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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2009
Commission File Number 001-33401
CINEMARK HOLDINGS, INC.
(Exact Name of Registrant as Specified in its Charter)
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Delaware
(State or other jurisdiction
of incorporation or organization)
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20-5490327
(I.R.S. Employer
Identification No.) |
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3900 Dallas Parkway
Suite 500 |
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Plano, Texas
(Address of principal executive offices)
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75093
(Zip Code) |
Registrants telephone number, including area code: (972) 665-1000
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15 (d) of the Act. Yes o No þ
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 Website, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§229.405 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. þ
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. (Check one):
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Large accelerated filer o |
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Accelerated filer
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Non-accelerated filer o (Do not check if a smaller reporting
company) |
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Smaller reporting companyo |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act). Yes o No þ
The aggregate market value of the voting and non-voting common equity owned by non-affiliates of
the registrant on June 30, 2009, computed by reference to the closing price for the registrants
common stock on the New York Stock Exchange on such date was $366,449,138 (32,371,832 shares at a
closing price per share of $11.32).
As of February 28, 2010, 111,288,314 shares of common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the registrants definitive proxy statement, in connection with its 2010 Annual
Meeting of Stockholders, to be filed within 120 days of December 31, 2009, are incorporated by
reference into Part III, Items 10-14, of this annual report on Form 10-K.
Cautionary Statement Regarding Forward-Looking Statements
This annual report on Form 10-K includes forward-looking 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. The forward looking statements include our current expectations,
assumptions, estimates and projections about our business and our industry. They include statements
relating to:
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future revenues, expenses and profitability; |
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the future development and expected growth of our business; |
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projected capital expenditures; |
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attendance at movies generally or in any of the markets in which we operate; |
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the number or diversity of popular movies released and our ability to successfully
license and exhibit popular films; |
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national and international growth in our industry; |
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competition from other exhibitors and alternative forms of entertainment; and |
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determinations in lawsuits in which we are defendants. |
You can identify forward-looking statements by the use of words such as may, should,
will, could, estimates, predicts, potential, continue, anticipates, believes,
plans, expects, future and intends and similar expressions which are intended to identify
forward-looking statements. These statements are not guarantees of future performance and are
subject to risks, uncertainties and other factors, some of which are beyond our control and
difficult to predict and could cause actual results to differ materially from those expressed or
forecasted in the forward-looking statements. In evaluating forward-looking statements, you should
carefully consider the risks and uncertainties described in the Risk Factors section in Item 1A
of this Form 10-K and elsewhere in this Form 10-K. All forward-looking statements attributable to
us or persons acting on our behalf are expressly qualified in their entirety by the cautionary
statements and risk factors contained in this Form 10-K. Forward-looking statements contained in
this Form 10-K reflect our view only as of the date of this Form 10-K. 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.
Certain Definitions
Unless the context otherwise requires, all references to we, our, us, the issuer or
Cinemark relate to Cinemark Holdings, Inc. and its consolidated subsidiaries, including Cinemark,
Inc., Cinemark USA, Inc. and Century Theatres, Inc. Unless otherwise specified, all operating and
other statistical data for the U.S. include one theatre in Canada. All references to Latin America
are to Argentina, Brazil, Chile, Colombia, Costa Rica, Ecuador, El Salvador, Honduras, Mexico,
Nicaragua, Panama, Guatemala and Peru. Unless otherwise specified, all operating and other
statistical data are as of and for the year ended December 31, 2009.
1
PART I
Our Company
Cinemark
Holdings, Inc. and subsidiaries, or the Company, is the second largest motion picture
exhibitor in the world in terms of both attendance and the number of screens in operation, with
theatres in the United States, or U.S., Canada, Brazil, Mexico, Chile, Colombia, Argentina,
Ecuador, Peru, Honduras, El Salvador, Nicaragua, Costa Rica, Panama and Guatemala. We also managed
additional theatres in the U.S., Brazil and Colombia during the year ended December 31, 2009.
On August 2, 2006, Cinemark Holdings, Inc. was formed as the Delaware holding company of
Cinemark, Inc. The Cinemark Share Exchange was completed on October 5, 2006, under which the
Cinemark, Inc. stockholders exchanged their shares of Class A common stock for an equal number of
shares of common stock of Cinemark Holdings, Inc. and facilitated the acquisition of Century
Theatres, Inc., or the Century Acquisition. On April 24, 2007, Cinemark Holdings, Inc. completed an
initial public offering of its common stock. Effective December 11, 2009, Cinemark, Inc. was merged
into Cinemark Holdings, Inc. and Cinemark Holdings, Inc. became the holding company of Cinemark
USA, Inc.
As of December 31, 2009, 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 23 to the consolidated financial statements.
Our principal executive offices are at 3900 Dallas Parkway, Suite 500, Plano, Texas 75093. Our
telephone number is (972) 665-1000. We maintain a corporate website at www.cinemark.com. Our annual
reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and any
amendments, are available on our website free of charge under the heading Investor Relations SEC
Filings as soon as practicable after such reports are filed or furnished electronically to the
Securities and Exchange Commission.
Description of Business
We are the second largest motion picture exhibitor in the world in terms of both attendance
and the number of screens in operation. We operated 424 theatres and 4,896 screens in the U.S. and
Latin America as of December 31, 2009, and approximately 236.7 million patrons attended our
theatres worldwide during the year ended December 31, 2009. Our circuit is the third largest in the
U.S. with 294 theatres and 3,830 screens in 39 states and one Canadian province. We are the most
geographically diverse circuit in Latin America with 130 theatres and 1,066 screens in 13
countries. Our modern theatre circuit features stadium seating in approximately 84% of our
first-run auditoriums.
We selectively build or acquire new theatres in markets where we can establish and maintain a
strong market position. We believe our portfolio of modern theatres provides a preferred
destination for moviegoers and contributes to our significant cash flows from operating activities.
Our significant presence in the U.S. and Latin America has made us an important distribution
channel for movie studios, particularly as they look to capitalize on the expanding worldwide box
office. Our market leadership is attributable in large part to our senior executives, who average
approximately 35 years of industry experience and have successfully navigated us through multiple
industry and economic cycles.
We
grew our total revenue per patron at a compound annual growth rate, or CAGR, during the
last three fiscal years of 6.8%, the highest among the three largest U.S. motion picture
exhibitors. Revenues, operating income and net income attributable to Cinemark Holdings, Inc. for
the year ended December 31, 2009, were $1,976.5 million, $250.5 million and $97.1 million,
respectively. At December 31, 2009 we had cash and cash equivalents of $437.9 million and long-term
debt of $1,543.7 million. Approximately $784.6 million, or 50.8% of our long-term debt accrues
interest at variable rates.
We recently developed a large screen digital format, which we call our XD Extreme Digital
Cinema, or XD. We currently have an XD screen installed in 16 theatres and have plans to install 30
to 40 more XD screens during 2010. The XD experience includes wall-to-wall and ceiling-to-floor
screens, wrap-around sound and a maximum comfort entertainment environment for an intense sensory
experience. We charge a premium price for the XD experience. The XD technology does not require
special format movie prints, which allows us the flexibility to play any available digital print we
choose, including 3-D content, on the XD screen.
2
Motion Picture Industry Overview
The motion picture industry has begun a transition to digital projection technology. Digital
projection technology allows filmmakers the ability to showcase imaginative works of art exactly as
they were intended, with incredible realism and detail and in a range of up to 35 trillion colors.
Because digital features arent susceptible to scratching and fading, digital presentations will
always remain clear and sharp every time they are shown. A digitally produced or digitally
converted movie can be distributed to theatres via satellite, physical media, or fiber optic
networks. The digitized movie is stored on a computer/server which serves it to a digital
projector for each screening of the movie and due to its format, it enables us to more efficiently
move films between auditoriums within a theatre as demand increases or decreases for each film.
Digital projection also allows for the presentation of 3-D content and alternative
entertainment such as concert events, the opera, special live documentaries and sports programs.
Fourteen films released during 2009 were available in 3-D format and at least twenty 3-D films are
expected to be released during 2010. Current 3-D technology offers a premium experience with
crisp, bright, ultra-realistic images that immerse the patron into a film. A premium is generally
charged for a 3-D presentation.
Domestic Markets
The U.S. motion picture exhibition industry has a track record of long-term growth, with box
office revenues growing at an estimated CAGR of 3.4% from 1998 to 2008. Against this background of
steady long-term growth, the exhibition industry has experienced periodic short-term increases and
decreases in attendance, and consequently box office revenues.
As of the date of this report, MPAA Worldwide Market Research (or MPAA) had not yet released
the 2009 box office information. The following table represents the results of a survey by MPAA
published during March 2009, outlining the historical trends in U.S. box office revenues for the
ten year period from 1998 to 2008:
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U.S. Box |
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Office Revenues |
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Attendance |
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Average Ticket |
Year |
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($ in millions) |
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(in millions) |
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Price |
1998 |
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$ |
6,760 |
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1,438 |
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$ |
4.69 |
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1999 |
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$ |
7,314 |
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1,440 |
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$ |
5.08 |
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2000 |
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$ |
7,468 |
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1,383 |
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$ |
5.39 |
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2001 |
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$ |
8,125 |
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1,438 |
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$ |
5.66 |
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2002 |
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$ |
9,272 |
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1,599 |
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$ |
5.81 |
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2003 |
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$ |
9,165 |
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1,521 |
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$ |
6.03 |
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2004 |
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$ |
9,215 |
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1,484 |
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$ |
6.21 |
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2005 |
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$ |
8,832 |
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1,376 |
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$ |
6.41 |
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2006 |
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$ |
9,138 |
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1,395 |
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$ |
6.55 |
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2007 |
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$ |
9,629 |
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1,400 |
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$ |
6.88 |
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2008 |
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$ |
9,791 |
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1,364 |
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$ |
7.18 |
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Films released during the year ended December 31, 2009 included Avatar, Transformers:
Revenge of the Fallen, Harry Potter and the Half-Blood Prince, Up, Twilight Saga: New Moon, The
Hangover, Star Trek, Monsters vs. Aliens, Ice Age: Dawn of the Dinosaurs, The Blind Side, X-Men
Origins: Wolverine, Night at the Museum 2: Battle of the Smithsonian, The Proposal, 2012, Fast &
Furious, G.I. Joe: The Rise of the Cobra, Paul Blart: Mall Cop, Taken, A Christmas Carol, Angels &
Demons, Terminator Salvation, Cloudy with a Chance of Meatballs, Inglorious Basterds, G-Force,
District 9, Couples Retreat, Paranormal Activity, and Watchmen.
According to industry sources, in 2009, the U.S. motion picture exhibition industry
experienced its third consecutive record breaking year and the first in history with U.S. box
office revenues in excess of $10 billion. The last week of 2009 from December 25, 2009 to December
31, 2009 was also the single biggest week in history in terms of U.S. box office revenues. In
addition, the film Avatar which was released in December 2009, has generated higher U.S. box office
revenues and higher worldwide box office revenues, as of the date of this report, than any other
film in the industrys history.
3
The film slate for 2010 includes the carryover of Avatar, and new releases such as Alice in
Wonderland, How to Train a Dragon, Clash of the Titans, Iron Man 2, Shrek Forever After, Sex and
the City 2, Toy Story 3, Little Fockers, The A Team, Tron: Legacy, Robin Hood, Despicable Me,
Tangled, Megamind and another installment of both the Twilight and Harry Potter franchises, among
other films.
International Markets
International growth also continues to be consistent. (As of the date of this report, MPAA had
not yet released the 2009 box office information.) According to MPAA, international box office
revenues were $18.3 billion for the year ended December 31, 2008, resulting in a CAGR of 10.9% from
2003 to 2008 which is a result of increasing acceptance of movie going as a popular form of
entertainment throughout the world, ticket price increases and new theatre construction.
Growth in Latin America is expected to be fueled by a combination of development of modern
theatres, growing populations, attractive demographics (i.e., a significant teenage population),
quality product from Hollywood and the continued emergence of a local film industry. In many Latin
American countries the local film industry had been dormant because of the lack of sufficient
theatres to exhibit the film product. The development of new modern multiplex theatres has helped
to sustain the local film industry and, in Mexico, Brazil and Argentina, successful local film
product often provides incremental growth opportunities.
We believe many international markets for theatrical exhibition have historically been
underserved and that certain of these markets, especially those in Latin America, will continue to
experience growth as additional modern stadium-styled theatres are introduced.
Drivers of Continued Industry Success
We believe the following market trends will drive the continued growth and strength of our
industry:
Importance of Theatrical Success in Establishing Movie Brands and Subsequent Markets.
Theatrical exhibition is the primary distribution channel for new motion picture releases. A
successful theatrical release which brands a film is one of the major factors in determining its
success in downstream markets, such as DVDs, network and syndicated television, video on-demand,
pay-per-view television and the Internet.
Increased Importance of International Markets for Box Office Success. International markets
continue to be an increasingly important component of the overall box office revenues generated by
Hollywood films, accounting for $18.3 billion, or approximately 65% of 2008 total worldwide box
office revenues according to MPAA. (As of the date of this report, MPAA had not yet released the
2009 industry information.) With the continued growth of the international motion picture
exhibition industry, we believe the relative contribution of markets outside North America will
become even more significant. Many of the top U.S. films released during 2009 also performed
exceptionally well in international markets. Such films include Harry Potter and the Half-Blood
Prince, which grossed approximately $632 million in international markets, Ice Age: Dawn of the
Dinosaur, which grossed approximately $691 million in international markets, and Avatar, which has
grossed approximately $1.9 billion in international markets to date.
Stable Long-Term Attendance Trends. We believe that long-term trends in motion picture
attendance in the U.S. will continue to benefit the industry. Even during the recent recessionary
period, attendance levels remained stable as consumers selected the theatre as a preferred value
for their discretionary income. Patronage trends in 2009 also reflected increasing demand for
products unique to the exhibition industry such as 3D. With the motion picture industrys
transition to digital projection technology, the products offered by motion picture exhibitors
continues to expand, which allows for a broader base of patrons.
Convenient and Affordable Form of Out-Of-Home Entertainment. Movie going continues to be one
of the most convenient and affordable forms of out-of-home entertainment, with an estimated average
ticket price in the U.S. of $7.18 in 2008. (As of the date of this report, MPAA had not yet
released the 2009 box office information.) Average prices in 2008 for other forms of out-of-home
entertainment in the U.S., including sporting events and theme parks, range from approximately
$23.50 to $71.00 per ticket according to MPAA. Movie ticket prices have risen at approximately the
rate of inflation, while ticket prices for other forms of out-of-home entertainment have increased
at higher rates.
Innovation with Digital Technology. The industry has begun to convert to the use of digital
projection technology, which will allow exhibitors to expand their product offerings. Digital
technology will allow the presentation of 3-D
4
content and alternative entertainment venues such as live sports programs, the opera and
concert events. These additional programming alternatives may expand the customer base and
increase patronage for exhibitors.
Competitive Strengths
We believe the following strengths allow us to compete effectively:
Disciplined Operating Philosophy. We generated operating income and net income attributable to
Cinemark Holdings, Inc. of $250.5 million and $97.1 million, respectively, for the year ended
December 31, 2009. Our solid operating performance is a result of our disciplined operating
philosophy that centers on building high quality assets, while negotiating favorable theatre level
economics and controlling theatre operating costs. As a result, we grew our admissions and
concession revenues per patron at the highest CAGR during the last three fiscal years among the
three largest U.S. motion picture exhibitors.
Leading Position in Our U.S. Markets. We have a leading market share in the U.S. metropolitan
and suburban markets we serve. For the year ended December 31, 2009, we ranked either first or
second based on box office revenues in 20 out of our top 25 U.S. markets, including the San
Francisco Bay Area, Dallas, Houston and Salt Lake City.
Strategically Located in Heavily Populated Latin American Markets. Since 1993, we have
invested throughout Latin America in response to the continued growth of the region. We currently
operate 130 theatres and 1,066 screens in 13 countries. Our international screens generated
revenues of $421.8 million for the year ended December 31, 2009. We have successfully established a
significant presence in major cities in the region, with theatres in thirteen of the fifteen
largest metropolitan areas. With a geographically diverse circuit, we are an important distribution
channel to the movie studios. The projected annual population growth for the Latin American
countries in which we operate ranges from 1% to 2% for each of the next five years. We are
well-positioned with our modern, large-format theatres to take advantage of these factors for
further growth and diversification of our revenues.
State-of-the-Art Theatre Circuit. We offer state-of-the-art theatres, which we believe makes
our theatres a preferred destination for moviegoers in our markets. We feature stadium seating in
approximately 84% of our first run auditoriums. During 2009, we increased the size of our circuit
by adding 180 new screens. We currently have commitments to build 137 additional screens over the
next three years. We plan to accelerate the installation of digital projection technology in many
of our U.S. and international auditoriums, which will allow us to also present 3-D content. We
recently developed a large screen digital format, which we call our XD Extreme Digital Cinema, or
XD. We currently have an XD screen installed in 16 theatres and have plans to install 30 to 40 more
XD screens during 2010. The XD experience includes wall-to-wall and ceiling-to-floor screens,
wrap-around sound and a maximum comfort entertainment environment for an intense sensory
experience. The XD technology does not require special format movie prints, which allows us the
flexibility to play any available digital print we choose, including 3-D content, on the XD screen.
Solid Balance Sheet with Significant Cash Flow from Operating Activities. We generate
significant cash flow from operating activities as a result of several factors, including a
geographically diverse and modern theatre circuit and managements ability to control costs.
Additionally, our ownership of land and buildings for 43 of our theatres is a strategic advantage
that enhances our cash flows. We believe our expected level of cash flow generation will provide us
with the financial flexibility to pursue growth opportunities, support our debt payments and make
dividend payments to our stockholders. As of December 31, 2009, we had cash and cash equivalents of
$437.9 million.
Experienced Management. Led by Chairman and founder Lee Roy Mitchell, Chief Executive Officer
Alan Stock, President and Chief Operating Officer Timothy Warner and Chief Financial Officer Robert
Copple, our management team has an average of approximately 35 years of theatre operating
experience executing a focused strategy that has led to consistent operating results. This
management team has successfully navigated us through many industry and economic cycles.
Our Strategy
We believe our disciplined operating philosophy and experienced management team will enable us
to continue to enhance our leading position in the motion picture exhibition industry. Key
components of our strategy include:
5
Establish and Maintain Leading Market Positions. We will continue to seek growth opportunities
by building or acquiring modern theatres that meet our strategic, financial and demographic
criteria. We will continue to focus on establishing and maintaining a leading position in the
markets we serve.
Continue to Focus on Operational Excellence. We will continue to focus on achieving
operational excellence by controlling theatre operating costs while continuing to provide leading
customer service. Our margins reflect our track record of operating efficiency.
Selectively Build in Profitable, Strategic Latin American Markets. Our international expansion
will remain focused primarily on Latin America through construction of modern, state-of-the-art
theatres in growing urban markets. We plan to continue to install digital projection technology in
many of our international auditoriums, which will allow us to expand our capabilities to present
3-D content in our international markets. We have also installed one of our propriety XD large
format screens in one of our international theatres and have plans to install approximately 15
additional XD screens during 2010.
Commitment to Digital Innovation. Our commitment to technological innovation will include an
accelerated transition to digital projection technology for a majority of our U.S. theatres and
many of our international theatres, which will allow for the presentation of 3-D content and
alternative entertainment such as concert events, the opera, special live documentaries and sports
programs. See further discussion of our domestic digital expansion at Participation in Digital
Cinema Implementation Partners LLC. We also plan to expand our XD screen footprint in various
markets throughout the U.S. and in select international markets, which offers our patrons a premium
movie-viewing experience.
6
Theatre Operations
As of December 31, 2009, we operated 424 theatres and 4,896 screens in 39 states, one Canadian
province and 13 Latin American countries. Our theatres in the U.S. are primarily located in
mid-sized U.S. markets, including suburbs of major metropolitan areas. We believe these markets are
generally less competitive and generate high, stable margins. Our theatres in Latin America are
primarily located in major metropolitan markets, which we believe are generally underscreened. The
following tables summarize the geographic locations of our theatre circuit as of December 31, 2009.
United States Theatres
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Total |
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Total |
State |
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Theatres |
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Screens |
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Texas |
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79 |
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1,024 |
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California |
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62 |
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752 |
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Ohio |
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20 |
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223 |
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Utah |
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13 |
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169 |
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Nevada |
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10 |
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154 |
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Illinois |
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9 |
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128 |
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Colorado |
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8 |
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127 |
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Arizona |
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7 |
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106 |
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Oregon |
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7 |
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102 |
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Kentucky |
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7 |
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87 |
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Pennsylvania |
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6 |
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89 |
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Oklahoma |
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6 |
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67 |
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Florida |
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5 |
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98 |
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Louisiana |
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5 |
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74 |
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Indiana |
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5 |
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48 |
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New Mexico |
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4 |
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54 |
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Virginia |
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4 |
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52 |
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North Carolina |
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4 |
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41 |
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Mississippi |
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3 |
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41 |
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Iowa |
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3 |
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37 |
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Arkansas |
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3 |
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30 |
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Washington |
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2 |
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30 |
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Georgia |
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2 |
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27 |
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New York |
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2 |
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27 |
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South Carolina |
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2 |
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22 |
|
West Virginia |
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2 |
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22 |
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Maryland |
|
|
1 |
|
|
|
24 |
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Kansas |
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|
1 |
|
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20 |
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Alaska |
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|
1 |
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|
16 |
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Michigan |
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|
1 |
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16 |
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New Jersey |
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1 |
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16 |
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Missouri |
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|
1 |
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|
15 |
|
South Dakota |
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|
1 |
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|
14 |
|
Tennessee |
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1 |
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|
14 |
|
Wisconsin |
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1 |
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|
14 |
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Massachusetts |
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1 |
|
|
|
12 |
|
Delaware |
|
|
1 |
|
|
|
10 |
|
Minnesota |
|
|
1 |
|
|
|
8 |
|
Montana |
|
|
1 |
|
|
|
8 |
|
|
|
|
United States |
|
|
293 |
|
|
|
3,818 |
|
Canada |
|
|
1 |
|
|
|
12 |
|
|
|
|
Total |
|
|
294 |
|
|
|
3,830 |
|
|
|
|
According to the 2009 Census Bureau, Texas and California experienced the two highest
state population increases, in terms of number of people, from 2008 to 2009, and Utah experienced
one of the highest population growth rates, in terms of percentage
increase in population from 2008 to 2009.
7
International Theatres
|
|
|
|
|
|
|
|
|
|
|
Total |
|
Total |
Country |
|
Theatres |
|
Screens |
|
Brazil |
|
|
46 |
|
|
|
388 |
|
Mexico |
|
|
31 |
|
|
|
296 |
|
Central America(1) |
|
|
12 |
|
|
|
81 |
|
Chile |
|
|
11 |
|
|
|
87 |
|
Colombia |
|
|
11 |
|
|
|
64 |
|
Argentina |
|
|
9 |
|
|
|
74 |
|
Peru |
|
|
6 |
|
|
|
50 |
|
Ecuador |
|
|
4 |
|
|
|
26 |
|
|
|
|
Total |
|
|
130 |
|
|
|
1,066 |
|
|
|
|
|
|
|
(1) |
|
Includes Honduras, El Salvador, Nicaragua, Costa Rica,
Panama and Guatemala. |
We first entered Latin America when we began operating movie theatres in Chile in 1993
and Mexico in 1994. Since then, through our focused international strategy, we have developed into
the most geographically diverse theatre circuit in the region. We have balanced our risk through a
diversified international portfolio, currently operating theatres in thirteen of the fifteen
largest metropolitan areas in Latin America. In addition, we have achieved significant scale in
Brazil and Mexico, the two largest Latin American economies, with 388 screens in Brazil and 296
screens in Mexico as of December 31, 2009.
We believe that certain markets within Latin America continue to be underserved as penetration
of movie screens per capita in Latin American markets is substantially lower than in the U.S. and
European markets. We will continue to build and expand our presence in underserved international
markets, with emphasis on Latin America, and fund our expansion primarily with cash flow generated
in those markets. We are able to mitigate cash flow exposure to currency fluctuations by using
local currencies to collect a majority of our revenues and fund a majority of the costs of our
international operations, including film and facility lease expense. Our geographic diversity
throughout Latin America has allowed us to maintain consistent revenue growth, notwithstanding
currency and economic fluctuations that may affect any particular market. Our international
revenues were approximately $421.8 million during 2009 versus $385.8 million during 2008.
Film Licensing
In the domestic marketplace, the Companys film department negotiates with film distributors,
which are made up of the traditional major film companies, specialized and art divisions of some of
these major film companies, and many other independent film distributors. The film distributors are
responsible for determining release dates, the marketing campaigns and the expenditures related to
marketing materials, television spots and other advertising outlets. The marketing of each movie
may include tours of the actors in the movies and coordination of articles and features about each
movie. The Company is responsible for booking the films in negotiated film zones, which are either
free zones or competitive zones. In free zones, movies can be booked without regard to the
location of another exhibitor within that area. In competitive zones, the distributor allocates
their movies to the exhibitors located in that area generally based on demographics and grossing
potential of that particular area. We are the sole exhibitor in approximately 89% of the 246 film
zones in which our first run U.S. theatres operate. In film zones where there is no direct
competition from other theatres, we select those films that we believe will be the most successful
from among those offered to us by film distributors.
Internationally, our local personnel negotiate with local offices of major film distributors
as well as local film distributors to license films for our international theatres. In the
international marketplace, films are not allocated to a single theatre in a geographic film zone,
but played by competitive theatres simultaneously. Our theatre personnel focus on providing
excellent customer service, and we provide a modern facility with the most up-to-date sound
systems, comfortable stadium style seating and other amenities typical of modern American-style
multiplexes, which we believe gives us a competitive advantage in markets where competing theatres
play the same films. Of the 1,066 screens we operate in international markets, approximately 72%
have no direct competition from other theatres.
Our film rental licenses in the U.S. typically specify that rental fees are based on the
applicable box office receipts and either the mutually agreed upon firm terms or a sliding scale
formula, which are established prior to the opening of
the film, or a mutually agreed upon settlement, which occurs at the conclusion of the film
run, subject to the film
8
licensing agreement. Under a firm terms formula, we pay the distributor a
specified percentage of box office receipts. Under the sliding scale formula, film rental is paid
as a percentage of box office revenues using a pre-determined matrix based upon box office
performance of the film. The settlement process allows for negotiation of film rental fees upon the
conclusion of the film run based upon how the film performs. Internationally, our film rental
licenses are primarily based on mutually agreed upon firm terms established prior to the opening of
the picture. The film rental percentages paid by our international locations are generally lower
than in the U.S. markets.
We regularly play art and independent films at many of our theatres, providing a variety of
film choices to our patrons. Bringing art and independent films to our theatres, allows us to
benefit from the growth in the art and independent market driven by the more mature patron and the
increased interest in art, foreign and documentary films. High profile film festivals, such as the
Sundance Film Festival, have contributed to growth and interest in this genre. Recent hits such as
Crazy Heart, Up in the Air, Young Victoria, The Hurt Locker and Precious have demonstrated the box
office potential of art and independent films.
Concessions
Concession sales are our second largest revenue source, representing approximately 31% of
total revenues for each of the years ended December 31, 2007, 2008 and 2009. Concession sales have
a much higher margin than admissions sales. We have devoted considerable management effort to
increase concession sales and improve operating margins. These efforts include implementation of
the following strategies:
|
|
|
Optimization of product mix. We offer concession products that primarily include
various sizes of popcorn, soft drinks, candy and quickly-prepared food, such as hot dogs
and nachos. Different varieties and flavors of candy and soft drinks are offered at
theatres based on preferences in that particular market. Our point of sale system allows us
to monitor product sales and make changes to product mix when necessary, as we take
advantage of national product launches. Specially priced combos and promotions are
introduced on a regular basis to increase average concession purchases as well as to
attract new buyers. |
|
|
|
Staff training. Employees are continually trained in suggestive-selling and
upselling techniques. Consumer promotions conducted at the concession stand usually
include a motivational element that rewards theatre staff for exceptional sales of certain
promotional items. |
|
|
|
Theatre design. Our theatres are designed to optimize efficiencies at the concession
stands, which include multiple service stations to facilitate serving more customers more
quickly. We strategically place large concession stands within theatres to heighten
visibility, reduce the length of concession lines, and improve traffic flow around the
concession stands. We have self-service concession areas in many of our theatres, which
allow customers to select their own refreshments and proceed to the cash register when they
are ready. This design allows for efficient service, enhanced choices and superior
visibility of concession items. Concession designs in many of our new theatres have
incorporated the self-service model. |
|
|
|
Cost control. We negotiate prices for concession supplies directly with concession
vendors and manufacturers to obtain volume rates. Concession supplies are distributed
through a national distribution network. The concession distributor supplies and
distributes inventory to the theatres, who place orders directly with the vendors to
replenish stock. We conduct weekly inventory of all concession products at each theatre to
ensure proper stock levels are maintained for business. |
9
Participation in National CineMedia
In March 2005, Regal Entertainment, Inc., (or Regal), and AMC Entertainment, Inc., (or AMC),
formed National CineMedia, LLC, (or NCM), and on July 15, 2005, we joined NCM, as one of the
founding members. NCM operates an in-theatre digital network in the U.S. The digital network
consists of projectors used to display advertising and other non-film events. NCMs primary
activities that impact our theatres include:
|
|
|
advertising through its branded First Look pre-feature entertainment program, and
lobby promotions and displays, |
|
|
|
live and pre-recorded networked and single-site meetings and events, and |
|
|
|
live and pre-recorded concerts, sporting events and other non-film entertainment
programming. |
We believe that the reach, scope and digital delivery capability of NCMs network provides an
effective platform for national, regional and local advertisers to reach an engaged audience. We
receive a monthly theatre access fee for participation in the NCM network. In addition, we are
entitled to receive mandatory quarterly distributions of excess cash from NCM. As of December 31,
2009, we had an approximate 15% interest in NCM. See Note 7 to the consolidated financial
statements.
In our international markets, we generally outsource our screen advertising to local companies
who have established relationships with local advertisers that provide similar benefits as NCM. The
terms of our international screen advertising contracts vary by country. In some locations, we earn
a percentage of the screen advertising revenues collected by our partners and in other locations we
are paid a fixed annual fee for access to our screens.
Participation in Digital Cinema Implementation Partners
On February 12, 2007, we, AMC and Regal, entered into a joint venture known as Digital Cinema
Implementation Partners LLC, (or DCIP), to facilitate the implementation of digital cinema in our
U.S. theatres and to establish agreements with major motion picture studios for the financing of
digital cinema. Future digital cinema developments will be managed by DCIP, subject to certain
approvals by us, AMC and Regal. Each of Regal, AMC and Cinemark has an equal voting interest in
DCIP. To date, DCIPs wholly-owned subsidiary Kasima has executed long-term deployment agreements
with six motion picture studios, under which Kasima will receive a virtual print fee from such
studios for each digital presentation. In accordance with these agreements, the digital projection
systems deployed by Kasima will comply with the technology and security specifications developed by
the Digital Cinema Initiatives studio consortium. In addition, Kasima will lease digital projection systems to us, AMC and Regal under
master lease agreements
that have an initial term of twelve years.
On March 10, 2010, we signed a master lease agreement and other related agreements
(collectively the agreements) with Kasima. Upon signing
these agreements, we contributed
cash and our existing digital projection systems to DCIP. Subsequent
to the contributions, we continue to have a 33% voting interest in
DCIP and now have a 24.3% economic interest in
DCIP. This initial financing is expected to cover the cost of conversion for a large portion of
our U.S. circuits screens. We ultimately expect to outfit all of our first run
screens with digital projection systems, with up to 1,500 screens being digital 3D capable.
As of December 31, 2009, we operated 399 screens enabled with digital 3D projection systems,
including 299 in the U.S. As a result of these agreements, we will begin a rollout of 3-D
compatible digital projection systems to a majority of our first run U.S. theatres. We will incur
certain operating and maintenance costs with respect to the digital projection systems installed in
our theatres, which we expect to be relatively comparable to what we currently spend on our
conventional film projectors.
10
Marketing
In the U.S., we rely on newspaper directory film schedules, generally paid for by us, and
Internet advertising, which has emerged as the primary media source to inform patrons of film
titles and showtimes. Radio and television advertising spots, generally paid for by film
distributors, are used to promote certain motion pictures and special events. We also exhibit
previews of coming attractions and films we are currently playing. We offer patrons access to movie
times, the ability to buy and print their tickets at home and purchase gift cards and other
advanced sale-type certificates at our Web site www.cinemark.com. We partner with film distributors
to use monthly web contests to drive traffic to our Web site and to ensure that customers visit
often. In addition, we work on a regular basis with all of the film distributors to promote their
films with local, regional and national programs that are exclusive to our theatres. These programs
may involve customer contests, cross-promotions with the media and third parties and other means to
increase patronage for a particular film showing at one of our theatres.
Internationally, we exhibit upcoming and current film previews on screen, we partner with film
distributors for certain promotions and advertise our new locations through various forms of media
and events. We partner with large multi-national corporations in the large metropolitan areas in
which we have theatres, to promote our brand, our image and to increase attendance levels at our
theatres. Our customers are encouraged to register on our Web site to receive weekly information by
email for showtime information, invitations to special screenings, sponsored events and promotional
information. In addition, our customers can request to receive showtime information on their cell
phones. We also have loyalty programs in some of our international markets that allow customers to
pay a nominal fee for a membership card that provides them with certain admissions and concession
discounts. In addition, the Company is currently developing an iPhone application for some of its
international markets. This application will allow consumers to check showtimes and purchase
tickets.
Our marketing department also focuses on maximizing ancillary revenue, which includes the sale
of our gift cards and our SuperSaver discount tickets. We market these programs to such business
representatives as realtors, human resource managers, incentive program managers and hospital and
pharmaceutical personnel. Gift cards can be purchased at our theatres or online through our Web
site. SuperSavers are also sold online at our Web site or over the phone, fax or email by our local
corporate offices and are also available at certain retailers in the U.S.
Online Sales
Our patrons may purchase advance tickets for all of our domestic screens and approximately one
half of our international screens by accessing our corporate Web site at www.cinemark.com. Advance
tickets may also be purchased for our domestic screens at www.fandango.com. Our Internet
initiatives help improve customer satisfaction, allowing patrons who purchase tickets over the
Internet to often bypass lines at the box office by printing their tickets at home or picking up
their tickets at kiosks located at the theatre.
Point of Sale Systems
We have developed our own proprietary point of sale system to enhance our ability to maximize
revenues, control costs and efficiently manage operations. The system is currently installed in all
of our U.S. theatres and our one Canadian theatre. The point of sale system provides corporate
management with real-time admissions and concession revenues data and reports to allow for timely
changes to movie schedules, including extending film runs, increasing the number of screens on
which successful movies are being played, or substituting films when gross receipts do not meet
expectations. Real-time seating and box office information is available to box office personnel,
preventing overselling of a particular film and providing faster and more accurate responses to
customer inquiries regarding showtimes and available seating. The system tracks concession sales by
product, provides in-theatre inventory reports for efficient inventory management and control,
offers numerous ticket pricing options, connects with digital concession signage for real-time
pricing modifications, integrates Internet ticket sales and processes credit card transactions.
Barcode scanners, pole displays, touch screens, credit card readers and other equipment are
integrated with the system to enhance its functions and provide print at home and mobile ticketing.
In our international locations, we currently use other point of sale systems that have either been
developed internally or by third parties, which have been certified as compliant with applicable
governmental regulations and provide generally the same capabilities as our proprietary point of
sale system.
11
Competition
We are the second largest motion picture exhibitor in the world in terms of both attendance
and the number of screens in operation. We compete against local, regional, national and
international exhibitors with respect to attracting patrons, licensing films and developing new
theatre sites.
We are the sole exhibitor in approximately 89% of the 246 film zones in which our first run U.S.
theatres operate. In film zones where there is no direct competition from other theatres, we select
those films that we believe will be the most successful from among those offered to us by film
distributors. Where there is competition, the distributor allocates their movies to the exhibitors
located in that area generally based on demographics and grossing potential of that particular
area. Of the 1,066 screens we operate outside of the U.S., approximately 72% of those screens have
no direct competition from other theatres. In areas where we face direct competition, our success
in attracting patrons depends on location, accessibility and capacity of an exhibitors theatre,
quality of projection and sound equipment, film showtime availability, levels of
customer service, and ticket prices. The competition for film licensing in the U.S. is dependent
upon factors such as the theatres location and its demographics, the condition, capacity and
revenue potential of each theatre, and licensing terms.
We compete for new theatre sites with other movie theatre exhibitors as well as other
entertainment venues, with securing a potential site being dependent upon factors such as committed
investment and resources, theatre design and capacity, revenue and patron potential, and financial
stability.
We also face competition from a number of other motion picture exhibition delivery systems,
such as DVDs, network and syndicated television, video on-demand, pay-per-view television and the
Internet. We also face competition from other forms of entertainment competing for the publics
leisure time and disposable income, such as concerts, theme parks and sporting events.
Corporate Operations
Our corporate headquarters is located in Plano, Texas. Personnel at our corporate headquarters
provide oversight for our domestic and international theatres. Domestic personnel at our corporate
headquarters include our executive team and department heads in charge of film licensing,
concessions, theatre operations support, human resources, legal, finance and accounting, audit,
theatre maintenance and construction, information systems support, real estate and marketing. Our
U.S. operations are divided into sixteen regions, primarily organized geographically, each of which
is headed by a region leader.
International personnel at our corporate headquarters include our President of Cinemark
International, L.L.C. and department heads in charge of film licensing, concessions, theatre
operations, theatre construction, real estate, legal, audit, information systems and accounting. We
have a chief financial officer in both Brazil and Mexico, which are our two largest international
markets. We have eight regional offices in Latin America responsible for the local management of
theatres in thirteen individual countries. Each regional office is headed by a general manager and
includes personnel in film licensing, marketing, human resources, information systems, operations
and accounting. The regional offices are staffed with experienced personnel from the region to
mitigate cultural and operational barriers.
Employees
We have approximately 14,200 employees in the U.S., approximately 10% of whom are full time
employees and 90% of whom are part time employees. We have approximately 6,500 employees in our
international markets, approximately 63% of whom are full time employees and approximately 37% of
whom are part time employees. Some of our U.S. employees are represented by unions under collective
bargaining agreements, and some of our international locations are subject to union regulations. We
regard our relations with our employees to be satisfactory.
Regulations
The distribution of motion pictures is largely regulated by federal and state antitrust laws
and has been the subject of numerous antitrust cases. The manner in which we can license films from
certain major film distributors is subject to consent decrees resulting from these cases. Consent
decrees bind certain major film distributors and require the films of such distributors to be
offered and licensed to exhibitors, including us, on a theatre-by-theatre and film-by-film basis.
12
Consequently, exhibitors cannot enter into long-term arrangements with major distributors, but
must negotiate for licenses on a theatre-by-theatre and film-by-film basis.
We are subject to various general regulations applicable to our operations including the
Americans with Disabilities Act of 1990, or the ADA. We develop new theatres to be accessible to
the disabled and we believe we are substantially compliant with current regulations relating to
accommodating the disabled. Although we believe that our theatres comply with the ADA, we have been
a party to lawsuits which claim that our handicapped seating arrangements do not comply with the
ADA or that we are required to provide captioning for patrons who are deaf or are severely hearing
impaired.
Our theatre operations are also subject to federal, state and local laws governing such
matters as wages, working conditions, citizenship, health and sanitation requirements and
licensing.
Financial Information About Geographic Areas
We have operations in the U.S., Canada, Brazil, Mexico, Chile, Colombia, Argentina, Peru,
Ecuador, Honduras, El Salvador, Nicaragua, Costa Rica, Panama and Guatemala, which are reflected in
the consolidated financial statements. See Note 23 to the consolidated financial statements for
segment information and financial information by geographic area.
13
Our business depends on film production and performance.
Our business depends on both the availability of suitable films for exhibition in our theatres
and the success of those films in our markets. Poor performance of films, the disruption in the
production of films due to events such as a strike by directors, writers or actors, a reduction in
financing options for the film distributors, or a reduction in the marketing efforts of the film
distributors to promote their films could have an adverse effect on our business by resulting in
fewer patrons and reduced revenues.
A deterioration in relationships with film distributors could adversely affect our ability to
obtain commercially successful films.
We rely on the film distributors to supply the films shown in our theatres. The film
distribution business is highly concentrated, with six major film distributors accounting for
approximately 83% of U.S. box office revenues and 44 of the top 50 grossing films during 2009.
Numerous antitrust cases and consent decrees resulting from these antitrust cases impact the
distribution of films. The consent decrees bind certain major film distributors to license films to
exhibitors on a theatre-by-theatre and film-by-film basis. Consequently, we cannot guarantee a
supply of films by entering into long-term arrangements with major distributors. We are therefore
required to negotiate licenses for each film and for each theatre. A deterioration in our
relationship with any of the six major film distributors could adversely affect our ability to
obtain commercially successful films and to negotiate favorable licensing terms for such films,
both of which could adversely affect our business and operating results.
Our results of operations vary from period to period based upon the quantity and quality of
the motion pictures that we show in our theatres.
Our results of operations vary from period to period based upon the quantity and quality of
the motion pictures that we show in our theatres. The major film distributors generally release the
films they anticipate will be most successful during the summer and holiday seasons. Consequently,
we typically generate higher revenues during these periods. Due to the dependency on the success of
films released from one period to the next, results of operations for one period may not be
indicative of the results for the following period or the same period in the following year.
We face intense competition for patrons and films which may adversely affect our business.
The motion picture industry is highly competitive. We compete against local, regional,
national and international exhibitors. We compete for both patrons and licensing of films. The
competition for patrons is dependent upon such factors as location, accessibility and capacity of
an exhibitors theatre, the comfort and quality of the theatres, film and showtime availability,
levels of customer service, and pricing. The principal competitive factors with respect to film
licensing include the theatres location and its demographics, the condition, capacity and revenue
potential of each theatre and licensing terms. If we are unable to attract patrons or to license
successful films, our business may be adversely affected.
An increase in the use of alternative or downstream film distribution channels and other
competing forms of entertainment may reduce movie theatre attendance and limit ticket price growth.
We face competition for patrons from a number of alternative film distribution channels, such
as DVDs, network and syndicated television, video on-demand, pay-per-view television and the
Internet. We also compete with other forms of entertainment, such as concerts, amusement parks and
sporting events, for our patrons leisure time and disposable income. A significant increase in
popularity of these alternative film distribution channels and competing forms of entertainment
could have an adverse effect on our business and results of operations.
14
Our results of operations may be impacted by shrinking video release windows.
Over the last decade, the average video release window, which represents the time that elapses
from the date of a films theatrical release to the date a film is available on DVD, an important
downstream market, has decreased from approximately six months to approximately three to four
months. If patrons choose to wait for a DVD release rather than attend a theatre for viewing the
film, it may adversely impact our business and results of operations, financial condition and cash
flows. We cannot assure you that this release window, which is determined by the film studios, will
not shrink further or be eliminated altogether, which could have an adverse impact on our business
and results of operations.
We have substantial long-term lease and debt obligations, which may restrict our ability to
fund current and future operations and that restrict our ability to enter into certain
transactions.
We have, and will continue to have, significant long-term debt service obligations and
long-term lease obligations. As of December 31, 2009, we had $1,543.7 million in long-term debt
obligations, $140.4 million in capital lease obligations and $1,865.6 million in long-term
operating lease obligations. We incurred interest expense of $102.5 million for the year ended
December 31, 2009. We incurred $238.8 million of facility lease expense under operating leases for
the year ended December 31, 2009 (the terms under these operating leases, excluding renewal
options, range from one to 28 years). Our substantial lease and debt obligations pose risk to you
by:
|
|
|
making it more difficult for us to satisfy our obligations; |
|
|
|
requiring us to dedicate a substantial portion of our cash flows to payments on our
lease and debt obligations, thereby reducing the availability of our cash flows from
operations to fund working capital, capital expenditures, acquisitions and other corporate
requirements and to pay dividends; |
|
|
|
impeding our ability to obtain additional financing in the future for working capital,
capital expenditures, acquisitions and general corporate purposes; |
|
|
|
subjecting us to the risk of increased sensitivity to interest rate increases on our
variable rate debt, including our borrowings under our senior secured credit facility; and |
|
|
|
making us more vulnerable to a downturn in our business and competitive pressures and
limiting our flexibility to plan for, or react to, changes in our industry or the economy. |
Our ability to make scheduled payments of principal and interest with respect to our
indebtedness will depend on our ability to generate positive cash flows and on our future financial
results. Our ability to generate positive cash flows is subject to general economic, financial,
competitive, regulatory and other factors that are beyond our control. We cannot assure you that we
will continue to generate cash flows at current levels, or that future borrowings will be available
under our senior secured credit facility, in an amount sufficient to enable us to pay our
indebtedness. If our cash flows and capital resources are insufficient to fund our lease and debt
service obligations, we may be forced to reduce or delay capital expenditures, sell assets or
operations, seek additional capital or restructure or refinance our indebtedness. We may not be
able to take any of these actions, and these actions may not be successful or permit us to meet our
scheduled debt service obligations and these actions may be restricted under the terms of our
existing or future debt agreements, including our senior secured credit facility. The senior
secured credit facility restricts our ability to dispose of assets and use the proceeds from the
disposition. We may not be able to consummate those dispositions or the proceeds may not be
adequate to meet our debt service obligations.
If we fail to make any required payment under the agreements governing our leases and
indebtedness or fail to comply with the financial and operating covenants contained in them, we
would be in default, and as a result, our debt holders would have the ability to require that we
immediately repay our outstanding indebtedness and the lenders under our senior secured credit
facility could terminate their commitments to lend us money and foreclose against the assets
securing their borrowings. We could be forced into bankruptcy or liquidation, which could result in
the loss of your investment. The acceleration of our indebtedness under one agreement may permit
acceleration of indebtedness under other agreements that contain cross-default and
cross-acceleration provisions. If our indebtedness is accelerated, we may not be able to repay our
indebtedness or borrow sufficient funds to refinance it. Even if we are able to obtain new
financing, it may not be on commercially reasonable terms or on terms that are acceptable to us. If
our debt holders require immediate payment, we may not have sufficient assets to satisfy our
obligations under our indebtedness.
15
General political, social and economic conditions can adversely affect our attendance.
Our results of operations are dependent on general political, social and economic conditions,
and the impact of such conditions on our theatre operating costs and on the willingness of
consumers to spend money at movie theatres. If consumers discretionary income declines as a result
of an economic downturn, our operations could be adversely affected. If theatre operating costs,
such as utility costs, increase due to political or economic changes, our results of operations
could be adversely affected. Political events, such as terrorist attacks, and health-related
epidemics, such as flu outbreaks, could cause people to avoid our theatres or other public places
where large crowds are in attendance. In addition, a natural disaster, such as a hurricane or an
earthquake, could impact our ability to operate certain of our theatres, which could adversely
affect our attendance.
Our foreign operations are subject to adverse regulations, economic instability and currency
exchange risk.
We have 130 theatres with 1,066 screens in thirteen countries in Latin America. Brazil and
Mexico represented approximately 11% and 3% of our consolidated 2009 revenues, respectively.
Governmental regulation of the motion picture industry in foreign markets differs from that in the
United States. Changes in regulations affecting prices, quota systems requiring the exhibition of
locally-produced films and restrictions on ownership of property may adversely affect our
international operations in foreign markets. Our international operations are subject to certain
political, economic and other uncertainties not encountered by our domestic operations, including
risks of severe economic downturns and high inflation. We also face risks of currency fluctuations,
hard currency shortages and controls of foreign currency exchange and transfers abroad, all of
which could have an adverse effect on the results of our international operations.
We may not be able to generate additional revenues or continue to realize value from our
investment in NCM.
In 2005, we joined Regal and AMC as founding members of NCM, a provider of digital advertising
content and digital non-film event content. As of December 31, 2009, we had an interest in NCM of
approximately 15%. We receive a monthly theatre access fee under our Exhibitor Services Agreement
with NCM and we are entitled to receive mandatory quarterly distributions of excess cash from NCM.
During the years ended December 31, 2008 and 2009, the Company received approximately $1.8 million
and $5.7 million in other revenues from NCM, respectively, and $18.8 million and $20.8 million in
cash distributions in excess of our investment in NCM, respectively. Cinema advertising is a small
component of the U.S. advertising market and therefore, NCM competes with larger, established and
well known media platforms such as broadcast radio and television, cable and satellite television,
outdoor advertising and Internet portals. NCM also competes with other cinema advertising companies
and with hotels, conference centers, arenas, restaurants and convention facilities for its non-film
related events to be shown or held in our auditoriums. In-theatre advertising may not continue to
attract advertisers or NCMs in-theatre advertising format may not continue to be received
favorably by theatre patrons. If NCM is unable to continue to generate consistent advertising
revenues, its results of operations may be adversely affected and our investment in and
distributions and revenues from NCM may be adversely impacted.
We are subject to uncertainties related to digital cinema, including insufficient financing to obtain digital projectors and insufficient supply of digital projectors.
Digital cinema is still in an early conversion stage in our industry. We, along with some of
our competitors, have commenced a roll-out of digital equipment for exhibiting feature films and plan to continue the roll-out through our joint venture DCIP.
However, significant obstacles exist that impact such a roll-out plan including the cost of
digital projectors, and the supply of projectors by manufacturers. We
cannot assure you that DCIP will be able to obtain sufficient
financing to be able to purchase and lease to us the number of
digital projectors needed for our roll-out or that the manufacturers will be able to supply the volume of projectors needed for our roll-out.
As a result, our roll-out of digital equipment could be delayed or
not completed at all.
We are subject to uncertainties relating to future expansion plans, including our ability to
identify suitable acquisition candidates or site locations, and to obtain financing for such
activities on favorable terms or at all.
We have greatly expanded our operations over the last decade through targeted worldwide
theatre development and acquisitions. We will continue to pursue a strategy of expansion that will
involve the development of new theatres and may involve acquisitions of existing theatres and
theatre circuits both in the U.S. and internationally. There is significant competition for new
site locations and for existing theatre and theatre circuit acquisition opportunities. As a result
of such competition, we may not be able to acquire attractive site locations, existing theatres or
theatre circuits on terms we consider acceptable. Acquisitions and expansion opportunities may
divert a significant amount of managements time away from the operation of our business. Growth by
acquisition also involves risks relating to difficulties in integrating
16
the operations and personnel of acquired companies and the potential loss of key employees of
acquired companies. We cannot assure you that our expansion strategy will result in improvements to
our business, financial condition, profitability, or cash flows. Further, our expansion programs
may require financing above our existing borrowing capacity and operating cash flows. We cannot
assure you that we will be able to obtain such financing or that such financing will be available
to us on acceptable terms or at all.
If we do not comply with the Americans with Disabilities Act of 1990 and a consent order we
entered into with the Department of Justice, or the DOJ, we could be subject to further litigation.
Our theatres must comply with Title III of the ADA and analogous state and local laws.
Compliance with the ADA requires among other things that public facilities reasonably accommodate
individuals with disabilities and that new construction or alterations made to commercial
facilities conform to accessibility guidelines unless structurally impracticable for new
construction or technically infeasible for alterations. In March 1999, the Department of Justice,
or DOJ, filed suit against us in Ohio alleging certain violations of the ADA relating to wheelchair
seating arrangements in certain of our stadium-style theatres and seeking remedial action. We and
the DOJ have resolved this lawsuit and a consent order was entered by the U.S. District Court for
the Northern District of Ohio, Eastern Division, on November 15, 2004. Under the consent order, we
were required to make modifications to wheelchair seating locations in fourteen stadium-style movie
theatres and spacing and companion seating modifications in 67 auditoriums at other stadium-styled
movie theatres. These modifications were completed by November 2009. Upon completion of these
modifications, these theatres comply with wheelchair seating requirements, and no further
modifications will be required to our other stadium-style movie theatres in the United States
existing on the date of the consent order. In addition, under the consent order, the DOJ approved
the seating plans for nine stadium-styled movie theatres then under construction and also created a
safe harbor framework for us to construct all of our future stadium-style movie theatres. The DOJ
has stipulated that all theatres built in compliance with the consent order will comply with the
wheelchair seating requirements of the ADA. If we fail to comply with the ADA, remedies could
include imposition of injunctive relief, fines, awards for damages to private litigants and
additional capital expenditures to remedy non-compliance. Imposition of significant fines, damage
awards or capital expenditures to cure non-compliance could adversely affect our business and
operating results.
We depend on key personnel for our current and future performance.
Our current and future performance depends to a significant degree upon the continued
contributions of our senior management team and other key personnel. The loss or unavailability to
us of any member of our senior management team or a key employee could significantly harm us. We
cannot assure you that we would be able to locate or employ qualified replacements for senior
management or key employees on acceptable terms.
We are subject to impairment losses due to potential declines in the fair value of our assets.
We review 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. We assess many factors when determining whether to impair individual theatre assets,
including actual theatre level cash flows, future years budgeted theatre level cash flows, theatre
property and equipment carrying values, amortizing intangible assets 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 our assessment of impairment of individual theatre assets.
Long-lived assets are evaluated for impairment on an individual theatre basis, which we believe is
the lowest applicable level for which there are identifiable cash flows. When estimated fair value
is determined to be lower than the carrying value of the theatre assets, the theatre assets are
written down to their estimated fair value. Fair value is determined based on a multiple of cash
flows, which was eight times for the evaluations performed during 2007 and the first, second and
third quarters of 2008 and six and a half times for the evaluation performed during the fourth
quarter of 2008 and the evaluations performed during 2009. Significant judgment is involved in
estimating cash flows and fair value. Managements estimates, which fall under Level 3, are based
on historical and projected operating performance, recent market transactions and current industry
trading multiples. Since we evaluate long-lived assets for impairment at the theatre level, if a
theatre is directly and individually impacted by increased competition, adverse changes in market
demographics or adverse changes in the development or condition of the areas surrounding the
theatre, we may record impairment charges to reflect the decline in estimated fair value of that
theatre.
We have a significant amount of goodwill as a result of the Century Acquisition and the
Cinemark Share Exchange. We evaluate goodwill for impairment at the reporting unit level at least
annually during the fourth quarter or whenever
17
events or changes in circumstances indicate the carrying value of goodwill might exceed its
estimated fair value. Goodwill impairment is evaluated using a two-step approach requiring us to
compute the fair value of a reporting unit and compare it with its carrying value. If the carrying
value of the theatre exceeds its fair value, a second step would be performed to measure the
potential goodwill impairment. Fair values are determined based on a multiple of cash flows, which
was eight times for the evaluations performed during 2007 and six and a half times for the
evaluations performed during 2008 and 2009. Significant judgment is involved in estimating cash
flows and fair value. Managements estimates, which fall under Level 3, are based on historical and
projected operating performance, recent market transactions and current industry trading multiples.
Declines in our stock price or market capitalization, declines in the Companys attendance due to
increased competition in certain regions and/or countries or economic factors that lead to a
decline in attendance in any given region or country could negatively affect the Companys
estimated fair values and could result in further impairments of goodwill. As of December 31, 2009,
the carrying value of goodwill allocated to reporting units where the estimated fair value was less
than 10% more than the carrying value was approximately $173.0 million.
We also have a significant amount of tradename intangible assets as a result of the Century
Acquisition and the Cinemark Share Exchange. Tradename intangible assets are tested for impairment
at least annually during the fourth quarter or whenever events or changes in circumstances indicate
the carrying value may not be recoverable. We estimate the fair value of our tradenames by
applying an estimated market royalty rate that could be charged for the use of our tradename to
forecasted future revenues, with an adjustment for the present value of such royalties. If the
estimated fair value is less than the carrying value, the tradename intangible asset is written
down to the estimated fair value.
We recorded asset impairment charges, including goodwill impairment charges, of $86.6 million,
$113.5 and $11.8 million for the years ended December 31, 2007, 2008 and 2009, respectively. We
cannot assure you that additional impairment charges will not be required in the future, and such
charges may have an adverse effect on our financial condition and results of operations. See
Managements Discussion and Analysis of Financial Condition and Results of Operations and Notes
11 and 12 to the consolidated financial statements.
The impairment or insolvency of other financial institutions could adversely affect us.
We have exposure to different counterparties with regard to our interest rate swap agreements.
These transactions expose us to credit risk in the event of a default by one or more of our
counterparties to such agreements. We also have exposure to financial institutions used as
depositories of our corporate cash balances. If our counterparties or financial institutions become
impaired or insolvent, this could have a material impact on our results of operations or impair our
ability to access our cash.
A credit market crisis may adversely affect our ability to raise capital and may materially
impact our operations.
Severe dislocations and liquidity disruptions in the credit markets could materially impact
our ability to obtain debt financing on reasonable terms or at all. The inability to access debt
financing on reasonable terms could materially impact our ability to make acquisitions or
significantly expand our business in the future.
We may be subject to liability under environmental laws and regulations.
We own and operate a large number of theatres and other properties within the United States
and internationally, which may be subject to various foreign, federal, state and local laws and
regulations relating to the protection of the environment or human health. Such environmental laws
and regulations include those that impose liability for the investigation and remediation of spills
or releases of hazardous materials. We may incur such liability, including for any currently or
formerly owned, leased or operated property, or for any site, to which we may have disposed, or
arranged for the disposal of, hazardous materials or wastes. Certain of these laws and regulations
may impose liability, including on a joint and several liability, which can result in a liable
party being obliged to pay for greater than its share, regardless of fault or the legality of the
original disposal. Environmental conditions relating to our properties or operations could have an
adverse effect on our business and results of operations and cash flows.
The
interests of Madison Dearborn Capital Partners IV, L.P., or MDCP, may not be aligned with
yours.
MDCP beneficially owns approximately 39% of our common stock and under a director nomination
agreement, is entitled to designate nominees for five members of our board of directors.
Accordingly, MDCP has influence and effectively controls our corporate and management policies and
has significant influence over the outcome of any corporate transaction or other matters submitted
to our stockholders for approval, including potential mergers or
18
acquisitions, asset sales and other significant corporate transactions. MDCP could seek to
take other actions that might be desirable to MDCP but that might not be desirable for other
stockholders.
Our ability to pay dividends may be limited or otherwise restricted.
Our ability to pay dividends is limited by our status as a holding company and the terms of
our indenture, our senior secured credit facility and certain of our other debt instruments, which
restrict our ability to pay dividends and the ability of certain of our subsidiaries to pay
dividends, directly or indirectly, to us. Under our debt instruments, we may pay a cash dividend up
to a specified amount, provided we have satisfied certain financial covenants in, and are not in
default under, our debt instruments. Furthermore, certain of our foreign subsidiaries currently
have a deficit in retained earnings which prevents them from declaring and paying dividends from
those subsidiaries. The declaration of future dividends on our common stock will be at the
discretion of our board of directors and will depend upon many factors, including our results of
operations, financial condition, earnings, capital requirements, limitations in our debt agreements
and legal requirements.
Provisions in our corporate documents and certain agreements, as well as Delaware law, may
hinder a change of control.
Provisions in our amended and restated certificate of incorporation and bylaws, as well as
provisions of the Delaware General Corporation Law, could discourage unsolicited proposals to
acquire us, even though such proposals may be beneficial to you. These provisions include:
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authorization of our board of directors to issue shares of preferred stock without
stockholder approval; |
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a board of directors classified into three classes of directors with the directors of
each class, subject to shorter initial terms for some directors, having staggered,
three-year terms; |
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provisions regulating the ability of our stockholders to nominate directors for election
or to bring matters for action at annual meetings of our stockholders; and |
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provisions of Delaware law that restrict many business combinations and provide that
directors serving on classified boards of directors, such as ours, may be removed only for
cause. |
Certain provisions of our 8.625% senior notes indenture and our senior secured credit facility
may have the effect of delaying or preventing future transactions involving a change of control.
A change of control would require us to make an offer to the holders of our 8.625% senior notes
to repurchase all of the outstanding notes at a purchase price equal to 101% of the aggregate
principal amount outstanding plus accrued unpaid interest to the date of the purchase. A change of
control would also be an event of default under our senior secured credit facility.
The market price of our common stock may be volatile.
There can be no assurance that an active trading market for our common stock will continue.
The securities markets have recently experienced extreme price and volume fluctuations and the
market prices of the securities of companies have been particularly volatile. This market
volatility, as well as general economic or political conditions, could reduce the market price of
our common stock regardless of our operating performance. In addition, our operating results could
be below the expectations of investment analysts and investors and, in response, the market price
of our common stock may decrease significantly and prevent investors from reselling their shares of
our common stock at or above a market price that is favorable to other stockholders. In the past,
companies that have experienced volatility in the market price of their stock have been the subject
of securities class action litigation. If we were the subject of securities class action
litigation, it could result in substantial costs, liabilities and a diversion of managements
attention and resources.
19
Future sales of our common stock may adversely affect the prevailing market price.
If a large number of shares of our common stock is sold in the open market, or if there is a
perception that such sales will occur, the trading price of our common stock could decrease. In
addition, the sale of these shares could impair our ability to raise capital through the sale of
additional common stock. As of December 31, 2009, we had an
aggregate of 173,160,476 shares of our
common stock authorized but unissued and not reserved for specific purposes. In general, we may
issue all of these shares without any action or approval by our stockholders. We may issue shares
of our common stock in connection with acquisitions.
As of December 31, 2009, we had 110,917,105 shares of our common stock outstanding. Of these
shares, approximately 37,392,814 shares were freely tradable. The remaining shares of our common
stock were restricted securities as that term is defined in Rule 144 under the Securities Act.
Restricted securities may not be resold in a public distribution except in compliance with the
registration requirements of the Securities Act or pursuant to an exemption therefrom, including
the exemptions provided by Regulation S and Rule 144 promulgated under the Securities Act.
We cannot predict whether substantial amounts of our common stock will be sold in the open
market in anticipation of, or following, any divestiture by any of our existing stockholders, our
directors or executive officers of their shares of common stock.
As of December 31, 2009, there were 10,897,498 shares of our common stock reserved for
issuance under our Amended and Restated 2006 Long Term Incentive Plan, of which 1,231,892 shares of
common stock were issuable upon exercise of options outstanding as of December 31, 2009. The sale
of shares issued upon the exercise of stock options could further dilute your investment in our
common stock and adversely affect our stock price.
Legislative or regulatory initiatives related to global warming/climate change concerns may
negatively impact our business.
Recently, there has been an increasing focus and continuous debate on global climate change
including increased attention from regulatory agencies and legislative bodies. This increased focus
may lead to new initiatives directed at regulating an as yet unspecified array of environmental
matters. Legislative, regulatory or other efforts in the United States to combat climate change
could result in future increases in the cost of raw materials, taxes, transportation and utilities
for our vendors and for us which would result in higher operating costs for the Company. Also,
compliance of our theatres and accompanying real estate with new and revised environmental, zoning,
land-use or building codes, laws, rules or regulations, could have a material and adverse effect on
our business. However, we are unable to predict at this time, the potential effects, if any, that
any future environmental initiatives may have on our business.
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Item 1B. |
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Unresolved Staff Comments |
None.
20
United States
As of December 31, 2009, we operated 251 theatres, with 3,223 screens, pursuant to leases and
own the land and building for 43 theatres, with 607 screens, in the U.S. Our leases are generally
entered into on a long-term basis with terms, including renewal options, generally ranging from 20
to 45 years. As of December 31, 2009, approximately 7% of our theatre leases in the U.S., covering
19 theatres with 162 screens, have remaining terms, including optional renewal periods, of less
than six years. Approximately 12% of our theatre leases in the U.S., covering 29 theatres with 221
screens, have remaining terms, including optional renewal periods, of between six and 15 years and
approximately 81% of our theatre leases in the U.S., covering 203 theatres with 2,840 screens, have
remaining terms, including optional renewal periods, of more than 15 years. The leases generally
provide for a fixed monthly minimum rent payment, with certain leases also subject to additional
percentage rent if a target annual revenue level is achieved. We lease an office building in Plano,
Texas for our corporate headquarters.
International
As of December 31, 2009, internationally, we operated 130 theatres, with 1,066 screens, all of
which are leased pursuant to ground or building leases. Our international leases are generally
entered into on a long term basis with terms generally ranging from 10 to 20 years. The leases
generally provide for contingent rental based upon operating results (some of which are subject to
an annual minimum). Generally, these leases include renewal options for various periods at
stipulated rates. As of December 31, 2009, approximately 5% of our international theatre leases or
seven theatres with 54 screens have a remaining term, including optional renewal periods, of less
than six years. Approximately 32% of our international theatre leases, covering 41 theatres and 350
screens, have remaining terms, including optional renewal periods, of between six and 15 years and
approximately 63% of our international theatre leases, covering 82 theatres and 662 screens, have
remaining terms, including optional renewal periods, of more than 15 years. We lease office space
in eight regions in Latin America for our local management.
See Note 22 to the consolidated financial statements for information regarding our minimum
lease commitments. We periodically review the profitability of each of our theatres, particularly
those whose lease terms are nearing expiration, to determine whether to continue its operations.
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Item 3. |
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Legal Proceedings |
We resolved a lawsuit filed by the DOJ in March 1999 which alleged certain violations of the
ADA relating to wheelchair seating arrangements in certain of our stadium-style theatres. We and
the DOJ agreed to a consent order which was entered by the U.S. District Court for the Northern
District of Ohio, Eastern Division, on November 15, 2004. Under the consent order, we were required
to make modifications to wheelchair seating locations in fourteen stadium-style movie theatres and
spacing and companion seating modifications in 67 auditoriums at other stadium-styled movie
theatres. These modifications were completed by November 2009. We are currently in compliance with
the consent order. Upon completion of these modifications, these theatres did comply with
wheelchair seating requirements, and no further modifications are required to our other
stadium-style movie theatres in the United States existing on the date of the consent order. In
addition, under the consent order, the DOJ approved the seating plans for nine stadium-styled movie
theatres then under construction and also created a safe harbor framework for us to construct all
of our future stadium-style movie theatres. The DOJ has stipulated that all theatres built in
compliance with the consent order will comply with the wheelchair seating requirements of the ADA.
We do not believe that our requirements under the consent order will materially affect our business
or financial condition.
From time to time, we are involved in other various legal proceedings arising from the
ordinary course of our business operations, such as personal injury claims, employment matters,
landlord-tenant disputes and contractual disputes, some of which are covered by insurance. We
believe our potential liability, with respect to proceedings currently pending, is not material,
individually or in the aggregate, to our financial position, results of operations and cash flows.
21
PART II
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Item 5. |
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Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities |
Market Information and Holders of Our Common Stock
Our common equity consists of common stock, which has traded on the New York Stock Exchange
since April 24, 2007 under the symbol CNK. The following table sets forth the historical high
and low sales prices per share of our common stock as reported by the New York Stock Exchange for
the fiscal periods indicated.
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Fiscal 2008 |
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Fiscal 2009 |
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High |
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Low |
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High |
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Low |
First Quarter (January 1, 2009 March 31, 2009) |
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$ |
17.09 |
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$ |
12.24 |
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$ |
10.26 |
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$ |
6.75 |
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Second Quarter (April 1, 2009 June 30, 2009) |
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$ |
15.73 |
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$ |
12.05 |
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$ |
11.49 |
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$ |
8.63 |
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Third Quarter (July 1, 2009 September 30, 2009) |
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$ |
16.30 |
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$ |
11.08 |
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$ |
11.65 |
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$ |
9.50 |
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Fourth Quarter (October 1, 2009 December 31, 2009) |
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$ |
14.51 |
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$ |
6.73 |
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$ |
14.85 |
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$ |
10.08 |
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On
February 28, 2010, there were 122 stockholders of record of our common stock.
Dividend Policy
In August 2007, we initiated a quarterly dividend policy. Below is a summary of dividends
paid since initiation of this policy:
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Amount per |
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Date |
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Date of |
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Date |
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Common |
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Total |
Declared |
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Record |
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Paid |
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Share (1) |
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Dividends |
08/13/07 |
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09/04/07 |
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09/18/07 |
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$ |
0.13 |
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$13.9 million |
11/12/07 |
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12/03/07 |
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12/18/07 |
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$ |
0.18 |
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$19.2 million |
02/26/08 |
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03/06/08 |
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03/14/08 |
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$ |
0.18 |
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$19.3 million |
05/09/08 |
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05/30/08 |
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06/12/08 |
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$ |
0.18 |
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$19.3 million |
08/07/08 |
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08/25/08 |
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09/12/08 |
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$ |
0.18 |
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$19.3 million |
11/06/08 |
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11/26/08 |
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12/11/08 |
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$ |
0.18 |
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$19.6 million |
02/13/09 |
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03/05/09 |
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03/20/09 |
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$ |
0.18 |
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$19.6 million |
05/13/09 |
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06/02/09 |
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06/18/09 |
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$ |
0.18 |
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$19.7 million |
07/29/09 |
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08/17/09 |
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09/01/09 |
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$ |
0.18 |
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$19.7 million |
11/04/09 |
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11/25/09 |
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12/10/09 |
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$ |
0.18 |
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$19.7 million |
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(1) |
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The dividend paid on September 18, 2007 was
based on a quarterly dividend rate of $0.18 per common share,
prorated based on the April 24, 2007 closing date of our
initial public offering. |
We, at the discretion of the board of directors and subject to applicable law, anticipate
paying regular quarterly dividends on our common stock. The amount, if any, of the dividends to be
paid in the future will depend upon our then available cash, anticipated cash needs, overall
financial condition, loan agreement restrictions, future prospects for earnings and cash flows, as
well as other relevant factors.
22
Performance Graph
The following graph compares the cumulative total stockholder return on our common stock for
the period April 24, 2007 through December 31, 2009 (our fiscal year end) with the Standard and
Poors Corporation Composite 500 Index and a self-determined peer group of two public companies
engaged in the motion picture exhibition industry. The peer group consists of Regal Entertainment
Group and Carmike Cinemas, Inc.
CUMULATIVE
TOTAL RETURN
Based upon initial investment of $100 on April 24, 2007
with dividends reinvested
SOURCE: Yahoo!Finance & Company reports
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4/24/2007 |
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6/29/2007 |
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9/28/2007 |
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12/31/2007 |
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3/31/2008 |
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6/30/2008 |
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9/30/2008 |
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12/31/2008 |
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3/31/2009 |
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6/30/2009 |
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9/30/2009 |
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12/31/2009 |
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Cinemark
Holdings Inc. |
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$ |
100 |
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$ |
94 |
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$ |
98 |
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$ |
90 |
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$ |
68 |
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$ |
69 |
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$ |
72 |
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$ |
40 |
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$ |
50 |
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$ |
61 |
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$ |
56 |
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$ |
78 |
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S&P © 500 |
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100 |
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102 |
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103 |
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99 |
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89 |
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86 |
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79 |
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61 |
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54 |
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62 |
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71 |
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75 |
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Peer Group (2
Stocks)* |
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100 |
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99 |
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91 |
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58 |
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61 |
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49 |
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46 |
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33 |
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38 |
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52 |
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54 |
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53 |
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* |
|
The 2-Stock Peer Group consists of Regal Entertainment Group and Carmike Cinemas, Inc. |
Securities Authorized for Issuance under Equity Compensation Plans
The following table provides information about the securities authorized for issuance under
the equity compensation plans of Cinemark Holdings, Inc. as of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
Weighted |
|
Number of Securities |
|
|
Securities to be |
|
Average Exercise |
|
Remaining Available for |
|
|
Issued upon |
|
Price of |
|
Future Issuance Under |
|
|
Exercise of |
|
Outstanding |
|
Equity Compensation Plans |
|
|
Outstanding |
|
Options, |
|
(Excluding Securities |
|
|
Options, Warrants |
|
Warrants and |
|
Reflected in the First |
Plan Category |
|
and Rights |
|
Rights |
|
Column) |
Equity compensation plans approved by security holders |
|
|
1,231,892 |
|
|
$ |
7.63 |
|
|
|
10,897,498 |
|
Equity compensation plans not approved by security holders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1,231,892 |
|
|
$ |
7.63 |
|
|
|
10,897,498 |
|
|
|
|
23
Use of Proceeds
There has been no material change in the planned use of proceeds from our initial public
offering as described in our final prospectus filed with the SEC pursuant to Rule 424(b). Pending
the application of the net proceeds, we have invested the proceeds in short-term, investment-grade
marketable securities or money market obligations. Below is a summary of open market repurchases
of our 9 3/4% senior discount notes that were funded with proceeds from our initial public offering:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate |
|
|
|
|
|
|
Principal Amount |
|
Repurchase |
|
Accreted |
Date |
|
at Maturity |
|
Price |
|
Interest |
July 2007 |
|
$ |
14.5 |
million |
|
$ |
13.2 |
million |
|
$ |
3.4 |
million |
August 2007 |
|
$ |
32.5 |
million |
|
$ |
29.6 |
million |
|
$ |
7.5 |
million |
November 2007 |
|
$ |
22.2 |
million |
|
$ |
20.9 |
million |
|
$ |
5.7 |
million |
March 2008 |
|
$ |
10.0 |
million |
|
$ |
9.0 |
million |
|
$ |
2.9 |
million |
October 2008 |
|
$ |
30.0 |
million |
|
$ |
27.3 |
million |
|
$ |
9.8 |
million |
November 2008 |
|
$ |
7.0 |
million |
|
$ |
5.9 |
million |
|
$ |
2.5 |
million |
Cumulative total with IPO proceeds |
|
$ |
116.2 |
million |
|
$ |
105.9 |
million |
|
$ |
31.8 |
million |
24
|
|
|
Item 6. |
|
Selected Financial Data |
The following table provides our selected consolidated financial and operating data for the
periods and at the dates indicated for each of the five most recent years ended December 31, 2009.
On August 2, 2006, Cinemark Holdings, Inc. was formed as the Delaware holding company of Cinemark,
Inc. The selected financial data presented for periods prior to that date are for Cinemark, Inc. On
October 5, 2006, we completed our acquisition of Century Theatres, Inc. Results of operations
reflect the inclusion of the Century theatres beginning on the date of acquisition.
On April 24, 2007, Cinemark Holdings, Inc. completed an initial public offering of its common stock.
Effective December 11, 2009, Cinemark, Inc. was merged into Cinemark Holdings, Inc., with no accounting
impact. You should read the selected consolidated financial and operating data set forth below in
conjunction with Managements Discussion and Analysis of Financial Condition and Results of
Operations and our audited consolidated financial statements and related notes appearing elsewhere
in this report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
2005 |
|
2006 |
|
2007 |
|
2008 |
|
2009 |
|
|
(Dollars in thousands, except per share data) |
Statement of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Admissions |
|
$ |
641,240 |
|
|
$ |
760,275 |
|
|
$ |
1,087,480 |
|
|
$ |
1,126,977 |
|
|
$ |
1,293,378 |
|
Concession |
|
|
320,072 |
|
|
|
375,798 |
|
|
|
516,509 |
|
|
|
534,836 |
|
|
|
602,880 |
|
Other |
|
|
59,285 |
|
|
|
84,521 |
|
|
|
78,852 |
|
|
|
80,474 |
|
|
|
80,242 |
|
|
|
|
Total revenues |
|
$ |
1,020,597 |
|
|
$ |
1,220,594 |
|
|
$ |
1,682,841 |
|
|
$ |
1,742,287 |
|
|
$ |
1,976,500 |
|
Film rental and advertising |
|
|
347,727 |
|
|
|
405,987 |
|
|
|
589,717 |
|
|
|
612,248 |
|
|
|
708,160 |
|
Concession supplies |
|
|
52,507 |
|
|
|
59,020 |
|
|
|
81,074 |
|
|
|
86,618 |
|
|
|
91,918 |
|
Salaries and wages |
|
|
101,431 |
|
|
|
118,616 |
|
|
|
173,290 |
|
|
|
180,950 |
|
|
|
203,437 |
|
Facility lease expense |
|
|
138,477 |
|
|
|
161,374 |
|
|
|
212,730 |
|
|
|
225,595 |
|
|
|
238,779 |
|
Utilities and other |
|
|
123,831 |
|
|
|
144,808 |
|
|
|
191,279 |
|
|
|
205,814 |
|
|
|
222,660 |
|
General and administrative expenses |
|
|
50,884 |
|
|
|
67,768 |
|
|
|
79,518 |
|
|
|
90,788 |
|
|
|
96,497 |
|
Termination of profit participation agreement |
|
|
|
|
|
|
|
|
|
|
6,952 |
|
|
|
|
|
|
|
|
|
Total depreciation and amortization |
|
|
86,126 |
|
|
|
99,470 |
|
|
|
151,716 |
|
|
|
158,034 |
|
|
|
149,515 |
|
Impairment of long-lived assets |
|
|
51,677 |
|
|
|
28,537 |
|
|
|
86,558 |
|
|
|
113,532 |
|
|
|
11,858 |
|
(Gain) loss on sale of assets and other |
|
|
4,436 |
|
|
|
7,645 |
|
|
|
(2,953 |
) |
|
|
8,488 |
|
|
|
3,202 |
|
|
|
|
Total cost of operations |
|
|
957,096 |
|
|
|
1,093,225 |
|
|
|
1,569,881 |
|
|
|
1,682,067 |
|
|
|
1,726,026 |
|
|
|
|
Operating income |
|
$ |
63,501 |
|
|
$ |
127,369 |
|
|
$ |
112,960 |
|
|
$ |
60,220 |
|
|
$ |
250,474 |
|
|
|
|
Interest expense |
|
$ |
84,082 |
|
|
$ |
109,328 |
|
|
$ |
145,596 |
|
|
$ |
116,058 |
|
|
$ |
102,505 |
|
|
|
|
Net income (loss) |
|
$ |
(24,484 |
) |
|
$ |
2,310 |
|
|
$ |
89,712 |
|
|
$ |
(44,430 |
) |
|
$ |
100,756 |
|
|
|
|
Net income (loss) attributable to Cinemark
Holdings, Inc. |
|
$ |
(25,408 |
) |
|
$ |
841 |
|
|
$ |
88,920 |
|
|
$ |
(48,325 |
) |
|
$ |
97,108 |
|
|
|
|
Net income (loss) attributable to Cinemark
Holdings, Inc. per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.31 |
) |
|
$ |
0.01 |
|
|
$ |
0.87 |
|
|
$ |
(0.45 |
) |
|
$ |
0.89 |
|
|
|
|
Diluted |
|
$ |
(0.31 |
) |
|
$ |
0.01 |
|
|
$ |
0.85 |
|
|
$ |
(0.45 |
) |
|
$ |
0.87 |
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
2005 |
|
2006 |
|
2007 |
|
2008 |
|
2009 |
Other Financial Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of earnings to fixed charges(1) |
|
|
|
|
|
|
1.09 |
x |
|
|
1.96 |
x |
|
|
|
|
|
|
1.84 |
x |
Cash flow provided by (used for): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
165,270 |
|
|
$ |
155,662 |
|
|
$ |
276,036 |
|
|
$ |
257,294 |
|
|
$ |
176,763 |
|
Investing activities(2) |
|
|
(81,617 |
) |
|
|
(631,747 |
) |
|
|
93,178 |
|
|
|
(94,942 |
) |
|
|
(183,130 |
) |
Financing activities |
|
|
(3,750 |
) |
|
|
439,977 |
|
|
|
(183,715 |
) |
|
|
(135,091 |
) |
|
|
78,299 |
|
Capital expenditures |
|
|
(75,605 |
) |
|
|
(107,081 |
) |
|
|
(146,304 |
) |
|
|
(106,109 |
) |
|
|
(124,797 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
2005 |
|
2006 |
|
2007 |
|
2008 |
|
2009 |
|
|
(Dollars in thousands) |
Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
182,199 |
|
|
$ |
147,099 |
|
|
$ |
338,043 |
|
|
$ |
349,603 |
|
|
$ |
437,936 |
|
Theatre properties and equipment, net |
|
|
803,269 |
|
|
|
1,324,572 |
|
|
|
1,314,066 |
|
|
|
1,208,283 |
|
|
|
1,219,588 |
|
Total assets |
|
|
1,864,852 |
|
|
|
3,171,582 |
|
|
|
3,296,892 |
|
|
|
3,065,708 |
|
|
|
3,276,448 |
|
Total long-term debt and capital
lease obligations, including
current portion |
|
|
1,055,095 |
|
|
|
2,027,480 |
|
|
|
1,644,915 |
|
|
|
1,632,174 |
|
|
|
1,684,073 |
|
Stockholders equity |
|
|
535,771 |
|
|
|
705,910 |
|
|
|
1,035,385 |
|
|
|
824,227 |
|
|
|
914,628 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
2005 |
|
2006 |
|
2007 |
|
2008 |
|
2009 |
Operating Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theatres operated (at period end) |
|
|
200 |
|
|
|
281 |
|
|
|
287 |
|
|
|
293 |
|
|
|
294 |
|
Screens operated (at period end) |
|
|
2,417 |
|
|
|
3,523 |
|
|
|
3,654 |
|
|
|
3,742 |
|
|
|
3,830 |
|
Total attendance (in 000s) |
|
|
105,573 |
|
|
|
118,714 |
|
|
|
151,712 |
|
|
|
147,897 |
|
|
|
165,112 |
|
International(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theatres operated (at period end) |
|
|
108 |
|
|
|
115 |
|
|
|
121 |
|
|
|
127 |
|
|
|
130 |
|
Screens operated (at period end) |
|
|
912 |
|
|
|
965 |
|
|
|
1,011 |
|
|
|
1,041 |
|
|
|
1,066 |
|
Total attendance (in 000s) |
|
|
60,104 |
|
|
|
59,550 |
|
|
|
60,958 |
|
|
|
63,413 |
|
|
|
71,622 |
|
Worldwide(3)(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theatres operated (at period end) |
|
|
308 |
|
|
|
396 |
|
|
|
408 |
|
|
|
420 |
|
|
|
424 |
|
Screens operated (at period end) |
|
|
3,329 |
|
|
|
4,488 |
|
|
|
4,665 |
|
|
|
4,783 |
|
|
|
4,896 |
|
Total attendance (in 000s) |
|
|
165,677 |
|
|
|
178,264 |
|
|
|
212,670 |
|
|
|
211,310 |
|
|
|
236,734 |
|
|
|
|
(1) |
|
For the purposes of calculating the ratio of earnings to fixed charges, earnings
consist of income (loss) before income taxes plus fixed charges excluding capitalized
interest. Fixed charges consist of interest expense, capitalized interest, amortization of
debt issue costs and that portion of rental expense which we believe to be representative of
the interest factor. For the years ended December 31, 2005 and 2008, earnings were
insufficient to cover fixed charges by $15.6 million and $27.1 million, respectively. |
|
(2) |
|
Includes the cash portion of the Century Acquisition purchase price of $531.2
million during the year ended December 31, 2006. |
|
(3) |
|
The data excludes certain theatres operated by us in the U.S. pursuant to management
agreements that are not part of our consolidated operations. |
|
(4) |
|
The data excludes certain theatres operated internationally through our affiliates
that are not part of our consolidated operations. |
26
|
|
|
Item 7. |
|
Managements Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion and analysis should be read in conjunction with the financial
statements and accompanying notes included in this report. This discussion contains forward-looking
statements. See Cautionary Statement Regarding Forward-Looking Statements and Risk Factors for
a discussion of the uncertainties and risk associated with these statements.
Overview
On August 2, 2006, Cinemark Holdings, Inc. was formed as the Delaware holding company of
Cinemark, Inc. On April 24, 2007, Cinemark Holdings, Inc. completed an initial public offering of
its common stock. Effective December 11, 2009, Cinemark, Inc. was merged into Cinemark Holdings,
Inc. and Cinemark Holdings, Inc. became the holding company of Cinemark USA, Inc.
As of December 31, 2009, 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 23 to the consolidated financial statements.
Revenues and Expenses
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
investment in NCM has 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 non-film events. In addition, we are able to use theatres during non-peak hours
for concerts, sporting events, and other cultural events. Films released during the year ended
December 31, 2009 included Avatar, Transformers: Revenge of the Fallen, Harry Potter and the
Half-Blood Prince, Up, Twilight Saga: New Moon, The Hangover, Star Trek, Monsters vs. Aliens, Ice
Age: Dawn of the Dinosaurs, The Blind Side, X-Men Origins: Wolverine, Night at the Museum 2: Battle
of the Smithsonian, The Proposal, 2012, Fast & Furious, G.I. Joe: The Rise of the Cobra, Paul
Blart: Mall Cop, Taken, A Christmas Carol, Angels & Demons, Terminator Salvation, Cloudy with a
Chance of Meatballs, Inglorious Basterds, G-Force, District 9, Couples Retreat, Paranormal
Activity, and Watchmen. 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 in 2010 include the carryover
of Avatar and new releases such as Alice in Wonderland, How to Train a Dragon, Clash of the Titans,
Iron Man 2, Shrek Forever After, Sex and the City 2, Toy Story 3, Little Fockers, The A Team, Tron:
Legacy, Robin Hood, Despicable Me, Tangled, Megamind and another installment of both the Twilight
and Harry Potter franchises, 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.
27
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.
Critical Accounting Policies
We prepare our consolidated financial statements in conformity with U.S. GAAP. As such, we are
required to make certain estimates and assumptions that we believe are reasonable based upon the
information available. These estimates and assumptions affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the periods presented. The significant accounting policies, which we believe are
the most critical to aid in fully understanding and evaluating our reported consolidated financial
results, include the following:
Revenue and Expense Recognition
Revenues are recognized when admissions and concession sales are received at the box office.
Other revenues primarily consist of screen advertising. Screen advertising revenues are recognized
over the period that the related advertising is delivered on-screen or in-theatre. We record
proceeds from the sale of gift cards and other advanced sale-type certificates in current
liabilities and recognize admissions and concession revenue when a holder redeems the card or
certificate. We recognize unredeemed gift cards and other advanced sale-type certificates as
revenue only after such a period of time indicates, based on historical experience, the likelihood
of redemption is remote, and based on applicable laws and regulations. In evaluating the likelihood
of redemption, we consider the period outstanding, the level and frequency of activity, and the
period of inactivity.
Film rental costs are accrued based on the applicable box office receipts and either the
mutually agreed upon firm terms or a sliding scale formula, which are established prior to the
opening of the film, or estimates of the final mutually agreed upon settlement, which occurs at the
conclusion of the film run, subject to the film licensing arrangement. Under a firm terms formula,
we pay the distributor a mutually agreed upon specified percentage of box office receipts, which
reflects either a mutually agreed upon aggregate rate for the life of the film or rates that
decline over the term of the run. Under the sliding scale formula, film rental is paid as a
percentage of box office revenues using a pre-determined matrix based upon box office performance
of the film. The settlement process allows for negotiation of film rental fees upon the conclusion
of the film run based upon how the film performs. Estimates are based on the expected success of a
film over the length of its run in theatres. The success of a film can typically be determined a
few weeks after a film is released when initial box office performance of the film is known.
Accordingly, final settlements typically approximate estimates since box office receipts are known
at the time the estimate is made and the expected success of a film over the length of its run in
theatres can typically be estimated early in the films run. The final film settlement amount is
negotiated at the conclusion of the films run based upon how a film actually performs. If actual
settlements are different than those estimated, film rental costs are adjusted at that time. We
recognize advertising costs and any cost sharing arrangements with film distributors in the same
accounting period. Our advertising costs are expensed as incurred.
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 monthly
percentage rent only, which is accrued each month based on actual revenues. Certain of our other
theatres require payment of percentage rent in addition to fixed monthly rent if a target annual
revenue level is achieved. Percentage rent expense is recorded for these theatres on a monthly
basis if the theatres historical performance or forecasted performance indicates that the annual
target will be reached. The estimate of percentage rent expense recorded during the year is based
on a trailing twelve months of revenues. Once annual revenues are known, which is generally at the
end of the year, the percentage rent expense is adjusted based on actual revenues.
Theatre properties and equipment are depreciated using the straight-line method over their
estimated useful lives. In estimating the useful lives of our theatre properties and equipment, we
have relied upon our experience with such assets and our historical replacement period. We
periodically evaluate these estimates and assumptions and adjust them as necessary. Adjustments to
the expected lives of assets are accounted for on a prospective basis through depreciation expense.
28
Impairment of Long-Lived Assets
We review 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. We assess many factors including the following to determine whether to impair
individual theatre assets:
|
|
|
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 our assessment of impairment of individual theatre
assets. |
Long-lived assets are evaluated for impairment on an individual theatre basis, which we
believe 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, we then compare 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. Significant judgment is involved in
estimating cash flows and fair value. Managements estimates, which fall under Level 3, 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 eight
times for the evaluations performed during 2007 and the first, second and third quarters of 2008
and six and a half times for the evaluation performed during the fourth quarter of 2008 and the
evaluations performed during 2009. We reduced the multiple we used to determine fair value during
the fourth quarter of 2008 due to the dramatic decline in estimated market values that resulted
from a significant decrease in our stock price and the declines in our and our competitors market
capitalizations that occurred during the fourth quarter of 2008. The long-lived asset impairment
charges related to theatre properties recorded during each of the periods presented are specific to
theatres that were directly and individually impacted by increased competition, adverse changes in
market demographics or adverse changes in the development or the
conditions of the areas surrounding
the theatre.
Impairment of Goodwill and Intangible Assets
We evaluate goodwill for impairment annually during the fourth quarter or whenever events or
circumstances indicate the carrying value of the goodwill might exceed its estimated fair value. We
evaluate goodwill for impairment at the reporting unit level and have allocated goodwill to the
reporting unit based on an estimate of its relative fair value. The evaluation is a two-step
approach requiring us 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 its 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,
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 eight times for the goodwill impairment evaluations performed during 2007 and six and a
half times for the evaluations performed during 2008 and 2009. We reduced the multiple we used to
determine fair value during the fourth quarter of 2008 due to the dramatic decline in estimated
market values that resulted from significant decreases in our stock price and our and our
competitors market capitalizations that occurred during the fourth quarter of 2008. Prior to
January 1, 2008, we considered our theatres reporting units for purposes of evaluating goodwill for
impairment. Changes in the organization, including changes in the structure of the executive
management team, the initial public offering of our common stock, the resulting changes in the level at
which the management team evaluates the business on a regular basis, and the Century Acquisition
that increased the size of the theatre base by approximately 25%, led management to
29
conclude that our U.S. regions and international countries are now more reflective of how we
manage and operate our business. Accordingly, the U.S. regions and international countries
represent the appropriate reporting units for purposes of evaluating goodwill for impairment.
Consequently, effective January 1, 2008, management changed the reporting unit to sixteen regions
in the U.S. and each of eight countries internationally (Honduras, El Salvador, Nicaragua, Costa
Rica, Panama and Guatemala are considered one reporting unit) from approximately four hundred
theatres. The goodwill impairment test performed during December 2007 that resulted in the
recording of impairment charges during the year ended December 31, 2007 reflected the final
calculation utilizing theatres as reporting units. The goodwill impairment charges taken during the
year ended December 31, 2008 were related to four U.S. regions, one of which was fully impaired and
three of which were partially impaired down to estimated fair value. As of December 31, 2009, the
carrying value of goodwill allocated to reporting units where the estimated fair value was less
than 10% more than the carrying value was approximately $173.0 million. Declines in our stock price
or market capitalization, declines in the Companys attendance due to increased competition in
certain regions and/or countries or economic factors that lead to a decline in attendance in any
given region or country could negatively affect the Companys estimated fair values and could
result in further impairments of goodwill.
Tradename intangible assets are tested for impairment at least annually during the fourth
quarter or whenever events or changes in circumstances indicate the carrying value may not be
recoverable. We estimate the fair value of our tradenames by applying an estimated market royalty
rate that could be charged for the use of our tradename to forecasted future revenues, with an
adjustment for the present value of such royalties. If the estimated fair value is less than the
carrying value, the tradename intangible asset is written down to the estimated fair value.
Acquisitions
We account for acquisitions under the acquisition method of accounting. The acquisition method
requires that the acquired assets and liabilities, including contingencies, be recorded at fair
value determined on the acquisition date and changes thereafter reflected in income. For
significant acquisitions, we obtain independent third party valuation studies for certain of the
assets acquired and liabilities assumed to assist us in determining fair value. The estimation of
the fair values of the assets acquired and liabilities assumed involves a number of estimates and
assumptions that could differ materially from the actual amounts recorded. We provide the
assumptions, including both quantitative and qualitative information, about the specified asset or
liability to the third party valuation firms. We primarily utilize the third parties to accumulate
comparative data from multiple sources and assemble a report that summarizes the information
obtained. We then use that information to determine fair value. The third party valuation firms are
supervised by our personnel who are knowledgeable about valuations and fair value. We evaluate the
appropriateness of the valuation methodology utilized by the third party valuation firm.
Income Taxes
We use an asset and liability approach to financial accounting and reporting for income taxes.
Deferred income taxes are provided when tax laws and financial accounting standards differ with
respect to the amount of income for a year and the basis of assets and liabilities. A valuation
allowance is recorded to reduce the carrying amount of deferred tax assets unless it is more likely
than not that such assets will be realized. Income taxes are provided on unremitted earnings from
foreign subsidiaries unless such earnings are expected to be indefinitely reinvested. Income taxes
have also been provided for potential tax assessments. The related tax accruals are recorded in
accordance with FASB ASC Topic 740, Income Taxes, which clarifies the accounting and reporting for
income taxes recognized, and the recognition, measurement, presentation and disclosure of uncertain
tax positions taken or expected to be taken in income tax returns. The evaluation of an uncertain
tax position is a two-step process. The first step is recognition: We determine whether it is more
likely than not that a tax position will be sustained upon examination, including resolution of any
related appeals or litigation processes, based on the technical merits of the position. In
evaluating whether a tax position has met the more-likely-than-not recognition threshold, we
presume that the position would be examined by the appropriate taxing authority that would have
full knowledge of all relevant information. The second step is measurement: A tax position that
meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit
to recognize in the financial statements. The tax position is measured at the largest amount of
benefit that is greater than 50 percent likely of being realized upon ultimate settlement.
Differences between tax positions taken in a tax return and amounts recognized in the financial
statements result in (1) a change in a liability for income taxes payable or (2) a change in an
income tax refund receivable, a deferred tax asset or a deferred tax liability or both (1) and (2).
We accrue for interest and penalties on our tax provisions for uncertain tax positions.
30
Recent Developments
Dividend Declaration
On February 25, 2010, our board of directors declared a cash dividend in the amount of $0.18
per common share payable to stockholders of record on March 5, 2010. The dividend will be paid on
March 19, 2010.
Amendment and Extension of Senior Secured Credit Facility
On March 2, 2010, we completed an amendment and extension to our
existing senior secured credit facility to primarily extend the
maturities of the facility and make certain other modifications.
Approximately $924.4 million of our $1,083.6 million outstanding term loan debt
has been extended from an original maturity date of October 2013 to a maturity date of April 2016. Payments on the extended amount
will be due in equal quarterly installments of 0.25% of the extended amount beginning March 31, 2010 through March 31, 2016 with the
remaining principal amount due April 30, 2016. The interest rate on this extended portion of the term loan is, at our option, at the
base rate plus 2.25% or a eurodollar rate plus 3.25%. The maturity
date of, the interest rates applicable to and the quarterly payments for
the remaining $159.2 million of our outstanding term loan did not change.
In addition, the maturity date of $73.5 million of our $150.0 million revolving line of credit has been extended from October 2012
to March 2015. The interest rate on this extended portion of the revolving line of credit is, at our option, at the base rate plus
a margin that ranges from 1.75% to 2.00% or a eurodollar rate plus a
margin that ranges from 2.75% to 3.00%. The maturity date of and the
interest rates applicable to the remaining $76.5 million of our revolving line of credit did not change.
We incurred debt issue costs of approximately $8.6 million related to this amendment and extension.
Earthquake in Chile
On February 27, 2010, an 8.8 magnitude earthquake occurred in Chile, a country in which we have eleven
theatres, a local corporate office and approximately 800 employees.
For the year ended December 31, 2009, revenues generated by our Chile locations were 1.6% of our total revenues.
We have property and business interruption insurance for our Chile locations. The insurance policy covers earthquake damage up to
a specified limit with applicable deductibles per location. We expect
to reopen seven of our theatres within the next week and we are continuing to
assess the level and nature of the damage to our other four theatres.
DCIP
On
March 10, 2010, we signed a master equipment lease agreement and other related agreements (collectively
the agreements) with Kasima, which is a wholly-owned subsidiary of our joint venture DCIP and a related party to
us. Upon signing the agreements, we contributed cash of $1.2 million and our existing digital equipment at a fair
value of $16.4 million to DCIP (collectively the contributions). The net book value of the contributed equipment
was approximately $18.1 million, and as a result, we will record a loss of approximately $1.7 million during the
three months ending March 31, 2010. Subsequent to the contributions, we continue to have a 33% voting interest in DCIP and now have a 24.3% economic interest in DCIP.
As a result of these agreements, we will begin a rollout of 3-D compatible digital projection systems to a
majority of our first run U.S. theatres. The digital projection systems will be leased from Kasima under a twelve-year lease 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, we will pay 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. We are also subject to various types of other rent if such 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.
31
Results of Operations
The following table sets forth, for the periods indicated, the percentage of revenues
represented by certain items reflected in our consolidated statements of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
2007 |
|
2008 |
|
2009 |
Operating data (in millions): |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
Admissions |
|
$ |
1,087.5 |
|
|
$ |
1,127.0 |
|
|
$ |
1,293.4 |
|
Concession |
|
|
516.5 |
|
|
|
534.8 |
|
|
|
602.9 |
|
Other |
|
|
78.8 |
|
|
|
80.5 |
|
|
|
80.2 |
|
|
|
|
Total revenues |
|
$ |
1,682.8 |
|
|
$ |
1,742.3 |
|
|
$ |
1,976.5 |
|
Cost of operations |
|
|
|
|
|
|
|
|
|
|
|
|
Film rentals and advertising |
|
$ |
589.7 |
|
|
$ |
612.2 |
|
|
$ |
708.2 |
|
Concession supplies |
|
|
81.1 |
|
|
|
86.6 |
|
|
|
91.9 |
|
Salaries and wages |
|
|
173.3 |
|
|
|
181.0 |
|
|
|
203.4 |
|
Facility lease expense |
|
|
212.7 |
|
|
|
225.6 |
|
|
|
238.8 |
|
Utilities and other |
|
|
191.3 |
|
|
|
205.8 |
|
|
|
222.7 |
|
General and administrative expenses |
|
|
86.5 |
|
|
|
90.8 |
|
|
|
96.5 |
|
Depreciation and amortization |
|
|
151.7 |
|
|
|
158.1 |
|
|
|
149.5 |
|
Impairment of long-lived assets |
|
|
86.6 |
|
|
|
113.5 |
|
|
|
11.8 |
|
(Gain) loss on sale of assets and other |
|
|
(3.0 |
) |
|
|
8.5 |
|
|
|
3.2 |
|
|
|
|
Total cost of operations |
|
$ |
1,569.9 |
|
|
$ |
1,682.1 |
|
|
$ |
1,726.0 |
|
|
|
|
Operating income |
|
$ |
112.9 |
|
|
$ |
60.2 |
|
|
$ |
250.5 |
|
|
|
|
Operating data as a percentage of total revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
Admissions |
|
|
64.6 |
% |
|
|
64.7 |
% |
|
|
65.4 |
% |
Concession |
|
|
30.7 |
% |
|
|
30.7 |
% |
|
|
30.5 |
% |
Other |
|
|
4.7 |
% |
|
|
4.6 |
% |
|
|
4.1 |
% |
|
|
|
Total revenues |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
Cost of operations (1) |
|
|
|
|
|
|
|
|
|
|
|
|
Film rentals and advertising |
|
|
54.2 |
% |
|
|
54.3 |
% |
|
|
54.8 |
% |
Concession supplies |
|
|
15.7 |
% |
|
|
16.2 |
% |
|
|
15.2 |
% |
Salaries and wages |
|
|
10.3 |
% |
|
|
10.4 |
% |
|
|
10.3 |
% |
Facility lease expense |
|
|
12.6 |
% |
|
|
12.9 |
% |
|
|
12.1 |
% |
Utilities and other |
|
|
11.4 |
% |
|
|
11.8 |
% |
|
|
11.3 |
% |
General and administrative expenses |
|
|
5.1 |
% |
|
|
5.2 |
% |
|
|
4.9 |
% |
Depreciation and amortization |
|
|
9.0 |
% |
|
|
9.1 |
% |
|
|
7.6 |
% |
Impairment of long-lived assets |
|
|
5.2 |
% |
|
|
6.5 |
% |
|
|
0.6 |
% |
(Gain) loss on sale of assets and other |
|
|
(0.1 |
)% |
|
|
0.5 |
% |
|
|
0.2 |
% |
Total cost of operations |
|
|
93.3 |
% |
|
|
96.5 |
% |
|
|
87.3 |
% |
Operating income |
|
|
6.7 |
% |
|
|
3.5 |
% |
|
|
12.7 |
% |
|
|
|
Average screen count (month end average) |
|
|
4,558 |
|
|
|
4,703 |
|
|
|
4,860 |
|
|
|
|
Revenues per average screen (dollars) |
|
$ |
369,200 |
|
|
$ |
370,469 |
|
|
$ |
406,681 |
|
|
|
|
|
|
|
(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. |
32
Comparison of Years Ended December 31, 2009 and December 31, 2008
Revenues. Total revenues increased $234.2 million to $1,976.5 million for 2009 from $1,742.3
million for 2008, representing a 13.4% 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Operating |
|
|
|
|
U.S. Operating Segment |
|
Segment |
|
Consolidated |
|
|
Year Ended |
|
Year Ended |
|
Year Ended |
|
|
December 31, |
|
December 31, |
|
December 31, |
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
% |
|
|
2009 |
|
2008 |
|
Change |
|
2009 |
|
2008 |
|
Change |
|
2009 |
|
2008 |
|
Change |
Admissions revenues (1) |
|
$ |
1,025.9 |
|
|
$ |
889.1 |
|
|
|
15.4 |
% |
|
$ |
267.5 |
|
|
$ |
237.9 |
|
|
|
12.4 |
% |
|
$ |
1,293.4 |
|
|
$ |
1,127.0 |
|
|
|
14.8 |
% |
Concession revenues (1) |
|
$ |
485.2 |
|
|
$ |
426.5 |
|
|
|
13.8 |
% |
|
$ |
117.7 |
|
|
$ |
108.3 |
|
|
|
8.7 |
% |
|
$ |
602.9 |
|
|
$ |
534.8 |
|
|
|
12.7 |
% |
Other revenues (1)(2) |
|
$ |
43.6 |
|
|
$ |
40.9 |
|
|
|
6.6 |
% |
|
$ |
36.6 |
|
|
$ |
39.6 |
|
|
|
(7.6 |
)% |
|
$ |
80.2 |
|
|
$ |
80.5 |
|
|
|
(0.4 |
)% |
Total revenues (1)(2) |
|
$ |
1,554.7 |
|
|
$ |
1,356.5 |
|
|
|
14.6 |
% |
|
$ |
421.8 |
|
|
$ |
385.8 |
|
|
|
9.3 |
% |
|
$ |
1,976.5 |
|
|
$ |
1,742.3 |
|
|
|
13.4 |
% |
Attendance (1) |
|
|
165.1 |
|
|
|
147.9 |
|
|
|
11.6 |
% |
|
|
71.6 |
|
|
|
63.4 |
|
|
|
12.9 |
% |
|
|
236.7 |
|
|
|
211.3 |
|
|
|
12.0 |
% |
Revenues per average screen
(2) |
|
$ |
408,017 |
|
|
$ |
368,313 |
|
|
|
10.8 |
% |
|
$ |
401,828 |
|
|
$ |
378,252 |
|
|
|
6.2 |
% |
|
$ |
406,681 |
|
|
$ |
370,469 |
|
|
|
9.8 |
% |
|
|
|
(1) |
|
Amounts in millions. |
|
(2) |
|
U.S. operating segment revenues include eliminations of intercompany transactions
with the international operating segment. See Note 23 of our consolidated financial
statements. |
|
|
Consolidated. The increase in admissions revenues of $166.4 million
was primarily attributable to a 12.0% increase in attendance and a
2.4% increase in average ticket price from $5.33 for 2008 to $5.46
for 2009. The increase in concession revenues of $68.1 million was
primarily attributable to the 12.0% increase in attendance and a
0.8% increase in concession revenues per patron from $2.53 for 2008
to $2.55 for 2009. 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
were primarily due to price increases. |
|
|
|
U.S. The increase in admissions revenues of $136.8 million was
primarily attributable to an 11.6% increase in attendance and a
3.3% increase in average ticket price from $6.01 for 2008 to $6.21
for 2009. The increase in concession revenues of $58.7 million was
primarily attributable to the 11.6% increase in attendance and a
2.1% increase in concession revenues per patron from $2.88 for 2008
to $2.94 for 2009. 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. |
|
|
|
International. The increase in admissions revenues of $29.6 million
was primarily attributable to a 12.9% increase in attendance,
partially offset by a 0.3% decrease in average ticket price from
$3.75 for 2008 to $3.74 for 2009. The increase in concession
revenues of $9.4 million was primarily attributable to the 12.9%
increase in attendance, partially offset by a 4.1% decrease in
concession revenues per patron from $1.71 for 2008 to $1.64 for
2009. The decreases in average ticket price and concession revenues
per patron were due to the unfavorable impact of exchange rates
during most of the year in certain countries in which we operate.
The 7.6% decrease in other revenues was primarily due to the
unfavorable impact of exchange rates during most of the year in
certain countries in which we operate. |
33
Cost of Operations. The table below summarizes certain of our theatre operating costs by
reportable operating segment (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International |
|
|
|
|
U.S. |
|
Operating |
|
|
|
|
Operating Segment |
|
Segment |
|
Consolidated |
|
|
Year Ended |
|
Year Ended |
|
Year Ended |
|
|
December 31, |
|
December 31, |
|
December 31, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
Film rentals and advertising |
|
$ |
572.3 |
|
|
$ |
494.6 |
|
|
$ |
135.9 |
|
|
$ |
117.6 |
|
|
$ |
708.2 |
|
|
$ |
612.2 |
|
Concession supplies |
|
|
61.9 |
|
|
|
58.5 |
|
|
|
30.0 |
|
|
|
28.1 |
|
|
|
91.9 |
|
|
|
86.6 |
|
Salaries and wages |
|
|
168.8 |
|
|
|
149.5 |
|
|
|
34.6 |
|
|
|
31.5 |
|
|
|
203.4 |
|
|
|
181.0 |
|
Facility lease expense |
|
|
178.8 |
|
|
|
166.8 |
|
|
|
60.0 |
|
|
|
58.8 |
|
|
|
238.8 |
|
|
|
225.6 |
|
Utilities and other |
|
|
163.5 |
|
|
|
151.8 |
|
|
|
59.2 |
|
|
|
54.0 |
|
|
|
222.7 |
|
|
|
205.8 |
|
|
|
Consolidated. Film rentals and advertising costs were $708.2 million, or 54.8% of admissions
revenues, for 2009 compared to $612.2 million, or 54.3% of admissions revenues, for 2008. The
increase in film rentals and advertising costs of $96.0 million is primarily due to the $166.4
million increase in admissions revenues. The increase in the film rentals and advertising rate
is primarily due to higher film rental rates associated with the increased number of
blockbuster films released in 2009. Concession supplies expense was $91.9 million, or 15.2% of
concession revenues, for 2009, compared to $86.6 million, or 16.2% of concession revenues, for
2008. The decrease in the concession supplies rate is primarily related to the benefit of our
new U.S. beverage agreement that was effective at the beginning of 2009. |
|
|
Salaries and wages increased to $203.4 million for 2009 from $181.0 million for 2008 primarily
due to increased staffing levels to support the 12.0% increase in attendance, increased minimum
wage rates and new theatre openings. Facility lease expense increased to $238.8 million for 2009
from $225.6 million for 2008 primarily due to new theatres and increased percentage rent related
to the 13.4% increase in revenues. Utilities and other costs increased to $222.7 million for
2009 from $205.8 million for 2008 primarily due to increased variable costs related to the 12.0%
increase in attendance, increased costs related to new theatres, increased repairs and
maintenance expense and increased 3-D equipment rental fees. |
|
|
U.S. Film rentals and advertising costs were $572.3 million, or 55.8% of admissions revenues,
for 2009 compared to $494.6 million, or 55.6% of admissions revenues, for 2008. The increase
in film rentals and advertising costs of $77.7 million is due primarily to the $136.8 million
increase in admissions revenues. The increase in the film rentals and advertising rate is
primarily due to higher film rental rates associated with the increased number of blockbuster
films released in 2009. Concession supplies expense was $61.9 million, or 12.8% of concession
revenues, for 2009, compared to $58.5 million, or 13.7% of concession revenues, for 2008. The
decrease in the concession supplies rate is primarily related to the benefit of our new U.S.
beverage agreement that was effective at the beginning of 2009. |
|
|
|
Salaries and wages increased to $168.8 million for 2009 from $149.5 million for 2008 primarily
due to increased staffing levels to support the 11.6% increase in attendance, increased minimum
wage rates and new theatre openings. Facility lease expense increased to $178.8 million for 2009
from $166.8 million for 2008 primarily due to new theatres and increased percentage rent related
to the 14.6% increase in revenues. Utilities and other costs increased to $163.5 million for
2009 from $151.8 million for 2008 primarily due to increased variable costs related to the 11.6%
increase in attendance, increased costs related to new theatres, increased repairs and
maintenance expense and increased 3-D equipment rental fees. |
|
|
International. Film rentals and advertising costs were $135.9 million, or 50.8% of admissions
revenues, for 2009 compared to $117.6 million, or 49.4% of admissions revenues, for 2008. The
increase in the film rentals and advertising rate is primarily due to higher film rental rates
associated with the increased number of blockbuster films released in 2009. Concession
supplies expense was $30.0 million, or 25.5% of concession revenues, for 2009 compared to
$28.1 million, or 25.9% of concession revenues, for 2008. |
|
|
|
Salaries and wages increased to $34.6 million for 2009 from $31.5 million for 2008 primarily due
to increased staffing levels to support the 12.9% increase in attendance, increases in wage
rates and new theatre openings. Facility lease expense increased to $60.0 million for 2009 from
$58.8 million for 2008 primarily due to new theatres and increased percentage rent related to
the 9.3% increase in revenues. Utilities and other costs increased to $59.2 million for 2009
from $54.0 million for 2008 primarily due to increased variable costs related to the 12.9%
increase in |
34
|
|
attendance, increased costs related to new theatres, increased repairs and maintenance expense
and increased 3-D equipment rental fees. |
General and Administrative Expenses. General and administrative expenses increased to $96.5
million for 2009 from $90.8 million for 2008. The increase was primarily due to increased salaries
and incentive compensation expense of $4.3 million and increased service charges of $1.7 million
related to increased credit card activity.
Depreciation and Amortization. Depreciation and amortization expense, including amortization
of favorable/ unfavorable leases, was $149.5 million for 2009 compared to $158.1 million for 2008.
The decrease was primarily due to a reduction in the depreciable basis of certain of our U.S.
assets in 2009 due to a significant amount of the equipment acquired in the Century Acquisition
becoming fully depreciated in 2009, the impact on current depreciation from prior impairment
charges and the impact of exchange rates in certain countries in which we operate.
Impairment of Long-Lived Assets. We recorded asset impairment charges on assets held and used
of $11.8 million for 2009 compared to $113.5 million for 2008. Impairment charges for 2009
consisted of $11.4 million of theatre properties and $0.3 million of intangible assets associated
with theatre properties, impacting nineteen of our twenty-four reporting units, and $0.1 million
related to an equity investment that was written down to estimated fair value. Impairment charges
for 2008 consisted of $34.6 million of theatre properties, $78.6 million of goodwill associated
with theatre properties, and $0.3 million of intangible assets associated with theatre properties,
impacting twenty 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, adverse changes in market demographics, or adverse
changes in the development or the conditions of the areas surrounding the theatre. The goodwill
impairment charges taken during the year ended December 31, 2008 were primarily a result of our
determination that the multiple used to estimate the fair value of our reporting units should be
reduced to reflect the dramatic decline in the market value of our stock price and the declines in
our and our competitors market capitalizations that occurred during the fourth quarter of 2008. We
reduced the multiple from eight times cash flows to six and a half times cash flows, which
significantly reduced our estimated fair values. See Notes 11 and 12 to our consolidated financial
statements.
Loss on Sale of Assets and Other. We recorded a loss on sale of assets and other of $3.2
million during 2009 compared to $8.5 million during 2008. The loss recorded during 2009 was
primarily related to the write-off of theatre equipment that was replaced. The loss recorded during
2008 was primarily related to the write-off of theatre equipment that was replaced, the write-off
of prepaid rent for an international theatre, and damages to certain of our theatres in Texas
related to Hurricane Ike.
Interest Expense. Interest costs incurred, including amortization of debt issue costs, were
$102.5 million for 2009 compared to $116.1 million for 2008. The decrease was primarily due to
decreases in interest rates on our debt. See Note 14 to our consolidated financial statements for further discussion of our long term debt.
In addition, during the 2008 period, we recorded a gain of
approximately $5.4 million as a component of interest expense related to the change in fair value
of one of our interest rate swap agreements that was deemed not highly effective. See Note 15 to
our consolidated financial statements for further discussion of our interest rate swap agreements.
Interest Income. We recorded interest income of $4.9 million during 2009 compared to interest
income of $13.3 million during 2008. The decrease in interest income was primarily due to lower
interest rates earned on our cash investments.
(Gain) Loss on Early Retirement of Debt. During 2009, 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. During 2008, we recorded a gain on early retirement of debt of $1.7 million as a
result of the repurchase of $47.0 million aggregate principal amount at maturity of Cinemark,
Inc.s 9 3/4% senior discount notes partially offset by the write-off of unamortized debt issue
costs. See Note 14 to our consolidated financial statements.
Distributions from NCM. We recorded distributions received from NCM of $20.8 million during
2009 and $18.8 million during 2008, which were in excess of the carrying value of our investment.
See Note 7 to our consolidated financial statements.
Income Taxes. Income tax expense of $44.8 million was recorded for 2009 compared to $21.1
million recorded for 2008. The effective tax rate for 2009 was 30.8%, which reflects the benefit of
a capital loss. The effective tax rate of (90.1)% for 2008 reflects the impact of our 2008 goodwill
impairment charges, which are not deductible for income tax
35
purposes. The effective tax rate in 2008 net of the impact from the goodwill impairment
charges would have been approximately 41.0%. See Note 21 to our consolidated financial statements.
Comparison of Years Ended December 31, 2008 and December 31, 2007
Revenues. Total revenues increased $59.5 million to $1,742.3 million for 2008 from $1,682.8
million for 2007, representing a 3.5% 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Operating |
|
|
|
|
U.S. Operating Segment |
|
Segment |
|
Consolidated |
|
|
Year Ended |
|
Year Ended |
|
Year Ended |
|
|
December 31, |
|
December 31, |
|
December 31, |
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
% |
|
|
2008 |
|
2007 |
|
Change |
|
2008 |
|
2007 |
|
Change |
|
2008 |
|
2007 |
|
Change |
Admissions revenues
(1) |
|
$ |
889.1 |
|
|
$ |
879.1 |
|
|
|
1.1 |
% |
|
$ |
237.9 |
|
|
$ |
208.4 |
|
|
|
14.2 |
% |
|
$ |
1,127.0 |
|
|
$ |
1,087.5 |
|
|
|
3.6 |
% |
Concession
revenues(1) |
|
$ |
426.5 |
|
|
$ |
424.4 |
|
|
|
0.5 |
% |
|
$ |
108.3 |
|
|
$ |
92.1 |
|
|
|
17.6 |
% |
|
$ |
534.8 |
|
|
$ |
516.5 |
|
|
|
3.5 |
% |
Other revenues (1)(2) |
|
$ |
40.9 |
|
|
$ |
45.6 |
|
|
|
(10.3 |
%) |
|
$ |
39.6 |
|
|
$ |
33.2 |
|
|
|
19.3 |
% |
|
$ |
80.5 |
|
|
$ |
78.8 |
|
|
|
2.2 |
% |
Total revenues (1)(2) |
|
$ |
1,356.5 |
|
|
$ |
1,349.1 |
|
|
|
0.5 |
% |
|
$ |
385.8 |
|
|
$ |
333.7 |
|
|
|
15.6 |
% |
|
$ |
1,742.3 |
|
|
$ |
1,682.8 |
|
|
|
3.5 |
% |
Attendance (1) |
|
|
147.9 |
|
|
|
151.7 |
|
|
|
(2.5 |
%) |
|
|
63.4 |
|
|
|
61.0 |
|
|
|
3.9 |
% |
|
|
211.3 |
|
|
|
212.7 |
|
|
|
(0.7 |
%) |
Revenues per average screen
(2) |
|
$ |
368,313 |
|
|
$ |
376,771 |
|
|
|
(2.2 |
%) |
|
$ |
378,252 |
|
|
$ |
341,451 |
|
|
|
10.8 |
% |
|
$ |
370,469 |
|
|
$ |
369,200 |
|
|
|
0.3 |
% |
|
|
|
(1) |
|
Amounts in millions. |
|
(2) |
|
U.S. operating segment revenues include eliminations of intercompany transactions
with the international operating segment. See Note 23 of our consolidated financial
statements. |
|
|
Consolidated. The increase in admissions revenues of $39.5 million was attributable
to a 4.3% increase in average ticket price from $5.11 for 2007 to $5.33 for 2008, partially
offset by a 0.7% decline in attendance. The increase in concession revenues of $18.3 million
was attributable to a 4.1% increase in concession revenues per patron from $2.43 for 2007 to
$2.53 for 2008, partially offset by the decline in attendance. The increases in average ticket
price and concession revenues per patron were due to price increases and favorable exchange
rates during most of the year in certain countries in which we operate. The 2.2% increase in
other revenues was primarily attributable to increased screen advertising and other ancillary
revenues in certain of our international locations and the favorable impact of exchange rates
during most of the year in certain countries in which we operate. |
|
|
|
U.S. The increase in admissions revenues of $10.0 million was attributable to a 3.8%
increase in average ticket price from $5.79 for 2007 to $6.01 for 2008, partially offset by a
2.5% decrease in attendance. The increase in concession revenues of $2.1 million was
attributable to a 2.9% increase in concession revenues per patron from $2.80 for 2007 to $2.88
for 2008, partially offset by the decline in attendance. The increases in average ticket price
and concession revenues per patron were due to price increases. The 10.3% decrease in other
revenues was primarily attributable to reduced screen advertising revenues earned under the
exhibitor services agreement with NCM. See Note 7 to the consolidated financial statements. |
|
|
International. The increase in admissions revenues of $29.5 million was attributable
to a 9.6% increase in average ticket price from $3.42 for 2007 to $3.75 for 2008 and a 3.9%
increase in attendance. The increase in concession revenues of $16.2 million was attributable
to a 13.2% increase in concession revenues per patron from $1.51 for 2007 to $1.71 for 2008
and the increase in attendance. The increases in average ticket price and concession revenues
per patron were due to price increases and favorable exchange rates during most of the year in
certain countries in which we operate. The 19.3% increase in other revenues was primarily due
to increased screen advertising and other ancillary revenues and the favorable impact of
exchange rates during most of the year in certain countries in which we operate. |
36
Cost of Operations. The table below summarizes certain of our theatre operating costs by
reportable operating segment (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International |
|
|
|
|
U.S. Operating |
|
Operating |
|
|
|
|
Segment |
|
Segment |
|
Consolidated |
|
|
Year Ended |
|
Year Ended |
|
Year Ended |
|
|
December 31, |
|
December 31, |
|
December 31, |
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
2008 |
|
2007 |
Film rentals and advertising |
|
$ |
494.6 |
|
|
$ |
485.2 |
|
|
$ |
117.6 |
|
|
$ |
104.5 |
|
|
$ |
612.2 |
|
|
$ |
589.7 |
|
Concession supplies |
|
$ |
58.5 |
|
|
$ |
57.8 |
|
|
$ |
28.1 |
|
|
$ |
23.3 |
|
|
$ |
86.6 |
|
|
$ |
81.1 |
|
Salaries and wages |
|
$ |
149.5 |
|
|
$ |
146.7 |
|
|
$ |
31.5 |
|
|
$ |
26.6 |
|
|
$ |
181.0 |
|
|
$ |
173.3 |
|
Facility lease expense |
|
$ |
166.8 |
|
|
$ |
161.7 |
|
|
$ |
58.8 |
|
|
$ |
51.0 |
|
|
$ |
225.6 |
|
|
$ |
212.7 |
|
Utilities and other |
|
$ |
151.8 |
|
|
$ |
149.0 |
|
|
$ |
54.0 |
|
|
$ |
42.3 |
|
|
$ |
205.8 |
|
|
$ |
191.3 |
|
|
|
Consolidated. Film rentals and advertising costs were $612.2 million, or 54.3% of
admissions revenues, for 2008 compared to $589.7 million, or 54.2% of admissions revenues, for
2007. The increase in film rentals and advertising costs for 2008 of $22.5 million was
primarily due to a $39.5 million increase in admissions revenues. Concession supplies expense
was $86.6 million, or 16.2% of concession revenues, for 2008 compared to $81.1 million, or
15.7% of concession revenues, for 2007. The increase in concession supplies expense of $5.5
million was primarily due to an $18.3 million increase in concession revenues and an increase
in the concession supplies rate. The increased rate was primarily due to the relative increase
in concession revenues from our international operations and increases in product costs from
some of our international concession suppliers. |
|
|
|
Salaries and wages increased to $181.0 million for 2008 from $173.3 million for 2007, facility
lease expense increased to $225.6 million for 2008 from $212.7 million for 2007 and utilities
and other costs increased to $205.8 million for 2008 from $191.3 million for 2007, all of which
increased primarily due to increased revenues, new theatre openings and the impact of exchange
rates in certain countries in which we operate. |
|
|
|
U.S. Film rentals and advertising costs were $494.6 million, or 55.6% of admissions
revenues, for 2008 compared to $485.2 million, or 55.2% of admissions revenues, for 2007. The
increase in film rentals and advertising costs for 2008 of $9.4 million was primarily due to
the increase in admissions revenues and higher film rentals and advertising rates. Concession
supplies expense was $58.5 million, or 13.7% of concession revenues, for 2008 compared to
$57.8 million, or 13.6% of concession revenues, for 2007. |
|
|
|
Salaries and wages increased to $149.5 million for 2008 from $146.7 million for 2007, facility
lease expense increased to $166.8 million for 2008 from $161.7 million for 2007 and utilities
and other costs increased to $151.8 million for 2008 from $149.0 million for 2007, all of which
increased primarily due to new theatre openings. |
|
|
|
International. Film rentals and advertising costs were $117.6 million, or 49.4% of
admissions revenues, for 2008 compared to $104.5 million, or 50.1% of admissions revenues, for
2007. The increase in film rentals and advertising costs of $13.1 million was due to a $29.5
million increase in admissions revenues, partially offset by a decrease in our film rentals
and advertising rate. Concession supplies expense was $28.1 million, or 25.9% of concession
revenues, for 2008 compared to $23.3 million, or 25.3% of concession revenues, for 2007. The
increase in concession supplies expense of $4.8 million was primarily due to the $16.2 million
increase in concession revenues and the increased rate due to increases in product costs from
some of our concession suppliers. |
|
|
|
Salaries and wages increased to $31.5 million for 2008 from $26.6 million for 2007, facility
lease expense increased to $58.8 million for 2008 from $51.0 million for 2007 and utilities and
other costs increased to $54.0 million for 2008 from $42.3 million for 2007, all of which
increased primarily due to increased revenues, new theatre openings and the impact of exchange
rates in certain countries in which we operate. |
General and Administrative Expenses. General and administrative expenses increased to $90.8
million for 2008 from $79.5 million for 2007. The increase was primarily due to increased incentive
compensation expense of $4.4 million, increased share based award compensation expense of $2.0
million, increased service charges of $1.7 million related to increased credit card activity,
increased professional fees of $0.5 million, including audit fees related to Sarbanes-Oxley (SOX)
compliance, and increased legal fees of $2.2 million.
37
Termination of Profit Participation Agreement. Upon consummation of our initial public
offering on April 24, 2007, we exercised our option to terminate the amended and restated profit
participation agreement with our CEO Alan Stock and purchased Mr. Stocks profit interest in two
theatres during May 2007 for $6.9 million pursuant to the terms of the amended and restated profit
participation agreement. In addition, we incurred $0.1 million of payroll taxes related to the
termination. See Note 24 to our consolidated financial statements.
Depreciation and Amortization. Depreciation and amortization expense, including amortization
of favorable leases, was $158.1 million for 2008 compared to $151.7 million for 2007 primarily due
to new theatre openings.
Impairment of Long-Lived Assets. We recorded asset impairment charges on assets held and used
of $113.5 million for 2008 compared to $86.6 million for 2007. Impairment charges for 2008
consisted of $34.6 million of theatre properties, $78.6 million of goodwill associated with theatre
properties, and $0.3 million of intangible assets associated with theatre properties, impacting
twenty of our twenty-four reporting units. Impairment charges for 2007 consisted of $14.2 million
of theatre properties, $67.7 million of goodwill associated with theatre properties, and $4.7
million of intangible assets associated with theatre properties, impacting twenty 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, adverse changes in market demographics, or adverse changes in the
development or the conditions of the areas surrounding the theatre. The goodwill impairment charges
taken during the year ended December 31, 2008 were primarily a result of our determination that the
multiple used to estimate the fair value of our reporting units should be reduced to reflect the
dramatic decline in the market value of our stock price and the declines in our and our
competitors market capitalizations that occurred during the fourth quarter of 2008. We reduced the
multiple from eight times cash flows to six and a half times cash flows, which significantly
reduced our estimated fair values. The goodwill impairment charges taken during the year ended
December 31, 2007 were primarily a result of the modification of the Companys Exhibitor Services
Agreement with NCM, which significantly reduced the contractual amounts paid to the Company (see
Note 7 to our audited consolidated financial statements). See Notes 11 and 12 to our audited
consolidated financial statements.
(Gain) Loss on Sale of Assets and Other. We recorded a loss on sale of assets and other of
$8.5 million during 2008 compared to a gain on sale of assets and other of $3.0 million during
2007. The loss recorded during 2008 was primarily related to the write-off of theatre equipment
that was replaced, the write-off of prepaid rent for an international theatre, and damages to
certain of our theatres in Texas related to Hurricane Ike. The gain recorded during 2007 primarily
related to the sale of real property associated with one theatre in the U.S.
Interest Expense. Interest costs incurred, including amortization of debt issue costs, was
$116.1 million for 2008 compared to $145.6 million for 2007. The decrease was primarily due to the
repurchase of substantially all of our outstanding 9% senior subordinated notes that occurred
during March and April 2007, the repurchase of a portion of our 9 3/4% senior discount notes during
the second half of 2007 and 2008, and a reduction in the variable interest rates on a portion of
our long-term debt. See Note 14 to our consolidated financial statements for further discussion of our long term debt.
In addition, during the 2008 period, we recorded a gain of approximately $5.4
million as a component of interest expense related to the change in fair value of one of our
interest rate swap agreements that was deemed not highly effective. See Note 15 to our consolidated
financial statements for further discussion of our interest rate swap agreements.
Interest Income. We recorded interest income of $13.3 million during the 2008 period compared
to interest income of $18.3 million during the 2007 period. The decrease in interest income was
primarily due to lower interest rates earned on our cash investments.
Gain on NCM Transaction. During 2007, we recorded a gain of $210.8 million on the sale of a
portion of our equity investment in NCM in conjunction with the initial public offering of NCM,
Inc. common stock. Our ownership interest in NCM was reduced from approximately 25% to
approximately 14% as part of this sale of stock in the offering. See Note 7 to our consolidated
financial statements.
Gain on Fandango Transaction. During 2007, we recorded a gain of $9.2 million as a result of
the sale of our investment in stock of Fandango, Inc. See Note 9 to our consolidated financial
statements.
(Gain) Loss on Early Retirement of Debt. During 2008, we recorded a gain on early retirement
of debt of $1.7 million as a result of the repurchase of $47.0 million aggregate principal amount
at maturity of Cinemark, Inc.s 9 3/4% senior discount notes partially offset by the write-off of
unamortized debt issue costs. During 2007, we recorded a loss on early retirement of debt of $13.5
million as a result of the repurchase of $332.1 million aggregate principal amount of Cinemark USA,
Inc.s 9% senior subordinated notes and the repurchase of $69.2 million aggregate principal amount
at
38
maturity of Cinemark, Inc.s 9 3/4% senior discount notes, and the related write-off of
unamortized debt issue costs and the payment of premiums, fees and expenses. See Note 14 to our
consolidated financial statements.
Distributions from NCM. We recorded distributions received from NCM of $18.8 million during
2008 and $11.5 million during 2007, which were in excess of the carrying value of our investment.
See Note 7 to our consolidated financial statements.
Income Taxes. Income tax expense of $21.1 million was recorded for 2008 compared to $112.0
million recorded for 2007. The effective tax rate of (90.1)% for 2008 reflects the impact of our
2008 goodwill impairment charges, which are not deductible for income tax purposes. The effective
tax rate in 2008 net of the impact from the goodwill impairment charges would have been
approximately 41.0%. The effective tax rate of 55.5% for 2007 reflects the impact of our 2007
goodwill impairment charges, which are not deductible for income tax purposes. The effective tax
rate in 2007 net of the impact from the goodwill impairment charges would have been approximately
41.7%. See Note 21 to our consolidated financial statements.
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, in place of cash, which we convert to cash over a range from one to six days. 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 amounted to $276.0 million, $257.3 million and $176.8 million for the years
ended December 31, 2007, 2008 and 2009, respectively. For the year ended December 31, 2009, the
decrease in cash provided by operating activities is due to the repurchase of approximately $419.4
million aggregate principal amount at maturity of Cinemark, Inc.s 9 3/4% senior discount notes,
which included the 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
additional 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 provided by (used for) investing activities amounted to $93.2 million,
$(94.9) million and $(183.1) million for the years ended December 31, 2007, 2008 and 2009,
respectively. For the year ended December 31, 2007, $214.8 million of the cash provided by
investing activities related to the proceeds received from NCM for the sale of a portion of our
equity investment in NCM in conjunction with NCM Inc.s initial public offering. See Note 7 to our
consolidated financial statements for further discussion of the NCM Transaction. For the year ended
December 31, 2009, the increase in cash used for investing activities is primarily due to the
acquisition of four theatres in the U.S. for approximately $49.0 million (see Note 6 to the
consolidated financial statements), the acquisition of one theatre in Brazil for approximately $9.1
million and increased capital expenditures.
Capital expenditures for the years ended December 31, 2007, 2008 and 2009 were as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New |
|
Existing |
|
|
Period |
|
Theatres |
|
Theatres |
|
Total |
Year Ended December 31, 2007 |
|
$ |
113.3 |
|
|
$ |
33.0 |
|
|
$ |
146.3 |
|
Year Ended December 31, 2008 |
|
$ |
69.9 |
|
|
$ |
36.2 |
|
|
$ |
106.1 |
|
Year Ended December 31, 2009 |
|
$ |
36.5 |
|
|
$ |
88.3 |
|
|
$ |
124.8 |
|
We continue to expand our U.S. theatre circuit. We acquired four theatres with 82 screens,
built four theatres with 54 screens, and closed seven theatres with 48 screens during the year
ended December 31, 2009. At December 31, 2009, we had signed commitments to open two new theatres
with 24 screens in domestic markets during 2010 and open four new theatres with 60 screens
subsequent to 2010. We estimate the remaining capital expenditures for the development of these 84
domestic screens will be approximately $34 million. Actual expenditures for continued theatre
development and acquisitions are subject to change based upon the availability of attractive
opportunities.
39
We also continue to expand our international theatre circuit. We acquired one theatre with 15
screens, built five new theatres with 29 screens and closed three theatres and 19 screens during
the year ended December 31, 2009. At December 31, 2009, we had signed commitments to open seven new
theatre with 53 screens in international markets during 2010. We estimate the remaining capital
expenditures for the development of these 53 international screens will be approximately $24
million. Actual expenditures for continued theatre development and acquisitions are subject to
change based upon the availability of attractive opportunities.
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 provided by (used for) financing activities was $(183.7) million, $(135.1) million and
$78.3 million during the years ended December 31, 2007, 2008 and 2009, respectively. For the year
ended December 31, 2007, cash used for financing activities primarily consisted of the repurchase
of $332.1 million aggregate principal amount of Cinemark USA,
Inc.s 9% senior subordinated notes, the repurchase of $69.2 million aggregate principal amount at maturity of Cinemark, Inc.s 9 3/4% senior discount
notes for approximately $43.1 million, and $33.1 million of dividends paid to our stockholders,
which were partially offset by the net proceeds from our initial public offering of approximately
$245.9 million. For the year ended December 31, 2008, cash used for financing activities primarily
consisted of the repurchase of approximately $47.0 million aggregate principal amount at maturity of
Cinemark, Inc.s 9 3/4% senior discount notes for approximately $29.6 million, and $77.5 million of
dividends paid to our stockholders. For the year ended December 31, 2009, cash provided by
financing activities includes the net proceeds of $458.5 million from the issuance of Cinemark USA,
Inc.s $470 million 8.625% senior notes, partially offset by $78.6 million of dividends paid to our
stockholders and $261.1 million used for the repurchase of approximately $419.4 million aggregate
principal amount at maturity of Cinemark, Inc.s 9 3/4% senior discount notes. The accreted interest
portion of the repurchase of $158.3 million is reflected as an operating activity.
Below is a summary of dividends paid since initiation of our dividend policy in August 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date |
|
Date of |
|
Date |
|
Amount per |
|
Total |
Declared |
|
Record |
|
Paid |
|
Common Share (1) |
|
Dividends |
08/13/07 |
|
|
09/04/07 |
|
|
|
09/18/07 |
|
|
$ |
0.13 |
|
|
$13.9 million |
11/12/07 |
|
|
12/03/07 |
|
|
|
12/18/07 |
|
|
$ |
0.18 |
|
|
$19.2 million |
02/26/08 |
|
|
03/06/08 |
|
|
|
03/14/08 |
|
|
$ |
0.18 |
|
|
$19.3 million |
05/09/08 |
|
|
05/30/08 |
|
|
|
06/12/08 |
|
|
$ |
0.18 |
|
|
$19.3 million |
08/07/08 |
|
|
08/25/08 |
|
|
|
09/12/08 |
|
|
$ |
0.18 |
|
|
$19.3 million |
11/06/08 |
|
|
11/26/08 |
|
|
|
12/11/08 |
|
|
$ |
0.18 |
|
|
$19.6 million |
02/13/09 |
|
|
03/05/09 |
|
|
|
03/20/09 |
|
|
$ |
0.18 |
|
|
$19.6 million |
05/13/09 |
|
|
06/02/09 |
|
|
|
06/18/09 |
|
|
$ |
0.18 |
|
|
$19.7 million |
07/29/09 |
|
|
08/17/09 |
|
|
|
09/01/09 |
|
|
$ |
0.18 |
|
|
$19.7 million |
11/04/09 |
|
|
11/25/09 |
|
|
|
12/10/09 |
|
|
$ |
0.18 |
|
|
$19.7 million |
|
|
|
(1) |
|
The dividend paid on September 18, 2007 was based on a
quarterly dividend rate of $0.18 per common share, prorated based on
the April 24, 2007 closing date of our initial public offering. |
40
We may from time to time, subject to compliance with our debt instruments, purchase on
the open market our debt securities depending upon the availability and prices of such securities.
Long-term debt consisted of the following as of December 31, 2008 and 2009:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
December 31, 2009 |
Cinemark USA, Inc. term loan |
|
$ |
1,094.8 |
|
|
$ |
1,083.6 |
|
Cinemark
USA, Inc. 8
5/8% senior notes due 2019 (1) |
|
|
|
|
|
|
458.9 |
|
Cinemark, Inc. 9 3/4% senior discount notes due 2014 |
|
|
411.3 |
|
|
|
|
|
Cinemark USA, Inc. 9% senior subordinated notes due 2013 |
|
|
0.2 |
|
|
|
0.2 |
|
Other long-term debt |
|
|
2.2 |
|
|
|
1.0 |
|
|
|
|
Total long-term debt |
|
|
1,508.5 |
|
|
|
1,543.7 |
|
Less current portion |
|
|
12.5 |
|
|
|
12.2 |
|
|
|
|
Long-term debt, less current portion |
|
$ |
1,496.0 |
|
|
$ |
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 $11.1 million as of
December 31, 2009. |
As of December 31, 2009, we had borrowings of $1,083.6 million outstanding on the term
loan under our senior secured credit facility, $458.9 million accreted principal amount outstanding
under our 8.625% senior 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 under our revolving credit facility.
As of December 31, 2009, 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) |
|
$ |
1,554.8 |
|
|
$ |
12.2 |
|
|
$ |
282.8 |
|
|
$ |
789.8 |
|
|
$ |
470.0 |
|
Scheduled interest payments on long-term debt(2) |
|
|
497.5 |
|
|
|
74.1 |
|
|
|
144.9 |
|
|
|
97.8 |
|
|
|
180.7 |
|
Operating lease obligations |
|
|
1,865.6 |
|
|
|
192.6 |
|
|
|
375.5 |
|
|
|
358.2 |
|
|
|
939.3 |
|
Capital lease obligations |
|
|
140.4 |
|
|
|
7.3 |
|
|
|
15.1 |
|
|
|
19.3 |
|
|
|
98.7 |
|
Scheduled interest payments on capital leases |
|
|
108.0 |
|
|
|
14.0 |
|
|
|
25.8 |
|
|
|
22.3 |
|
|
|
45.9 |
|
Employment agreements |
|
|
11.1 |
|
|
|
3.7 |
|
|
|
7.4 |
|
|
|
|
|
|
|
|
|
Purchase commitments(3) |
|
|
63.0 |
|
|
|
32.9 |
|
|
|
29.5 |
|
|
|
0.5 |
|
|
|
0.1 |
|
Current liability for uncertain tax positions(4) |
|
|
13.2 |
|
|
|
13.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total obligations |
|
$ |
4,253.6 |
|
|
$ |
350.0 |
|
|
$ |
881.0 |
|
|
$ |
1,287.9 |
|
|
$ |
1,734.7 |
|
|
|
|
|
|
|
(1) |
|
Includes the 8.625% senior notes in the aggregate principal amount of $470.0
million excluding the discount of $11.1 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 in effect on December 31, 2009. The average interest rates on our fixed rate and
variable rate debt were 7.6% and 2.0%, respectively, as of December 31, 2009. |
|
(3) |
|
Includes estimated capital expenditures associated with the construction of new
theatres to which we were committed as of December 31, 2009. |
|
(4) |
|
The contractual obligations table excludes the long-term portion of our
liability for uncertain tax positions of $18.4 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. The senior secured credit facility provides for a
seven year term loan of $1.12 billion and a $150 million revolving credit line that matures in six
years unless Cinemark USA, Inc.s 9% senior subordinated notes have not been refinanced by
August 1, 2012 with indebtedness that matures no earlier than seven and one-half years after the
closing date of the senior secured credit facility, in which case the maturity date of the
revolving credit line becomes August 1, 2012. The revolving credit line is used for general
corporate purposes.
41
At December 31, 2009, there was $1,083.6 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 under its revolving credit facility. The average interest rate on
outstanding term loan borrowings under the senior secured credit facility at December 31, 2009 was
3.1% per annum.
Under the term loan, principal payments of $2.8 million are due each calendar quarter
through September 30, 2012 and increase to $263.2 million each calendar quarter from December 31,
2012 to maturity at October 5, 2013. Prior to the amendment to the senior secured credit facility
discussed below, the term loan accrued 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 0.75% to 1.00% per annum, or (B) a eurodollar rate plus a margin
that ranges from 1.75% to 2.00% per annum, in each case as adjusted pursuant to Cinemark USA,
Inc.s corporate credit rating. Borrowings under the revolving credit line bear 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, in each case as
adjusted pursuant to Cinemark USA, Inc.s consolidated net senior secured leverage ratio as defined
in the credit agreement. Cinemark USA, Inc. is required to pay a commitment fee calculated at the
rate of 0.50% per annum on the average daily unused portion of the new revolving credit line,
payable quarterly in arrears, which decreases to 0.375% per annum for any fiscal quarter in which
Cinemark USA, Inc.s consolidated net senior secured leverage ratio on the last day of such fiscal
quarter is less than 2.25 to 1.0.
On March 14, 2007, Cinemark USA, Inc. amended its senior secured credit facility to,
among other things, modify the interest rate on the term loans under the senior secured credit
facility, modify certain prepayment terms and covenants, and facilitate the tender offer for the 9%
senior subordinated notes. The term loan now 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 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. In each case, the margin is a function of the
corporate credit rating applicable to the borrower. The interest rate on the revolving credit line
was not amended. Additionally, the amendment removed any obligation to prepay amounts outstanding
under the senior secured credit facility in an amount equal to the amount of the net cash proceeds
received from the NCM Transaction or from excess cash flows, and imposed a 1% prepayment premium
for one year on certain prepayments of the term loans.
Cinemark USA, Inc.s obligations under the senior secured credit facility are guaranteed
by Cinemark Holdings, Inc., and certain of Cinemark USA, Inc.s domestic subsidiaries and are
secured by mortgages on certain fee and leasehold properties and security interests in
substantially all of Cinemark USA, Inc.s and the guarantors personal property, including, without
limitation, pledges of all of Cinemark USA, Inc.s capital stock, all of the capital stock of
certain of Cinemark USA, Inc.s domestic subsidiaries and 65% of the voting stock of certain of its
foreign subsidiaries.
The senior secured credit facility contains usual and customary negative covenants for
agreements of this type, including, but not limited to, restrictions on Cinemark USA, Inc.s
ability, and in certain instances, its subsidiaries and Cinemark Holdings, Inc.s ability, to
consolidate or merge or liquidate; wind up or dissolve; substantially change the nature of its
business; sell, transfer or dispose of assets; create or incur indebtedness; create liens; pay
dividends and repurchase stock; and make capital expenditures and investments. The senior secured
credit facility also requires Cinemark USA, Inc. to satisfy a consolidated net senior secured
leverage ratio covenant as determined in accordance with the senior secured credit facility.
The dividend restriction contained in the senior secured credit facility prevents us and any
of our subsidiaries from paying a dividend or otherwise distributing cash to its stockholders
unless (1) we are not in default, and the distribution would not cause us to be in default, under
the senior secured credit facility; and (2) the aggregate amount of certain dividends,
distributions, investments, redemptions and capital expenditures made since October 5, 2006,
including dividends declared by the board of directors, is less than the sum of (a) the aggregate
amount of cash and cash equivalents received by Cinemark Holdings, Inc. or Cinemark USA, Inc. as
common equity since October 5, 2006, (b) Cinemark USA, Inc.s consolidated EBITDA minus 1.75 times
its consolidated interest expense, each as defined in the senior secured credit facility, since
October 1, 2006, (c) $150 million and (d) certain other amounts specified in the senior secured
credit facility, subject to certain adjustments specified in the senior secured credit facility.
The dividend restriction is subject to certain exceptions specified in the senior secured credit
facility.
42
The senior secured credit facility also includes customary events of default, including,
among other things, payment default, covenant default, breach of representation or warranty,
bankruptcy, cross-default, material ERISA events, certain types of change of control, material
money judgments and failure to maintain subsidiary guarantees. If an event of default occurs, all
commitments under the senior secured credit facility may be terminated and all obligations under
the senior secured credit facility could be accelerated by the lenders, causing all loans
outstanding (including accrued interest and fees payable thereunder) to be declared immediately due
and payable.
See discussion of interest rate swap agreements under 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 Cinemark, Inc.s 9 3/4% senior discount notes discussed below. 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.
The senior notes are fully and unconditionally guaranteed on a joint and several senior
unsecured basis by certain of our subsidiaries that guarantee, assume or become liable with respect
to any of our or our guarantors debt. The senior notes and the guarantees are senior unsecured
obligations and rank equally in right of payment with all of our and our guarantors existing and
future senior unsecured debt and senior in right of payment to all of our and our guarantors
existing and future subordinated debt. The senior notes and the guarantees are effectively
subordinated to all of our and our guarantors existing and future secured debt to the extent of
the value of the assets securing such debt, including all borrowings under our senior secured
credit facility. The senior notes and the guarantees are structurally subordinated to all existing
and future debt and other liabilities of our subsidiaries that do not guarantee the senior
notes.
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 December 31, 2009 was 5.4 to
1.
Prior to June 15, 2014, Cinemark USA, Inc. may redeem all or any part of the senior notes at
its option at 100% of the principal amount plus a make-whole premium. After June 15, 2014, Cinemark
USA, Inc. may redeem the senior notes in whole or in part at redemption prices described in the
senior notes. In addition, Cinemark USA, Inc. may redeem up to 35% of the aggregate principal
amount of the senior notes from the net proceeds of certain equity offerings at the redemption
price set forth in the senior notes.
We filed a registration statement with the Securities and Exchange Commission (or the
Commission) on September 24, 2009 pursuant to which we offered to exchange the senior notes for
substantially similar registered senior notes. The registration statement became effective on
December 17, 2009. The exchanged registered senior notes do not have transfer restrictions.
Cinemark, Inc. 9 3/4% Senior Discount Notes
On March 31, 2004, Cinemark, Inc. issued $577.2 million aggregate principal amount at maturity
of 9 3/4% senior discount notes due 2014. Interest on the notes accreted until March 15, 2009 up to
their aggregate principal amount. Subsequently, cash interest accrued and was payable semi-annually
in arrears on March 15 and September 15, commencing on September 15, 2009.
43
Prior to 2007, Cinemark, Inc. repurchased on the open market a total of $41.6 million
aggregate principal amount at maturity of its 9 3/4% senior discount notes for approximately $33.0
million, including accreted interest of $5.6 million and cash premiums of $1.4 million. Cinemark,
Inc. funded these transactions with cash from operations.
During 2007, in six open market purchases, Cinemark, Inc. repurchased $69.2 million aggregate
principal amount at maturity of its 9 3/4% senior discount notes for approximately $63.7 million,
including accreted interest of $16.6 million and cash premiums of $4.0 million. Cinemark, Inc.
funded these transactions with proceeds from our initial public offering of common stock.
During 2008, in ten open market purchases, Cinemark, Inc. repurchased $47.0 million aggregate
principal amount at maturity of our 9 3/4% senior discount notes for approximately $42.2 million,
including accreted interest of $15.2 million and a discount of $2.6 million. Cinemark, Inc. funded
these transactions with proceeds from our initial public offering of common stock.
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 $419.4 million 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 $402.5 million aggregate
principal amount at maturity of the 9 3/4% senior discount notes were tendered and repurchased by us
for approximately $433.4 million, including accreted interest of $152.0 million, accrued interest
of $11.3 million and tender premiums paid of $19.6 million. We funded the repurchase with the
proceeds from the issuance of the Cinemark USA, Inc. 8.625% senior notes discussed above.
Effective as of June 29, 2009, Cinemark, Inc. and the Bank of New York Trust Company, N.A. as
trustee to the indenture dated March 31, 2004, executed the First Supplemental Indenture to amend
the Indenture by eliminating substantially all restrictive covenants and certain events of default
provisions.
On August 3, 2009, we delivered to the Bank of New York Trust Company N.A., as trustee, a
notice to redeem the $16.9 million aggregate principal amount at maturity of our 9 3/4% senior
discount notes remaining outstanding. The senior discount notes were redeemed on September 8, 2009,
at which time we paid approximately $18.6 million, consisting of a redemption price of 104.875% of
the face amount of the discount notes remaining outstanding (resulting in a call premium of $0.8
million), which included $6.4 million of accreted interest, plus accrued and unpaid interest of
$0.8 million to, but not including, the redemption date. We used proceeds from the issuance of
Cinemark USA, Inc.s senior notes to fund the repurchase.
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 2007, Cinemark USA, Inc. repurchased approximately $27.8 million aggregate principal
amount of its 9% senior subordinated notes. The transaction was funded with available cash from its
operations.
On March 6, 2007, Cinemark USA, Inc. commenced an offer to purchase for cash any and all
of its then outstanding $332.2 million aggregate principal amount of 9% senior subordinated notes.
In connection with the tender offer, Cinemark USA, Inc. solicited consents for certain proposed
amendments to the indenture under which such notes were issued to remove substantially all
restrictive covenants and certain events of default provisions. On March 20, 2007, the early
settlement date, Cinemark USA, Inc. repurchased $332.0 million aggregate principal amount of 9%
senior subordinated notes and executed a supplemental indenture implementing the proposed
amendments. Cinemark USA, Inc. used the proceeds from the NCM Transaction and cash on hand to
purchase the 9% senior subordinated notes tendered pursuant to the tender offer and consent
solicitation. On April 3, 2007, Cinemark USA, Inc. repurchased an additional $0.1 million aggregate
principal amount of the 9% senior subordinated notes tendered after the early settlement date.
44
As of December 31, 2009, Cinemark USA, Inc. had outstanding approximately $0.2 million
aggregate principal amount of 9% senior subordinated notes. Cinemark USA, Inc. may redeem the
remaining 9% senior subordinated notes at its option at any time.
Covenant Compliance
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 December 31, 2009 was 5.4 to
1.
As of December 31, 2009, we are in full compliance with all agreements, including all related
covenants, governing our outstanding debt.
Ratings
We are rated by nationally recognized rating agencies. The significance of individual ratings
varies from agency to agency. However, companies assigned ratings at the top end of the range
have, in the opinion of certain rating agencies, the strongest capacity for repayment of debt or
payment of claims, while companies at the bottom end of the range have the weakest capability.
Ratings are always subject to change and there can be no assurance that our current ratings will
continue for any given period of time. A downgrade of our debt ratings, depending on the extent,
could increase the cost to borrow funds. Below are our latest ratings per category, which were
current as of February 28, 2010.
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|
Category |
|
Moodys |
|
Standard and Poors |
Cinemark USA, Inc. 8.625% Senior Notes |
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B3 |
|
B- |
Cinemark USA, Inc. Senior Secured Credit Facility |
|
Ba3 |
|
B |
New Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 157 (FASB Accounting Standards Codification (ASC)
Topic 820), Fair Value Measurements. Among other requirements, this statement defines fair value,
establishes a framework for using fair value to measure assets and liabilities, and expands
disclosures about fair value measurements. The statement applies whenever other statements require
or permit assets or liabilities to be measured at fair value. SFAS No. 157 (FASB ASC Topic 820) was
effective for us beginning January 1, 2008 (January 1, 2009 for nonfinancial assets and
liabilities). Adoption of this statement did not have a significant impact on our consolidated
financial statements.
In December 2007, the FASB issued SFAS No. 141(R) (FASB ASC Topic 805), Business
Combinations. This statement requires all business combinations completed after the effective date
to be accounted for by applying the acquisition method (previously referred to as the purchase
method); expands the definition of transactions and events that qualify as business combinations;
requires that the acquired assets and liabilities, including contingencies, be recorded at the fair
value determined on the acquisition date and changes thereafter reflected in income, not goodwill;
changes the recognition timing for restructuring costs; and requires acquisition costs to be
expensed as incurred rather than capitalized as part of the cost of the acquisition. Adoption of
SFAS No. 141(R) (FASB ASC Topic 805) is required for business combinations that occur after
December 15, 2008. Early adoption and retroactive application of SFAS No. 141(R) (FASB ASC Topic
805) to fiscal years preceding the effective date is not permitted. Adoption of this statement did
not have a significant impact on our consolidated financial statements.
45
In December 2007, the FASB issued SFAS No. 160 (FASB ASC Topic 810), Noncontrolling Interest
in Consolidated Financial Statements. This statement establishes new accounting and reporting
standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. Specifically, this statement requires the recognition of a noncontrolling interest
(minority interest) as equity in the consolidated financial statements and separate from the
parents equity. The amount of net income attributable to the noncontrolling interest will no
longer be shown as a expense item for all periods presented, but will be included in consolidated
net income on the face of the income statement. SFAS No. 160 (FASB ASC Topic 810) requires
disclosure, on the face of the consolidated income statement, of the amounts of consolidated net
income attributable to the parent and the noncontrolling interest. SFAS No. 160 (FASB ASC Topic
810) clarifies that changes in a parents ownership interest in a subsidiary that do not result in
deconsolidation are equity transactions if the parent retains its controlling financial interest.
In addition, this statement requires that a parent recognize a gain or loss in net income when a
subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the
noncontrolling equity investment on the deconsolidation date. SFAS No. 160 (FASB ASC Topic 810)
also includes expanded disclosure requirements regarding the interests of the parent and its
noncontrolling interest. SFAS No. 160 (FASB ASC Topic 810) was effective for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15, 2008. Upon adoption
of this statement, we have recognized our noncontrolling interests as equity in the consolidated
balance sheets, have reflected net income (loss) attributable to noncontrolling interests in
consolidated net income (loss) in the statements of operations and have provided a summary of
changes in equity and a summary of comprehensive income (loss) attributable to Cinemark Holdings,
Inc., our noncontrolling interests and in total in the statement of stockholders equity and
comprehensive income (loss) for all periods presented.
In March 2008, the FASB issued SFAS No. 161 (FASB ASC Topic 815) Disclosures about Derivative
Instruments and Hedging Activitiesan Amendment of FASB Statement No. 133. This statement intends
to improve financial reporting about derivative instruments and hedging activities by requiring
enhanced disclosures about their impact on an entitys financial position, financial performance,
and cash flows. SFAS No. 161 (FASB ASC Topic 815) requires disclosures regarding the objectives for
using derivative instruments, the fair values of derivative instruments and their related gains and
losses, and the accounting for derivatives and related hedged items. SFAS No. 161 (FASB ASC Topic
815) was effective for fiscal years and interim periods beginning after November 15, 2008, with
early adoption permitted. The adoption of SFAS No. 161 (FASB ASC Topic 815) did not impact our
consolidated financial statements, and did not have a significant impact on our disclosures.
In June 2008, the FASB issued FASB Staff Position Emerging Issues Task Force FSP-EITF 03-6-1
(FASB ASC Topic 260), Determining Whether Instruments Granted in Share Based Payment Transactions
Are Participating Securities. Under FSP-EITF 03-6-1 (FASB ASC Topic 260), unvested share based
payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether
paid or unpaid) are participating securities and shall be included in the computation of earnings
per share pursuant to the two-class method. FSP-EITF 03-6-1 (FASB ASC Topic 260) was effective for
financial statements issued for fiscal years beginning after December 15, 2008, and interim periods
within those years and requires retrospective application. The adoption of FSP-EITF 03-6-1(FASB ASC
Topic 260) did not have a significant impact on our earnings per share calculations.
In
May 2009, the FASB issued SFAS No. 165 (FASB ASC Topic 855), Subsequent Events. SFAS No. 165 (FASB ASC Topic 855) should not result in significant changes in the subsequent
events that an entity reports. Rather, SFAS No. 165 (FASB ASC Topic 855) introduces the concept of financial statements
that are available to be issued. Financial statements are considered available to be issued when
they are complete in a form and format that complies with generally accepted accounting principles
and all approvals necessary for issuance have been obtained. SFAS No. 165 (FASB ASC Topic 855) was
effective for interim or annual financial periods ending after June 15, 2009. The adoption of SFAS
No. 165 (FASB ASC Topic 855) did not have a significant impact on our consolidated financial
statements.
In June 2009, the FASB issued SFAS No. 168 (FASB ASC Topic 105), The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles, which authorizes the Codification as the sole source for authoritative generally accepted
accounting principles in the U.S. (U.S. GAAP). SFAS No. 168 (FASB ASC Topic 105) was effective
for financial statements issued for reporting periods that ended after September 15, 2009. SFAS No.
168 (FASB ASC Topic 105) supersedes all accounting standards in U.S. GAAP, aside from those issued
by the SEC. SFAS No. 168 (FASB ASC Topic 105) replaced SFAS No. 162 to establish a new hierarchy of
GAAP sources for non-governmental entities under the FASB Accounting Standards Codification. The
adoption of SFAS No. 168 (FASB ASC Topic 105) did not have a significant impact on our consolidated
financial statements.
46
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 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.
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Item 7A. |
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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 December
31, 2009, there was an aggregate of approximately $784.6 million of variable rate debt outstanding
under these facilities, which excludes $300.0 million of Cinemark USA, Inc.s term loan that is
hedged with the Companys interest rate swap agreements as discussed below. Based on the interest
rates in effect on the variable rate debt outstanding at December 31, 2009, a 100 basis point
increase in market interest rates would increase our annual interest expense by approximately $7.8
million.
During 2007 and 2008, we entered into three interest rate swap agreements. The interest rate
swap agreements qualify for cash flow hedge accounting. The fair values of the interest rate swaps
are recorded on our 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.
In March 2007, we entered into two interest rate swap agreements with effective dates of
August 13, 2007 and terms of five years each. The interest rate swaps were designated to hedge
approximately $500.0 million of our variable rate debt obligations under our senior secured credit
facility. Under the terms of the interest rate swap agreements, we pay fixed rates of 4.918% and
4.922% on $375.0 million and $125.0 million, respectively, of variable rate debt and receive
interest at a variable rate based on the 3-month LIBOR. The 3-month LIBOR rate on each reset date
determines the variable portion of the interest rate-swaps for the three-month period following the
reset date. No premium or discount was incurred upon us entering into the interest rate swaps
because the pay and receive rates on the interest rate swaps represented prevailing rates for each
counterparty at the time the interest rate swaps were consummated.
On September 14, 2008, the counterparty to our $375.0 million interest rate swap agreement
filed for bankruptcy protection. As a result, we determined that on September 15, 2008, when the
counterpartys credit rating was downgraded, the interest rate swap was no longer highly effective.
On October 1, 2008, we terminated this interest rate swap.
During October 2008, we entered into one interest rate swap agreement with an effective date
of November 14, 2008 and a term of four years. The interest rate swap was designated to hedge
approximately $100.0 million of our variable rate debt obligations under our senior secured credit
facility for three years and $75.0 million of our variable rate debt obligations under our senior
secured credit facility for four years. Under the terms of the interest rate swap agreement, we pay
a fixed rate of 3.63% on $175.0 million of variable rate debt and receive interest at a variable
rate based on the 1-month LIBOR. The 1-month LIBOR rate on each reset date determines the variable
portion of the interest rate swap for the one-month period following the reset date. No premium or
discount was incurred by us upon entering into the interest rate swap because the pay and receive
rates on the interest rate swap represented prevailing rates for the counterparty at the time the
interest rate swap was consummated.
47
The table below provides information about our fixed rate and variable rate long-term debt
agreements as of December 31, 2009:
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|
Expected Maturity for the Twelve-Month Periods Ending December 31, |
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|
|
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(in millions) |
|
Average |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair |
|
Interest |
|
|
2010 |
|
2011 |
|
2012 |
|
2013 |
|
2014 |
|
Thereafter |
|
Total |
|
Value |
|
Rate |
Fixed rate (1) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
300.2 |
|
|
$ |
|
|
|
$ |
470.0 |
|
|
$ |
770.2 |
|
|
$ |
772.4 |
|
|
|
7.6 |
% |
Variable rate |
|
|
12.2 |
|
|
|
11.2 |
|
|
|
271.6 |
|
|
|
489.6 |
|
|
|
|
|
|
$ |
|
|
|
|
784.6 |
|
|
|
741.4 |
|
|
|
2.0 |
% |
|
|
|
|
|
|
|
Total debt |
|
$ |
12.2 |
|
|
$ |
11.2 |
|
|
$ |
271.6 |
|
|
$ |
789.8 |
|
|
$ |
|
|
|
$ |
470.0 |
|
|
$ |
1,554.8 |
|
|
$ |
1,513.8 |
|
|
|
|
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|
|
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(1) |
|
Includes $300.0 million of the Cinemark USA, Inc. term loan, which represents
the debt hedged with our interest rate swap agreements. |
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 December 31, 2009, 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 $39 million and would decrease the
aggregate net income of our international subsidiaries for the years ended December 31, 2008 and
2009 by approximately $3 million and $4 million, respectively.
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Item 8. |
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Financial Statements and Supplementary Data |
The financial statements and supplementary data are listed on the Index on page F-1 of this
Form 10-K. Such financial statements and supplementary data are included herein beginning on page
F-3.
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Item 9. |
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Changes in and Disagreements With Accountants on Accounting and Financial Disclosure |
None.
48
|
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Item 9A |
|
. Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
As of December 31, 2009, 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 December 31, 2009, 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.
Managements Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over
financial reporting, as defined in Rule 13a-15(f) of the 1934 Act. The Companys internal control
framework and processes are designed to provide reasonable assurance to management and the board of
directors regarding the reliability of financial reporting and the preparation of the Companys
consolidated financial statements in accordance with the accounting principles generally accepted
in the United States of America. Management has assessed the effectiveness of our internal control
over financial reporting as of December 31, 2009 based on criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in Internal ControlIntegrated
Framework. As a result of this assessment, management concluded that, as of December 31, 2009, our
internal control over financial reporting was effective.
Certifications of our CEO and our CFO, which are required in accordance with Rule 13a-14 of
the Exchange Act, are attached as exhibits to this Annual Report. This Controls and Procedures
section includes the information concerning the controls evaluation referred to in the
certifications, and it should be read in conjunction with the certifications for a more complete
understanding of the topics presented.
The Companys independent auditors, Deloitte & Touche LLP, with direct access to the Companys
board of directors through its Audit Committee, have audited the consolidated financial statements
prepared by the Company. Their report on the consolidated financial statements is included in Part
II, Item 8. Financial Statements and Supplementary Data. Deloitte & Touche LLP has issued an
attestation report on the Companys internal control over financial reporting. Deloitte & Touche
LLPs report on the Companys internal control over financial reporting is included herein.
Changes in Internal Control 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 December 31, 2009 that materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
Limitations on Controls
Management does not expect that our disclosure controls and procedures or our internal control
over financial reporting will prevent or detect all errors or fraud. Any control system, no matter
how well designed and operated, is based upon certain assumptions and can provide only reasonable,
not absolute, assurance that its objectives will be met. Further, no evaluation of controls can
provide absolute assurance that misstatements due to error or fraud will not occur or that all
control issues and instances of fraud, if any, within the Company have been detected.
49
Attestation Report of Deloitte & Touche, LLP
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of
Cinemark Holdings, Inc.
Plano, Texas
We have audited the internal control over financial reporting of Cinemark Holdings, Inc. and
subsidiaries (the Company) as of December 31, 2009, based on criteria established in Internal
Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. The Companys management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying managements report on internal control over financial
reporting. Our responsibility is to express an opinion on the Companys internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed by, or under the
supervision of, the companys principal executive and principal financial officers, or persons
performing similar functions, and effected by the companys board of directors, management, and
other personnel to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A companys internal control over financial reporting includes
those policies and procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including
the possibility of collusion or improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any
evaluation of the effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2009, based on the criteria established in Internal
Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
We have also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated financial statements and financial statement
schedule as of and for the year ended December 31, 2009 of the Company and our report dated March
10, 2010 expressed an unqualified opinion and includes an explanatory paragraph related to the
Company changing its method of accounting for noncontrolling interests and retrospectively
adjusting all periods presented in the consolidated financial statements on those financial
statements and financial statement schedule.
/s/Deloitte & Touche LLP
Dallas, Texas
March 10, 2010
50
PART III
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Item 10. |
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Directors, Executive Officers and Corporate Governance |
Incorporated by reference to the Companys Proxy Statement for its Annual Stockholders Meeting
(under the headings Election of Directors, Corporate Governance and Executive Officers) to be
held on May 13, 2010 and to be filed with the Securities and Exchange Commission within 120 days
after December 31, 2009.
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Item 11. |
|
Executive Compensation |
Incorporated by reference to the Companys Proxy Statement for its Annual Stockholders Meeting
(under the heading Executive Compensation) to be held on May 13, 2010 and to be filed with the
Securities and Exchange Commission within 120 days after December 31, 2009.
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Item 12. |
|
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters |
Incorporated by reference to the Companys Proxy Statement for its Annual Stockholders Meeting
(under the headings Security Ownership of Certain Beneficial Owners and Management) to be held on
May 13, 2010 and to be filed with the Securities and Exchange Commission within 120 days after
December 31, 2009.
|
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|
Item 13. |
|
Certain Relationships and Related Transactions, and Director Independence |
Incorporated by reference to the Companys Proxy Statement for its Annual Stockholders Meeting
(under the heading Certain Relationships and Related Transactions) to be held on May 13, 2010 and
to be filed with the Securities and Exchange Commission within 120 days after December 31, 2009.
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Item 14. |
|
Principal Accounting Fees and Services |
Incorporated by reference to the Companys Proxy Statement for its Annual Stockholders Meeting
(under the heading Board Committees Fees Paid to Independent Registered Public Accounting Firm)
to be held on May 13, 2010 and to be filed with the Securities and Exchange Commission within 120
days after December 31, 2009.
PART IV
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Item 15. |
|
Exhibits, Financial Statement Schedules |
(a) Documents Filed as Part of this Report
|
1. |
|
The financial statement schedules and related data listed in the accompanying Index
beginning on page F-1 are filed as a part of this report. |
|
2. |
|
The exhibits listed in the accompanying Index beginning on page E-1 are filed as a part
of this report. |
(b) Exhibits
See the accompanying Index beginning on page E-1.
(c) Financial Statement Schedules
Schedule I Condensed Financial Information of Registrant beginning on page F-42.
All schedules not identified above have been omitted because they are not required, are not
applicable or the information is included in the consolidated financial statements or notes
contained in this report.
51
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
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Dated: March 10, 2010 |
CINEMARK HOLDINGS, INC.
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BY: |
/s/ Alan W. Stock
|
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|
|
Alan W. Stock |
|
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|
Chief Executive Officer |
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BY: |
/s/ Robert Copple
|
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Robert Copple |
|
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Chief Financial Officer and
Principal Accounting Officer |
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POWER OF ATTORNEY
Each person whose signature appears below hereby severally constitutes and appoints Alan W.
Stock and Robert Copple his true and lawful attorney-in-fact and agent, each with the power of
substitution and resubstitution, for him in any and all capacities, to sign any and all amendments
to this Annual Report on Form 10-K and to file the same, with accompanying exhibits and other
related documents, with the Securities and Exchange Commission, and ratify and confirm all that
said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be
done by virtue of said appointment.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the capacities and on the
dates indicated.
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Name |
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Title |
|
Date |
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/s/ Lee Roy Mitchell
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|
Chairman of the Board of Directors and Director
|
|
March 10, 2010 |
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/s/ Alan W. Stock
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Chief Executive Officer |
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|
(principal
executive officer)
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|
March 10, 2010 |
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/s/ Robert Copple
Robert Copple
|
|
Executive Vice President; Treasurer and Chief
Financial Officer (principal financial and
accounting officer)
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|
March 10, 2010 |
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/s/ Benjamin D. Chereskin
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Director
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March 10, 2010 |
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/s/ Vahe A. Dombalagian
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Director
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March 10, 2010 |
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/s/ Peter R. Ezersky
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Director
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March 10, 2010 |
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/s/ Enrique F. Senior
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Director
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March 10, 2010 |
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/s/ Raymond W. Syufy
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Director
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March 10, 2010 |
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/s/ Carlos M. Sepulveda
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Director
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March 10, 2010 |
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/s/ Roger T. Staubach
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Director
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March 10, 2010 |
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/s/ Donald G. Soderquist
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Director
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|
March 10, 2010 |
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/s/ Steven Rosenberg
|
|
Director
|
|
March 10, 2010 |
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|
|
52
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED
SECURITIES PURSUANT TO SECTION 12 OF THE ACT.
No annual report or proxy material has been sent to our stockholders. An annual report and
proxy material may be sent to our stockholders subsequent to the filing of this Form 10-K. We shall
furnish to the Securities and Exchange Commission copies of any annual report or proxy material
that is sent to our stockholders.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
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Page |
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CINEMARK HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS: |
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F-2 |
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F-3 |
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F-4 |
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F-5 |
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F-6 |
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F-7 |
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F-42 |
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FINANCIAL STATEMENTS OF 50-PERCENT-OR-LESS-OWNED INVESTEE |
|
|
F-48 |
|
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of
Cinemark Holdings, Inc.
Plano, Texas
We have audited the accompanying consolidated balance sheets of Cinemark Holdings, Inc. and
subsidiaries (the Company) as of December 31, 2008 and 2009, and the related consolidated
statements of operations, stockholders equity and comprehensive income (loss), and cash flows for
each of the three years in the period ended December 31, 2009. Our audits also included the
financial statement schedule listed in the Index at Item 15. These financial statements and
financial statement schedule are the responsibility of the Companys management. Our responsibility
is to express an opinion on the financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material
respects, the financial position of Cinemark Holdings, Inc. and subsidiaries as of December 31,
2008 and 2009, and the results of their operations and their cash flows for each of the three years
in the period ended December 31, 2009, in conformity with accounting principles generally accepted
in the United States of America. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
As discussed in Note 2 to the consolidated financial statements, on January 1, 2009, the
Company changed its method of accounting for noncontrolling interests and retrospectively adjusted
all periods presented in the consolidated financial statements.
We have also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Companys internal control over financial reporting as of
December 31, 2009, based on the criteria established in Internal ControlIntegrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated
March 10, 2010 expressed an unqualified opinion on the Companys internal control over financial
reporting.
/s/ Deloitte & Touche LLP
Dallas, Texas
March 10, 2010
F-2
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2008 |
|
|
2009 |
|
Assets |
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
349,603 |
|
|
$ |
437,936 |
|
Inventories |
|
|
8,024 |
|
|
|
9,854 |
|
Accounts receivable |
|
|
24,688 |
|
|
|
33,110 |
|
Income tax receivable |
|
|
8,948 |
|
|
|
13,025 |
|
Deferred tax asset |
|
|
2,799 |
|
|
|
3,321 |
|
Prepaid expenses and other |
|
|
9,319 |
|
|
|
10,051 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
403,381 |
|
|
|
507,297 |
|
|
|
|
|
|
|
|
|
|
Theatre properties and equipment |
|
|
|
|
|
|
|
|
Land |
|
|
96,718 |
|
|
|
94,879 |
|
Buildings |
|
|
396,028 |
|
|
|
394,654 |
|
Property under capital lease |
|
|
184,248 |
|
|
|
204,881 |
|
Theatre furniture and equipment |
|
|
546,466 |
|
|
|
639,538 |
|
Leasehold interests and improvements |
|
|
541,140 |
|
|
|
602,583 |
|
|
|
|
|
|
|
|
Total |
|
|
1,764,600 |
|
|
|
1,936,535 |
|
Less accumulated depreciation and amortization |
|
|
556,317 |
|
|
|
716,947 |
|
|
|
|
|
|
|
|
Theatre properties and equipment, net |
|
|
1,208,283 |
|
|
|
1,219,588 |
|
|
|
|
|
|
|
|
|
|
Other assets |
|
|
|
|
|
|
|
|
Goodwill |
|
|
1,039,818 |
|
|
|
1,116,302 |
|
Intangible assets net |
|
|
341,768 |
|
|
|
342,998 |
|
Investment in NCM |
|
|
19,141 |
|
|
|
34,232 |
|
Investments in and advances to affiliates |
|
|
4,284 |
|
|
|
3,529 |
|
Deferred charges and other assets net |
|
|
49,033 |
|
|
|
52,502 |
|
|
|
|
|
|
|
|
Total other assets |
|
|
1,454,044 |
|
|
|
1,549,563 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
3,065,708 |
|
|
$ |
3,276,448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Current portion of long-term debt |
|
$ |
12,450 |
|
|
$ |
12,227 |
|
Current portion of capital lease obligations |
|
|
5,532 |
|
|
|
7,340 |
|
Current liability for uncertain tax positions |
|
|
10,775 |
|
|
|
13,229 |
|
Accounts payable |
|
|
54,596 |
|
|
|
53,709 |
|
Accrued film rentals |
|
|
43,750 |
|
|
|
69,216 |
|
Accrued interest |
|
|
4,343 |
|
|
|
6,411 |
|
Accrued payroll |
|
|
23,995 |
|
|
|
29,928 |
|
Accrued property taxes |
|
|
23,486 |
|
|
|
22,913 |
|
Accrued other current liabilities |
|
|
52,243 |
|
|
|
65,859 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
231,170 |
|
|
|
280,832 |
|
|
|
|
|
|
|
|
|
|
Long-term liabilities |
|
|
|
|
|
|
|
|
Long-term debt, less current portion |
|
|
1,496,012 |
|
|
|
1,531,478 |
|
Capital lease obligations, less current portion |
|
|
118,180 |
|
|
|
133,028 |
|
Deferred tax liability |
|
|
135,417 |
|
|
|
124,823 |
|
Liability for uncertain tax positions |
|
|
6,748 |
|
|
|
18,432 |
|
Deferred lease expenses |
|
|
23,371 |
|
|
|
27,698 |
|
Deferred revenue NCM |
|
|
189,847 |
|
|
|
203,006 |
|
Other long-term liabilities |
|
|
40,736 |
|
|
|
42,523 |
|
|
|
|
|
|
|
|
Total long-term liabilities |
|
|
2,010,311 |
|
|
|
2,080,988 |
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (see Note 22) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
|
|
|
|
|
|
Cinemark Holdings, Inc.s stockholders equity |
|
|
|
|
|
|
|
|
Common stock, $0.001 par value: 300,000,000 shares authorized,
108,835,365 shares issued and outstanding at December 31, 2008; and
114,222,523
shares issued and 110,917,105 shares outstanding at December 31, 2009 |
|
|
109 |
|
|
|
114 |
|
Additional paid-in-capital |
|
|
962,353 |
|
|
|
1,011,667 |
|
Treasury stock, 3,305,418 common shares at cost |
|
|
|
|
|
|
(43,895 |
) |
Retained deficit |
|
|
(78,859 |
) |
|
|
(60,595 |
) |
Accumulated other comprehensive loss |
|
|
(72,347 |
) |
|
|
(7,459 |
) |
|
|
|
|
|
|
|
Total Cinemark Holdings, Inc.s stockholders equity |
|
|
811,256 |
|
|
|
899,832 |
|
Noncontrolling interests |
|
|
12,971 |
|
|
|
14,796 |
|
|
|
|
|
|
|
|
Total
stockholders equity |
|
|
824,227 |
|
|
|
914,628 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
3,065,708 |
|
|
$ |
3,276,448 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
F-3
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
Admissions |
|
$ |
1,087,480 |
|
|
$ |
1,126,977 |
|
|
$ |
1,293,378 |
|
Concession |
|
|
516,509 |
|
|
|
534,836 |
|
|
|
602,880 |
|
Other |
|
|
78,852 |
|
|
|
80,474 |
|
|
|
80,242 |
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
1,682,841 |
|
|
|
1,742,287 |
|
|
|
1,976,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of operations |
|
|
|
|
|
|
|
|
|
|
|
|
Film rentals and advertising |
|
|
589,717 |
|
|
|
612,248 |
|
|
|
708,160 |
|
Concession supplies |
|
|
81,074 |
|
|
|
86,618 |
|
|
|
91,918 |
|
Salaries and wages |
|
|
173,290 |
|
|
|
180,950 |
|
|
|
203,437 |
|
Facility lease expense |
|
|
212,730 |
|
|
|
225,595 |
|
|
|
238,779 |
|
Utilities and other |
|
|
191,279 |
|
|
|
205,814 |
|
|
|
222,660 |
|
General and administrative expenses |
|
|
79,518 |
|
|
|
90,788 |
|
|
|
96,497 |
|
Termination of profit participation agreement |
|
|
6,952 |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
148,781 |
|
|
|
155,326 |
|
|
|
148,264 |
|
Amortization of favorable/unfavorable leases |
|
|
2,935 |
|
|
|
2,708 |
|
|
|
1,251 |
|
Impairment of long-lived assets |
|
|
86,558 |
|
|
|
113,532 |
|
|
|
11,858 |
|
(Gain) loss on sale of assets and other |
|
|
(2,953 |
) |
|
|
8,488 |
|
|
|
3,202 |
|
|
|
|
|
|
|
|
|
|
|
Total cost of operations |
|
|
1,569,881 |
|
|
|
1,682,067 |
|
|
|
1,726,026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
112,960 |
|
|
|
60,220 |
|
|
|
250,474 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(145,596 |
) |
|
|
(116,058 |
) |
|
|
(102,505 |
) |
Interest income |
|
|
18,263 |
|
|
|
13,265 |
|
|
|
4,909 |
|
Gain on NCM transaction |
|
|
210,773 |
|
|
|
|
|
|
|
|
|
Gain on Fandango transaction |
|
|
9,205 |
|
|
|
|
|
|
|
|
|
Foreign currency exchange gain |
|
|
438 |
|
|
|
986 |
|
|
|
635 |
|
Gain (loss) on early retirement of debt |
|
|
(13,456 |
) |
|
|
1,698 |
|
|
|
(27,878 |
) |
Distributions from NCM |
|
|
11,499 |
|
|
|
18,838 |
|
|
|
20,822 |
|
Dividend income |
|
|
50 |
|
|
|
49 |
|
|
|
51 |
|
Equity in loss of affiliates |
|
|
(2,462 |
) |
|
|
(2,373 |
) |
|
|
(907 |
) |
|
|
|
|
|
|
|
|
|
|
Total other income (expense) |
|
|
88,714 |
|
|
|
(83,595 |
) |
|
|
(104,873 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
201,674 |
|
|
|
(23,375 |
) |
|
|
145,601 |
|
Income taxes |
|
|
111,962 |
|
|
|
21,055 |
|
|
|
44,845 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
89,712 |
|
|
|
(44,430 |
) |
|
|
100,756 |
|
Less: Net income attributable to noncontrolling interests |
|
|
792 |
|
|
|
3,895 |
|
|
|
3,648 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Cinemark Holdings, Inc. |
|
$ |
88,920 |
|
|
$ |
(48,325 |
) |
|
$ |
97,108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
102,177 |
|
|
|
107,341 |
|
|
|
108,563 |
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
104,720 |
|
|
|
107,341 |
|
|
|
110,255 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) per share attributable to Cinemark Holdings, Inc.s common stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.87 |
|
|
$ |
(0.45 |
) |
|
$ |
0.89 |
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.85 |
|
|
$ |
(0.45 |
) |
|
$ |
0.87 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
F-4
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME (LOSS)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
Cinemark |
|
|
|
|
|
|
|
|
|
Comprehensive Income (Loss) |
|
|
Common Stock |
|
Treasury Stock |
|
Additional |
|
Retained |
|
Other |
|
Holdings, Inc. |
|
|
|
|
|
Total |
|
|
|
|
|
Attributable to: |
|
|
|
|
Shares |
|
|
|
|
|
Shares |
|
|
|
|
|
Paid-in- |
|
Earnings |
|
Comprehensive |
|
Stockholders |
|
Noncontrolling |
|
Stockholders |
|
Cinemark |
|
Noncontrolling |
|
|
|
|
Issued |
|
Amount |
|
Issued |
|
Amount |
|
Capital |
|
(Deficit) |
|
Income (Loss) |
|
Equity |
|
Interests |
|
Equity |
|
Holdings, Inc. |
|
Interests |
|
Total |
|
|
|
|
|
Balance at January 1, 2007 |
|
|
92,561 |
|
|
$ |
93 |
|
|
|
|
|
|
$ |
|
|
|
$ |
685,433 |
|
|
$ |
(7,692 |
) |
|
$ |
11,463 |
|
|
$ |
689,297 |
|
|
$ |
16,613 |
|
|
$ |
705,910 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax adjustment related to the adoption of paragraph 10 of FASB ASC Topic 740
(formerly FIN 48) related to uncertain tax positions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,093 |
) |
|
|
|
|
|
|
(1,093 |
) |
|
|
|
|
|
|
(1,093 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of stock for initial public offering, net of fees |
|
|
13,889 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
245,835 |
|
|
|
|
|
|
|
|
|
|
|
245,849 |
|
|
|
|
|
|
|
245,849 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of restricted stock |
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options, net of equity award repurchase |
|
|
512 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,625 |
|
|
|
|
|
|
|
|
|
|
|
3,625 |
|
|
|
|
|
|
|
3,625 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Share based awards compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,081 |
|
|
|
|
|
|
|
|
|
|
|
3,081 |
|
|
|
|
|
|
|
3,081 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit related to stock option exercises |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,353 |
|
|
|
|
|
|
|
|
|
|
|
1,353 |
|
|
|
|
|
|
|
1,353 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid to stockholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33,061 |
) |
|
|
|
|
|
|
(33,061 |
) |
|
|
|
|
|
|
(33,061 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,730 |
) |
|
|
(1,730 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88,920 |
|
|
|
|
|
|
|
88,920 |
|
|
|
792 |
|
|
|
89,712 |
|
|
|
88,920 |
|
|
|
792 |
|
|
|
89,712 |
|
Fair value adjustments on interest
rate swap agreements, net of taxes of $7,074 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,348 |
) |
|
|
(11,348 |
) |
|
|
|
|
|
|
(11,348 |
) |
|
|
(11,348 |
) |
|
|
|
|
|
|
(11,348 |
) |
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,580 |
|
|
|
32,580 |
|
|
|
507 |
|
|
|
33,087 |
|
|
|
32,580 |
|
|
|
507 |
|
|
|
33,087 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007 |
|
|
106,984 |
|
|
$ |
107 |
|
|
|
|
|
|
$ |
|
|
|
$ |
939,327 |
|
|
$ |
47,074 |
|
|
$ |
32,695 |
|
|
$ |
1,019,203 |
|
|
$ |
16,182 |
|
|
$ |
1,035,385 |
|
|
$ |
110,152 |
|
|
$ |
1,299 |
|
|
$ |
111,451 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of restricted stock, net of restricted stock forfeitures |
|
|
385 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options |
|
|
169 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,292 |
|
|
|
|
|
|
|
|
|
|
|
1,292 |
|
|
|
|
|
|
|
1,292 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Share based awards compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,113 |
|
|
|
|
|
|
|
|
|
|
|
5,113 |
|
|
|
|
|
|
|
5,113 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit related to stock option exercises |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
474 |
|
|
|
|
|
|
|
|
|
|
|
474 |
|
|
|
|
|
|
|
474 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares as a result of Central America share exchange |
|
|
903 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
12,948 |
|
|
|
|
|
|
|
|
|
|
|
12,949 |
|
|
|
(3,245 |
) |
|
|
9,704 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares as a result of Ecuador share exchange |
|
|
394 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
3,199 |
|
|
|
|
|
|
|
|
|
|
|
3,200 |
|
|
|
(1,574 |
) |
|
|
1,626 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid to stockholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(77,534 |
) |
|
|
|
|
|
|
(77,534 |
) |
|
|
|
|
|
|
(77,534 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Dividends accrued on unvested restricted stock awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(74 |
) |
|
|
|
|
|
|
(74 |
) |
|
|
|
|
|
|
(74 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Contribution by noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
585 |
|
|
|
585 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,353 |
) |
|
|
(1,353 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(48,325 |
) |
|
|
|
|
|
|
(48,325 |
) |
|
|
3,895 |
|
|
|
(44,430 |
) |
|
|
(48,325 |
) |
|
|
3,895 |
|
|
|
(44,430 |
) |
Fair value adjustments on interest
rate swap agreements, net of taxes of $2,442 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22,063 |
) |
|
|
(22,063 |
) |
|
|
|
|
|
|
(22,063 |
) |
|
|
(22,063 |
) |
|
|
|
|
|
|
(22,063 |
) |
Amortization of accumulated other
comprehensive loss on terminated swap
agreement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,351 |
|
|
|
1,351 |
|
|
|
|
|
|
|
1,351 |
|
|
|
1,351 |
|
|
|
|
|
|
|
1,351 |
|
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(84,330 |
) |
|
|
(84,330 |
) |
|
|
(1,519 |
) |
|
|
(85,849 |
) |
|
|
(84,330 |
) |
|
|
(1,519 |
) |
|
|
(85,849 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008 |
|
|
108,835 |
|
|
$ |
109 |
|
|
|
|
|
|
$ |
|
|
|
$ |
962,353 |
|
|
$ |
(78,859 |
) |
|
$ |
(72,347 |
) |
|
$ |
811,256 |
|
|
$ |
12,971 |
|
|
$ |
824,227 |
|
|
$ |
(153,367 |
) |
|
$ |
2,376 |
|
|
$ |
(150,991 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of restricted stock, net of restricted stock forfeitures |
|
|
479 |
|
|
|
|
|
|
|
(30 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options, net of stock withholdings |
|
|
4,908 |
|
|
|
5 |
|
|
|
(3,275 |
) |
|
|
(43,895 |
) |
|
|
37,442 |
|
|
|
|
|
|
|
|
|
|
|
(6,448 |
) |
|
|
|
|
|
|
(6,448 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Share based awards compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,304 |
|
|
|
|
|
|
|
|
|
|
|
4,304 |
|
|
|
|
|
|
|
4,304 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit related to stock option exercises |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,545 |
|
|
|
|
|
|
|
|
|
|
|
7,545 |
|
|
|
|
|
|
|
7,545 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid to stockholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(78,643 |
) |
|
|
|
|
|
|
(78,643 |
) |
|
|
|
|
|
|
(78,643 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Dividends accrued on unvested restricted stock awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(201 |
) |
|
|
|
|
|
|
(201 |
) |
|
|
|
|
|
|
(201 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of noncontrolling interest share of an Argentina subsidiary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
23 |
|
|
|
(117 |
) |
|
|
(94 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,322 |
) |
|
|
(2,322 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97,108 |
|
|
|
|
|
|
|
97,108 |
|
|
|
3,648 |
|
|
|
100,756 |
|
|
|
97,108 |
|
|
|
3,648 |
|
|
|
100,756 |
|
Fair value adjustments on interest
rate swap agreements, net of taxes of $2,359 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,898 |
|
|
|
3,898 |
|
|
|
|
|
|
|
3,898 |
|
|
|
3,898 |
|
|
|
|
|
|
|
3,898 |
|
Amortization of accumulated other
comprehensive loss on terminated swap
agreement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,633 |
|
|
|
4,633 |
|
|
|
|
|
|
|
4,633 |
|
|
|
4,633 |
|
|
|
|
|
|
|
4,633 |
|
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56,357 |
|
|
|
56,357 |
|
|
|
616 |
|
|
|
56,973 |
|
|
|
56,357 |
|
|
|
616 |
|
|
|
56,973 |
|
|
|
|
|
|
|
Balance at December 31, 2009 |
|
|
114,222 |
|
|
$ |
114 |
|
|
|
(3,305 |
) |
|
$ |
(43,895 |
) |
|
$ |
1,011,667 |
|
|
$ |
(60,595 |
) |
|
$ |
(7,459 |
) |
|
$ |
899,832 |
|
|
$ |
14,796 |
|
|
$ |
914,628 |
|
|
$ |
161,996 |
|
|
$ |
4,264 |
|
|
$ |
166,260 |
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
F-5
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
89,712 |
|
|
$ |
(44,430 |
) |
|
$ |
100,756 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income (loss) to cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
144,629 |
|
|
|
151,425 |
|
|
|
144,055 |
|
Amortization of intangible and other assets and unfavorable leases |
|
|
7,087 |
|
|
|
6,609 |
|
|
|
5,460 |
|
Amortization of long-term prepaid rents |
|
|
1,146 |
|
|
|
1,717 |
|
|
|
1,389 |
|
Amortization of debt issue costs |
|
|
4,727 |
|
|
|
4,696 |
|
|
|
4,775 |
|
Amortization of deferred revenues, deferred lease incentives and other |
|
|
(2,508 |
) |
|
|
(3,735 |
) |
|
|
(4,810 |
) |
Amortization of debt (premium) discount |
|
|
(678 |
) |
|
|
|
|
|
|
365 |
|
Amortization of accumulated other comprehensive loss related to
interest rate swap agreement |
|
|
|
|
|
|
1,351 |
|
|
|
4,633 |
|
Impairment of long-lived assets |
|
|
86,558 |
|
|
|
113,532 |
|
|
|
11,858 |
|
Share based awards compensation expense |
|
|
3,081 |
|
|
|
5,113 |
|
|
|
4,304 |
|
Gain on NCM transaction |
|
|
(210,773 |
) |
|
|
|
|
|
|
|
|
Gain on Fandango transaction |
|
|
(9,205 |
) |
|
|
|
|
|
|
|
|
(Gain) loss on sale of assets and other |
|
|
(2,953 |
) |
|
|
8,488 |
|
|
|
3,202 |
|
Gain on change in fair value of interest rate swap agreement |
|
|
|
|
|
|
(5,422 |
) |
|
|
|
|
Write-off unamortized debt issue costs and debt premium related to
the early retirement of debt |
|
|
(15,661 |
) |
|
|
839 |
|
|
|
6,337 |
|
Accretion of interest on senior discount notes |
|
|
41,423 |
|
|
|
40,294 |
|
|
|
8,085 |
|
Deferred lease expenses |
|
|
5,979 |
|
|
|
4,350 |
|
|
|
3,960 |
|
Deferred income taxes |
|
|
(34,614 |
) |
|
|
(25,975 |
) |
|
|
(12,614 |
) |
Equity in loss of affiliates |
|
|
2,462 |
|
|
|
2,373 |
|
|
|
907 |
|
Tax benefit related to stock option exercises |
|
|
1,353 |
|
|
|
474 |
|
|
|
7,545 |
|
Interest paid on repurchased senior discount notes |
|
|
(16,592 |
) |
|
|
(15,186 |
) |
|
|
(158,349 |
) |
Increase in deferred revenue related to NCM transaction |
|
|
174,001 |
|
|
|
|
|
|
|
|
|
Increase in deferred revenue related to Fandango transaction |
|
|
5,000 |
|
|
|
|
|
|
|
|
|
Increase in deferred revenue related to new U.S. beverage agreement |
|
|
|
|
|
|
|
|
|
|
6,550 |
|
Distributions from equity investees |
|
|
|
|
|
|
644 |
|
|
|
2,699 |
|
Changes in other assets and liabilities |
|
|
1,862 |
|
|
|
10,137 |
|
|
|
35,656 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
276,036 |
|
|
|
257,294 |
|
|
|
176,763 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Additions to theatre properties and equipment |
|
|
(146,304 |
) |
|
|
(106,109 |
) |
|
|
(124,797 |
) |
Proceeds from sale of theatre properties and equipment |
|
|
37,532 |
|
|
|
2,539 |
|
|
|
2,178 |
|
Increase in escrow deposit due to like-kind exchange |
|
|
(22,739 |
) |
|
|
(2,089 |
) |
|
|
|
|
Return of escrow deposits |
|
|
|
|
|
|
24,828 |
|
|
|
|
|
Acquisition of theatres in the U.S. |
|
|
|
|
|
|
(5,011 |
) |
|
|
(48,950 |
) |
Acquisition of theatres in Brazil |
|
|
|
|
|
|
(5,100 |
) |
|
|
(9,061 |
) |
Net proceeds from sale of NCM stock |
|
|
214,842 |
|
|
|
|
|
|
|
|
|
Net proceeds from sale of Fandango stock |
|
|
11,347 |
|
|
|
|
|
|
|
|
|
Investment in joint venture DCIP |
|
|
(1,500 |
) |
|
|
(4,000 |
) |
|
|
(2,500 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used for) investing activities |
|
|
93,178 |
|
|
|
(94,942 |
) |
|
|
(183,130 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from initial public offering |
|
|
245,849 |
|
|
|
|
|
|
|
|
|
Proceeds from stock option exercises |
|
|
3,625 |
|
|
|
1,292 |
|
|
|
2,524 |
|
Payroll taxes paid as a result of immaculate option exercises |
|
|
|
|
|
|
|
|
|
|
(8,972 |
) |
Dividends paid to stockholders |
|
|
(33,061 |
) |
|
|
(77,534 |
) |
|
|
(78,643 |
) |
Retirement of senior discount notes |
|
|
(43,136 |
) |
|
|
(29,559 |
) |
|
|
(261,054 |
) |
Retirement of senior subordinated notes |
|
|
(332,066 |
) |
|
|
(3 |
) |
|
|
|
|
Proceeds from issuance of senior notes |
|
|
|
|
|
|
|
|
|
|
458,532 |
|
Repayments of other long-term debt |
|
|
(19,438 |
) |
|
|
(10,430 |
) |
|
|
(12,605 |
) |
Payments on capital leases |
|
|
(3,759 |
) |
|
|
(4,901 |
) |
|
|
(6,064 |
) |
Payment of debt issue costs |
|
|
|
|
|
|
|
|
|
|
(13,003 |
) |
Termination of interest rate swap agreement |
|
|
|
|
|
|
(12,725 |
) |
|
|
|
|
Other |
|
|
(1,729 |
) |
|
|
(1,231 |
) |
|
|
(2,416 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used for) financing activities |
|
|
(183,715 |
) |
|
|
(135,091 |
) |
|
|
78,299 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash and cash equivalents |
|
|
5,445 |
|
|
|
(15,701 |
) |
|
|
16,401 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents |
|
|
190,944 |
|
|
|
11,560 |
|
|
|
88,333 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year |
|
|
147,099 |
|
|
|
338,043 |
|
|
|
349,603 |
|
|
|
|
|
|
|
|
|
|
|
End of year |
|
$ |
338,043 |
|
|
$ |
349,603 |
|
|
$ |
437,936 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental information (see Note 20) |
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
F-6
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Cinemark Holdings, Inc. and subsidiaries (the Company) is the second largest
motion picture exhibitor in the world in terms of both attendance and the number of screens in
operation, 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 year ended
December 31, 2009.
Basis of Presentation On August 2, 2006, Cinemark Holdings, Inc. was formed as the Delaware
holding company of Cinemark, Inc. On April 24, 2007, Cinemark Holdings, Inc. completed an initial
public offering of its common stock. Effective December 11, 2009, Cinemark, Inc. was merged into
Cinemark Holdings, Inc. and Cinemark Holdings, Inc. became the holding company of Cinemark USA,
Inc.
Principles of Consolidation The consolidated financial statements include the accounts of
Cinemark Holdings, Inc., its subsidiaries and its affiliates. 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 consolidated financial statements effective with their formation or from their dates of
acquisition. Intercompany balances and transactions are eliminated in consolidation.
Cash and Cash Equivalents Cash and cash equivalents consist of operating funds held in
financial institutions, petty cash held by the theatres and highly liquid investments with
remaining maturities of three months or less when purchased. At December 31, 2009, cash investments
were primarily in money market funds.
Inventories Concession and theatre supplies inventories are stated at the lower of cost
(first-in, first-out method) or market.
Theatre Properties and Equipment Theatre properties and equipment are stated at cost less
accumulated depreciation and amortization. Additions to theatre properties and equipment include
the capitalization of $618, $270 and $0 of interest incurred during the development and
construction of theatres during the years ended December 31, 2007, 2008 and 2009, respectively.
Depreciation is provided using the straight-line method over the estimated useful lives of the
assets as follows:
|
|
|
Category |
|
Useful Life |
Buildings on owned land
|
|
40 years |
Buildings on leased land
|
|
Lesser of lease term or useful life |
Buildings under capital lease
|
|
Lesser of lease term or useful life |
Theatre furniture and equipment
|
|
5 to 15 years |
Leasehold improvements
|
|
Lesser of lease term or useful life |
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. Significant
judgment is involved in estimating cash flows and fair value. Managements estimates, which fall
under Level 3, are based on historical and projected operating performance, recent market
transactions, and current industry trading
F-7
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
multiples. Fair value is determined based on a multiple
of cash flows, which was eight times for the evaluations performed during 2007 and the first,
second and third quarters of 2008 and six and a half times for the evaluation
performed during the fourth quarter of 2008 and the evaluations performed during 2009. The
Company reduced the multiple it used to determine fair value during the fourth quarter of 2008 due
to the dramatic decline in estimated market values that resulted from a significant decrease in its
stock price and the declines in the market capitalizations of the Company and its competitors that
occurred during the fourth quarter of 2008. 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, adverse changes in market demographics or adverse changes in the
development or the conditions of the areas surrounding the theatre. See
Note 12.
Goodwill and Other Intangible Assets Goodwill is the excess of cost over fair value of
theatre businesses acquired. Goodwill is evaluated 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. 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 its 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, 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 eight
times for the goodwill impairment evaluations performed during 2007 and six and a half times for
the evaluations performed during 2008 and 2009. The Company reduced the multiple it used to
determine fair value during the fourth quarter of 2008 due to the dramatic decline in estimated
market values that resulted from a significant decrease in its stock price and the declines in the
market capitalizations of the Company and its competitors that occurred during the fourth quarter
of 2008. Prior to January 1, 2008, the Company considered its theatres reporting units for purposes
of evaluating goodwill for impairment. Changes in the organization, including changes in the
structure of the Companys executive management team, the Companys initial public offering of
common stock, the resulting changes in the level at which the Companys management team evaluates
the business on a regular basis, and the Century Acquisition that increased the size of the
Companys theatre base by approximately 25%, led the Company to conclude that its U.S. regions and
international countries are now more reflective of how it manages and operates its business.
Accordingly, the Companys U.S. regions and international countries represent the appropriate
reporting units for purposes of evaluating goodwill for impairment. Consequently, effective January
1, 2008, the Company changed the reporting unit to 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) from approximately four hundred theatres. The goodwill
impairment test performed during December 2007 that resulted in the recording of impairment charges
during the year ended December 31, 2007 reflected the final calculation utilizing theatres as
reporting units. See Notes 11 and 12.
Tradename intangible assets are tested for impairment at least annually during the fourth
quarter or whenever events or changes in circumstances indicate the carrying value may not be
recoverable. The Company estimates the fair value of its tradenames by applying an estimated
market royalty rate that could be charged for the use of the Companys tradename to forecasted
future revenues, with an adjustment for the present value of such royalties. If the estimated fair
value is less than the carrying value, the tradename intangible asset is written down to the
estimated fair value.
The table below summarizes the Companys intangible assets and the amortization method used
for each type of intangible asset:
|
|
|
Intangible Asset |
|
Amortization Method |
Goodwill
|
|
Indefinite-lived |
Tradename
|
|
Indefinite-lived |
Capitalized licensing fees
|
|
Straight-line method over 15 years. The
remaining terms of the underlying agreements
range from approximately 5 to 11 years. |
Vendor contracts
|
|
Straight-line method over the terms of the
underlying contracts. The remaining terms of
the underlying contracts range from 2 to 13
years. |
Favorable/unfavorable leases
|
|
Based on the pattern in which the economic
benefits are realized over the terms of the
lease agreements. The remaining terms of the
lease agreements range from 1 to 26 years. |
Other intangible assets
|
|
Straight-line method over the terms of the
underlying agreement. The remaining term of
the underlying agreements range from 5 to 11
years. |
F-8
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
Deferred Charges and Other Assets Deferred charges and other assets consist of debt issue
costs, long-term prepaid rents, construction advances and other deposits, equipment to be placed in
service and other assets. Debt issue costs are amortized using the straight-line method (which
approximates the effective interest method) over the primary financing terms of the related debt
agreement. Long-term prepaid rents represent advance rental payments on operating leases. These
payments are recognized to facility lease expense over the period for which the rent was paid in
advance as outlined in the lease agreements. These periods generally range from 10 to 20 years.
Lease Accounting The Company evaluates each lease for classification as either a capital
lease or an operating lease. If substantially all of the benefits and risks of ownership have been
transferred to the lessee, the Company records the lease as a capital lease at its inception. The
Company performs this evaluation at the inception of the lease and when a modification is made to a
lease. If the lease agreement calls for a scheduled rent increase during the lease term, the
Company recognizes the lease expense on a straight-line basis over the lease term as deferred lease
expense. The Company determines the straight-line rent expense impact of an operating lease upon
inception of the lease. The landlord is typically responsible for constructing a theatre using
guidelines and specifications agreed to by the Company and assumes substantially all of the risk of
construction. If the Company concludes that it has substantially all of the construction period
risks, it records a construction asset and related liability for the amount of total project costs
incurred during the construction period. At the end of the construction period, the Company
determines if the transaction qualifies for sale-leaseback accounting treatment in regards to lease
classification.
Deferred Revenues Advances collected on long-term screen advertising, concession and other
contracts are recorded as deferred revenues. In accordance with the terms of the agreements, the
advances collected on such contracts are recognized during the period in which the advances are
earned, which may differ from the period in which the advances are collected. Revenues related to
these advances are recognized on either a straight-line basis over the term of the contracts or as
such revenues are earned in accordance with the terms of the contracts.
Casualty Insurance The Company is self-insured for general liability claims up to $250 per
occurrence with an annual cap of approximately $2,650 per policy year and is self-insured for
medical claims up to $100 per occurrence. The Company is fully insured for workers compensation
claims. As of December 31, 2008 and 2009, the Company maintained insurance reserves of $8,116 and
$8,022, respectively.
Revenue and Expense Recognition Revenues are recognized when admissions and concession sales
are received at the box office. Other revenues primarily consist of screen advertising. Screen
advertising revenues are recognized over the period that the related advertising is delivered
on-screen or in-theatre. The Company records proceeds from the sale of gift cards and other
advanced sale-type certificates in current liabilities and recognizes admissions and concession
revenue when a holder redeems the card or certificate. The Company recognizes unredeemed gift cards
and other advanced sale-type certificates as revenue only after such a period of time indicates,
based on historical experience, the likelihood of redemption is remote, and based on applicable
laws and regulations. In evaluating the likelihood of redemption, the Company considers the period
outstanding, the level and frequency of activity, and the period of inactivity. The Company
recognized unredeemed gift cards and other advance sale-type certificates as revenues in the amount
of $5,516, $7,629 and $7,162 during the years ended December 31, 2007, 2008 and 2009, respectively.
Film rental costs are accrued based on the applicable box office receipts and either the
mutually agreed upon firm terms or sliding scale formula, which are established prior to the
opening of the film, or estimates of the final mutually agreed upon settlement, which occurs at the
conclusion of the film run, subject to the film licensing arrangement. Under a firm terms formula,
the Company pays the distributor a mutually agreed upon specified percentage of box office
receipts, which reflects either a mutually agreed upon aggregate rate for the life of the film or
rates that decline over the term of the run. Under the sliding scale formula, film rental is paid
as a percentage of box office revenues using a pre-determined matrix based upon box office
performance of the film. The settlement process allows for negotiation of film rental fees upon
the conclusion of the film run based upon how the film performs. Estimates are based on the
expected success of a film. The success of a film can typically be determined a few weeks after a
film is released when initial box office performance of the film is known. Accordingly, final
settlements typically approximate estimates since box office receipts are known at the time the
estimate is made and the expected success of a film can typically be estimated early in the films
run. If actual settlements are different than those estimates, film rental costs are adjusted at
that time. Advertising costs are expensed as incurred and we expensed $17,252, $16,839 and $15,104,
respectively for the years ended December 31, 2007, 2008 and 2009.
Accounting for Share Based Awards The Company measures the cost of employee services
received in exchange for an award of equity instruments based on the fair value of the award on the
date of the grant. The grant date fair value
F-9
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
is estimated using either an option-pricing model,
consistent with the terms of the award, or a market observed price, if such a price exists. Such
costs must be recognized over the period during which an employee is required to provide
service in exchange for the award (which is usually the vesting period). The Company also
estimates the number of instruments that will ultimately be forfeited, rather than accounting for
forfeitures as they occur. See Note 19 for discussion of all the Companys share based awards and
related compensation expense.
Income Taxes The Company uses an asset and liability approach to financial accounting and
reporting for income taxes. Deferred income taxes are provided when tax laws and financial
accounting standards differ with respect to the amount of income for a year and the basis of assets
and liabilities. A valuation allowance is recorded to reduce the carrying amount of deferred tax
assets unless it is more likely than not that such assets will be realized. Income taxes are
provided on unremitted earnings from foreign subsidiaries unless such earnings are expected to be
indefinitely reinvested. Income taxes have also been provided for potential tax assessments. The
related tax accruals are recorded in accordance with FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes an interpretation of SFAS No. 109 (FIN 48 or FASB ASC Topic 740,
Income Taxes [FASB ASC Topic 740"]), which the Company adopted on January 1, 2007. FIN 48 (FASB
ASC Topic 740) clarifies the accounting and reporting for income taxes recognized in accordance
with SFAS No. 109, Accounting for Income Taxes (FASB ASC Topic 740), and the recognition,
measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken
in income tax returns. The evaluation of a tax position is a two-step process. The first step is
recognition: The Company determines whether it is more likely than not that a tax position will be
sustained upon examination, including resolution of any related appeals or litigation processes,
based on the technical merits of the position. In evaluating whether a tax position has met the
more-likely-than-not recognition threshold, the Company should presume that the position would be
examined by the appropriate taxing authority that would have full knowledge of all relevant
information. The second step is measurement: A tax position that meets the more-likely-than-not
recognition threshold is measured to determine the amount of benefit to recognize in the financial
statements. The tax position is measured as the largest amount of benefit that is greater than
50 percent likely of being realized upon ultimate settlement. Differences between tax positions
taken in a tax return and amounts recognized in the financial statements result in (1) a change in
a liability for income taxes payable or (2) a change in an income tax refund receivable, a
deferred tax asset or a deferred tax liability or both (1) and (2). The Company accrues interest
and penalties on its uncertain tax positions.
Segments As of December 31, 2009, the Company managed its business under two reportable
operating segments, U.S. markets and international markets, in accordance with FASB ASC Topic 280,
Segment Reporting. See Note 23.
Use of Estimates The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires the use of estimates and
assumptions that affect the reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the periods presented. The
Companys consolidated financial statements include amounts that are based on managements best
estimates and judgments. Actual results could differ from those estimates.
Foreign Currency Translations The assets and liabilities of the Companys foreign
subsidiaries are translated into U.S. dollars at current exchange rates as of the balance sheet
date, and revenues and expenses are translated at average monthly exchange rates. The resulting
translation adjustments are recorded in the consolidated balance sheet in accumulated other
comprehensive income (loss). The Company recognizes foreign currency transaction gains and losses
when changes in exchange rates impact transactions, other than intercompany transactions of a long-term
investment nature, that have been denominated in a currency other than the functional currency.
F-10
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
Fair Value Measurements The Company has interest rate swap agreements that are adjusted to
fair value on a recurring basis (quarterly). The Company uses the income approach to determine the
fair value of its interest rate swap agreements and under this approach, the Company uses projected
future interest rates as provided by the counterparties to the interest rate swap agreements and
the fixed rates that the Company is obligated to pay under these agreements. According to
authoritative guidance, inputs used in fair value measurements fall into three different
categories; Level 1, Level 2 and Level 3. Level 1 inputs are quoted prices (unadjusted) in active
markets for identical assets or liabilities that the reporting entity has the ability to access at
the measurement date. Level 2 inputs are inputs other than quoted prices included within Level 1
that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are
unobservable inputs for the asset or liability. Therefore, the Companys measurements use
significant unobservable inputs, which fall in Level 3. There were no changes in valuation
techniques during the period, no transfers in or out of Level 3 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. Below is a reconciliation of our interest rate swap values, as included in
other long-term liabilities on the consolidated balance sheets, from January 1, 2008 to December
31, 2009:
|
|
|
|
|
Beginning balance January 1, 2008 |
|
$ |
(18,422 |
) |
Total gains (losses): |
|
|
|
|
Included in
earnings (as a component of interest expense) |
|
|
5,422 |
|
Included in accumulated other comprehensive loss |
|
|
(24,506 |
) |
Settlements |
|
|
12,725 |
|
|
|
|
|
Ending balance December 31, 2008 |
|
$ |
(24,781 |
) |
Total gains (losses): |
|
|
|
|
Included in accumulated other comprehensive loss |
|
|
6,257 |
|
|
|
|
|
Ending balance December 31, 2009 |
|
$ |
(18,524 |
) |
|
|
|
|
See Note 15 for further discussion of the terms of the Companys interest rate swap
agreements.
Acquisitions The Company accounts for acquisitions under the acquisition method of
accounting. The acquisition method requires that the acquired assets and liabilities, including
contingencies, be recorded at fair value determined on the acquisition date and changes thereafter
reflected in income. For significant acquisitions, the Company obtains independent third party
valuation studies for certain of the assets acquired and liabilities assumed to assist the Company
in determining fair value. The estimation of the fair values of the assets acquired and liabilities
assumed involves a number of estimates and assumptions that could differ materially from the actual
amounts recorded. The Company provides the assumptions, including both quantitative and qualitative
information, about the specified asset or liability to the third party valuation firms. The Company
primarily utilizes the third parties to accumulate comparative data from multiple sources and
assemble a report that summarizes the information obtained. The Company then uses the information
to determine fair value. The third party valuation firms are supervised by Company personnel who
are knowledgeable about valuations and fair value. The Company evaluates the appropriateness of the
valuation methodology utilized by the third party valuation firm.
2. NEW ACCOUNTING PRONOUNCEMENTS
In September 2006, the FASB issued SFAS No. 157 (FASB Accounting Standards Codification
[ASC] Topic 820), Fair Value Measurements. Among other requirements, this statement defines
fair value, establishes a framework for using fair value to measure assets and liabilities, and
expands disclosures about fair value measurements. The statement applies whenever other statements
require or permit assets or liabilities to be measured at fair value. SFAS No. 157 (FASB ASC Topic
820) was effective for the Company beginning January 1, 2008 (January 1, 2009 for nonfinancial
assets and liabilities). Adoption of this statement did not have a significant impact on the
Companys consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141(R) (FASB ASC Topic 805), Business
Combinations. This statement requires all business combinations completed after the effective date
to be accounted for by applying the acquisition method (previously referred to as the purchase
method); expands the definition of transactions and events that qualify as business combinations;
requires that the acquired assets and liabilities, including contingencies, be recorded at the fair
value determined on the acquisition date and changes thereafter reflected in income, not goodwill;
changes the recognition timing for restructuring costs; and requires acquisition costs to be
expensed as incurred rather than being capitalized as part of the cost of the acquisition. Adoption
of SFAS No. 141(R) (FASB ASC Topic 805) was required for business combinations that occur after
December 15, 2008. Early adoption and retroactive application of SFAS No.
F-11
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
141(R) (FASB ASC Topic
805) to fiscal years preceding the effective date is not permitted. Adoption of this statement did
not have a significant impact on the Companys consolidated financial statements.
In December 2007, the FASB issued SFAS No. 160, (FASB ASC Topic 810) Noncontrolling Interest
in Consolidated Financial Statements. This statement establishes new accounting and reporting
standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. Specifically, this statement requires the recognition of a noncontrolling interest
(minority interest) as equity in the consolidated financial statements and separate from the
parents equity. The amount of net income attributable to the noncontrolling interest will no
longer be shown as an expense item for all periods presented, but will be included in consolidated
net income on the face of the income statement. SFAS No. 160 (FASB ASC Topic 810) requires
disclosure, on the face of the consolidated income statement, of the amounts of consolidated net
income attributable to the parent and the noncontrolling interest. SFAS No. 160 (FASB ASC Topic
810) clarifies that changes in a parents ownership interest in a subsidiary that do not result in
deconsolidation are equity transactions if the parent retains its controlling financial interest.
In addition, this statement requires that a parent recognize a gain or loss in net income when a
subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the
noncontrolling equity investment on the deconsolidation date. SFAS No. 160 (FASB ASC Topic 810)
also includes expanded disclosure requirements regarding the interests of the parent and its
noncontrolling interest. SFAS No. 160 (FASB ASC Topic 810) was effective for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15, 2008. Upon adoption
of this statement, the Company has recognized its noncontrolling interest as equity in the
consolidated balance sheets, has reflected net income attributable to noncontrolling interest in
consolidated net income (loss) in the statements of operations and has provided, in its
consolidated statements of stockholders equity and comprehensive income (loss), a summary of
changes in equity attributable to Cinemark Holdings, Inc., changes attributable to noncontrolling
interests and changes in total equity for all periods presented.
In March 2008, the FASB issued SFAS No. 161 (FASB ASC Topic 815) Disclosures about Derivative
Instruments and Hedging Activitiesan Amendment of FASB Statement No. 133. This statement intends
to improve financial reporting about derivative instruments and hedging activities by requiring
enhanced disclosures about their impact on an entitys financial position, financial performance,
and cash flows. SFAS No. 161 (FASB ASC Topic 815) requires disclosures regarding the objectives for
using derivative instruments, the fair values of derivative instruments and their related gains and
losses, and the accounting for derivatives and related hedged items. SFAS No. 161 (FASB ASC Topic
815) was effective for fiscal years and interim periods beginning after November 15, 2008, with
early adoption permitted. The adoption of SFAS No. 161 (FASB ASC Topic 815) did not impact the
Companys consolidated financial statements, nor did it have a significant impact on the Companys
disclosures.
In June 2008, the FASB issued FASB Staff Position Emerging Issues Task Force 03-6-1 (FASB ASC
Topic 260), Determining Whether Instruments Granted in Share Based Payment Transactions Are
Participating Securities (FSP-EITF 03-6-1). Under FSP-EITF 03-6-1 (FASB ASC Topic 260), unvested
share based payment awards that contain non-forfeitable rights to dividends or dividend equivalents
(whether paid or unpaid) are participating securities and shall be included in the computation of
earnings per share pursuant to the two-class method. FSP-EITF 03-6-1 (FASB ASC Topic 260) was
effective for financial statements issued for fiscal years beginning after December 15, 2008, and
interim periods within those years and requires retrospective application. The adoption of FSP-EITF
03-6-1 (FASB ASC Topic 260) did not have a significant impact on the Companys earnings per share
calculations.
In
May 2009, the FASB issued SFAS No. 165 (FASB ASC Topic 855), Subsequent Events. SFAS No. 165 (FASB ASC Topic 855) should not result in significant changes in the subsequent
events that an entity reports. Rather, SFAS No. 165 (FASB ASC Topic 855) introduces the concept of financial statements
that are available to be issued. Financial statements are considered available to be issued when
they are complete in a form and format that complies with generally accepted accounting principles
and all approvals necessary for issuance have been obtained. SFAS No. 165 (FASB ASC Topic 855) was
effective for interim or annual financial periods ending after June 15, 2009. The adoption of SFAS
No. 165 (FASB ASC Topic 855) did not have a significant impact on the Companys consolidated
financial statements.
F-12
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
In June 2009, the FASB issued SFAS No. 168 (FASB ASC Topic 105), The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, which authorizes the Codification as the sole source for authoritative generally accepted
accounting principles in the U.S. (U.S. GAAP). SFAS No. 168 (FASB ASC Topic 105) was effective
for financial statements issued for reporting periods that ended after September 15, 2009. SFAS No.
168 (FASB ASC Topic 105) supersedes all accounting standards in U.S. GAAP, aside from those issued
by the SEC. SFAS No. 168 (FASB ASC Topic 105) replaced SFAS No. 162 to establish a new hierarchy of
GAAP sources for non-governmental entities under the FASB Accounting Standards Codification. The
adoption of SFAS No. 168 (FASB ASC Topic 105) did not have a significant impact on the Companys
consolidated financial statements.
3. INITIAL PUBLIC OFFERING OF COMMON STOCK
On April 24, 2007, the Company completed an initial public offering of its common stock. The
Company sold 13,888,889 shares of its common stock and selling stockholders sold an additional
14,111,111 shares of common stock at a price of $17.955 ($19 per share less underwriting
discounts). The net proceeds (before expenses) received by the Company were $249,375 and the
Company paid approximately $3,526 in legal, accounting and other fees, all of which are recorded in
additional paid-in-capital. The selling stockholders granted the underwriters a 30-day option to
purchase up to an additional 2,800,000 shares of the Companys common stock at a price of $17.955
($19 per share less underwriting discounts). On May 21, 2007, the underwriters purchased an
additional 269,100 shares from the selling stockholders pursuant to this option. The Company did
not receive any proceeds from the sale of shares by the selling stockholders. The Company has
utilized a portion of the net proceeds that it received from the offering to repurchase a portion
of Cinemark, Inc.s outstanding 9 3/4% senior discount notes. See Note 14. The Company has
significant flexibility in applying the net remaining proceeds from the initial public offering.
The Company has invested the remaining net proceeds in money market funds.
4. EARNINGS PER SHARE
As of January 1, 2009, the Company determined that its unvested share based payment awards
that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid)
are participating securities and have included such participating securities in its computation of
earnings per share pursuant to the two-class method for the periods during which such participating
securities were outstanding.
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 reported 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 years ended December 31, 2007, 2008 and 2009, basic earnings (loss) per share was the
same under both the two class method and the treasury stock method. For years ended December 31,
2007 and December 31, 2008, diluted earnings (loss) per share was the same under both the two class
method and the treasury stock method. For the year ended December 31, 2009, diluted earnings per
share under the two class method was $0.87 and under the treasury stock method was $0.88. The
following table presents computations of basic and diluted earnings (loss) per share under the two
class method:
F-13
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
2007 |
|
2008 |
|
2009 |
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Cinemark Holdings, Inc. |
|
$ |
88,920 |
|
|
$ |
(48,325 |
) |
|
$ |
97,108 |
|
(Earnings) loss allocated to participating share-based awards (1) |
|
|
(3 |
) |
|
|
129 |
|
|
|
(635 |
) |
|
|
|
Net income (loss) attributable to common stockholders |
|
$ |
88,917 |
|
|
$ |
(48,196 |
) |
|
$ |
96,473 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator (shares in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average common stock outstanding |
|
|
102,177 |
|
|
|
107,341 |
|
|
|
108,563 |
|
Common equivalent shares for stock options(2) |
|
|
2,543 |
|
|
|
|
|
|
|
1,594 |
|
Common equivalent shares for restricted stock units(2) |
|
|
|
|
|
|
|
|
|
|
98 |
|
|
|
|
Diluted |
|
|
104,720 |
|
|
|
107,341 |
|
|
|
110,255 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share attributable to common stockholders |
|
$ |
0.87 |
|
|
$ |
(0.45 |
) |
|
$ |
0.89 |
|
|
|
|
Diluted earnings (loss) per share attributable to common stockholders |
|
$ |
0.85 |
|
|
$ |
(0.45 |
) |
|
$ |
0.87 |
|
|
|
|
|
|
|
(1) |
|
For the years ended December 31, 2007, 2008 and 2009, a weighted average of
approximately 5 shares, 287 shares and 714 shares of unvested restricted stock,
respectively, are considered participating securities. |
|
(2) |
|
Diluted loss per share calculations for the year ended December 31, 2008 exclude
common equivalent shares for stock options of 1,971 and common equivalent shares for
restricted stock units of 47 because they were anti-dilutive. |
5. DIVIDENDS
In August 2007, the Company initiated a quarterly dividend policy. Below is a summary of the
Companys dividend history since initiation of this policy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount per |
|
|
|
|
Date |
|
Date of |
|
|
Date |
|
|
Common |
|
|
Total |
|
Declared |
|
Record |
|
|
Paid |
|
|
Share (1) |
|
|
Dividends (2) |
|
08/13/07 |
|
|
09/04/07 |
|
|
|
09/18/07 |
|
|
$ |
0.13 |
|
|
$ |
13,840 |
|
11/12/07 |
|
|
12/03/07 |
|
|
|
12/18/07 |
|
|
$ |
0.18 |
|
|
$ |
19,221 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total - 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
33,061 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/26/08 |
|
|
03/06/08 |
|
|
|
03/14/08 |
|
|
$ |
0.18 |
|
|
$ |
19,270 |
|
05/09/08 |
|
|
05/30/08 |
|
|
|
06/12/08 |
|
|
$ |
0.18 |
|
|
$ |
19,353 |
|
08/07/08 |
|
|
08/25/08 |
|
|
|
09/12/08 |
|
|
$ |
0.18 |
|
|
$ |
19,370 |
|
11/06/08 |
|
|
11/26/08 |
|
|
|
12/11/08 |
|
|
$ |
0.18 |
|
|
$ |
19,615 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total - 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
77,608 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/13/09 |
|
|
03/05/09 |
|
|
|
03/20/09 |
|
|
$ |
0.18 |
|
|
$ |
19,619 |
|
05/13/09 |
|
|
06/02/09 |
|
|
|
06/18/09 |
|
|
$ |
0.18 |
|
|
$ |
19,734 |
|
07/29/09 |
|
|
08/17/09 |
|
|
|
09/01/09 |
|
|
$ |
0.18 |
|
|
$ |
19,739 |
|
11/04/09 |
|
|
11/25/09 |
|
|
|
12/10/09 |
|
|
$ |
0.18 |
|
|
$ |
19,752 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total - 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
78,844 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The dividend paid on September 18, 2007 was based on a quarterly dividend rate
of $0.18 per common share, prorated based on the April 24, 2007 closing date of the Companys
initial public offering. |
|
(2) |
|
Of the dividends recorded during 2008 and 2009, $74 and $201, respectively, were
related to outstanding restricted stock units and will not be paid until such units vest. See
Notes 19 and 20. |
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 consolidated statement of
operations for the year ended December 31, 2009.
F-14
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
The transaction was accounted for by applying the acquisition method. The following table
represents the fair value of the identifiable assets acquired and liabilities assumed that have
been recognized by the Company in its consolidated balance sheet as of December 31, 2009:
|
|
|
|
|
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 consolidated balance sheet as of
December 31, 2009. The weighted average amortization period for these intangible assets and the
unfavorable lease are 9.6 years and 10.0 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 LLC AND TRANSACTION RELATED TO ITS INITIAL PUBLIC OFFERING
In March 2005, Regal Entertainment Inc. (Regal) and AMC Entertainment Inc. (AMC) formed
National CineMedia, LLC, or NCM, and on July 15, 2005, the Company joined NCM, as one of the
founding members. NCM operates a digital in-theatre network in the U.S. for providing cinema
advertising and non-film events. Upon joining NCM, the Company and NCM entered into an Exhibitor
Services Agreement, pursuant to which NCM provides advertising, promotion and event services to the
Companys theatres. On February 13, 2007, National CineMedia, Inc., or NCM Inc., a newly formed
entity that serves as a member and the sole manager of NCM, completed an initial public offering of
its common stock. In connection with the NCM Inc. initial public offering, the Company amended its
operating agreement with NCM and the Exhibitor Services Agreement. In connection with NCM Inc.s
initial public offering and the transactions described below (the NCM Transaction), the Company
received an aggregate of $389,003.
Prior to pricing the initial public offering of NCM Inc., NCM completed a recapitalization
whereby (1) each issued and outstanding Class A unit of NCM was split into 44,291 Class A units,
and (2) following such split of Class A Units, each issued and outstanding Class A Unit was
recapitalized into one common unit and one preferred unit. As a result, the Company received
14,159,437 common units and 14,159,437 preferred units. All existing preferred units of NCM, or
55,850,951 preferred units, held by Regal, AMC and the Company were redeemed on a pro-rata basis on
February 13, 2007. NCM utilized the proceeds of its new $725,000 term loan facility and a portion
of the proceeds it received from NCM Inc. from its initial public offering to redeem all of its
outstanding preferred units. Each preferred unit was redeemed for $13.7782 and the Company received
approximately $195,092 as payment in full for redemption of all of the Companys preferred units in
NCM. Upon payment of such amount, each preferred unit was cancelled and the holders of the
preferred units ceased to have any rights with respect to the preferred units.
At the closing of the initial public offering, the underwriters exercised their over-allotment
option to purchase additional shares of common stock of NCM Inc. at the initial public offering
price, less underwriting discounts and commissions. In connection with the over-allotment option
exercise, Regal, AMC and the Company each sold to NCM Inc. common units of NCM on a pro-rata basis
at the initial public offering price, less underwriting discounts and expenses. The Company sold
1,014,088 common units to NCM Inc. for proceeds of $19,910, and upon completion of this sale of
common units, the Company owned 13,145,349 common units of NCM. The net proceeds of $215,002 from
the above described stock transactions were applied against the Companys existing investment basis
in NCM of $4,069 until such basis was reduced to $0 with the remaining $210,933 of proceeds net of
$160 of transaction related costs, recorded as a gain of $210,773 in the consolidated statement of
operations for the year ended December 31, 2007.
NCM also paid the Company a portion of the proceeds it received from NCM Inc. in the initial
public offering for agreeing to modify the prior Exhibitor Services Agreement. The modification
reflects a shift from circuit share expense under the prior Exhibitor Services Agreement, which
obligated NCM to pay the Company a percentage of revenue, to the monthly theatre access fee
described below. The theatre access fee significantly reduced the contractual amounts paid to
F-15
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
the
Company by NCM. In exchange for the Company agreeing to so modify the agreement, NCM paid the
Company approximately $174,001 upon modification of the Exhibitor Services Agreement on February
13, 2007, the proceeds of which were recorded as deferred revenue. The Company believes this
payment approximates the fair value of the Exhibitor Services Agreement modification. The deferred
revenue is being amortized into other revenues over the life of the agreement using the units of
revenue method. Regal and AMC similarly amended their exhibitor service agreements with NCM.
In consideration for NCMs exclusive access to the Companys theatre attendees for on-screen
advertising and use of off-screen locations within the Companys theatres for the lobby
entertainment and lobby promotions, the Company receives a monthly theatre access fee under the
modified Exhibitor Services Agreement (modified ESA). The theatre access fee is composed of a
fixed payment per patron, initially seven cents, and a fixed payment per digital screen, which may
be adjusted for certain reasons outlined in the modified ESA. The payment per theatre patron
increases by 8% every five years, with the first such increase taking effect after the end of
fiscal 2011, and the payment per digital screen, initially eight hundred dollars per digital screen
per year, increases annually by 5%. For 2009, the annual payment per digital screen was eight
hundred eighty two dollars. The theatre access fee paid in the aggregate to Regal, AMC and the
Company will not be less than 12% of NCMs Aggregate Advertising Revenue (as defined in the
modified ESA), or it will be adjusted upward to reach this minimum payment. Additionally, with
respect to any on-screen advertising time provided to the Companys beverage concessionaire, the
Company is required to purchase such time from NCM at a negotiated rate. The modified ESA has,
except with respect to certain limited services, a remaining term of approximately 28 years.
Prior to the initial public offering of NCM Inc. common stock, the Companys ownership
interest in NCM was approximately 25% and subsequent to the completion of the offering the Company
held a 14% interest in NCM. Subsequent to NCM Inc.s initial public offering, the Company
continues to account for its investment in NCM under the equity method of accounting due to its
ability to exercise significant influence over NCM. The Company has substantial rights as a
founding member, including the right to designate a total of two nominees to the ten-member board
of directors of NCM Inc., the sole manager. So long as the Company owns at least 5% of NCMs
membership interests, approval of at least 90% (80% if the board has less than 10 directors) will
be required before NCM Inc. may take certain actions including but not limited to mergers and
acquisitions, issuance of common or preferred shares, approval of NCM Inc.s budget, incurrence of
indebtedness, entering into or terminating material agreements, and modifications to its articles
of incorporation or bylaws. Additionally, if any of the Companys director designees are not
appointed to the board of directors of NCM Inc., nominated by NCM Inc. or elected by NCM Inc.s
stockholders, then the Company (so long as the Company continues to own at least 5% of NCMs
membership interest) will be entitled to approve certain actions of NCM including without
limitation, approval of the budget, incurrence of indebtedness, consummating or amending material
agreements, approving dividends, amending the NCM operating agreement, hiring or termination of
the chief executive officer, chief financial officer, chief technology officer or chief marketing
officer of NCM and the dissolution or liquidation of NCM.
During 2008, NCM performed its initial annual common unit adjustment calculation in accordance
with the Common Unit Adjustment Agreement dated as of February 13, 2007 between NCM, Inc. and the
Company, Regal and AMC. The annual common unit adjustment is based on the change in the number of
screens operated by and attendance of the Company, AMC and Regal. As a result of the calculation,
the Company received an additional 846,303 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 $19,020. The
common unit adjustment resulted in an increase in the Companys ownership percentage in NCM from
approximately 14.0% to approximately 14.5%. Subsequent to the annual common unit adjustment
discussed above, in May 2008, Regal 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 result of this extraordinary common unit adjustment, Regal was
granted additional common units of NCM, which resulted in dilution of the Companys ownership
interest in NCM from 14.5% to 14.1%. The Company recognized a change of interest loss of
approximately $75 during the year ended December 31, 2008 as a result of this extraordinary common
unit adjustment, which is reflected in (gain) loss on sale of assets and other on the consolidated
statement of operations.
During March 2009, 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 1,197,303 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 $15,536.
F-16
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
The common unit
adjustment resulted in an increase in the Companys ownership percentage in NCM from approximately
14.1% to 15.0%.
As of December 31, 2009, the Company owned a total of 15,188,955 common units of NCM.
Below is a summary of activity with NCM included in the Companys consolidated financial
statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain |
|
|
|
|
|
Equity in |
|
|
|
|
|
|
Investment |
|
Deferred |
|
on NCM |
|
Distributions |
|
(Earnings) |
|
Other |
|
Cash |
|
|
in NCM |
|
Revenue |
|
Transaction (2) |
|
from NCM |
|
Losses |
|
Revenue |
|
Received |
|
|
|
Beginning balance on January 1, 2007 |
|
$ |
5,353 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Equity in losses |
|
|
(1,284 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,284 |
|
|
|
|
|
|
|
|
|
Preferred and common unit redemption |
|
|
(4,069 |
) |
|
|
|
|
|
|
(210,773 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
215,002 |
|
ESA modification payment |
|
|
|
|
|
|
(174,001 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
174,001 |
|
Revenues earned under ESA (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,664 |
) |
|
|
5,664 |
|
Amortization of deferred revenue |
|
|
|
|
|
|
1,305 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,305 |
) |
|
|
|
|
Receipt of excess cash distributions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,499 |
) |
|
|
|
|
|
|
|
|
|
|
11,499 |
|
|
|
|
Balance as of and for the period ended
December 31, 2007 |
|
$ |
|
|
|
$ |
(172,696 |
) |
|
$ |
(210,773 |
) |
|
$ |
(11,499 |
) |
|
$ |
1,284 |
|
|
$ |
(6,969 |
) |
|
$ |
406,166 |
|
|
|
|
|
|
|
|
|
|
|
|
Receipt of common units due to 2008
common unit adjustment |
|
$ |
19,020 |
|
|
$ |
(19,020 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Change of interest loss due to
extraordinary common unit adjustment
(3) |
|
(75 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues earned under ESA (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,764 |
) |
|
|
1,764 |
|
Receipt of excess cash distributions |
|
|
(644 |
) |
|
|
|
|
|
|
|
|
|
|
(16,005 |
) |
|
|
|
|
|
|
|
|
|
|
16,649 |
|
Receipt under tax receivable agreement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,833 |
) |
|
|
|
|
|
|
|
|
|
|
2,833 |
|
Equity in earnings |
|
|
840 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(840 |
) |
|
|
|
|
|
|
|
|
Amortization of deferred revenue |
|
|
|
|
|
|
1,869 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,869 |
) |
|
|
|
|
|
|
|
Balance as of and for the period ended
December 31, 2008 |
|
$ |
19,141 |
|
|
$ |
(189,847 |
) |
|
$ |
|
|
|
$ |
(18,838 |
) |
|
$ |
(840 |
) |
|
$ |
(3,633 |
) |
|
$ |
21,246 |
|
|
|
|
|
|
|
|
|
|
|
|
Receipt of common units due to 2009
common unit adjustment |
|
$ |
15,536 |
|
|
$ |
(15,536 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Revenues earned under ESA (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,711 |
) |
|
|
5,711 |
|
Receipt of excess cash distributions |
|
|
(2,358 |
) |
|
|
|
|
|
|
|
|
|
|
(17,738 |
) |
|
|
|
|
|
|
|
|
|
|
20,096 |
|
Receipt under tax receivable agreement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,084 |
) |
|
|
|
|
|
|
|
|
|
|
3,084 |
|
Equity in earnings |
|
|
1,913 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,913 |
) |
|
|
|
|
|
|
|
|
Amortization of deferred revenue |
|
|
|
|
|
|
2,377 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,377 |
) |
|
|
|
|
|
|
|
Balance as of and for the period ended
December 31, 2009 |
|
$ |
34,232 |
|
|
$ |
(203,006 |
) |
|
$ |
|
|
|
$ |
(20,822 |
) |
|
$ |
(1,913 |
) |
|
$ |
(8,088 |
) |
|
$ |
28,891 |
|
|
|
|
|
|
|
(1) |
|
Amounts include the per patron and per digital screen theatre access fees due to
the Company, net of amounts due to NCM for on-screen advertising time provided to the
Companys beverage concessionaire. The amounts due to NCM for on-screen advertising time
provided to the Companys beverage concessionaire were approximately $10,367, $12,784 and
$9,719 for the years ended December 31, 2007, 2008 and 2009, respectively. |
|
(2) |
|
Amount is net of approximately $160 of costs incurred by the Company related to the
NCM transaction. |
|
(3) |
|
Loss was recorded as (gain) loss on sale of assets and other. |
8. INVESTMENT IN DIGITAL CINEMA IMPLEMENTATION PARTNERS
On February 12, 2007, the Company, AMC and Regal 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. Future digital cinema developments will be managed by DCIP, subject to
the Companys approval along with the Companys partners, AMC and Regal. During the year ended
December 31, 2007, the Company invested an initial $1,500 for a one-third ownership interest in
DCIP. The Company, AMC and Regal each invested an additional $4,000 and $2,500 during the years
ended December 31, 2008 and 2009, respectively, in DCIP. The Company is accounting for its
investment in DCIP under the equity method of accounting.
During the years ended December 31, 2007, 2008 and 2009, the Company recorded equity losses in
DCIP of approximately $1,240, $3,243 and $2,877, respectively, relating to this investment. The
Companys investment basis in DCIP was $1,017 and $640 at December 31, 2008 and 2009, respectively,
which is included in investments in and advances to affiliates on the consolidated balance sheets.
F-17
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
9. SALE OF INVESTMENT IN FANDANGO, INC.
In May 2007, Fandango, Inc., an on-line ticketing distributor, executed a merger agreement,
which resulted in the Company selling its investment in stock of Fandango, Inc. for approximately
$14,147 of consideration (the Fandango Transaction). The Company paid $2,800 of the consideration
to Syufy Enterprises, LP in accordance with the terms of agreements entered into as part of the
Century Acquisition. The carrying value of the Companys investment in stock of
Fandango, Inc. was $2,142. As a result of the sale of its investment, the Company recorded a
gain of $9,205 in the consolidated statement of operations for the year ended December 31, 2007.
As part of the sale of its investment in stock of Fandango, Inc., the Company amended its
exclusive ticketing and distribution agreement with Fandango, Inc. and received proceeds of $5,000.
The proceeds were recorded as deferred revenue on the Companys consolidated balance sheet and are
being amortized straight-line over the term of the amended ticketing and distribution agreement,
which expires December 2011.
In accordance with the terms of its senior secured credit facility, the Company used
approximately $9,914 of the net proceeds to pay down its term loan. The payment was made on August
10, 2007 and was applied against the current portion of long-term debt.
10. SHARE EXCHANGES WITH NONCONTROLLING INTERESTS
During May 2008, the Companys partners in Central America (the Central American
Partners) exercised an option available to them under an Exchange Option Agreement dated
February 7, 2007 between the Company and the Central American Partners. Under this option, which
was contingent upon completion of an initial public offering of common stock by the Company, the
Central American Partners were entitled to exchange their shares in Cinemark Equity Holdings
Corporation, which is the Companys Central American holding company, for shares of the Companys
common stock. The number of shares to be exchanged was determined based on the Companys equity
value and the equity value of the Central American Partners interest in Cinemark Equity Holdings
Corporation, both of which are defined in the Exchange Option Agreement. As a result of this
exchange on October 1, 2008, the Company issued 902,981 shares of its common stock to its Central
American Partners (the Central America Share Exchange). As a result of this transaction, the
Company owns 100% of the shares in Cinemark Equity Holdings Corporation.
The Company accounted for the transaction as a step acquisition. The purchase price of the
shares in Cinemark Equity Holdings Corporation was recorded based on the fair value of the shares
issued by the Company of $12,949 plus related transaction costs of $2, which totaled approximately
$12,951. The following table represents the allocation of purchase price to the assets acquired
and liabilities assumed:
|
|
|
|
|
Net unfavorable leases |
|
$ |
(443 |
) |
Vendor contract |
|
|
1,034 |
|
Tradename |
|
|
892 |
|
Goodwill |
|
|
8,222 |
|
Reduction of noncontrolling interest |
|
|
3,246 |
|
|
|
|
|
|
|
$ |
12,951 |
|
|
|
|
|
The net book values of fixed assets approximated fair value. The net unfavorable leases,
vendor contracts and tradename are presented as intangible assets on the Companys consolidated
balance sheets. The goodwill recorded as a result of the acquisition is not
deductible for tax purposes.
During July 2008, the Companys partners in Ecuador (the Ecuador Partners) exercised an
option available to them under an Exchange Option Agreement dated April 24, 2007 between the
Company and the Ecuador Partners. Under this option, which was contingent upon completion of an
initial public offering of common stock by the Company, the Ecuador Partners were entitled to
exchange their shares in Cinemark del Ecuador S.A. for shares of the Companys common stock. The
number of shares to be exchanged was determined based on the Companys equity value and the equity
value of the Ecuador Partners interest in Cinemark del Ecuador S.A., both of which are defined in
the Exchange Option Agreement. As a result of this exchange on November 6, 2008, the Company issued
393,615 shares of its common stock to its Ecuador partners (the Ecuador Share Exchange). As a
result of this transaction, the Company owns 100% of the shares of Cinemark del Ecuador S.A.
F-18
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
The Company accounted for the transaction as a step acquisition. The purchase price of the
shares in Cinemark del Ecuador S.A. was recorded based on the fair value of the shares issued by
the Company, which was approximately $3,200.
The following table represents the allocation of purchase price to the assets acquired and
liabilities assumed:
|
|
|
|
|
Net unfavorable leases |
|
$ |
(161 |
) |
Tradename |
|
|
313 |
|
Goodwill |
|
|
1,473 |
|
Reduction of noncontrolling interest |
|
|
1,575 |
|
|
|
|
|
|
|
$ |
3,200 |
|
|
|
|
|
The net book value of fixed assets approximated fair value. The net unfavorable leases and
tradename are presented as intangible assets on the Companys consolidated balance sheets. The goodwill recorded as a result of the acquisition is not deductible for tax
purposes.
11. GOODWILL AND OTHER INTANGIBLE ASSETS NET
The Companys goodwill was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
International |
|
|
|
|
Operating |
|
Operating |
|
|
|
|
Segment |
|
Segment |
|
Total |
Balance at January 1, 2008 (1)
|
|
$ |
979,148 |
|
|
$ |
155,541 |
|
|
$ |
1,134,689 |
|
Impairment charges
|
|
|
(78,579 |
) |
|
|
|
|
|
|
(78,579 |
) |
Acquisition of one U.S. theatre (2)
|
|
|
2,892 |
|
|
|
|
|
|
|
2,892 |
|
Acquisition of two Brazil theatres (3)
|
|
|
|
|
|
|
2,247 |
|
|
|
2,247 |
|
Central America share exchange (4)
|
|
|
|
|
|
|
8,222 |
|
|
|
8,222 |
|
Ecuador share exchange (4)
|
|
|
|
|
|
|
1,473 |
|
|
|
1,473 |
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
(31,126 |
) |
|
|
(31,126 |
) |
|
|
|
Balance at December 31, 2008 (7)
|
|
$ |
903,461 |
|
|
$ |
136,357 |
|
|
$ |
1,039,818 |
|
Acquisition of four U.S. theatres (5)
|
|
|
44,565 |
|
|
|
|
|
|
|
44,565 |
|
Acquisition of one Brazil theatre (6)
|
|
|
|
|
|
|
6,270 |
|
|
|
6,270 |
|
Foreign currency translation adjustments and other
|
|
|
|
|
|
|
25,649 |
|
|
|
25,649 |
|
|
|
|
Balance at December 31, 2009 (7)
|
|
$ |
948,026 |
|
|
$ |
168,276 |
|
|
$ |
1,116,302 |
|
|
|
|
|
|
|
(1) |
|
Balances are presented net of accumulated impairment losses of $135,452 for
the U.S. operating segment and $27,622 for the international operating segment. |
|
(2) |
|
The Company acquired one theatre in the U.S. during 2008 for approximately
$5,011, which resulted in an allocation of $2,892 to goodwill and $2,119 to theatre
properties and equipment. |
|
(3) |
|
The Company acquired two theatres in Brazil during 2008 for approximately $5,100
which resulted in an allocation of $2,247 to goodwill, $2,368 to theatre properties and
equipment, and $485 to intangible assets. |
|
(4) |
|
See Note 10. |
|
(5) |
|
See Note 6. |
|
(6) |
|
The Company acquired one theatre in Brazil during 2009 for approximately $9,061
which resulted in a preliminary allocation of $6,270 to goodwill, $2,130 to theatre
properties and equipment and $661 to other current assets and liabilities. |
|
(7) |
|
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 goodwill impairment charges taken during the year ended December 31, 2008 were
primarily a result of the Companys determination that the multiple used to estimate the fair value
of its reporting units should be reduced to reflect the dramatic decline in market values that
resulted from significant decreases in the Companys stock price and the declines in the market
capitalizations of the Company and its competitors that occurred during the fourth quarter of 2008.
The Company reduced the multiple from eight times cash flows to six and a half times cash flows,
which significantly reduced the Companys estimated fair values.
F-19
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
As of December 31, intangible assets-net, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
2007 |
|
Additions (1) |
|
Amortization |
|
Other (3) |
|
2008 |
|
|
|
Intangible assets with finite lives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vendor contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross carrying amount |
|
$ |
56,973 |
|
|
$ |
1,519 |
|
|
$ |
|
|
|
$ |
(2,652 |
) |
|
$ |
55,840 |
|
Accumulated amortization |
|
|
(23,342 |
) |
|
|
|
|
|
|
(3,322 |
) |
|
|
|
|
|
|
(26,664 |
) |
|
|
|
Net carrying amount |
|
|
33,631 |
|
|
|
1,519 |
|
|
|
(3,322 |
) |
|
|
(2,652 |
) |
|
|
29,176 |
|
|
|
|
Other intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross carrying amount |
|
|
25,898 |
|
|
|
(604 |
) |
|
|
|
|
|
|
(2,438 |
) |
|
|
22,856 |
|
Accumulated amortization |
|
|
(17,166 |
) |
|
|
|
|
|
|
(3,138 |
) |
|
|
938 |
|
|
|
(19,366 |
) |
|
|
|
Net carrying amount |
|
|
8,732 |
|
|
|
(604 |
) |
|
|
(3,138 |
) |
|
|
(1,500 |
) |
|
|
3,490 |
|
|
|
|
Total net intangible assets with finite lives |
|
|
42,363 |
|
|
|
915 |
|
|
|
(6,460 |
) |
|
|
(4,152 |
) |
|
|
32,666 |
|
Intangible assets with indefinite lives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tradename and other |
|
|
310,684 |
|
|
|
1,205 |
|
|
|
|
|
|
|
(2,787 |
) |
|
|
309,102 |
|
|
|
|
Total intangible assets net |
|
$ |
353,047 |
|
|
$ |
2,120 |
|
|
$ |
(6,460 |
) |
|
$ |
(6,939 |
) |
|
$ |
341,768 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
2008 |
|
Additions (2) |
|
Amortization |
|
Other (3) |
|
2009 |
|
|
|
Intangible assets with finite lives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vendor contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross carrying amount |
|
$ |
55,840 |
|
|
$ |
(375 |
) |
|
$ |
|
|
|
$ |
1,009 |
|
|
$ |
56,474 |
|
Accumulated amortization |
|
|
(26,664 |
) |
|
|
|
|
|
|
(3,206 |
) |
|
|
|
|
|
|
(29,870 |
) |
|
|
|
Net carrying amount |
|
|
29,176 |
|
|
|
(375 |
) |
|
|
(3,206 |
) |
|
|
1,009 |
|
|
|
26,604 |
|
|
|
|
Other intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross carrying amount |
|
|
22,856 |
|
|
|
5,130 |
|
|
|
|
|
|
|
(1,476 |
) |
|
|
26,510 |
|
Accumulated amortization |
|
|
(19,366 |
) |
|
|
|
|
|
|
(2,434 |
) |
|
|
1,204 |
|
|
|
(20,596 |
) |
|
|
|
Net carrying amount |
|
|
3,490 |
|
|
|
5,130 |
|
|
|
(2,434 |
) |
|
|
(272 |
) |
|
|
5,914 |
|
|
|
|
Total net intangible assets with finite lives |
|
|
32,666 |
|
|
|
4,755 |
|
|
|
(5,640 |
) |
|
|
737 |
|
|
|
32,518 |
|
Intangible assets with indefinite lives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tradename |
|
|
309,102 |
|
|
|
|
|
|
|
|
|
|
|
1,378 |
|
|
|
310,480 |
|
|
|
|
Total intangible assets net |
|
$ |
341,768 |
|
|
$ |
4,755 |
|
|
$ |
(5,640 |
) |
|
$ |
2,115 |
|
|
$ |
342,998 |
|
|
|
|
|
|
|
(1) |
|
Includes approximately $485 of vendor contracts recorded as a result of the
acquisition of two theatres in Brazil during 2008. Includes approximately $1,034 of vendor
contracts, $443 of net unfavorable leases and $892 of tradename recorded as a result of the
Central America Share Exchange (see Note 10). Includes approximately $161 of net unfavorable
leases and $313 of tradename recorded as a result of the Ecuador Share Exchange (see Note 10). |
|
(2) |
|
The additions to other intangible assets are a result of the acquisition of theatres
in the U.S. as discussed in Note 6. The reduction in vendor contracts is a result of an
adjustment to the preliminary purchase price allocation related to the acquisition of theatres
in Brazil, which occurred during 2008. |
|
(3) |
|
Includes foreign currency translation adjustments, impairments and write-offs for
closed theatres. See Note 12 for summary of impairment charges. |
Estimated aggregate future amortization expense for intangible assets is as follows:
|
|
|
|
|
For the year ended December 31, 2010 |
|
$ |
5,519 |
|
For the year ended December 31, 2011 |
|
|
5,279 |
|
For the year ended December 31, 2012 |
|
|
5,123 |
|
For the year ended December 31, 2013 |
|
|
4,377 |
|
For the year ended December 31, 2014 |
|
|
3,831 |
|
Thereafter |
|
|
8,389 |
|
|
|
|
|
Total |
|
$ |
32,518 |
|
|
|
|
|
12. 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. See Note 1 for discussion of the Companys impairment evaluation.
F-20
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
The Companys long-lived asset impairment losses are summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
2007 |
|
2008 |
|
2009 |
|
|
|
United States theatre properties |
|
$ |
12,423 |
|
|
$ |
27,761 |
|
|
$ |
10,013 |
|
International theatre properties |
|
|
1,799 |
|
|
|
6,869 |
|
|
|
1,340 |
|
|
|
|
Subtotal |
|
$ |
14,222 |
|
|
$ |
34,630 |
|
|
$ |
11,353 |
|
Intangible assets (see Note 11) |
|
|
4,611 |
|
|
|
323 |
|
|
|
358 |
|
Goodwill (see Note 11) |
|
|
67,725 |
|
|
|
78,579 |
|
|
|
|
|
Equity investment |
|
|
|
|
|
|
|
|
|
|
147 |
|
|
|
|
Impairment of long-lived assets |
|
$ |
86,558 |
|
|
$ |
113,532 |
|
|
$ |
11,858 |
|
|
|
|
The long-lived asset impairment charges recorded during each of the years presented are
specific to theatres that were directly and individually impacted by increased competition, adverse
changes in market demographics or adverse changes in the development or the conditions of the areas
surrounding the theatre.
13. DEFERRED CHARGES AND OTHER ASSETS NET
As of December 31, deferred charges and other assets net consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2008 |
|
|
2009 |
|
Debt issue costs |
|
$ |
37,422 |
|
|
$ |
37,334 |
|
Less: Accumulated amortization |
|
|
(14,218 |
) |
|
|
(12,210 |
) |
|
|
|
|
|
|
|
Subtotal |
|
|
23,204 |
|
|
|
25,124 |
|
Long-term prepaid rents |
|
|
16,833 |
|
|
|
15,426 |
|
Construction advances and other deposits |
|
|
1,677 |
|
|
|
3,171 |
|
Equipment to be placed in service |
|
|
5,413 |
|
|
|
6,454 |
|
Other |
|
|
1,906 |
|
|
|
2,327 |
|
|
|
|
|
|
|
|
Total |
|
$ |
49,033 |
|
|
$ |
52,502 |
|
|
|
|
|
|
|
|
During the year ended December 31, 2009, the Company paid debt issue costs of $12,722
related to the issuance of the 8
5/8% senior notes and $281 related to its senior secured credit
facility and wrote off approximately $6,337 of unamortized debt issue costs ($13,120 gross debt
issue costs less $6,783 of accumulated amortization) related to the repurchase of its 9 3/4% senior
discount notes. See Note 14.
14. LONG-TERM DEBT
As of December 31, long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
2008 |
|
2009 |
|
|
|
Cinemark USA, Inc. term loan |
|
$ |
1,094,800 |
|
|
$ |
1,083,600 |
|
Cinemark
USA, Inc. 8 5/8% senior notes due 2019 (1) |
|
|
|
|
|
|
458,897 |
|
Cinemark, Inc. 9 3/4% senior discount notes due 2014 |
|
|
411,318 |
|
|
|
|
|
Cinemark USA, Inc. 9% senior subordinated notes due 2013 |
|
|
181 |
|
|
|
181 |
|
Other long-term debt |
|
|
2,163 |
|
|
|
1,027 |
|
|
|
|
Total long-term debt |
|
|
1,508,462 |
|
|
|
1,543,705 |
|
Less current portion |
|
|
12,450 |
|
|
|
12,227 |
|
|
|
|
Long-term debt, less current portion |
|
$ |
1,496,012 |
|
|
$ |
1,531,478 |
|
|
|
|
|
|
|
(1) |
|
Includes the $470,000 aggregate principal amount of the 8 5/8%
senior notes net of the unamortized discount of $11,103. |
F-21
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
Senior Secured Credit Facility
On October 5, 2006, in connection with the Century Acquisition, Cinemark USA, Inc., entered
into a senior secured credit facility. The senior secured credit facility provides for a seven year
term loan of $1,120,000 and a $150,000 revolving credit line that matures in six years unless
Cinemark USA, Inc.s 9% senior subordinated notes have not been refinanced by August 1, 2012 with
indebtedness that matures no earlier than seven and one-half years after the closing date of the
senior secured credit facility, in which case the maturity date of the revolving credit line
becomes August 1, 2012. The revolving credit line is used for general corporate purposes.
At December 31, 2009, there was $1,083,600 outstanding under the term loan and no borrowings
outstanding under the $150,000 revolving credit line. The average interest rate on outstanding term
loan borrowings under the senior secured credit facility at December 31, 2009 was 3.1% per annum.
Under the term loan, principal payments of $2,800 are due each calendar quarter through
September 30, 2012 and increase to $263,200 each calendar quarter from December 31, 2012 to
maturity at October 5, 2013. Prior to the amendment to the senior secured credit facility discussed
below, the term loan accrued 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 0.75% to 1.00% per annum, or (B) a eurodollar rate plus a margin that ranges
from 1.75% to 2.00% per annum, in each case as adjusted pursuant to Cinemark USA, Inc.s corporate
credit rating. Borrowings under the revolving credit line bear 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, in each case as adjusted pursuant to
Cinemark USA, Inc.s consolidated net senior secured leverage ratio as defined in the credit
agreement. Cinemark USA, Inc. is required to pay a commitment fee calculated at the rate of
0.50% per annum on the average daily unused portion of the revolving credit line, payable
quarterly in arrears, which rate decreases to 0.375% per annum for any fiscal quarter in which
Cinemark USA, Inc.s consolidated net senior secured leverage ratio on the last day of such fiscal
quarter is less than 2.25 to 1.0.
On March 14, 2007, Cinemark USA, Inc. amended its senior secured credit facility to,
among other things, modify the interest rate on the term loans under the senior secured credit
facility, modify certain prepayment terms and covenants, and facilitate the tender offer for the 9%
senior subordinated notes. The term loans now accrue 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 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. In each case, the margin is a function of the
corporate credit rating applicable to the borrower. The interest rate on the revolving credit line
was not amended. Additionally, the amendment removed any obligation to prepay amounts outstanding
under the senior secured credit facility in an amount equal to the amount of the net cash proceeds
received from the NCM Transaction or from excess cash flows, and imposed a 1% prepayment premium
for one year on certain prepayments of the term loans.
Cinemark USA, Inc.s obligations under the senior secured credit facility are guaranteed
by Cinemark Holdings, Inc. and certain of Cinemark USA, Inc.s domestic subsidiaries and are
secured by mortgages on certain fee and leasehold properties and security interests in
substantially all of Cinemark USA, Inc.s and the guarantors personal property, including, without
limitation, pledges of all of Cinemark USA, Inc.s capital stock, all of the capital stock of
certain of Cinemark USA, Inc.s domestic subsidiaries and 65% of the voting stock of certain of its
foreign subsidiaries.
The senior secured credit facility contains usual and customary negative covenants for
agreements of this type, including, but not limited to, restrictions on Cinemark USA, Inc.s
ability, and in certain instances, its subsidiaries and Cinemark Holdings, Inc.s ability, to
consolidate or merge or liquidate, wind up or dissolve; substantially change the nature of its
business; sell, transfer or dispose of assets; create or incur indebtedness; create liens; pay
dividends, and repurchase stock; and make capital expenditures and investments. The senior secured
credit facility also requires Cinemark USA, Inc. to satisfy a consolidated net senior secured
leverage ratio covenant as determined in accordance with the senior secured credit facility.
The dividend restriction contained in the senior secured credit facility prevents the Company
and any of its subsidiaries from paying a dividend or otherwise distributing cash to its
stockholders unless (1) the Company is not in default, and the distribution would not cause the
Company to be in default, under the senior secured credit facility; and
F-22
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
(2) the aggregate amount of
certain dividends, distributions, investments, redemptions and capital expenditures made since
October 5, 2006, including dividends declared by the board of directors, is less than the sum of
(a) the aggregate
amount of cash and cash equivalents received by Cinemark Holdings, Inc. or Cinemark USA, Inc.
as common equity since October 5, 2006, (b) Cinemark USA, Inc.s consolidated EBITDA minus 1.75
times its consolidated interest expense, each as defined in the senior secured credit facility,
since October 1, 2006, (c) $150 million and (d) certain other amounts specified in the senior
secured credit facility, subject to certain adjustments specified in the senior secured credit
facility. The dividend restriction is subject to certain exceptions specified in the senior secured
credit facility.
The senior secured credit facility also includes customary events of default, including,
among other things, payment default, covenant default, breach of representation or warranty,
bankruptcy, cross-default, material ERISA events, certain types of change of control, material
money judgments and failure to maintain subsidiary guarantees. If an event of default occurs, all
commitments under the senior secured credit facility may be terminated and all obligations under
the senior secured credit facility could be accelerated by the lenders, causing all loans
outstanding (including accrued interest and fees payable thereunder) to be declared immediately due
and payable.
See Note 15 for a discussion of interest rate swap agreements.
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 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. The Company incurred
debt issue costs of $12,722 in connection with the issuance, which will be amortized on the
straight-line method over the term of the senior notes. The original issue discount is being
amortized on the effective interest method over the term of the senior notes.
The senior notes are fully and unconditionally guaranteed on a joint and several senior
unsecured basis by certain of Cinemark USA, Inc.s subsidiaries that guarantee, assume or become
liable with respect to any of Cinemark USA, Inc.s or a guarantors debt. The senior notes and the
guarantees are senior unsecured obligations and rank equally in right of payment with all of
Cinemark USA, Inc.s and its guarantors existing and future senior unsecured debt and senior in
right of payment to all of Cinemark USA, Inc.s and its guarantors existing and future
subordinated debt. The senior notes and the guarantees are effectively subordinated to all of
Cinemark USA, Inc.s and its guarantors existing and future secured debt to the extent of the
value of the assets securing such debt, including all borrowings under Cinemark USA, Inc.s senior
secured credit facility. The senior notes and the guarantees are structurally subordinated to all
existing and future debt and other liabilities of Cinemark USA, Inc.s subsidiaries that do not
guarantee the senior notes.
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,
if any, 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 it satisfies 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 December 31, 2009 was 5.4 to 1.
Prior to June 15, 2014, Cinemark USA, Inc. may redeem all or any part of the senior notes at
its option at 100% of the principal amount plus a make-whole premium. After June 15, 2014, Cinemark
USA, Inc. may redeem the senior notes in whole or in part at redemption prices described in the
senior notes. In addition, Cinemark USA, Inc. may redeem up to 35% of the aggregate principal
amount of the senior notes from the net proceeds of certain equity offerings at the redemption
price set forth in the senior notes.
F-23
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
Cinemark USA, Inc. and its guarantor subsidiaries filed a registration statement with the
Securities and Exchange Commission (the Commission) on September 24, 2009 pursuant to which
Cinemark USA, Inc. offered to exchange the senior notes for substantially similar registered senior
notes. The registration statement became effective and the notes were exchanged on December 17,
2009. The exchanged registered senior notes do not have transfer restrictions.
Senior Discount Notes
On March 31, 2004, Cinemark, Inc. issued approximately $577,173 aggregate principal amount at
maturity of 9 3/4% senior discount notes due 2014. Interest on the notes accreted until March 15,
2009 up to their aggregate principal amount. Subsequently, cash interest accrued and was payable
semi-annually in arrears on March 15 and September 15, commencing on September 15, 2009.
Prior to 2007, Cinemark, Inc. repurchased on the open market $41,615 aggregate principal
amount at maturity of its 9 3/4% senior discount notes for approximately $33,047 including accreted
interest of $5,555 and cash premiums of $1,414. Cinemark, Inc. funded these repurchases with
available cash from its operations.
During 2007, in six open market purchases, Cinemark, Inc. repurchased a total of $69,155
aggregate principal amount at maturity of its 9 3/4% senior discount notes for approximately $63,694,
including accreted interest of $16,592 and cash premiums of $3,966. Cinemark, Inc. funded these
transactions with proceeds from the Companys initial public offering. The Company recorded a loss
on early retirement of debt of $5,504 during the year ended December 31, 2007, related to these
repurchases, which consisted of premiums paid, other fees and the write-off of unamortized debt
issue costs.
During 2008, in ten open market purchases, Cinemark, Inc. repurchased $47,000 aggregate
principal amount at maturity of its 9 3/4% senior discount notes for approximately $42,208, including
accreted interest of $15,186 and a discount of $2,537. Cinemark, Inc. funded the transactions with
proceeds from the Companys initial public offering. The Company recorded a gain on early retirement of debt
of approximately $1,698 during the year ended December 31, 2008 related to these repurchases, which
included gains on the repurchases offset by the write-off of unamortized debt issue costs.
On June 15, 2009, the Company 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, the Company 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 accreted interest of $151,952, accrued interest of $11,336 and
tender premiums paid of $19,620. The Company funded the repurchase with proceeds from the issuance
of the senior notes discussed above.
Effective as of June 29, 2009, the Company and the Bank of New York Trust Company, N.A. as
trustee to the indenture dated March 31, 2004, executed the First Supplemental Indenture to amend
the Indenture by eliminating substantially all restrictive covenants and certain events of default
provisions.
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 senior discount notes were redeemed on
September 8, 2009, 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
(resulting in a call premium of $826), which included accreted interest of $6,397, plus accrued and
unpaid interest of $794 to, but not including, the redemption date. The Company funded the
redemption with proceeds from the issuance of the senior notes discussed above.
The Company recorded a loss on early retirement of debt of approximately $27,878 during the
year ended December 31, 2009, which includes tender and call premiums paid, other tender fees and
the write-off of unamortized debt issue costs.
F-24
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
Senior Subordinated Notes
On February 11, 2003, Cinemark USA, Inc. issued $150,000 aggregate principal amount of
9% senior subordinated notes due 2013 and on May 7, 2003, Cinemark USA, Inc. issued an additional
$210,000 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 2007, Cinemark USA, Inc. repurchased a total of $27,750 aggregate principal amount of
its 9% senior subordinated notes. The transactions were funded by Cinemark USA, Inc. with
available cash from its operations.
On March 6, 2007, Cinemark USA, Inc. commenced an offer to purchase for cash any and all
of its then outstanding $332,250 aggregate principal amount of 9% senior subordinated notes. In
connection with the tender offer, Cinemark USA, Inc. solicited consents for certain proposed
amendments to the indenture to remove substantially all restrictive covenants and certain events of
default provisions. On March 20, 2007, the early settlement date, Cinemark USA, Inc. repurchased
$332,000 aggregate principal amount of 9% senior subordinated notes and executed a supplemental
indenture implementing the proposed amendments. Cinemark USA, Inc. used the proceeds from the NCM
Transaction and cash on hand to purchase the 9% senior subordinated notes tendered pursuant to the
tender offer and consent solicitation. On April 3, 2007, Cinemark USA, Inc. repurchased an
additional $66 aggregate principal amount of the 9% senior subordinated notes tendered after the
early settlement date. The Company recorded a loss on early retirement of debt of $7,952 during the
year ended December 31, 2007, related to these repurchases, which consisted of tender offer
repurchase costs, including premiums paid and other fees, and the write-off of unamortized debt
issue costs, partially offset by the write-off of an unamortized bond premium.
During 2008, in one open market purchase, Cinemark USA, Inc. repurchased $3 aggregate
principal amount of its 9% senior subordinated notes.
As of December 31, 2009, Cinemark USA, Inc. had outstanding approximately $181 aggregate
principal amount of 9% senior subordinated notes. Cinemark USA, Inc. may redeem the remaining
9% senior subordinated notes at its option at any time.
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. The carrying value of the Companys long term debt was $1,543,705
and $1,508,462 as of December 31, 2009 and 2008, respectively. The fair value of the Companys long
term debt was $1,513,838 and $1,449,147 as of December 31, 2009 and 2008, respectively. The
estimated fair value does not include prepayment penalties that would be incurred upon the early
extinguishment of certain debt issues.
Covenant Compliance and Debt Maturity
As of December 31, 2009, the Company was in full compliance with all agreements, including
related covenants, governing its outstanding debt. The Companys long-term debt at December 31,
2009 matures as follows:
|
|
|
|
|
2010 |
|
$ |
12,227 |
|
2011 |
|
|
11,200 |
|
2012 |
|
|
271,600 |
|
2013 |
|
|
789,781 |
|
2014 |
|
|
|
|
Thereafter |
|
|
470,000 |
(1) |
|
|
|
|
Total |
|
$ |
1,554,808 |
|
|
|
|
|
|
|
|
(1) |
|
Reflects the aggregate principal amount at maturity of the 8 5/8% senior notes before the original issue discount of $11,103 . |
F-25
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
15. INTEREST RATE SWAP AGREEMENTS
During 2007 and 2008, the Company entered into three interest rate swap agreements. The
interest rate swap agreements qualify for cash flow hedge accounting. The fair values of the
interest rate swaps are recorded on the Companys 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 valuation 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. Therefore, the Companys measurements use significant unobservable inputs, which
fall in Level 3 as defined by ASC Topic 820-10-35.
In March 2007, the Company entered into two interest rate swap agreements with effective dates
of August 13, 2007 and terms of five years each. The interest rate swaps were designated to hedge
approximately $500,000 of the Companys variable rate debt obligations under its senior secured
credit facility. Under the terms of the interest rate swap agreements, the Company pays fixed rates
of 4.918% and 4.922% on $375,000 and $125,000, respectively, of variable rate debt and receives
interest at a variable rate based on the 3-month LIBOR. The 3-month LIBOR rate on each reset date
determines the variable portion of the interest rate swaps for the three-month period following the
reset date. No premium or discount was incurred upon the Company entering into the interest rate
swaps because the pay and receive rates on the interest rate swaps represented prevailing rates for
each counterparty at the time the interest rate swaps were consummated.
On September 14, 2008, the counterparty to the $375,000 interest rate swap agreement filed for
bankruptcy protection. As a result, the Company determined that on September 15, 2008, when the
counterpartys credit rating was downgraded, the interest rate swap was no longer highly effective.
On October 1, 2008, this interest rate swap was terminated by the Company. The change in fair
value of this interest rate swap agreement from inception to September 14, 2008 was recorded as a
component of accumulated other comprehensive loss. The change in fair value from September 15, 2008
through September 30, 2008 and the gain on termination were recorded in earnings as a component of
interest expense during the year ended December 31, 2008. The Company determined that the
forecasted transactions hedged by this interest rate swap are still probable to occur, thus the
total amount reported in accumulated other comprehensive income (loss) related to this swap of
$18,147 is being amortized on a straight-line basis to interest expense over the period during
which the forecasted transactions are expected to occur, which is September 15, 2008 through August
13, 2012. The Company amortized approximately $1,351 and $4,633 to interest expense during the
years ended December 31, 2008 and 2009. The Company will amortize approximately $4,633 to interest
expense over the next twelve months.
During October 2008, the Company entered into one interest rate swap agreement with an
effective date of November 14, 2008 and a term of four years. The interest rate swap was designated
to hedge approximately $100,000 of the Companys variable rate debt obligations under its senior
secured credit facility for three years and $75,000 of the Companys variable rate debt obligations
under its senior secured credit facility for four years. Under the terms of the interest rate swap
agreement, the Company pays a fixed rate of 3.63% on $175,000 of variable rate debt and receives
interest at a variable rate based on the 1-month LIBOR. The 1-month LIBOR rate on each reset date
determines 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 because the pay and receive rates on the interest rate swap represented prevailing rates for
the counterparty at the time the interest rate swap was consummated.
As of December 31, 2009, the fair values of the $125,000 interest rate swap and the $175,000
interest rate swap were liabilities of approximately $10,268 and $8,256, respectively, which have
been reported as a component of other long-term liabilities. A corresponding cumulative amount of
$11,367, net of taxes of $7,157, has been recorded as an increase in accumulated other
comprehensive loss on the Companys consolidated balance sheet as of December 31, 2009. These two
interest rate swaps exhibited no ineffectiveness during the years ended December 31, 2008 and 2009.
16. FOREIGN CURRENCY TRANSLATION
The accumulated other comprehensive loss account in stockholders equity of $72,347 and $7,459
at December 31, 2008 and December 31, 2009, respectively, includes the cumulative foreign currency
adjustments of $(40,287) and $16,070, respectively, from translating the financial statements of
the Companys international subsidiaries.
F-26
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
In 2008 and 2009, 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 loss.
On December 31, 2009, the exchange rate for the Brazilian real was 1.75 reais to the U.S.
dollar (the exchange rate was 2.36 reais to the U.S. dollar at December 31, 2008). As a result, the
effect of translating the December 31, 2009 Brazilian financial statements into U.S. dollars is
reflected as a cumulative foreign currency translation adjustment to the accumulated other
comprehensive loss account as an increase in stockholders equity of $48,500. At December 31, 2009,
the total assets of the Companys Brazilian subsidiaries were U.S. $261,892.
On December 31, 2009, the exchange rate for the Mexican peso was 13.04 pesos to the U.S.
dollar (the exchange rate was 13.78 pesos to the U.S. dollar at December 31, 2008). As a result,
the effect of translating the December 31, 2009 Mexican financial statements into U.S. dollars is
reflected as a cumulative foreign currency translation adjustment to the accumulated other
comprehensive loss account as an increase in stockholders equity of $3,570. At December 31, 2009,
the total assets of the Companys Mexican subsidiaries were U.S. $128,263.
On December 31, 2009, the exchange rate for the Chilean peso was 519.30 pesos to the U.S.
dollar (the exchange rate was 648.00 pesos to the U.S. dollar at December 31, 2008). As a result,
the effect of translating the December 31, 2009 Chilean financial statements into U.S. dollars is
reflected as a cumulative foreign currency translation adjustment to the accumulated other
comprehensive loss account as an increase in stockholders equity of $3,507. At December 31, 2009,
the total assets of the Companys Chilean subsidiaries were U.S. $29,957.
The effect of translating the December 31, 2009 financial statements of our other
international subsidiaries, with local currencies other than the U.S. dollar, is reflected as a
cumulative foreign currency translation adjustment to the accumulated other comprehensive loss
account as an increase in stockholders equity of $780.
17. INVESTMENTS IN AND ADVANCES TO AFFILIATES
The Company had the following investments in and advances to affiliates at December 31:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
2008 |
|
2009 |
|
|
|
Investment in DCIP investment, at equity 33% interest |
|
$ |
1,017 |
|
|
$ |
640 |
|
Cinemark Core Pacific, Ltd. (Taiwan) investment, at cost 14% interest |
|
|
1,383 |
|
|
|
1,383 |
|
Other |
|
|
1,884 |
|
|
|
1,506 |
|
|
|
|
Total |
|
$ |
4,284 |
|
|
$ |
3,529 |
|
|
|
|
During 2009, the Company invested an additional $2,500 in DCIP. The Companys basis was
reduced to $640 as of December 31, 2009 as a result of equity losses of $2,877 recorded during
2009. See Note 8.
18. NONCONTROLLING INTERESTS IN SUBSIDIARIES
Noncontrolling interests in subsidiaries of the Company were as follows at December 31:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
2008 |
|
2009 |
|
|
|
Cinemark Partners II 49.2% interest |
|
$ |
8,114 |
|
|
$ |
7,961 |
|
Cinemark Colombia, S.A. 49.0% interest |
|
|
3,105 |
|
|
|
4,465 |
|
Greeley Ltd. 49.0% interest |
|
|
1,015 |
|
|
|
982 |
|
Cinemark Panama S.A. 20% interest |
|
|
181 |
|
|
|
369 |
|
Others |
|
|
556 |
|
|
|
1,019 |
|
|
|
|
Total |
|
$ |
12,971 |
|
|
$ |
14,796 |
|
|
|
|
During May 2008, the Companys partners in Central America (the Central American
Partners) exercised an option available to them under an Exchange Option Agreement dated
February 7, 2007 between the Company and the Central American Partners. Under this option, which
was triggered by completion of an initial public offering of common stock by the Company, the
Central American Partners are entitled to exchange their shares in Cinemark Equity Holdings
Corporation, which is the Companys Central American holding company, for shares of the Companys
common stock.
F-27
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
The exchange of shares occurred during October 2008. See Note 10. Prior to the
exchange, the Company owned approximately 51% of the shares in Cinemark Equity Holdings Corporation
and subsequent to the exchange, the Company owns 100% of the shares in Cinemark Equity Holdings
Corporation. The Companys Panama subsidiary is 80% owned by Cinemark Equity Holdings Corporation
and 20% owned by a minority partner.
During July 2008, the Companys partners in Ecuador (the Ecuador Partners) exercised an
option available to them under an Exchange Option Agreement dated April 24, 2007 between the
Company and the Ecuador Partners. Under this option, which was triggered by completion of an
initial public offering of common stock by the Company, the Ecuador Partners are entitled to
exchange their shares in Cinemark del Ecuador S.A. for shares of the Companys common stock. The
exchange of shares occurred during November 2008. See Note 10. Prior to the exchange, the Company
owned 60% of the shares in Cinemark del Ecuador S.A. and subsequent to the exchange, the Company
owns 100% of the shares in Cinemark del Ecuador S.A.
Below is a summary of the impact of changes in the Companys ownership interest in its
subsidiaries on its equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
|
2007 |
|
2008 |
|
2009 |
Net income (loss) attributable to Cinemark Holdings, Inc. |
|
$ |
88,920 |
|
|
$ |
(48,325 |
) |
|
$ |
97,108 |
|
|
|
|
Transfers from noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
Increase in Cinemark Holdings, Inc. additional
paid-in-capital for Central America Share Exchange |
|
|
|
|
|
|
12,949 |
|
|
|
|
|
Increase in Cinemark Holdings, Inc. additional
paid-in-capital for Ecuador Share Exchange |
|
|
|
|
|
|
3,200 |
|
|
|
|
|
Increase in Cinemark Holdings, Inc. additional
paid-in-capital for buyout of Argentina noncontrolling
interests |
|
|
|
|
|
|
|
|
|
|
23 |
|
|
|
|
Net transfers from non-controlling interests |
|
|
|
|
|
|
16,149 |
|
|
|
23 |
|
|
|
|
Change from net income (loss) attributable to Cinemark
Holdings, Inc. and transfers from noncontrolling interests |
|
$ |
88,920 |
|
|
$ |
(32,176 |
) |
|
$ |
97,131 |
|
|
|
|
19. CAPITAL STOCK
Common Stock Common stockholders are entitled to vote on all matters submitted to a vote of
the Companys stockholders. Subject to the rights of holders of any then outstanding shares of the
Companys preferred stock, the Companys common stockholders are entitled to any dividends that may
be declared by the board of directors. The shares of the Companys common stock are not subject to
any redemption provisions. The Company has no issued and outstanding shares of preferred stock.
The Companys ability to pay dividends is effectively limited by its status as a holding
company and the terms of its indenture and its subsidiarys senior secured credit facility, which
also significantly restrict the ability of certain of the Companys subsidiaries to pay dividends
directly or indirectly to the Company. Furthermore, certain of the Companys foreign subsidiaries
currently have a deficit in retained earnings which prevents the Company from declaring and paying
dividends from those subsidiaries.
All stock information has been adjusted to give effect to a 2.9585-for-1 stock split effected
by the Company on April 9, 2007.
During May 2008, the Companys partners in Central America (the Central American Partners)
exercised an option available to them under an Exchange Option Agreement dated February 7, 2007
between the Company and the Central American Partners. Under this option, which was triggered by
completion of an initial public offering of common stock by the Company, the Central American
Partners were entitled to exchange their shares in Cinemark Equity Holdings Corporation, which is
the Companys Central American holding company, for shares of the Companys common stock. As a
result of this exchange on October 1, 2008, the Company issued 902,981 shares of its common stock
to its Central American Partners during October 2008. See Note 10.
During July 2008, the Companys partners in Ecuador (the Ecuador Partners) exercised an
option available to them under an Exchange Option Agreement dated April 24, 2007 between the
Company and the Ecuador Partners. Under this option, which was triggered by completion of an
initial public offering of common stock by the Company, the Ecuador Partners were entitled to
exchange their shares in Cinemark del Ecuador S.A. for shares of the Companys common stock.
F-28
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
As a
result of this exchange, the Company issued 393,615 shares of its common stock to its Ecuador
partners during November 2008. See Note 10.
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 year ended December 31, 2008, the Company repurchased 6,499 shares of treasury stock at
a cost of $0.001 per share as a result of restricted stock forfeitures. During the year ended
December 31, 2009, the Company repurchased 23,976 shares of treasury stock at a cost of $0.001 per
share as a result of restricted stock forfeitures and repurchased 3,274,943 shares at an aggregate
cost of $43,895, as a result of the noncash exercises of stock options by employees, both of
which were done in accordance with the Amended and Restated 2006 Long
Term Incentive Plan. In a noncash exercise, the exercise price for the shares to be held by employees and the related tax
withholdings are satisfied with stock withholdings. Employees exercised a total of 4,577,025
options and of this amount, 3,274,943 shares were repurchased by the Company to satisfy the
exercise price and tax liabilities. The remaining 1,302,082 shares were issued to employees. The
Company repurchased the 3,274,943 shares at current market value, which ranged from $13.40 to
$13.46 based on the day on which
the stock options were exercised. As of December 31, 2009, the Company had no plans to retire
any shares of treasury stock.
Share Based Awards On September 30, 2004, Cinemark, Inc.s board of directors and the
majority of its stockholders approved the 2004 Long Term Incentive Plan (the 2004 Plan) under
which 9,097,360 shares of common stock are available for issuance to selected employees, directors
and consultants of the Company. The 2004 Plan provided for restricted share grants, incentive
option grants and nonqualified option grants.
On August 2, 2006, Cinemark Holdings, Inc. was formed as the Delaware holding company of
Cinemark, Inc. Under a share exchange agreement dated August 7, 2006, each outstanding share of
Cinemark, Inc.s Class A common stock was exchanged for an equivalent number of shares of Cinemark
Holdings, Inc. common stock. The share exchange was completed on October 5, 2006.
In November 2006, Cinemark Holdings, Inc.s board of directors amended the 2004 Plan to
provide that no additional awards may be granted under the 2004 Plan. At that time, the Board of
Cinemark Holdings, Inc. and the majority of Cinemark Holdings, Inc.s stockholders approved the
2006 Long Term Incentive Plan (the 2006 Plan) and all options to purchase shares of Cinemark
Inc.s Class A common stock under the 2004 Plan were exchanged for an equal number of options to
purchase shares of Cinemark Holdings, Inc.s common stock under the 2006 Plan. The 2006 Plan is
substantially similar to the 2004 Plan.
During March 2008, the Companys board of directors approved the Amended and Restated Cinemark
Holdings, Inc. 2006 Long Term Incentive Plan (the Restated Incentive Plan). The Restated
Incentive Plan amends and restates the 2006 Plan, to (i) increase the number of shares reserved for
issuance from 9,097,360 shares of common stock to 19,100,000 shares of common stock and (ii) permit
the Compensation Committee of the Companys board of directors (the Compensation Committee) to
award participants restricted stock units and performance awards. The right of a participant to
exercise or receive a grant of a restricted stock unit or performance award may be subject to the
satisfaction of such performance or objective business criteria as determined by the Compensation
Committee. With the exception of the changes identified in (i) and (ii) above, the Restated
Incentive Plan does not materially differ from the 2006 Plan. The Restated Incentive Plan was
approved by the Companys stockholders at its annual meeting held on May 15, 2008.
During August 2008, the Company filed a registration statement with the Securities and
Exchange Commission on Form S-8 for the purpose of registering the additional shares available for
issuance under the Restated Incentive Plan.
Stock Options Below is a summary of stock option activity and related information for the
years ended December 31, 2007, 2008 and 2009:
F-29
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
Year Ended |
|
Year Ended |
|
|
|
|
December 31, 2007 |
|
December 31, 2008 |
|
December 31, 2009 |
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
Average |
|
|
|
|
|
Average |
|
Aggregate |
|
|
|
|
|
|
Exercise |
|
|
|
|
|
Exercise |
|
|
|
|
|
Exercise |
|
Intrinsic |
|
|
Shares |
|
Price |
|
Shares |
|
Price |
|
Shares |
|
Price |
|
Value |
Outstanding at January 1 |
|
|
6,980,593 |
|
|
$ |
7.63 |
|
|
|
6,323,429 |
|
|
$ |
7.63 |
|
|
|
6,139,670 |
|
|
$ |
7.63 |
|
|
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(112,416 |
) |
|
$ |
7.63 |
|
|
|
(14,492 |
) |
|
$ |
7.63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(544,748 |
) |
|
$ |
7.63 |
|
|
|
(169,267 |
) |
|
$ |
7.63 |
|
|
|
(4,907,778 |
) |
|
$ |
7.63 |
|
|
|
|
|
|
|
|
Outstanding at December 31 |
|
|
6,323,429 |
|
|
$ |
7.63 |
|
|
|
6,139,670 |
|
|
$ |
7.63 |
|
|
|
1,231,892 |
|
|
$ |
7.63 |
|
|
$ |
8,303 |
|
|
|
|
Vested options at December 31 |
|
|
4,647,460 |
|
|
$ |
7.63 |
|
|
|
5,809,343 |
|
|
$ |
7.63 |
|
|
|
1,231,892 |
|
|
$ |
7.63 |
|
|
$ |
8,303 |
|
|
|
|
The total intrinsic value of options exercised during the years ended December 31, 2007,
2008 and 2009, was $4,961, $1,191 and $28,083, respectively.
The Company recorded compensation expense of $2,881 and $3,393 during the years ended December
31, 2007 and 2008, respectively, related to these stock options. During the year ended December 31,
2009, the Company changed its estimated forfeiture rate of 5% to 2.5% based on actual cumulative
stock option forfeitures. The cumulative impact of the reduction in forfeiture rate was $260 and
was recorded as additional compensation expense during the year ended December 31, 2009. During
July 2009, the Company modified the terms of certain stock options outstanding by extending the
expiration date by approximately two years. The Company recorded additional compensation expense
of approximately $132 related to this modification. The Company recorded total compensation expense
of $1,152, including the aforementioned $260 related to the change in forfeiture rate and $132
related to the option modification, and a tax
benefit of approximately $434 during the year ended December 31, 2009, related to the
outstanding stock options. As of December 31, 2009, there was no remaining unrecognized
compensation expense related to outstanding stock options since all outstanding options fully
vested on April 2, 2009. All options outstanding at December 31, 2009 have an average remaining
contractual life of approximately 4.75 years.
Restricted Stock During the year ended December 31, 2009, the Company granted 472,881 shares
of restricted stock to independent directors and employees of the Company. The fair value of the
shares of restricted stock was determined based on the market value of the Companys stock on the
dates of grant, which ranged from $9.50 to $11.32 per share. The Company assumed forfeiture rates
ranging from zero to 5% for the restricted stock awards. The restricted stock vests over periods
ranging from one year to four years based on continued service by the directors and employees.
Below is a summary of restricted stock activity for the years ended December 31, 2007, 2008
and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
Year Ended |
|
Year Ended |
|
|
December 31, 2007 |
|
December 31, 2008 |
|
December 31, 2009 |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Average |
|
|
|
|
|
Average |
|
|
|
|
|
Average |
|
|
|
|
|
|
Exercise |
|
|
|
|
|
Exercise |
|
|
|
|
|
Exercise |
|
|
Shares |
|
Price |
|
Shares |
|
Price |
|
Shares |
|
Price |
|
|
|
Outstanding at January 1 |
|
|
|
|
|
|
|
|
|
|
21,880 |
|
|
$ |
18.28 |
|
|
|
385,666 |
|
|
$ |
13.32 |
|
Granted |
|
|
21,880 |
|
|
$ |
18.28 |
|
|
|
392,317 |
|
|
$ |
13.32 |
|
|
|
472,881 |
|
|
$ |
9.69 |
|
Vested |
|
|
|
|
|
|
|
|
|
|
(22,032 |
) |
|
$ |
18.24 |
|
|
|
(70,493 |
) |
|
$ |
13.77 |
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
(6,499 |
) |
|
$ |
13.14 |
|
|
|
(23,976 |
) |
|
$ |
11.15 |
|
|
|
|
Outstanding at December 31 |
|
|
21,880 |
|
|
$ |
18.28 |
|
|
|
385,666 |
|
|
$ |
13.32 |
|
|
|
764,078 |
|
|
$ |
11.10 |
|
|
|
|
During 2008, the Company changed its estimated forfeiture rate on certain of these grants
from 2% to 5%, based on actual cumulative restricted stock forfeitures. The cumulative impact of
the increased forfeiture rate was approximately $14 and was recorded as a reduction in compensation
expense during the year ended December 31, 2008.
The Company recorded total compensation expense of $200, $1,394, and $2,393 related to these
restricted stock awards during the years ended December 31, 2007, 2008 and 2009, respectively,
including the aforementioned $14
F-30
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
related to the change in forfeiture rate during 2008. As of
December 31, 2009, the remaining unrecognized compensation expense related to these restricted
stock awards was approximately $5,728 and the weighted average period over which this remaining
compensation expense will be recognized is approximately three years. The total fair value of
shares vested during the years ended December 31, 2007, 2008 and 2009 was $0, $286 and $762,
respectively. Upon vesting, the Company receives an income tax deduction. 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 years ended December 31, 2008 and 2009, the Company
granted restricted stock units representing 204,361 and 303,168 hypothetical shares of common
stock, respectively, 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 a three fiscal year period 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. All payouts of restricted stock units that vest are subject to an
additional one year service requirement and will be paid in the form of common stock if the
participant continues to provide services through 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 become vested.
Below is a table summarizing the potential restricted stock unit awards granted during the
years ended December 31, 2008 and 2009 at each of the three levels of financial performance
(excluding forfeiture assumptions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted During the Year Ended December 31, |
|
|
2008 |
|
2009 |
|
|
Number of |
|
|
|
|
|
Number of |
|
|
|
|
Shares |
|
Value at |
|
Shares |
|
Value at |
|
|
Vesting |
|
Grant |
|
Vesting |
|
Grant |
at IRR of at least 8.5% |
|
|
68,116 |
|
|
$ |
885 |
|
|
|
101,051 |
|
|
$ |
963 |
|
at IRR of at least 10.5% |
|
|
136,239 |
|
|
$ |
1,771 |
|
|
|
202,117 |
|
|
$ |
1,927 |
|
at IRR of at least 12.5% |
|
|
204,361 |
|
|
$ |
2,656 |
|
|
|
303,168 |
|
|
$ |
2,891 |
|
Due to the fact that the IRR for the three year performance period could not be
determined at the time of each grant, the Company estimated that the most likely outcome is the
achievement of the mid-point IRR level. The Company assumed forfeiture rates ranging from zero to
5% for the restricted stock unit awards. If during the service periods, additional information
becomes available to lead the Company to believe a different IRR level will be achieved for the
three year performance periods, the Company will reassess the number of units that will vest for
the respective grant and adjust its compensation expense accordingly on a prospective basis over
the remaining service period.
Approximately 13,279 restricted stock unit awards were forfeited during the year ended
December 31, 2009, which was within the Companys original forfeiture rate estimates. No restricted
stock unit awards have vested. The Company recorded compensation expense of $0, $326 and $759
related to these restricted stock unit awards during the years ended December 31, 2007, 2008 and
2009, respectively. As of December 31, 2009, the remaining unrecognized compensation expense
related to these restricted stock unit awards was $2,442 and the weighted average period over which
this remaining compensation expense will be recognized is approximately three years.
F-31
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
20. SUPPLEMENTAL CASH FLOW INFORMATION
The following is provided as supplemental information to the consolidated statements of cash
flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
2007 |
|
2008 |
|
2009 |
|
|
|
Cash paid for interest (1) |
|
$ |
132,029 |
|
|
$ |
94,533 |
|
|
$ |
239,376 |
|
Cash paid for income taxes, net of refunds received |
|
$ |
139,443 |
|
|
$ |
36,203 |
|
|
$ |
46,213 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash investing and financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Change in construction lease obligations related to construction of theatres |
|
$ |
(2,546 |
) |
|
$ |
|
|
|
$ |
|
|
Changes in accounts payable and accrued expenses for the acquisition of
theatre properties and equipment (2) |
|
$ |
(9,754 |
) |
|
$ |
3,723 |
|
|
$ |
(6,166 |
) |
Theatre properties and equipment acquired under capital lease (3) |
|
$ |
9,102 |
|
|
$ |
7,911 |
|
|
$ |
20,400 |
|
Change in fair market values of interest rate swap agreements (See Note 15) |
|
$ |
(11,348 |
) |
|
$ |
(22,063 |
) |
|
$ |
3,898 |
|
Issuance of common stock as a result of the Central America Share Exchange
(See Note 10) |
|
$ |
|
|
|
$ |
12,949 |
|
|
$ |
|
|
Issuance of common stock as a result of the Ecuador Share Exchange (See
Note 10) |
|
$ |
|
|
|
$ |
3,200 |
|
|
$ |
|
|
Investment in NCM (See Note 7) |
|
$ |
|
|
|
$ |
19,020 |
|
|
$ |
15,536 |
|
Dividends accrued on unvested restricted stock unit awards (See Note 19) |
|
$ |
|
|
|
$ |
(74 |
) |
|
$ |
(201 |
) |
Shares issued upon immaculate stock option exercises (See Note 19) |
|
$ |
|
|
|
$ |
|
|
|
$ |
34,923 |
|
|
|
|
(1) |
|
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
in 2009. 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, 2008 and 2009 were $13,989 and $7,823, respectively. |
|
(3) |
|
Amount recorded during the twelve months ended December 31, 2009 was a result of the
acquisition of theatres in the U.S. as discussed in Note 6. |
During December 2007, the Company elected to use the proceeds of approximately $22,739
from the sale of real property to pursue the purchase of a like-kind property in accordance with
the Internal Revenue Code and as a result, the proceeds were deposited to an escrow account. During
2008, the Company elected to use the proceeds of approximately $2,089 from the sale of real
properties to pursue the purchase of like-kind properties in accordance with the Internal Revenue
Code and as a result, the proceeds were deposited to an escrow account. The Company did not
purchase like-kind properties and the deposits of approximately $24,828 were returned to the
Company during the year ended December 31, 2008.
21. INCOME TAXES
Income (loss) before income taxes consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
2007 |
|
2008 |
|
2009 |
|
|
|
Income (loss) before income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
$ |
188,773 |
|
|
$ |
(53,452 |
) |
|
$ |
98,908 |
|
Foreign |
|
|
12,901 |
|
|
|
30,077 |
|
|
|
46,693 |
|
|
|
|
Total |
|
$ |
201,674 |
|
|
$ |
(23,375 |
) |
|
$ |
145,601 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
123,754 |
|
|
$ |
37,681 |
|
|
$ |
35,303 |
|
Foreign |
|
|
5,519 |
|
|
|
4,620 |
|
|
|
13,706 |
|
State |
|
|
17,304 |
|
|
|
4,729 |
|
|
|
8,450 |
|
|
|
|
Total current expense |
|
|
146,577 |
|
|
|
47,030 |
|
|
|
57,459 |
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
(33,103 |
) |
|
|
(28,138 |
) |
|
|
(9,527 |
) |
Foreign |
|
|
286 |
|
|
|
7,330 |
|
|
|
(2,405 |
) |
State |
|
|
(1,798 |
) |
|
|
(5,167 |
) |
|
|
(682 |
) |
|
|
|
Total deferred taxes |
|
|
(34,615 |
) |
|
|
(25,975 |
) |
|
|
(12,614 |
) |
|
|
|
Income tax expense |
|
$ |
111,962 |
|
|
$ |
21,055 |
|
|
$ |
44,845 |
|
|
|
|
F-32
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
A reconciliation between income tax expense and taxes computed by applying the applicable
statutory federal income tax rate to income (loss) before income taxes follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
2007 |
|
2008 |
|
2009 |
|
|
|
Computed normal tax expense (benefit) |
|
$ |
70,309 |
|
|
$ |
(9,544 |
) |
|
$ |
50,960 |
|
Goodwill |
|
|
23,050 |
|
|
|
27,503 |
|
|
|
|
|
Foreign inflation adjustments |
|
|
(620 |
) |
|
|
464 |
|
|
|
1,614 |
|
State and local income taxes, net of federal income tax impact |
|
|
10,078 |
|
|
|
(2,506 |
) |
|
|
5,215 |
|
Foreign losses not benefited and other changes in valuation allowance |
|
|
(536 |
) |
|
|
1,459 |
|
|
|
(552 |
) |
Foreign tax rate differential |
|
|
3,721 |
|
|
|
1,537 |
|
|
|
(1,464 |
) |
Foreign dividends, including Section 965 |
|
|
1,405 |
|
|
|
2,084 |
|
|
|
2,141 |
|
Capital loss benefit |
|
|
|
|
|
|
|
|
|
|
(12,913 |
) |
Changes in uncertain tax positions |
|
|
1,980 |
|
|
|
|
|
|
|
6,957 |
|
True up to deferred tax items |
|
|
|
|
|
|
|
|
|
|
(6,453 |
) |
Other net |
|
|
2,575 |
|
|
|
58 |
|
|
|
(660 |
) |
|
|
|
Income taxes |
|
$ |
111,962 |
|
|
$ |
21,055 |
|
|
$ |
44,845 |
|
|
|
|
The Company reinvests the undistributed earnings of its foreign subsidiaries, with the
exception of its subsidiary in Ecuador. Accordingly, deferred U.S. federal and state income taxes
are provided only on the undistributed earnings of the Companys Ecuador subsidiary. As of
December 31, 2009, the cumulative amount of undistributed earnings of the foreign subsidiaries on
which the Company has not recognized income taxes was approximately $170,000.
F-33
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
Deferred Income Taxes
The tax effects of significant temporary differences and tax loss and tax credit carryforwards
comprising the net long-term deferred income tax liabilities as of December 31, 2008 and 2009
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
2008 |
|
2009 |
Deferred liabilities: |
|
|
|
|
|
|
|
|
Theatre properties and equipment |
|
$ |
105,079 |
|
|
$ |
102,464 |
|
Deferred intercompany sales |
|
|
14,543 |
|
|
|
8,650 |
|
Intangible asset contracts |
|
|
9,545 |
|
|
|
8,873 |
|
Intangible asset tradenames |
|
|
114,379 |
|
|
|
116,054 |
|
Intangible asset net favorable leases |
|
|
354 |
|
|
|
(1,596 |
) |
Investment in partnerships |
|
|
36,364 |
|
|
|
38,405 |
|
|
|
|
Total deferred liabilities |
|
|
280,264 |
|
|
|
272,850 |
|
|
|
|
Deferred assets: |
|
|
|
|
|
|
|
|
Deferred lease expenses |
|
|
11,923 |
|
|
|
13,493 |
|
Theatre properties and equipment |
|
|
9,693 |
|
|
|
11,672 |
|
Deferred revenue NCM and Fandango |
|
|
65,613 |
|
|
|
64,313 |
|
Capital lease obligations |
|
|
46,098 |
|
|
|
52,645 |
|
Interest rate swaps agreements |
|
|
9,515 |
|
|
|
7,157 |
|
Tax loss carryforwards |
|
|
12,342 |
|
|
|
12,747 |
|
Alternative minimum tax and other credit carryforwards |
|
|
3,606 |
|
|
|
5,634 |
|
Other expenses, not currently deductible for tax purposes |
|
|
2,319 |
|
|
|
1,915 |
|
|
|
|
Total deferred assets |
|
|
161,109 |
|
|
|
169,576 |
|
|
|
|
Net deferred income tax liability before valuation allowance |
|
|
119,155 |
|
|
|
103,274 |
|
Valuation allowance against deferred assets |
|
|
13,463 |
|
|
|
18,228 |
|
|
|
|
Net deferred income tax liability |
|
$ |
132,618 |
|
|
$ |
121,502 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability Foreign |
|
$ |
16,645 |
|
|
$ |
13,381 |
|
Net deferred tax liability U.S. |
|
|
115,973 |
|
|
|
108,121 |
|
|
|
|
Total |
|
$ |
132,618 |
|
|
$ |
121,502 |
|
|
|
|
The Companys valuation allowance against deferred tax assets increased from $13,463 at
December 31, 2008 to $18,228 at December 31, 2009. The increase in the valuation allowance was
primarily due to an increase in foreign and state net operating loss carryforwards and foreign tax
credit carryovers.
The Companys foreign tax credit carryforwards begin expiring in 2015. Some foreign net
operating losses will expire in the next reporting period; however, some losses may be carried
forward indefinitely. State net operating losses may be carried forward for periods of between five
and twenty years with the last expiring year being 2029.
F-34
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
Uncertain Tax Positions
The following is a reconciliation of the total amounts of unrecognized tax benefits excluding
interest and penalties, for the years ended December 31, 2007, 2008 and 2009:
|
|
|
|
|
Balance at January 1, 2007 |
|
$ |
10,512 |
|
Gross increases tax positions in prior period |
|
|
1,432 |
|
Gross increases current-period tax positions |
|
|
549 |
|
|
|
|
|
Balance at December 31, 2007 |
|
$ |
12,493 |
|
Gross increases tax positions in prior period |
|
|
37 |
|
Gross decreases tax positions in prior period |
|
|
(166 |
) |
Gross increases current-period tax positions |
|
|
2,397 |
|
Gross decreases current-period tax positions |
|
|
(752 |
) |
Reductions due to lapse in statute of limitations |
|
|
(33 |
) |
|
|
|
|
Balance at December 31, 2008 |
|
$ |
13,976 |
|
Gross increases tax positions in prior period |
|
|
2,274 |
|
Gross increases current-period tax positions |
|
|
7,607 |
|
|
|
|
|
Balance at December 31, 2009 |
|
$ |
23,857 |
|
|
|
|
|
The Company had $17,523 and $31,661 of gross unrecognized tax benefits, including
interest and penalties as of December 31, 2008 and December 31, 2009, respectively. Of these
amounts, $13,851 and $23,212 represent the amount of unrecognized tax benefits that if recognized
would impact the effective income tax rate for the years ended December 31, 2008 and 2009,
respectively. The Company had $3,547 and $7,804 accrued for interest and/or penalties as of
December 31, 2008 and 2009, respectively.
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and
multiple state and foreign jurisdictions, and the Company is routinely under audit by many
different tax authorities. The Company believes that its accrual for tax liabilities is adequate
for all open audit years based on its assessment of many factors including past experience and
interpretations of tax law. This assessment relies on estimates and assumptions and may involve a
series of complex judgments about future events. The Company is no longer subject to income tax
audits from the Internal Revenue Service for years before 2002. The Company is no longer subject
to state income tax examinations by tax authorities in its major state jurisdictions for years
before 2002. The Company is no longer subject to non-U.S. income tax examinations by tax
authorities in its major non-U.S. tax jurisdictions for years before 2004.
The Company is currently under examination by the Internal Revenue Service for the 2002
through 2007 tax years. It is reasonably possible that the 2002-2004 audits could be completed
within the next twelve months. These events could result in a decrease in the Companys total
unrecognized benefits of approximately $13,000 which includes approximately $4,000 of accrued
interest.
22. COMMITMENTS AND CONTINGENCIES
Leases The Company conducts a significant part of its theatre operations in leased
properties under noncancelable operating and capital leases with terms generally ranging from 10 to
25 years. In addition to the minimum annual lease payments, some of the leases provide for
contingent rentals based on operating results of the theatre and most require the payment of taxes,
insurance and other costs applicable to the property. The Company can renew, at its option, a
substantial portion of the leases at defined or then market rental rates for various periods. Some
leases also provide for escalating rent payments throughout the lease term. A liability for
deferred lease expenses of $23,371 and $27,698 at December 31, 2008 and 2009, respectively, has
been provided to account for lease expenses on a straight-line basis, where lease payments are not
made on such a basis. Rent expense was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
2007 |
|
2008 |
|
2009 |
|
|
|
Fixed rent expense |
|
$ |
164,915 |
|
|
$ |
175,368 |
|
|
$ |
181,075 |
|
Contingent rent expense |
|
|
47,815 |
|
|
|
50,227 |
|
|
|
57,704 |
|
|
|
|
Total facility lease expense |
|
$ |
212,730 |
|
|
$ |
225,595 |
|
|
$ |
238,779 |
|
|
|
|
F-35
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
Future minimum lease payments under noncancelable operating and capital leases that have
initial or remaining terms in excess of one year at December 31, 2009 are due as follows:
|
|
|
|
|
|
|
|
|
|
|
Operating |
|
|
Capital |
|
|
|
Leases |
|
|
Leases |
|
2010 |
|
$ |
192,606 |
|
|
$ |
21,329 |
|
2011 |
|
|
189,798 |
|
|
|
20,389 |
|
2012 |
|
|
185,663 |
|
|
|
20,528 |
|
2013 |
|
|
181,536 |
|
|
|
20,666 |
|
2014 |
|
|
176,684 |
|
|
|
20,943 |
|
Thereafter |
|
|
939,268 |
|
|
|
144,554 |
|
|
|
|
|
|
|
|
Total |
|
$ |
1,865,555 |
|
|
$ |
248,409 |
|
|
|
|
|
|
|
|
|
Amounts representing interest payments |
|
|
|
|
|
|
108,041 |
|
|
|
|
|
|
|
|
|
Present value of future minimum payments |
|
|
|
|
|
$ |
140,368 |
|
Current portion of capital lease obligations |
|
|
|
|
|
|
7,340 |
|
|
|
|
|
|
|
|
|
Capital lease obligations, less current portion |
|
|
|
|
|
$ |
133,028 |
|
|
|
|
|
|
|
|
|
Employment Agreements Effective June 16, 2008, the Company entered into new employment
agreements with Alan W. Stock, Timothy Warner, Robert Copple and Michael Cavalier and effective
December 15, 2008, the Company entered into new employment agreements with Lee Roy Mitchell, Rob
Carmony, and John Lundin. Collectively these new employment agreements are herein referred to as
the Employment Agreements. The Employment Agreements have an initial term of three years subject
to an automatic extension for a one-year period, unless the employment agreements are terminated.
Effective June 3, 2009, the Company terminated its employment agreement with John Lundin. Effective
May 25, 2009, the Company entered into a new employment agreement with Steve Bunnell that has an
initial term of two years subject to an extension for a one year period, unless the agreement is
terminated. The base salaries stipulated in the employment agreements are subject to review during
the term of the agreements for increase (but not decrease) each year by the Companys Compensation
Committee. Management personnel subject to these employment agreements are eligible to receive
annual cash incentive bonuses upon the Company meeting certain performance targets established by
its Compensation Committee.
Retirement Savings Plan The Company has a 401(k) retirement savings plan for the benefit of
all employees and makes contributions as determined annually by the board of directors.
Contribution payments of $1,795 and $1,834 were made in 2008 (for plan year 2007) and 2009 (for
plan year 2008), respectively. A liability of approximately $2,083 has been recorded at December
31, 2009 for contribution payments to be made in 2010 (for plan year 2009).
Litigation and Litigation Settlements DOJ Litigation In March 1999, the Department of
Justice (DOJ) filed suit in the U.S. District Court, Northern District of Ohio, Eastern Division,
against the Company alleging certain violations of the Americans with Disabilities Act of 1990 (the
ADA) relating to the Companys wheelchair seating arrangements and seeking remedial action. An
order granting summary judgment to the Company was issued in November 2001. The Department of
Justice appealed the district courts ruling with the Sixth Circuit Court of Appeals. On November
7, 2003, the Sixth Circuit Court of Appeals reversed the summary judgment and sent the case back to
the district court for further review without deciding whether wheelchair seating at the Companys
theatres comply with the ADA. The Sixth Circuit Court of Appeals also stated that if the district
court found that the theatres did not comply with the ADA, any remedial action should be
prospective only. The Company and the United States have resolved this lawsuit. A consent order was
entered by the U.S. District Court for the Northern District of Ohio, Eastern Division, on November
15, 2004. This consent order fully and finally resolves the United States v. Cinemark USA, Inc.
lawsuit, and all claims asserted against the Company in that lawsuit have been dismissed with
prejudice. Under the consent order, the Company made modifications to wheelchair seating locations
in fourteen stadium-style movie theatres, and spacing and companion seating modifications at 67
auditoriums at other stadium-styled movie theatres. These modifications were completed by
November 2009. Upon completion of these modifications, such theatres complied with all existing and
pending ADA wheelchair seating requirements, and no further modifications will be required to the
Companys other stadium-style movie theatres in the United States existing on the date of the
consent order. Under the consent order, the DOJ approved the seating plans for nine stadium-styled
movie theatres under construction. The Company and the DOJ have also created a safe harbor
framework for the Company to construct all of its future stadium-style movie theatres. The DOJ has
stipulated that all theatres built in compliance with the consent order will comply with the
wheelchair seating requirements of the ADA. The Company believes that its obligations under the
consent order are not material in the aggregate to its financial position, results of operations
and cash flows.
F-36
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
From time to time, the Company is involved in other various legal proceedings arising from the
ordinary course of its business operations, such as personal injury claims, employment matters,
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.
23. 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 or allocate resources.
Below is a breakdown of select financial information by reportable operating segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
2007 |
|
2008 |
|
2009 |
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
$ |
1,352,042 |
|
|
$ |
1,360,176 |
|
|
$ |
1,558,736 |
|
International |
|
|
333,624 |
|
|
|
385,817 |
|
|
|
421,765 |
|
Eliminations |
|
|
(2,825 |
) |
|
|
(3,706 |
) |
|
|
(4,001 |
) |
|
|
|
Total revenues |
|
$ |
1,682,841 |
|
|
$ |
1,742,287 |
|
|
$ |
1,976,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
2007 |
|
2008 |
|
2009 |
|
|
|
Adjusted EBITDA: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
$ |
309,800 |
|
|
$ |
291,487 |
|
|
$ |
361,685 |
|
International |
|
|
67,138 |
|
|
|
78,805 |
|
|
|
83,839 |
|
|
|
|
Total Adjusted EBITDA |
|
$ |
376,938 |
|
|
$ |
370,292 |
|
|
$ |
445,524 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
2008 |
|
2009 |
|
|
|
Capital Expenditures: |
|
|
|
|
|
|
|
|
U.S. |
|
$ |
77,193 |
|
|
$ |
81,695 |
|
International |
|
|
28,916 |
|
|
|
43,102 |
|
|
|
|
Total capital expenditures |
|
$ |
106,109 |
|
|
$ |
124,797 |
|
|
|
|
F-37
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
The following table sets forth a reconciliation of net income (loss) to Adjusted EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
2007 |
|
2008 |
|
2009 |
|
|
|
Net income (loss) |
|
$ |
89,712 |
|
|
$ |
(44,430 |
) |
|
$ |
100,756 |
|
Add (deduct): |
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes |
|
|
111,962 |
|
|
|