e10vk
CINEMARK,
INC. MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION (I)(1)(a) AND
(b) OF FORM 10-K AND THEREFORE IS FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.
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, 2007
Commission File Number 001-31372
CINEMARK, INC.
(Exact Name of Registrant as Specified in its Charter)
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Delaware
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01-0687923 |
(State or other jurisdiction
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(I.R.S. Employer |
of incorporation or organization)
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Identification No.) |
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3900 Dallas Parkway |
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Suite 500 |
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Plano, Texas
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75093 |
(Address of principal executive offices)
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(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 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):
Large accelerated filer
o Accelerated filer
o
Non-accelerated filer
þ
Smaller reporting company
o
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act). Yes o No þ
As of February 29, 2008, 27,896,316 shares of Class A common stock were outstanding.
The registrant is privately held and there is no public trading market for its equity securities;
therefore, the registrant is unable to calculate the aggregate market value of the voting and
non-voting common equity held by non-affiliates.
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, based on 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, Inc. and its consolidated subsidiaries, including 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 and Peru.
Unless otherwise specified, all operating and other statistical data are as of and for the year
ended December 31, 2007.
1
PART I
Item 1. Business
Our Company
Cinemark, Inc. is a Delaware corporation, incorporated on May 16, 2002, and a wholly-owned
subsidiary of Cinemark Holdings, Inc. We are the parent company of CNMK Holding, Inc., which is the
parent company of Cinemark USA, Inc. Cinemark, Inc. and subsidiaries (the Company) are leaders in
the motion picture exhibition industry in terms of both revenues and the number of screens in
operation, with theatres in the United States (U.S.), Canada, Mexico, Argentina, Brazil, Chile,
Ecuador, Peru, Honduras, El Salvador, Nicaragua, Costa Rica, Panama and Colombia. The Company also
managed theatres in the U.S., Canada, Brazil and Colombia during the year ended December 31, 2007.
On April 2, 2004, an affiliate of Madison Dearborn Partners, LLC, or MDP, acquired
approximately 83% of our capital stock, pursuant to which a newly formed subsidiary owned by an
affiliate of MDP was merged with and into us with our company continuing as the surviving
corporation, hereinafter referred to as the MDP Merger. Simultaneously with the merger, MDP
purchased shares of our common stock for $518.2 million in cash and became our controlling
stockholder. Lee Roy Mitchell, Chairman and then Chief Executive Officer,
the Mitchell Special Trust and certain members of management
collectively retained a minority ownership interest
in our company. In December 2004, MDP sold a portion of its stock in our company, to outside
investors and in July 2005, we issued additional shares to another outside investor.
Cinemark Holdings, Inc. was formed on August 2, 2006. On August 7, 2006, our stockholders
entered into a share exchange agreement pursuant to which they agreed to exchange their shares of
Class A common stock for an equal number of shares of common stock of Cinemark Holdings, Inc.,
hereinafter referred to as the Cinemark Share Exchange. The Cinemark Share Exchange and the
acquisition of Century Theatres, Inc. (Century Acquisition) were completed on October 5, 2006.
The Century Acquisition is reflected in our historical financial information from October 5, 2006.
On October 5, 2006, we became a wholly owned subsidiary of Cinemark Holdings, Inc.
Due to a change in reporting entity that occurred as a result of the Cinemark Share Exchange,
Cinemark Holdings, Inc.s accounting basis was pushed down to us as of the date of the Cinemark
Share Exchange. Our financial statements are reflective of our historical basis for periods prior
to the Cinemark Share Exchange, referred to as predecessor, and are reflective of the new basis for
periods subsequent to the Cinemark Share Exchange, referred to as successor.
On April 24, 2007, our parent company, Cinemark Holdings, Inc., completed an initial public
offering of its common stock.
As of December 31, 2007, we managed our business under two operating segments U.S. markets
and international markets, in accordance with Statement of Financial Accounting Standards No. 131
Disclosures about Segments of an Enterprise and Related Information. See Note 21 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 a leader in the motion picture exhibition industry with 408 theatres and 4,665 screens
in the U.S. and Latin America. Our circuit is the third largest in the U.S. with 287 theatres and
3,654 screens in 38 states. We are the most geographically diverse circuit in Latin America with
121 theatres and 1,011 screens in 12 countries. During the year ended December 31, 2007, over 212
million patrons attended our theatres. Our modern theatre circuit features stadium seating for
approximately 81% of our first-run screens.
We selectively build or acquire new theatres in markets where we can establish and maintain a
leading 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
2
an important distribution channel for movie studios, particularly as they look to increase
revenues generated in Latin America. Our market leadership is attributable in large part to our
senior executives, who average approximately 33 years of industry experience and have successfully
navigated us through multiple business cycles.
We grew our total revenue per patron at a compound annual growth rate, (CAGR), during the
last three fiscal years of 11.5%. Revenues, operating income and net income for the year ended
December 31, 2007, were $1,682.8 million, $113.6 million and $85.0 million, respectively. At
December 31, 2007 we had cash and cash equivalents of $233.4 million and long-term debt of $1,523.7
million. Approximately $607.8 million of our long-term debt accrues interest at variable rates.
Motion Picture Industry Overview
Domestic Markets
The U.S. motion picture exhibition industry has a track record of long-term growth, with box
office revenues growing at a CAGR of 5.1% over the last 15 years. Against this background of steady
long-term growth, the exhibition industry has experienced periodic short-term increases and
decreases in attendance, and consequently box office revenues. In 2007, the motion picture
exhibition industry continued to experience growth with box office revenues increasing
5.4% over 2006, compared to an increase of 3.5% in 2006 over 2005.
We believe box office revenues will continue to
perform well in 2008 with a solid slate of films, including Harry Potter and the Half-Blood Prince,
Indiana Jones and the Kingdom of the Crystal Skull, Chronicles of Narnia: Prince Caspian, The Dark
Knight, Wall-E, Hancock, The Mummy: Tomb of the Dragon Emperor and the release of 3-D movies such
as Hannah Montana & Miley Cyrus: Best of Both Worlds and Journey to the Center of the Earth. In
2009, a broad slate of 3-D films is expected, including Monsters vs. Aliens, Ice Age 3, and Avatar.
The following table represents the results of a survey by MPAA
Worldwide Market Research (MPAA),
published during March 2008, outlining the historical trends in U.S. box office revenues for the
ten year period from 1997 to 2007:
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U.S. Box |
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Average |
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Office Revenues |
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Attendance |
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Ticket |
Year |
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($ in millions) |
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(in millions) |
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Price |
1997 |
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$ |
6,216 |
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1,354 |
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$ |
4.59 |
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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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International Markets
International growth also continues to be solid. According to MPAA, international box office
revenues grew steadily at a CAGR of 11.9% from 2003 to 2007 as a result of the increasing acceptance
of moviegoing 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 continued development of
modern theatres, attractive demographics (i.e., a significant teenage population), quality product
from Hollywood and the 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 revitalized the local film industry
and, in Mexico, Brazil and Argentina, successful local film product often provides incremental
growth opportunities.
3
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 downloading utilizing 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 $17.1 billion, or 64% of 2007 total worldwide box office revenues
according to MPAA. With continued growth of the international motion picture exhibition industry,
we believe the relative contribution of markets outside North America will become even more
significant.
Increased Investment in Production and Marketing of Films by Distributors. As a result of the
additional revenues generated by domestic, international and downstream markets, studios have
increased production and marketing expenditures at a CAGR of 8.2% and
10.1%, respectively, since 2004, according to MPAA. Production and
marketing expenditures for 2007 increased by 18.1% and 12.7%, respectively over 2006.
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. Despite historical economic and
industry cycles, domestic attendance has grown at a 1.6% CAGR over the last 15 years to 1.4 billion
patrons in 2007. According to Nielsen Entertainment/NRG, 77% of moviegoers stated their overall
theatre experience in 2007 was time and money well spent. Additionally, younger moviegoers in the
U.S. continue to be the most frequent patrons.
Reduced Seasonality of Revenues. Box office revenues have historically been highly seasonal,
with a majority of blockbusters being released during the summer and year-end holiday season. In
recent years, the seasonality of motion picture exhibition has become less pronounced as studios
have begun to release films more evenly throughout the year. This benefits exhibitors by allowing
more effective allocation of the fixed cost base throughout the year.
Convenient and Affordable Form of Out-Of-Home Entertainment. Moviegoing 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 $6.88 in 2007. Average prices in 2007 for other forms of out-of-home
entertainment in the U.S., including sporting events and theme parks, range from approximately
$23.50 to $65.25 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.
Competitive Strengths
We believe the following strengths allow us to compete effectively:
Solid Operating Performance and Discipline. We generated operating income and net income of
$113.6 million and $85.0 million, respectively, for the year ended December 31, 2007. Our solid
operating performance is a result of our financial discipline, such as negotiating favorable
theatre level economics and controlling theatre operating costs. We believe the continued
integration of the Century Acquisition will result in additional revenues and cost efficiencies to
further improve our margins.
Leading Position in Our U.S. Markets. We have a leading share in the U.S. metropolitan and
suburban markets we serve. For the year ended December 31, 2007, we ranked either first or second
based on box office revenues in 22 out of our top 25 U.S. markets, including the San Francisco Bay
Area, Dallas, Houston and Sacramento. On average, the population in domestic markets where over 80% of
our theatres are located, including Dallas, Las Vegas and Phoenix, is expected to grow 52% faster than the
average growth rate of the U.S. population over the next five years, as reported by BIAfn and U.S. census data.
Strategically Located in Heavily Populated Latin American Markets. Since 1993, we have
invested throughout Latin America due to the growth potential of the region. We operate 121
theatres and 1,011 screens in 12 countries,
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generating revenues of $333.6 million for the year ended December 31, 2007. We have
successfully established a significant presence in major cities in the region, with theatres in
twelve of the fifteen largest metropolitan areas. With the most geographically diverse circuit in
Latin America, we are an important distribution channel to the movie studios. The regions improved
economic climate and rising disposable income are also a source for growth. We are well-positioned
with our modern, large-format theatres and new screens to take advantage of this favorable economic
environment for further growth and diversification of our revenues.
Modern Theatre Circuit. We have one of the most modern theatre circuits in the industry which
we believe makes our theatres a preferred destination for moviegoers in our markets. We feature
stadium seating in approximately 81% of our first run auditoriums and approximately 82% of our
international screens also feature stadium seating. During 2007, we continued our organic expansion
by opening 257 screens. We currently have commitments to build 225 additional screens over the next
three years.
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
managements ability to contain costs, predictable revenues and a geographically diverse, modern
theatre circuit requiring limited maintenance capital expenditures. Additionally, a strategic advantage that enhances our cash flows, is our
ownership of land and buildings for 43 of our theatres. We believe our expected level
of cash flow generation will provide us with the strategic and financial flexibility to pursue
growth opportunities, support our debt payments and make dividend payments to our stockholders.
As of December 31, 2007, we had cash of $233.4 million.
Experienced Management with Focused Operating Philosophy. 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 33
years of theatre operating experience executing a focused strategy which has led to consistent
operating results. Our operating philosophy has centered on providing a superior viewing experience
and selecting less competitive markets or clustering in strategic metropolitan and suburban markets
in order to generate a high return on invested capital. This focused strategy includes strategic
site selection, building appropriately-sized theatres for each of our markets, and managing our
properties to maximize profitability. As a result, we grew our
admissions and concession revenues per patron at the highest CAGR
during the last four fiscal years among the three largest motion
picture exhibitors in the U.S.
Our Strategy
We believe our operating philosophy and management team will enable us to continue to enhance
our leading position in the motion picture exhibition industry. Key components of our strategy
include:
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. Our margins reflect our track record
of operating efficiency.
Selectively Build in Profitable, Strategic Latin American Markets. Our international expansion
will continue to focus primarily on Latin America through construction of American-style,
state-of-the-art theatres in major urban markets.
Theatre Operations
As of December 31, 2007, we operated 408 theatres and 4,665 screens in 38 states, one Canadian
province and 12 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, 2007.
5
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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78 |
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1,054 |
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California |
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63 |
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710 |
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Ohio |
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20 |
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221 |
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Utah |
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12 |
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155 |
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Nevada |
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10 |
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154 |
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Colorado |
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8 |
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127 |
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Illinois |
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9 |
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122 |
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Oregon |
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7 |
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102 |
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Arizona |
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6 |
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94 |
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Kentucky |
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7 |
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83 |
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Pennsylvania |
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5 |
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73 |
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Oklahoma |
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6 |
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67 |
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Louisiana |
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5 |
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58 |
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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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Indiana |
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5 |
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46 |
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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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Florida |
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2 |
|
|
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40 |
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Iowa |
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4 |
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39 |
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Arkansas |
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3 |
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|
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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 |
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Kansas |
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|
1 |
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|
20 |
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Michigan |
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|
1 |
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16 |
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Alaska |
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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 |
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South Dakota |
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1 |
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|
14 |
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Tennessee |
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|
1 |
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|
14 |
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Wisconsin |
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|
1 |
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|
14 |
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Massachusetts |
|
|
1 |
|
|
|
12 |
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Delaware |
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|
1 |
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|
|
10 |
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West Virginia |
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|
1 |
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|
|
10 |
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Minnesota |
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|
1 |
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|
|
8 |
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Montana |
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|
1 |
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|
|
8 |
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Total United States |
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|
286 |
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|
|
3,642 |
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Canada |
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|
1 |
|
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12 |
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Total |
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287 |
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|
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3,654 |
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6
International Theatres
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Total |
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Total |
Country |
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Theatres |
|
Screens |
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Brazil |
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|
40 |
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|
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339 |
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Mexico |
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31 |
|
|
|
304 |
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Chile |
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|
12 |
|
|
|
91 |
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Central America(1) |
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|
12 |
|
|
|
81 |
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Argentina |
|
|
9 |
|
|
|
77 |
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Colombia |
|
|
9 |
|
|
|
56 |
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Peru |
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|
4 |
|
|
|
37 |
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Ecuador |
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|
4 |
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|
|
26 |
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Total |
|
|
121 |
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|
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1,011 |
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(1) |
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Includes Honduras, El Salvador, Nicaragua, Costa Rica and Panama. |
We first entered Latin America with the opening of theatres in Chile in 1993 and Mexico in
1994. Since 1993, through our focused international strategy, we have developed into the most
geographically diverse circuit in Latin America. We presently have theatres in twelve of the
fifteen largest metropolitan areas in Latin America. We have balanced our risk through a
diversified international portfolio with operations in twelve countries in Latin America. In
addition, we have achieved significant scale in Mexico and Brazil, the two largest Latin American
economies.
We believe that certain markets within Latin America continue to be underserved and
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 exposure in the costs of our international
operations to currency fluctuations by using local currencies to fund substantially all aspects of
our operations, including film and facility lease expense. Our geographic diversity throughout
Latin America has allowed us to maintain consistent revenue growth notwithstanding currency
fluctuations that may affect any particular market.
Film Licensing
In the U.S., we license films from film distributors that are owned by major film production
companies or from independent film distributors that distribute films for smaller production
companies. For new release films, film distributors typically establish geographic zones and offer
each available film to one theatre in each zone. The size of a film zone is generally determined by
the population density, demographics and box office revenues potential of a particular market or
region. We currently operate theatres in 235 first run film zones in the U.S. New film releases are
licensed at the discretion of the film distributors. As the sole exhibitor in approximately 85% of
the first run film zones in which we operate, we have maximum access to film product, which allows
us to select those pictures we believe will be the most successful in our markets from those
offered to us by distributors. We usually license films on an allocation basis in film zones where
we face competition.
In the international markets in which we operate, distributors do not allocate film to a
single theatre in a geographic film zone, but allow competitive theatres to play the same films
simultaneously. In these markets, films are still licensed on a theatre-by-theatre and film-by-film
basis. 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 1,011 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 either
mutually agreed upon firm terms or a sliding scale formula, which are established prior to the
opening of the picture, or on a mutually agreed upon settlement at the conclusion of the picture
run. Under a firm terms formula, we pay the distributor a specified percentage of box office
receipts, which reflects either a mutually agreed upon aggregate rate for the life of the film or
rates that
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decline over the term of the run. Firm term film rental fees that decline over the term of the
run generally start at 60% to 70% of box office receipts, gradually declining to as low as 30% over
a period of four to seven weeks. 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
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
and gradually decline over a period of several weeks.
We
operate seven art theatres with 27 screens under the CinéArts brand. We also regularly
play art and independent films at eleven other theatres. CinéArts allows us to
take advantage of
the growth in the art and independent market driven by the more mature patron. There has been an
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
Juno, There Will Be Blood and No Country For Old Men have demonstrated the box office potential of
art and independent films.
Concessions
Concession sales are our second largest revenue source, representing approximately 30.7% of
total revenues for the year ended December 31, 2007. 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:
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Optimization of product mix. Concession products are primarily comprised of various
sizes of popcorn, soft drinks and candy. Different varieties and flavors of candy and soft
drinks are offered at theatres based on preferences in that particular geographic region.
Specially priced combos are launched on a regular basis to increase average concession
purchases as well as to attract new buyers. Kids meals are also offered and packaged
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Staff training. Employees are continually trained in suggestive-selling and
upselling techniques. Consumer promotions conducted at
the concession stand always include a motivational element which rewards theatre staff for
exceptional combo sales during the period. |
A formalized crew program is in place to reward front line employees who excel in delivering
rapid service. The Speed of Service (SOS) program is held annually to kick off peak business
periods and refresh training and the importance of speed at the front line.
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Theatre design. Our theatres are designed to optimize efficiencies at the concession
stands, which include multiple service stations to facilitate serving more customers
quicker. 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. Centurys concession areas are designed as individual self-service
stations which allow customers to select their choice of refreshments and proceed to the
cash register. This design presents efficient service, enhanced choice and superior
visibility of concession items. Concession designs in many of our new theatres have begun to incorporate the
benefits experienced with the Century model. |
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Cost control. We negotiate prices for concession supplies directly with concession
vendors and manufacturers to obtain bulk rates. Concession supplies are distributed through
a national distribution network. The concession distributor supplies and distributes
inventory to the theatres, which place volume orders directly with the vendors to replenish
stock. The concession distributor is paid a percentage fee for warehousing and delivery of
concession goods on a weekly basis. |
Participation in National CineMedia
In March 2005, Regal Entertainment, Inc., (Regal), and AMC Entertainment, Inc., (AMC),
formed National CineMedia, LLC, (NCM), and on July 15, 2005, we joined NCM, as one of the founding
members. NCM operates the largest in-theatre network in the U.S. which delivers digital advertising
content and digital non-film event content to the screens and lobbies of the three largest motion
picture exhibitors in the country. The digital projectors are currently used to display advertising
and are not intended to be used to exhibit digital film content or digital cinema. NCMs primary activities that
impact us include the following activities:
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Advertising: NCM develops, produces, sells and distributes a branded, pre-feature
entertainment and advertising program called FirstLook, along with an advertising program
for its lobby entertainment network and various marketing and promotional products in
theatre lobbies; |
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CineMeetings: NCM provides live and pre-recorded networked and single-site meetings and
events in the theatres throughout its network; and |
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Digital Programming Events: NCM distributes live and pre-recorded concerts, sporting
events and other non-film entertainment programming to theatres across its digital network. |
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 a young, affluent and
engaged audience on a highly targeted and measurable basis.
On February 13, 2007, we received $389.0 million in connection with National CineMedia, Inc.s
or NCM Inc.s, initial public offering and related transactions, or the NCM Transaction. As a
result of these transactions, we no longer receive a percentage of NCMs revenue but rather a
monthly theatre access fee. In addition, we are entitled to receive mandatory quarterly
distributions of excess cash from NCM. Prior to the initial public offering of NCM Inc. common
stock, our ownership interest in NCM was approximately 25% and subsequent to the completion of the
offering we own an approximate 14% interest in NCM. See Note 6 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.
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, (DCIP), to facilitate the implementation of digital cinema in our
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.
Marketing
In the U.S., we rely on newspaper display advertisements, paid for by film distributors,
newspaper directory film schedules, generally paid for by us, and Internet advertising, which has
emerged as an attractive 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
presently playing on the other screens which we operate in the same theatre or market. We have
successfully used the Internet to provide 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. The
Internet is becoming a popular way to check movie showtimes and to
view movie previews. Many newspapers add an
Internet component to their advertising and add movie showtimes to their Internet sites. We use
monthly web contests with film distributor partners to drive traffic to our website and 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 may involve customer contests, cross-promotions with third parties, media on-air tie-ins and
other means to increase traffic to a particular film showing at one of our theatres.
Internationally, we partner with large multi-national corporations, in the larger 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 website to receive weekly
information via e-mail for showtime information, invitations to special screenings, sponsored
events and promotional information. In addition, our customers can request to receive showtime
information via their cellular phones.
Our marketing department also focuses on maximizing ancillary revenue, which includes the sale
of our gift cards, gift certificates and discount tickets, which are called SuperSavers. We market
these programs to such business representatives as realtors, human resource managers, incentive
program managers and hospital and pharmaceutical personnel. Gift cards and gift certificates can be
purchased at our theatres. Gift cards, gift certificates and SuperSavers are
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also sold online, via phone, fax, email and regular mail and fulfilled in-house from the local
corporate office. Additionally, we sell SuperSavers through third party retailers.
Online Sales
Our patrons may purchase advance tickets for all of our domestic screens and 339 of our
international screens by accessing our corporate website at www.cinemark.com or 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 in the theatre lobby.
Point of Sale Systems
We developed our own proprietary point of sale system to further 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 reports that allow
managers to make 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, provides in-theatre inventory reports allowing for efficient inventory
management and control, has multiple language capabilities, offers numerous ticket pricing options,
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. 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.
Competition
We are one of the leading motion picture exhibitors in terms of both revenues 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 85% of the 235 first run 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 we believe will be the most successful from among those offered to
us by film distributors. Where there is competition, we usually license films based on an
allocation process. Of the 1,011 screens we operate outside of the U.S., approximately 72% of those
screens have no direct competition from other theatres. The principal competitive factors with
respect to film licensing are:
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location, accessibility and capacity of an exhibitors theatre; |
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theatre comfort; |
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quality of projection and sound equipment; |
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level of customer service; and |
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licensing terms. |
The competition for customers is dependent upon factors such as the availability of popular
films, the location of theatres, the comfort and quality of theatres and ticket prices. Our ticket
prices are competitive with ticket prices of competing theatres.
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
downloading utilizing the Internet. We do not believe that these additional distribution channels
have adversely affected theatre attendance; however, we can give no assurance that these or other
alternative delivery systems will not have an adverse impact on attendance in the future. We
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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
We maintain a corporate office in Plano, Texas that provides oversight for our domestic and
international theatres. Domestic operations include theatre operations support, film licensing and
settlements, human resources, legal, finance and accounting, operational audit, theatre maintenance
and construction, Internet and information systems, real estate and marketing. Our U.S. operations
are divided into sixteen regions, each of which is headed by a region leader.
International personnel in the corporate office include our President of Cinemark
International, L.L.C. and vice presidents/directors in charge of film licensing, concessions,
theatre operations support, theatre maintenance and construction, real estate, legal, operational
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 operations in twelve individual countries. Each
regional office is headed by a general manager and includes personnel in film licensing, marketing,
human resources, operations and accounting. The regional offices are staffed with nationals from
the region to overcome cultural and operational barriers.
Employees
We have approximately 12,300 employees in the U.S., approximately 10% of whom are full time
employees and 90% of whom are part time employees. We have approximately 4,400 employees in our
international markets, approximately 39% of whom are full time employees and approximately 61% of
whom are part time employees. Seventeen U.S. employees are represented by unions under collective
bargaining agreements. 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. We have not been a party to such cases, but
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. Consequently, exhibitors cannot assure themselves a
supply of films by entering 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 in substantial compliance 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, Mexico, Argentina, Brazil, Chile, Ecuador, Peru,
Honduras, El Salvador, Nicaragua, Costa Rica, Panama and Colombia, which are reflected in the
consolidated financial statements. See Note 21 to the consolidated financial statements for segment
information.
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Item 1A. Risk Factors
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 pictures 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, 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 for the motion pictures shown in our theatres. The film
distribution business is highly concentrated, with six major film distributors accounting for
approximately 78% of U.S. box office revenues and 42 of the top 50 grossing films during 2007.
Numerous antitrust cases and consent decrees resulting from these cases impact the distribution of
motion pictures. 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.
We face intense competition for patrons and film licensing 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 motion
pictures. The competition for patrons is dependent upon such factors as the availability of popular
motion pictures, the location and number of theatres and screens in a market, the comfort and
quality of the theatres and pricing. Some of our competitors have greater resources and may have
lower costs. The principal competitive factors with respect to film licensing include licensing
terms, number of seats and screens available for a particular picture, revenue potential and the
location and condition of an exhibitors theatres. If we are unable to license successful films,
our business may be adversely affected.
The oversupply of screens in the motion picture exhibition industry and other factors may
adversely affect the performance of some of our theatres.
During the period between 1996 and 2000, theatre exhibitor companies emphasized the
development of large multiplexes. The strategy of aggressively building multiplexes was adopted
throughout the industry and resulted in an oversupply of screens in the North American exhibition
industry and negatively impacted many older multiplex theatres more than expected. Many of these
theatres have long lease commitments making them financially burdensome to close prior to the
expiration of the lease term, even theatres that are unprofitable. Where theatres have been closed,
landlords have often made rent concessions to small independent or regional operators to keep the
theatres open since theatre buildings are typically limited in alternative uses. As a result, some
analysts believe that there continues to be an oversupply of screens in the North American
exhibition industry, as screen counts have increased each year since 2003. If competitors build
theatres in the markets we serve, the performance of some of our theatres could be adversely
affected due to increased competition.
An increase in the use of alternative or downstream film distribution channels and other
competing forms of entertainment may drive down movie theatre attendance and limit ticket price
growth.
We face competition for patrons from a number of alternative motion picture distribution
channels, such as DVDs, network and syndicated television, video on-demand, pay-per-view television
and downloading utilizing the Internet. We also compete with other forms of entertainment competing
for our patrons leisure time and disposable income such as concerts, amusement parks and sporting
events. 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.
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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 four months. 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.
We have significant long-term debt service obligations and long-term lease obligations. As of
December 31, 2007, we had $1,574.4 million in long-term debt obligations, $121.2 million in capital
lease obligations and $1,958.4 million in long-term operating lease obligations. We incurred $145.6
million of interest expense for the year ended December 31, 2007. We incurred $212.7 million of
rent expense for the year ended December 31, 2007 under operating leases (with terms, excluding
renewal options, ranging from one to 30 years). Our substantial lease and debt obligations pose
risk to you by:
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making it more difficult for us to satisfy our obligations; |
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requiring us to dedicate a substantial portion of our cash flow to payments on our
lease and debt obligations, thereby reducing the availability of our cash flow to fund
working capital, capital expenditures, acquisitions and other corporate requirements and to
pay dividends; |
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impeding our ability to obtain additional financing in the future for working capital,
capital expenditures, acquisitions and general corporate purposes; |
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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 |
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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 business. |
Our ability to make scheduled payments of principal and interest with respect to our
indebtedness and service our lease obligations will depend on our ability to generate cash flow
from our operations. To a certain extent, our ability to generate cash flow 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 flow at current levels. If we fail to make
any required payment under the agreements governing our indebtedness or fail to comply with the
financial and operating covenants contained in them, we would be in default and our lenders would
have the ability to require that we immediately repay our outstanding indebtedness. If we fail to
make any required payment under our leases, we would be in default and our landlords would have the
ability to terminate our leases and re-enter the premises. Subject to the restrictions contained in
our indebtedness agreements, we expect to incur additional indebtedness from time to time to
finance acquisitions, capital expenditures, working capital requirements and other general business
purposes. In addition, we may need to refinance all or a portion of our indebtedness, including
Cinemark USA, Inc.s senior secured credit facility and our 9 3/4% senior discount notes, on or
before maturity. However, we may not be able to refinance all or any of our indebtedness on
commercially reasonable terms or at all.
We are subject to various covenants in our debt agreements that restrict our ability to enter
into certain transactions.
The agreements governing our debt obligations contain various financial and operating
covenants that limit our ability to engage in certain transactions, that require us not to allow
specific events to occur or that require us to apply proceeds from certain transactions to reduce
indebtedness. If we fail to make any required payment under the agreements governing our
indebtedness or fail to comply with the financial and operating covenants contained in them, we
would be in default, and our debt holders would have the ability to require that we immediately
repay our outstanding indebtedness. Any such defaults could materially impair our financial
condition and liquidity. We cannot assure you that we would be able to refinance our outstanding
indebtedness if debt holders require repayments as a result of a default.
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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, could cause people to
avoid our theatres or other public places where large crowds are in attendance.
Our foreign operations are subject to adverse regulations and currency exchange risk.
We have 121 theatres with 1,011 screens in twelve countries in Latin America. Brazil and
Mexico represented approximately 9.3% and 4.5% of our consolidated 2007 revenues, respectively.
Governmental regulation of the motion picture industry in foreign markets differs from that in the
United States. Regulations affecting prices, quota systems requiring the exhibition of
locally-produced films and restrictions on ownership of land 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 the additional 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 realize value from our
investment in NCM.
We joined Regal and AMC as founding members of NCM in 2005. After the completion of NCM Inc.s
initial public offering, we continue to own a 14% interest in NCM. In connection with the NCM Inc.
initial public offering, we modified our Exhibitor Services Agreement to reflect a shift from
circuit share expense under the prior exhibitor service agreement, which obligated NCM to pay us a
percentage of revenue, to a monthly theatre access fee. The theatre access fee has significantly
reduced the contractual amounts paid to us by NCM.
Cinema advertising is a small component of the U.S. advertising market. Accordingly, 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 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 the theatre-going public. If NCM is
unable to continue to generate expected sales of advertising, it may not maintain the level of
profitability we hope to achieve, its results of operations may be adversely affected and our
investment in and revenues from NCM may be adversely impacted.
We are subject to uncertainties related to digital cinema, including potentially high costs of
re-equipping theatres with projectors to show digital movies.
Digital cinema is still in an experimental stage in our industry. Some of our competitors have
commenced a roll-out of digital equipment for exhibiting feature films. There are multiple parties
vying for the position of being the primary generator of the digital projector roll-out for
exhibiting feature films. However, significant obstacles exist that impact such a roll-out plan
including the cost of digital projectors, the substantial investment in re-equipping theatres and
determining who will be responsible for such costs. We cannot assure you that we will be able to
obtain financing arrangements to fund our portion of the digital cinema roll-out nor that such
financing will be available to us on acceptable terms, if at all.
We are subject to uncertainties relating to future expansion plans, including our ability to
identify suitable acquisition candidates or site locations.
We have greatly expanded our operations over the last decade through targeted worldwide
theatre development and the Century Acquisition. 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
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result of such competition, we may not be able to acquire attractive site locations, existing
theatres or theatre circuits on terms we consider acceptable. We cannot assure you that our
expansion strategy will result in improvements to our business, financial condition or
profitability. Further, our expansion programs may require financing above our existing borrowing
capacity and internally generated funds. We cannot assure you that we will be able to obtain such
financing nor that such financing will be available to us on acceptable terms.
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, 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
are 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 must be completed by November 2009. We are currently in
compliance with the consent order. Upon completion of these modifications, these theatres will
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 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, theatre goodwill 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. The impairment evaluation is
based on the estimated 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 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. Fair value is determined based on a multiple of cash flows, which was seven
times for 2005 and eight times for the evaluations performed during 2006 and 2007. 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 are based on historical and
projected operating performance as well as recent market transactions.
15
We also test goodwill and other intangible assets for impairment at least annually in
accordance with SFAS No. 142, Goodwill and Other Intangible Assets. Goodwill and other intangible
assets are tested for impairment at the reporting unit level at least annually or whenever events
or changes in circumstances indicate the carrying value may not be recoverable. Factors considered
include significant underperformance relative to historical or projected business and significant
negative industry or economic trends. Goodwill impairment is evaluated using a two-step approach
requiring us to compute the fair value of a reporting unit (generally at the theatre level), 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 value is
estimated based on a multiple of cash flows, which was seven times for 2005 and eight times for the
evaluations performed during 2006 and 2007. Significant judgment is involved in estimating cash
flows and fair value. Managements estimates are based on historical and projected operating
performance as well as recent market transactions. We allocate goodwill at the theatre level. This
results in more volatile impairment charges on an annual basis due to changes in market conditions
and box office performance and the resulting impact on individual theatres.
We recorded asset impairment charges, including goodwill impairment charges, of $9.7 million,
$5.7 million, $23.3 million and $86.6 million for the year ended December 31, 2005, the period
from January 1, 2006 to October 4, 2006, the period from October 5, 2006 to December 31, 2006 and
the year ended December 31, 2007, 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 9 and 10 to the consolidated financial
statements.
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.
Item 2. Properties
United States
As of December 31, 2007, we operated 244 theatres, with 3,047 screens, pursuant to leases and
own the land and building for 43 theatres, with 607 screens, in the U.S. During 2007, we opened 13
new theatres with 201 screens. 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, 2007,
approximately 10% of our theatre leases in the U.S., covering 25
theatres with 205 screens, have
remaining terms, including optional renewal periods, of less than five years. Approximately 13% of
our theatre leases in the U.S., covering 31 theatres with 275 screens, have remaining terms,
including optional renewal periods, of between six and 15 years and approximately 77% of our
theatre leases in the U.S., covering 188 theatres with 2,567 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 office.
International
As of December 31, 2007, internationally, we operated 121 theatres, with 1,011 screens, all of
which are leased pursuant to ground or building leases. In 2007, we opened seven new theatres with
56 screens in Latin America. 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. Three international
theatres with 26 screens have a remaining term, including optional renewal periods, of less than
five years. Approximately 27% of our international theatre leases, covering 33 theatres and 278
screens, have remaining terms, including optional renewal periods, of between six and 15 years and
approximately 70% of our international theatre leases, covering 85 theatres and 707 screens, have
remaining terms, including optional renewal periods, of more than 15 years.
16
See Note 20 to the consolidated financial statements for information regarding our domestic
and international 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.
Item 3. 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 are 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 must be completed by November 2009. We are currently in compliance
with the consent order. Upon completion of these modifications, these theatres will 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. 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, most 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.
17
PART II
Item 5. Market for Registrants Common Equity and Related Stockholder Matters
Market Information and Holder
There is no established public trading market for our common stock. As of December 31, 2007,
we had 27,896,316 shares of Class A common stock outstanding, all of which were held by Cinemark
Holdings, Inc.
Dividends
We have never declared or paid any dividends on our common stock. Our ability to pay dividends
is limited by the terms of our indentures and Cinemark USA, Incs senior secured credit facility,
which restrict our ability to pay dividends and the ability of certain of our subsidiaries to pay
dividends. 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 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.
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, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
|
|
|
|
Securities Remaining |
|
|
Number of |
|
Weighted |
|
Available for Future |
|
|
Securities to be |
|
Average Exercise |
|
Issuance Under |
|
|
Issued upon |
|
Price of |
|
Equity |
|
|
Exercise of |
|
Outstanding |
|
Compensation Plans |
|
|
Outstanding |
|
Options, |
|
(Excluding |
|
|
Options, Warrants |
|
Warrants and |
|
Securities Reflected |
Plan Category |
|
and Rights |
|
Rights |
|
in the First Column) |
Equity compensation plans approved by security holders |
|
|
6,323,429 |
|
|
$ |
7.63 |
|
|
|
2,202,700 |
|
Equity compensation plans not approved by security holders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
6,323,429 |
|
|
$ |
7.63 |
|
|
|
2,202,700 |
|
|
|
|
18
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.
Overview
On April 2, 2004, an affiliate of MDP acquired approximately 83% of our capital stock,
pursuant to which a newly formed subsidiary owned by an affiliate of MDP was merged with and into
us with our company continuing as the surviving corporation. Lee Roy Mitchell, Chairman and then
Chief Executive Officer, the Mitchell Special Trust, and certain members of management collectively
retained a minority ownership interest in our company. In December 2004, MDP sold a portion of its
stock in our company to outside investors and in July 2005, we issued additional shares to another
outside investor.
Cinemark Holdings, Inc. was formed on August 2, 2006. On August 7, 2006, our stockholders
entered into a share exchange agreement pursuant to which they agreed to exchange their shares of
Class A common stock for an equal number of shares of common stock of Cinemark Holdings, Inc. (the
Cinemark Share Exchange). The Cinemark Share Exchange and the Century Acquisition were completed on
October 5, 2006. The Century Acquisition is reflected in our historical financial information from
October 5, 2006. On October 5, 2006, Cinemark, Inc. became a wholly owned subsidiary of Cinemark
Holdings, Inc.
Due to a change in reporting entity that occurred as a result of the Cinemark Share Exchange,
Cinemark Holdings, Inc.s accounting basis was pushed down to us as of the date of the Cinemark
Share Exchange. Our financial statements are reflective of our historical basis for periods prior
to the Cinemark Share Exchange, referred to as predecessor, and are reflective of the new basis for
periods subsequent to the Cinemark Share Exchange, referred to as successor.
As of December 31, 2007, we managed our business under two operating
segments U.S.
markets and international markets, in accordance with SFAS No. 131
Disclosures
about Segments of an Enterprise and Related Information. See Note 21 to the consolidated financial statements.
We have prepared our discussion and analysis of the results of operations for the year ended
December 31, 2007 (successor) by comparing those results with the results of operations for the
period from January 1, 2006 to October 4, 2006 (predecessor) combined with the results of
operations for the period from October 5, 2006 to December 31, 2006 (successor). Although this
combined presentation does not comply with GAAP, we believe this presentation provides a meaningful
method of comparison of the 2007 and 2006 results.
19
Results of Operations
On October 5, 2006, we completed our acquisition of Century Theatres, Inc. Results of
operations for the year ended December 31, 2006 reflect the inclusion of the Century theatres
beginning on the date of acquisition.
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, |
|
|
2006 |
|
2007 |
Operating data (in millions): |
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
Admissions |
|
$ |
760.3 |
|
|
$ |
1,087.5 |
|
Concession |
|
|
375.8 |
|
|
|
516.5 |
|
Other |
|
|
84.5 |
|
|
|
78.8 |
|
|
|
|
Total revenues |
|
$ |
1,220.6 |
|
|
$ |
1,682.8 |
|
|
|
|
Theatre operating costs(2)
|
|
|
|
|
|
|
|
|
Film rentals and advertising |
|
$ |
406.0 |
|
|
$ |
589.7 |
|
Concession supplies |
|
|
59.0 |
|
|
|
81.1 |
|
Salaries and wages |
|
|
118.6 |
|
|
|
173.3 |
|
Facility lease expense |
|
|
157.8 |
|
|
|
212.7 |
|
Utilities and other |
|
|
144.8 |
|
|
|
191.3 |
|
|
|
|
Total theatre operating costs |
|
$ |
886.2 |
|
|
$ |
1,248.1 |
|
|
|
|
Operating data as a percentage of total revenues: |
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
Admissions |
|
|
62.3 |
% |
|
|
64.6 |
% |
Concession |
|
|
30.8 |
|
|
|
30.7 |
|
Other |
|
|
6.9 |
|
|
|
4.7 |
|
|
|
|
Total revenues |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
Theatre operating costs(1)(2) |
|
|
|
|
|
|
|
|
Film rentals and advertising |
|
|
53.4 |
% |
|
|
54.2 |
% |
Concession supplies |
|
|
15.7 |
|
|
|
15.7 |
|
Salaries and wages |
|
|
9.7 |
|
|
|
10.3 |
|
Facility lease expense |
|
|
12.9 |
|
|
|
12.6 |
|
Utilities and other |
|
|
11.9 |
|
|
|
11.4 |
|
Total theatre operating costs |
|
|
72.6 |
% |
|
|
74.2 |
% |
|
|
|
Average screen count (month end average) |
|
|
3,628 |
|
|
|
4,558 |
|
|
|
|
Revenues per average screen |
|
$ |
336,437 |
|
|
$ |
369,200 |
|
|
|
|
|
|
|
(1) |
|
All costs are expressed as a percentage of total revenues, except film rentals
and advertising, which are expressed as a percentage of admissions revenues, and concession
supplies, which are expressed as a percentage of concession revenues. |
|
(2) |
|
Excludes depreciation and amortization expense. |
20
Comparison of Years Ended December 31, 2007 and December 31, 2006
Revenues. Total revenues increased $462.2 million to $1,682.8 million for 2007 from $1,220.6
million for 2006, representing a 37.9% increase. The table below, presented by reportable operating
segment, summarizes our year-over-year revenue performance and certain key performance indicators
that impact our revenues.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Operating Segment |
|
International Operating Segment |
|
Consolidated |
|
|
Year Ended |
|
|
|
|
|
Year Ended |
|
|
|
|
|
Year Ended |
|
|
|
|
December 31, |
|
% |
|
December 31, |
|
% |
|
December 31, |
|
% |
|
|
2006 |
|
2007 |
|
Change |
|
2006 |
|
2007 |
|
Change |
|
2006 |
|
2007 |
|
Change |
Admissions revenues (in millions) |
|
$ |
577.9 |
|
|
$ |
879.1 |
|
|
|
52.1 |
% |
|
$ |
182.4 |
|
|
$ |
208.4 |
|
|
|
14.3 |
% |
|
$ |
760.3 |
|
|
$ |
1,087.5 |
|
|
|
43.0 |
% |
Concession revenues (in millions) |
|
$ |
297.4 |
|
|
$ |
424.4 |
|
|
|
42.7 |
% |
|
$ |
78.4 |
|
|
$ |
92.1 |
|
|
|
17.5 |
% |
|
$ |
375.8 |
|
|
$ |
516.5 |
|
|
|
37.4 |
% |
Other revenues (in millions) (1) |
|
$ |
59.4 |
|
|
$ |
45.6 |
|
|
|
(23.2 |
)% |
|
$ |
25.1 |
|
|
$ |
33.2 |
|
|
|
32.3 |
% |
|
$ |
84.5 |
|
|
$ |
78.8 |
|
|
|
(6.7 |
)% |
Total revenues (in millions) (1) |
|
$ |
934.7 |
|
|
$ |
1,349.1 |
|
|
|
44.3 |
% |
|
$ |
285.9 |
|
|
$ |
333.7 |
|
|
|
16.7 |
% |
|
$ |
1,220.6 |
|
|
$ |
1,682.8 |
|
|
|
37.9 |
% |
Attendance (in millions) |
|
|
118.7 |
|
|
|
151.7 |
|
|
|
27.8 |
% |
|
|
59.6 |
|
|
|
61.0 |
|
|
|
2.3 |
% |
|
|
178.3 |
|
|
|
212.7 |
|
|
|
19.3 |
% |
Revenues per average screen (1) |
|
$ |
346,812 |
|
|
$ |
376,771 |
|
|
|
8.6 |
% |
|
$ |
306,459 |
|
|
$ |
341,451 |
|
|
|
11.4 |
% |
|
$ |
336,437 |
|
|
$ |
369,200 |
|
|
|
9.7 |
% |
|
|
|
(1) |
|
U.S. operating segment revenues include eliminations of intercompany transactions
with the international operating segment. See Note 21 of our consolidated financial
statements. |
|
|
Consolidated. The increase in admissions revenues of $327.2 million was attributable
to a 19.3% increase in attendance from 178.3 million patrons for 2006 to 212.7 million patrons
for 2007, which contributed $165.0 million, and a 20.0% increase in average ticket price from
$4.26 for 2006 to $5.11 for 2007, which contributed $162.2 million, and reflects the full year
of operations of the 77 Century theatres acquired during the fourth quarter of 2006. The
increase in concession revenues of $140.7 million was attributable to the 19.3% increase in
attendance, which contributed $84.5 million, and a 15.2% increase in concession revenues per
patron from $2.11 for 2006 to $2.43 for 2007, which contributed $56.2 million, and reflects
the full year of operations of the 77 Century theatres acquired during the fourth quarter of
2006. The increase in attendance was attributable to the additional attendance from the 77
Century theatres acquired, the solid slate of films released during 2007 and new theatre
openings. The increases in average ticket price and concession revenues per patron were due to
the higher ticket price structure at the 77 Century theatres acquired, price increases and
favorable exchange rates in certain countries in which we operate. The 6.7% decrease in other
revenues was primarily attributable to reduced screen advertising revenues earned under the
amended Exhibitor Services Agreement with NCM. See Note 6 to the consolidated financial
statements. |
|
|
|
U.S. The increase in admissions revenues of $301.2 million was attributable to a
27.8% increase in attendance from 118.7 million patrons for 2006 to 151.7 million patrons for
2007, which contributed $160.7 million, and a 18.9% increase in average ticket price from
$4.87 for 2006 to $5.79 for 2007, which contributed $140.5 million, and reflects the full year
of operations of the 77 Century theatres acquired during the fourth quarter of 2006. The
increase in concession revenues of $127.0 million was attributable to the 27.8% increase in
attendance, which contributed $82.6 million, and an 11.6% increase in concession revenues per
patron from $2.51 for 2006 to $2.80 for 2007, which contributed $44.4 million, and reflects
the full year of operations of the 77 Century theatres acquired during the fourth quarter of
2006. The increase in attendance was attributable to the additional attendance from the 77
Century theatres acquired, the solid slate of films released during 2007 and new theatre
openings. The increases in average ticket price and concession revenues per patron were due to
the higher ticket price structure at the 77 Century theatres acquired and price increases. The
23.2% decrease in other revenues was primarily attributable to reduced screen advertising
revenues earned under the amended Exhibitor Services Agreement with NCM. See Note 6 to the
consolidated financial statements. |
|
|
|
International. The increase in admissions revenues of $26.0 million was attributable
to a 2.3% increase in attendance from 59.6 million patrons for 2006 to 61.0 million patrons
for 2007, which contributed $4.3 million, and an 11.8% increase in average ticket price from
$3.06 for 2006 to $3.42 for 2007, which contributed $21.7 million. The increase in concession
revenues of $13.7 million was attributable to the 2.3% increase in attendance, which
contributed $1.9 million, and a 14.4% increase in concession revenues per patron from $1.32
for 2006 to $1.51 for 2007, which contributed $11.8 million. The increase in attendance was
primarily due to new theatre openings. The increases in average ticket price and concession
revenues per patron were due to price increases and favorable exchange rates in certain
countries in which we operate. |
21
Theatre Operating Costs (excludes depreciation and amortization expense). Theatre operating
costs were $1,248.1 million, or 74.2% of revenues, for 2007 compared to $886.2 million, or 72.6% of
revenues, for 2006. The table below, presented by reportable operating segment, summarizes our
year-over-year theatre operating costs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Operating |
|
|
|
|
U.S. Operating Segment |
|
Segment |
|
Consolidated |
|
|
Year Ended |
|
Year Ended |
|
Year Ended |
|
|
December 31, |
|
December 31, |
|
December 31, |
|
|
2006 |
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
2007 |
Film rentals and advertising |
|
$ |
315.4 |
|
|
$ |
485.2 |
|
|
$ |
90.6 |
|
|
$ |
104.5 |
|
|
$ |
406.0 |
|
|
$ |
589.7 |
|
Concession supplies |
|
|
38.7 |
|
|
|
57.8 |
|
|
|
20.3 |
|
|
|
23.3 |
|
|
$ |
59.0 |
|
|
$ |
81.1 |
|
Salaries and wages |
|
|
95.8 |
|
|
|
146.7 |
|
|
|
22.8 |
|
|
|
26.6 |
|
|
$ |
118.6 |
|
|
$ |
173.3 |
|
Facility lease expense |
|
|
114.5 |
|
|
|
161.7 |
|
|
|
43.3 |
|
|
|
51.0 |
|
|
$ |
157.8 |
|
|
$ |
212.7 |
|
Utilities and other |
|
|
108.3 |
|
|
|
149.0 |
|
|
|
36.5 |
|
|
|
42.3 |
|
|
$ |
144.8 |
|
|
$ |
191.3 |
|
|
|
|
Total theatre operating costs |
|
$ |
672.7 |
|
|
$ |
1,000.4 |
|
|
$ |
213.5 |
|
|
$ |
247.7 |
|
|
$ |
886.2 |
|
|
$ |
1,248.1 |
|
|
|
|
|
|
Consolidated. Film rentals and advertising costs were $589.7 million, or 54.2% of
admissions revenues, for 2007 compared to $406.0 million, or 53.4% of admissions revenues, for
2006. The increase in film rentals and advertising costs for 2007 of $183.7 million is due to
a $327.2 million increase in admissions revenues, which contributed $177.3 million, and an
increase in our film rental and advertising rate due to higher rates on certain blockbuster
sequels in 2007, which contributed $6.4 million. Concession supplies expense was $81.1
million, or 15.7% of concession revenues, for 2007 compared to $59.0 million, or 15.7% of
concession revenues, for 2006. The increase in concession supplies expense of $22.1 million is
primarily due to increased concession revenues. |
|
|
|
Salaries and wages increased to $173.3 million for 2007 from $118.6 million for 2006 primarily
due to the additional salaries and wages related to the 77 Century theatres, the increase in minimum wages in the U.S., and new theatre openings. Facility
lease expense increased to $212.7 million for 2007 from $157.8 million for 2006 primarily due to
the additional expense related to the 77 Century theatres, increased percentage rent related to
the increased revenues and new theatre openings. Utilities and other costs increased to $191.3
million for 2007 from $144.8 million for 2006 primarily due to the additional costs related to
the 77 Century theatres and new theatre openings. |
|
|
U.S. Film rentals and advertising costs were $485.2 million, or 55.2% of admissions
revenues, for 2007 compared to $315.4 million, or 54.6% of admissions revenues, for 2006. The
increase in film rentals and advertising costs for 2007 of $169.8 million is due to a $301.2
million increase in admissions revenues, which contributed $164.4 million, and an increase in
our film rentals and advertising rate due to higher rates on certain blockbuster sequels in
2007, which contributed $5.4 million. Concession supplies expense was $57.8 million, or 13.6%
of concession revenues, for 2007 compared to $38.7 million, or 13.0% of concession revenues,
for 2006. The increase in concession supplies expense of $19.1 million is due to increased
concession revenues, which contributed $16.6 million, and an increase in our concession
supplies rate, which contributed $2.5 million, both of which were attributable to the 77 Century theatres. |
Salaries and wages increased to $146.7 million for 2007 from $95.8 million for 2006 primarily
due to the additional salaries and wages related to the 77 Century theatres,
the increase in minimum wages in the U.S., and new theatre openings. Facility
lease expense increased to $161.7 million for 2007 from $114.5 million for 2006 primarily due to
the additional expense related to the 77 Century theatres and new theatre openings. Utilities and other costs increased to $149.0
million for 2007 from $108.3 million for 2006 primarily due to the additional costs related to
the 77 Century theatres and new theatre openings.
|
|
International. Film rentals and advertising costs were $104.5 million, or 50.1% of
admissions revenues, for 2007 compared to $90.6 million, or 49.7% of admissions revenues, for
2006. The increase in film rentals and advertising costs of $13.9 million is due to a $26.0
million increase in admissions revenues, which contributed $12.9 million and an increase in
our film rental and advertising rate, which contributed $1.0 million. Concession supplies
expense was $23.3 million, or 25.3% of concession revenues, for 2007 compared to $20.3
million, or 25.9% of concession revenues, for 2006. The increase in concession supplies
expense of $3.0 million is primarily due to increased concession revenues. |
22
Salaries and wages increased to $26.6 million for 2007 from $22.8 million for 2006 primarily due
to new theatre openings. Facility lease expense increased to $51.0 million for 2007 from $43.3
million for 2006 primarily due to increased percentage rent related to increased revenues and
new theatre openings. Utilities and other costs increased to $42.3 million for 2007 from $36.5
million for 2006 primarily due to higher utility costs at our existing theatres and new theatre
openings.
General and Administrative Expenses. General and administrative expenses increased to $78.9
million for 2007 from $67.8 million for 2006 primarily due to a $7.8 million increase in salaries
and wages, a $1.2 million increase in consulting fees, and a $2.5 million increase in service
charges related to increased credit card activity, all of which were
primarily a result of the 77 Century theatres.
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 on May 3, 2007 for a price of $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 22 to our consolidated financial statements.
Depreciation and Amortization. Depreciation and amortization expense, including amortization
of favorable leases, was $151.7 million for 2007 compared to $95.0 million for 2006 primarily due
to the Century Acquisition and new theatre openings.
Impairment of Long-Lived Assets. We recorded asset impairment charges on assets held and used
of $86.6 million for 2007 compared to $29.1 million for 2006. Impairment charges for 2007 and 2006
included the write-down of theatres to their fair values. 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. Impairment charges for
2006 consisted of $14.2 million of theatre properties, $13.6 million of goodwill associated with
theatre properties and $1.3 million of intangible assets associated with theatre properties. During
2006, we recorded $508.8 million of goodwill related to the push down of our parent companys
accounting basis (see Note 4 to the consolidated financial statements) and we recorded
approximately $658.5 million of goodwill as a result of the Century Acquisition. (see Note 5 to the
consolidated financial statements.) We record goodwill at the theatre level, which results in more
volatile impairment charges on an annual basis due to changes in market conditions and box office
performance and the resulting impact on individual theatres. Significant judgment is involved in
estimating cash flows and fair value. Managements estimates are based on historical and projected
operating performance as well as recent market transactions. See Notes 9 and 10 to our consolidated
financial statements.
(Gain) Loss on Sale of Assets and Other. We recorded a gain on sale of assets and other of
$3.0 million during 2007 compared to a loss on the sale of assets and other of $5.3 million during
2006. The gain recorded during 2007 primarily related to the sale of real property associated with
one theatre in the U.S. The loss recorded during 2006 primarily related to a loss on the exchange
of a theatre in the United States with a third party, lease termination fees and asset write-offs
incurred due to theatre closures and the retirement of certain theatre assets that were replaced.
Interest Expense. Interest costs incurred, including amortization of debt issue costs, was
$145.6 million for 2007 compared to $111.4 million for 2006. The increase was primarily due to the
financing associated with the Century Acquisition.
Gain on NCM Transaction. 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. during 2007.
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 6 to our consolidated financial statements.
Gain on Fandango Transaction. We recorded a gain of $9.2 million as a result of the sale of
our investment in stock of Fandango, Inc. See Note 8 to our consolidated financial statements.
Loss on Early Retirement of Debt. During 2007, we recorded a loss on early retirement of debt
of $13.5 million which was a result of the repurchase of $332.1 million aggregate principal amount
of our 9% senior subordinated notes and the repurchase of $69.2 million aggregate principal amount
at maturity of our 9 3/4% senior discount notes, all of which resulted in the write-off of
unamortized debt issue costs and the payment of premiums, fees and expenses. During 2006, we
recorded a loss on early retirement of debt of $9.1 million which was a result of the refinancing
associated with
23
the Century Acquisition, the repurchase of $10.0 million aggregate principal amount of
Cinemark USA, Inc.s 9% senior subordinated notes, and the repurchase of $39.8 million aggregate
principal amount at maturity of our 9 3/4% senior discount notes, all of which resulted in the
write-off of unamortized debt issue costs and the payment of fees and expenses. See Notes 5 and 12
to our consolidated financial statements.
Distributions from NCM. We recorded distributions received from NCM of $11.5 million during
2007, which were in excess of the carrying value of our investment. See Note 6 to our consolidated
financial statements.
Income Taxes. Income tax expense of $109.5 million was recorded for 2007 compared to $12.2
million recorded for 2006. The effective tax rate of 56.3% 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
41.8%. The effective tax rate for 2006 reflects the impact of purchase accounting adjustments
resulting from the Century Acquisition and related goodwill impairment charges resulting from the
MDP merger. See Notes 5 and 19 to our consolidated financial statements.
Item 8. 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.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
24
Item 9A (T). Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of December 31, 2007, 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, 2007, 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, 2007 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, 2007, our
internal control over financial reporting is effective.
Changes in Internal Control Over Financial Reporting
There were 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 was
conducted during the quarter ended December 31, 2007 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 error and 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.
25
PART III
Item 14. Principal Accounting Fees and Services
For the years ended December 31, 2006 and 2007, Deloitte & Touche, LLP, our independent
auditor, billed the aggregate fees listed in the table below (in millions):
|
|
|
|
|
|
|
|
|
Fees |
|
2006 |
|
2007 |
Audit |
|
$ |
0.8 |
|
|
$ |
1.5 |
|
Audit Related |
|
|
0.1 |
|
|
|
0.1 |
|
Tax (1) |
|
|
0.1 |
|
|
|
0.2 |
|
Other (2) |
|
|
|
|
|
|
1.7 |
|
|
|
|
Total |
|
$ |
1.0 |
|
|
$ |
3.5 |
|
|
|
|
|
|
|
(1) |
|
Fees for assistance with our federal, state, local and foreign jurisdiction income tax
returns and consultation and advice related to various tax compliance planning projects. |
|
(2) |
|
Fees for review of our SEC filings associated with the Century Acquisition and Cinemark
Holdings, Inc.s initial public offering. |
PART IV
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
See the accompanying Index beginning on page F-1 for a list of the financial statements
included in this report.
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.
26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
|
|
|
|
|
|
Dated: March 28, 2008 |
|
CINEMARK, INC. |
|
|
|
|
|
|
|
|
|
|
|
BY:
|
|
/s/ Alan W. Stock
Alan W. Stock
|
|
|
|
|
|
|
Chief Executive Officer |
|
|
|
|
|
|
|
|
|
|
|
BY:
|
|
/s/ Robert Copple
Robert Copple
|
|
|
|
|
|
|
Chief Financial Officer and |
|
|
|
|
|
|
Principal Accounting Officer |
|
|
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.
|
|
|
|
|
Name |
|
Title |
|
Date |
/s/ Lee Roy Mitchell |
|
|
|
|
|
|
Chairman
of the Board of Directors and Director
|
|
March 28, 2008 |
|
|
|
|
|
/s/ Alan W. Stock
Alan W. Stock
|
|
Chief Executive Officer
(principal executive officer)
|
|
March 28, 2008 |
|
|
|
|
|
/s/ Robert Copple
Robert Copple
|
|
Executive Vice President; Treasurer and Chief
Financial Officer (principal financial and
accounting officer)
|
|
March 28, 2008 |
|
|
|
|
|
/s/ Benjamin D. Chereskin |
|
|
|
|
|
|
Director
|
|
March 28, 2008 |
|
|
|
|
|
/s/ Vahe A. Dombalagian |
|
|
|
|
|
|
Director
|
|
March 28, 2008 |
|
|
|
|
|
/s/ Peter R. Ezersky |
|
|
|
|
|
|
Director
|
|
March 28, 2008 |
|
|
|
|
|
/s/ Enrique F. Senior |
|
|
|
|
|
|
Director
|
|
March 28, 2008 |
|
|
|
|
|
/s/ Raymond W. Syufy |
|
|
|
|
|
|
Director
|
|
March 28, 2008 |
|
|
|
|
|
/s/ Carlos M. Sepulveda |
|
|
|
|
|
|
Director
|
|
March 28, 2008 |
|
|
|
|
|
/s/ Roger T. Staubach |
|
|
|
|
|
|
Director
|
|
March 28, 2008 |
|
|
|
|
|
/s/ Donald G. Soderquist |
|
|
|
|
|
|
Director
|
|
March 28, 2008 |
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
|
|
|
|
|
|
|
Page |
CINEMARK, INC. AND SUBSIDIARIES |
|
|
|
|
CONSOLIDATED FINANCIAL STATEMENTS: |
|
|
|
|
|
|
|
F-2 |
|
|
|
|
F-3 |
|
|
|
|
F-4 |
|
|
|
|
F-5 |
|
|
|
|
F-6 |
|
|
|
|
F-7 |
|
|
|
|
|
|
FINANCIAL STATEMENTS OF 50-PERCENT-OR-LESS-OWNED INVESTEE |
|
|
F-39 |
|
|
|
|
|
|
|
|
|
S-1 |
|
|
|
|
S-2 |
|
|
|
|
S-3 |
|
|
|
|
S-4 |
|
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Cinemark, Inc.
Plano, Texas
We have audited the accompanying consolidated balance sheets of Cinemark, Inc. and
subsidiaries (the Company) as of December 31, 2006 (Successor) and 2007 (Successor), and the
related consolidated statements of operations, stockholders equity (deficiency) and comprehensive
income (loss), and cash flows for the year ended December 31, 2005 (Predecessor), the period from
January 1, 2006 to October 4, 2006 (Predecessor), the period from October 5, 2006 to December 31,
2006 (Successor), and the year ended December 31, 2007 (Successor). These financial statements are
the responsibility of the Companys management. Our responsibility is to express an opinion on
these financial statements 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. The Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Companys internal control over financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, 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, Inc. and subsidiaries as of December 31, 2006
(Successor) and 2007 (Successor), and the results of their operations and their cash flows for the
year ended December 31, 2005 (Predecessor), the period from January 1, 2006 to October 4, 2006
(Predecessor), the period from October 5, 2006 to December 31, 2006 (Successor), and the year
ended December 31, 2007 (Successor), in conformity with accounting principles generally accepted in
the United States of America.
Our audits were conducted for the purpose of forming an opinion on the basic consolidated
financial statements taken as a whole. The supplemental schedules listed in the index to the
consolidated financial statements on page F-1 are presented for the purpose of additional analysis
and are not a required part of the basic consolidated financial statements. These schedules are
the responsibility of the Companys management. Such schedules have been subjected to the auditing
procedures applied in our audits of the basic consolidated financial statements and, in our
opinion, are fairly stated in all material respects when considered in relation to the basic
consolidated financial statements taken as a whole.
As discussed in Note 1 to the consolidated financial statements, in 2007 the Company changed
its method of accounting for uncertainty in income taxes to adopt Financial Acccounting Standards
Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes an interpretation of
SFAS No. 109.
/s/ Deloitte & Touche LLP
Dallas, Texas
March 24, 2008
F-2
CINEMARK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2006 |
|
|
2007 |
|
|
|
(Successor) |
|
|
(Successor) |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
147,099 |
|
|
$ |
233,402 |
|
Inventories |
|
|
6,058 |
|
|
|
7,000 |
|
Accounts receivable |
|
|
31,165 |
|
|
|
34,832 |
|
Income tax receivable |
|
|
8,946 |
|
|
|
18,422 |
|
Current deferred tax asset |
|
|
4,661 |
|
|
|
5,215 |
|
Prepaid expenses and other |
|
|
8,424 |
|
|
|
10,070 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
206,353 |
|
|
|
308,941 |
|
|
|
|
|
|
|
|
|
|
THEATRE PROPERTIES AND EQUIPMENT |
|
|
|
|
|
|
|
|
Land |
|
|
104,578 |
|
|
|
97,532 |
|
Buildings |
|
|
420,642 |
|
|
|
389,581 |
|
Property under capital lease |
|
|
143,776 |
|
|
|
178,347 |
|
Theatre furniture and equipment |
|
|
517,054 |
|
|
|
558,483 |
|
Leasehold interests and improvements |
|
|
490,861 |
|
|
|
572,081 |
|
Theatres under construction |
|
|
18,113 |
|
|
|
22,481 |
|
|
|
|
|
|
|
|
Total |
|
|
1,695,024 |
|
|
|
1,818,505 |
|
Less accumulated depreciation and amortization |
|
|
370,452 |
|
|
|
504,439 |
|
|
|
|
|
|
|
|
Theatre properties and equipment, net |
|
|
1,324,572 |
|
|
|
1,314,066 |
|
|
|
|
|
|
|
|
|
|
OTHER ASSETS |
|
|
|
|
|
|
|
|
Goodwill |
|
|
1,205,423 |
|
|
|
1,134,689 |
|
Intangible assets net |
|
|
360,752 |
|
|
|
353,047 |
|
Investments in and advances to affiliates |
|
|
11,354 |
|
|
|
5,071 |
|
Deferred charges and other assets net |
|
|
63,092 |
|
|
|
77,393 |
|
|
|
|
|
|
|
|
Total other assets |
|
|
1,640,621 |
|
|
|
1,570,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
3,171,546 |
|
|
$ |
3,193,207 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
|
|
|
|
Current portion of long-term debt |
|
$ |
14,259 |
|
|
$ |
9,166 |
|
Current portion of capital lease obligations |
|
|
3,649 |
|
|
|
4,684 |
|
Accounts payable |
|
|
47,272 |
|
|
|
50,977 |
|
Accrued film rentals |
|
|
47,862 |
|
|
|
42,140 |
|
Accrued interest |
|
|
23,706 |
|
|
|
8,735 |
|
Accrued payroll |
|
|
21,686 |
|
|
|
21,614 |
|
Accrued property taxes |
|
|
22,165 |
|
|
|
23,031 |
|
Accrued other current liabilities |
|
|
50,223 |
|
|
|
57,830 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
230,822 |
|
|
|
218,177 |
|
|
|
|
|
|
|
|
|
|
LONG-TERM LIABILITIES |
|
|
|
|
|
|
|
|
Long-term debt, less current portion |
|
|
1,897,394 |
|
|
|
1,514,579 |
|
Capital lease obligations, less current portion |
|
|
112,178 |
|
|
|
116,486 |
|
Deferred income taxes |
|
|
198,320 |
|
|
|
168,475 |
|
Long-term portion FIN 48 liability |
|
|
|
|
|
|
15,500 |
|
Deferred lease expenses |
|
|
14,285 |
|
|
|
19,235 |
|
Deferred revenue NCM |
|
|
|
|
|
|
172,696 |
|
Deferred revenues and other long-term liabilities |
|
|
12,672 |
|
|
|
36,214 |
|
|
|
|
|
|
|
|
Total long-term liabilities |
|
|
2,234,849 |
|
|
|
2,043,185 |
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES (see Note 20) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MINORITY INTERESTS IN SUBSIDIARIES |
|
|
16,613 |
|
|
|
16,182 |
|
|
|
|
|
|
|
|
|
|
STOCKOLDERS EQUITY |
|
|
|
|
|
|
|
|
Class A common stock, $0.001 par value: 40,000,000 shares authorized,
27,896,316 outstanding at December 31, 2006 and December 31, 2007 |
|
|
28 |
|
|
|
28 |
|
Additional paid-in-capital |
|
|
685,463 |
|
|
|
806,742 |
|
Retained earnings (deficit) |
|
|
(7,692 |
) |
|
|
76,198 |
|
Accumulated other comprehensive income |
|
|
11,463 |
|
|
|
32,695 |
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
689,262 |
|
|
|
915,663 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
|
$ |
3,171,546 |
|
|
$ |
3,193,207 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
F-3
CINEMARK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2005 AND THE PERIODS FROM JANUARY 1, 2006 TO OCTOBER 4, 2006 AND
OCTOBER 5, 2006 TO DECEMBER 31, 2006 AND THE YEAR ENDED DECEMBER 31, 2007
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
January 1, 2006 to |
|
|
|
October 5, 2006 to |
|
|
Year Ended |
|
|
|
December 31, 2005 |
|
|
October 4, 2006 |
|
|
|
December 31, 2006 |
|
|
December 31, 2007 |
|
|
|
(Predecessor) |
|
|
(Predecessor) |
|
|
|
(Successor) |
|
|
(Successor) |
|
REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Admissions |
|
$ |
641,240 |
|
|
$ |
514,183 |
|
|
|
$ |
246,092 |
|
|
$ |
1,087,480 |
|
Concession |
|
|
320,072 |
|
|
|
260,223 |
|
|
|
|
115,575 |
|
|
|
516,509 |
|
Other |
|
|
59,285 |
|
|
|
54,683 |
|
|
|
|
29,838 |
|
|
|
78,852 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
1,020,597 |
|
|
|
829,089 |
|
|
|
|
391,505 |
|
|
|
1,682,841 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST OF OPERATIONS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Film rentals and advertising |
|
|
347,727 |
|
|
|
275,005 |
|
|
|
|
130,982 |
|
|
|
589,717 |
|
Concession supplies |
|
|
52,507 |
|
|
|
41,863 |
|
|
|
|
17,157 |
|
|
|
81,074 |
|
Salaries and wages |
|
|
101,431 |
|
|
|
79,002 |
|
|
|
|
39,614 |
|
|
|
173,290 |
|
Facility lease expense |
|
|
136,593 |
|
|
|
109,513 |
|
|
|
|
48,246 |
|
|
|
212,730 |
|
Utilities and other |
|
|
123,831 |
|
|
|
100,924 |
|
|
|
|
43,884 |
|
|
|
191,279 |
|
General and administrative expenses |
|
|
50,884 |
|
|
|
45,958 |
|
|
|
|
21,810 |
|
|
|
78,916 |
|
Termination of profit participation agreement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,952 |
|
Depreciation and amortization |
|
|
76,229 |
|
|
|
59,913 |
|
|
|
|
34,281 |
|
|
|
148,781 |
|
Amortization of favorable leases |
|
|
232 |
|
|
|
130 |
|
|
|
|
667 |
|
|
|
2,935 |
|
Impairment of long-lived assets |
|
|
9,672 |
|
|
|
5,741 |
|
|
|
|
23,337 |
|
|
|
86,558 |
|
(Gain) loss on sale of assets and other |
|
|
2,625 |
|
|
|
2,938 |
|
|
|
|
2,345 |
|
|
|
(2,953 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of operations |
|
|
901,731 |
|
|
|
720,987 |
|
|
|
|
362,323 |
|
|
|
1,569,279 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME |
|
|
118,866 |
|
|
|
108,102 |
|
|
|
|
29,182 |
|
|
|
113,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(86,867 |
) |
|
|
(69,191 |
) |
|
|
|
(42,220 |
) |
|
|
(145,596 |
) |
Interest income |
|
|
6,600 |
|
|
|
5,563 |
|
|
|
|
1,477 |
|
|
|
11,271 |
|
Gain on NCM transaction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
210,773 |
|
Gain on Fandango transaction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,205 |
|
Foreign currency exchange gain (loss) |
|
|
(1,276 |
) |
|
|
94 |
|
|
|
|
(352 |
) |
|
|
438 |
|
Loss on early retirement of debt |
|
|
(46 |
) |
|
|
(3,315 |
) |
|
|
|
(5,782 |
) |
|
|
(13,456 |
) |
Distributions from NCM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,499 |
|
Dividend income |
|
|
|
|
|
|
101 |
|
|
|
|
|
|
|
|
50 |
|
Equity in income (loss) of affiliates |
|
|
227 |
|
|
|
(1,800 |
) |
|
|
|
154 |
|
|
|
(2,462 |
) |
Minority interests in (income) loss of subsidiaries |
|
|
(924 |
) |
|
|
(1,790 |
) |
|
|
|
321 |
|
|
|
(792 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense) |
|
|
(82,286 |
) |
|
|
(70,338 |
) |
|
|
|
(46,402 |
) |
|
|
80,930 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME TAXES |
|
|
36,580 |
|
|
|
37,764 |
|
|
|
|
(17,220 |
) |
|
|
194,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes |
|
|
14,193 |
|
|
|
9,078 |
|
|
|
|
3,111 |
|
|
|
109,509 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) |
|
$ |
22,387 |
|
|
$ |
28,686 |
|
|
|
$ |
(20,331 |
) |
|
$ |
84,983 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
F-4
CINEMARK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIENCY) AND COMPREHENSIVE INCOME (LOSS)
YEAR ENDED DECEMBER 31, 2005 AND THE PERIODS FROM JANUARY 1, 2006 TO OCTOBER 4, 2006 AND
OCTOBER 5, 2006 TO DECEMBER 31, 2006 AND THE YEAR ENDED DECEMBER 31, 2007
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A |
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
Additional |
|
|
Retained |
|
|
Other |
|
|
|
|
|
|
|
|
|
|
Shares |
|
|
|
|
|
|
Paid-in |
|
|
Earnings |
|
|
Comprehensive |
|
|
|
|
|
|
Comprehensive |
|
|
|
Issued |
|
|
Amount |
|
|
Capital |
|
|
(Deficit) |
|
|
Income (Loss) |
|
|
Total |
|
|
Income (Loss) |
|
|
|
|
|
|
|
Predecessor balance at January 1, 2005 |
|
|
27,675 |
|
|
$ |
28 |
|
|
$ |
599,525 |
|
|
$ |
(725,155 |
) |
|
$ |
(77,122 |
) |
|
$ |
(202,724 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,387 |
|
|
|
|
|
|
|
22,387 |
|
|
$ |
22,387 |
|
Issuance of stock |
|
|
221 |
|
|
|
|
|
|
|
5,000 |
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
|
|
Tax adjustment related to Recapitalization fees |
|
|
|
|
|
|
|
|
|
|
(82 |
) |
|
|
|
|
|
|
|
|
|
|
(82 |
) |
|
|
|
|
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,937 |
|
|
|
16,937 |
|
|
|
16,937 |
|
|
|
|
|
|
|
Predecessor balance at December 31, 2005 |
|
|
27,896 |
|
|
$ |
28 |
|
|
$ |
604,443 |
|
|
$ |
(702,768 |
) |
|
$ |
(60,185 |
) |
|
$ |
(158,482 |
) |
|
$ |
39,324 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,686 |
|
|
|
|
|
|
|
28,686 |
|
|
$ |
28,686 |
|
Share based awards compensation expense |
|
|
|
|
|
|
|
|
|
|
2,148 |
|
|
|
|
|
|
|
|
|
|
|
2,148 |
|
|
|
|
|
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,872 |
|
|
|
3,872 |
|
|
|
3,872 |
|
|
|
|
|
|
|
Predecessor balance at October 4, 2006 |
|
|
27,896 |
|
|
$ |
28 |
|
|
$ |
606,591 |
|
|
$ |
(674,082 |
) |
|
$ |
(56,313 |
) |
|
$ |
(123,776 |
) |
|
$ |
32,558 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor balance at October 5, 2006 |
|
|
27,896 |
|
|
$ |
28 |
|
|
$ |
534,747 |
|
|
$ |
12,639 |
|
|
$ |
(734 |
) |
|
$ |
546,680 |
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,331 |
) |
|
|
|
|
|
|
(20,331 |
) |
|
$ |
(20,331 |
) |
Capital contribution from Cinemark Holdings, Inc. |
|
|
|
|
|
|
|
|
|
|
150,000 |
|
|
|
|
|
|
|
|
|
|
|
150,000 |
|
|
|
|
|
Share based awards compensation expense |
|
|
|
|
|
|
|
|
|
|
716 |
|
|
|
|
|
|
|
|
|
|
|
716 |
|
|
|
|
|
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,197 |
|
|
|
12,197 |
|
|
|
12,197 |
|
|
|
|
|
|
|
Successor balance at December 31, 2006 |
|
|
27,896 |
|
|
$ |
28 |
|
|
$ |
685,463 |
|
|
$ |
(7,692 |
) |
|
$ |
11,463 |
|
|
$ |
689,262 |
|
|
$ |
(8,134 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84,983 |
|
|
|
|
|
|
|
84,983 |
|
|
$ |
84,983 |
|
Capital contributions from Cinemark Holdings, Inc. |
|
|
|
|
|
|
|
|
|
|
117,045 |
|
|
|
|
|
|
|
|
|
|
|
117,045 |
|
|
|
|
|
Tax adjustment related to the adoption of FIN48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,093 |
) |
|
|
|
|
|
|
(1,093 |
) |
|
|
|
|
Share based awards compensation expense |
|
|
|
|
|
|
|
|
|
|
2,881 |
|
|
|
|
|
|
|
|
|
|
|
2,881 |
|
|
|
|
|
Tax benefit related to stock option exercises |
|
|
|
|
|
|
|
|
|
|
1,353 |
|
|
|
|
|
|
|
|
|
|
|
1,353 |
|
|
|
|
|
Fair value adjustment on interest rate swap agreements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,348 |
) |
|
|
(11,348 |
) |
|
|
(11,348 |
) |
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,580 |
|
|
|
32,580 |
|
|
|
32,580 |
|
|
|
|
|
|
|
Successor balance at December 31, 2007 |
|
|
27,896 |
|
|
$ |
28 |
|
|
$ |
806,742 |
|
|
$ |
76,198 |
|
|
$ |
32,695 |
|
|
$ |
915,663 |
|
|
$ |
106,215 |
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
F-5
CINEMARK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2005 AND THE PERIODS FROM JANUARY 1, 2006 TO OCTOBER 4, 2006 AND
OCTOBER 5, 2006 TO DECEMBER 31, 2006 AND THE YEAR ENDED DECEMBER 31, 2007
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
January 1, 2006 to |
|
|
|
October 5, 2006 to |
|
|
Year Ended |
|
|
|
December 31, 2005 |
|
|
October 4, 2006 |
|
|
|
December 31, 2006 |
|
|
December 31, 2007 |
|
|
|
(Predecessor) |
|
|
(Predecessor) |
|
|
|
(Successor) |
|
|
(Successor) |
|
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
22,387 |
|
|
$ |
28,686 |
|
|
|
$ |
(20,331 |
) |
|
$ |
84,983 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income (loss) to cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
73,796 |
|
|
|
58,564 |
|
|
|
|
33,241 |
|
|
|
144,629 |
|
Amortization of intangible and other assets |
|
|
2,665 |
|
|
|
1,479 |
|
|
|
|
1,707 |
|
|
|
7,087 |
|
Amortization of long-term prepaid rents |
|
|
1,258 |
|
|
|
816 |
|
|
|
|
197 |
|
|
|
1,146 |
|
Amortization of debt issue costs |
|
|
3,984 |
|
|
|
3,082 |
|
|
|
|
1,183 |
|
|
|
4,727 |
|
Amortization of deferred revenues, deferred lease incentives and other |
|
|
(963 |
) |
|
|
(582 |
) |
|
|
|
(71 |
) |
|
|
(2,508 |
) |
Amortization of debt premium |
|
|
(1,564 |
) |
|
|
(1,173 |
) |
|
|
|
(763 |
) |
|
|
(678 |
) |
Impairment of long-lived assets |
|
|
9,672 |
|
|
|
5,741 |
|
|
|
|
23,337 |
|
|
|
86,558 |
|
Share based awards compensation expense |
|
|
|
|
|
|
2,148 |
|
|
|
|
716 |
|
|
|
2,881 |
|
Gain on NCM transaction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(210,773 |
) |
Gain on Fandango transaction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,205 |
) |
(Gain) loss on sale of assets and other |
|
|
2,625 |
|
|
|
2,938 |
|
|
|
|
2,345 |
|
|
|
(2,953 |
) |
Write-off unamortized debt issue costs and debt premium
related to the early retirement of debt |
|
|
46 |
|
|
|
1,183 |
|
|
|
|
5,782 |
|
|
|
(15,661 |
) |
Accretion of interest on senior discount notes |
|
|
38,549 |
|
|
|
30,222 |
|
|
|
|
10,203 |
|
|
|
41,423 |
|
Deferred lease expenses |
|
|
1,556 |
|
|
|
724 |
|
|
|
|
378 |
|
|
|
5,979 |
|
Deferred income tax expenses |
|
|
(7,547 |
) |
|
|
(7,986 |
) |
|
|
|
1,580 |
|
|
|
(34,614 |
) |
Equity in (income) loss of affiliates |
|
|
(227 |
) |
|
|
1,800 |
|
|
|
|
(154 |
) |
|
|
2,462 |
|
Minority interests in income (loss) of subsidiaries |
|
|
924 |
|
|
|
1,790 |
|
|
|
|
(321 |
) |
|
|
792 |
|
Tax benefit related to stock option exercises |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,353 |
|
Other |
|
|
202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories |
|
|
(309 |
) |
|
|
274 |
|
|
|
|
513 |
|
|
|
(942 |
) |
Accounts receivable |
|
|
(4,102 |
) |
|
|
(9,174 |
) |
|
|
|
(710 |
) |
|
|
(3,667 |
) |
Prepaid expenses and other |
|
|
(649 |
) |
|
|
(1,443 |
) |
|
|
|
3,121 |
|
|
|
(1,646 |
) |
Other assets |
|
|
(12,373 |
) |
|
|
(8,394 |
) |
|
|
|
4,812 |
|
|
|
(4 |
) |
Advances with affiliates |
|
|
(121 |
) |
|
|
(189 |
) |
|
|
|
81 |
|
|
|
(1,245 |
) |
Accounts payable and accrued liabilities |
|
|
14,082 |
|
|
|
(20,993 |
) |
|
|
|
21,075 |
|
|
|
1,977 |
|
Interest paid on repurchased senior discount notes |
|
|
|
|
|
|
(5,381 |
) |
|
|
|
|
|
|
|
(16,592 |
) |
Increase in deferrred revenues related to NCM transaction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
174,001 |
|
Increase in deferrred revenues related to Fandango transaction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
Other long-term liabilities |
|
|
1,198 |
|
|
|
484 |
|
|
|
|
5,250 |
|
|
|
1,323 |
|
Income tax receivable/payable |
|
|
20,181 |
|
|
|
(9,572 |
) |
|
|
|
(12,518 |
) |
|
|
58,282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
165,270 |
|
|
|
75,044 |
|
|
|
|
80,653 |
|
|
|
324,115 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to theatre properties and equipment |
|
|
(75,605 |
) |
|
|
(77,902 |
) |
|
|
|
(29,179 |
) |
|
|
(146,304 |
) |
Proceeds from sale of theatre properties and equipment |
|
|
1,317 |
|
|
|
1,236 |
|
|
|
|
5,210 |
|
|
|
37,532 |
|
Increase in escrow deposit due to like-kind exchange |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22,739 |
) |
Acquisition of Century Theatres, Inc., net of cash acquired |
|
|
|
|
|
|
|
|
|
|
|
(531,383 |
) |
|
|
|
|
Purchase of shares in National CineMedia |
|
|
(7,329 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
) |
Other |
|
|
|
|
|
|
271 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used for) investing activities |
|
|
(81,617 |
) |
|
|
(76,395 |
) |
|
|
|
(555,352 |
) |
|
|
93,178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock |
|
|
5,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital contribution from parent to fund retirement of senior discount notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63,694 |
|
Retirement of senior discount notes |
|
|
(1,302 |
) |
|
|
(24,950 |
) |
|
|
|
|
|
|
|
(43,136 |
) |
Retirement of senior subordinated notes |
|
|
|
|
|
|
(10,000 |
) |
|
|
|
|
|
|
|
(332,066 |
) |
Proceeds from senior secured credit facility |
|
|
|
|
|
|
|
|
|
|
|
1,120,000 |
|
|
|
|
|
Proceeds from other long-term debt |
|
|
660 |
|
|
|
2,273 |
|
|
|
|
57 |
|
|
|
|
|
Payoff of long-term debt assumed in Century acquisition |
|
|
|
|
|
|
|
|
|
|
|
(360,000 |
) |
|
|
|
|
Payoff of former senior secured credit facility |
|
|
|
|
|
|
|
|
|
|
|
(253,500 |
) |
|
|
|
|
Repayments of other long-term debt |
|
|
(6,671 |
) |
|
|
(5,009 |
) |
|
|
|
(3,886 |
) |
|
|
(19,438 |
) |
Payments on capital leases |
|
|
|
|
|
|
|
|
|
|
|
(839 |
) |
|
|
(3,759 |
) |
Debt issue costs |
|
|
(239 |
) |
|
|
|
|
|
|
|
(22,926 |
) |
|
|
|
|
Other |
|
|
(1,198 |
) |
|
|
(1,226 |
) |
|
|
|
(52 |
) |
|
|
(1,730 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used for) financing activities |
|
|
(3,750 |
) |
|
|
(38,912 |
) |
|
|
|
478,854 |
|
|
|
(336,435 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EFFECT OF EXCHANGE RATE CHANGES
ON CASH AND CASH EQUIVALENTS |
|
|
2,048 |
|
|
|
268 |
|
|
|
|
740 |
|
|
|
5,445 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
|
81,951 |
|
|
|
(39,995 |
) |
|
|
|
4,895 |
|
|
|
86,303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period |
|
|
100,248 |
|
|
|
182,199 |
|
|
|
|
142,204 |
|
|
|
147,099 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period |
|
$ |
182,199 |
|
|
$ |
142,204 |
|
|
|
$ |
147,099 |
|
|
$ |
233,402 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL INFORMATION (see Note 18)
The accompanying notes are an integral part of the consolidated financial statements.
F-6
CINEMARK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Cinemark, Inc. and subsidiaries (the Company) are leaders in the motion picture
exhibition industry in terms of both revenues and the number of screens in operation, with theatres
in the United States (U.S.), Canada, Mexico, Argentina, Brazil, Chile, Ecuador, Peru, Honduras,
El Salvador, Nicaragua, Costa Rica, Panama and Colombia. The Company also managed additional
theatres in the U.S., Canada, Brazil, and Colombia during the year ended December 31, 2007.
Basis of Presentation On August 2, 2006, Cinemark Holdings, Inc. was formed as the Delaware
holding company of Cinemark, Inc. On August 7, 2006, the Cinemark, Inc. stockholders entered into a
share exchange agreement pursuant to which they agreed to exchange their shares of Class A common
stock for an equal number of shares of common stock of Cinemark Holdings, Inc.(Cinemark Share
Exchange). The Cinemark Share Exchange was completed on October 5, 2006 and facilitated the
acquisition of Century Theatres, Inc. (Century Acquisition) on that date. On October 5, 2006,
Cinemark, Inc. became a wholly owned subsidiary of Cinemark Holdings, Inc.
Due to a change in reporting entity that occurred as a result of the Cinemark Share Exchange,
Cinemark Holdings, Inc.s accounting basis has been pushed down to the Company effective on the date of the
Cinemark Share Exchange, October 5, 2006. The accompanying consolidated statements of operations,
cash flows and stockholders equity (deficiency) present the results of the Companys operations
and cash flows for the periods preceding the Cinemark Share Exchange as Predecessor and the periods
subsequent to the Cinemark Share Exchange as Successor. See Note 4.
On April 24, 2007, the Companys parent, Cinemark Holdings, Inc. completed an initial public
offering of its common stock.
Principles of Consolidation The consolidated financial statements include the accounts of
Cinemark, Inc. and subsidiaries. Majority-owned subsidiaries that the Company has control of are
consolidated while those subsidiaries of which the Company owns between 20% and 50% and does not
control are accounted for as affiliates under the equity method. Those subsidiaries of which the
Company owns less than 20% are generally accounted for as affiliates 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. Significant 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, 2007, our 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 $74, $86, $0, and $618 of interest incurred during the development and
construction of theatres during the year ended December 31, 2005, the period from January 1, 2006
to October 4, 2006, the period from October 5, 2006 to December 31, 2006, and the year ended
December 31, 2007, 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 interests and improvements
|
|
Lesser of lease term or useful life |
In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets, the Company evaluates theatre properties and equipment for impairment in conjunction with
the preparation of its quarterly
F-7
CINEMARK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
consolidated financial statements or whenever events or changes in
circumstances indicate the carrying amount of the assets may not be fully recoverable. When
estimated cash flows will not be sufficient to recover a long-lived assets carrying amount, an
impairment review is performed in which the Company compares the carrying value of the asset group
(theatre) with its estimated fair value, which is determined based on a multiple of cash flows. The
multiple was eight times for the evaluations performed during 2007 and 2006 and seven times for
2005. 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 are based on
historical and projected operating performance as well as recent market transactions. See Note 10.
The Company has made certain reclassifications between the cost of theatre properties and
equipment and the related accumulated depreciation for the December 31, 2006 balance sheet. These
reclassifications were made to properly reflect the results of impairment charges recorded on such
assets. The impact on theatre properties and equipment, net as of December 31, 2006 was zero.
Goodwill and Other Intangible Assets Goodwill is the excess of cost over fair value of
theatre businesses acquired. In accordance with SFAS No. 142, Goodwill and Other Intangible
Assets, goodwill and tradename are tested for impairment at the reporting unit level at least
annually or whenever events or changes in circumstances indicate the carrying value may not be
recoverable. Factors considered include significant underperformance relative to historical or
projected business and significant negative industry or economic trends. Goodwill impairment is
evaluated using a two-step approach requiring the Company to compute the fair value of a reporting
unit (generally at the theatre level), and compare it with its carrying value. If the carrying
value of the theatre exceeds its fair value, a second step is performed to measure the potential
goodwill impairment. Fair value is estimated based on a multiple of cash flows. The multiple was
eight times for the goodwill impairment evaluations performed during 2007 and 2006 and seven times
for 2005. Significant judgment is involved in estimating cash flows and fair value. Managements
estimates are based on historical and projected operating performance as well as recent market
transactions. See Notes 9 and 10.
Intangible assets consist of goodwill, tradenames, capitalized licensing fees, vendor
contracts, net favorable leases, and other intangible assets. The table below summarizes 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 7 to 12 years. |
Vendor contracts
|
|
Straight-line method over the terms of the
underlying contracts. The remaining terms of
the underlying contracts range from 1 to 15
years. |
Net favorable 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 29 years. |
Other intangible assets
|
|
Straight-line method over the terms of the
underlying agreement. The remaining term of the
underlying agreement is 11 years. |
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 accounts for leased properties under the provisions of
Statement of Financial Accounting Standards (SFAS) No. 13, Accounting for Leases, and other
authoritative accounting literature. SFAS No. 13 requires that the Company evaluate each lease for
classification as either a capital lease or an operating lease. According to SFAS No. 13, if
substantially all of the benefits and risks of ownership have been transferred to the lessee, the
lessee 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, in accordance with Financial Accounting Standards Board (FASB)
Technical Bulletin 85-3,
F-8
CINEMARK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
Accounting for Operating Leases with Scheduled Rent Increases,
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. For leases in which the Company is involved with construction of the
theatre, the Company accounts for the lease during the construction period under the provisions of
Emerging Issues Task Force (EITF) 97-10, The Effect of Lessee Involvement in Asset
Construction. 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. In accordance with EITF 97-10, 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 considers SFAS No. 98, Accounting for Leases: Sale-leaseback
Transactions Involving Real Estate, to determine 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.
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 $3,374, $1,259, $3,162 and $3,975 during the year ended December 31, 2005, the period from
January 1, 2006 to October 4, 2006, the period from October 5, 2006 to December 31, 2006, and the
year ended December 31, 2007, 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 picture, or estimates of the final mutually agreed upon settlement, which occurs at
the conclusion of the picture run, subject to the film licensing arrangement. 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 higher than those estimated, additional film rental costs are
recorded at that time. The Company recognizes advertising costs and any sharing arrangements with
film distributors in the same accounting period. The Companys advertising costs are expensed as
incurred. Advertising expenses for the year ended December 31 2005, the period from January 1, 2006
to October 4, 2006, the period from October 5, 2006 to December 31, 2006, and the year ended
December 31, 2007, were $15,927, $11,285, $4,441 and $17,252, respectively.
Accounting for Share Based Awards In 2004, the Company established a new long term incentive
plan (see Note 17). The weighted average fair value per share of stock options granted by the
Company during 2004 was $7.63 (all of which had an exercise price equal to the market value at the
date of grant). For each 2004 grant, compensation expense under the fair value method of SFAS No.
123 was estimated on the date of grant using the Black-Scholes option-pricing model with the
following assumptions: dividend yield of 0 percent; an expected life of 6.5 years; expected
volatility of approximately 39 percent; and a risk-free interest
rate of 3.79 percent and the grant date fair
value per option was $3.51. The weighted
average fair value per share of stock options granted by the Company during 2005 was $7.63 (all of
which had an exercise price equal to the market value at the date of
grant). For the 2005 grant, compensation expense under the fair value method of
SFAS No. 123 was estimated on the date of grant using the Black-Scholes option-pricing model with
the following assumptions: dividend yield of 0 percent; an expected life of 6.5 years; expected
volatility of approximately
F-9
CINEMARK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
44 percent; and a risk-free interest rate of 3.93 percent and the grant
date fair value per option was $3.80. Forfeitures were estimated based on the Companys historical
stock option activity.
In December 2004, the FASB issued SFAS No. 123(R), Share Based Payment, which established
accounting standards for all transactions in which an entity exchanges its equity instruments for
goods and services. SFAS No. 123(R) eliminated the intrinsic value measurement objective in
Accounting Principles Board (APB) Opinion No. 25 and generally requires a Company to measure 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 standard requires grant date fair value to be
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 standard also requires a Company to estimate the number of instruments that will
ultimately be forfeited, rather than accounting for forfeitures as they occur.
The Company applied SFAS No. 123(R) using the modified prospective method, under which it
recognized compensation cost for all awards granted, modified or settled on or after January 1,
2006 and for the unvested portion of previously granted awards that were outstanding on January 1,
2006. Accordingly, prior periods have not been restated. The Company had approximately 4,554,253
unvested options outstanding on January 1, 2006. The Company recorded compensation expense of
$2,148 and a tax benefit of approximately $752 during the period from January 1, 2006 to October 4,
2006, compensation expense of $716 and a tax benefit of $251 during the period from October 5, 2006
to December 31, 2006 and recorded compensation expense of $2,881 and a tax benefit of approximately
$1,008 during the year ended December 31, 2007 related to these options. As of December 31, 2007,
the unrecognized compensation expense related to these options was $3,580 and the weighted average
period over which this remaining compensation expense will be recognized is approximately 1.25
years.
The Company applied Accounting Principles Board (APB) Opinion No. 25 and related
interpretations in accounting for its stock option plans prior to the adoption of SFAS No. 123(R).
Had compensation costs been determined based on the fair value at the date of grant for awards
under the stock option plans, consistent with the method of SFAS No. 123, Accounting for
Stock-Based Compensation and SFAS No. 148, Accounting for Stock-Based Compensation Transition and
Disclosure, the Companys net income for the year ended December 31, 2005 (predecessor) would have
been reduced to the pro-forma amount indicated below:
|
|
|
|
|
Net income as reported |
|
$ |
22,387 |
|
Compensation expense included in reported net income, net of tax |
|
|
|
|
Compensation expense under fair-value method, net of tax |
|
|
(2,964 |
) |
|
|
|
|
Pro-forma net income |
|
$ |
19,423 |
|
|
|
|
|
Income Taxes The Company participates in the consolidated tax return of its parent, Cinemark
Holdings, Inc. The Companys provision for income taxes is computed as if it were a separate
taxpayer. 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), which the Company adopted on January 1,
2007. FIN 48 clarifies the accounting and reporting for income taxes recognized in accordance with
SFAS No. 109, Accounting for Income Taxes, 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 in accordance with FIN 48 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
F-10
CINEMARK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
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) an increase in a liability for income taxes payable or
(2) a reduction of an income tax refund receivable or a reduction in a deferred tax asset or an
increase in a deferred tax liability or both (1) and (2).
Segments As of December 31, 2007, the Company managed its business under two reportable
operating segments, U.S. markets and international markets, in accordance with SFAS No. 131
Disclosures About Segments of an Enterprise and Related
Information. See Note 21.
Use of Estimates The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the periods
presented. Actual results could differ from those estimates.
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 as a separate component of stockholders equity.
Fair Values of Financial Instruments Fair values of financial instruments, including the
Companys interest rate swap agreements, are estimated by the Company using available market
information and other valuation methods. Values are based on available market quotes or estimates
using a discounted cash flow approach based on the interest rates currently available for similar
instruments. The fair values of financial instruments for which estimated fair value amounts are
not specifically presented are estimated to approximate the recorded values.
Acquisitions The Company accounts for acquisitions under the purchase method of accounting
in accordance with SFAS No. 141, Business Combinations. The purchase method requires that the
Company estimate the fair value of the assets acquired and liabilities assumed and allocate
consideration paid accordingly. 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.
Comprehensive Income (Loss) Total comprehensive income (loss) for the year ended December
31, 2005, the period from January 1, 2006 to October 4, 2006, the period from October 5, 2006 to
December 31, 2006 and the year ended December 31, 2007 was $39,324, $32,558, ($8,134) and $106,215,
respectively. Total comprehensive income (loss) consists of net income (loss), foreign currency
translation adjustments and fair value adjustments on the Companys interest rate swap agreements.
2. NEW ACCOUNTING PRONOUNCEMENTS
In September 2006, the FASB issued SFAS No. 157, 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 is effective for the Company beginning January 1, 2008 (January 1, 2009
for nonfinancial assets and liabilities). Adoption of this statement is not expected to have a
significant impact on the Companys consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities. This statement provides companies with an option to report selected
financial assets and liabilities at fair value that are currently not required to be measured at
fair value. SFAS No. 159 establishes presentation and disclosure requirements designed to
facilitate comparisons between companies that choose different measurement attributes for similar
types of assets and liabilities. SFAS No. 159 is effective for the Company beginning January 1,
2009. The Company has elected not to measure eligible items at fair value upon initial adoption.
Adoption of this statement is not expected to have a significant impact on the Companys
consolidated financial statements.
F-11
CINEMARK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
In December 2007, the FASB issued SFAS No. 141(R), 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. Adoption of SFAS No. 141(R) is required for business combinations that occur
after December 15, 2008. Early adoption and retroactive application of SFAS No. 141(R) to fiscal
years preceding the effective date is not permitted. The Company is evaluating the adoption of
SFAS No. 141(R) and its impact on the Companys consolidated financial statements.
In December 2007, the FASB issued SFAS No. 160, 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 be included in consolidated net income on
the face of the income statement. SFAS No. 160 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 also includes expanded disclosure requirements regarding the
interests of the parent and its noncontrolling interest. SFAS No. 160 is effective for fiscal
years, and interim periods within those fiscal years, beginning on or after December 15, 2008.
Earlier adoption is prohibited. The Company is evaluating the adoption of SFAS No. 160 and its
impact on the Companys consolidated financial statements.
3. INITIAL PUBLIC OFFERING OF COMMON STOCK
On April 24, 2007, the Companys parent, Cinemark Holdings, Inc., completed an initial public
offering of its common stock. Cinemark Holdings, Inc. 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
Cinemark Holdings, Inc. were $249,375 and Cinemark Holdings, Inc. paid approximately $3,526 in
legal, accounting and other fees. The selling stockholders granted the underwriters a 30-day option
to purchase up to an additional 2,800,000 shares of Cinemark Holdings, Inc.s 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.
Cinemark Holdings, Inc. did not receive any proceeds from the sale of shares by the selling
stockholders. Cinemark Holdings, Inc. has utilized a portion of the net proceeds that it received
from the offering to repurchase a portion of the Companys outstanding 9 3/4% senior discount notes.
See Note 12. Cinemark Holdings, Inc. expects to continue to use the net proceeds to repurchase a
portion of the remaining 9 3/4% senior discount notes or repay debt outstanding under the senior
secured credit facility. The 9 3/4% senior discount notes are not currently subject to repurchase at
the Companys option. Accordingly, if the Company is unable to repurchase the 9 3/4% senior discount
notes at acceptable prices, the Company expects to use a portion of the remaining net proceeds to
repay term loan debt outstanding under the senior secured credit facility. Cinemark Holdings, Inc.
has significant flexibility in applying the net proceeds from the initial public offering.
Cinemark Holdings, Inc. has invested the remaining net proceeds in short-term, investment-grade
marketable securities or money market funds.
4. MERGER WITH MADISON DEARBORN PARTNERS AND RELATED CHANGE IN ACCOUNTING BASIS
On April 2, 2004, a newly formed subsidiary of an affiliate of Madison Dearborn Partners
(MDP) was merged with and into the Company, with the Company continuing as the surviving
corporation (the MDP Merger). Simultaneously, an affiliate of MDP purchased shares of the
Companys common stock for $518,245 in cash and became the Companys controlling stockholder,
owning approximately 83% of the Companys capital stock. Lee Roy Mitchell, the Companys then Chief
Executive Officer, and the Mitchell Special Trust collectively retained approximately 16% ownership
of the Companys capital stock with certain members of management owning the remaining 1%.
F-12
CINEMARK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
On April 2, 2004, the Company accounted for the MDP Merger as a leveraged recapitalization,
which resulted in the Company and its subsidiaries retaining their historical book values. Upon the
Cinemark Share Exchange on October 5, 2006, and the resulting change in reporting entity, the
Company was required to prepare its financial statements to reflect the accounting basis of its
parent, Cinemark Holdings, Inc. Cinemark Holdings, Inc. accounted for the MDP merger under the
purchase method of accounting on April 2, 2004. The following table represents the allocation of
MDP purchase price to the proportionate share of assets acquired and liabilities assumed as of
April 2, 2004:
|
|
|
|
|
Current assets |
|
$ |
79,967 |
|
Fixed assets |
|
|
650,653 |
|
Goodwill |
|
|
620,540 |
|
Tradename |
|
|
173,882 |
|
Net favorable leases |
|
|
31,047 |
|
Vendor contracts |
|
|
52,012 |
|
Internally developed software |
|
|
1,626 |
|
Other long term assets |
|
|
42,384 |
|
Current liabilities |
|
|
(90,940 |
) |
Other long term liabilities |
|
|
(120,232 |
) |
Long-term debt |
|
|
(922,694 |
) |
|
|
|
|
Total |
|
$ |
518,245 |
|
|
|
|
|
Cinemark Holdings, Inc.s accounting basis was pushed down to the Company effective October 5,
2006. The successor accounting basis reflects the MDP merger purchase accounting as of April 2,
2004 adjusted for depreciation and amortization as well as other period charges taken subsequent to
April 2, 2004 that have affected the basis of the Companys assets and liabilities. Below is a
summary of the impact of this push down on the Companys balance sheet on October 5, 2006:
|
|
|
|
|
Net increase in fixed assets |
|
$ |
15,013 |
|
Net increase in goodwill |
|
|
508,760 |
|
Net increase in intangible assets |
|
|
228,424 |
|
Net increase in investments in and advances to affiliates |
|
|
2,600 |
|
Net decrease in deferred charges and other assets |
|
|
(7,277 |
) |
Net increase in long-term debt |
|
|
(9,059 |
) |
Net increase in deferred income taxes |
|
|
(87,059 |
) |
Net decrease in deferred lease expense |
|
|
16,561 |
|
Net decrease in deferred revenues and other long-term liabilities |
|
|
2,493 |
|
|
|
|
|
Net increase in stockholders equity |
|
$ |
670,456 |
|
|
|
|
|
The tradename, net favorable leases and vendor contracts are presented as intangible assets on
the Companys consolidated balance sheets as of December 31, 2006. The goodwill recorded as a
result of the MDP Merger is not deductible for tax purposes.
5. ACQUISITION OF CENTURY THEATRES, INC. AND RELATED REFINANCING OF CERTAIN LONG-TERM DEBT
On October 5, 2006, the Company completed its acquisition of Century Theatres, Inc.
(Century), a national theatre chain headquartered in San Rafael, California with approximately 77
theatres in 12 states, for a purchase price of approximately $681,225 and the assumption of
approximately $360,000 of debt of Century. Of the total purchase price, $150,000 consisted of the
issuance of shares of Cinemark Holdings, Inc.s common stock. The Company also incurred
approximately $7,448 in transaction costs.
The transaction was accounted for under the purchase method of accounting in accordance with
SFAS No. 141, Business Combinations. The following table represents the allocation of purchase
price to the assets acquired and liabilities assumed:
F-13
CINEMARK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
|
|
|
|
|
Current assets (1) |
|
$ |
32,635 |
|
Fixed assets (2) |
|
|
548,451 |
|
Goodwill (2) |
|
|
640,436 |
|
Tradename |
|
|
136,000 |
|
Other long term assets |
|
|
4,956 |
|
Net unfavorable leases |
|
|
(9,360 |
) |
Current liabilities |
|
|
(74,488 |
) |
Other long term liabilities (2) |
|
|
(229,957 |
) |
|
|
|
|
Total |
|
$ |
1,048,673 |
|
|
|
|
|
|
|
|
(1) |
|
Includes cash of $7,290. |
|
(2) |
|
In 2007, the Company adjusted its preliminary purchase price
allocation to fixed assets (increase of $29,398), goodwill (decrease of $18,110)
and other long-term liabilities (increase of $11,288) due to additional
information obtained regarding the fair value of these assets and liabilities
acquired. |
The tradename and net unfavorable leases are presented as intangible assets on the Companys
consolidated balance sheets as of December 31, 2006 and 2007. Goodwill represents the excess of the
costs of acquiring Century over amounts assigned to assets acquired, including identifiable
intangible assets, and liabilities assumed. The goodwill recorded as a result of the Century
Acquisition is not deductible for tax purposes.
On October 5, 2006, the Company entered into a senior secured credit facility, which provided
for a $1,120,000 term loan and a $150,000 revolving credit line. The net proceeds of the new term
loan were used to fund a portion of the $531,225 cash portion of the purchase price, to pay off
approximately $360,000 under Centurys existing senior credit facility and to refinance amounts
under the Companys existing senior secured credit facility of approximately $253,500. The Company
used approximately $53,000 of its existing cash to fund the payment of the remaining portion of the
purchase price and related transaction expenses. Additionally, the Company advanced approximately
$17,000 of cash to Century to satisfy working capital obligations. See Note 12 for further
discussion of long-term debt.
The Century Acquisition is reflected in the Companys consolidated statements of operations
for the period subsequent to the transaction date and is reported in the Companys U.S. operating
segment. The pro forma financial information presented below sets forth the Companys pro forma
consolidated statements of operations for the years ended December 31, 2005 and 2006 to give effect
to the Century Acquisition as if the acquisition had occurred at the beginning of each period. This
information is presented for comparative purposes only and does not purport to represent what the
Companys results of operations would have been had the transaction occurred on the date indicated
or to project its results of operations for any future period.
F-14
CINEMARK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
|
|
|
|
|
|
|
|
|
|
|
Pro Forma |
|
Pro Forma |
|
|
Year Ended |
|
Year Ended |
|
|
December 31, 2005 |
|
December 31, 2006 |
|
|
(unaudited) |
Revenues |
|
|
|
|
|
|
|
|
Admissions |
|
$ |
982,699 |
|
|
$ |
1,029,881 |
|
Concession |
|
|
457,190 |
|
|
|
487,416 |
|
Other |
|
|
74,559 |
|
|
|
94,807 |
|
|
|
|
Total revenues |
|
$ |
1,514,448 |
|
|
$ |
1,612,104 |
|
Cost of operations |
|
|
|
|
|
|
|
|
Film rentals and advertising |
|
|
526,002 |
|
|
|
546,144 |
|
Concession supplies |
|
|
72,631 |
|
|
|
75,359 |
|
Salaries and wages |
|
|
154,072 |
|
|
|
160,689 |
|
Facility lease expense |
|
|
192,510 |
|
|
|
203,335 |
|
Utilities and other |
|
|
169,507 |
|
|
|
184,699 |
|
General and administrative expenses (1) |
|
|
77,338 |
|
|
|
84,619 |
|
Depreciation and amortization (2)(3) |
|
|
131,329 |
|
|
|
136,936 |
|
Impairment of long-lived assets |
|
|
9,672 |
|
|
|
29,485 |
|
Loss on sale of assets and other |
|
|
7,582 |
|
|
|
5,345 |
|
|
|
|
Total cost of operations |
|
|
1,340,643 |
|
|
|
1,426,611 |
|
Operating income |
|
|
173,805 |
|
|
|
185,493 |
|
Interest expense (4) |
|
|
(164,916 |
) |
|
|
(170,134 |
) |
Other income (expense) |
|
|
6,105 |
|
|
|
(5,370 |
) |
|
|
|
Income before income taxes |
|
|
14,994 |
|
|
|
9,989 |
|
Income taxes (5) |
|
|
6,961 |
|
|
|
6,024 |
|
|
|
|
Net income |
|
$ |
8,033 |
|
|
$ |
3,965 |
|
|
|
|
|
|
|
(1) |
|
Gives effect to the elimination of change of control payments of
$15,672 to Centurys management for the year ended December 31, 2006. |
|
(2) |
|
Reflects increase in depreciation related to the fair value of the theatre
properties and equipment pursuant to purchase accounting for the Century Acquisition. |
|
(3) |
|
Reflects the amortization associated with intangible assets recorded pursuant
to purchase accounting for the Century Acquisition. |
|
(4) |
|
Reflects interest expense and amortization of debt issue costs resulting from
the changes to the Companys debt structure pursuant to the Century Acquisition. |
|
(5) |
|
Reflects the tax effect of the aforementioned proforma adjustments at the
Companys statutory income tax rate of 39%. |
6. 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 the largest digital in-theatre network in the U.S. for providing
cinema advertising and non-film events and combines the cinema advertising and non-film events
businesses of the three largest motion picture companies in the U.S. 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 now 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 pursuant to which NCM provides advertising, promotion and event services to the Companys
theatres. 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
F-15
CINEMARK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
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 NCMs payment obligation under the prior Exhibitor Services
Agreement. The modification agreed to by the Company 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 will
significantly reduce the contractual amounts paid to 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 on the Companys consolidated balance sheet. 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 network and lobby promotions, the Company will receive a monthly theatre access fee
under the Exhibitor Services Agreement. 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 enumerated reasons. The payment per theatre patron will increase 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, will increase annually
by 5%, beginning after 2007. 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
Exhibitor Services Agreement), 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
Exhibitor Services Agreement has, except with respect to certain limited services, a term of 30
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 control 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
F-16
CINEMARK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
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 the year ended December 31, 2005, the period from January 1, 2006 to October 4, 2006,
the period from October 5, 2006 to December 31, 2006 and the year ended December 31, 2007, the
Company recorded equity income (losses) of $0, ($1,889), $184 and ($1,284), respectively. The
Company recognized $72, $10,555 and $5,664 of other revenue from NCM during the year ended December
31, 2005, the period from January 1, 2006 to October 4, 2006, the period from October 5, 2006 to
December 31, 2006 and the year ended December 31, 2007, respectively. The Company had a receivable
due from NCM of $13,386 and $225 as of December 31, 2006 and 2007, respectively, related to screen
advertising and other ancillary revenue. The Company is entitled to receive mandatory quarterly
distributions of excess cash from NCM. During the year ended December 31, 2007, the Company
received distributions of approximately $11,499 which were in excess of the carrying value of its
investment in NCM and are reflected as distributions from NCM on the consolidated statement of
operations for the year ended December 31, 2007.
As of December 31, 2007, the Company owned 13,145,349 common units of NCM. Each common unit is
convertible into one share of NCM Inc. common stock. As of December 31, 2007, the fair market
value of the Companys shares in NCM was approximately $331,394 based on a closing price of $25.21
per share of NCM Inc. common stock on December 31, 2007.
7. 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 $1,500 for a one-third ownership interest in DCIP. The
Company is accounting for its investment in DCIP under the equity method of accounting. During the
year ended December 31, 2007, the Company recorded equity losses of approximately $1,240, relating
to this investment. The Companys investment basis in DCIP was $260 at December 31, 2007, which is
included in investments in and advances to affiliates on the consolidated balance sheet.
8. 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). Approximately $1,390 of the consideration
is in escrow to secure certain indemnification obligations contained in the merger agreement, which
is included in accounts receivable on the consolidated balance sheet. The Company paid $2,800 of
the cash 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. Certain sections of the
agreement were modified in which the Company no longer is entitled to receive additional shares of
stock in Fandango, Inc. nor share in future adjusted profits of Fandango, Inc. In exchange for the
amendment, Fandango, Inc. paid the Company $5,000. The proceeds of $5,000 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 in 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.
F-17
CINEMARK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
9. GOODWILL AND OTHER INTANGIBLE ASSETS NET
The Companys goodwill is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
International |
|
|
|
|
Operating |
|
Operating |
|
|
|
|
Segment |
|
Segment |
|
Total |
Predecessor balance at January 1, 2006 |
|
$ |
4,265 |
|
|
$ |
37,842 |
|
|
$ |
42,107 |
|
Foreign currency translation adjustment and other (3) |
|
|
|
|
|
|
2,066 |
|
|
|
2,066 |
|
|
|
|
Predecessor balance at October 4, 2006 |
|
$ |
4,265 |
|
|
$ |
39,908 |
|
|
$ |
44,173 |
|
Net basis adjustment (1) |
|
|
394,893 |
|
|
|
113,867 |
|
|
|
508,760 |
|
Acquisition of Century Theatres, Inc. (2) |
|
|
658,546 |
|
|
|
|
|
|
|
658,546 |
|
Impairment charges |
|
|
(5,116 |
) |
|
|
(8,478 |
) |
|
|
(13,594 |
) |
Foreign currency translation adjustments and other (3) |
|
|
4,228 |
|
|
|
3,310 |
|
|
|
7,538 |
|
|
|
|
Successor balance at December 31, 2006 |
|
$ |
1,056,816 |
|
|
$ |
148,607 |
|
|
$ |
1,205,423 |
|
Purchase price allocation adjustment for Century Acquisition (2) |
|
|
(18,109 |
) |
|
|
|
|
|
|
(18,109 |
) |
Impairment charges |
|
|
(60,154 |
) |
|
|
(7,571 |
) |
|
|
(67,725 |
) |
Foreign currency translation adjustment and other (3) |
|
|
595 |
|
|
|
14,505 |
|
|
|
15,100 |
|
|
|
|
Successor balance at December 31, 2007 |
|
$ |
979,148 |
|
|
$ |
155,541 |
|
|
$ |
1,134,689 |
|
|
|
|
|
|
|
(1) |
|
Represents net basis adjustments to intangible assets related to the push down of
Cinemark Holdings, Inc.s accounting basis to the Company and its subsidiaries. See Note 4
for further discussion. |
|
(2) |
|
See Note 5 regarding the acquisition of Century Theatres, Inc. |
|
(3) |
|
U.S. operating segment includes one theatre located in Canada. |
In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, the Company reviews
goodwill for impairment on an annual basis at fiscal year-end or whenever events or changes in
circumstances indicate the carrying value of goodwill might exceed its estimated fair value.
As a result of the NCM Transaction discussed in Note 6, and more specifically the modification
of the NCM Exhibitor Services Agreement with the Company, which significantly reduced the
contractual amounts paid to the Company, the Company evaluated the carrying value of its goodwill
as of March 31, 2007 resulting in the majority of the 2007 goodwill impairment charges reflected
above in the table. The Company also performed its annual evaluation as of December 31, 2007.
The Company evaluates goodwill for impairment at the reporting unit level (generally a
theatre) and has allocated goodwill to the reporting unit based on an estimate of its relative fair
value. The evaluation is a two-step approach requiring the Company to compute the estimated fair
value of a theatre and compare it with its carrying value. If the carrying value exceeds estimated
fair value, a second step is performed to measure the potential goodwill impairment. Fair values
are determined based on a multiple of cash flows, which was seven times for 2005 and eight times
for the evaluations performed during 2006 and 2007. Significant judgment is involved in estimating
cash flows and fair value. Managements estimates are based on historical and projected operating
performance as well as recent market transactions. The Companys policy of allocating goodwill at
the theatre level results in more volatile impairment charges on an annual basis due to changes in
market conditions and box office performance and the resulting impact on individual theatres.
F-18
CINEMARK, 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency |
|
|
|
|
Successor |
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation |
|
Successor |
|
|
Balance at |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments |
|
Balance at |
|
|
December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
and |
|
December 31, |
|
|
2006 |
|
Additions |
|
Amortization |
|
Impairment |
|
Other |
|
2007 |
Intangible assets with finite lives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized licensing fees: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross carrying amount |
|
$ |
5,138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,138 |
|
Accumulated amortization |
|
|
(1,139 |
) |
|
|
|
|
|
|
(426 |
) |
|
|
|
|
|
|
|
|
|
|
(1,565 |
) |
|
|
|
Net carrying amount |
|
$ |
3,999 |
|
|
$ |
|
|
|
$ |
(426 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
3,573 |
|
|
|
|
Vendor contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross carrying amount |
|
|
56,526 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
447 |
|
|
|
56,973 |
|
Accumulated amortization |
|
|
(19,924 |
) |
|
|
|
|
|
|
(3,418 |
) |
|
|
|
|
|
|
|
|
|
|
(23,342 |
) |
|
|
|
Net carrying amount |
|
$ |
36,602 |
|
|
$ |
|
|
|
$ |
(3,418 |
) |
|
$ |
|
|
|
$ |
447 |
|
|
$ |
33,631 |
|
|
|
|
Net favorable leases: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross carrying amount |
|
|
21,999 |
|
|
|
|
|
|
|
|
|
|
|
(4,611 |
) |
|
|
3,303 |
|
|
|
20,691 |
|
Accumulated amortization |
|
|
(12,023 |
) |
|
|
|
|
|
|
(2,935 |
) |
|
|
|
|
|
|
(623 |
) |
|
|
(15,581 |
) |
|
|
|
Net carrying amount |
|
$ |
9,976 |
|
|
$ |
|
|
|
$ |
(2,935 |
) |
|
$ |
(4,611 |
) |
|
$ |
2,680 |
|
|
$ |
5,110 |
|
|
|
|
Other intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross carrying amount |
|
|
70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
69 |
|
Accumulated amortization |
|
|
(16 |
) |
|
|
|
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
(20 |
) |
|
|
|
Net carrying amount |
|
$ |
54 |
|
|
$ |
|
|
|
$ |
(4 |
) |
|
$ |
|
|
|
$ |
(1 |
) |
|
$ |
49 |
|
|
|
|
Total net intangible assets with finite lives |
|
$ |
50,631 |
|
|
$ |
|
|
|
$ |
(6,783 |
) |
|
$ |
(4,611 |
) |
|
$ |
3,126 |
|
|
$ |
42,363 |
|
Intangible assets with indefinite lives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tradename |
|
|
310,118 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
563 |
|
|
|
310,681 |
|
Other unamortized intangible assets |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
|
Total intangible assets net |
|
$ |
360,752 |
|
|
$ |
|
|
|
$ |
(6,783 |
) |
|
$ |
(4,611 |
) |
|
$ |
3,689 |
|
|
$ |
353,047 |
|
|
|
|
Amortization expense of $7,087 for the year ended December 31, 2007 included $6,783 of
amortization for intangible assets and $304 of amortization for other assets. Estimated aggregate
future amortization expense for intangible assets is as follows:
|
|
|
|
|
For the year ended December 31, 2008 |
|
$ |
6,404 |
|
For the year ended December 31, 2009 |
|
|
5,287 |
|
For the year ended December 31, 2010 |
|
|
5,005 |
|
For the year ended December 31, 2011 |
|
|
4,551 |
|
For the year ended December 31, 2012 |
|
|
3,686 |
|
Thereafter |
|
|
17,430 |
|
|
|
|
|
Total |
|
$ |
42,363 |
|
|
|
|
|
F-19
CINEMARK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
10. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets, the Company reviews long-lived assets for impairment 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, theatre goodwill 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 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 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 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. Fair
value is determined based on a multiple of cash flows, which was seven times for 2005 and eight
times for the evaluations performed during 2006 and 2007. 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 are based on historical and projected operating performance
as well as recent market transactions.
The Companys long-lived asset impairment losses are summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from |
|
|
Period from |
|
|
|
|
|
|
|
|
January 1, |
|
|
October 5, |
|
|
|
|
Year Ended |
|
to |
|
|
to |
|
Year Ended |
|
|
December 31, |
|
October 4, |
|
|
December 31, |
|
December 31, |
|
|
2005 |
|
2006 |
|
|
2006 |
|
2007 |
|
|
(Predecessor) |
|
(Predecessor) |
|
|
(Successor) |
|
(Successor) |
|
|
|
|
|
|
United States theatre properties |
|
$ |
6,788 |
|
|
$ |
5,731 |
|
|
|
$ |
5,315 |
|
|
$ |
12,423 |
|
International theatre properties |
|
|
1,616 |
|
|
|
10 |
|
|
|
|
3,094 |
|
|
|
1,799 |
|
|
|
|
|
|
|
Subtotal |
|
$ |
8,404 |
|
|
$ |
5,741 |
|
|
|
$ |
8,409 |
|
|
$ |
14,222 |
|
Intangible assets (see Note 9) |
|
|
|
|
|
|
|
|
|
|
|
1,334 |
|
|
|
4,611 |
|
Goodwill (see Note 9) |
|
|
1,268 |
|
|
|
|
|
|
|
|
13,594 |
|
|
|
67,725 |
|
|
|
|
|
|
|
Impairment of long-lived assets |
|
$ |
9,672 |
|
|
$ |
5,741 |
|
|
|
$ |
23,337 |
|
|
$ |
86,558 |
|
|
|
|
|
|
|
As a result of the NCM Transaction discussed in Note 6, and more specifically the modification
of the NCM Exhibitor Services Agreement with the Company, which significantly reduced the
contractual amounts paid to the Company, the Company evaluated the carrying value of its goodwill
as of March 31, 2007 resulting in the majority of the 2007 goodwill impairment charges reflected
above in the table.
11. DEFERRED CHARGES AND OTHER ASSETS NET
As of December 31, deferred charges and other assets net consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
Balance at |
|
|
December 31, 2006 |
|
December 31, 2007 |
|
|
(Successor) |
|
(Successor) |
|
|
|
Debt issue costs |
|
$ |
39,646 |
|
|
$ |
37,660 |
|
Less: Accumulated amortization |
|
|
(4,794 |
) |
|
|
(9,522 |
) |
|
|
|
Subtotal |
|
|
34,852 |
|
|
|
28,138 |
|
Long-term prepaid rents |
|
|
16,283 |
|
|
|
17,457 |
|
Construction advances and other deposits |
|
|
1,869 |
|
|
|
24,080 |
|
Equipment to be placed in service |
|
|
3,990 |
|
|
|
4,821 |
|
Brazil value added tax deposit |
|
|
3,943 |
|
|
|
409 |
|
Other |
|
|
2,155 |
|
|
|
2,488 |
|
|
|
|
Total |
|
$ |
63,092 |
|
|
$ |
77,393 |
|
|
|
|
F-20
CINEMARK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
During the year ended December 31, 2007, the Company incurred new debt issue costs of $244
related to the senior secured credit facility and wrote off $794 of debt issue costs related to its
repurchase of $332,066 aggregate principal
amount of its 9% senior subordinated notes and $1,437 of debt issue costs related to its
repurchase of $69,155 aggregate principal amount at maturity of its 9 3/4% senior discount notes.
12. LONG-TERM DEBT
Long-term debt as of December 31 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
Balance at |
|
|
December 31, 2006 |
|
December 31, 2007 |
|
|
(Successor) |
|
(Successor) |
|
|
|
Cinemark, Inc. 9 3/4% senior discount notes due 2014 |
|
$ |
434,073 |
|
|
$ |
415,768 |
|
Cinemark USA, Inc. term loan |
|
|
1,117,200 |
|
|
|
1,101,686 |
|
Cinemark USA, Inc. 9% senior subordinated notes due 2013 |
|
|
350,820 |
|
|
|
184 |
|
Other long-term debt |
|
|
9,560 |
|
|
|
6,107 |
|
|
|
|
Total long-term debt |
|
|
1,911,653 |
|
|
|
1,523,745 |
|
Less current portion |
|
|
14,259 |
|
|
|
9,166 |
|
|
|
|
Long-term debt, less current portion |
|
$ |
1,897,394 |
|
|
$ |
1,514,579 |
|
|
|
|
Senior Discount Notes
On March 31, 2004, in connection with the MDP merger, Cinemark, Inc. issued approximately
$577,173 aggregate principal amount at maturity of 9 3/4% senior discount notes due 2014. Interest on
the notes accretes until March 15, 2009 up to their aggregate principal amount. Cash interest will
accrue and be payable semi-annually in arrears on March 15 and September 15, commencing on
September 15, 2009. Due to Cinemark, Inc.s holding company status, payments of principal and
interest under these notes will be dependent on loans, dividends and other payments from its
subsidiaries. Cinemark, Inc. may redeem all or part of the 9 3/4% senior discount notes on or after
March 15, 2009.
On September 22, 2005, Cinemark, Inc. repurchased $1,840 aggregate principal amount at
maturity of its 9 3/4% senior discount notes as part of an open market purchase for approximately
$1,302 including accreted interest. During May 2006, as part of four open market purchases,
Cinemark, Inc. repurchased $39,775 aggregate principal amount at maturity of its 9 3/4% senior
discount notes for approximately $31,745, including accreted interest of $5,381 and a cash premium
of $1,414. Cinemark, Inc. funded these transactions with available cash from its operations. The
Company recorded a loss on early retirement of debt of $46 and $2,375 during the year ended
December 31, 2005 and the period from January 1, 2006 to October 4, 2006, respectively, related to
the repurchases noted above, which included premiums paid and the write-off of unamortized debt
issue costs.
During July and August 2007, Cinemark, Inc. repurchased in six open market purchases a total
of $47,000 aggregate principal amount at maturity of its 9 3/4% senior discount notes for
approximately $42,758, including accreted interest of $10,932 and a cash premium of $2,495. During
November 2007, Cinemark, Inc. repurchased in one open market purchase $22,155 aggregate principal
amount at maturity of its 9 3/4% senior discount notes for approximately $20,936 including accreted
interest of $5,660 and a cash premium of $1,472. Cinemark, Inc. funded these transactions with
proceeds from Cinemark Holdings, Inc.s 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 the 2007
repurchases noted above, which consisted of premiums paid, other fees and the write-off of
unamortized debt issue costs.
As of December 31, 2007, the accreted principal balance of the notes was approximately
$415,768 and the aggregate principal amount at maturity was approximately $466,403.
The indenture governing the 9 3/4% senior discount notes contains covenants that limit, among
other things, dividends, transactions with affiliates, investments, sales of assets, mergers,
repurchases of Cinemark, Inc.s capital stock, liens and additional indebtedness. The dividend
restriction contained in the indenture prevents Cinemark, Inc. from paying a dividend or otherwise
distributing cash to its stockholders unless (1) it is not in default, and the distribution would
not cause it to be in default, under the indenture; (2) it would be able to incur at least $1.00
more of indebtedness without the ratio of its consolidated cash flow to its fixed charges (each as
defined in the indenture, and calculated on a
F-21
CINEMARK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
pro forma basis for the most recently ended four full
fiscal quarters for which internal financial statements are available, using certain assumptions
and modifications specified in the indenture, and including the additional indebtedness then being
incurred) falling below two to one (the senior notes debt incurrence ratio test); and (3) the
aggregate amount of distributions made since March 31, 2004, including the distribution proposed,
is less than the sum of (a) half of its
consolidated net income (as defined in the indenture) since February 11, 2003, (b) the net
proceeds to it from the issuance of stock since April 2, 2004, and (c) certain other amounts
specified in the indenture, subject to certain adjustments specified in the indenture. The dividend
restriction is subject to certain exceptions specified in the indenture.
Upon certain specified types of change of control of Cinemark, Inc., Cinemark, Inc. would be
required under the indenture to make an offer to repurchase all of the 9 3/4% senior discount notes
at a price equal to 101% of the accreted value of the notes plus accrued and unpaid interest, if
any, through the date of repurchase.
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 net proceeds of the term loan were used to finance a portion of the
$531,225 cash portion of the Century Acquisition, repay in full the $253,500 outstanding under the
former senior secured credit facility, repay approximately $360,000 of existing indebtedness of
Century and to pay for related fees and expenses. The revolving credit line was left undrawn at
closing. The revolving credit line is used for general corporate purposes.
At December 31, 2007, there was $1,101,686 outstanding under the term loan and no borrowings
outstanding under the revolving credit line. Approximately $149,931 was available for borrowing
under the revolving credit line, giving effect to a $69 letter of credit outstanding. The average
interest rate on outstanding borrowings under the senior secured credit facility at December 31,
2007 was 6.7% per annum.
Under the term loan, principal payments of $2,800 are due each calendar quarter beginning
December 31, 2006 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
F-22
CINEMARK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
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., Cinemark, Inc., CNMK Holding, 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 Cinemark, Inc., CNMK Holding, Inc. and
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, Cinemark,
Inc.s and CNMK Holding, 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, repurchase stock and voluntarily repurchase or
redeem the 9 3/4% senior discount notes; 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 our 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 (2) the aggregate amount of
certain dividends, distributions, investments, redemptions and capital expenditures made since
October 5, 2006, including the distribution currently proposed, 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.
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.
On April 6, 2004, as a result of the MDP Merger and in accordance with the terms of the
indenture governing the 9% senior subordinated notes, Cinemark USA, Inc. made a change of control
offer to repurchase the 9% senior subordinated notes at a purchase price of 101% of the aggregate
principal amount. Approximately $17,750 aggregate principal amount of the 9% senior subordinated
notes were tendered. The payment of the change of control price was funded with available cash by
Cinemark USA, Inc. on June 1, 2004.
During May 2006, as part of three open market purchases, Cinemark USA, Inc. repurchased
$10,000 aggregate principal amount of its 9% senior subordinated notes for approximately $10,977,
including cash premiums paid and accrued and unpaid interest. The transactions were funded by
Cinemark USA, Inc. with available cash from operations. The Company recorded a loss on early
retirement of debt of $940 during the period from January 1, 2006 to October 4, 2006 related to the
2006 repurchases discussed above, which included the write-off of unamortized debt issue costs and
tender offer repurchase costs, including premiums paid, related to the retired senior subordinated
notes.
F-23
CINEMARK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
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 removing substantially all of the restrictive covenants and certain events of default.
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
March 20, 2007, the Company and the Bank of New York Trust Company,
N.A., as trustee to the Indenture dated February 11, 2003, executed the Fourth Supplemental
Indenture. The Fourth Supplemental Indenture became effective on March 20, 2007 and it amends the
Indenture by eliminating substantially all restrictive covenants and certain events of default
provisions. 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 the 2007 repurchases discussed above, 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.
As of December 31, 2007, Cinemark USA, Inc. had outstanding approximately $184 aggregate
principal amount of 9% senior subordinated notes. Cinemark USA, Inc. may redeem the remaining
9% senior subordinated notes on or after February 1, 2008.
Former Senior Secured Credit Facility
On April 2, 2004, Cinemark USA, Inc. amended its then existing senior secured credit facility
in connection with the MDP Merger. The amended senior secured credit facility provided for a
$260,000 seven year term loan and a $100,000 six and one-half year revolving credit line. The net
proceeds from the amended senior secured credit facility were used to repay the then existing term
loan of approximately $163,764 and to redeem the approximately $94,165 aggregate principal amount
of Cinemark USA, Inc.s then outstanding $105,000 aggregate principal amount 81/2% senior
subordinated notes due 2008 that were tendered pursuant to the tender offer.
On October 5, 2006, in connection with the Century Acquisition, the $253,500 outstanding under
the former senior secured credit facility was repaid in full with a portion of the proceeds from
the senior secured credit facility. During the period from October 5, 2006 to December 31, 2006,
the Company recorded a loss on early retirement of debt of $5,782 related to the write-off
unamortized debt issue costs associated with the former senior secured credit facility.
Covenant Compliance and Debt Maturity
As of December 31, 2007, the Company was in full compliance with all agreements, including
related covenants, governing its outstanding debt. The Companys long-term debt at December 31,
2007 matures as follows:
|
|
|
|
|
2008 |
|
$ |
9,166 |
|
2009 |
|
|
13,775 |
|
2010 |
|
|
12,452 |
|
2011 |
|
|
11,200 |
|
2012 |
|
|
271,600 |
|
Thereafter |
|
|
1,256,187 |
|
|
|
|
|
Total |
|
$ |
1,574,380 |
|
|
|
|
|
The estimated fair value of the Companys long-term debt at December 31, 2007 was
approximately $1,552,892. This amount does not include prepayment penalties that would be incurred
upon the early extinguishment of certain debt issues.
F-24
CINEMARK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
Debt issue costs of $37,660, less accumulated amortization of $9,522, are related to the
senior discount notes, senior subordinated notes, the senior secured credit facility and other debt
agreements, and are included in deferred charges and other assets net, on the consolidated
balance sheets at December 31, 2007 (See Note 11).
13. INTEREST RATE SWAP AGREEMENTS
During 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. The
interest rate swaps qualify for cash flow hedge accounting treatment in accordance with SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities, and as such, the Company
has effectively hedged its exposure to variability in the future cash flows attributable to the
3-month LIBOR on $500,000 of variable rate debt. The change in the fair values of the interest rate
swaps is 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 other
comprehensive income and the ineffective portion reported in earnings.
As of December 31, 2007, the interest rate swaps were a liability with an aggregate fair value
of approximately $18,422, which has been recorded as a component of deferred revenues and other
long-term liabilities with a corresponding amount of $18,422 ($11,348 net of deferred taxes)
recorded as a decrease in accumulated other comprehensive income on the Companys consolidated
balance sheet. The interest rate swaps exhibited no ineffectiveness during the year ended December
31, 2007.
14. FOREIGN CURRENCY TRANSLATION
The accumulated other comprehensive income account in stockholders equity of $11,463 and
$32,695 at December 31, 2006 and December 31, 2007, respectively, includes the cumulative foreign
currency adjustments of $11,463 and $44,043, respectively, from translating the financial
statements of the Companys international subsidiaries.
In 2006 and 2007, all foreign countries where the Company has operations, including Brazil
were deemed non-highly inflationary. Thus, any fluctuation in the currency results in a cumulative
foreign currency translation adjustment to the accumulated other comprehensive income account
recorded as an increase in, or reduction of, stockholders equity.
On December 31, 2007, the exchange rate for the Brazilian real was 1.77 reais to the U.S.
dollar (the exchange rate was 2.14 reais to the U.S. dollar at December 31, 2006). As a result, the
effect of translating the December 31, 2007 Brazilian financial statements into U.S. dollars is
reflected as a cumulative foreign currency translation adjustment to the accumulated other
comprehensive income account as an increase in stockholders equity of $47,233. At December 31,
2007, the total assets of the Companys Brazilian subsidiaries were U.S. $204,661.
On December 31, 2007, the exchange rate for the Mexican peso was 10.92 pesos to the U.S.
dollar (the exchange rate was 10.82 pesos to the U.S. dollar at December 31, 2006). As a result,
the effect of translating the December 31, 2007 Mexican financial statements into U.S. dollars is
reflected as a cumulative foreign currency translation adjustment to the accumulated other
comprehensive income account as a decrease in stockholders equity of $949. At December 31, 2007,
the total assets of the Companys Mexican subsidiaries were U.S. $162,937.
F-25
CINEMARK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
15. INVESTMENTS IN AND ADVANCES TO AFFILIATES
The Company had the following investments in and advances to affiliates at December 31:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
December 31, |
|
|
2006 |
|
2007 |
|
|
(Successor) |
|
(Successor) |
|
|
|
Investment in National CineMedia LLC investment, at equity |
|
$ |
5,353 |
|
|
$ |
|
|
Fandango, Inc. investment, at cost |
|
|
2,142 |
|
|
|
|
|
Investment in DCIP investment at equity 33% interest |
|
|
|
|
|
|
260 |
|
Cinemark Core Pacific, Ltd. (Taiwan) investment, at cost 14% interest |
|
|
1,383 |
|
|
|
1,383 |
|
Other |
|
|
2,476 |
|
|
|
3,428 |
|
|
|
|
Total |
|
$ |
11,354 |
|
|
$ |
5,071 |
|
|
|
|
The Companys investment in NCM was reduced from $5,353 at December 31, 2006 to $0 at December
31, 2007 due to equity losses of $1,284 and the NCM Transaction discussed in Note 6.
The Companys investment in Fandango was reduced from $2,142 at December 31, 2006 to $0 at
December 31, 2007 as a result of the Fandango Transaction discussed in Note 8.
During the year ended December 31, 2007, the Company invested $1,500 for a one-third ownership
in DCIP. The Companys basis was reduced to $260 as a result of equity losses of $1,240 recorded
during 2007. See Note 7.
16. MINORITY INTERESTS IN SUBSIDIARIES
Minority ownership interests in subsidiaries of the Company are as follows at December 31:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
December 31, |
|
|
2006 |
|
2007 |
|
|
(Successor) |
|
(Successor) |
|
|
|
Cinemark Partners II 49.2% interest |
|
$ |
8,862 |
|
|
$ |
8,260 |
|
Cinemark Equity Holdings Corp. (Central America) 49.9% interest |
|
|
2,263 |
|
|
|
2,344 |
|
Cinemark Colombia, S.A. 49.0% interest |
|
|
2,483 |
|
|
|
2,766 |
|
Greeley Ltd. 49.0% interest |
|
|
1,422 |
|
|
|
1,244 |
|
Cinemark del Ecuador, S.A. 40.0% interest |
|
|
994 |
|
|
|
1,196 |
|
Cinemark de Mexico, S.A. de C.V. 0.6% interest |
|
|
346 |
|
|
|
326 |
|
Others |
|
|
243 |
|
|
|
46 |
|
|
|
|
Total |
|
$ |
16,613 |
|
|
$ |
16,182 |
|
|
|
|
17. CAPITAL STOCK
Common and Preferred Stock- Class A 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. Holders of the Companys common
stock are entitled to share ratably in the Companys net assets upon the Companys dissolution or
liquidation after payment or provision for all liabilities and any preferential liquidation rights
of the Companys preferred stock then outstanding. The shares of the Companys common stock are not
subject to any redemption provisions. The rights, preferences and privileges of holders of the
Companys common stock will be subject to those of the holders of any shares of the Companys
preferred stock the Company may issue in the future.
The Company has 5,000,000 shares of preferred stock, $0.001 par value, authorized with no
shares issued or outstanding. The rights and preferences of preferred stock will be determined by
the board of directors at the time of issuance.
F-26
CINEMARK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
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.
Share Based Awards Upon consummation of the MDP Merger on April 2, 2004, all the Companys
stock options outstanding prior to the MDP Merger immediately vested and the majority were
repurchased and the then existing stock option plans, which included the Independent Director Stock
Options and the Long Term Incentive Plan, were terminated.
On September 30, 2004, the Companys 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 the
Companys 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). The 2006 Plan is substantially similar to the 2004
Plan.
During October 2007, the Companys board of directors and a majority of its stockholders
approved an amendment to the 2006 Plan that allows option holders, at the discretion of the
Compensation Committee of the Companys board of directors, to exercise options to purchase common
stock by directing the Company to retain an equivalent number of shares having a fair market value
equal to all or part of the exercise price of the exercised options. The amendment did not result
in any additional compensation expense to the Company.
Stock Options On September 30, 2004, the Company granted options to purchase 6,986,731
shares of its common stock under the 2004 Plan at an exercise price of $7.63 per option. The
exercise price was equal to the fair market value of the Companys common stock on the date of
grant. Options to purchase 692,976 shares vested immediately and the remaining options granted in
2004 vest daily over the period ending April 1, 2009. The options expire ten years from the grant
date. On January 28, 2005, the Company granted options to purchase 12,055 shares of its common
stock under the Plan at an exercise price of $7.63 per option (equal to the market value at the
date of grant). The options vest daily over five years and the options expire ten years from the
grant date.
For each 2004 and 2005 grant, the fair values of the options were estimated on the dates of
grant using the Black-Scholes option-pricing model with the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
January 28, |
|
|
2004 |
|
2005 |
|
|
Grant |
|
Grant |
Expected life |
|
6.5 years |
|
6.5 years |
Expected volatility(1) |
|
39% |
|
44% |
Risk-free interest rate |
|
3.79% |
|
3.93% |
Dividend yield |
|
0% |
|
0% |
Grant date fair value |
|
$3.51 |
|
$3.80 |
|
|
|
(1) |
|
Expected volatility is based on historical volatility of the common
stock price of comparable public companies. |
Forfeitures were estimated based on the Companys historical stock option activity.
F-27
CINEMARK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
All option information has been adjusted to give effect to a 2.9585-for-1 split effected by
Cinemark Holdings, Inc. on April 9, 2007.
A summary of stock option activity and related information for the year ended December 31,
2005, the period from January 1, 2006 to October 4, 2006, the period from October 5, 2006 to
December 31, 2006, and the year ended December 31, 2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
January 1, 2006 to |
|
|
October 5, 2006 to |
|
Year Ended |
|
|
December 31, 2005 |
|
October 4, 2006 |
|
|
December 31, 2006 |
|
December 31, 2007 |
|
|
(Predecessor) |
|
(Predecessor) |
|
|
(Successor) |
|
(Successor) |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Average |
|
|
|
|
|
Average |
|
|
|
|
|
|
Average |
|
|
|
|
|
Average |
|
|
|
|
|
|
Exercise |
|
|
|
|
|
Exercise |
|
|
|
|
|
|
Exercise |
|
|
|
|
|
Exercise |
|
|
Shares |
|
Price |
|
Shares |
|
Price |
|
|
Shares |
|
Price |
|
Shares |
|
Price |
Outstanding at January 1 |
|
|
6,986,731 |
|
|
$ |
7.63 |
|
|
|
6,998,786 |
|
|
$ |
7.63 |
|
|
|
|
6,989,689 |
|
|
$ |
7.63 |
|
|
|
6,980,593 |
|
|
$ |
7.63 |
|
|
|
|
Granted |
|
|
12,055 |
|
|
$ |
7.63 |
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
Forfeited |
|
|
|
|
|
$ |
|
|
|
|
(9,097 |
) |
|
$ |
7.63 |
|
|
|
|
(4,493 |
) |
|
$ |
7.63 |
|
|
|
(112,416 |
) |
|
$ |
7.63 |
|
|
|
|
Exercised |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
(4,603 |
) |
|
$ |
7.63 |
|
|
|
(544,748 |
) |
|
$ |
7.63 |
|
|
|
|
|
|
|
|
|
|
Outstanding at December
31 |
|
|
6,998,786 |
|
|
$ |
7.63 |
|
|
|
6,989,689 |
|
|
$ |
7.63 |
|
|
|
|
6,980,593 |
|
|
$ |
7.63 |
|
|
|
6,323,429 |
|
|
$ |
7.63 |
|
|
|
|
|
|
|
|
|
|
Options exercisable at
December 31 |
|
|
2,444,533 |
|
|
$ |
7.63 |
|
|
|
3,487,090 |
|
|
$ |
7.63 |
|
|
|
|
3,834,295 |
|
|
$ |
7.63 |
|
|
|
4,647,460 |
|
|
$ |
7.63 |
|
|
|
|
|
|
|
All options outstanding at December 31, 2007 have a weighted average remaining contractual
life of approximately 6.75 years. The aggregate intrinsic value of stock options outstanding and
stock options exercisable at December 31, 2007 was approximately $59,251 and $43,547, respectively.
Below is a summary of the Companys nonvested stock options as of and for the year ended
December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Grant Date |
Nonvested Stock Options |
|
Shares |
|
Fair Value |
Outstanding at January 1, 2007 |
|
|
3,146,298 |
|
|
$ |
3.51 |
|
Granted |
|
|
|
|
|
|
|
|
Vested |
|
|
(1,357,913 |
) |
|
$ |
3.51 |
|
Forfeited |
|
|
(112,416 |
) |
|
$ |
3.51 |
|
|
|
|
Outstanding at December 31, 2007 |
|
|
1,675,969 |
|
|
$ |
3.51 |
|
|
|
|
F-28
CINEMARK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
18. SUPPLEMENTAL CASH FLOW INFORMATION
The following is provided as supplemental information to the consolidated statements of cash
flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
January 1, 2006 |
|
|
October 5, 2006 to |
|
Year Ended |
|
|
December 31, |
|
to October 4, |
|
|
December 31, |
|
December 31, |
|
|
2005 |
|
2006 |
|
|
2006 |
|
2007 |
|
|
(Predecessor) |
|
(Predecessor) |
|
|
(Successor) |
|
(Successor) |
Cash paid for interest |
|
$ |
45,166 |
|
|
$ |
43,132 |
|
|
|
$ |
22,584 |
|
|
$ |
132,029 |
|
Net cash paid for income taxes |
|
$ |
2,911 |
|
|
$ |
26,616 |
|
|
|
$ |
428 |
|
|
$ |
139,443 |
|
Noncash investing and financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in construction lease obligations
related to construction of theatres |
|
$ |
(4,312 |
) |
|
$ |
(2,151 |
) |
|
|
$ |
2,546 |
|
|
$ |
(2,546 |
) |
Changes in accounts payable and accrued
expenses for the acquisition of theatre
properties and equipment |
|
$ |
8,945 |
|
|
$ |
(7,832 |
) |
|
|
$ |
11,494 |
|
|
$ |
(9,754 |
) |
Exchange of theatre properties |
|
$ |
|
|
|
$ |
5,400 |
|
|
|
$ |
|
|
|
$ |
|
|
Theatre properties and equipment acquired
under capital lease |
|
$ |
|
|
|
$ |
|
|
|
|
$ |
|
|
|
$ |
9,102 |
|
Capital contribution from Cinemark
Holdings, Inc. related to the Century
acquisition |
|
$ |
|
|
|
$ |
|
|
|
|
$ |
150,000 |
|
|
$ |
|
|
Capital contribution from Cinemark
Holdings, Inc. related to income taxes |
|
$ |
|
|
|
$ |
|
|
|
|
$ |
|
|
|
$ |
53,351 |
|
During December 2007, the Company sold the land and building for one of its theatres for
approximately $22,739, resulting in a gain of approximately $2,653. The Company has elected to use
these proceeds to purchase a like-kind property in accordance with certain tax guidelines in the
Internal Revenue Code. As a result of this election, the proceeds were deposited to an escrow
account to which the Company does not have access until it has identified the like-kind property to
purchase with the proceeds. As of December 31, 2007, the proceeds from this sale are included as
Deferred Charges and Other Assets on the Companys consolidated balance sheet.
19. INCOME TAXES
Income (loss) before income taxes consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2006 |
|
|
October 5, 2006 |
|
|
|
|
Year Ended |
|
to |
|
|
to |
|
Year Ended |
|
|
December 31, |
|
October 4, |
|
|
December 31, |
|
December 31, |
|
|
2005 |
|
2006 |
|
|
2006 |
|
2007 |
|
|
(Predecessor) |
|
(Predecessor) |
|
|
(Successor) |
|
(Successor) |
Income (loss) before income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
$ |
19,838 |
|
|
$ |
20,546 |
|
|
|
$ |
(6,213 |
) |
|
$ |
181,727 |
|
Foreign |
|
|
16,742 |
|
|
|
17,218 |
|
|
|
|
(11,007 |
) |
|
|
12,765 |
|
|
|
|
|
|
|
Total |
|
$ |
36,580 |
|
|
$ |
37,764 |
|
|
|
$ |
(17,220 |
) |
|
$ |
194,492 |
|
|
|
|
|
|
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
17,651 |
|
|
$ |
11,021 |
|
|
|
$ |
8,266 |
|
|
$ |
121,517 |
|
Foreign |
|
|
2,115 |
|
|
|
5,312 |
|
|
|
|
(5,567 |
) |
|
|
5,519 |
|
State |
|
|
1,972 |
|
|
|
731 |
|
|
|
|
137 |
|
|
|
17,087 |
|
|
|
|
|
|
|
Total current expense |
|
|
21,738 |
|
|
|
17,064 |
|
|
|
|
2,836 |
|
|
|
144,123 |
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
(7,513 |
) |
|
|
(3,725 |
) |
|
|
|
(8,358 |
) |
|
|
(33,103 |
) |
Foreign |
|
|
356 |
|
|
|
(4,905 |
) |
|
|
|
8,976 |
|
|
|
286 |
|
State |
|
|
(388 |
) |
|
|
644 |
|
|
|
|
(343 |
) |
|
|
(1,797 |
) |
|
|
|
|
|
|
Total deferred expense |
|
|
(7,545 |
) |
|
|
(7,986 |
) |
|
|
|
275 |
|
|
|
(34,614 |
) |
|
|
|
|
|
|
Income tax expense |
|
$ |
14,193 |
|
|
$ |
9,078 |
|
|
|
$ |
3,111 |
|
|
$ |
109,509 |
|
|
|
|
|
|
|
F-29
CINEMARK, 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 |
|
January 1, 2006 |
|
|
October 5, 2006 to |
|
Year Ended |
|
|
December 31, |
|
to October 4, |
|
|
December 31, |
|
December 31, |
|
|
2005 |
|
2006 |
|
|
2006 |
|
2007 |
|
|
(Predecessor) |
|
(Predecessor) |
|
|
(Successor) |
|
(Successor) |
Computed normal tax expense |
|
$ |
12,803 |
|
|
$ |
13,217 |
|
|
|
$ |
(6,027 |
) |
|
$ |
68,073 |
|
Goodwill impairments |
|
|
91 |
|
|
|
(42 |
) |
|
|
|
4,764 |
|
|
|
23,050 |
|
Foreign inflation adjustments |
|
|
(2,332 |
) |
|
|
(1,553 |
) |
|
|
|
3,356 |
|
|
|
(620 |
) |
State and local income taxes, net of federal income tax benefit |
|
|
1,030 |
|
|
|
893 |
|
|
|
|
(134 |
) |
|
|
9,861 |
|
Foreign losses not benefited and other changes in valuation
allowance |
|
|
(918 |
) |
|
|
(1,909 |
) |
|
|
|
1,872 |
|
|
|
(536 |
) |
Foreign tax rate differential |
|
|
(33 |
) |
|
|
40 |
|
|
|
|
906 |
|
|
|
3,721 |
|
Foreign dividends, including Section 965 |
|
|
3,158 |
|
|
|
433 |
|
|
|
|
145 |
|
|
|
1,405 |
|
Other net |
|
|
394 |
|
|
|
(2,001 |
) |
|
|
|
(1,771 |
) |
|
|
4,555 |
|
|
|
|
|
|
|
Income tax expense |
|
$ |
14,193 |
|
|
$ |
9,078 |
|
|
|
$ |
3,111 |
|
|
$ |
109,509 |
|
|
|
|
|
|
|
The tax effects of significant temporary differences and tax loss and tax credit carryforwards
comprising the net long-term deferred income tax liability at
December 31, 2006 and 2007 consisted
of the following:
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2007 |
|
|
|
(Successor) |
|
|
(Successor) |
|
Deferred liabilities: |
|
|
|
|
|
|
|
|
Theatre properties and equipment |
|
$ |
125,950 |
|
|
$ |
164,407 |
|
Deferred intercompany sale |
|
|
7,207 |
|
|
|
13,719 |
|
Intangible asset contracts |
|
|
12,394 |
|
|
|
11,505 |
|
Intangible asset tradenames |
|
|
117,019 |
|
|
|
117,197 |
|
Intangible asset net favorable leases |
|
|
3,695 |
|
|
|
1,731 |
|
|
|
|
Total deferred liabilities |
|
|
266,265 |
|
|
|
308,559 |
|
|
|
|
Deferred assets: |
|
|
|
|
|
|
|
|
Deferred lease expenses |
|
|
3,937 |
|
|
|
7,375 |
|
Theatre properties and equipment |
|
|
5,915 |
|
|
|
7,248 |
|
Deferred revenue related to NCM Transaction and Fandango Transaction |
|
|
|
|
|
|
67,961 |
|
Capital lease obligations |
|
|
44,477 |
|
|
|
46,194 |
|
Bonds |
|
|
7,598 |
|
|
|
(989 |
) |
Interest rate swaps agreements |
|
|
|
|
|
|
7,074 |
|
Debt issue costs |
|
|
2,194 |
|
|
|
557 |
|
Tax loss carryforward |
|
|
15,535 |
|
|
|
14,359 |
|
AMT and other credit carryforwards |
|
|
2,583 |
|
|
|
2,903 |
|
Other expenses, not currently deductible for tax purposes |
|
|
(771 |
) |
|
|
2,489 |
|
|
|
|
Total deferred assets |
|
|
81,468 |
|
|
|
155,171 |
|
|
|
|
Net deferred income tax liability before valuation allowance |
|
|
184,797 |
|
|
|
153,388 |
|
Valuation allowance |
|
|
8,862 |
|
|
|
9,872 |
|
|
|
|
Net deferred income tax liability |
|
$ |
193,659 |
|
|
$ |
163,260 |
|
|
|
|
Net deferred tax liability foreign |
|
$ |
11,256 |
|
|
$ |
11,542 |
|
Net deferred tax liability U.S. |
|
|
182,403 |
|
|
|
151,718 |
|
|
|
|
Total of all deferrals |
|
$ |
193,659 |
|
|
$ |
163,260 |
|
|
|
|
The Companys valuation allowance increased from $8,862 at December 31, 2006 to $9,872 at
December 31, 2007. This change was primarily due to utilization of Mexican asset tax credits and an
increase in foreign tax credit and state net operating loss carryovers.
The Companys foreign tax credit carryforwards begin expiring in 2015. The foreign net
operating losses began expiring in 2002; however, some losses may be carried forward indefinitely.
Certain of the Companys state net operating losses expired in 2006. The vast majority of state
net operating losses may be carried forward for up to twenty years with the last expiring year
being 2026.
Management continues to reinvest the undistributed earnings of its foreign subsidiaries.
Accordingly, deferred U.S. federal and state income taxes are not provided on the undistributed
earnings of these foreign subsidiaries. As of
F-30
CINEMARK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
December 31, 2007, the cumulative amount of
undistributed earnings of these foreign subsidiaries on which the Company has not recognized income
taxes was approximately $141,000.
The Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes
(FIN 48), on January 1, 2007. As a result of the implementation of FIN 48, the Company recognized
an increase to its liability for uncertain tax positions of approximately $1,093, which was
accounted for as a cumulative effect on beginning retained earnings at January 1, 2007. At the
adoption date, the Company had approximately $12,084 of gross unrecognized tax benefits, including
interest and penalties. Of this amount, $7,931 represents the amount of unrecognized tax benefits
that, if recognized, would impact the effective income tax rate. The Company recognizes interest
and/or penalties related to income tax matters in income tax expense. As of January 1, 2007 the
Company had $1,572 accrued for the payment of interest and penalties.
The following is a reconciliation of the total amounts of unrecognized tax benefits excluding
interest and penalties since the inception of FIN 48:
|
|
|
|
|
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 |
|
|
|
|
|
As of December 31, 2007, the Company had $15,500 of gross unrecognized tax benefits, including
interest and penalties. Of this amount, $10,768 represents the amount of unrecognized tax benefits
that, if recognized, would impact the effective income tax rate. As of December 31, 2007 the
Company had $3,007 accrued for interest and/or penalties.
Cinemark files income tax returns in multiple jurisdictions throughout the US and Latin
America. In the US, we are currently under audit by the Internal Revenue Service for the 2002,
2003 and 2004 tax years. Due to uncertainty regarding the timing of the settlement of tax audits,
it is possible that there could be significant changes in the amounts of unrecognized tax benefits
in 2008, but the amount of such changes cannot be estimated as of December 31, 2007.
The Company or one of its subsidiaries files 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. Management 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-US income tax examinations by tax authorities in its major non-U.S. tax
jurisdictions for years before 1998.
F-31
CINEMARK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
20. 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 $14,285 and $19,235 at December 31, 2006 and 2007, 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from |
|
|
Period from |
|
|
|
|
Year Ended |
|
January 1, 2006 to |
|
|
October 5, 2006 to |
|
Year Ended |
|
|
December 31, |
|
October 4, |
|
|
December 31, |
|
December 31, |
|
|
2005 |
|
2006 |
|
|
2006 |
|
2007 |
|
|
(Predecessor) |
|
(Predecessor) |
|
|
(Successor) |
|
(Successor) |
Fixed rent expense |
|
$ |
110,995 |
|
|
$ |
89,296 |
|
|
|
$ |
37,815 |
|
|
$ |
164,915 |
|
Contingent rent expense |
|
|
25,598 |
|
|
|
20,217 |
|
|
|
|
10,431 |
|
|
|
47,815 |
|
|
|
|
|
|
|
Facility lease expense |
|
|
136,593 |
|
|
|
109,513 |
|
|
|
|
48,246 |
|
|
|
212,730 |
|
Corporate office rent expense |
|
|
1,432 |
|
|
|
1,067 |
|
|
|
|
543 |
|
|
|
1,996 |
|
|
|
|
|
|
|
Total rent expense |
|
$ |
138,025 |
|
|
$ |
110,580 |
|
|
|
$ |
48,789 |
|
|
$ |
214,726 |
|
|
|
|
|
|
|
Future minimum lease payments under noncancelable operating and capital leases that have
initial or remaining terms in excess of one year at December 31, 2007 are due as follows:
|
|
|
|
|
|
|
|
|
|
|
Operating |
|
|
Capital |
|
|
|
Leases |
|
|
Leases |
|
2008 |
|
$ |
177,089 |
|
|
$ |
17,002 |
|
2009 |
|
|
176,433 |
|
|
|
17,057 |
|
2010 |
|
|
172,767 |
|
|
|
17,310 |
|
2011 |
|
|
166,705 |
|
|
|
16,272 |
|
2012 |
|
|
161,947 |
|
|
|
16,423 |
|
Thereafter |
|
|
1,103,437 |
|
|
|
150,691 |
|
|
|
|
Total |
|
$ |
1,958,378 |
|
|
$ |
234,755 |
|
|
|
|
|
|
|
|
|
Amounts representing interest payments |
|
|
|
|
|
|
(113,585 |
) |
|
|
|
|
|
|
|
|
Present value of future minimum payments |
|
|
|
|
|
$ |
121,170 |
|
Current portion of capital lease obligations |
|
|
|
|
|
|
4,684 |
|
|
|
|
|
|
|
|
|
Capital lease obligations, less current portion |
|
|
|
|
|
$ |
116,486 |
|
|
|
|
|
|
|
|
|
Employment Agreements On March 12, 2004, the Company entered into new employment agreements
with certain executives which became effective upon the consummation of the MDP Merger on April 2,
2004. In addition, in connection with the MDP Merger, the Company paid a one-time special bonus in
the amount of $2,400 to Lee Roy Mitchell and in the amount of $50 to each of Alan Stock, Tim Warner
and Robert Copple. Set forth below is a summary of the Companys employment agreements.
F-32
CINEMARK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
Lee Roy Mitchell
The Company entered into an employment agreement with Lee Roy Mitchell pursuant to which Mr.
Mitchell currently serves as the Companys Chairman. The employment agreement became effective upon
the consummation of the MDP Merger. The initial term of the employment agreement is three years,
subject to an automatic extension for a one-year period, unless the employment agreement is
terminated. Mr. Mitchell received a base salary of approximately $795 during 2007, which is subject
to annual review for increase (but not decrease) each year by the Companys board of directors or
committee or delegate thereof. In addition, Mr. Mitchell is eligible to receive an annual cash
incentive bonus upon the Company meeting certain performance targets established by the board or
the compensation committee for the fiscal year. Mr. Mitchell is also entitled to additional fringe
benefits including life insurance benefits of not less than $5,000, disability benefits of not less
than 66% of base salary, a luxury automobile and a membership at a country club. The employment
agreement provides for severance payments upon termination of employment, the amount and nature of
which depends upon the reason for the termination of employment. If Mr. Mitchell resigns for good
reason or is terminated by the Company without cause (as defined in the agreement), Mr. Mitchell
will receive: accrued compensation (which includes base salary and a pro rata bonus) through the
date of termination; his annual base salary as in effect at the time of termination for a period
of twelve months following such termination; an amount equal to the most recent annual bonus he
received prior to the date of termination; and any previously vested stock options and accrued benefits, such as retirement
benefits, in accordance with the terms of the plan or agreement pursuant to which such options or
benefits were granted. Mr. Mitchells equity-based or performance-based awards
will become fully vested and exercisable upon such termination or
resignation and Mr. Mitchell may
choose to continue to participate in the Companys benefit plans
for a period of twelve months from the date of such termination.
In the event Mr. Mitchells employment is terminated due to his death or disability, Mr.
Mitchell or his estate will receive: accrued compensation (which includes base salary and a pro
rata bonus) through the date of termination; any previously vested stock options and accrued
benefits, such as retirement benefits, in accordance with the terms of the plan or agreement
pursuant to which such options or benefits were granted; his annual base salary as in effect at the
time of termination for a period of six months following the date Mr.
Mitchell is first unable to substantially perform his duties under
his employment agreement; a lump sum payment equal
to an additional six months of base salary payable six months after
the date of such six month period; and
any benefits payable to Mr. Mitchell and or his beneficiaries in accordance with the terms of any
applicable benefit plan.
In the event Mr. Mitchells employment is terminated by the Company for cause or under a
voluntary termination (as defined in the agreement), Mr. Mitchell will receive: accrued base salary
through the date of termination; and any previously vested rights under a stock option or similar
incentive compensation plan in accordance with the terms of such plan.
Unless
Mr. Mitchells employment is terminated by us for cause or under
a voluntary termination, Mr. Mitchell will also be entitled, for a period of five years, to tax preparation assistance
upon termination of his employment. The employment agreement contains various covenants, including covenants related to
confidentiality, non-competition (other than certain permitted activities as defined therein) and
non-solicitation.
Tandy Mitchell, Alan Stock, Robert Copple, Timothy Warner, Robert Carmony, John Lundin and Michael
Cavalier
The Company entered into executive employment agreements with each of Tandy Mitchell, Alan
Stock, Robert Copple, Timothy Warner, Robert Carmony, John Lundin and Michael Cavalier pursuant to
which Mrs. Mitchell and Messrs. Stock, Copple, Warner, Carmony, Lundin and Cavalier currently
serve, respectively, as the Companys Executive Vice President, Chief Executive Officer, Executive
Vice President and Chief Financial Officer, President and Chief Operating Officer, Senior Vice
President New Technology and Training, Vice President of Film Licensing and Senior Vice President
General Counsel. The employment agreements became effective upon the consummation of the MDP
Merger. The initial term of each employment agreement is three years, subject to automatic
extensions for a one-year period at the end of each year of the term, unless the agreement is
terminated. Pursuant to the employment agreements, each of these individuals receives a base
salary, which is subject to annual review for increase (but not decrease) each year by the
Companys board of directors or committee or delegate thereof. In addition, each of these
executives is
F-33
CINEMARK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
eligible to receive an annual cash incentive bonus upon the Companys meeting certain
performance targets established by the Companys board of directors or the compensation committee
for the fiscal year.
The Companys board of directors has adopted a stock option plan and granted each executive
stock options to acquire such number of shares as set forth in that executives employment
agreement. The executives stock options vest and become exercisable twenty percent per year on a
daily pro rata basis and shall be fully vested and exercisable five years after the date of the
grant, as long as the executive remains continuously employed by the Company. Upon consummation of
a sale of the Company, the executives stock options will accelerate and become fully vested.
The employment agreement with each executive provides for severance payments on substantially
the same terms as the employment agreement for Mr. Mitchell. Each executive will also be entitled to office space and support services for a period of not
more than three months following the date of any termination except for termination for cause. The
employment agreements contain various covenants, including covenants related to confidentiality,
non-competition and non-solicitation.
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 $1,295 and $1,430 were made in 2006 (for plan year 2005) and 2007 (for
plan year 2006), respectively. A liability of approximately $1,795 has been recorded at December
31, 2007 for contribution payments to be made in 2008 (for plan year 2007).
Letters of Credit and Collateral The Company had outstanding letters of credit of $69, in
connection with property and liability insurance coverage, at December 31, 2006 and 2007.
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 will make 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 must be completed by
November 2009. Upon completion of these modifications, such theatres will comply 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-34
CINEMARK, 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, most 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.
21. |
|
SEGMENTS |
|
|
|
At December 31, 2007, the Company identified its international market and its U.S. market as
separate reportable operating segments. The international segment consists of operations in Mexico,
Argentina, Brazil, Chile, Ecuador, Peru, Honduras, El Salvador, Nicaragua, Costa Rica, Panama and
Colombia. 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 primary 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
Companys management evaluates the performance of its assets on a consolidated basis. Below is a
breakdown of select financial information by reportable operating segment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from |
|
|
Period from |
|
|
|
|
Year Ended |
|
January 1, 2006 |
|
|
October 5, 2006 |
|
Year Ended |
|
|
December 31, |
|
to |
|
|
to |
|
December 31, |
|
|
2005 |
|
October 4, 2006 |
|
|
December 31, 2006 |
|
2007 |
|
|
(Predecessor) |
|
(Predecessor) |
|
|
(Successor) |
|
(Successor) |
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
$ |
757,902 |
|
|
$ |
607,729 |
|
|
|
$ |
328,955 |
|
|
$ |
1,352,042 |
|
International |
|
|
264,314 |
|
|
|
222,780 |
|
|
|
|
63,074 |
|
|
|
333,624 |
|
Eliminations |
|
|
(1,619 |
) |
|
|
(1,420 |
) |
|
|
|
(524 |
) |
|
|
(2,825 |
) |
|
|
|
|
|
|
Total revenues |
|
$ |
1,020,597 |
|
|
$ |
829,089 |
|
|
|
$ |
391,505 |
|
|
$ |
1,682,841 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from |
|
|
Period from |
|
|
|
|
Year Ended |
|
January 1, 2006 |
|
|
October 5, 2006 |
|
Year Ended |
|
|
December 31, |
|
to |
|
|
to |
|
December 31, |
|
|
2005 |
|
October 4, 2006 |
|
|
December 31, 2006 |
|
2007 |
|
|
(Predecessor) |
|
(Predecessor) |
|
|
(Successor) |
|
(Successor) |
Adjusted EBITDA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
$ |
155,987 |
|
|
$ |
135,300 |
|
|
|
$ |
82,545 |
|
|
$ |
310,202 |
|
International |
|
|
54,148 |
|
|
|
45,212 |
|
|
|
|
8,558 |
|
|
|
67,138 |
|
|
|
|
|
|
|
Total Adjusted EBITDA |
|
$ |
210,135 |
|
|
$ |
180,512 |
|
|
|
$ |
91,103 |
|
|
$ |
377,340 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
Year Ended |
|
|
December 31, |
|
December 31, |
|
|
2006 |
|
2007 |
|
|
(Successor) |
|
(Successor) |
Capital Expenditures: |
|
|
|
|
|
|
|
|
U.S. |
|
$ |
80,786 |
|
|
$ |
110,496 |
|
International |
|
|
26,295 |
|
|
|
35,808 |
|
|
|
|
|
Total Capital Expenditures |
|
$ |
107,081 |
|
|
$ |
146,304 |
|
|
|
|
|
F-35
CINEMARK, 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from |
|
|
|
|
|
|
|
|
Period from |
|
|
October 5, 2006 |
|
|
|
|
Year Ended |
|
January 1, 2006 |
|
|
to |
|
Year Ended |
|
|
December 31, |
|
to |
|
|
December 31, |
|
December 31, |
|
|
2005 |
|
October 4, 2006 |
|
|
2006 |
|
2007 |
|
|
(Predecessor) |
|
(Predecessor) |
|
|
(Successor) |
|
(Successor) |
Net income (loss) |
|
$ |
22,387 |
|
|
$ |
28,686 |
|
|
|
$ |
(20,331 |
) |
|
$ |
84,983 |
|
Add (deduct): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes |
|
|
14,193 |
|
|
|
9,078 |
|
|
|
|
3,111 |
|
|
|
109,509 |
|
Interest expense (1) |
|
|
86,867 |
|
|
|
69,191 |
|
|
|
|
42,220 |
|
|
|
145,596 |
|
Gain on NCM Transaction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(210,773 |
) |
Gain on Fandango transaction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,205 |
) |
Loss on early retirement of debt |
|
|
46 |
|
|
|
3,315 |
|
|
|
|
5,782 |
|
|
|
13,456 |
|
Other income |
|
|
(4,627 |
) |
|
|
(2,168 |
) |
|
|
|
(1,600 |
) |
|
|
(8,505 |
) |
Termination of profit participation agreement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,952 |
|
Depreciation and amortization |
|
|
76,229 |
|
|
|
59,913 |
|
|
|
|
34,281 |
|
|
|
148,781 |
|
Amortization of net favorable leases |
|
|
232 |
|
|
|
130 |
|
|
|
|
667 |
|
|
|
2,935 |
|
Impairment of long-lived assets |
|
|
9,672 |
|
|
|
5,741 |
|
|
|
|
23,337 |
|
|
|
86,558 |
|
(Gain) loss on sale of assets and other |
|
|
2,625 |
|
|
|
2,938 |
|
|
|
|
2,345 |
|
|
|
(2,953 |
) |
Deferred lease expenses |
|
|
1,253 |
|
|
|
724 |
|
|
|
|
378 |
|
|
|
5,979 |
|
Amortization of long-term prepaid rents |
|
|
1,258 |
|
|
|
816 |
|
|
|
|
197 |
|
|
|
1,146 |
|
Share based awards compensation expense |
|
|
|
|
|
|
2,148 |
|
|
|
|
716 |
|
|
|
2,881 |
|
|
|
|
|
|
|
Adjusted EBITDA |
|
$ |
210,135 |
|
|
$ |
180,512 |
|
|
|
$ |
91,103 |
|
|
$ |
377,340 |
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes amortization of debt issue costs. |
Financial Information About Geographic Areas
We have operations in the U.S., Canada, Mexico, Argentina, Brazil, Chile, Ecuador, Peru,
Honduras, El Salvador, Nicaragua, Costa Rica, Panama and Colombia, which are reflected in the
consolidated financial statements. Below is a breakdown of select financial information by
geographic area:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from |
|
|
Period from |
|
|
|
|
Year Ended |
|
January 1, 2006 |
|
|
October 5, 2006 |
|
Year Ended |
|
|
December 31, |
|
to October 4, |
|
|
to December |
|
December 31, |
|
|
2005 |
|
2006 |
|
|
31, 2006 |
|
2007 |
|
|
(Predecessor) |
|
(Predecessor) |
|
|
(Successor) |
|
(Successor) |
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. and Canada |
|
$ |
757,902 |
|
|
$ |
607,729 |
|
|
|
$ |
328,955 |
|
|
$ |
1,352,042 |
|
Mexico |
|
|
74,919 |
|
|
|
55,704 |
|
|
|
|
15,885 |
|
|
|
74,983 |
|
Brazil |
|
|
112,182 |
|
|
|
98,950 |
|
|
|
|
29,605 |
|
|
|
157,158 |
|
Other foreign countries |
|
|
77,213 |
|
|
|
68,126 |
|
|
|
|
17,584 |
|
|
|
101,483 |
|
Eliminations |
|
|
(1,619 |
) |
|
|
(1,420 |
) |
|
|
|
(524 |
) |
|
|
(2,825 |
) |
|
|
|
|
|
|
Total |
|
$ |
1,020,597 |
|
|
$ |
829,089 |
|
|
|
$ |
391,505 |
|
|
$ |
1,682,841 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
December 31, |
|
|
2006 |
|
2007 |
|
|
(Successor) |
|
(Successor) |
|
|
|
Theatres properties and
equipment, net |
|
|
|
|
|
|
|
|
U.S. and Canada |
|
$ |
1,169,456 |
|
|
$ |
1,137,244 |
|
Mexico |
|
|
51,272 |
|
|
|
59,201 |
|
Brazil |
|
|
55,749 |
|
|
|
72,635 |
|
Other foreign countries |
|
|
48,095 |
|
|
|
44,986 |
|
|
|
|
Total |
|
$ |
1,324,572 |
|
|
$ |
1,314,066 |
|
|
|
|
F-36
CINEMARK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
22. OTHER RELATED PARTY TRANSACTIONS
The Company leases one theatre from Plitt Plaza Joint Venture (Plitt Plaza) on a
month-to-month basis. Plitt Plaza is indirectly owned by Lee Roy Mitchell. Annual rent is
approximately $118 plus certain taxes, maintenance expenses and insurance. The Company recorded
$152, $111, $38 and $120 of facility lease and other operating expenses payable to Plitt Plaza
joint venture during the year ended December 31, 2005, the period from January 1, 2006 to October
4, 2006, the period from October 5, 2006 to December 31, 2006 and the year ended December 31, 2007,
respectively.
The Company manages one theatre for Laredo Theatre, Ltd. (Laredo). The Company is the sole
general partner and owns 75% of the limited partnership interests of Laredo. Lone Star Theatres,
Inc. owns the remaining 25% of the limited partnership interests in Laredo and is 100% owned by Mr.
David Roberts, Lee Roy Mitchells son-in-law. Under the agreement, management fees are paid by
Laredo to the Company at a rate of 5% of annual theatre revenues up to $50,000 and 3% of annual
theatre revenues in excess of $50,000. The Company recorded $201, $165, $26 and $82 of management
fee revenues the year ended December 31, 2005, the period from January 1, 2006 to October 4, 2006,
the period from October 5, 2006 to December 31, 2006, and the year ended December 31, 2007,
respectively, and received $675, $300, $300 and $0 of distributions from Laredo during the year
ended December 31, 2005, the period from January 1, 2006 to October 4, 2006, the period from
October 5, 2006 to December 31, 2006, and the year ended December 31, 2007, respectively. All such
amounts are included in the Companys consolidated financial statements with the intercompany
amounts eliminated in consolidation.
The Company leases 25 theatres and two parking facilities from Syufy Enterprises, LP (Syufy)
or affiliates of Syufy, which owns approximately 8% of the Companys issued and outstanding shares
of common stock. Raymond Syufy is one of the Companys directors and is an officer of the general
partner of Syufy. Of these 27 leases, 22 have fixed minimum annual rent in an aggregate amount of
approximately $23,280. Of these 22 leases with fixed minimum annual rent, 17 have a remaining lease
term plus extension option(s) that exceed 30 years, four have a remaining lease term plus extension
option(s) that exceed 17 years, and one has a remaining lease term of approximately two years.
Three of these 22 leases have triggering events that allow the Company to convert the fixed minimum
rent to a fixed percentage of gross sales as defined in the lease with the further right to
terminate the lease if the theatre level cash flow drops below $0. Five of these 22 leases have
triggering events that allow the Company to terminate the lease prior to expiration of the term.
The five leases without minimum annual rent have rent based upon a specified percentage of gross
sales as defined in the lease with no minimum annual rent. Four of these percentage rent leases
expire in approximately nine months but have automatic 12 month renewal options, and the Company
has the right to terminate the leases if theatre level cash flow drops below $0. One of these
percentage rent leases has a remaining term of 9 months and Syufy has the right to terminate this
lease prior to the end of the term.
The Company also has an office lease with Syufy for corporate office space in San Rafael,
California. The lease will expire in September 2008. The lease has a fixed minimum annual rent of
approximately $300.
The Company entered into an amended and restated profit participation agreement on March 12,
2004 with its CEO, Alan Stock, which became effective on April 2, 2004, and amended the profit
participation agreement with Mr. Stock in
effect since May 2002. Under the agreement, Mr. Stock received a profit interest in two
theatres once the Company recovered its capital investment in these theatres plus its borrowing
costs. After Cinemark Holdings, Inc.s initial public offering, the Company exercised its option to
terminate the amended and restated profit participation agreement and purchased Mr. Stocks
interest in the theatres on May 3, 2007 for a price of $6,853 pursuant to the terms of the
agreement. The Company also paid payroll taxes of approximately $99 related to the payment made to
terminate the amended and restated profit participation agreement. The aggregate amount paid of
$6,952 is reflected within cost of operations in the Companys consolidated statement of operations
for the year ended December 31, 2007 and the agreement with Mr. Stock has been terminated.
Prior to the completion of the Century Acquisition, Century Theatres, Inc. owned certain
shares of Fandango, Inc., an on-line ticketing distributor. In connection with the Century
Acquisition, the Company agreed to pay Syufy the cash proceeds received by the Company in
connection with any sale of such shares of Fandango, Inc. up to a maximum amount of $2,800. As
discussed in Note 8, the Company sold all of its shares of Fandango, Inc. stock during May 2007
F-37
CINEMARK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
for approximately $14,147 of consideration and paid $2,800 of the cash consideration to Syufy in
accordance with the Century Acquisition agreement.
23. VALUATION AND QUALIFYING ACCOUNTS
The Companys valuation allowance for deferred tax assets for the years ended December 31,
2005, the period from January 1, 2006 to October 4, 2006, the period from October 5, 2006 to
December 31, 2006, and the year ended December 31, 2007 were as follows:
|
|
|
|
|
|
|
Valuation |
|
|
|
Allowance |
|
|
|
for Deferred |
|
|
|
Tax Assets |
|
Predecessor Balance at January 1, 2005 |
|
$ |
9,816 |
|
Additions |
|
|
1,464 |
|
Deductions |
|
|
(2,382 |
) |
|
|
|
|
Predecessor Balance at December 31, 2005 |
|
$ |
8,898 |
|
Additions |
|
|
3,000 |
|
Deductions |
|
|
(4,909 |
) |
|
|
|
|
Predecessor Balance at October 4, 2006 |
|
$ |
6,989 |
|
Additions |
|
|
1,932 |
|
Deductions |
|
|
(59 |
) |
|
|
|
|
Successor Balance at December 31, 2006 |
|
$ |
8,862 |
|
Additions |
|
|
2,370 |
|
Deductions |
|
|
(1,360 |
) |
|
|
|
|
Successor Balance at December 31, 2007 |
|
$ |
9,872 |
|
|
|
|
|
24. SUBSEQUENT EVENT REPURCHASE OF SENIOR DISCOUNT NOTES
On March 20, 2008, in one open market purchase, the Company repurchased $10,000 aggregate
principal amount at maturity of its 9 3/4% senior discount notes for approximately $8,950. The
Company funded the transaction with proceeds from Cinemark Holdings, Inc.s initial public
offering. As a result of the transaction, the Company will record a loss on early retirement of
debt of approximately $40, which primarily includes the write-off of unamortized debt issue costs
related to the repurchased notes
F-38
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Members of
National CineMedia, LLC
Centennial, Colorado
We have audited the accompanying balance sheets of National CineMedia LLC (the Company) as of
December 27, 2007 and as of December 28, 2006 and the related statements of operations, members
equity (deficit) and cash flows for the period February 13, 2007 through December 27, 2007, the
period December 29, 2006 through February 12, 2007, for the year ended December 28, 2006, and for
the period March 29, 2005 through December 29, 2005. These financial statements are the
responsibility of the Companys management. Our responsibility is to express an opinion on the
financial statements 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. The
Company is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Companys internal control
over financial reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements, 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 financial statements present fairly, in all material respects, the financial
position of National CineMedia LLC as of December 27, 2007 and the related statements of
operations, members equity (deficit) and cash flows for the period February 13, 2007 through
December 27, 2007, the period December 29, 2006 through February 12, 2007, for the year ended
December 28, 2006, and for the period March 29, 2005 through December 29, 2005 in conformity with
accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
Denver, Colorado
March 21, 2008
F-39
NATIONAL CINEMEDIA, LLC
BALANCE SHEETS
(In millions)
|
|
|
|
|
|
|
|
|
|
|
December 27, 2007 |
|
|
December 28, 2006 |
|
ASSETS |
|
|
|
|
|
|
|
|
CURRENT ASSETS: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
7.5 |
|
|
$ |
6.7 |
|
Receivables, net of allowance of $1.5 million in 2007
and $1.1 million in 2006 |
|
|
91.6 |
|
|
|
63.9 |
|
Prepaid expenses |
|
|
1.9 |
|
|
|
1.6 |
|
Prepaid management fees to managing member |
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
101.5 |
|
|
|
72.2 |
|
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $17.3 million in 2007 and $12.7 million in 2006 |
|
|
22.2 |
|
|
|
12.6 |
|
OTHER ASSETS: |
|
|
|
|
|
|
|
|
Debt issuance costs, net |
|
|
13.0 |
|
|
|
0.2 |
|
Investment in affiliate |
|
|
7.0 |
|
|
|
|
|
Restricted cash |
|
|
0.3 |
|
|
|
|
|
Other assets |
|
|
0.2 |
|
|
|
5.0 |
|
|
|
|
|
|
|
|
Total other assets |
|
|
20.5 |
|
|
|
5.2 |
|
|
|
|
|
|
|
|
TOTAL |
|
$ |
144.2 |
|
|
$ |
90.0 |
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
6.6 |
|
|
$ |
5.4 |
|
Amounts due to founding members |
|
|
15.8 |
|
|
|
53.9 |
|
Amounts due to managing member |
|
|
16.7 |
|
|
|
|
|
Accrued payroll and related expenses |
|
|
7.2 |
|
|
|
6.4 |
|
Accrued expenses |
|
|
10.0 |
|
|
|
5.5 |
|
Deferred revenue |
|
|
3.3 |
|
|
|
3.4 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
59.6 |
|
|
|
74.6 |
|
OTHER LIABILITIES: |
|
|
|
|
|
|
|
|
Unit option plan payable |
|
|
|
|
|
|
1.9 |
|
Interest rate swap agreements and other liabilities |
|
|
14.4 |
|
|
|
|
|
Borrowings |
|
|
784.0 |
|
|
|
10.0 |
|
|
|
|
|
|
|
|
Total other liabilities |
|
|
798.4 |
|
|
|
11.9 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
858.0 |
|
|
|
86.5 |
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES (NOTE 10) |
|
|
|
|
|
|
|
|
MEMBERS EQUITY (DEFICIT) |
|
|
(713.8 |
) |
|
|
3.5 |
|
|
|
|
|
|
|
|
TOTAL |
|
$ |
144.2 |
|
|
$ |
90.0 |
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
F-40
NATIONAL CINEMEDIA, LLC
STATEMENTS OF OPERATIONS
(In millions, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period |
|
|
Period |
|
|
|
|
|
|
|
|
February 13, |
|
|
December 29, |
|
|
|
|
|
Period March |
|
|
2007 through |
|
|
2006 through |
|
Year Ended |
|
29, 2005 through |
|
|
December 27, |
|
|
February 12, |
|
December 28, |
|
December 29, |
|
|
2007 |
|
|
2007 |
|
2006 |
|
2005 |
|
|
|
|
|
|
REVENUE: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising (including revenue from
founding members of $40.9 and $0.0
for all remaining periods) |
|
$ |
282.7 |
|
|
|
$ |
20.6 |
|
|
$ |
188.2 |
|
|
$ |
56.0 |
|
Administrative feesfounding members |
|
|
|
|
|
|
|
0.1 |
|
|
|
5.4 |
|
|
|
30.8 |
|
Meetings and events |
|
|
25.4 |
|
|
|
|
2.9 |
|
|
|
25.4 |
|
|
|
11.7 |
|
Other |
|
|
0.2 |
|
|
|
|
|
|
|
|
0.3 |
|
|
|
0.3 |
|
|
|
|
|
|
|
Total |
|
|
308.3 |
|
|
|
|
23.6 |
|
|
|
219.3 |
|
|
|
98.8 |
|
|
|
|
|
|
|
EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising operating costs |
|
|
9.1 |
|
|
|
|
1.1 |
|
|
|
9.2 |
|
|
|
6.3 |
|
Meetings and events operating costs |
|
|
15.4 |
|
|
|
|
1.4 |
|
|
|
11.1 |
|
|
|
5.4 |
|
Network costs |
|
|
13.3 |
|
|
|
|
1.7 |
|
|
|
14.7 |
|
|
|
9.2 |
|
Theatre access fees/circuit share
costsfounding members |
|
|
41.5 |
|
|
|
|
14.4 |
|
|
|
130.1 |
|
|
|
38.6 |
|
Selling and marketing costs |
|
|
40.9 |
|
|
|
|
5.2 |
|
|
|
38.2 |
|
|
|
24.9 |
|
Administrative costs |
|
|
10.0 |
|
|
|
|
2.8 |
|
|
|
16.4 |
|
|
|
9.8 |
|
Administrative fee- managing member |
|
|
9.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance plan costs |
|
|
1.5 |
|
|
|
|
0.4 |
|
|
|
4.2 |
|
|
|
8.5 |
|
Depreciation and amortization |
|
|
5.0 |
|
|
|
|
0.7 |
|
|
|
4.8 |
|
|
|
3.0 |
|
Other costs |
|
|
0.9 |
|
|
|
|
|
|
|
|
0.6 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
146.8 |
|
|
|
|
27.7 |
|
|
|
229.3 |
|
|
|
105.7 |
|
|
|
|
|
|
|
OPERATING INCOME (LOSS) |
|
|
161.5 |
|
|
|
|
(4.1 |
) |
|
|
(10.0 |
) |
|
|
(6.9 |
) |
Interest Expense, Net |
|
|
47.8 |
|
|
|
|
0.1 |
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) |
|
$ |
113.7 |
|
|
|
$ |
(4.2 |
) |
|
$ |
(10.5 |
) |
|
|
(6.9 |
) |
|
|
|
|
|
|
See accompanying notes to financial statements.
F-41
NATIONAL CINEMEDIA, LLC
STATEMENTS OF MEMBERS EQUITY/ (DEFICIT)
AND COMPREHENSIVE INCOME
(In millions, except share data)
|
|
|
|
|
|
|
Total |
|
Members Equity |
|
|
|
|
BalanceMarch 29, 2005 |
|
|
|
|
Issuance of
initial units at inception date in exchange for contributed assets, net of liabilities assumed |
|
$ |
0.9 |
|
Issuance of additional units in exchange for cash |
|
$ |
7.3 |
|
Contribution of Severance Plan payments |
|
$ |
8.5 |
|
Net loss |
|
$ |
(6.9 |
) |
|
|
|
|
BalanceDecember 29, 2005 |
|
$ |
9.8 |
|
|
|
|
|
Capital contribution from Members |
|
$ |
0.9 |
|
Contribution of Severance Plan payments |
|
$ |
4.2 |
|
Distribution to Members |
|
$ |
(0.9 |
) |
Net loss |
|
$ |
(10.5 |
) |
|
|
|
|
BalanceDecember 28, 2006 |
|
$ |
3.5 |
|
|
|
|
|
Contribution of Severance Plan payments |
|
$ |
0.4 |
|
Net loss |
|
$ |
(4.2 |
) |
|
|
|
|
BalanceFebruary 12, 2007 |
|
$ |
(0.3 |
) |
|
|
|
|
Members Equity |
|
|
|
|
BalanceFebruary 13, 2007 |
|
$ |
(0.3 |
) |
Contribution of Severance Plan payments |
|
$ |
1.5 |
|
Capital contribution from managing member |
|
$ |
746.1 |
|
Capital contribution from founding members |
|
$ |
11.2 |
|
Distribution to managing member |
|
$ |
(53.3 |
) |
Distributions to founding members |
|
$ |
(1,521.6 |
) |
Reclassification of unit option plan |
|
$ |
2.3 |
|
Comprehensive Income: |
|
|
|
|
Unrealized (loss) on cash flow hedge |
|
$ |
(14.4 |
) |
Net income |
|
$ |
113.7 |
|
|
|
|
|
Total Comprehensive Income, net of tax |
|
$ |
99.3 |
|
Share-based compensation expense |
|
$ |
1.0 |
|
|
|
|
|
BalanceDecember 27, 2007 |
|
$ |
(713.8 |
) |
|
|
|
|
See accompanying notes to financial statements.
F-42
NATIONAL CINEMEDIA, LLC
STATEMENTS OF CASH FLOWS
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period |
|
|
Period |
|
|
|
|
|
|
|
|
February 13, |
|
|
December 29, |
|
|
|
|
|
Period March 29, |
|
|
2007 through |
|
|
2006 through |
|
Year Ended |
|
2005 through |
|
|
December 27, |
|
|
February 12, |
|
December 28, |
|
December 29, |
|
|
2007 |
|
|
2007 |
|
2006 |
|
2005 |
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income(loss) |
|
$ |
113.7 |
|
|
|
$ |
(4.2 |
) |
|
$ |
(10.5 |
) |
|
$ |
(6.9 |
) |
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
5.0 |
|
|
|
|
0.7 |
|
|
|
4.8 |
|
|
|
3.0 |
|
Non-cash severance plan and share-based compensation |
|
|
2.5 |
|
|
|
|
0.7 |
|
|
|
6.1 |
|
|
|
8.0 |
|
Amortization of debt issuance costs and loss on
repayment of debt |
|
|
1.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in receivablesnet |
|
|
(40.3 |
) |
|
|
|
12.6 |
|
|
|
(27.3 |
) |
|
|
(36.6 |
) |
Increase (decrease) in accounts payable and accrued
expenses |
|
|
10.4 |
|
|
|
|
(4.4 |
) |
|
|
4.4 |
|
|
|
8.2 |
|
(Decrease) increase in amounts due to founding
members and managing member |
|
|
(51.1 |
) |
|
|
|
(3.7 |
) |
|
|
33.4 |
|
|
|
20.5 |
|
Payment of severance plan costs |
|
|
|
|
|
|
|
|
|
|
|
(3.5 |
) |
|
|
|
|
Increase (decrease)in other |
|
|
(1.3 |
) |
|
|
|
0.5 |
|
|
|
0.9 |
|
|
|
0.9 |
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
40.6 |
|
|
|
|
2.2 |
|
|
|
8.3 |
|
|
|
(2.9 |
) |
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(13.8 |
) |
|
|
|
(0.5 |
) |
|
|
(6.3 |
) |
|
|
(5.9 |
) |
Investment in restricted cash |
|
|
(0.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in investment in affiliate |
|
|
(7.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities |
|
|
(21.1 |
) |
|
|
|
(0.5 |
) |
|
|
(6.3 |
) |
|
|
(5.9 |
) |
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reimbursement (payment) of offering costs and fees |
|
|
4.7 |
|
|
|
|
(0.1 |
) |
|
|
(4.0 |
) |
|
|
|
|
Proceeds of short-term borrowings from founding members |
|
|
|
|
|
|
|
|
|
|
|
3.0 |
|
|
|
9.5 |
|
Repayments of short-term borrowings to founding members |
|
|
|
|
|
|
|
|
|
|
|
(4.3 |
) |
|
|
(8.2 |
) |
Proceeds from borrowings |
|
|
924.0 |
|
|
|
|
13.0 |
|
|
|
66.0 |
|
|
|
|
|
Repayments of borrowings |
|
|
(150.0 |
) |
|
|
|
(13.0 |
) |
|
|
(56.0 |
) |
|
|
|
|
Payment of debt issuance costs |
|
|
(14.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of units |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.3 |
|
Contributions from managing member |
|
|
746.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from founding member contributions |
|
|
7.5 |
|
|
|
|
|
|
|
|
0.9 |
|
|
|
0.2 |
|
Distribution to founding members and managing member |
|
|
(1,538.0 |
) |
|
|
|
|
|
|
|
(0.9 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities |
|
|
(20.3 |
) |
|
|
|
(0.1 |
) |
|
|
4.7 |
|
|
|
8.8 |
|
|
|
|
|
|
|
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS |
|
|
(0.8 |
) |
|
|
|
1.6 |
|
|
|
6.7 |
|
|
|
|
|
CASH AND CASH EQUIVALENTS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period |
|
|
8.3 |
|
|
|
|
6.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period |
|
$ |
7.5 |
|
|
|
$ |
8.3 |
|
|
$ |
6.7 |
|
|
$ |
|
|
|
|
|
|
|
|
(Continued)
See accompanying notes to financial statements.
F-43
NATIONAL CINEMEDIA, LLC
STATEMENTS OF CASH FLOWS (CONTINUED)
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period |
|
|
|
Period |
|
|
|
|
|
|
|
|
|
|
February 13, |
|
|
|
December 29, |
|
|
|
|
|
|
Period March 29, |
|
|
|
2007 through |
|
|
|
2006 through |
|
|
Year Ended |
|
|
2005 through |
|
|
|
December 27, |
|
|
|
February 12, |
|
|
December 28, |
|
|
December 29, |
|
|
|
2007 |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
Supplemental disclosure of non-cash financing and
investing activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution for severance plan payments |
|
$ |
1.5 |
|
|
|
$ |
0.4 |
|
|
$ |
4.2 |
|
|
$ |
8.5 |
|
Increase in distributions payable to founding
members and managing member |
|
$ |
37.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions from members collected after period end |
|
$ |
3.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in property and equipment not requiring
cash in the period |
|
$ |
0.6 |
|
|
|
|
|
|
|
$ |
0.3 |
|
|
|
|
|
Increase in deferred offering costs |
|
|
|
|
|
|
|
|
|
|
$ |
0.5 |
|
|
|
|
|
Unit option plan reclassified to equity |
|
$ |
2.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
44.0 |
|
|
|
$ |
0.1 |
|
|
$ |
0.4 |
|
|
|
|
|
See accompanying notes to financial statements.
F-44
NATIONAL CINEMEDIA, LLC
NOTES TO FINANCIAL STATEMENTS
1. |
|
THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Description of Business
National CineMedia, LLC (NCM LLC or the Company) commenced operations on April 1, 2005
and operates the largest digital in-theatre network in North America that allows NCM to
distribute advertising, business meeting, and Fathom event services under long-term exhibitor
services agreements (ESAs) with American Multi-Cinema, Inc. (AMC), a wholly owned subsidiary
of AMC Entertainment Inc. (AMCE), Regal Cinemas, Inc., a wholly owned subsidiary of Regal
Entertainment Group (Regal), and Cinemark USA, Inc. (Cinemark USA), a wholly owned
subsidiary of Cinemark Holdings, Inc. (Cinemark). AMC, Regal and Cinemark and their
affiliates are referred to in this document as founding members. NCM LLC also provides such
services to certain third-party theater circuits under Network Affiliate Agreements which expire
at various dates.
NCM LLC was formed through the combination of the operations of National Cinema Network,
Inc. (NCN), a wholly owned subsidiary of AMCE, and Regal CineMedia Corporation (RCM), a
wholly owned subsidiary of Regal. In accordance with the Contribution and Unit Holders Agreement
entered into on that date by NCM LLC, NCN, and RCM, 16,387,670 units were issued to NCN and
27,903,330 units were issued to Regal CineMedia Holdings, LLC (RCM Holdings) in exchange for
the contribution of $0.9 million of cash and other assets, net of liabilities assumed. All
assets contributed to and liabilities assumed by NCM LLC were recorded on NCM LLCs records in
the amounts as reflected on the Members historic accounting records, based on the application
of accounting principles for the formation of a joint venture under Emerging Issues Task Force
(EITF) 984, Accounting by a Joint Venture for Businesses Received at its Formation. Although
legally structured as a limited liability company, NCM LLC was considered a joint venture for
accounting purposes given the joint control provisions of the operating agreement among the
members, consistent with Accounting Principles Board (APB) Opinion No. 18, The Equity Method
of Accounting for Investments in Common Stock.
On July 15, 2005, in exchange for a cash contribution of $7.3 million, 11,559,951 units
were issued to Cinemark Media, Inc. (Cinemark Media), a wholly owned subsidiary of Cinemark
USA, Inc.
As the result of final adjustments to the valuations attributed to the contributed assets
and liabilities resulting from AMCEs merger on December 23, 2004, with Marquee Holdings Inc.,
NCN contributed additional cash to NCM LLC during 2006, which was then distributed to RCM
Holdings and Cinemark Media, thus having no impact on the assets and liabilities of NCM LLC.
On February 13, 2007, National CineMedia, Inc. (NCM, Inc. or managing member), a
Company formed by NCM LLC and incorporated in the State of Delaware with the sole purpose of
becoming a member and sole manager of NCM, LLC, closed its initial public offering (IPO).
NCM, Inc. used the net proceeds from the IPO to purchase a 44.8% interest in NCM LLC, paying NCM
LLC $746.1 million, which included reimbursement to NCM LLC for expenses it advanced related to
the NCM, Inc. IPO and paying the founding members $78.5 million for a portion of the NCM LLC
units owned by them. NCM LLC paid $686.3 million of the funds received from NCM, Inc. to the
founding members as consideration for their agreement to modify the then-existing ESAs.
Proceeds received by NCM LLC from NCM, Inc. of $59.8 million, together with $709.7 million net
proceeds from NCM LLCs new senior secured credit facility (see Note 7) entered into
concurrently with the completion of NCM, Inc.s IPO were used to redeem $769.5 million in NCM
LLC preferred units held by the founding members. The preferred units were created immediately
prior to the NCM, Inc. IPO in a non-cash recapitalization of each membership unit into one
common unit and one preferred unit. Immediately prior to this non-cash recapitalization, the
existing common units and employee unit options (see Note 8) were split on a 44,291-to-1 basis.
All unit and per unit amounts in these financial statements reflect the impact of this split.
At December 27, 2007, NCM LLC had 93,850,951 membership units outstanding, of which 42,000,000
(44.8%) were owned by NCM, Inc., 21,230,712 (22.6%) were owned by RCM, 17,474,890 (18.6%) were
owned by AMC, and 13,145,349 (14.0%) were owned by Cinemark.
In connection with the completion of the NCM, Inc.s IPO, NCM, Inc. and the founding
members entered into a third amended and restated limited liability company operating agreement
of NCM LLC (LLC Operating Agreement). Under the LLC Operating Agreement, NCM, Inc. became a
member and the sole manager of NCM LLC. As the sole manager, NCM, Inc. is able to control all of
the day to day business affairs and decision-making of NCM LLC without the approval of any other
member. NCM, Inc. cannot be removed as manager of NCM LLC. NCM LLC entered into a management
services agreement with NCM, Inc. pursuant to which NCM, Inc. agrees to provide certain specific
management services to NCM LLC, including those services typically provided by the individuals
serving in the positions of president and chief executive officer, president of sales and chief
marketing officer, executive vice president
F-45
NATIONAL CINEMEDIA, LLC
NOTES TO FINANCIAL STATEMENTS
and chief financial officer, executive vice president and chief technology and operations
officer and executive vice president and general counsel. In exchange for the services, NCM LLC
reimburses NCM, Inc. for compensation and other expenses of the officers and for certain
out-of-pocket costs (see Note 6). NCM LLC also provides administrative and support services to
NCM, Inc. such as office facilities, equipment, supplies, payroll and accounting and financial
reporting. The management services agreement also provides that NCM LLC employees may
participate in the NCM, Inc. equity incentive plan (see Note 8). NCM LLC will indemnify NCM Inc.
for any losses arising from NCM Inc.s performance under the management services agreement,
except that NCM Inc. will indemnify NCM LLC for any losses caused by NCM Inc.s willful
misconduct or gross negligence.
Under the amended and restated ESAs with the founding members, subject to limited
exceptions, NCM LLC is the exclusive provider of advertising services to the founding members
for a 30-year term (with a five-year right of first refusal commencing one year before the end
of the term) and meetings and event services to the founding members for an initial five-year
term, with an automatic five-year renewal providing certain financial tests are met. In
exchange for the right to provide these services to the founding members, NCM LLC is required to
pay to the founding members a theatre access fee which is a specified calculation based on the
attendance at the founding member theatres and the number of digital screens in founding member
theatres. Prior to the NCM, Inc. IPO, NCM LLC paid to the founding members a percentage of NCM
LLCs advertising revenue as advertising circuit share. Upon the completion of the NCM, Inc.
IPO, the founding members assigned to NCM LLC all legacy contracts, which are generally
contracts for advertising sold by the founding members prior to the formation of NCM LLC but
which were unfulfilled at the date of formation. In addition, the founding members made
additional time available for sale by NCM LLC, subject to a first right to purchase the time, if
needed, by the founding members to fulfill advertising obligations with their in-theatre
beverage concessionaries. NCM, Inc. also entered into employment agreements with five executive
officers to carry out obligations entered into pursuant to a management services agreement
between NCM, Inc. and NCM LLC.
Basis of Presentation
The financial statements contained herein were prepared in accordance with accounting
principles generally accepted in the United States of America. The results of operations for
the period ended December 27, 2007 are presented in two periods, reflecting operations prior to
and subsequent to the NCM, Inc. IPO. The period from December 29, 2006 through February 12,
2007 is referred to as the 2007 pre-IPO period. The period from February 13, 2007 through
December 27, 2007 is referred to as the 2007 post-IPO period. Separate periods have been
presented because there were significant changes at the time of the IPO of NCM, Inc. due to the
ESA modifications and related expenses thereunder, and significant changes to revenue
arrangements and contracts with the founding members.
The financial statements for both the 2007 pre-IPO period and 2007 post-IPO period give
effect to allocations of revenues and expenses made using relative percentages of founding
member attendance or days in each period, discrete events and other methods management
considered to be a reasonable reflection of the results for such periods.
The Company has established various accounting policies that govern the application of
accounting principles generally accepted in the United States of America in the preparation and
presentation of NCM LLCs financial statements. Certain accounting policies involve significant
judgments, assumptions and estimates by management that have a material impact on the carrying
value of certain assets and liabilities, which management considers critical accounting
policies. The judgments, assumptions and estimates used by management are based on historical
experience, knowledge of the accounts and other factors, which are believed to be reasonable
under the circumstances and are evaluated on an ongoing basis. Because of the nature of the
judgments and assumptions made by management, actual results could differ from these judgments
and estimates, which could have a material impact on the carrying values of assets and
liabilities and the results of operations of NCM LLC. As a result of the various related-party
agreements discussed above and in Note 6, the operating results as presented are not necessarily
indicative of the results that would have occurred if all agreements were with non-related third
parties.
The founding members received all of the proceeds NCM LLC received from NCM, Inc. at the
date of NCM, Inc.s IPO and the related issuance of debt, except for amounts needed to pay
out-of-pocket costs of the financings and other expenses, and $10.0 million to repay outstanding
amounts under NCM LLCs then-existing revolving line of credit agreement. In conformity with
accounting guidance of Securities and Exchange Commission concerning monetary consideration paid
to promoters, such as the founding members, in exchange for property conveyed by the promoters
and because the founding members had no cost basis in the ESAs, all payments to the founding
members with the proceeds of the managing members IPO and related debt issuance, amounting to
approximately $1.456 billion, have been accounted for as distributions, except for the payments
to liquidate accounts payable to the founding members arising from the ESAs.
F-46
NATIONAL CINEMEDIA, LLC
NOTES TO FINANCIAL STATEMENTS
Summary of Significant Accounting Policies
Accounting PeriodThe Company operates on a 52-week fiscal year, with the fiscal year
ending on the first Thursday after December 25, which, in certain years, results in a 53-week
year.
Revenue RecognitionAdvertising revenue and administrative fees from legacy contracts are
recognized in the period in which an advertising contract is fulfilled against the contracted
theatre attendees. Advertising revenue is recorded net of make-good provisions to account for
delivered attendance that is less than contracted attendance. When remaining delivered
attendance is provided, that portion of the revenue earned is recognized in that period.
Deferred revenue refers to the unearned portion of advertising contracts. All deferred revenue
is classified as a current liability. Meetings and events revenue is recognized in the period in
which the event is held. NCM LLC considers estimates regarding make-good provisions in
advertising revenue to be a critical accounting policy that requires complicated mathematical
calculations used in the preparation of its financial statements. Legacy contracts are
advertising contracts with the founding members prior to the formation of NCM LLC, which were
not assigned to NCM LLC until the NCM, Inc. IPO was completed. Administrative fees earned by the
Company prior to the NCM, Inc. IPO for its services in fulfilling the legacy contracts were
based on a percentage of legacy contract revenue (32% during the 2007 pre-IPO period and 2006,
and 35% during 2005, respectively).
Operating CostsAdvertising-related operating costs primarily include personnel and other
costs related to advertising fulfillment, and to a lesser degree, production costs of
non-digital advertising, and payments due to unaffiliated theatres circuits under the Network
Affiliate Agreements.
Meeting and event operating costs include equipment rental, catering, movie tickets
acquired primarily from the founding members, revenue share under the amended and restated ESAs
and other direct costs of the meeting or event.
In the 2007 pre-IPO period and prior periods, circuit share costs were fees payable to the
founding members for the right to exhibit advertisements within the theatres, based on a
percentage of advertising revenue. In the 2007 post-IPO period, under the amended and restated
ESAs, a payment to the founding members of a theatre access fee, in lieu of circuit share
expense, comprised of a payment per theatre attendee and a payment per digital screen, both of
which escalate over time, is reflected in expense.
Network costs include personnel, satellite bandwidth, repairs, and other costs of
maintaining and operating the digital network and preparing advertising and other content for
transmission across the digital network. These costs relate primarily to the advertising
business and to a lesser extent to the meetings and events business.
LeasesThe Company leases various office facilities under operating leases with terms
ranging from month-to-month to 8 years. The Company calculates straight-line rent expense over
the initial lease term and renewals that are reasonably assured.
Advertising CostsCosts related to advertising and other promotional expenditures are
expensed as incurred. Due to the nature of the business, the Company has an insignificant amount
of advertising costs included in selling and marketing costs on the statement of operations.
Cash and Cash EquivalentsAll highly liquid debt instruments and investments purchased with
an original maturity of three months or less are classified as cash equivalents. Periodically
these are cash balances in a bank in excess of the federally insured limits or in the form of a
money market demand account with a major financial institution.
Restricted CashAt December 27, 2007, other non-current assets included restricted cash of
$0.3, which is a letter of credit used as a lease deposit on NCM LLCs New York office.
InvestmentsNCM LLC considers estimates regarding fair value of the Companys investment in
the preferred stock of IdeaCast, Inc. to be a critical accounting policy that requires
significant judgments, assumptions and estimates used in the preparation of its financial
statements. Refer to Note 5, Investment in Affiliate.
ReceivablesTrade accounts receivable are uncollateralized and represent a large number of
geographically dispersed debtors. Refer to Note 2, Receivables. Bad debts are provided for
using the allowance for doubtful accounts method based on historical experience and managements
evaluation of outstanding receivables and delinquencies in account balances past customary terms
at the end of the period. Receivables are written off when management determines amounts are
uncollectible. Estimating the amount of allowance for doubtful accounts requires significant
judgment and the use of estimates related to the amount and timing of estimated losses based on
historical loss experience, consideration of current economic trends and conditions and
debtor-specific factors, all of which may be
F-47
NATIONAL CINEMEDIA, LLC
NOTES TO FINANCIAL STATEMENTS
susceptible to significant change. To the extent actual outcomes differ from management
estimates, additional provision for bad debt could be required that could adversely affect
earnings or financial position in future periods.
Property and EquipmentProperty and equipment is stated at cost, net of accumulated
depreciation or amortization. Refer to Note 2, Property and Equipment. Major renewals and
improvements are capitalized, while replacements, maintenance, and repairs that do not improve
or extend the lives of the respective assets are expensed currently. In general, the equipment
associated with the digital network that is located within the theatre is owned by the founding
members, while equipment outside the theatre is owned by the Company. The Company records
depreciation and amortization using the straight-line method over the following estimated useful
lives:
|
|
|
Equipment
|
|
4-10 years |
Computer hardware and software
|
|
3-5 years |
Leasehold improvements
|
|
Lesser of lease term or asset life |
The Company follows the Accounting Standards Executive Committee Statement of Position
(SOP) 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal
Use. This SOP requires the capitalization of certain costs incurred in developing or obtaining
software for internal use. The majority of the software costs, which are included in equipment,
are depreciated over three to five years. As of December 27, 2007 and December 28, 2006, NCM LLC
had a net book value of $9.3 million and $6.1 million, respectively, of capitalized software
costs. The Company recorded approximately $2.8 million, $0.3 million, $1.9 million and $0.6
million for the 2007 post-IPO period, 2007 pre-IPO period, year ended December 28, 2006 and the
period ended December 29, 2005, respectively, in depreciation expense.
Construction in progress includes costs relating to the affiliate installations. Assets
under construction are not depreciated until placed into service.
NCM LLCs long-lived assets consist principally of property, plant and equipment. It is the
Companys policy to assess impairment of long-lived assets pursuant with SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets annually. This includes
determining if certain triggering events have occurred, including significant decreases in the
market value of certain assets, significant changes in the manner in which an asset is used or
its physical condition, significant changes in the legal climate or business climate that could
affect the value of an asset, or current period or continuing operating or cash flow losses or
projections that demonstrate continuing losses associated with certain assets used for the
purpose of producing revenue that might be an indicator of impairment. When the Company performs
the SFAS No. 144 impairment tests, the Company identifies the appropriate asset group as the
total digital system, which includes the grouping of all of the assets required to provide
service to our customers. The Company bases this conclusion of asset grouping on the revenue
dependency, operating interdependency and shared costs to operate the Companys network. Thus
far, none of the above triggering events has resulted in any impairment charges.
Amounts Due to/from Founding MembersIn the 2007 pre-IPO period and prior periods, amounts
due to/from founding members included circuit share costs and cost reimbursements, net of the
administrative fees earned on Legacy contracts. Amounts due to/from founding members in the 2007
post-IPO period include amounts due for the theatre access fee, offset by a receivable for
advertising time purchased by the founding members, as well as revenue share earned for meetings
and events plus any amounts outstanding under other contractually obligated payments. Payments
to or received from the founding members against outstanding balances are made monthly.
Amounts Due to/from Managing MemberIn the 2007 post-IPO period, amounts due to/from
managing member includes amounts due under the LLC Operating Agreement and other contractually
obligated payments. Payments to or received from the managing member against outstanding
balances are made periodically.
Network Affiliate AgreementsNetwork affiliate agreements were contributed at NCM LLCs
formation at the net book value of the founding members and are amortized on a straight-line
basis over the remaining life of the agreement. These agreements require payment to the
affiliate of a percentage of the advertising revenue associated with the advertisements played
in affiliate theatres, and also specify minimum payments that must be made. Amortization expense
related to the network affiliate agreements was $0.2 million, $0.1 million, $0.8 million and
$1.2 million for the 2007 post-IPO period, 2007 pre-IPO period, year ended December 28, 2006 and
the period ended December 29, 2005, respectively.
Income TaxesAs a limited liability company, NCM LLCs taxable income or loss is allocated
to the founding members and managing member and, therefore, no provision or liability for income
taxes is included in the financial statements.
F-48
NATIONAL CINEMEDIA, LLC
NOTES TO FINANCIAL STATEMENTS
Interest Rate SwapNCM LLC has entered into interest rate swap agreements which qualify for
and have been designated as a cash flow hedge against interest rate exposure on $550.0 million
of the variable rate debt obligations under the senior secured credit facility in accordance
with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by
SFAS No. 138. The interest rate swap agreements have the effect of converting a portion of the
variable rate debt to a fixed rate of 6.734%. Both at inception and on an on-going basis the
Company performs an effectiveness test using the hypothetical derivative method. The fair
value of the interest rate swap is recorded on the Companys balance sheet as an asset or
liability with the change in fair value recorded in other comprehensive income since the
instruments were determined to be perfectly effective at December 27, 2007. There were no
amounts reclassified into current earnings due to ineffectiveness during the periods presented.
The fair value of the Companys interest rate swap is based on dealer quotes, and represents an
estimate of the amount the Company would receive or pay to terminate the agreements taking into
consideration various factors, including current interest rates and the forward yield curve for
3-month LIBOR.
|
|
|
|
|
|
|
(in millions) |
|
Fair value of swap at inception |
|
$ |
|
|
Change in fair value interest rate changes |
|
|
(14.4 |
) |
|
|
|
|
Fair value of swap (liability) at December 27, 2007 |
|
$ |
(14.4 |
) |
|
|
|
|
The Company will not use financial instruments for trading or other speculative purposes,
nor will the Company be a party to any leveraged derivative instrument. The use of derivative
financial instruments is monitored through regular communication with senior management. The
Company will be exposed to credit loss in the event of nonperformance by the counter parties.
This credit risk is minimized by dealing with a group of major financial institutions with whom
the Company has other financial relationships. The Company does not anticipate nonperformance by
these counter parties.
Debt Issuance CostsIn relation to the issuance of long-term debt discussed in Note 7,
Borrowings, the Company has a balance of $13.0 million and $0.2 million in deferred financing
costs as of December 27, 2007 and December 28, 2006, respectively. These debt issuance costs are
being amortized over the terms of the underlying obligation and are included in interest
expense. For the 2007 post-IPO period, 2007 pre-IPO period, year ended December 28, 2006 and the
period ended December 29, 2005 the Company amortized $1.6 million, $0.0 million, $0.0 million
and $0.0 million of debt issuance costs, respectively.
Fair Value of Financial InstrumentsThe carrying amounts of cash and cash equivalents,
accounts payable, accrued expenses and the credit facility as reported in the Companys balance
sheets approximate their fair values due to their short maturity or floating rate terms, as
applicable. The carrying amount and fair value of the interest rate swap agreement are the
same since the Company recorded the fair value on the balance sheet.
Share-Based CompensationStock-based employee compensation is accounted for at fair value
under SFAS No. 123(R), Share-Based Payment. The Company adopted SFAS No. 123(R) on December 30,
2005 prospectively for new equity based grants, as there were no equity based grants prior to
the date of adoption. The determination of fair value of options requires that management make
complex estimates and judgments. The Company utilizes the Black-Scholes option price model to
estimate the fair value of the options, which model requires estimates of various factors used,
including expected life of options, risk free interest rate, expected volatility and dividend
yield. Refer to Note 8, Share-Based Compensation.
EstimatesThe preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Significant estimates include
those related to the reserve for uncollectible accounts receivable, deferred revenue,
equity-based compensation and the valuation of investments in absence of market data. Actual
results could differ from those estimates.
Recent Accounting Pronouncements
During September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No.
157, Fair Value Measurements. SFAS No. 157 establishes a framework for measuring fair value in
GAAP, and expands disclosures about fair value measurements. SFAS No. 157 is effective for
fiscal years beginning after November 15, 2007. The Company expects its investment in IdeaCast,
Inc. (see Note 5) to be measured for fair value based on unobservable inputs (level 3) and
expects the impact that SFAS No. 157 will have on its results of operations, financial condition
and liquidity will not be significant.
F-49
NATIONAL CINEMEDIA, LLC
NOTES TO FINANCIAL STATEMENTS
During February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities Including an Amendment of FASB Statement No. 115. This
statement permits entities to choose to measure many financial instruments and certain other
items at fair value and report unrealized gains and losses on these investments in earnings.
SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The Company
expects the impact that SFAS No. 159 will have on its results of operations, financial condition
and liquidity will not be significant.
The Company has considered all other recently issued accounting pronouncements and do not
believe the adoption of such pronouncements will have a material impact on the financial
statements.
2. RECEIVABLES
Receivables consisted of the following, in millions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December |
|
As of December |
|
|
|
|
|
|
27, 2007 |
|
28, 2006 |
|
|
|
|
|
|
|
Trade accounts |
|
$ |
92.2 |
|
|
$ |
64.8 |
|
|
|
|
|
Other |
|
|
0.9 |
|
|
|
0.2 |
|
|
|
|
|
Less allowance for doubtful accounts |
|
|
(1.5 |
) |
|
|
(1.1 |
) |
|
|
|
|
|
|
|
Total |
|
$ |
91.6 |
|
|
$ |
63.9 |
|
|
|
|
|
|
|
|
At December 27, 2007, there is one individual account representing approximately 15% of the
outstanding gross receivable balance.
The changes in NCMs allowance for doubtful accounts are as follows, in millions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 13, |
|
|
Period December 29, |
|
|
|
|
|
Period March |
|
|
|
|
|
|
2007 through |
|
|
2006 through |
|
Year Ended |
|
29, 2005 through |
|
|
|
|
|
|
December 27, |
|
|
February 12, |
|
December 28, |
|
December 29, |
|
|
|
|
|
|
2007 |
|
|
2007 |
|
2006 |
|
2005 |
|
|
|
|
|
|
|
|
|
|
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
$ |
1.1 |
|
|
|
$ |
1.1 |
|
|
$ |
0.5 |
|
|
$ |
|
|
|
|
|
|
Provision for bad debt |
|
|
1.0 |
|
|
|
|
0.1 |
|
|
|
0.8 |
|
|
|
0.5 |
|
|
|
|
|
Write-offs, net |
|
|
(0.6 |
) |
|
|
|
(0.1 |
) |
|
|
(0.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
1.5 |
|
|
|
$ |
1.1 |
|
|
$ |
1.1 |
|
|
$ |
0.5 |
|
|
|
|
|
|
|
|
|
|
|
3. PROPERTY AND EQUIPMENT (in millions)
|
|
|
|
|
|
|
|
|
|
|
As of December 27, |
|
|
As of December 28, |
|
|
|
2007 |
|
|
2006 |
|
Equipment |
|
$ |
37.3 |
|
|
$ |
24.1 |
|
Leasehold Improvements |
|
|
1.4 |
|
|
|
1.2 |
|
Less accumulated depreciation |
|
|
(17.3 |
) |
|
|
(12.7 |
) |
|
|
|
|
|
|
|
Subtotal |
|
|
21.4 |
|
|
|
12.6 |
|
Construction in Progress |
|
|
0.8 |
|
|
|
|
|
|
|
|
|
|
|
|
Total property and equipment |
|
$ |
22.2 |
|
|
$ |
12.6 |
|
|
|
|
|
|
|
|
For the 2007 post-IPO period, 2007 pre-IPO period, year ended December 28, 2006 and the
period ended December 29, 2005 the Company recorded depreciation of $4.8 million, $0.6 million,
$4.0 million and $1.8 million, respectively.
F-50
NATIONAL CINEMEDIA, LLC
NOTES TO FINANCIAL STATEMENTS
4. ACCRUED EXPENSES (in millions)
|
|
|
|
|
|
|
|
|
|
|
As of December 27, |
|
|
As of December 28, |
|
|
|
2007 |
|
|
2006 |
|
Makegood Reserve |
|
$ |
4.0 |
|
|
$ |
2.6 |
|
Accrued Interest |
|
|
2.3 |
|
|
|
0.1 |
|
Accrued beverage concessionaire unit cost |
|
|
2.4 |
|
|
|
1.1 |
|
Other accrued expenses |
|
|
1.3 |
|
|
|
1.7 |
|
|
|
|
|
|
|
|
Total accrued expenses |
|
$ |
10.0 |
|
|
$ |
5.5 |
|
|
|
|
|
|
|
|
5. INVESTMENT IN AFFILIATE
On June 26, 2007, NCM LLC invested $5.0 million of cash in 6% convertible preferred stock
of IdeaCast, Inc., a provider of advertising to fitness centers and health clubs throughout the
United States. On September 27, 2007, NCM LLC invested an additional $2.0 million of cash in 6%
convertible preferred stock of IdeaCast, Inc. The amount of IdeaCast, Inc. 6% convertible
preferred stock owned by NCM LLC at December 27, 2007 is convertible into a minority interest of
IdeaCast, Inc.s common stock. The preferred stock is accounted for as an investment in debt
securities per SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities,
due to the provisions in the agreement, which gave the Company a mandatory redemption right five
years after the date of investment. The securities are not held for trading purposes and are
therefore by default and definition, classified as available-for-sale even though it is not the
Companys intent to sell these securities. There are no marketplace indicators of value that
management can use to determine the fair value of the investment in IdeaCast. Management
concluded that the estimated fair value of the securities at December 27, 2007 had not changed
from their cost based on quantitative analysis which considered IdeaCasts potential future
operating results under a variety of conditions and consideration of various qualitative
factors. Managements assessment considered that there have been no significant changes in the
prospects of IdeaCasts business since the original investment and the decision to make a
follow-on investment. As a result, there were no gains or losses recorded in other comprehensive
income for the investment in IdeaCast, Inc. for the 2007 post-IPO period.
During September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS No. 157
establishes a framework for measuring fair value in GAAP, and expands disclosures about fair
value measurements. SFAS No. 157 is effective for us as of fiscal 2008. The Company expects
the investment in IdeaCast, Inc. to be measured for fair value based on unobservable inputs
(level 3) and expects the impact that SFAS No. 157 will have on its results of operations,
financial condition and liquidity will not be significant.
A further agreement was entered into whereby, at the option of NCM LLC during the period
June 30, 2008 through December 2009, a further investment may be made by NCM LLC to purchase
common stock of IdeaCast, Inc. at a predetermined valuation formula, to bring NCM LLCs total
investment to approximately 50.1% of the capital stock of IdeaCast, Inc. (on a fully diluted
basis assuming conversion of all of the 6% convertible preferred stock). The option to purchase
common stock of IdeaCast, Inc. has not yet been exercised. The companies also entered into a
shared services agreement which allows for cross-marketing and certain services to be provided
between the companies at rates which will be determined on an arms length basis. The services
provided by IdeaCast for the 2007 post-IPO period were not material to NCM.
F-51
NATIONAL
CINEMEDIA, LLC
NOTES TO FINANCIAL STATEMENTS
6. RELATED-PARTY TRANSACTIONS
2007 Pre-IPO Period, 2006 and 2005
At the formation of NCM LLC and upon the admission of Cinemark as a founding member,
circuit share arrangements and administrative services fee arrangements were in place with each
founding member. Circuit share cost and administrative fee revenue by founding member were as
follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-IPO Period December |
|
|
|
|
|
|
|
|
|
29, 2006 through February |
|
|
Year Ended December 28, |
|
|
Period March 29, 2005 |
|
|
|
12, 2007 |
|
|
2006 |
|
|
through December 29, 2005 |
|
|
|
Circuit |
|
|
|
|
|
|
Circuit |
|
|
|
|
|
|
Circuit |
|
|
|
|
|
|
Share |
|
|
Administrative Fee |
|
|
Share |
|
|
Administrative Fee |
|
|
Share |
|
|
Administrative Fee |
|
|
|
Cost |
|
|
Revenue |
|
|
Cost |
|
|
Revenue |
|
|
Cost |
|
|
Revenue |
|
AMC |
|
$ |
4.1 |
|
|
$ |
|
|
|
$ |
38.6 |
|
|
$ |
0.2 |
|
|
$ |
19.4 |
|
|
$ |
8.3 |
|
Cinemark |
|
|
3.7 |
|
|
|
0.1 |
|
|
|
29.7 |
|
|
|
0.4 |
|
|
|
0.1 |
|
|
|
|
|
Regal |
|
|
6.6 |
|
|
|
|
|
|
|
61.8 |
|
|
|
4.8 |
|
|
|
19.1 |
|
|
|
22.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
14.4 |
|
|
$ |
0.1 |
|
|
$ |
130.1 |
|
|
$ |
5.4 |
|
|
$ |
38.6 |
|
|
$ |
30.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NCM LLCs administrative services fee was earned at a rate of 32% of the $0.3 million and
$16.8 million of legacy contract value for the 2007 pre-IPO period and year ended December 28,
2006, and at a rate of 35% of the $88.0 million of legacy contract value for the period ended
December 29, 2005, respectively. At the closing of the NCM, Inc. IPO, the founding members
entered into amended and restated ESAs which, among other things, amended the circuit share
structure in favor of the theatre access fee structure and assigned all remaining legacy
contracts to NCM LLC.
Pursuant to the agreements entered into at the completion of the NCM, Inc. IPO, amounts
owed to the founding members through the date of the NCM, Inc. IPO of $50.8 million were paid by
NCM LLC on March 15, 2007.
Amounts due to/from founding members at December 28, 2006, were comprised of the following
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMC |
|
|
Cinemark |
|
|
Regal |
|
|
Total |
|
|
|
|
Circuit share payments |
|
$ |
15.2 |
|
|
$ |
14.0 |
|
|
$ |
24.8 |
|
|
$ |
54.0 |
|
Cost reimbursement |
|
|
0.1 |
|
|
|
|
|
|
|
0.4 |
|
|
|
0.5 |
|
Administrative fee |
|
|
|
|
|
|
(0.1 |
) |
|
|
(0.5 |
) |
|
|
(0.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
15.3 |
|
|
$ |
13.9 |
|
|
$ |
24.7 |
|
|
$ |
53.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 Post-IPO Period
Pursuant to the amended and restated ESAs in place since the close of the NCM, Inc. IPO,
NCM LLC makes monthly theatre access fee payments to the founding members, comprised of a
payment per theatre attendee and a payment per digital screen of the founding member theatres.
The theatre access fee replaced the circuit share expenses. Also, under the amended and restated
ESAs, the founding members can purchase advertising time for the display of up to 90 seconds of
on-screen advertising under their beverage concessionaire agreements at a specified 30 second
equivalent cost per thousand (CPM) impressions. The total theatre access fee to the founding
members for the 2007 post-IPO period is $41.5 million. The total revenue related to the
beverage concessionaire agreements for the 2007 post-IPO period is $40.9 million. In addition,
pursuant to the amended and restated ESAs, NCM LLC makes monthly payments to the founding
members for use of their screens and theatres for the meetings and events business. These
payments are at agreed upon rates based on the nature of the event. Payments to the founding
members for these events totaled $3.8 million for the 2007 post-IPO period. Also, pursuant to
the terms of the NCM LLC Operating Agreement in place since the close of the NCM, Inc. IPO, NCM
LLC is required to made mandatory distributions to the members of available cash, as defined in
the NCM LLC Operating Agreement, on a quarterly basis. The available cash distribution
F-52
NATIONAL CINEMEDIA, LLC
NOTES TO FINANCIAL STATEMENTS
to the founding members of NCM LLC for post-IPO period is $65.8 million, of which $20.5
million is included in the due to/from founding members at December 27, 2007.
On January 26, 2006, AMC acquired the Loews theatre circuit. The Loews screen integration
agreement, effective as of January 5, 2007 and amended and restated as of February 13, 2007,
between NCM LLC and AMC, commits AMC to cause the theatres it acquired from Loews to participate
in the exhibitor services agreements beginning on June 1, 2008. In accordance with the Loews
screen integration agreement, AMC pays us amounts based on an agreed-upon calculation to reflect
amounts that approximate what NCM LLC would have generated if NCM LLC were able to sell
on-screen advertising in the Loews theatre chain on an exclusive basis. These Loews payments
are made on a quarterly basis in arrears through May 31, 2008 in accordance with certain run-out
provisions. For the 2007 post-IPO period the Loews payment is $11.2 million, of which $3.7
million is included in the due to/from founding members at December 27, 2007. The Loews payment
is recorded directly to NCM LLCs members equity account.
Amounts due to/from founding members at December 27, 2007 were comprised of the following
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMC |
|
|
Cinemark |
|
|
Regal |
|
|
Total |
|
|
|
|
Theatre access fees, net of beverage revenues |
|
$ |
(0.2 |
) |
|
$ |
0.1 |
|
|
$ |
0.2 |
|
|
$ |
0.1 |
|
Cost and other reimbursement |
|
|
(0.4 |
) |
|
|
(0.2 |
) |
|
|
(0.5 |
) |
|
|
(1.1 |
) |
Distributions payable, net |
|
|
3.2 |
|
|
|
5.2 |
|
|
|
8.4 |
|
|
|
16.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2.6 |
|
|
$ |
5.1 |
|
|
$ |
8.1 |
|
|
$ |
15.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Founding Members Other
During the 2007 post-IPO period, the 2007 pre-IPO period, the year ended December 28, 2006
and the period ended December 29, 2005, AMC and Regal purchased $1.4 million, $0.1 million, $2.1
million and $1.1 million, respectively, of NCM LLCs advertising inventory for their own use.
The value of such purchases are calculated by reference to NCM LLCs advertising rate card and
is included in advertising revenue with a percentage of such amounts returned by NCM LLC to the
founding members as advertising circuit share during the 2007 pre-IPO period and the year ended
December 28, 2006.
Included in media and events operating costs is $3.3. million, $0.2 million, $4.1 million
and $2.1 million for the 2007 post-IPO period, the 2007 pre-IPO period, the year December 28,
2006 and the period ended December 29, 2005, respectively, related to purchases of movie tickets
and concession products from the founding members primarily for resale to NCM LLCs customers.
Included in advertising operating costs is $0.2 million, $0.0 million, $0.0 million and
$0.0 million for the 2007 post-IPO period, the 2007 pre-IPO period, the year ended December 28,
2006 and the period ended December 29, 2005, respectively, related to payments to founding
members for costs associated with lobby promotions and concession items.
RCI Unit Option Plan
In connection with the formation of NCM, LLC in 2005, Regal Cinemas, Inc. adopted and
approved the RCI Severance Plan for Equity Compensation. Participation in the Severance Plan is
limited to employees of RCM, who held unvested shares of Regals restricted common stock
pursuant to the terms of the incentive plan immediately prior to such employees termination of
employment with RCM and commenced employment with NCM, LLC. Under the terms of and subject to
the conditions of the Severance Plan, each eligible employee who participates in the Severance
Plan is, at the times set forth in the Severance Plan, entitled to a cash payments and payments
in lieu of dividends as defined in the Severance Plan until the date that each such
participants restricted stock would have vested in accordance with the incentive plan. As this
severance plan provides for payments over future periods that are contingent upon continued
employment with the Company, the cost of the severance plan is being recorded as an expense over
the remaining required service periods. As the payments under the plan are being funded by
Regal, Regal is credited with a capital contribution at NCM LLC equal to this severance plan
expense. During the 2007 post-IPO period, the 2007 pre-IPO period, the year ended December 28,
2006 and the period ended December 29, 2005, severance expense and the related capital
contribution recognized for amounts under the Regal option plan were $1.5 million, $0.4 million,
$4.2 million and $8.5 million, respectively. The Company records the expense as a separate line
item in the statements of operations. The amount recorded is not allocated to advertising
operating costs, network costs, selling and marketing costs and
F-53
NATIONAL CINEMEDIA, LLC
NOTES TO FINANCIAL STATEMENTS
administrative costs because the recorded expense is associated with the past performance
of Regals common stock market value rather than current period performance.
National
CineMedia, Inc.
Pursuant to the LLC Operating Agreement, as the sole manager of NCM LLC, NCM, Inc. provides
certain specific management services to NCM LLC, including those services of the positions of
president and chief executive officer, president of sales and chief marketing officer, executive
vice president and chief financial officer, executive vice president and chief technology and
operations officer and executive vice president and general counsel. In exchange for the
services, NCM LLC reimburses NCM, Inc. for compensation and other expenses of the officers and
for certain out-of-pocket costs. During the 2007 post-IPO period, NCM LLC paid NCM, Inc. $9.2
million for these services and expenses. The payments for estimated management services
related to employment are made one month in advance. At December 27, 2007, $0.5 million has
been paid in advance and is reflected as prepaid management fees to managing member in the
accompanying financial statements. NCM LLC also provides administrative and support services to
NCM, Inc. such as office facilities, equipment, supplies, payroll and accounting and financial
reporting at no charge. Based on the limited activities of NCM, Inc. as a standalone entity, the
Company does not believe such unreimbursed costs are significant. The management services
agreement also provides that NCM LLC employees may participate in the NCM, Inc. equity incentive
plan (see Note 8).
Also, pursuant to the terms of the NCM LLC Operating Agreement in place since the close of
the NCM, Inc. IPO, the Company is required to made mandatory distributions to the members of
available cash, as defined in the NCM LLC Operating Agreement, on a quarterly basis. The
available cash distribution to NCM, Inc. for the 2007 post-IPO period is $53.3 million, of which
$16.6 million is included in the due to/from managing member at December 27, 2007.
Amounts due to/from managing member at December 27, 2007 were comprised of the following
(in millions):
|
|
|
|
|
|
|
Total |
|
Distributions payable |
|
$ |
16.6 |
|
Cost and other reimbursement |
|
|
0.1 |
|
|
|
|
|
Total |
|
$ |
16.7 |
|
|
|
|
|
7. BORROWINGS
Short-Term Borrowings From MembersIn 2005, NCM signed an Amended and Restated Demand
Promissory Note (the Demand Note) with its founding members under which the Company could
borrow up to $11.0 million on a revolving basis. Borrowings under the Demand Note were funded by
the founding members pro rata to their ownership of units. Interest was payable monthly at 200
basis points over LIBOR. Interest paid to the founding members during the period ended December
29, 2005 and the year ended December 28, 2006 was less than $0.1 million, in each period. The
demand note was repaid and cancelled on March 22, 2006.
Long-Term
Borrowings
Revolving Credit AgreementOn March 22, 2006, NCM LLC entered into a bank-funded
$20.0 million Revolving Credit Agreement, of which $2.0 million could have been utilized in
support of letters of credit. The revolving credit agreement was collateralized by trade
receivables, and borrowings under the revolving credit agreement were limited to 85% of eligible
trade receivables, as defined. The revolving credit agreement bore interest, at NCM LLCs
option, at either an adjusted Eurodollar rate or the base rate plus, in each case, an applicable
margin. Outstanding borrowings at December 28, 2006, were $10.0 million. The revolving credit
agreement was repaid and cancelled on February 13, 2007.
Senior Secured Credit FacilityOn February 13, 2007, concurrently with the closing
of the IPO of NCM, Inc., NCM LLC entered into a senior secured credit facility with a group of
lenders. The facility consists of a six-year $80.0 million revolving credit facility and an
eight-year, $725.0 million term loan facility. The term loan is due on the eighth anniversary
of the funding. The revolving credit facility portion is available, subject to certain
conditions, for general corporate purposes of the Company in the ordinary course of business and
for other transactions permitted under the credit agreement, and a portion is available for
letters of credit. The outstanding balance of the term loan facility at December 27, 2007 was
$725.0 million. The outstanding balance under the revolving credit facility at December 27,
F-54
NATIONAL CINEMEDIA, LLC
NOTES TO FINANCIAL STATEMENTS
2007 was $59.0 million. The obligations under the credit facility are secured by a lien on
substantially all of the assets of NCM LLC. Borrowings under the senior secured credit facility
bear interest, at the option of the Company, at a rate equal to an applicable margin plus either
a variable base rate or a eurodollar rate. The applicable margin for both the term loan facility
and the revolving credit facility is 0.75% with respect to base rate loans and 1.75% with
respect to eurodollar loans. As of December 27, 2007, the effective rate on the term loan was
6.77% (the interest rate swap hedged $550.0 million of the $725.0 million term loan at a fixed
interest rate of 6.734% while the unhedged portion was at an interest rate of 6.87%) and the
weighted-average interest rate on the revolver was 6.81%. Commencing with the third fiscal
quarter in fiscal year 2008, the applicable margin for the revolving credit facility will be
determined quarterly and will be subject to adjustment based upon a consolidated net senior
secured leverage ratio for NCM LLC and its subsidiaries (defined in the NCM LLC credit agreement
as the ratio of secured funded debt less unrestricted cash and cash equivalents, over adjusted
EBITDA, as defined). Upon the occurrence of any payment default, certain amounts under the
senior secured credit facility will bear interest at a rate equal to the rate then in effect
with respect to such borrowings, plus 2.00% per annum. The senior secured credit facility also
contains a number of covenants and financial ratio requirements, with which, at December 27,
2007, the Company was in compliance. Upon occurrence of an event of default, among other
remedies available to the lenders, all outstanding loans may be accelerated and/or the lenders
commitments may be terminated.
Future
Maturities of Long-Term Borrowings
There are no scheduled annual maturities on the credit facility for the next five years and
as of December 27, 2007; the next scheduled annual maturity on the outstanding credit facility
of $784.0 million is after fiscal year 2012.
8. SHARE-BASED COMPENSATION
On April 4, 2006, NCM LLCs board of directors approved the NCM LLC 2006 Unit Option Plan,
under which 1,131,728 units were outstanding as of December 28, 2006. Under certain
circumstances, holders of unit options could put the options to NCM LLC for cash. As such, the
Unit Option Plan was accounted for as a liability plan and the liability was measured at its
fair value at each reporting date. The valuation of the liability was determined based on
provisions of SFAS No. 123(R), and factored into the valuation that the options were granted in
contemplation of an IPO. The Company used the estimated pricing of the IPO at the time of the
grant to determine the equity value, for each unit underlying the options. The Unit Option Plan
allowed for additional equity awards to be issued to outstanding option holders in the event of
the occurrence of an IPO, with the purpose of the additional option awards or restricted units
being to ensure that the economic value of outstanding unit options, as defined in the
agreement, held just prior to an IPO was maintained by the option holder immediately after the
offering.
At the date of NCM, Inc.s IPO, NCM, Inc. adopted the NCM, Inc. 2007 Equity Incentive Plan.
The employees of NCM, Inc. and the employees of NCM LLC are eligible for participation in the
Equity Incentive Plan. There are 2,576,000 shares of common stock available for issuance or
delivery under the Equity Incentive Plan. Under the Equity Incentive Plan, NCM, Inc. issued
stock options on 1,589,625 shares of common stock to holders of outstanding unit options in
substitution of the unit options and also issued 262,466 shares of restricted stock. In
connection with the conversion at the date of the NCM, Inc. IPO, and pursuant to the
antidilution adjustment terms of the Unit Option Plan, the exercise
price and the number of shares of common stock subject to options held by the Companys option holders were adjusted to
prevent dilution and restore their economic position to that existing immediately before the
NCM, Inc. IPO. The Equity Incentive Plan is treated as an equity plan under the provisions of
SFAS No. 123(R), and the existing liability under the Unit Option Plan at the end of the 2007
pre-IPO period of $2.3 million was reclassified to members equity of NCM LLC at that date.
F-55
NATIONAL CINEMEDIA, LLC
NOTES TO FINANCIAL STATEMENTS
Activity in the Equity Incentive Plan, as converted, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
Weighted- |
|
Average |
|
Aggregate |
|
|
|
|
|
|
Average |
|
Remaining |
|
Intrinsic Value |
|
|
Shares |
|
Exercise Price |
|
Life (in year) |
|
(in Millions) |
|
|
|
Outstanding at December 28, 2006 |
|
|
1,131,728 |
|
|
$ |
23.85 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
274,500 |
|
|
|
22.33 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilution adjustments made to outstanding options in
connection with the plan
conversion |
|
|
457,897 |
|
|
|
16.98 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(41,219 |
) |
|
|
18.72 |
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 27, 2007 |
|
|
1,822,906 |
|
|
$ |
17.75 |
|
|
|
12.7 |
|
|
$ |
12.1 |
|
Vested at December 27, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 27, 2007 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
NCM, Inc. has estimated the fair value of these options to range from $5.46 to $8.17 per
share based on the Black-Scholes option pricing model. The Black-Scholes model requires that
NCM, Inc. make estimates of various factors used, as noted below. The fair value of the
options is being charged to operations over the vesting period.
Options awarded under the Equity Incentive Plan are generally granted with an exercise
price equal to the market price of NCM, Inc. common stock on the date of the grant. The options
vest annually over periods between 59 through 81 months and have either 10-year or 15-year
contractual terms. The following table summarizes information about the stock options at
December 27, 2007, including the weighted average remaining contractual life and weighted
average exercise price:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
Options Exercisable |
|
|
|
|
|
|
Weighted |
|
Weighted |
|
|
|
|
|
Weighted |
|
|
Number |
|
Average |
|
Average |
|
Number |
|
Average |
|
|
Outstanding at |
|
Remaining Life |
|
Exercise |
|
Exercisable at |
|
Exercise |
Range of Exercise Price |
|
Dec. 27, 2007 |
|
(in years) |
|
Price |
|
Dec. 27, 2007 |
|
Price |
$16.35$18.01 |
|
|
1,473,041 |
|
|
|
13.3 |
|
|
$ |
16.52 |
|
|
|
|
|
|
$ |
|
|
$21.00 |
|
|
197,000 |
|
|
|
9.1 |
|
|
|
21.00 |
|
|
|
|
|
|
|
|
|
$24.04$24.74 |
|
|
114,865 |
|
|
|
13.0 |
|
|
|
24.25 |
|
|
|
|
|
|
|
|
|
$26.76$29.05 |
|
|
38,000 |
|
|
|
14.1 |
|
|
|
28.87 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,822,906 |
|
|
|
12.7 |
|
|
$ |
17.75 |
|
|
|
|
|
|
$ |
|
|
|
|
|
The following assumptions were used in the valuation of the options:
|
|
|
Expected life of options6.5 to 9 years. The expected life of the options was
determined by using the average of the vesting and contractual terms of the options (the
simplified method as described in Securities and Exchange Commission Staff Accounting
Bulletin 110). |
|
|
|
|
Risk free interest rate4.1% to 4.9%. The risk-free interest rate was determined by
using the applicable Treasury rates as of the grant dates, commensurate with the expected
terms of the options. |
|
|
|
|
Expected volatility30.0%. Expected volatility was estimated based on comparable
companies for historic stock price volatility. |
F-56
NATIONAL CINEMEDIA, LLC
NOTES TO FINANCIAL STATEMENTS
Dividend yield3.0%. The estimated dividend yield was determined using NCM, Inc.s
expectations based on estimated cash flow characteristics and expected long-term dividend
policy after the NCM, Inc. IPO.
Under the fair value recognition provisions of SFAS No. 123R, recognizes stock-based
compensation is recognized net of an estimated forfeiture rate, and therefore only stock-based
compensation cost for those shares expected to vest over the requisite service period of the
award is recognized. A forfeiture rate of 5% was estimated for all employees to reflect the
potential separation of employees. NCM, Inc. expects approximately 1,732,000 of the
outstanding options to vest.
The Company recognized $1.9 million, $0.3 million and $1.9 million for the 2007 post-IPO
period, the 2007 pre-IPO period and the year ended December 28, 2006, respectively, of
share-based compensation expense for these options and no amounts were capitalized. The
recognized expense, including the equity based compensation costs of NCM, Inc. employees, is
included in the operating results of NCM, LLC. As of December 27, 2007, unrecognized
compensation cost related to nonvested options was approximately $8.9 million, which will be
recognized over a remaining period of between 48 and 60 months.
Non-vested Stock NCM, Inc. implemented a restricted stock program as part of the Equity
Incentive Plan. The plan provides for restricted stock awards to officers, board members and
other key employees, including employees of NCM, LLC. Under the restricted stock program,
common stock of NCM, Inc. may be granted at no cost to officers, board members and key
employees, subject to a continued employment restriction and as such restrictions lapse
(generally at the start of each subsequent calendar year), the award vests in that proportion.
The participants are entitled to cash dividends from NCM, Inc. and to vote their respective
shares at NCM, Inc., although the sale and transfer of such shares is prohibited and the shares
are subject to forfeiture during the restricted period. The shares are also subject to the
terms and provisions of the Equity Incentive Plan. The restricted stock vests in equal annual
installments over a five-year period, except awards to non-employee directors, which vest after
one year. Compensation cost is valued based on the market price on the grant date and is
expensed over the vesting period.
The following table represents the shares of non-vested stock of NCM, Inc. that were
granted during the period and outstanding as of December 27, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Period February 13, 2007 |
|
Average Grant- |
|
|
through
December 27, 2007 |
|
Date Fair Value |
|
|
|
Non-vested at December 28, 2006 |
|
|
|
|
|
|
|
|
Granted |
|
|
275,184 |
|
|
$ |
21.21 |
|
Forfeited |
|
|
(3,339 |
) |
|
|
21.00 |
|
|
|
|
Non-vested as of December 27, 2007 |
|
|
271,845 |
|
|
$ |
21.21 |
|
The forfeiture rates are consistent with the rates used for options. The Company recorded
$1.2 million in compensation expense related to such outstanding restricted shares during the
2007 post-IPO period and no amounts were capitalized. The recognized expense, including the
equity based compensation costs of NCM, Inc. employees, is included in the operating results of
NCM, LLC. As of December 27, 2007, unrecognized compensation cost related to non-vested
restricted stock was approximately $4.5 million, which will be recognized over a remaining
period of between 2 months and 53 months.
9. EMPLOYEE BENEFIT PLANS
NCM, LLC sponsors the NCM 401(k) Profit Sharing Plan (the Plan) under Section 401(k) of
the Internal Revenue Code of 1986, as amended, for the benefit of substantially all full-time
employees. The Plan provides that participants may contribute up to 20% of their compensation,
subject to Internal Revenue Service limitations. Employee contributions are invested in various
investment funds based upon election made by the employee. The Company made discretionary
contributions of $0.6 million, $0.0 million, $0.6 million and $0.3 million during the 2007
post-IPO period, 2007 pre-IPO period, the year ended December 28, 2006 and the period ended
December 29, 2005, respectively.
F-57
NATIONAL CINEMEDIA, LLC
NOTES TO FINANCIAL STATEMENTS
10. COMMITMENTS AND CONTINGENCIES
The Company is subject to claims and legal actions in the ordinary course of business. The
Company believes such claims will not have a material adverse effect on its financial position
or results of operations.
Operating Lease Commitments
The Company leases office facilities for its headquarters in Centennial, Colorado and also
in various cities for its sales and marketing personnel as sales offices. The Company has no
capital lease obligations. Total lease expense for the 2007 post-IPO period, 2007 pre-IPO
period, year ended December 28, 2006 and the period ended December 29, 2005, was $1.3 million,
$0.3 million, $1.6 million and $1.1 million, respectively.
Future minimum lease payments under noncancelable operating leases are as follows (in
millions):
|
|
|
|
|
2008 |
|
$ |
1.8 |
|
2009 |
|
|
1.8 |
|
2010 |
|
|
1.5 |
|
2011 |
|
|
1.3 |
|
2012 |
|
|
1.3 |
|
Thereafter |
|
|
1.3 |
|
|
|
|
|
Total |
|
$ |
9.0 |
|
|
|
|
|
F-58
SUPPLEMENTARY
SCHEDULES REQUIRED BY THE INDENTURE FOR THE SENIOR
DISCOUNT
NOTES
As required by the Indenture governing
the Companys 9 3/4%
senior discount notes, the Company has
included in this filing, annual financial information for its
subsidiaries that have been designated as unrestricted subsidiaries,
as defined by the Indenture. As required by the Indenture, the Company
has included a condensed consolidating balance sheet and condensed
consolidating
statements of operations and cash flows for the Company and its
subsidiaries. These supplementary schedules separately
identify the Companys restricted subsidiaries and
unrestricted subsidiaries as required by
the Indenture.
S-1
CINEMARK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF DECEMBER 31, 2007
(In thousands, unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted |
|
Unrestricted |
|
|
|
|
|
|
Group |
|
Group |
|
Eliminations |
|
Consolidated |
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
210,119 |
|
|
$ |
23,283 |
|
|
$ |
|
|
|
$ |
233,402 |
|
Other current assets |
|
|
75,451 |
|
|
|
88 |
|
|
|
|
|
|
|
75,539 |
|
|
|
|
Total current assets |
|
|
285,570 |
|
|
|
23,371 |
|
|
|
|
|
|
|
308,941 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THEATRE PROPERTIES AND EQUIPMENT net |
|
|
1,314,066 |
|
|
|
|
|
|
|
|
|
|
|
1,314,066 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER ASSETS |
|
|
1,578,166 |
|
|
|
259 |
|
|
|
(8,225 |
) |
|
|
1,570,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
3,177,802 |
|
|
$ |
23,630 |
|
|
$ |
(8,225 |
) |
|
$ |
3,193,207 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt |
|
$ |
9,166 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
9,166 |
|
Current portion of capital lease obligations |
|
|
4,684 |
|
|
|
|
|
|
|
|
|
|
|
4,684 |
|
Accounts payable and accrued expenses |
|
|
204,327 |
|
|
|
|
|
|
|
|
|
|
|
204,327 |
|
|
|
|
Total current liabilities |
|
|
218,177 |
|
|
|
|
|
|
|
|
|
|
|
218,177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current portion |
|
|
1,514,579 |
|
|
|
|
|
|
|
|
|
|
|
1,514,579 |
|
Other long-term liabilities |
|
|
624,522 |
|
|
|
|
|
|
|
(95,916 |
) |
|
|
528,606 |
|
|
|
|
Total long-term liabilities |
|
|
2,139,101 |
|
|
|
|
|
|
|
(95,916 |
) |
|
|
2,043,185 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MINORITY INTERESTS IN SUBSIDIARIES |
|
|
16,182 |
|
|
|
|
|
|
|
|
|
|
|
16,182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY |
|
|
804,342 |
|
|
|
23,630 |
|
|
|
87,691 |
|
|
|
915,663 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
|
$ |
3,177,802 |
|
|
$ |
23,630 |
|
|
$ |
(8,225 |
) |
|
$ |
3,193,207 |
|
|
|
|
|
|
|
Note: |
|
Restricted Group and Unrestricted Group are defined in the Indenture for the senior
discount notes. |
S-2
CINEMARK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2007
(In thousands, unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted |
|
Unrestricted |
|
|
|
|
|
|
Group |
|
Group |
|
Eliminations |
|
Consolidated |
REVENUES |
|
$ |
1,682,841 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,682,841 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST OF OPERATIONS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theatre operating costs |
|
|
1,248,090 |
|
|
|
|
|
|
|
|
|
|
|
1,248,090 |
|
General and administrative expenses and other |
|
|
85,845 |
|
|
|
23 |
|
|
|
|
|
|
|
85,868 |
|
Depreciation and amortization |
|
|
151,716 |
|
|
|
|
|
|
|
|
|
|
|
151,716 |
|
Impairment of long-lived assets |
|
|
86,558 |
|
|
|
|
|
|
|
|
|
|
|
86,558 |
|
Gain on sale of assets and other |
|
|
(2,953 |
) |
|
|
|
|
|
|
|
|
|
|
(2,953 |
) |
|
|
|
Total cost of operations |
|
|
1,569,256 |
|
|
|
23 |
|
|
|
|
|
|
|
1,569,279 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME (LOSS) |
|
|
113,585 |
|
|
|
(23 |
) |
|
|
|
|
|
|
113,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE) |
|
|
(20,559 |
) |
|
|
221,489 |
|
|
|
(120,000 |
) |
|
|
80,930 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAXES |
|
|
93,026 |
|
|
|
221,466 |
|
|
|
(120,000 |
) |
|
|
194,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes |
|
|
122,227 |
|
|
|
83,198 |
|
|
|
(95,916 |
) |
|
|
109,509 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) |
|
$ |
(29,201 |
) |
|
$ |
138,268 |
|
|
$ |
(24,084 |
) |
|
$ |
84,983 |
|
|
|
|
|
|
|
Note: |
|
Restricted Group and Unrestricted Group are defined in the Indenture for the senior
discount notes. |
S-3
CINEMARK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2007
(In thousands, unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted |
|
Unrestricted |
|
|
|
|
|
|
Group |
|
Group |
|
Eliminations |
|
Consolidated |
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(29,201 |
) |
|
$ |
138,268 |
|
|
$ |
(24,084 |
) |
|
$ |
84,983 |
|
Adjustments
to reconcile net income (loss) to cash provided by (used for) operating activities |
|
|
326,809 |
|
|
|
(208,248 |
) |
|
|
(95,916 |
) |
|
|
22,645 |
|
Changes in assets and liabilities |
|
|
216,574 |
|
|
|
(87 |
) |
|
|
|
|
|
|
216,487 |
|
|
|
|
Net cash provided by (used for) operating activities |
|
|
514,182 |
|
|
|
(70,067 |
) |
|
|
(120,000 |
) |
|
|
324,115 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to theatre properties and equipment |
|
|
(146,304 |
) |
|
|
|
|
|
|
|
|
|
|
(146,304 |
) |
Proceeds from sale of theatre properties and equipment |
|
|
37,532 |
|
|
|
|
|
|
|
|
|
|
|
37,532 |
|
Increase in escrow deposit due to like-kind exchange |
|
|
(22,739 |
) |
|
|
|
|
|
|
|
|
|
|
(22,739 |
) |
Net proceeds from sale of NCM stock |
|
|
|
|
|
|
214,842 |
|
|
|
|
|
|
|
214,842 |
|
Net proceeds from sale of Fandango stock |
|
|
11,347 |
|
|
|
|
|
|
|
|
|
|
|
11,347 |
|
Investment in joint venture DCIP |
|
|
|
|
|
|
(1,500 |
) |
|
|
|
|
|
|
(1,500 |
) |
|
|
|
Net cash provided by (used for) investing activities |
|
|
(120,164 |
) |
|
|
213,342 |
|
|
|
|
|
|
|
93,178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital contributions from parent |
|
|
63,694 |
|
|
|
|
|
|
|
|
|
|
|
63,694 |
|
Retirement of senior discount notes |
|
|
(43,136 |
) |
|
|
|
|
|
|
|
|
|
|
(43,136 |
) |
Retirement of senior subordinated notes |
|
|
(332,066 |
) |
|
|
|
|
|
|
|
|
|
|
(332,066 |
) |
Repayments of long-term debt |
|
|
(19,438 |
) |
|
|
|
|
|
|
|
|
|
|
(19,438 |
) |
Dividends paid to parent |
|
|
|
|
|
|
(120,000 |
) |
|
|
120,000 |
|
|
|
|
|
Other |
|
|
(5,489 |
) |
|
|
|
|
|
|
|
|
|
|
(5,489 |
) |
|
|
|
Net cash used for financing activities |
|
|
(336,435 |
) |
|
|
(120,000 |
) |
|
|
120,000 |
|
|
|
(336,435 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
5,445 |
|
|
|
|
|
|
|
|
|
|
|
5,445 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCREASE IN CASH AND CASH EQUIVALENTS |
|
|
63,028 |
|
|
|
23,275 |
|
|
|
|
|
|
|
86,303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period |
|
|
147,091 |
|
|
|
8 |
|
|
|
|
|
|
|
147,099 |
|
|
|
|
End of period |
|
$ |
210,119 |
|
|
$ |
23,283 |
|
|
$ |
|
|
|
$ |
233,402 |
|
|
|
|
|
|
|
Note: |
|
Restricted Group and Unrestricted Group are defined in the Indenture for the senior
discount notes. |
S-4
EXHIBITS
TO
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR
CINEMARK, INC.
FOR FISCAL YEAR ENDED
DECEMBER 31, 2007
EXHIBIT INDEX
|
|
|
|
|
Number |
|
Exhibit Title |
|
|
|
|
|
|
2.1 |
|
|
Stock Contribution and Exchange Agreement, dated as of August 7, 2006, by and between Cinemark Holdings, Inc., Cinemark,
Inc., Syufy Enterprises, LP and Century Theatres Holdings, LLC (incorporated by reference to Exhibit 10.2 to Current Report
on Form 8-K, File No. 000-47040, filed by Cinemark USA, Inc. on August 11, 2006). |
|
|
|
|
|
|
2.2 |
|
|
Contribution and Exchange Agreement, dated as of August 7, 2006, by and among Cinemark Holdings, Inc. and Lee Roy Mitchell,
The Mitchell Special Trust, Alan W. Stock, Timothy Warner, Robert Copple, Michael Cavalier, Northwestern University, John
Madigan, Quadrangle Select Partners LP, Quadrangle Capital Partners A LP, Madison Dearborn Capital Partners IV, L.P., K&E
Investment Partners, LLC 2004-B-DIF, Piola Investments Ltd., Quadrangle (Cinemark) Capital Partners LP and Quadrangle
Capital Partners LP (incorporated by reference to Exhibit 10.3 to Current Report on Form 8-K, File No. 000-47040, filed by
Cinemark USA, Inc. on August 11, 2006). |
|
|
|
|
|
|
2.3 |
|
|
Agreement and Plan of Merger dated March 12, 2004, by and between Cinemark, Inc. and Popcorn Merger Corp. (incorporated by
reference to Exhibit 2.1 to Cinemark, Inc.s Registration Statement on Form S-4, File No. 333-116292, filed June 8, 2004). |
|
|
|
|
|
|
2.4 |
|
|
Stock Purchase Agreement dated as of March 12, 2004 by and between Cinemark, Inc. and Madison Dearborn Capital Partners IV,
L.P. (incorporated by reference to Exhibit 2.2 to Cinemark, Inc.s Registration Statement on Form S-4, File No. 333-116292,
filed June 8, 2004). |
|
|
|
|
|
|
3.1 |
|
|
Second Amended and Restated Certificate of Incorporation of Cinemark, Inc. filed with the Delaware Secretary of State on
April 2, 2004 (incorporated by reference to Exhibit 3.1 to Cinemark, Inc.s Registration Statement on Form S-4, File No. 333-
116292, filed June 8, 2004). |
|
|
|
|
|
|
3.2 |
|
|
Amended and Restated Bylaws of Cinemark, Inc. (incorporated by reference to Exhibit 3.2 to Cinemark, Inc.s Registration
Statement on Form S-4, File No. 333-116292, filed June 8, 2004). |
|
|
|
|
|
|
4.2 |
(a) |
|
Indenture, dated as of March 31, 2004, between Cinemark, Inc. and The Bank of New York Trust Company, N.A. governing the
93/4% senior discount notes issued thereunder (incorporated by reference to Exhibit 4.2(a) to Cinemark, Inc.s Registration
Statement on Form S-4, File No. 333-116292, filed June 8, 2004). |
|
|
|
|
|
|
4.2 |
(b) |
|
Form of 93/4% senior discount notes (contained in the indenture listed as Exhibit 4.2(a) above) (incorporated by reference
to Exhibit 4.2(b) to Cinemark, Inc.s Registration Statement on Form S-4, File No. 333-116292, filed June 8, 2004). |
|
|
|
|
|
|
4.3 |
(a) |
|
Indenture, dated as of February 11, 2003, between Cinemark USA, Inc. and The Bank of New York Trust Company of Florida, N.A.
governing the 9% senior subordinated notes issued thereunder (incorporated by reference to Exhibit 10.2(b) to Cinemark USA,
Inc.s Annual Report on Form 10-K, File 033-47040, filed March 19, 2003). |
|
|
|
|
|
|
4.3 |
(b) |
|
First Supplemental Indenture, dated as of May 7, 2003, between Cinemark USA, Inc., the subsidiary guarantors party thereto
and The Bank of New York Trust Company of Florida, N.A. (incorporated by reference from Exhibit 4.2(i) to Cinemark USA,
Inc.s Registration Statement on Form S-4/A, File No. 333-104940, filed May 28, 2003). |
|
|
|
|
|
|
4.3 |
(c) |
|
Second Supplemental Indenture dated as of November 11, 2004, between Cinemark USA, Inc., the subsidiary guarantors party
thereto and The Bank of New York Trust Company of Florida, N.A. (incorporated by reference to Exhibit 4.2(c) to Cinemark
USA, Inc.s Annual Report on Form 10-K, File No. 033-047040, filed March 28, 2005). |
|
|
|
|
|
|
4.3 |
(d) |
|
Third Supplemental Indenture, dated as of October 5, 2006, among Cinemark USA, Inc., the subsidiaries of Cinemark USA, Inc.
named therein, and The Bank of New York Trust Company, N.A., as trustee (incorporated by reference to Exhibit 10.7 to
Current Report on Form 8-K, File No. 000-47040, filed by Cinemark USA, Inc. on October 12, 2006). |
|
|
|
|
|
|
4.3 |
(e) |
|
Fourth Supplemental Indenture, dated as of March 20, 2007, among Cinemark USA, Inc., the subsidiaries of Cinemark USA, Inc.
named therein, and The Bank of New York Trust Company, N.A., as
trustee (incorporated by reference to Exhibit 4.1 to the
Current Report on Form 8-K, File No. 033-47040, filed by Cinemark USA, Inc. on March 26, 2007). |
|
|
|
|
|
|
4.3 |
(f) |
|
Form of 9% Senior Subordinated Note, Due 2013 (contained in the Indenture listed as Exhibit 4.3(a) above) (incorporated by
reference to Exhibit 10.2(b) to Cinemark USA, Inc.s Annual Report on Form 10-K, File 033-47040, filed March 19, 2003). |
|
|
|
|
|
|
10.1 |
(a) |
|
Management Agreement, dated December 10, 1993, between Laredo Theatre, Ltd. and Cinemark USA, Inc. (incorporated by
reference to Exhibit 10.14(b) to Cinemark USA, Inc.s Annual Report on Form 10-K, File No. 033-47040, filed March 31, 1994). |
|
|
|
|
|
|
10.1 |
(b) |
|
First Amendment to Management Agreement of Laredo Theatre, Ltd., effective as of December 10, 2003, between CNMK Texas
Properties, Ltd. (successor in interest to Cinemark USA, Inc.) and Laredo Theatre Ltd. (incorporated by reference to Exhibit
10.1(d) to Cinemark, Inc.s Registration Statement on Form S-4, File No. 333-116292, filed June 8, 2004). |
|
|
|
|
|
|
+10.2 |
|
|
Amended and Restated Agreement to Participate in Profits and Losses, dated as of March 12, 2004, between Cinemark USA, Inc.
and Alan W. Stock (incorporated by reference to Exhibit 10.2 to Cinemark USA, Inc.s Quarterly Report on Form 10-Q, File No.
033-47040, filed May 14, 2004). |
|
|
|
|
|
|
10.3 |
|
|
License Agreement, dated December 10, 1993, between Laredo Joint Venture and Cinemark USA, Inc. (incorporated by reference
to Exhibit 10.14(c) to Cinemark USA, Inc.s Annual Report on Form 10-K, File No. 033-47040, filed March 31, 1994). |
|
|
|
|
|
|
10.4 |
(a) |
|
Tax Sharing Agreement, between Cinemark USA, Inc. and Cinemark International, L.L.C. (f/k/a Cinemark II, Inc. ), dated as of
June 10, 1992 (incorporated by reference to Exhibit 10.22 to Cinemark USA, Inc.s Annual Report on Form 10-K, File No.
033-47040, filed March 31, 1993). |
|
|
|
|
|
|
10.4 |
(b) |
|
Tax Sharing Agreement, dated as of July 28, 1993, between Cinemark USA, Inc. and Cinemark Mexico (USA) (incorporated by
reference to Exhibit 10.10 to Cinemark Mexico (USA)s Registration Statement on Form S-4, File No. 033-72114, filed on
November 24, 1993). |
|
|
|
|
|
|
+10.5 |
(a) |
|
Employment Agreement, dated as of March 12, 2004, between Cinemark, Inc. and Lee Roy Mitchell (incorporated by reference to
Exhibit 10.14(a) to Cinemark USA, Inc.s Quarterly Report on Form 10-Q, File No. 033-47040, filed May 14, 2004). |
|
|
|
|
|
|
+10.5 |
(b) |
|
First Amendment to Employment Agreement, effective as of December 12, 2006, by and between Cinemark, Inc. and Lee Roy
Mitchell (incorporated by reference to Exhibit 10.1 to Cinemark, Inc.s Current Report on Form 8-K, File No. 001-31372,
filed December 18, 2006). |
|
|
|
|
|
|
+10.5 |
(c) |
|
Employment Agreement, dated as of March 12, 2004, between Cinemark, Inc. and Alan Stock (incorporated by reference to
Exhibit 10.14(b) to Cinemark USA, Inc.s Quarterly Report on Form 10-Q, File No. 033-47040, filed May 14, 2004). |
|
|
|
|
|
|
+10.5 |
(d) |
|
First Amendment to Employment Agreement, effective as of December 12, 2006, by and between Cinemark, Inc. and Alan W. Stock
(incorporated by reference to Exhibit 10.2 to Cinemark, Inc.s Current Report on Form 8-K, File No. 001-31372, filed
December 18, 2006). |
|
|
|
|
|
|
+10.5 |
(e) |
|
Employment Agreement, dated as of March 12, 2004, between Cinemark, Inc. and Timothy Warner (incorporated by reference to
Exhibit 10.14(c) to Cinemark USA, Inc.s Quarterly Report on Form 10-Q, File No. 033-47040, filed May 14, 2004). |
|
|
|
|
|
|
+10.5 |
(f) |
|
First Amendment to Employment Agreement, effective as of December 12, 2006, by and between Cinemark, Inc. and Timothy Warner
(incorporated by reference to Exhibit 10.3 to Cinemark, Inc.s Current Report on Form 8-K, File No. 001-31372, filed
December 18, 2006). |
|
|
|
|
|
|
+10.5 |
(g) |
|
Employment Agreement, dated as of March 12, 2004, between Cinemark, Inc. and Robert Copple (incorporated by reference to
Exhibit 10.14(d) to Cinemark USA, Inc.s Quarterly Report on Form 10-Q, File No. 033-47040, filed May 14, 2004). |
|
|
|
|
|
|
+10.5 |
(h) |
|
First Amendment to Employment Agreement, effective as of January 25, 2007, between Cinemark, Inc. and Robert Copple
(incorporated by reference to Exhibit 10.5(j) to Cinemark Holdings, Inc.s Registration Statement on Form S-1, File No.
333-140390, filed February 1, 2007). |
|
|
|
|
|
|
+10.5 |
(i) |
|
Employment Agreement, dated as of March 12, 2004, between Cinemark, Inc. and Rob Carmony (incorporated by reference to
Exhibit 10.14(e) to Cinemark USA, Inc.s Quarterly Report on Form 10-Q, File No. 033-47040, filed May 14, 2004). |
|
|
|
|
|
|
+10.5 |
(j) |
|
First Amendment to Employment Agreement, effective as of January 14, 2008, between Cinemark, Inc. and Rob Carmony
(incorporated by reference to Exhibit 10.1 to Cinemark Holdings, Inc.s Current |