 of variable rate debt, both of which
qualify for cash flow hedge accounting. The fair values of the interest rate swaps are recorded on
the Companys condensed consolidated balance sheet as an asset or liability with the effective
portion of the interest rate swaps gains or losses reported as a component of accumulated other
comprehensive income (loss) and the ineffective portion reported in earnings. The evaluation
technique used to determine fair value is the income approach and under this approach, the Company
uses projected future interest rates as provided by counterparties to the interest rate swap
agreements and the fixed rates that the Company is obligated to pay under these agreements. The
Companys measurements use significant unobservable inputs, which fall in Level 3 of the U.S. GAAP
fair value hierarchy as defined by FASB ASC Topic 820-10-35. There were no changes in valuation
techniques during the period, no transfers in or out of Level 3
16
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
and no gains or losses included in earnings that were attributable to the change in unrealized
gains or losses related to the interest rate swap agreements.
As of September 30, 2010, the aggregate fair values of the two interest rate swap agreements
was a liability of approximately $18,887 which has been recorded as a component of other long-term
liabilities. A corresponding cumulative amount of $11,593, which is net of deferred taxes of
$7,294, has been recorded as a decrease in accumulated other comprehensive income on the Companys
condensed consolidated balance sheet as of September 30, 2010. The interest rate swaps exhibited no
ineffectiveness during the nine months ended September 30, 2010.
Below is a reconciliation of our interest rate swap values from January 1 to September 30:
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Beginning liability balance January 1 |
|
$ |
18,524 |
|
|
$ |
24,781 |
|
Total (gain) loss included in accumulated other
comprehensive income (loss) |
|
|
363 |
|
|
|
(4,434 |
) |
|
|
|
Ending liability balance September 30 |
|
$ |
18,887 |
|
|
$ |
20,347 |
|
|
|
|
The Company amortized approximately $3,475 to interest expense during each of the nine
months ended September 30, 2009 and 2010, related to a previously terminated interest rate swap
agreement. The Company will
amortize approximately $4,634 to interest expense for this terminated interest rate swap
agreement over the next twelve months.
13. Goodwill and Other Intangible Assets
The Companys goodwill was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
|
International |
|
|
|
|
|
|
Operating |
|
|
Operating |
|
|
|
|
|
|
Segment |
|
|
Segment |
|
|
Total |
|
Balance at December 31, 2009 (1) |
|
$ |
948,026 |
|
|
$ |
168,276 |
|
|
$ |
1,116,302 |
|
Foreign currency translation adjustments |
|
|
|
|
|
|
4,564 |
|
|
|
4,564 |
|
|
|
|
Balance at September 30, 2010 (1) |
|
$ |
948,026 |
|
|
$ |
172,840 |
|
|
$ |
1,120,866 |
|
|
|
|
|
|
|
(1) |
|
Balances are presented net of accumulated impairment losses of $214,031 for
the U.S. operating segment and $27,622 for the international operating segment. |
The Company evaluates goodwill for impairment on an annual basis during the fourth
quarter or whenever events or changes in circumstances indicate the carrying value of goodwill
might exceed its estimated fair value.
The Company evaluates goodwill for impairment at the reporting unit level and has
allocated goodwill to the reporting unit based on an estimate of its relative fair value. The
Company considers the reporting unit to be each of its sixteen regions in the U.S. and each of its
eight countries internationally (Honduras, El Salvador, Nicaragua, Costa Rica, Panama and Guatemala
are considered one reporting unit). Goodwill impairment is evaluated using a two-step approach
requiring the Company to compute the fair value of a reporting unit and compare it with its
carrying value. If the carrying value of the reporting unit exceeds the estimated fair value, a
second step is performed to measure the potential goodwill impairment. Significant judgment is
involved in estimating cash flows and fair value. Managements estimates, which fall under Level 3
of the U.S. GAAP fair value hierarchy as defined by FASB ASC Topic 820-10-35, are based on
historical and projected operating performance, recent market transactions and current industry
trading multiples. Fair value is determined based on a multiple of cash flows, which was six and a
half times for the evaluation performed during the fourth quarter of 2009. No events or changes in
circumstances occurred during the nine months ended September 30, 2010, that indicated that the
carrying value of goodwill might exceed its estimated fair value.
17
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
Intangible assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
|
|
|
|
Foreign Currency |
|
|
Balance at |
|
|
|
December 31, |
|
|
|
|
|
|
Translation |
|
|
September 30, |
|
|
|
2009 |
|
|
Amortization |
|
|
Adjustments & Other |
|
|
2010 |
|
Intangible assets with finite lives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vendor contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross carrying amount |
|
$ |
56,474 |
|
|
$ |
|
|
|
$ |
(10,043 |
) |
|
$ |
46,431 |
|
Accumulated amortization |
|
|
(29,870 |
) |
|
|
(2,282 |
) |
|
|
4,395 |
|
|
|
(27,757 |
) |
|
|
|
Net carrying amount |
|
|
26,604 |
|
|
|
(2,282 |
) |
|
|
(5,648 |
) |
|
|
18,674 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross carrying amount |
|
|
26,510 |
|
|
|
|
|
|
|
(1,865 |
) |
|
|
24,645 |
|
Accumulated amortization |
|
|
(20,596 |
) |
|
|
(1,658 |
) |
|
|
726 |
|
|
|
(21,528 |
) |
|
|
|
Net carrying amount |
|
|
5,914 |
|
|
|
(1,658 |
) |
|
|
(1,139 |
) |
|
|
3,117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net intangible assets with finite lives |
|
|
32,518 |
|
|
|
(3,940 |
) |
|
|
(6,787 |
) |
|
|
21,791 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets with indefinite lives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tradename |
|
|
310,480 |
|
|
|
|
|
|
|
499 |
|
|
|
310,979 |
|
|
|
|
Total intangible assets net |
|
$ |
342,998 |
|
|
$ |
(3,940 |
) |
|
$ |
(6,288 |
) |
|
$ |
332,770 |
|
|
|
|
Estimated aggregate future amortization expense for intangible assets is as follows:
|
|
|
|
|
For the three months ended December 31, 2010 |
|
$ |
677 |
|
For the twelve months ended December 31, 2011 |
|
|
4,372 |
|
For the twelve months ended December 31, 2012 |
|
|
4,216 |
|
For the twelve months ended December 31, 2013 |
|
|
3,470 |
|
For the twelve months ended December 31, 2014 |
|
|
2,924 |
|
Thereafter |
|
|
6,132 |
|
|
|
|
|
Total |
|
$ |
21,791 |
|
|
|
|
|
14. Impairment of Long-Lived Assets
The Company reviews long-lived assets for impairment indicators on a quarterly basis or
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 flows, future years budgeted theatre level
cash flows, theatre property and equipment carrying values, amortizing intangible asset carrying
values, the age of a recently built theatre, competitive theatres in the marketplace, changes in
foreign currency exchange rates, the impact of recent ticket price changes, available lease renewal
options and other factors considered relevant in its assessment of impairment of individual theatre
assets. Long-lived assets are evaluated for impairment on an individual theatre basis, which the
Company believes is the lowest applicable level for which there are identifiable cash flows. The
impairment evaluation is based on the estimated undiscounted cash flows from continuing use through
the remainder of the theatres useful life. The remainder of the useful life correlates with the
available remaining lease period, which includes the probability of renewal periods for leased
properties and a period of twenty years for fee owned properties. If the estimated undiscounted
cash flows are not sufficient to recover a long-lived assets carrying value, the Company then
compares the carrying value of the asset group (theatre) with its estimated fair value. When
estimated fair value is determined to be lower than the carrying value of the asset group
(theatre), the asset group (theatre) is written down to its estimated fair value. As of September
30, 2010, the estimated aggregate fair value of the long-lived assets impaired during the nine
months ended September 30, 2010 was approximately $4,739.
Significant judgment is involved in estimating cash flows and fair value. Managements
estimates, which fall under Level 3 of the U.S. GAAP fair value hierarchy as defined by FASB ASC
Topic 820-10-35, are based on historical and projected operating performance, recent market
transactions and current industry trading multiples. Fair value is determined based on a multiple
of cash flows, which was six and a half times for the evaluations performed during the nine months
ended September 30, 2009 and 2010.
18
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
The long-lived asset impairment charges recorded during each of the periods presented are
specific to theatres that were directly and individually impacted by increased competition, or
adverse changes in market demographics.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
United States theatre properties |
|
$ |
424 |
|
|
$ |
2,817 |
|
|
$ |
3,265 |
|
|
$ |
7,482 |
|
International theatre properties |
|
|
598 |
|
|
|
42 |
|
|
|
1,661 |
|
|
|
275 |
|
|
|
|
|
|
Subtotal |
|
$ |
1,022 |
|
|
$ |
2,859 |
|
|
|
4,926 |
|
|
$ |
7,757 |
|
Intangible assets |
|
|
|
|
|
|
287 |
|
|
|
1,131 |
|
|
|
358 |
|
|
|
|
|
|
Impairment of long-lived assets |
|
$ |
1,022 |
|
|
$ |
3,146 |
|
|
$ |
6,057 |
|
|
$ |
8,115 |
|
|
|
|
|
|
15. Fair Value Measurements
The Company determines fair value measurements in accordance with FASB ASC Topic 820, which
establishes a fair value hierarchy under which an asset or liability is categorized based on the
lowest level of input significant to its fair value measurement. The levels of input defined by
FASB ASC Topic 820 are as follows:
Level 1 quoted market prices in active markets for identical assets or liabilities that are
accessible at the measurement date;
Level 2 other than quoted market prices included in Level 1 that are observable for the asset
or liability, either directly or indirectly; and
Level 3 unobservable and should be used to measure fair value to the extent that observable
inputs are not available.
Below is a summary of assets and liabilities measured at fair value on a recurring basis by
the Company under FASB ASC Topic 820 as of September 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying |
|
|
Fair Value |
|
Description |
|
Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
Debt (see Note 11) |
|
$ |
(1,535,129 |
) |
|
$ |
|
|
|
$ |
(1,568,593 |
) |
|
$ |
|
|
Interest Rate Swaps (see Note 12) |
|
$ |
(18,887 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
(18,887 |
) |
Investment in Real D (see Note 9) |
|
$ |
15,994 |
|
|
$ |
|
|
|
$ |
15,994 |
|
|
$ |
|
|
Below is a summary of assets and liabilities measured at fair value on a recurring basis
by the Company under FASB ASC Topic 820 as of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying |
|
|
Fair Value |
|
Description |
|
Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
Debt |
|
$ |
(1,543,705 |
) |
|
$ |
|
|
|
$ |
(1,513,838 |
) |
|
$ |
|
|
Interest Rate Swaps |
|
$ |
(18,524 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
(18,524 |
) |
Below is a reconciliation of the beginning and ending balance for liabilities measured at
fair value on a recurring basis using significant unobservable inputs (Level 3):
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Beginning liability balance January 1 |
|
$ |
18,524 |
|
|
$ |
24,781 |
|
Total (gain) loss included in accumulated other comprehensive income (loss) |
|
|
363 |
|
|
|
(4,434 |
) |
|
|
|
Ending liability balance September 30 |
|
$ |
18,887 |
|
|
$ |
20,347 |
|
|
|
|
19
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
There were no changes in valuation techniques during the period. There were no transfers in or
out of Level 3 and no gains or losses included in the earnings that were attributable to the change
in unrealized gains or losses related to the interest rate swap agreements.
16. Foreign Currency Translation
The accumulated other comprehensive income (loss) account in stockholders equity of ($7,459)
and $9,752 at December 31, 2009 and September 30, 2010, respectively, includes the cumulative
foreign currency adjustments of $16,070 and $28,678, respectively, from translating the financial
statements of the Companys international subsidiaries, and also includes the change in fair values
of the Companys interest rate swap agreements.
In 2009 and 2010, all foreign countries where the Company has operations were deemed
non-highly inflationary and the local currency is the same as the functional currency in all of the
locations. Thus, any fluctuation in the currency results in a cumulative foreign currency
translation adjustment recorded to accumulated other comprehensive income (loss).
On September 30, 2010, the exchange rate for the Brazilian real was 1.71 reais to the U.S.
dollar (the exchange rate was 1.75 reais to the U.S. dollar at December 31, 2009). As a result, the
effect of translating the September 30, 2010 Brazilian financial statements into U.S. dollars is
reflected as a foreign currency translation adjustment to the accumulated other comprehensive
income (loss) account as an increase in stockholders equity of $5,051. At September 30, 2010, the
total assets of the Companys Brazilian subsidiaries were U.S. $299,595.
On September 30, 2010, the exchange rate for the Mexican peso was 12.49 pesos to the U.S.
dollar (the exchange rate was 13.04 pesos to the U.S. dollar at December 31, 2009). As a result,
the effect of translating the September 30, 2010 Mexican financial statements into U.S. dollars is
reflected as a foreign currency translation adjustment to the accumulated other comprehensive
income (loss) account as an increase in stockholders equity of $3,962. At September 30, 2010, the
total assets of the Companys Mexican subsidiaries were U.S. $123,937.
On September 30, 2010, the exchange rate for the Colombian peso was 1,814.77 pesos to the U.S.
dollar (the exchange rate was 2,064.63 pesos to the U.S. dollar at December 31, 2009). As a result,
the effect of translating the September 30, 2010 Colombian financial statements into U.S. dollars
is reflected as a foreign currency translation adjustment to the accumulated other comprehensive
income (loss) account as an increase in stockholders equity of $2,539. At September 30, 2010, the
total assets of the Companys Colombian subsidiaries were U.S. $25,421.
On September 30, 2010, the exchange rate for the Chilean peso was 489.46 pesos to the U.S.
dollar (the exchange rate was 519.30 pesos to the U.S. dollar at December 31, 2009). As a result,
the effect of translating the September 30, 2010 Chilean financial statements into U.S. dollars is
reflected as a foreign currency translation adjustment to the accumulated other comprehensive
income (loss) account as an increase in stockholders equity of $1,426. At September 30, 2010, the
total assets of the Companys Chilean subsidiaries were U.S. $36,274.
The effect of translating the September 30, 2010 financial statements of the Companys other
international subsidiaries, with local currencies other than the U.S. dollar, is reflected as a
foreign currency translation adjustment to the accumulated other comprehensive income (loss)
account as an increase in stockholders equity of $716.
During June 2010, the Companys ownership in its Colombian subsidiary increased from 50.1% to
100%, as a result of the Colombia Share Exchange. As part of this transaction, the Company recorded
the amount of accumulated other comprehensive loss previously allocated to the noncontrolling
interest of $1,086 to accumulated other comprehensive income (loss) with an offsetting credit to
additional paid-in-capital. See Note 4.
20
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
17. Supplemental Cash Flow Information
The following is provided as supplemental information to the condensed consolidated statements of
cash flows:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
Cash paid for interest (1) |
|
$ |
66,857 |
|
|
$ |
209,198 |
|
Cash paid for income taxes, net of refunds received |
|
$ |
70,762 |
|
|
$ |
35,277 |
|
|
|
|
|
|
|
|
|
|
Noncash investing and financing activities: |
|
|
|
|
|
|
|
|
Change in accounts payable and accrued expenses for the acquisition of theatre
properties and equipment (2) |
|
$ |
1,748 |
|
|
$ |
(4,568 |
) |
Theatre properties acquired under capital lease (3) |
|
$ |
2,191 |
|
|
$ |
20,400 |
|
Change in fair market values of interest rate swap agreements, net of taxes |
|
$ |
(226 |
) |
|
$ |
|
|
Investment in NCM receipt of common units (see Note 7) |
|
$ |
30,683 |
|
|
$ |
15,536 |
|
Investment in NCM change of interest gain (see Note 7) |
|
$ |
271 |
|
|
$ |
|
|
Equipment contributed to DCIP (see Note 8) |
|
$ |
18,090 |
|
|
$ |
|
|
Dividends accrued on unvested restricted stock unit awards |
|
$ |
(264 |
) |
|
$ |
(142 |
) |
Shares issued upon non-cash stock option exercises, at exercise price of $7.63 per share |
|
$ |
413 |
|
|
$ |
|
|
Investment in Real D (see Note 9) |
|
$ |
14,638 |
|
|
$ |
|
|
Change in fair market value of available-for-sale securities (see Note 9) |
|
$ |
1,356 |
|
|
$ |
|
|
Issuance of shares as a result of Colombia Share Exchange (see Note 4) |
|
$ |
6,951 |
|
|
$ |
|
|
|
|
|
(1) |
|
Amount for nine months ended September 30, 2009 includes $158,349 of interest
paid as a result of the repurchase of approximately $419,403 aggregate principal amount of the
Companys 9 3/4% senior discount notes. The interest portion of the repurchase had accreted on
the senior discount notes since issuance during 2004. |
|
(2) |
|
Additions to theatre properties and equipment included in accounts payable as of
December 31, 2009 and September 30, 2010 were $7,823 and $9,571, respectively. |
|
(3) |
|
Amount recorded during the nine months ended September 30, 2009 was a result of the
acquisition of theatres in the U.S. as discussed in Note 6. |
18. Segments
The Company manages its international market and its U.S. market as separate reportable
operating segments. The international segment consists of operations in Brazil, Mexico, Chile,
Colombia, Argentina, Ecuador, Peru, Honduras, El Salvador, Nicaragua, Costa Rica, Panama and
Guatemala. The U.S. segment includes U.S. and Canada operations. Each segments revenue is derived
from admissions and concession sales and other ancillary revenues, primarily screen advertising.
The measure of segment profit and loss the Company uses to evaluate performance and allocate its
resources is Adjusted EBITDA, as defined in the reconciliation table below. The Company does not
report asset information by segment because that information is not used to evaluate the
performance of or allocate resources between segments.
21
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
Below is a breakdown of selected financial information by reportable operating segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
$ |
400,277 |
|
|
$ |
378,046 |
|
|
$ |
1,199,856 |
|
|
$ |
1,139,065 |
|
International |
|
|
161,492 |
|
|
|
119,866 |
|
|
|
420,404 |
|
|
|
304,024 |
|
Eliminations |
|
|
(1,534 |
) |
|
|
(1,087 |
) |
|
|
(4,025 |
) |
|
|
(2,956 |
) |
|
|
|
|
|
Total revenues |
|
$ |
560,235 |
|
|
$ |
496,825 |
|
|
$ |
1,616,235 |
|
|
$ |
1,440,133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
$ |
87,778 |
|
|
$ |
77,907 |
|
|
$ |
273,731 |
|
|
$ |
260,202 |
|
International |
|
|
37,299 |
|
|
|
26,932 |
|
|
|
98,243 |
|
|
|
63,417 |
|
|
|
|
|
|
Total Adjusted EBITDA |
|
$ |
125,077 |
|
|
$ |
104,839 |
|
|
$ |
371,974 |
|
|
$ |
323,619 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
$ |
11,564 |
|
|
$ |
15,429 |
|
|
$ |
47,571 |
|
|
$ |
58,851 |
|
International |
|
|
19,733 |
|
|
|
9,256 |
|
|
|
40,685 |
|
|
|
26,752 |
|
|
|
|
|
|
Total capital expenditures |
|
$ |
31,297 |
|
|
$ |
24,685 |
|
|
$ |
88,256 |
|
|
$ |
85,603 |
|
|
|
|
|
|
The following table sets forth a reconciliation of net income to Adjusted EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Net income |
|
$ |
33,883 |
|
|
$ |
22,055 |
|
|
$ |
111,353 |
|
|
$ |
60,213 |
|
Add (deduct): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes |
|
|
15,877 |
|
|
|
12,186 |
|
|
|
45,918 |
|
|
|
31,149 |
|
Interest expense (1) |
|
|
28,938 |
|
|
|
25,893 |
|
|
|
83,553 |
|
|
|
77,006 |
|
Loss on early retirement of debt |
|
|
|
|
|
|
1,083 |
|
|
|
|
|
|
|
27,878 |
|
Other income (2) |
|
|
(647 |
) |
|
|
(1,384 |
) |
|
|
(5 |
) |
|
|
(3,671 |
) |
Depreciation and amortization |
|
|
34,805 |
|
|
|
38,207 |
|
|
|
103,395 |
|
|
|
111,875 |
|
Amortization of favorable/unfavorable leases |
|
|
179 |
|
|
|
301 |
|
|
|
595 |
|
|
|
970 |
|
Impairment of long-lived assets |
|
|
1,022 |
|
|
|
3,146 |
|
|
|
6,057 |
|
|
|
8,115 |
|
Loss on sale of assets and other |
|
|
7,548 |
|
|
|
944 |
|
|
|
11,906 |
|
|
|
2,402 |
|
Deferred lease expenses |
|
|
1,079 |
|
|
|
1,067 |
|
|
|
2,776 |
|
|
|
3,189 |
|
Amortization of long-term prepaid rents |
|
|
468 |
|
|
|
323 |
|
|
|
1,247 |
|
|
|
1,074 |
|
Share based awards compensation expense |
|
|
1,925 |
|
|
|
1,018 |
|
|
|
5,179 |
|
|
|
3,419 |
|
|
|
|
|
|
Adjusted EBITDA |
|
$ |
125,077 |
|
|
$ |
104,839 |
|
|
$ |
371,974 |
|
|
$ |
323,619 |
|
|
|
|
|
|
|
|
|
(1) |
|
Includes amortization of debt issue costs. |
|
(2) |
|
Includes interest income, foreign currency exchange gain, and equity in loss of
affiliates and excludes distributions from NCM. Distributions from NCM are reported entirely
within the U.S. operating segment. |
Financial Information About Geographic Areas
The Company has operations in the U.S., Canada, Brazil, Mexico, Chile, Colombia, Argentina,
Ecuador, Peru, Honduras, El Salvador, Nicaragua, Costa Rica, Panama and Guatemala, which are
reflected in the condensed consolidated financial statements. Below is a breakdown of selected
financial information by geographic area:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
Revenues |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
U.S. and Canada |
|
$ |
400,277 |
|
|
$ |
378,046 |
|
|
$ |
1,199,856 |
|
|
$ |
1,139,065 |
|
Brazil |
|
|
87,339 |
|
|
|
61,132 |
|
|
|
226,556 |
|
|
|
153,713 |
|
Mexico |
|
|
20,213 |
|
|
|
18,666 |
|
|
|
55,310 |
|
|
|
48,195 |
|
Other foreign countries |
|
|
53,940 |
|
|
|
40,068 |
|
|
|
138,538 |
|
|
|
102,116 |
|
Eliminations |
|
|
(1,534 |
) |
|
|
(1,087 |
) |
|
|
(4,025 |
) |
|
|
(2,956 |
) |
|
|
|
|
|
Total |
|
$ |
560,235 |
|
|
$ |
496,825 |
|
|
$ |
1,616,235 |
|
|
$ |
1,440,133 |
|
|
|
|
|
|
22
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
Theatre Properties and Equipment-net |
|
2010 |
|
|
2009 |
|
U.S. and Canada |
|
$ |
983,700 |
|
|
$ |
1,040,395 |
|
Brazil |
|
|
105,993 |
|
|
|
91,996 |
|
Mexico |
|
|
41,251 |
|
|
|
39,371 |
|
Other foreign countries |
|
|
58,247 |
|
|
|
47,826 |
|
|
|
|
Total |
|
$ |
1,189,191 |
|
|
$ |
1,219,588 |
|
|
|
|
19. Related Party Transactions
The Company leased one theatre from Plitt Plaza Joint Venture (Plitt Plaza) on a
month-to-month basis. Plitt Plaza is indirectly owned by Lee Roy Mitchell, the Companys Chairman
of the Board, who owns approximately 12% of the Companys issued and outstanding shares of common
stock. The Company closed this theatre during March 2010. The Company recorded $89 and $30 of
facility lease and other operating expenses payable to Plitt Plaza joint venture during the nine
months ended September 30, 2009 and 2010, respectively. During the nine months ended September 30,
2010, the Company recorded approximately $111 related to the termination of the lease, which is
reflected in loss on sale of assets and other on the condensed consolidated statements of income.
The Company manages one theatre for Laredo Theatre, Ltd. (Laredo). The Company is the sole
general partner and owns 75% of the limited partnership interests of Laredo. Lone Star Theatres,
Inc. owns the remaining 25% of the limited partnership interests in Laredo and is 100% owned by Mr.
David Roberts, Lee Roy Mitchells son-in-law. Under the agreement, management fees are paid by
Laredo to the Company at a rate of 5% of annual theatre revenues up to $50,000 and 3% of annual
theatre revenues in excess of $50,000. The Company recorded $81 and $82 of management fee revenues
during the nine months ended September 30, 2009 and 2010, respectively. All such amounts are
included in the Companys condensed consolidated financial statements with the intercompany amounts
eliminated in consolidation.
The Company leases 21 theatres and one parking facility from Syufy Enterprises, LP (Syufy)
or affiliates of Syufy. Raymond Syufy is one of the Companys directors and is an officer of the
general partner of Syufy. Of these 22 leases, 18 have fixed minimum annual rent in an aggregate
amount of approximately $21,029. The four leases without minimum annual rent have rent based upon a
specified percentage of gross sales as defined in the lease with no minimum annual rent. For the
nine months ended September 30, 2009 and 2010, the Company paid approximately $1,257 and $1,046,
respectively, in percentage rent for these four leases.
20. Income Taxes
During the nine months ended September 30, 2010, the Company had a reduction in its
liabilities for uncertain tax positions, of which approximately $14,230 was due to settlements and
closures of various tax years. These settlements and closures also resulted in a reduction in
income tax expense of approximately $8,655 for the nine months ended September 30, 2010.
21. Commitments and Contingencies
From time to time, the Company is involved in various legal proceedings arising from the
ordinary course of its business operations, such as personal injury claims, employment matters,
landlord-tenant disputes and contractual disputes, some of which are covered by insurance. The
Company believes its potential liability with respect to proceedings currently pending is not
material, individually or in the aggregate, to the Companys financial position, results of
operations and cash flows.
22. Subsequent Event Interest Rate Swap Agreements
During October 2010, the Company entered into an interest rate swap agreement with an
effective date of December 2010 and an approximate five year term. The interest rate swap agreement
has been designated to hedge approximately $175,000 of the Companys variable rate debt obligations
under its senior secured credit facility for approximately five years. Under the terms of the
agreement, the Company will pay a fixed rate of 1.3975% on $175,000 of variable rate debt and will
receive interest from the counterparty to the agreement at a variable rate based on the 1-month
LIBOR. The 1-month LIBOR on each reset date will determine the variable
portion of the interest rate
23
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
swap for the one-month period following the reset date. No premium or discount was incurred upon
the Company entering into the interest rate swap agreement because the pay and receive rates on the
interest rate swap agreement represented prevailing rates for each counterparty at the time the
interest rate swap agreement was consummated.
During November 2010, the Company entered into an interest rate swap agreement with an
effective date of December 2010 and an approximate five year term. The interest rate swap agreement
has been designated to hedge approximately $175,000 of the Companys variable rate debt obligations
under its senior secured credit facility for approximately five years. Under the terms of the
agreement, the Company will pay a fixed rate of 1.40% on $175,000 of variable rate debt and will
receive interest from the counterparty to the agreement at a variable rate based on the 1-month
LIBOR. The 1-month LIBOR on each reset date will determine the variable portion of the interest
rate swap for the one-month period following the reset date. No premium or discount was incurred
upon the Company entering into the interest rate swap agreement because the pay and receive rates
on the interest rate swap agreement represented prevailing rates for each counterparty at the time
the interest rate swap agreement was consummated.
23. Subsequent Event Dividend Declaration
On November 2, 2010, the Companys board of directors declared a cash dividend in the amount of
$0.21 per common share payable to stockholders of record on November 22, 2010. The dividend will be
paid on December 7, 2010.
24
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with our condensed
consolidated financial statements and related notes and schedules included elsewhere in this
report.
We are a leader in the motion picture exhibition industry, with theatres in the U.S., Canada,
Brazil, Mexico, Chile, Colombia, Argentina, Ecuador, Peru, Honduras, El Salvador, Nicaragua, Costa
Rica, Panama and Guatemala. As of September 30, 2010, we managed our business under two reportable
operating segments U.S. markets and international markets, in accordance with FASB ASC Topic 280,
Segment Reporting. See Note 18 to our condensed consolidated financial statements.
We generate revenues primarily from box office receipts and concession sales with additional
revenues from screen advertising sales and other revenue streams, such as vendor marketing
programs, pay phones, ATM machines and electronic video games located in some of our theatres. Our
contracts with NCM have assisted us in expanding our offerings to advertisers and broadening
ancillary revenue sources such as digital video monitor advertising, third party branding, and the
use of theatres for alternative content events, such as concerts, sporting events, and other
cultural events. Films driving the box office during the nine months ended September 30, 2010
included the carryover of Avatar, which grossed over $450 million in U.S. box office revenues
during the period and new releases such as Alice in Wonderland, How to Train Your Dragon, Clash of
the Titans, Iron Man 2, Shrek Forever After, The Karate Kid, Toy Story 3, The Twilight Saga:
Eclipse, Inception, Despicable Me, Grown Ups, The Other Guys, The Expendables and Salt. Our
revenues are affected by changes in attendance and average admissions and concession revenues per
patron. Attendance is primarily affected by the quality and quantity of films released by motion
picture studios. Films scheduled for release during the remainder of 2010 include Jackass 3D, Due
Date, Megamind, Little Fockers, Tron: Legacy, Tangled, Yogi Bear, Gullivers Travels, Chronicles of
Narnia: The Voyage of the Dawn Treader and another installment of the Harry Potter franchise, among
other films.
Film rental costs are variable in nature and fluctuate with our admissions revenues. Film
rental costs as a percentage of revenues are generally higher for periods in which more blockbuster
films are released. Film rental costs can also vary based on the length of a films run. Film
rental rates are generally negotiated on a film-by-film and theatre-by-theatre basis. Advertising
costs, which are expensed as incurred, are 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 advertisements is based on, among other things, the size of the directory and the
frequency and size of the newspapers circulation.
Concession supplies expense is variable in nature and fluctuates with our concession revenues.
We purchase concession supplies to replace units sold. We negotiate prices for concession supplies
directly with concession vendors and manufacturers to obtain volume rates.
Although salaries and wages include a fixed cost component (i.e. the minimum staffing costs to
operate a theatre facility during non-peak periods), salaries and wages move in relation to
revenues as theatre staffing is adjusted to respond to changes in attendance.
Facility lease expense is primarily a fixed cost at the theatre level as most of our facility
leases require a fixed monthly minimum rent payment. Certain of our leases are subject to
percentage rent only while others are subject to percentage rent in addition to their fixed monthly
rent if a target annual revenue level is achieved. Facility lease expense as a percentage of
revenues is also affected by the number of theatres under operating leases, the number of theatres
under capital leases and the number of fee-owned theatres.
Utilities and other costs include certain costs that have both fixed and variable components
such as utilities, property taxes, janitorial costs, repairs and maintenance and security services.
Recent Developments
On October 14, 2010, we redeemed all of Cinemark USA, Inc.s remaining outstanding 9% senior
subordinated notes for approximately $0.2 million, including accrued interest and premiums.
On November 2, 2010, our board of directors declared a cash dividend in the amount of $0.21
per common share payable to stockholders of record on November 22, 2010. The dividend will be paid
on December 7, 2010.
25
Results of Operations
The following table sets forth, for the periods indicated, certain operating data and, the
percentage of revenues represented by certain items reflected in our condensed consolidated
statements of income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
Operating data (in millions): |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Admissions |
|
$ |
367.6 |
|
|
$ |
322.9 |
|
|
$ |
1,063.7 |
|
|
$ |
941.9 |
|
Concession |
|
|
170.2 |
|
|
|
153.0 |
|
|
|
488.5 |
|
|
|
441.9 |
|
Other |
|
|
22.4 |
|
|
|
20.9 |
|
|
|
64.0 |
|
|
|
56.3 |
|
|
|
|
|
|
Total revenues |
|
|
560.2 |
|
|
|
496.8 |
|
|
|
1,616.2 |
|
|
|
1,440.1 |
|
Cost of operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Film rentals and advertising |
|
|
200.5 |
|
|
|
175.9 |
|
|
|
582.8 |
|
|
|
513.9 |
|
Concession supplies |
|
|
26.6 |
|
|
|
23.5 |
|
|
|
73.5 |
|
|
|
67.2 |
|
Salaries and wages |
|
|
56.8 |
|
|
|
52.7 |
|
|
|
165.6 |
|
|
|
149.1 |
|
Facility lease expense |
|
|
66.6 |
|
|
|
61.6 |
|
|
|
191.3 |
|
|
|
176.5 |
|
Utilities and other |
|
|
64.3 |
|
|
|
61.4 |
|
|
|
177.2 |
|
|
|
164.3 |
|
General and administrative expenses |
|
|
28.1 |
|
|
|
23.5 |
|
|
|
78.6 |
|
|
|
69.0 |
|
Depreciation and amortization |
|
|
35.0 |
|
|
|
38.5 |
|
|
|
104.0 |
|
|
|
112.8 |
|
Impairment of long-lived assets |
|
|
1.0 |
|
|
|
3.1 |
|
|
|
6.0 |
|
|
|
8.1 |
|
Loss on sale of assets and other |
|
|
7.5 |
|
|
|
0.9 |
|
|
|
11.9 |
|
|
|
2.4 |
|
|
|
|
|
|
Total cost of operations |
|
|
486.4 |
|
|
|
441.1 |
|
|
|
1,390.9 |
|
|
|
1,263.3 |
|
|
|
|
|
|
Operating income |
|
$ |
73.8 |
|
|
$ |
55.7 |
|
|
$ |
225.3 |
|
|
$ |
176.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating data as a percentage of total revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Admissions |
|
|
65.6 |
% |
|
|
65.0 |
% |
|
|
65.8 |
% |
|
|
65.4 |
% |
Concession |
|
|
30.4 |
% |
|
|
30.8 |
% |
|
|
30.2 |
% |
|
|
30.7 |
% |
Other |
|
|
4.0 |
% |
|
|
4.2 |
% |
|
|
4.0 |
% |
|
|
3.9 |
% |
|
|
|
|
|
Total revenues |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
Cost of operations (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Film rentals and advertising |
|
|
54.5 |
% |
|
|
54.5 |
% |
|
|
54.8 |
% |
|
|
54.6 |
% |
Concession supplies |
|
|
15.6 |
% |
|
|
15.4 |
% |
|
|
15.0 |
% |
|
|
15.2 |
% |
Salaries and wages |
|
|
10.1 |
% |
|
|
10.6 |
% |
|
|
10.2 |
% |
|
|
10.4 |
% |
Facility lease expense |
|
|
11.9 |
% |
|
|
12.4 |
% |
|
|
11.8 |
% |
|
|
12.3 |
% |
Utilities and other |
|
|
11.5 |
% |
|
|
12.3 |
% |
|
|
11.0 |
% |
|
|
11.4 |
% |
General and administrative expenses |
|
|
5.0 |
% |
|
|
4.8 |
% |
|
|
4.9 |
% |
|
|
4.8 |
% |
Depreciation and amortization |
|
|
6.2 |
% |
|
|
7.8 |
% |
|
|
6.4 |
% |
|
|
7.9 |
% |
Impairment of long-lived assets |
|
|
0.2 |
% |
|
|
0.7 |
% |
|
|
0.4 |
% |
|
|
0.6 |
% |
Loss on sale of assets and other |
|
|
1.3 |
% |
|
|
0.2 |
% |
|
|
0.7 |
% |
|
|
0.2 |
% |
Total cost of operations |
|
|
86.8 |
% |
|
|
88.8 |
% |
|
|
86.1 |
% |
|
|
87.7 |
% |
Operating income |
|
|
13.2 |
% |
|
|
11.2 |
% |
|
|
13.9 |
% |
|
|
12.3 |
% |
|
|
|
|
|
Average screen count (month end average) |
|
|
4,922 |
|
|
|
4,901 |
|
|
|
4,905 |
|
|
|
4,849 |
|
|
|
|
|
|
Revenues per average screen (dollars) |
|
$ |
113,817 |
|
|
$ |
101,367 |
|
|
$ |
329,528 |
|
|
$ |
296,978 |
|
|
|
|
|
|
|
|
|
(1) |
|
All costs are expressed as a percentage of total revenues, except film
rentals and advertising, which are expressed as a percentage of admissions revenues
and concession supplies, which are expressed as a percentage of concession revenues. |
26
Three months ended September 30, 2010 and 2009
Revenues. Total revenues increased $63.4 million to $560.2 million for the three months ended
September 30, 2010 (third quarter of 2010) from $496.8 million for the three months ended
September 30, 2009 (third quarter of 2009), representing a 12.8% increase. The table below,
presented by reportable operating segment, summarizes our year-over-year revenue performance and
certain key performance indicators that impact our revenues.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Operating Segment |
|
|
International Operating Segment |
|
|
Consolidated |
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
2010 |
|
|
2009 |
|
|
Change |
|
|
2010 |
|
|
2009 |
|
|
Change |
|
|
2010 |
|
|
2009 |
|
|
Change |
|
Admissions revenues (1) |
|
$ |
262.5 |
|
|
$ |
246.9 |
|
|
|
6.3 |
% |
|
$ |
105.1 |
|
|
$ |
76.0 |
|
|
|
38.3 |
% |
|
$ |
367.6 |
|
|
$ |
322.9 |
|
|
|
13.8 |
% |
Concession revenues (1) |
|
$ |
125.0 |
|
|
$ |
119.8 |
|
|
|
4.3 |
% |
|
$ |
45.2 |
|
|
$ |
33.2 |
|
|
|
36.1 |
% |
|
$ |
170.2 |
|
|
$ |
153.0 |
|
|
|
11.2 |
% |
Other revenues (1)(2) |
|
$ |
11.2 |
|
|
$ |
10.3 |
|
|
|
8.7 |
% |
|
$ |
11.2 |
|
|
$ |
10.6 |
|
|
|
5.7 |
% |
|
$ |
22.4 |
|
|
$ |
20.9 |
|
|
|
7.2 |
% |
Total revenues (1)(2) |
|
$ |
398.7 |
|
|
$ |
377.0 |
|
|
|
5.8 |
% |
|
$ |
161.5 |
|
|
$ |
119.8 |
|
|
|
34.8 |
% |
|
$ |
560.2 |
|
|
$ |
496.8 |
|
|
|
12.8 |
% |
Attendance (1) |
|
|
42.2 |
|
|
|
41.0 |
|
|
|
2.9 |
% |
|
|
23.5 |
|
|
|
19.4 |
|
|
|
21.1 |
% |
|
|
65.7 |
|
|
|
60.4 |
|
|
|
8.8 |
% |
Revenues per average screen (2) |
|
$ |
103,704 |
|
|
$ |
98,115 |
|
|
|
5.7 |
% |
|
$ |
149,911 |
|
|
$ |
113,161 |
|
|
|
32.5 |
% |
|
$ |
113,817 |
|
|
$ |
101,367 |
|
|
|
12.3 |
% |
|
|
|
(1) |
|
Amounts in millions. |
|
(2) |
|
U.S. operating segment revenues include eliminations of intercompany transactions
with the international operating segment. See Note 18 of our condensed consolidated financial
statements. |
|
|
Consolidated. The increase in admissions revenues of $44.7 million was primarily
attributable to an 8.8% increase in attendance and a 4.7% increase in average ticket price
from $5.35 for the third quarter of 2009 to $5.60 for the third quarter of 2010. The increase
in concession revenues of $17.2 million was primarily attributable to the 8.8% increase in
attendance and a 2.4% increase in concession revenues per patron from $2.53 for the third
quarter of 2009 to $2.59 for the third quarter of 2010. The increase in average ticket price
was primarily due to incremental 3-D and premium pricing and other price increases and the
favorable impact of exchange rates in certain countries in which we operate. The increase in
concession revenues per patron was primarily due to price increases and the favorable impact
of exchange rates in certain countries in which we operate. The 7.2% increase in other
revenues was primarily due to increases in ancillary revenue and the favorable impact of
exchange rates in certain countries in which we operate. |
|
|
|
U.S. The increase in admissions revenues of $15.6 million was primarily attributable
to a 2.9% increase in attendance and a 3.3% increase in average ticket price from $6.02 for
the third quarter of 2009 to $6.22 for the third quarter of 2010. The increase in concession
revenues of $5.2 million was primarily attributable to the 2.9% increase in attendance and a
1.4% increase in concession revenues per patron from $2.92 for the third quarter of 2009 to
$2.96 for the third quarter of 2010. The increase in average ticket price was primarily due to
incremental 3-D and premium pricing and other price increases and the increase in concession
revenues per patron was primarily due to price increases. The 8.7% increase in other revenues
was primarily due to increases in ancillary revenue. |
|
|
|
International. The increase in admissions revenues of $29.1 million was primarily
attributable to a 21.1% increase in attendance and a 14.0% increase in average ticket price
from $3.92 for the third quarter of 2009 to $4.47 for the third quarter of 2010. The increase
in concession revenues of $12.0 million was primarily attributable to the 21.1% increase in
attendance and a 12.3% increase in concession revenues per patron from $1.71 for the third
quarter of 2009 to $1.92 for the third quarter of 2010. The increase in average ticket price
was primarily due to incremental 3-D and premium pricing and other price increases and the
favorable impact of exchange rates in certain countries in which we operate. The increase in
concession revenues per patron was primarily due to price increases and the favorable impact
of exchange rates in certain countries in which we operate. The 5.7% increase in other
revenues was primarily due to increases in ancillary revenue and the favorable impact of
exchange rates in certain countries in which we operate. |
27
Cost of Operations. The table below summarizes certain of our theatre operating costs by
reportable operating segment (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Operating |
|
|
|
|
|
|
U.S. Operating Segment |
|
|
Segment |
|
|
Consolidated |
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Film rentals and advertising |
|
$ |
146.5 |
|
|
$ |
137.4 |
|
|
$ |
54.0 |
|
|
$ |
38.5 |
|
|
$ |
200.5 |
|
|
$ |
175.9 |
|
Concession supplies |
|
|
15.5 |
|
|
|
14.8 |
|
|
|
11.1 |
|
|
|
8.7 |
|
|
|
26.6 |
|
|
|
23.5 |
|
Salaries and wages |
|
|
44.4 |
|
|
|
43.3 |
|
|
|
12.4 |
|
|
|
9.4 |
|
|
|
56.8 |
|
|
|
52.7 |
|
Facility lease expense |
|
|
45.8 |
|
|
|
45.2 |
|
|
|
20.8 |
|
|
|
16.4 |
|
|
|
66.6 |
|
|
|
61.6 |
|
Utilities and other |
|
|
44.5 |
|
|
|
45.1 |
|
|
|
19.8 |
|
|
|
16.3 |
|
|
|
64.3 |
|
|
|
61.4 |
|
|
|
Consolidated. Film rentals and advertising costs were $200.5 million, or 54.5% of
admissions revenues, for the third quarter of 2010 compared to $175.9 million, or 54.5% of
admissions revenues, for the third quarter of 2009. The increase in film rentals and
advertising costs of $24.6 million was primarily due to a $44.7 million increase in admissions
revenues. Concession supplies expense was $26.6 million, or 15.6% of concession revenues, for
the third quarter of 2010 compared to $23.5 million, or 15.4% of concession revenues, for the
third quarter of 2009. The increase in the concession supplies rate was primarily due to the
increased weighting of our international business which typically has a higher concession
supplies rate. |
|
|
|
Salaries and wages increased to $56.8 million for the third quarter of 2010 from $52.7 million
for the third quarter of 2009 primarily due to increased minimum wages in both our U.S. and
international segments, increased staffing levels to support the 8.8% increase in attendance and
the impact of exchange rates in certain countries in which we operate. Facility lease expense
increased to $66.6 million for the third quarter of 2010 from $61.6 million for the third
quarter of 2009 primarily due to increased percentage rent and the impact of exchange rates in
certain countries in which we operate. Utilities and other costs increased to $64.3 million for
the third quarter of 2010 from $61.4 million for the third quarter of 2009 primarily due to
increased 3-D equipment rental fees, increased utility expenses and the impact of exchange rates
in certain countries in which we operate. |
|
|
|
U.S. Film rentals and advertising costs were $146.5 million, or 55.8% of admissions
revenues, for the third quarter of 2010 compared to $137.4 million, or 55.7% of admissions
revenues, for the third quarter of 2009. The increase in film rentals and advertising costs of
$9.1 million is primarily due to a $15.6 million increase in admissions revenues. Concession
supplies expense was $15.5 million, or 12.4% of concession revenues, for the third quarter of
2010 compared to $14.8 million, or 12.4% of concession revenues, for the third quarter of
2009. |
|
|
|
Salaries and wages increased to $44.4 million for the third quarter of 2010 from $43.3 million
for the third quarter of 2009 primarily due to increased minimum wages and increased staffing
levels to support the 2.9% increase in attendance. Facility lease expense increased to $45.8
million for the third quarter of 2010 from $45.2 million for the third quarter of 2009 primarily
due to increased percentage rent. Utilities and other costs decreased to $44.5 million for the
third quarter of 2010 from $45.1 million for the third quarter of 2009 primarily due to
decreased utility and theatre supplies expenses, partially offset by increased 3-D equipment
rental fees. |
|
|
|
International. Film rentals and advertising costs were $54.0 million, or 51.4% of
admissions revenues, for the third quarter of 2010 compared to $38.5 million, or 50.7% of
admissions revenues, for the third quarter of 2009. The increase in film rentals and
advertising costs of $15.5 million is due to a $29.1 million increase in admissions revenues
which contributed $14.7 million and an increase in the film rentals and advertising rate which
contributed $0.8 million. Concession supplies expense was $11.1 million, or 24.6% of
concession revenues, for the third quarter of 2010 compared to $8.7 million, or 26.2% of
concession revenues, for the third quarter of 2009. The increase in concession supplies
expense was primarily due to a $12.0 million increase in concession revenues, partially offset
by a decrease in the concession supplies rate due to favorable inventory procurement costs and
the successful implementation of price increases. |
|
|
|
Salaries and wages increased to $12.4 million for the third quarter of 2010 from $9.4 million
for the third quarter of 2009 primarily due to increased staffing levels to support the 21.1%
increase in attendance, increased minimum wages and the impact of exchange rates in certain
countries in which we operate. Facility lease expense increased to $20.8 million for the third
quarter of 2010 from $16.4 million for the third quarter of 2009 primarily due to increased
percentage rent and the impact of exchange rates in certain countries in which we operate.
Utilities and |
28
|
|
other costs increased to $19.8 million for the third quarter of 2010 from $16.3
million for the third quarter of 2009
primarily due to increased 3-D equipment rental fees, increased utility expenses and the impact
of exchange rates in certain countries in which we operate. |
General and Administrative Expenses. General and administrative expenses increased to $28.1
million for the third quarter of 2010 from $23.5 million for the third quarter of 2009. The
increase was primarily due to increased salaries and incentive compensation expense, increased
share based award compensation expense, increased professional fees and increased service charges
related to increased credit card activity and the impact of exchange rates in certain countries in
which we operate.
Depreciation and Amortization. Depreciation and amortization expense, including amortization
of favorable/unfavorable leases, was $35.0 million for the third quarter of 2010 compared to $38.5
million for the third quarter of 2009. The decrease was primarily related to a reduction in the
depreciable basis of certain of our U.S. assets due to a significant amount of the equipment
acquired in the Century Acquisition becoming fully depreciated during the fourth quarter of 2009,
partially offset by the impact of accelerated depreciation taken on our domestic 35 millimeter
projection systems that will be replaced with digital projection systems. We recorded approximately
$2.3 million of depreciation expense related to these 35 millimeter projection systems during the
third quarter of 2010.
Impairment of Long-Lived Asset. We recorded asset impairment charges on assets held and used
of $1.0 million for the third quarter of 2010 compared to $3.1 million for the third quarter of
2009. Impairment charges for the third quarter of 2010 were related to theatre properties,
impacting five of our twenty-four reporting units. Impairment charges for the third quarter of 2009
consisted of $2.8 million of theatre properties, impacting ten of our twenty-four reporting units,
and $0.3 million of intangible assets associated with one of our twenty-four reporting units. The
long-lived asset impairment charges recorded during each of the periods presented were specific to
theatres that were directly and individually impacted by increased competition, or adverse changes
in market demographics. See Notes 13 and 14 to our condensed consolidated financial statements.
Loss on Sale of Assets and Other. We recorded a loss on sale of assets and other of $7.5
million during the third quarter of 2010 compared to $0.9 million for the third quarter of 2009.
The loss recorded during the third quarter of 2010 included approximately $5.8 million for the
write-off of an intangible asset associated with a vendor contract in Mexico that was terminated.
Interest Expense. Interest costs incurred, including amortization of debt issue costs, were
$28.9 million for the third quarter of 2010 compared to $25.9 million for the third quarter of
2009. The increase was primarily due to increases in interest rates on our variable rate debt
related to the amendment and extension of our senior secured credit facility.
Loss on Early Retirement of Debt. During the third quarter of 2009, we recorded a loss on
early retirement of debt of $1.1 million as a result of the call premiums paid and other fees
related to the repurchase of the remaining $16.9 million aggregate principal amount at maturity of
Cinemark, Inc.s 9 3/4% senior discount notes and the write-off of unamortized debt issue costs
associated with these notes.
Distributions from NCM. We recorded distributions from NCM of $4.3 million during the third
quarter of 2010 and $4.2 million during the third quarter of 2009, which were in excess of the
carrying value of our investment. See Note 7 to our condensed consolidated financial statements.
Equity in Loss of Affiliates We recorded equity in loss of affiliates of $1.8 million during
the third quarter of 2010 compared to $0.1 million during the third quarter of 2009. The equity in
loss of affiliates recorded during the third quarter of 2010 included a loss of approximately $4.4
million related to our equity investment in DCIP (see Note 8 to the condensed consolidated
financial statements) offset by income of approximately $2.6 million related to our equity
investment in NCM (see Note 7 to the condensed consolidated financial statements). The equity in
loss of affiliates recorded during the third quarter of 2009 included a loss of approximately $1.0
million related to our equity investment in DCIP offset by income of approximately $0.9 million
related to our equity investment in NCM.
Income Taxes. Income tax expense of $15.9 million was recorded for the third quarter of 2010
compared to $12.2 million for the third quarter of 2009. The effective tax rate was 31.9% for the
third quarter of 2010 compared to 35.6% for the third quarter of 2009. Income tax provisions for
interim (quarterly) periods are based on estimated annual income tax rates and are adjusted for the
effects of significant, infrequent or unusual items (i.e. discrete items) occurring during the
interim period. As a result, the interim rate may vary significantly from the normalized annual
rate.
29
Nine months ended September 30, 2010 and 2009
Revenues. Total revenues increased $176.1 million to $1,616.2 million for the nine months
ended September 30, 2010 (the 2010 period) from $1,440.1 million for the nine months ended
September 30, 2009 (the 2009 period), representing a 12.2% increase. The table below, presented
by reportable operating segment, summarizes our year-over-year revenue performance and certain key
performance indicators that impact our revenues.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Operating Segment |
|
|
International Operating Segment |
|
|
Consolidated |
|
|
|
Nine Months Ended |
|
|
Nine Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
2010 |
|
|
2009 |
|
|
Change |
|
|
2010 |
|
|
2009 |
|
|
Change |
|
|
2010 |
|
|
2009 |
|
|
Change |
|
Admissions revenues (1) |
|
$ |
791.0 |
|
|
$ |
748.6 |
|
|
|
5.7 |
% |
|
$ |
272.7 |
|
|
$ |
193.3 |
|
|
|
41.1 |
% |
|
$ |
1,063.7 |
|
|
$ |
941.9 |
|
|
|
12.9 |
% |
Concession revenues (1) |
|
$ |
373.1 |
|
|
$ |
357.0 |
|
|
|
4.5 |
% |
|
$ |
115.4 |
|
|
$ |
84.9 |
|
|
|
35.9 |
% |
|
$ |
488.5 |
|
|
$ |
441.9 |
|
|
|
10.5 |
% |
Other revenues (1) (2) |
|
$ |
31.7 |
|
|
$ |
30.5 |
|
|
|
3.9 |
% |
|
$ |
32.3 |
|
|
$ |
25.8 |
|
|
|
25.2 |
% |
|
$ |
64.0 |
|
|
$ |
56.3 |
|
|
|
13.7 |
% |
Total revenues (1) (2) |
|
$ |
1,195.8 |
|
|
$ |
1,136.1 |
|
|
|
5.3 |
% |
|
$ |
420.4 |
|
|
$ |
304.0 |
|
|
|
38.3 |
% |
|
$ |
1,616.2 |
|
|
$ |
1,440.1 |
|
|
|
12.2 |
% |
Attendance (1) |
|
|
123.4 |
|
|
|
122.2 |
|
|
|
1.0 |
% |
|
|
61.0 |
|
|
|
53.4 |
|
|
|
14.2 |
% |
|
|
184.4 |
|
|
|
175.6 |
|
|
|
5.0 |
% |
Revenues per average screen
(2) |
|
$ |
311,967 |
|
|
$ |
298,615 |
|
|
|
4.5 |
% |
|
|
392,351 |
|
|
$ |
291,016 |
|
|
|
34.8 |
% |
|
$ |
329,528 |
|
|
$ |
296,978 |
|
|
|
11.0 |
% |
|
|
|
(1) |
|
Amounts in millions. |
|
(2) |
|
U.S. operating segment revenues include eliminations of intercompany transactions
with the international operating segment. See Note 18 of our condensed consolidated financial
statements. |
|
|
Consolidated. The increase in admissions revenues of $121.8 million was primarily
attributable to a 5.0% increase in attendance and a 7.6% increase in average ticket price from
$5.36 for the 2009 period to $5.77 for the 2010 period. The increase in concession revenues of
$46.6 million was primarily attributable to the 5.0% increase in attendance and a 5.2%
increase in concession revenues per patron from $2.52 for the 2009 period to $2.65 for the
2010 period. The increase in average ticket price was primarily due to incremental 3-D and
premium pricing and other price increases and the favorable impact of exchange rates in
certain countries in which we operate. The increase in concession revenues per patron was
primarily due to price increases and the favorable impact of exchange rates in certain
countries in which we operate. The 13.7% increase in other revenues was primarily due to
increases in ancillary revenue and the favorable impact of exchange rates in certain countries
in which we operate. |
|
|
|
U.S. The increase in admissions revenues of $42.4 million was primarily attributable
to a 4.6% increase in average ticket price from $6.13 for the 2009 period to $6.41 for the
2010 period and a 1.0% increase in attendance. The increase in concession revenues of $16.1
million was primarily attributable to a 3.4% increase in concession revenues per patron from
$2.92 for the 2009 period to $3.02 for the 2010 period and the 1.0% increase in attendance.
The increase in average ticket price was primarily due to incremental 3-D and premium pricing
and other price increases and the increase in concession revenues per patron was primarily due
to price increases. The 3.9% increase in other revenues was primarily due to increases in
ancillary revenue. |
|
|
|
International. The increase in admissions revenues of $79.4 million was primarily
attributable to a 14.2% increase in attendance and a 23.5% increase in average ticket price
from $3.62 for the 2009 period to $4.47 for the 2010 period. The increase in concession
revenues of $30.5 million was primarily attributable to the 14.2% increase in attendance and
an 18.9% increase in concession revenues per patron from $1.59 for the 2009 period to $1.89
for the 2010 period. The increase in average ticket price was primarily due to incremental 3-D
and premium pricing and other price increases and the favorable impact of exchange rates in
certain countries in which we operate. The increase in concession revenues per patron was
primarily due to price increases and the favorable impact of exchange rates in certain
countries in which we operate. The 25.2% increase in other revenues was primarily due to
increases in ancillary revenue and the favorable impact of exchange rates in certain countries
in which we operate. |
30
Cost of Operations. The table below summarizes certain of our year-over-year theatre operating
costs by reportable operating segment (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Operating |
|
|
|
|
|
|
U.S. Operating Segment |
|
|
Segment |
|
|
Consolidated |
|
|
|
Nine Months Ended |
|
|
Nine Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Film rentals and advertising |
|
$ |
445.7 |
|
|
$ |
416.2 |
|
|
$ |
137.1 |
|
|
$ |
97.7 |
|
|
$ |
582.8 |
|
|
$ |
513.9 |
|
Concession supplies |
|
|
45.0 |
|
|
|
45.4 |
|
|
|
28.5 |
|
|
|
21.8 |
|
|
|
73.5 |
|
|
|
67.2 |
|
Salaries and wages |
|
|
131.5 |
|
|
|
124.4 |
|
|
|
34.1 |
|
|
|
24.7 |
|
|
|
165.6 |
|
|
|
149.1 |
|
Facility lease expense |
|
|
136.6 |
|
|
|
132.9 |
|
|
|
54.7 |
|
|
|
43.6 |
|
|
|
191.3 |
|
|
|
176.5 |
|
Utilities and other |
|
|
124.6 |
|
|
|
122.7 |
|
|
|
52.6 |
|
|
|
41.6 |
|
|
|
177.2 |
|
|
|
164.3 |
|
|
|
Consolidated. Film rentals and advertising costs were $582.8 million, or 54.8% of
admissions revenues, for the 2010 period compared to $513.9 million, or 54.6% of admissions
revenues, for the 2009 period. The increase in film rentals and advertising costs of $68.9
million was due to a $121.8 million increase in admissions revenues, which contributed $66.5
million, and an increase in our film rentals and advertising rate, which contributed $2.4
million. The increase in the film rentals and advertising rate was primarily due to higher
film rental rates in the U.S. segment due to the increase in the number of blockbuster films
released, including the carryover of Avatar, which generally have higher film rental rates.
Concession supplies expense was $73.5 million, or 15.0% of concession revenues, for the 2010
period, compared to $67.2 million, or 15.2% of concession revenues, for the 2009 period. The
decrease in the concession supplies rate was primarily due to favorable inventory procurement
costs and the successful implementation of price increases. |
|
|
|
Salaries and wages increased to $165.6 million for the 2010 period from $149.1 million for the
2009 period primarily due to new theatres, increased minimum wages in both our U.S. and
international segments, increased staffing levels to support the 5.0% increase in attendance and
the impact of exchange rates in certain countries in which we operate. Facility lease expense
increased to $191.3 million for the 2010 period from $176.5 million for the 2009 period
primarily due to new theatres, increased percentage rent and the impact of exchange rates in
certain countries in which we operate. Utilities and other costs increased to $177.2 million for
the 2010 period from $164.3 million for the 2009 period primarily due to new theatres, increased
3-D equipment rental fees, increased utility expenses and the impact of exchange rates in
certain countries in which we operate. |
|
|
|
U.S. Film rentals and advertising costs were $445.7 million, or 56.3% of admissions
revenues for the 2010 period compared to $416.2 million, or 55.6% of admissions revenues, for
the 2009 period. The increase in film rentals and advertising costs of $29.5 million is due to
a $42.4 million increase in admissions revenues, which contributed $23.6 million and an
increase in our film rentals and advertising rate, which contributed $5.9 million. The
increase in the film rentals and advertising rate was primarily due to the increase in the
number of blockbuster films released, including the carryover of Avatar, which generally have
higher film rental rates. Concession supplies expense was $45.0 million, or 12.1% of
concession revenues, for the 2010 period, compared to $45.4 million, or 12.7% of concession
revenues, for the 2009 period. The decrease in concession supplies expense is primarily due to
a decrease in the concession supplies rate due to favorable inventory procurement costs and
the successful implementation of price increases. |
|
|
|
Salaries and wages increased to $131.5 million for the 2010 period from $124.4 million for the
2009 period primarily due to new theatres and increased minimum wages. Facility lease expense
increased to $136.6 million for the 2010 period from $132.9 million for the 2009 period
primarily due to new theatres and increased percentage rent. Utilities and other costs increased
to $124.6 million for the 2010 period from $122.7 million for the 2009 period primarily due to
new theatres and increased 3-D equipment rental fees, partially offset by decreased utility
expenses. |
|
|
|
International. Film rentals and advertising costs were $137.1 million, or 50.3% of
admissions revenues, for the 2010 period compared to $97.7 million, or 50.5% of admissions
revenues, for the 2009 period. The increase in film rentals and advertising costs was
primarily due to a $79.4 million increase in admissions revenues, partially offset by a lower
film rentals and advertising rate. Concession supplies expense was $28.5 million, or 24.7% of
concession revenues, for the 2010 period compared to $21.8 million, or 25.7% of concession
revenues, for the 2009 period. The increase in concession supplies expense of $6.7 million was
primarily due to a $30.5 million increase in concession revenues, partially offset by a lower
concession supplies rate due to favorable inventory procurement costs and the successful
implementation of price increases. |
31
|
|
Salaries and wages increased to $34.1 million for the 2010 period from $24.7 million for the
2009 period primarily due to new theatres, increased staffing levels to support the 14.2%
increase in attendance, increased minimum wages and the impact of exchange rates in certain
countries in which we operate. Facility lease expense increased to $54.7 million for the 2010
period from $43.6 million for the 2009 period primarily due to new theatres, increased
percentage rent and the impact of exchange rates in certain countries in which we operate.
Utilities and other costs increased to $52.6 million for the 2010 period from $41.6 million for
the 2009 period primarily due to new theatres, increased 3-D equipment rental fees, increased
utility expenses and the impact of exchange rates in certain countries in which we operate. |
General and Administrative Expenses. General and administrative expenses increased to $78.6
million for the 2010 period from $69.0 million for the 2009 period. The increase was primarily due
to increased salaries and incentive compensation expense, increased share based award compensation
expense, increased professional fees and increased service charges related to increased credit card
activity and the impact of exchange rates in certain countries in which we operate.
Depreciation and Amortization. Depreciation and amortization expense, including amortization
of favorable/unfavorable leases, was $104.0 million for the 2010 period compared to $112.8 million
for the 2009 period. The decrease was primarily related to a reduction in the depreciable basis of
certain of our U.S. assets due to a significant amount of the equipment acquired in the Century
Acquisition becoming fully depreciated during the fourth quarter of 2009, partially offset by the
impact of accelerated depreciation taken on our domestic 35 millimeter projection systems that will
be replaced with digital projection systems. We recorded approximately $6.0 million of depreciation
expense related to these 35 millimeter projection systems during the 2010 period.
Impairment of Long-Lived Assets. We recorded asset impairment charges on assets held and used
of $6.0 million for the 2010 period compared to $8.1 million for the 2009 period. Impairment
charges for the 2010 period consisted of $4.9 million of theatre properties, impacting sixteen of
our twenty-four reporting units, and $1.1 million of intangible assets associated with one of our
twenty-four reporting units. Impairment charges for the 2009 period consisted of $7.7 million of
theatre properties, impacting sixteen of our twenty-four reporting units, and $0.4 million of
intangible assets associated with theatre properties, impacting two of our twenty-four reporting
units. The long-lived asset impairment charges recorded during each of the periods presented were
specific to theatres that were directly and individually impacted by increased competition, or
adverse changes in market demographics. See Notes 13 and 14 to our condensed consolidated financial
statements.
Loss on Sale of Assets and Other. We recorded a loss on sale of assets and other of $11.9
million during the 2010 period compared to $2.4 million during the 2009 period. The loss recorded
during the 2010 period included $5.8 million for the write-off of an intangible asset associated
with a vendor contract in Mexico that was terminated, $1.7 million that was recorded upon the
contribution of digital projection systems to DCIP and an additional $0.3 million recorded upon the
subsequent sale of digital projection systems to DCIP. See Note 8 to the condensed consolidated
financial statements for discussion of DCIP.
Interest Expense. Interest costs incurred, including amortization of debt issue costs, were
$83.6 million for the 2010 period compared to $77.0 million for the 2009 period. The increase was
primarily due to increases in interest rates on our variable rate debt related to the amendment and
extension of our senior secured credit facility.
Loss on Early Retirement of Debt. During the 2009 period, we recorded a loss on early
retirement of debt of $27.9 million as a result of the tender and call premiums paid and other fees
related to the repurchase of approximately $419.4 million aggregate principal amount at maturity of
Cinemark, Inc.s 9 3/4% senior discount notes and the write-off of unamortized debt issue costs
associated with these notes.
Distributions from NCM. We recorded distributions from NCM of $15.5 million during the 2010
period and $15.8 million during the 2009 period, which were in excess of the carrying value of our
investment. See Note 7 to our condensed consolidated financial statements.
Equity in Loss of Affiliates We recorded equity in loss of affiliates of $5.0 million during
the 2010 period compared to $1.1 million during the 2009 period. The equity in loss of affiliates
recorded during the 2010 period included a loss of approximately $8.6 million related to our equity
investment in DCIP (see Note 8 to the condensed consolidated financial statements) offset by income
of approximately $3.6 million related to our equity investment in NCM (see Note 7 to the condensed
consolidated financial statements). The equity in loss of affiliates
recorded during the 2009 period included a loss of approximately $2.5
million related to our equity investment in DCIP offset by income of
approximately $1.4 million related to our equity investment in NCM.
32
Income Taxes. Income tax expense of $45.9 million was recorded for the 2010 period compared to
$31.1 million for the 2009 period. The effective tax rate was 29.2% for the 2010 period compared to
34.1% for the 2009 period. Income tax expense for the 2010 period includes the impact of certain
discrete non-recurring items and the reduction of our liabilities for uncertain tax positions due
to settlements and closures of various tax years, which resulted in a benefit of approximately $8.7
million. Income tax expense for the 2009 period includes the impact of two discrete items,
including an adjustment to our deferred tax liability and an increase to our foreign unrecognized
tax benefits in accordance with ASC Topic 740. The net impact of the two items on income tax
expense for the 2009 period was a benefit of approximately $4.9 million. Income tax
provisions for interim (quarterly) periods are based on estimated annual income tax rates and are
adjusted for the effects of significant, infrequent or unusual items (i.e. discrete items)
occurring during the interim period. As a result, the interim rate may vary significantly from the
normalized annual rate.
Liquidity and Capital Resources
Operating Activities
We primarily collect our revenues in cash, mainly through box office receipts and the
sale of concessions. In addition, a majority of our theatres provide the patron a choice of using a
credit card or debit card in place of cash. Because our revenues are received in cash prior to the
payment of related expenses, we have an operating float and historically have not required
traditional working capital financing. Cash provided by operating activities was $153.9 million for
the nine months ended September 30, 2010 compared to $30.7 million for the nine months ended
September 30, 2009. Cash provided by operating activities for the nine months ended September 30,
2009 included the repurchase of approximately $419.4 million of our 9 3/4% senior discount notes,
which included payment of $158.3 million of interest that had accreted on the senior discount notes
since issuance during 2004. The principal portion of the repurchase is reflected as a financing
activity.
Investing Activities
Our investing activities have been principally related to the development and acquisition of
theatres. New theatre openings and acquisitions historically have been financed with
internally generated cash and by debt financing, including borrowings under our senior secured
credit facility. Cash used for investing activities was $85.8 million for the nine months ended
September 30, 2010 compared to $145.4 million for the nine months ended September 30, 2009. Cash
used for investing activities for the nine months ended September 30, 2009 included $49.0 million
related to the acquisition of theatres in the U.S. (see Note 6 to the condensed consolidated
financial statements) and $9.1 million related to the acquisition of one theatre in Brazil.
Capital expenditures for the nine months ended September 30, 2010 and 2009 were as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New |
|
|
Existing |
|
|
|
|
Period |
|
Theatres |
|
|
Theatres |
|
|
Total |
|
Nine Months Ended September 30, 2010 |
|
$ |
31.1 |
|
|
$ |
57.2 |
|
|
$ |
88.3 |
|
Nine Months Ended September 30, 2009 |
|
$ |
32.1 |
|
|
$ |
53.5 |
|
|
$ |
85.6 |
|
We continue to expand our U.S. theatre circuit. We built two theatres and 29 screens,
assumed operation of one theatre with eight screens, and closed two theatres with 13 screens during
the nine months ended September 30, 2010, bringing our total domestic screen count to 3,854. At
September 30, 2010, we had signed commitments to open three new
theatres and 34 screens in domestic
markets during the remainder of 2010 and open eight new theatres and
108 screens subsequent to
2010. We estimate the remaining capital expenditures for the development of these 142 domestic
screens will be approximately $54 million. Actual expenditures for continued theatre development
and acquisitions are subject to change based upon the availability of attractive opportunities.
We also continue to expand our international theatre circuit. We built five theatres with
37 screens and closed two theatres and 19 screens during the nine months ended September 30, 2010,
bringing our total international screen count to 1,084. At September 30, 2010, we had signed
commitments to open four new theatres with 28 screens in international markets during the remainder
of 2010 and open nine new theatres with 62 screens subsequent to 2010. We estimate the remaining
capital expenditures for the development of these 90 international screens will be approximately
$56 million. Actual expenditures for continued theatre development and acquisitions are subject to
change based upon the availability of attractive opportunities.
33
We plan to fund capital expenditures for our continued development with cash flow from
operations, borrowings under our senior secured credit facility, from debt issuances, proceeds from
sale leaseback transactions and/or sales of excess real estate.
Financing Activities
Cash used for financing activities was $79.3 million for the nine months ended September 30,
2010 compared to cash provided by financing activities of $111.6 million for the nine months ended
September 30, 2009. Cash provided by financing activities for the nine months ended September 30,
2009 included the net proceeds of $458.5 million from the issuance of our $470 million 8.625%
senior notes, partially offset by the repurchase of approximately $419.4 million of our 9 3/4% senior
discount notes, the aggregate principal portion of which was $261.1 million. The interest portion
of the repurchase is reflected as an operating activity.
On February 13, 2010, our board of directors declared a cash dividend for the fourth quarter
of 2009 in the amount of $0.18 per share of common stock payable to stockholders of record on March
5, 2010. The dividend was paid on March 19, 2010 in the total amount of approximately $20.0
million. On May 13, 2010, our board of directors declared a cash dividend for the first quarter of
2010 in the amount of $0.18 per share of common stock payable to stockholders of record on June 4,
2010. The dividend was paid on June 18, 2010 in the total amount of approximately $20.2 million. On
July 29, 2010, our board of directors declared a cash dividend for the second quarter of 2010 in
the amount of $0.18 per share of common stock payable to stockholders of record on August 17, 2010.
The dividend was paid on September 1, 2010 in the total amount of approximately $20.4 million.
We may from time to time, subject to compliance with our debt instruments, purchase our debt
securities on the open market depending upon the availability and prices of such securities.
Long-term debt consisted of the following as of September 30, 2010 and December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
December 31, 2009 |
|
Cinemark, USA, Inc. term loan |
|
$ |
1,075.4 |
|
|
$ |
1,083.6 |
|
Cinemark USA, Inc. 8 5/8% senior notes due 2019 (1) |
|
|
459.5 |
|
|
|
458.9 |
|
Cinemark USA, Inc. 9% senior subordinated notes due 2013 |
|
|
0.2 |
|
|
|
0.2 |
|
Other long-term debt |
|
|
|
|
|
|
1.0 |
|
|
|
|
Total long-term debt |
|
|
1,535.1 |
|
|
|
1,543.7 |
|
Less current portion |
|
|
10.8 |
|
|
|
12.2 |
|
|
|
|
Long-term debt, less current portion |
|
$ |
1,524.3 |
|
|
$ |
1,531.5 |
|
|
|
|
|
|
|
(1) |
|
Includes the $470.0 million aggregate principal amount of the 8.625%
senior notes before the original issue discount, which was $10.5 million as of September
30, 2010. |
As of September 30, 2010, we had borrowings of $1,075.4 million outstanding on the term
loan under our senior secured credit facility, $459.5 million accreted principal amount outstanding
under our 8.625% senior discount notes and approximately $0.2 million aggregate principal amount
outstanding under the 9% senior subordinated notes, respectively. We had $150.0 million in
available borrowing capacity on our revolving credit line.
34
As of September 30, 2010, our long-term debt obligations, scheduled interest payments on
long-term debt, future minimum lease obligations under non-cancelable operating and capital leases,
scheduled interest payments under capital leases and other obligations for each period indicated
are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
|
|
(in millions) |
|
|
|
|
|
|
|
Less Than |
|
|
|
|
|
|
|
|
|
|
After |
|
Contractual Obligations |
|
Total |
|
|
One Year |
|
|
1 - 3 Years |
|
|
4 - 5 Years |
|
|
5 Years |
|
Long-term debt (1) |
|
$ |
1,545.6 |
|
|
$ |
10.8 |
|
|
$ |
175.1 |
|
|
$ |
18.4 |
|
|
$ |
1,341.3 |
|
Scheduled interest payments on long-term debt (2) |
|
|
588.3 |
|
|
|
91.5 |
|
|
|
177.8 |
|
|
|
165.0 |
|
|
|
154.0 |
|
Operating lease obligations |
|
|
1,898.9 |
|
|
|
206.0 |
|
|
|
411.4 |
|
|
|
384.2 |
|
|
|
897.3 |
|
Capital lease obligations |
|
|
137.3 |
|
|
|
7.3 |
|
|
|
16.8 |
|
|
|
21.6 |
|
|
|
91.6 |
|
Scheduled interest payments on capital leases |
|
|
98.5 |
|
|
|
13.6 |
|
|
|
25.0 |
|
|
|
21.1 |
|
|
|
38.8 |
|
Employment agreements |
|
|
11.1 |
|
|
|
3.7 |
|
|
|
7.4 |
|
|
|
|
|
|
|
|
|
Purchase commitments (3) |
|
|
118.3 |
|
|
|
28.8 |
|
|
|
84.4 |
|
|
|
5.0 |
|
|
|
0.1 |
|
Current liability for uncertain tax positions (4) |
|
|
2.5 |
|
|
|
2.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total obligations |
|
$ |
4,400.5 |
|
|
$ |
364.2 |
|
|
$ |
897.9 |
|
|
$ |
615.3 |
|
|
$ |
2,523.1 |
|
|
|
|
|
|
|
(1) |
|
Includes the 8.625% senior notes in the aggregate principal amount of $470.0
million, excluding the discount of $10.5 million. |
|
(2) |
|
Amounts include scheduled interest payments on fixed rate and variable rate debt
agreements. Estimates for the variable rate interest payments were based on interest rates
currently in effect. The average interest rates currently in effect on our fixed rate and
variable rate debt are 7.0% and 3.1%, respectively. |
|
(3) |
|
Includes estimated capital expenditures associated with the construction of new
theatres to which we were committed as of September 30, 2010. |
|
(4) |
|
The contractual obligations table excludes the long-term portion of our liability
for uncertain tax positions of $17.3 million because we cannot make a reliable estimate of
the timing of the related cash payments. |
Senior Secured Credit Facility
On October 5, 2006, in connection with the Century Acquisition, Cinemark USA, Inc. entered
into a senior secured credit facility that provided for a $1.12 billion term loan and a $150
million revolving credit line. On March 2, 2010, Cinemark USA, Inc. completed an amendment and
extension to the senior secured credit facility to primarily extend the maturities of the facility
and make certain other modifications. Approximately $924.4 million of Cinemark USA, Inc.s then
remaining outstanding $1,083.6 million term loan debt was extended from an original maturity date
of October 2013 to a maturity date of April 2016. The remaining term loan debt of $159.2 million
that was not extended matures on the original maturity date of October 2013. Payments on the
extended amount are due in equal quarterly installments of approximately $2.3 million beginning
March 31, 2010 through March 31, 2016 with the remaining principal amount of approximately $866.6
million due April 30, 2016. Payments on the original amount that was not extended are due in equal
quarterly installments of approximately $0.4 million beginning March 31, 2010 through September 30,
2012 and increase to $37.4 million each calendar quarter from December 31, 2012 to June 30, 2013,
with one final payment of approximately $42.6 million due at maturity on October 5, 2013. The
amendment also imposed a 1.0% prepayment premium for one year on certain prepayments of the
extended portion of the term loan debt.
The interest rate on the original term loan debt that was not extended accrues interest, at
Cinemark USA, Inc.s option, at: (A) the base rate equal to the higher of (1) the prime lending
rate as set forth on the British Banking Association Telerate page 5, or (2) the federal funds
effective rate from time to time plus 0.50% (the base rate), plus a margin that ranges from 0.50%
to 0.75% per annum, or (B) a eurodollar rate plus a margin that ranges from 1.50% to 1.75%, per
annum. The margin of the original term loan debt that was not
extended is determined by the applicable corporate credit
rating. The interest rate on the extended portion of the term loan debt accrues interest, at
Cinemark USA, Inc.s option at: (A) the base rate equal to the higher of (1) the prime lending rate
as set forth on the British Banking Association Telerate page 5, or (2) the federal funds effective
rate from time to time plus 0.50%, plus a 2.25% margin per annum, or (B) a eurodollar rate plus a
3.25% margin per annum.
The maturity date of $73.5 million of Cinemark USA, Inc.s $150.0 million revolving credit
line was extended from October 2012 to March 2015. The maturity date of the remaining $76.5 million
of Cinemark USA, Inc.s revolving credit line did not change and remains October 2012. The interest
rate on the original revolving credit line accrues interest, at Cinemark USA, Inc.s option, at:
(A) a base rate equal to the higher of (1) the prime lending rate as set forth on the British
Banking Association Telerate page 5 and (2) the federal funds effective rate from time to time plus
0.50%, plus a margin that ranges from 0.50% to 1.00% per annum, or (B) a eurodollar rate plus a
margin that ranges from 1.50% to 2.00% per annum. The interest rate on the extended revolving
credit line accrues interest, at
35
Cinemark USA, Inc.s option at: (A) the base rate equal to the higher of (1) the prime lending rate as
set forth on the British Banking Association Telerate page 5, or (2) the federal funds effective
rate from time to time plus 0.50%, plus a margin that ranges from 1.75% to 2.0% per annum, or (B) a
eurodollar rate plus a margin that ranges from 2.75% to 3.0% per annum. The margin of the
revolving credit line is determined by the consolidated net senior secured leverage ratio as
defined in the credit agreement.
At September 30, 2010, there was $1,075.4 million outstanding under the term loan and no
borrowings outstanding under the revolving credit line. Cinemark USA, Inc. had $150.0 million in
available borrowing capacity on the revolving credit line. The average interest rate on outstanding
term loan borrowings under the senior secured credit facility at
September 30, 2010 was 4.4% per
annum.
See discussion of interest rate swap agreements under Item 3. Quantitative and Qualitative
Disclosures About Market Risk.
Cinemark USA, Inc. 8 5/8% Senior Notes
On June 29, 2009, Cinemark USA, Inc. issued $470.0 million aggregate principal amount of
8.625% senior notes due 2019 with an original issue discount of approximately $11.5 million,
resulting in proceeds of approximately $458.5 million. The proceeds were primarily used to fund the
repurchase of the remaining $419.4 million aggregate principal amount at maturity of Cinemark,
Inc.s 9 3/4% senior discount notes. Interest is payable on June 15 and December 15 of each year
beginning on December 15, 2009. The senior notes mature on June 15, 2019. As of September 30, 2010,
the carrying value of the senior notes was approximately $459.5 million.
The indenture to the senior notes contains covenants that limit, among other things, the
ability of Cinemark USA, Inc. and certain of its subsidiaries to (1) consummate specified asset
sales, (2) make investments or other restricted payments, including paying dividends, making other
distributions or repurchasing subordinated debt or equity, (3) incur additional indebtedness and
issue preferred stock, (4) enter into transactions with affiliates, (5) enter new lines of
business, (6) merge or consolidate with, or sell all or substantially all of its assets to another
person and (7) create liens. Upon a change of control of Cinemark Holdings, Inc. or Cinemark USA,
Inc., Cinemark USA, Inc. would be required to make an offer to repurchase the senior notes at a
price equal to 101% of the aggregate principal amount outstanding plus accrued and unpaid interest
through the date of repurchase. Certain asset dispositions are considered triggering events that
may require Cinemark USA, Inc. to use the proceeds from those asset dispositions to make an offer
to purchase the notes at 100% of their principal amount, plus accrued and unpaid interest, if any,
to the date of repurchase if such proceeds are not otherwise used within 365 days as described in
the indenture. The indenture governing the senior notes allows Cinemark USA, Inc. to incur
additional indebtedness if we satisfy the coverage ratio specified in the indenture, after giving
effect to the incurrence of the additional indebtedness, and in certain other circumstances. The
required minimum coverage ratio is 2 to 1 and our actual ratio as of
September 30, 2010 was 5.4
to 1.
Cinemark USA, Inc. 9% Senior Subordinated Notes
On February 11, 2003, Cinemark USA, Inc. issued $150 million aggregate principal amount of 9%
senior subordinated notes due 2013 and on May 7, 2003, Cinemark USA, Inc. issued an additional $210
million aggregate principal amount of 9% senior subordinated notes due 2013, collectively referred
to as the 9% senior subordinated notes. Interest is payable on February 1 and August 1 of each
year.
Prior to 2009, Cinemark USA, Inc. repurchased a total of $359.8 million aggregate principal
amount of its 9% senior subordinated notes. The transactions were funded by Cinemark USA, Inc. with
proceeds from the NCM Transaction and available cash from operations. Cinemark USA, Inc. also
executed a supplemental indenture removing substantially all of the restrictive covenants and
certain events of default.
As of September 30, 2010, Cinemark USA, Inc. had outstanding approximately $0.2 million
aggregate principal amount of 9% senior subordinated notes. On October 14, 2010, Cinemark USA, Inc.
redeemed all of the remaining outstanding 9% senior subordinated notes for approximately $0.2
million, including accrued interest and premiums.
Seasonality
Our 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 May to mid-August, and during the holiday season,
extending from early November through year-end. The
36
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 our 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We have exposure to financial market risks, including changes in interest rates, foreign
currency exchange rates and other relevant market prices.
Interest Rate Risk
We are currently party to variable rate debt facilities. An increase or decrease in interest
rates would affect our interest expense relating to our variable rate debt facilities. At September
30, 2010, there was an aggregate of approximately $775 million of variable rate debt
outstanding under these facilities, which excludes $300.0 million of Cinemark USA, Inc.s term loan
debt that is hedged with the Companys interest rate swap agreements in effect as of September 30,
2010 as discussed below. Based on the interest rates in effect on the variable rate debt
outstanding at September 30, 2010, a 100 basis point increase in market interest rates would
increase our annual interest expense by approximately $7.8 million.
As of September 30, 2010, we had two interest rate swap agreements that have been designated
to hedge a total of approximately $300 million of variable rate debt under our senior secured
credit facility. Under the terms of one of the agreements, which expires in August 2012, we pay a
fixed interest rate of 4.922% on $125,000 of variable rate debt and receive interest at a variable
rate based on the 3-month LIBOR. Under the terms of the second agreement, we pay a fixed interest
rate of 3.63% on $175,000 of variable rate debt and receive interest at a variable rate based on
the 1-month LIBOR. With respect to the expiration of the second agreement, approximately $100,000
of the hedged amount expires in November 2011 and the remaining $75,000 expires in November 2012.
During October 2010, we entered into an interest rate swap agreement that is effective
beginning December 2010 and that has been designated as a hedge of approximately $175 million of
variable rate debt under our senior secured credit facility. Under the terms of this agreement,
which expires September 2015, we pay a fixed interest rate of 1.3975% on $175,000 of variable rate
debt and receive interest at a variable rate based on the 1-month LIBOR.
During November 2010, we entered into an interest rate swap agreement that is effective
beginning December 2010 and that has been designated as a hedge of approximately $175 million of
variable rate debt under our senior secured credit facility. Under the terms of this agreement,
which expires September 2015, we pay a fixed interest rate of 1.40% on $175,000 of variable rate
debt and receive interest at a variable rate based on the 1-month LIBOR.
The table below provides information about our fixed rate and variable rate long-term debt
agreements as of September 30, 2010:
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Expected Maturity for the Twelve-Month Periods Ending September 30, |
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(in millions) |
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Average Interest |
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|
2011 |
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
2015 |
|
|
Thereafter |
|
|
Total |
|
|
Fair Value |
|
|
Rate |
|
Fixed rate
(1)(2)(3) |
|
$ |
|
|
|
$ |
|
|
|
$ |
0.2 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,120.0 |
|
|
$ |
1,120.2 |
|
|
$ |
1,148.2 |
|
|
|
7.0 |
% |
Variable rate |
|
|
10.8 |
|
|
|
10.8 |
|
|
|
164.1 |
|
|
|
9.2 |
|
|
|
9.2 |
|
|
|
221.3 |
|
|
|
425.4 |
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|
|
420.4 |
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3.1 |
% |
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|
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|
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|
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Total debt |
|
$ |
10.8 |
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|
$ |
10.8 |
|
|
$ |
164.3 |
|
|
$ |
9.2 |
|
|
$ |
9.2 |
|
|
$ |
1,341.3 |
|
|
$ |
1,545.6 |
|
|
$ |
1,568.6 |
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(1) |
|
Includes $650.0 million of the Cinemark USA, Inc. term loan, which represents
the debt currently hedged with the Companys interest rate swap agreements discussed above. |
|
(2) |
|
Includes the 8.625% senior notes in the aggregate principal amount of $470.0
million, excluding the discount of $10.5 million. |
|
(3) |
|
Includes the 9% senior subordinated notes in the aggregate principal amount
outstanding of $0.2 million as of September 30, 2010 that were subsequently redeemed in
October 2010. |
37
Foreign Currency Exchange Rate Risk
We are also exposed to market risk arising from changes in foreign currency exchange rates as
a result of our international operations. Generally, we export from the U.S. certain of the
equipment and construction interior finish items and other operating supplies used by our
international subsidiaries. A majority of the revenues and operating expenses of our international
subsidiaries are transacted in the countrys local currency. Generally accepted accounting
principles in the U.S. (U.S. GAAP) require that our subsidiaries use the currency of the primary
economic environment in which they operate as their functional currency. If our subsidiaries
operate in a highly inflationary economy, U.S. GAAP requires that the U.S. dollar be used as the
functional currency for the subsidiary. Currency fluctuations in the countries in which we operate
result in us reporting exchange gains (losses) or foreign currency translation adjustments. Based
upon our equity ownership in our international subsidiaries as of September 30, 2010, holding
everything else constant, a 10% immediate, simultaneous, unfavorable change in all of the foreign
currency exchange rates to which we are exposed would decrease the aggregate net book value of our
investments in our international subsidiaries by approximately $44 million and would decrease the
aggregate net income of our international subsidiaries by approximately $5 million.
Item 4. Controls and Procedures
Evaluation of the Effectiveness of Disclosure Controls and Procedures
As of September 30, 2010, we carried out an evaluation required by the 1934 Act, under the
supervision and with the participation of our principal executive officer and principal financial
officer, of the effectiveness of the design and operation of our disclosure controls and
procedures, as defined in Rule 13a-15(e) of the 1934 Act. Based on this evaluation, our principal
executive officer and principal financial officer concluded that, as of September 30, 2010, our
disclosure controls and procedures were effective to provide reasonable assurance that information
required to be disclosed by us in the reports that we file or submit under the 1934 Act is
recorded, processed, summarized, and reported within the time periods specified in the SECs rules
and forms and were effective to provide reasonable assurance that such information is accumulated
and communicated to our management, including our principal executive officer and principal
financial officer, as appropriate to allow timely decisions regarding required disclosures.
Changes in Internal Controls Over Financial Reporting
There have been no changes in our internal control over financial reporting identified in
connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 that occurred
during the quarter ended September 30, 2010 that materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
38
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Previously reported under Business Legal Proceedings in the Companys Annual Report on Form
10-K filed March 10, 2010.
Item 1A. Risk Factors
There have been no material changes from risk factors previously disclosed in Risk Factors
in the Companys Annual Report on Form 10-K filed March 10, 2010.
39
Item 6. Exhibits
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*31.1
|
|
Certification of Alan Stock, Chief Executive Officer, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
*31.2
|
|
Certification of Robert Copple, Chief Financial Officer, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
*32.1
|
|
Certification of Alan Stock, Chief Executive Officer, pursuant to 18
U.S.C. Section 1350, as added by Section 906 of the Sarbanes-Oxley
Act of 2002. |
|
|
|
*32.2
|
|
Certification of Robert Copple, Chief Financial Officer, pursuant to
18 U.S.C. Section 1350, as added by Section 906 of the
Sarbanes-Oxley Act of 2002. |
40
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 thereunto duly authorized.
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DATE: November 5, 2010
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CINEMARK HOLDINGS, INC.
Registrant
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/s/ Alan W. Stock
|
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Alan W. Stock |
|
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Chief Executive Officer |
|
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/s/ Robert Copple
|
|
|
Robert Copple |
|
|
Chief Financial Officer |
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|
41
EXHIBIT INDEX
|
|
|
*31.1
|
|
Certification of Alan Stock, Chief Executive Officer, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
*31.2
|
|
Certification of Robert Copple, Chief Financial Officer, pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
*32.1
|
|
Certification of Alan Stock, Chief Executive Officer, pursuant to
18 U.S.C. Section 1350, as added by Section 906 of the
Sarbanes-Oxley Act of 2002. |
|
|
|
*32.2
|
|
Certification of Robert Copple, Chief Financial Officer, pursuant
to 18 U.S.C. Section 1350, as added by Section 906 of the
Sarbanes-Oxley Act of 2002. |