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, 2008
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
(Do not check if a smaller reporting company) | Smaller reporting company o |
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 28, 2009, 27,896,316 shares of 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,
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, 2008.
1
PART I
Item 1. Business
Our Company
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., Brazil and Colombia during the year ended December 31, 2008.
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 October 5, 2006, Cinemark, Inc. became a wholly owned
subsidiary of Cinemark Holdings, Inc.
As of December 31, 2008, we managed our business under two operating segments U.S. markets
and international markets, in accordance with Statement of Financial Accounting Standards (SFAS)
No. 131 Disclosures about Segments of an Enterprise and Related Information. See Note 22 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 420 theatres and 4,783 screens
in the U.S. and Latin America. Our circuit is the third largest in the U.S. with 293 theatres and
3,742 screens in 38 states and one Canadian province. We are the most geographically diverse
circuit in Latin America with 127 theatres and 1,041 screens in 12 countries. During the year ended
December 31, 2008, approximately 211.3 million patrons attended our theatres. Our modern theatre
circuit features stadium seating in approximately 83% of our first-run auditoriums.
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 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 34 years of industry experience and have successfully navigated us through multiple
industry and economic cycles.
We grew our total revenue per patron at a compound annual growth rate (CAGR) during the last
three fiscal years of 10.2%. Revenues, operating income and net loss for the year ended December
31, 2008, were $1,742.3 million, $61.2 million and $(48.9) million, respectively. At December 31,
2008 we had cash and cash equivalents of $313.7 million and long-term debt of $1,508.5 million.
Approximately $797.0 million of our long-term debt accrues interest at variable rates.
2
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 an estimated CAGR of 5.1% from 1992 to 2007. 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. According to industry sources, in
2008, the motion picture exhibition industry experienced one of its best performances in history,
with total box office almost equaling the record breaking 2007 box office. One of the films
released during 2008, The Dark Knight, which grossed over $500 million in domestic box office,
broke several box office records, including the single day box office record on its opening day and
the single film three-day weekend record during its opening weekend. We believe box office
revenues will continue to perform well in 2009 with a solid slate of films, including Harry Potter
and the Half Blood Prince, Transformers: Revenge of the Fallen, Angels & Demons, X-Men Origins:
Wolverine, Night at the Museum II: Escape from the Smithsonian, and Watchmen and the release of 3-D
movies such as Monsters vs. Aliens, Ice Age: Dawn of the Dinosaurs, Avatar, A Christmas Carol, and
Disneys next Pixar installment, Up.
As of the date of this report, MPAA Worldwide Market Research (MPAA) had not yet released
the 2008 box office information. The following table represents the results of a survey by MPAA
published during March 2008, outlining the historical trends in U.S. box office revenues for the
ten year period from 1997 to 2007:
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U.S. Box |
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Office Revenues |
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Attendance |
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Average Ticket |
Year |
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($ in millions) |
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(in millions) |
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Price |
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 consistent. (As of the date of this report, MPAA had
not yet released the 2008 box office information.) 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 continue to be fueled by a combination of continued
development of modern theatres, growing populations, 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.
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:
3
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 from 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. (As of the date of this report, MPAA had not yet released the 2008 industry
information.) 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.
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 an
estimated 1.4 billion patrons in 2007. (As of the date of this report, MPAA had not yet released
the 2008 industry information.) According to Nielsen Entertainment/NRG, 77% of moviegoers stated
their overall theatre experience in 2007 was time and money well spent.
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. (As of the date of this report, MPAA had not yet
released the 2008 box office information.) 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.
Innovation
with Digital Technology. The industry has begun to convert to the use of digital
projection technology, which will allow exhibitors to expand their product offerings. Digital
technology will allow the presentation of 3-D content and alternative entertainment venues such as
live sports programs, the opera and concert events. These additional programming alternatives may
enhance the level of patronage for exhibitors.
Competitive Strengths
We believe the following strengths allow us to compete effectively:
Disciplined Operating Philosophy. We generated operating income and net loss of $61.2 million
and $(48.9) million, respectively, for the year ended December 31, 2008. (Our net loss for the
year ended December 31, 2008 was primarily due to $113.5 million of non-cash impairment charges.)
Our solid operating performance is a result of our disciplined operating philosophy that centers on
building high quality assets, while negotiating favorable theatre level economics and controlling
theatre operating costs. As a result, we grew our admissions and concession revenues per patron at
the highest CAGR during the last five fiscal years among the three largest motion picture
exhibitors in the U.S.
Leading Position in Our U.S. Markets. We have a leading market share in the U.S. metropolitan
and suburban markets we serve. For the year ended December 31, 2008, we ranked either first or
second based on box office revenues in 21 out of our top 25 U.S. markets, including the San
Francisco Bay Area, Dallas, Houston and Salt Lake City.
Strategically Located in Heavily Populated Latin American Markets. Since 1993, we have
invested throughout Latin America due to the continued growth of the region. We operate 127
theatres and 1,041 screens in 12 countries, generating revenues of $385.8 million for the year
ended December 31, 2008. We have successfully established a significant presence in major cities in
the region, with theatres in thirteen of the fifteen largest metropolitan areas. With a
geographically diverse circuit, we are an important distribution channel to the movie studios. The
projected annual population growth for the Latin American countries in which we operate ranges from
1% to 2% for each of the next three years. We are well-positioned with our modern, large-format
theatres to take advantage of these factors for further growth and diversification of our revenues.
State-of-the-Art Theatre Circuit. We offer state-of-the-art theatres, which we believe makes
our theatres a preferred destination for moviegoers in our markets. We feature stadium seating in
approximately 83% of our first run auditoriums. During 2008, we continued our expansion by adding
203 new screens. We currently have commitments to build 147 additional screens over the next three
years.
4
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. 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, 2008,
we had cash of $313.7 million. Our senior debt and senior subordinated debt do not mature until
2013 and 2014, respectively.
Experienced Management. Led by Chairman and founder Lee Roy Mitchell, Chief Executive Officer
Alan Stock, President, Chief Operating Officer Timothy Warner and Chief Financial Officer Robert
Copple, our management team has an average of approximately 34 years of theatre operating
experience executing a focused strategy which has led to consistent operating results. This
management team has successfully navigated us through many industry and economic cycles.
Our Strategy
We believe our disciplined operating philosophy and experienced management team will enable us
to continue to enhance our leading position in the motion picture exhibition industry. Key
components of our strategy include:
Establish and Maintain Leading Market Positions. We will continue to seek growth opportunities
by building or acquiring modern theatres that meet our strategic, financial and demographic
criteria. We will continue to focus on establishing and maintaining a leading position in the
markets we serve.
Continue to Focus on Operational Excellence. We will continue to focus on achieving
operational excellence by controlling theatre operating costs while continuing to provide leading
customer service. Our margins reflect our track record of operating efficiency.
Selectively Build in Profitable, Strategic Latin American Markets. Our international expansion
will continue to focus primarily on Latin America through construction of modern, state-of-the-art
theatres in growing urban markets.
5
Theatre Operations
As of December 31, 2008, we operated 420 theatres and 4,783 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, 2008.
United States Theatres
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Total |
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Total |
State |
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Theatres |
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Screens |
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Texas |
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79 |
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1,024 |
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California |
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64 |
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760 |
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Ohio |
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20 |
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223 |
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Utah |
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13 |
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169 |
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Nevada |
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10 |
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154 |
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Illinois |
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9 |
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122 |
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Colorado |
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8 |
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127 |
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Kentucky |
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8 |
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95 |
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Arizona |
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7 |
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106 |
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Oregon |
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7 |
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102 |
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Oklahoma |
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6 |
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67 |
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Indiana |
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6 |
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58 |
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Louisiana |
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5 |
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74 |
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Pennsylvania |
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5 |
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73 |
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New Mexico |
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4 |
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54 |
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Virginia |
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4 |
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52 |
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North Carolina |
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4 |
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41 |
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Iowa |
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4 |
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39 |
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Mississippi |
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3 |
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41 |
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Arkansas |
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3 |
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30 |
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Florida |
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2 |
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40 |
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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 |
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1 |
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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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292 |
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3,730 |
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Canada |
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1 |
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12 |
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Total |
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293 |
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3,742 |
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6
International Theatres
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Country |
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Total Theatres |
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Total Screens |
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Brazil |
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44 |
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368 |
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Mexico |
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31 |
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300 |
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Chile |
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12 |
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91 |
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Central America(1) |
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12 |
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79 |
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Colombia |
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10 |
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60 |
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Argentina |
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9 |
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74 |
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Peru |
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5 |
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43 |
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Ecuador |
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4 |
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26 |
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Total |
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127 |
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1,041 |
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(1) |
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Includes Honduras, El Salvador, Nicaragua, Costa Rica and Panama. |
We first entered Latin America operating movie theatres in Chile in 1993 and Mexico in 1994.
Since then, through our focused international strategy, we have developed into the most
geographically diverse theatre circuit in the region. We have balanced our risk through a
diversified international portfolio, currently operating theatres in thirteen of the fifteen
largest metropolitan areas in Latin America. In addition, we have achieved significant scale in
Mexico and Brazil, the two largest Latin American economies, with 300 screens in Mexico and 368
screens in Brazil as of December 31, 2008.
We believe that certain markets within Latin America continue to be underserved as penetration
of movie screens per capita in Latin American markets is substantially lower than in the U.S. and
European markets. We will continue to build and expand our presence in underserved international
markets, with emphasis on Latin America, and fund our expansion primarily with cash flow generated
in those markets. We are able to mitigate exposure to currency fluctuations by using local
currencies to fund substantially all costs of our international operations, including film and
facility lease expense. Our geographic diversity throughout Latin America has allowed us to
maintain consistent revenue growth, notwithstanding currency and economic fluctuations that may
affect any particular market. Our international revenues were approximately $385.8 million during
2008 versus $333.6 million during 2007.
Film Licensing
In the U.S., we license films on a theatre-by-theatre and film-by-film basis 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 242 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 86% 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 1,041 screens we operate
in international markets, approximately 73% have no direct competition from other theatres.
Our film rental licenses in the U.S. typically specify that rental fees are based on the
applicable box office receipts and either the mutually agreed upon firm terms or a sliding scale
formula, which are established prior to the opening of the film, or a mutually agreed upon
settlement, which occurs at the conclusion of the film run, subject to the film licensing
agreement. 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 decline over the term of the run. Under the sliding scale formula, film rental is paid
as a percentage of box office revenues using a pre-determined
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matrix based upon box office performance of the film. The settlement process allows for
negotiation of film rental fees upon the conclusion of the film run based upon how the film
performs. Internationally, our film rental licenses are primarily based on mutually agreed upon
firm terms established prior to the opening of the picture. The film rental percentages paid by our
international locations are generally lower than in the U.S. markets and gradually decline over a
period of several weeks.
We operate six art theatres with 21 screens under the CineArts brand. We also regularly play
art and independent films at many of our other theatres, providing a variety of film choices to our
patrons. Operating under the CineArts brand and bringing art and independent films to our other
brands, allows us to benefit from the growth in the art and independent market driven by the more
mature patron and the increased interest in art, foreign and documentary films. High profile film
festivals, such as the Sundance Film Festival, have contributed to growth and interest in this
genre. Recent hits such as Slumdog Millionaire and Doubt have demonstrated the box office potential
of art and independent films.
Concessions
Concession sales are our second largest revenue source, representing approximately 31% of
total revenues for the year ended December 31, 2008. 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. We offer concession products that primarily include
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. Our point of sale system allows us to monitor product sales and make changes to
product mix as necessary. Specially priced combos and promotions are launched on a regular
basis to increase average concession purchases as well as to attract new buyers. |
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Staff training. Employees are continually trained in suggestive-selling and
upselling techniques. Consumer promotions conducted at the concession stand usually
include a motivational element that rewards theatre staff for exceptional combo sales
during the period. |
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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 more
quickly. We strategically place large concession stands within theatres to heighten
visibility, reduce the length of concession lines, and improve traffic flow around the
concession stands. Some of our concession areas are designed as self-service stations which
allow customers to select their own refreshments and proceed to the cash register when they
are ready. This design presents efficient service, enhanced choice and superior visibility
of concession items. Concession designs in many of our new theatres have incorporated the
benefits experienced with the self-service 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, who place orders directly with the vendors to replenish stock. |
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 an in-theatre digital network in the U.S. The digital network
consists of projectors used to display advertising and other non-film events. NCMs primary
activities that impact us include:
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advertising through its branded First Look pre-feature entertainment program, and
lobby promotions and displays, |
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live and pre-recorded networked and single-site meetings and events, |
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live and pre-recorded concerts, sporting events and other non-film entertainment
programming. |
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We believe that the reach, scope and digital delivery capability of NCMs network provides an
effective platform for national, regional and local advertisers to reach an engaged audience. We
receive a monthly theatre access fee for participation in the NCM network. In addition, we are
entitled to receive mandatory quarterly distributions of excess cash from NCM. We currently have an
approximate 14.1% 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.
As of the date of this report, DCIP had signed long-term agreements with five studios for the
deployment of digital projection systems in movie theatres in North America. These agreements are
the first of a number of agreements that DCIP intends to enter into with all of the major studios
and independent distribution companies to ensure the widespread roll-out of digital technology. In
accordance with these agreements, the digital projection systems deployed by DCIP will comply with
the technology and security specifications developed by the Digital Cinema Initiatives studio
consortium. DCIP is currently working with lenders and equity sources to finance the planned
deployment of digital systems.
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 the primary media source to inform patrons of film titles and showtimes. Radio and
television advertising spots, generally paid for by film distributors, are used to promote certain
motion pictures and special events. We also exhibit previews of coming attractions and films
presently playing on the other screens in our theatres or markets. We offer patrons access to movie
times, the ability to buy and print their tickets at home and purchase gift cards and other
advanced sale-type certificates at our website www.cinemark.com. The Internet is becoming a popular
way to view movie previews. We use monthly web contests with film distributor partners to drive
traffic to our website and to ensure that customers visit often. In addition, we work on a regular
basis with all of the film distributors to promote their films with local, regional and national
programs that are exclusive to our theatres. These programs may involve customer contests,
cross-promotions with 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 exhibit upcoming and current film previews on screen, we implement
co-promotions with film distributors and promote and advertise our new locations through various
forms of media and events. We partner with large multi-national corporations in the large
metropolitan areas in which we have theatres, to promote our brand, our image and to increase
attendance levels at our theatres. Our customers are encouraged to register on our website to
receive weekly information by email for showtime information, invitations to special screenings,
sponsored events and promotional information. In addition, our customers can request to receive
showtime information on their cell phones. We also have loyalty programs in certain of our
international markets that allow customers to pay a nominal fee for a membership card that provides
them with certain admissions and concession discounts.
Our marketing departments also focus on maximizing ancillary revenue, which includes the sale
of our gift cards and our SuperSaver discount tickets. We market these programs to such business
representatives as realtors, human resource managers, incentive program managers and hospital and
pharmaceutical personnel. Gift cards can be purchased at our theatres or online through our
website. SuperSavers are also sold online at our website or over the phone, fax or email by our
local corporate offices and are also available at certain retailers in the U.S.
Online Sales
Our patrons may purchase advance tickets for all of our domestic screens and approximately one
third of our international screens by accessing our corporate website at www.cinemark.com. Advance
tickets may also be purchased for our domestic screens at www.fandango.com. Our Internet
initiatives help improve customer satisfaction, allowing
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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 have developed our own proprietary point of sale system to enhance our ability to maximize
revenues, control costs and efficiently manage operations. The system is currently installed in all
of our U.S. theatres and our one Canadian theatre. The point of sale system provides corporate
management with real-time admissions and concession revenues reports that allow us 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 for efficient inventory management and control, 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 86% of the 242 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 1,041 screens we operate outside of the U.S., approximately 73% of those
screens have no direct competition from other theatres. In areas where we face direct competition,
our success in attracting patrons depends on location, accessibility and capacity of an exhibitors
theatre, theatre comfort, quality of projection and sound equipment, film showtime availability,
level of customer service, and ticket prices. The competition for film licensing in the U.S. is
dependent upon factors such as the location, condition and capacity of an exhibitors theatre,
revenue potential and licensing terms.
We compete for new theatre sites with other movie theatre exhibitors as well as other
entertainment venues, which is dependent upon factors such as committed investment and resources,
theatre design and capacity, revenue and patron potential, and financial stability.
We also face competition from a number of other motion picture exhibition delivery systems,
such as DVDs, network and syndicated television, video on-demand, pay-per-view television and
downloading from the Internet. We also face competition from other forms of entertainment competing
for the publics leisure time and disposable income, such as concerts, theme parks and sporting
events.
Corporate Operations
Our corporate headquarters is located in Plano, Texas. Personnel at our corporate headquarters
provide oversight for our domestic and international theatres. Domestic personnel at our corporate
headquarters include concessions, theatre operations support, film licensing, human resources,
legal, finance and accounting, operational audit, theatre maintenance and construction, Internet
and information systems support, real estate and marketing. Our U.S. operations are divided into
sixteen regions, primarily organized geographically, each of which is headed by a region leader.
International personnel at our corporate headquarters include our President of Cinemark
International, L.L.C. and department heads in charge of film licensing, concessions, theatre
operations, theatre construction, real estate, legal, 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 theatres in twelve individual countries. Each regional office is headed by a general
manager and includes personnel in film licensing, marketing, human resources, information systems,
operations and accounting. The regional offices are staffed with experienced personnel from the
region to mitigate cultural and operational barriers.
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Employees
We have approximately 12,900 employees in the U.S., approximately 10% of whom are full time
employees and 90% of whom are part time employees. We have approximately 5,400 employees in our
international markets, approximately 65% of whom are full time employees and approximately 35% of
whom are part time employees. Some of our U.S. employees are represented by unions under collective
bargaining agreements, and some of our international locations are subject to union regulations. We
regard our relations with our employees to be satisfactory.
Regulations
The distribution of motion pictures is largely regulated by federal and state antitrust laws
and has been the subject of numerous antitrust cases. The manner in which we can license films from
certain major film distributors is subject to consent decrees resulting from these cases. Consent
decrees bind certain major film distributors and require the films of such distributors to be
offered and licensed to exhibitors, including us, on a theatre-by-theatre and film-by-film basis.
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 22 to the consolidated financial statements for segment
information and financial information by geographic area.
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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 films in our markets. Poor performance of films, the disruption in the
production of films due to events such as a strike by directors, writers or actors, a reduction in
financing options for the film distributors, or a reduction in the marketing efforts of the film
distributors to promote their films could have an adverse effect on our business by resulting in
fewer patrons and reduced revenues.
A deterioration in relationships with film distributors could adversely affect our ability to
obtain commercially successful films.
We rely on the film distributors to supply the films shown in our theatres. The film
distribution business is highly concentrated, with six major film distributors accounting for
approximately 81% of U.S. box office revenues and 47 of the top 50 grossing films during 2008.
Numerous antitrust cases and consent decrees resulting from these anti-trust cases impact the
distribution of films. The consent decrees bind certain major film distributors to license films to
exhibitors on a theatre-by-theatre and film-by-film basis. Consequently, we cannot guarantee a
supply of films by entering into long-term arrangements with major distributors. We are therefore
required to negotiate licenses for each film and for each theatre. A deterioration in our
relationship with any of the six major film distributors could adversely affect our ability to
obtain commercially successful films and to negotiate favorable licensing terms for such films,
both of which could adversely affect our business and operating results.
We face intense competition for patrons and films which may adversely affect our business.
The motion picture industry is highly competitive. We compete against local, regional,
national and international exhibitors. We compete for both patrons and licensing of films. The
competition for patrons is dependent upon such factors as the availability of popular films, the
location and number of theatres and screens in a market, the comfort and quality of the theatres,
levels of customer service, and pricing. 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
attract patrons or to license successful films, our business may be adversely affected.
An increase in the use of alternative or downstream film distribution channels and other
competing forms of entertainment may reduce movie theatre attendance and limit ticket price growth.
We face competition for patrons from a number of alternative film distribution channels, such
as DVDs, network and syndicated television, video on-demand, pay-per-view television and
downloading from the Internet. We also compete with other forms of entertainment such as concerts,
amusement parks and sporting events, for our patrons leisure time and disposable income. A
significant increase in popularity of these alternative film distribution channels and competing
forms of entertainment could have an adverse effect on our business and results of operations.
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.
The oversupply of screens in the motion picture exhibition industry may adversely affect the
performance of some of our theatres.
During the period between 1996 and 2000, theatre exhibitors focused on the development of
large multiplexes. The strategy of aggressively building multiplexes was adopted throughout the
industry during that time and resulted in an oversupply of screens in the North American exhibition
industry and negatively impacted many older multiplex theatres, leading to financial difficulty for
some of the exhibitors. According to MPAA, screen counts have increased each year
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since 2003. If exhibitors continue to build theatres and demand for such theatres does not
grow at the same rate, the performance of some of our theatres could be adversely affected.
We have substantial long-term lease and debt obligations, which may restrict our ability to
fund current and future operations and that restrict our ability to enter into certain transactions.
We have significant long-term debt service obligations and long-term lease obligations. As of
December 31, 2008, we had $1,516.6 million in long-term debt obligations, $123.7 million in capital
lease obligations and $1,839.1 million in long-term operating lease obligations. We incurred $116.1
million of interest expense for the year ended December 31, 2008. We incurred $225.6 million of
rent expense for the year ended December 31, 2008 under operating leases (with terms, excluding
renewal options, ranging from one to 28 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 industry or the economy. |
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. 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. In addition, we may need to refinance all or a portion of our outstanding
indebtedness prior to its scheduled maturity; however, we may not be able to refinance all or any
portion of our indebtedness on commercially reasonable terms or at all. 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. The involuntary termination of a substantial
number of our leases could have a material adverse impact on our business and results of
operations.
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, economic instability and currency
exchange risk.
We have 127 theatres with 1,041 screens in twelve countries in Latin America. Brazil and
Mexico represented approximately 10.7% and 4.5% of our consolidated 2008 revenues, respectively.
Governmental regulation of the motion picture industry in foreign markets differs from that in the
United States. Changes in regulations affecting prices, quota systems requiring the exhibition of
locally-produced films and restrictions on ownership of property may adversely affect our
international operations in foreign markets. Our international operations are subject to certain
political, economic and
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other uncertainties not encountered by our domestic operations, including risks of severe
economic downturns and high inflation. We also face risks of currency fluctuations, hard currency
shortages and controls of foreign currency exchange and transfers abroad, all of which could have
an adverse effect on the results of our international operations.
We may not be able to generate additional revenues or continue to realize value from our
investment in NCM.
We joined Regal and AMC as founding members of NCM in 2005 and currently have an approximate
14.1% interest in NCM. We receive a monthly theatre access fee under our Exhibitor Services
Agreement with NCM and we are entitled to receive mandatory quarterly distributions of excess cash
from NCM. During the years ended December 31, 2007 and 2008, the Company received approximately
$5.7 million and $1.8 million in other revenues from NCM, respectively and $11.5 million and $18.8
million in cash distributions from NCM, respectively. Cinema advertising is a small component of
the U.S. advertising market and therefore, NCM competes with larger, established and well known
media platforms such as broadcast radio and television, cable and satellite television, outdoor
advertising and Internet portals. NCM also competes with other cinema advertising companies and
with hotels, conference centers, arenas, restaurants and convention facilities for its non-film
related events to be shown or held in our auditoriums. In-theatre advertising may not continue to
attract advertisers or NCMs in-theatre advertising format may not continue to be received
favorably by the theatre-going public. If NCM is unable to continue to generate expected sales of
advertising, its results of operations may be adversely affected and our investment in and
distributions and revenues from NCM may be adversely impacted.
We are subject to uncertainties related to digital cinema, including potentially high costs of
re-equipping theatres with projectors to show digital movies.
Digital cinema is still in an early conversion stage in our industry. We, along with some of
our competitors, have commenced a roll-out of digital equipment for exhibiting feature films.
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 acquisitions. We will continue to pursue a strategy of expansion that will
involve the development of new theatres and may involve acquisitions of existing theatres and
theatre circuits both in the U.S. and internationally. There is significant competition for new
site locations and for existing theatre and theatre circuit acquisition opportunities. As a result
of such competition, we may not be able to acquire attractive site locations, existing theatres or
theatre circuits on terms we consider acceptable. We cannot assure you that our expansion strategy
will result in improvements to our business, financial condition, profitability, or cash flows.
Further, our expansion programs may require financing above our existing borrowing capacity and
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
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movie theatres then under construction and also created a safe harbor framework for us to
construct all of our future stadium-style movie theatres. The DOJ has stipulated that all theatres
built in compliance with the consent order will comply with the wheelchair seating requirements of
the ADA. If we fail to comply with the ADA, remedies could include imposition of injunctive relief,
fines, awards for damages to private litigants and additional capital expenditures to remedy
non-compliance. Imposition of significant fines, damage awards or capital expenditures to cure
non-compliance could adversely affect our business and operating results.
We depend on key personnel for our current and future performance.
Our current and future performance depends to a significant degree upon the continued
contributions of our senior management team and other key personnel. The loss or unavailability to
us of any member of our senior management team or a key employee could significantly harm us. We
cannot assure you that we would be able to locate or employ qualified replacements for senior
management or key employees on acceptable terms.
We are subject to impairment losses due to potential declines in the fair value of our assets.
We review long-lived assets for impairment indicators on a quarterly basis or whenever events
or changes in circumstances indicate the carrying amount of the assets may not be fully
recoverable. We assess many factors when determining whether to impair individual theatre assets,
including actual theatre level cash flows, future years budgeted theatre level cash flows, theatre
property and equipment carrying values, amortizing intangible assets carrying values, the age of a
recently built theatre, competitive theatres in the marketplace, changes in foreign currency
exchange rates, the impact of recent ticket price changes, available lease renewal options and
other factors considered relevant in our assessment of impairment of individual theatre assets.
Long-lived assets are evaluated for impairment on an individual theatre basis, which we believe is
the lowest applicable level for which there are identifiable cash flows. The impairment evaluation
is based on the estimated undiscounted cash flows from continuing use through the remainder of the
theatres useful life. The remainder of the useful life correlates with the available remaining
lease period, which includes the probability of renewal periods, for leased properties and a period
of twenty years for fee owned properties. If the estimated undiscounted cash flows are not
sufficient to recover a long-lived assets carrying value, we then compare the carrying value of
the asset group (theatre) with its estimated fair value. Fair value is determined based on a
multiple of cash flows, which was eight times for the evaluations performed during 2006, 2007 and
the first, second and third quarters of 2008 and six and a half times for the evaluation performed
during the fourth quarter of 2008. 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.
We evaluate goodwill for impairment at the reporting unit level at least annually during the
fourth quarter or whenever events or changes in circumstances indicate the carrying value of
goodwill might exceed its estimated fair value. Goodwill impairment is evaluated using a two-step
approach requiring us to compute the fair value of a reporting unit and compare it with its
carrying value. If the carrying value of the theatre exceeds its fair value, a second step would be
performed to measure the potential goodwill impairment. Fair values are determined based on a
multiple of cash flows, which was eight times for the evaluations performed during 2006 and 2007
and six and a half times for the evaluation performed during 2008. 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. Prior to January 1, 2008, we
considered our theatres reporting units for purposes of evaluating goodwill for impairment. Recent
changes in the organization, including changes in the structure of the executive management team,
the initial public offering of Cinemark Holdings, Inc.s common stock, the resulting changes in the
level at which the management team evaluates the business on a regular basis, and the Century
Acquisition that increased the size of our theatre base by approximately 25%, led management to
conclude that its U.S. regions and international countries are now more reflective of how we manage
and operate our business. Accordingly, the U.S. regions and international countries represent the
appropriate reporting units for purposes of evaluating goodwill for impairment. Consequently,
effective January 1, 2008, management changed the reporting unit to sixteen regions in the U.S. and
each of eight countries internationally (Honduras, El Salvador, Nicaragua, Costa Rica and Panama
are considered one reporting unit) from approximately four hundred theatres. The goodwill
impairment test performed during December 2007 that resulted in the recording of impairment charges
during the year ended December 31, 2007 reflected the final calculation utilizing theatres as
reporting units.
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Tradename intangible assets are tested for impairment at least annually during the fourth
quarter or whenever events or changes in circumstances indicate the carrying value may not be
recoverable. We estimate the fair value of our tradenames by applying an estimated market royalty
rate that could be charged for the use of our tradename to forecasted future revenues, with an
adjustment for the present value of such royalties. If the estimated fair value is less than the
carrying value, the tradename intangible asset is written down to the estimated fair value.
We recorded asset impairment charges, including goodwill impairment charges, of $28.5 million,
$86.6 million and $113.5 for the years ended December 31, 2006, 2007 and 2008, 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
10 and 11 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.
The interests
of Madison Dearborn Partners (MDP) may not be aligned with yours.
We are controlled by an affiliate of MDP. MDP beneficially owns approximately 47% of our
common stock and under a director nomination agreement, are entitled to designate nominees for five
members of our board of directors. Accordingly, MDP has influence and effectively controls our
corporate and management policies and determines, without the consent of our other stockholders, the
outcome of any corporate transaction or other matters submitted to our stockholders for approval,
including potential mergers or acquisitions, asset sales and other significant corporate
transactions. MDP could take other actions that might be desirable to MDP but not to other
stockholders.
Provisions in our corporate documents and certain agreements, as well as Delaware law, may
hinder a change of control.
Provisions in our amended and restated certificate of incorporation and bylaws, as well as
provisions of the Delaware General Corporation Law, could discourage unsolicited proposals to
acquire us, even though such proposals may be beneficial to you. These provisions include:
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authorization of our board of directors to issue shares of preferred stock without
stockholder approval; |
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a board of directors classified into three classes of directors with the directors of
each class, subject to shorter initial terms for some directors, having staggered,
three-year terms; |
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provisions regulating the ability of our stockholders to nominate directors for election
or to bring matters for action at annual meetings of our stockholders; and |
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provisions of Delaware law that restrict many business combinations and provide that
directors serving on classified boards of directors, such as ours, may be removed only for
cause. |
Certain provisions of the 9 3/4% senior discount notes indenture and the senior secured credit
facility may have the effect of delaying or preventing future transactions involving a change of
control. A change of control would require us to make an offer to the holders of our 9 3/4% senior
discount notes to repurchase all of the outstanding notes at a purchase price equal to 101% of the
aggregate principal amount outstanding plus accrued unpaid interest to the date of the purchase. A
change of control would also be an event of default under our senior secured credit facility.
The
Impairment or Insolvency of Other Financial Institutions Could Adversely Affect Us.
16
We have exposure to different counterparties with regard to our interest rate swap agreements.
These transactions expose us to credit risk in the event of default of our counterparties to such
agreements. We also have exposure to financial institutions used as depositories of our corporate
cash balances. If our counterparties and financial institutions become impaired or insolvent, this
could have a material impact on our results of operations or impair our ability to access our cash.
Item 2. Properties
United States
As of December 31, 2008, we operated 250 theatres, with 3,135 screens, pursuant to leases and
own the land and building for 43 theatres, with 607 screens, in the U.S. During 2008, we acquired
two theatres with 28 screens and built ten new theatres with 128 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, 2008, approximately 8% of our theatre leases in the U.S., covering
21 theatres with 167 screens, have remaining terms, including optional renewal periods, of less
than five years. Approximately 12% of our theatre leases in the U.S., covering 30 theatres with 229
screens, have remaining terms, including optional renewal periods, of between six and 15 years and
approximately 80% of our theatre leases in the U.S., covering 199 theatres with 2,739 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, 2008, internationally, we operated 127 theatres, with 1,041 screens, all of
which are leased pursuant to ground or building leases. In 2008, we acquired two theatres with 16
screens and built five new theatres with 31 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. Five international theatres with 40 screens have a remaining term, including
optional renewal periods, of less than five years. Approximately 27% of our international theatre
leases, covering 34 theatres and 290 screens, have remaining terms, including optional renewal
periods, of between six and 15 years and approximately 69% of our international theatre leases,
covering 88 theatres and 711 screens, have remaining terms, including optional renewal periods, of
more than 15 years.
See Note 21 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
17
disputes, some of which are covered by insurance. We believe our potential liability, with
respect to proceedings currently pending, is not material, individually or in the aggregate, to our
financial position, results of operations and cash flows.
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, 2008,
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, 2008:
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Number of |
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|
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Securities Remaining |
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Number of |
|
Weighted |
|
Available for Future |
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Securities to be |
|
Average Exercise |
|
Issuance Under |
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|
Issued upon |
|
Price of |
|
Equity |
|
|
Exercise of |
|
Outstanding |
|
Compensation Plans |
|
|
Outstanding |
|
Options, |
|
(Excluding |
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|
Options, Warrants |
|
Warrants and |
|
Securities Reflected |
Plan Category |
|
and Rights |
|
Rights |
|
in the First Column) |
Equity compensation plans approved by security holders |
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|
6,139,670 |
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|
$ |
7.63 |
|
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|
11,629,044 |
|
Equity compensation plans not approved by security holders |
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|
|
|
|
|
|
|
|
|
|
|
|
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Total |
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|
6,139,670 |
|
|
$ |
7.63 |
|
|
|
11,629,044 |
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|
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 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 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 us effective on the date of the Cinemark Share Exchange, October 5, 2006. The following
presents results of operations for the periods preceding the Cinemark Share Exchange as Predecessor
and the periods subsequent to the Cinemark Share Exchange as Successor. See Note 4 to the
consolidated financial statements.
As of December 31, 2008, 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 22 to the consolidated financial statements.
19
Results of Operations
On October 5, 2006, we completed our acquisition of Century Theatres, Inc. Our results of
operations reflect the inclusion of the Century theatres beginning on the date of acquisition. See
Note 5 to the consolidated financial statements.
The following table sets forth, for the periods indicated, the percentage of revenues
represented by certain items reflected in our consolidated statements of operations:
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Period from |
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January 1, 2006 |
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October 5, 2006 |
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to |
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|
to |
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Year Ended December 31, |
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|
October 4, 2006 |
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|
December 31, 2006 |
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2007 |
|
|
2008 |
|
|
|
(Predecessor) |
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|
(Successor) |
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|
(Successor) |
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|
(Successor) |
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Operating data (in millions): |
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|
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|
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|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Admissions |
|
$ |
514.2 |
|
|
|
$ |
246.1 |
|
|
$ |
1,087.5 |
|
|
$ |
1,127.0 |
|
Concession |
|
|
260.2 |
|
|
|
|
115.6 |
|
|
|
516.5 |
|
|
|
534.8 |
|
Other |
|
|
54.7 |
|
|
|
|
29.8 |
|
|
|
78.8 |
|
|
|
80.5 |
|
|
|
|
|
|
|
Total revenues |
|
$ |
829.1 |
|
|
|
$ |
391.5 |
|
|
$ |
1,682.8 |
|
|
$ |
1,742.3 |
|
|
|
|
|
|
|
Theatre operating costs(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Film rentals and advertising |
|
$ |
275.0 |
|
|
|
$ |
131.0 |
|
|
$ |
589.7 |
|
|
$ |
612.2 |
|
Concession supplies |
|
|
41.9 |
|
|
|
|
17.1 |
|
|
|
81.1 |
|
|
|
86.6 |
|
Salaries and wages |
|
|
79.0 |
|
|
|
|
39.6 |
|
|
|
173.3 |
|
|
|
181.0 |
|
Facility lease expense |
|
|
109.5 |
|
|
|
|
48.3 |
|
|
|
212.7 |
|
|
|
225.6 |
|
Utilities and other |
|
|
100.9 |
|
|
|
|
43.9 |
|
|
|
191.3 |
|
|
|
205.8 |
|
|
|
|
|
|
|
Total theatre operating costs |
|
$ |
606.3 |
|
|
|
$ |
279.9 |
|
|
$ |
1,248.1 |
|
|
$ |
1,311.2 |
|
|
|
|
|
|
|
Operating data as a percentage of total
revenues: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Admissions |
|
|
62.0 |
% |
|
|
|
62.9 |
% |
|
|
64.6 |
% |
|
|
64.7 |
% |
Concession |
|
|
31.4 |
|
|
|
|
29.5 |
|
|
|
30.7 |
|
|
|
30.7 |
|
Other |
|
|
6.6 |
|
|
|
|
7.6 |
|
|
|
4.7 |
|
|
|
4.6 |
|
|
|
|
|
|
|
Total revenues |
|
|
100.0 |
% |
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
Theatre operating costs(1)(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Film rentals and advertising |
|
|
53.5 |
% |
|
|
|
53.2 |
% |
|
|
54.2 |
% |
|
|
54.3 |
% |
Concession supplies |
|
|
16.1 |
|
|
|
|
14.8 |
|
|
|
15.7 |
|
|
|
16.2 |
|
Salaries and wages |
|
|
9.5 |
|
|
|
|
10.1 |
|
|
|
10.3 |
|
|
|
10.4 |
|
Facility lease expense |
|
|
13.2 |
|
|
|
|
12.3 |
|
|
|
12.6 |
|
|
|
12.9 |
|
Utilities and other |
|
|
12.2 |
|
|
|
|
11.2 |
|
|
|
11.4 |
|
|
|
11.8 |
|
Total theatre operating costs |
|
|
73.1 |
% |
|
|
|
71.5 |
% |
|
|
74.2 |
% |
|
|
75.3 |
% |
|
|
|
|
|
|
Average screen count (month end average) |
|
|
3,375 |
|
|
|
|
4,207 |
|
|
|
4,558 |
|
|
|
4,703 |
|
|
|
|
|
|
|
Revenues per average screen |
|
$ |
245,649 |
|
|
|
$ |
93,072 |
|
|
$ |
369,200 |
|
|
$ |
370,469 |
|
|
|
|
|
|
|
|
|
|
(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, 2008 and December 31, 2007
Revenues. Total revenues increased $59.5 million to $1,742.3 million for 2008 from $1,682.8
million for 2007, representing a 3.5% increase. The table below, presented by reportable operating
segment, summarizes our year-over-year revenue performance and certain key performance indicators
that impact our revenues.
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|
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|
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|
|
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|
|
U.S. Operating Segment |
|
International Operating
Segment |
|
Consolidated |
|
|
Year Ended |
|
|
|
|
|
Year Ended |
|
|
|
|
|
Year Ended |
|
|
|
|
|
|
December 31, |
|
|
|
|
|
December 31, |
|
|
|
|
|
December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
% |
|
|
2007 |
|
2008 |
|
Change |
|
2007 |
|
2008 |
|
Change |
|
2007 |
|
2008 |
|
Change |
Admissions revenues
(in millions) |
|
$ |
879.1 |
|
|
$ |
889.1 |
|
|
|
1.1 |
% |
|
$ |
208.4 |
|
|
$ |
237.9 |
|
|
|
14.2 |
% |
|
$ |
1,087.5 |
|
|
$ |
1,127.0 |
|
|
|
3.6 |
% |
Concession revenues
(in millions) |
|
$ |
424.4 |
|
|
$ |
426.5 |
|
|
|
0.5 |
% |
|
$ |
92.1 |
|
|
$ |
108.3 |
|
|
|
17.6 |
% |
|
$ |
516.5 |
|
|
$ |
534.8 |
|
|
|
3.5 |
% |
Other revenues (in
millions)
(1) |
|
$ |
45.6 |
|
|
$ |
40.9 |
|
|
|
(10.3 |
%) |
|
$ |
33.2 |
|
|
$ |
39.6 |
|
|
|
19.3 |
% |
|
$ |
78.8 |
|
|
$ |
80.5 |
|
|
|
2.2 |
% |
Total revenues (in
millions)
(1) |
|
$ |
1,349.1 |
|
|
$ |
1,356.5 |
|
|
|
0.5 |
% |
|
$ |
333.7 |
|
|
$ |
385.8 |
|
|
|
15.6 |
% |
|
$ |
1,682.8 |
|
|
$ |
1,742.3 |
|
|
|
3.5 |
% |
Attendance (in
millions) |
|
|
151.7 |
|
|
|
147.9 |
|
|
|
(2.5 |
%) |
|
|
61.0 |
|
|
|
63.4 |
|
|
|
3.9 |
% |
|
|
212.7 |
|
|
|
211.3 |
|
|
|
(0.7 |
%) |
Revenues per
average screen
(1) |
|
$ |
376,771 |
|
|
$ |
368,313 |
|
|
|
(2.2 |
%) |
|
$ |
341,451 |
|
|
$ |
378,252 |
|
|
|
10.8 |
% |
|
$ |
369,200 |
|
|
$ |
370,469 |
|
|
|
0.3 |
% |
|
|
|
(1) |
|
U.S. operating segment revenues include eliminations of intercompany transactions
with the international operating segment. See Note 22 of our consolidated financial
statements. |
|
|
Consolidated. The increase in admissions revenues of $39.5 million was attributable
to a 4.3% increase in average ticket price from $5.11 for 2007 to $5.33 for 2008, partially
offset by a 0.7% decline in attendance. The increase in concession revenues of $18.3 million
was attributable to a 4.1% increase in concession revenues per patron from $2.43 for 2007 to
$2.53 for 2008, partially offset by the decline in attendance. The increases in average ticket
price and concession revenues per patron were due to price increases and favorable exchange
rates during most of the year in certain countries in which we operate. The 2.2% increase in
other revenues was primarily attributable to increased screen advertising and other ancillary
revenues in certain of our international locations and the favorable impact of exchange rates
during most of the year in certain countries in which we operate. |
|
|
U.S. The increase in admissions revenues of $10.0 million was attributable to a 3.8%
increase in average ticket price from $5.79 for 2007 to $6.01 for 2008, partially offset by a
2.5% decrease in attendance. The increase in concession revenues of $2.1 million was
attributable to a 2.9% increase in concession revenues per patron from $2.80 for 2007 to $2.88
for 2008, partially offset by the decline in attendance. The increases in average ticket price
and concession revenues per patron were due to price increases. The 10.3% decrease in other
revenues was primarily attributable to reduced screen advertising revenues earned under the
exhibitor services agreement with NCM. See Note 6 to the consolidated financial statements. |
|
|
International. The increase in admissions revenues of $29.5 million was attributable
to a 9.6% increase in average ticket price from $3.42 for 2007 to $3.75 for 2008 and a 3.9%
increase in attendance. The increase in concession revenues of $16.2 million was attributable
to a 13.2% increase in concession revenues per patron from $1.51 for 2007 to $1.71 for 2008
and the increase in attendance. The increases in average ticket price and concession revenues
per patron were due to price increases and favorable exchange rates during most of the year in
certain countries in which we operate. The 19.3% increase in other revenues was primarily due
to increased screen advertising and other ancillary revenues and the favorable impact of
exchange rates during most of the year in certain countries in which we operate. |
21
Theatre Operating Costs (excludes depreciation and amortization expense). Theatre operating
costs were $1,311.2 million, or 75.3% of revenues, for 2008 compared to $1,248.1 million, or 74.2%
of revenues, for 2007. The table below, presented by reportable operating segment, summarizes our
year-over-year theatre operating costs (in millions).
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Operating |
|
|
|
|
U.S. Operating Segment |
|
Segment |
|
Consolidated |
|
|
Year Ended |
|
Year Ended |
|
Year Ended |
|
|
December 31, |
|
December 31, |
|
December 31, |
|
|
2007 |
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Film rentals and advertising |
|
$ |
485.2 |
|
|
$ |
494.6 |
|
|
$ |
104.5 |
|
|
$ |
117.6 |
|
|
$ |
589.7 |
|
|
$ |
612.2 |
|
Concession supplies |
|
|
57.8 |
|
|
|
58.5 |
|
|
|
23.3 |
|
|
|
28.1 |
|
|
$ |
81.1 |
|
|
$ |
86.6 |
|
Salaries and wages |
|
|
146.7 |
|
|
|
149.5 |
|
|
|
26.6 |
|
|
|
31.5 |
|
|
$ |
173.3 |
|
|
$ |
181.0 |
|
Facility lease expense |
|
|
161.7 |
|
|
|
166.8 |
|
|
|
51.0 |
|
|
|
58.8 |
|
|
$ |
212.7 |
|
|
$ |
225.6 |
|
Utilities and other |
|
|
149.0 |
|
|
|
151.8 |
|
|
|
42.3 |
|
|
|
54.0 |
|
|
$ |
191.3 |
|
|
$ |
205.8 |
|
|
|
|
Total theatre operating costs |
|
$ |
1,000.4 |
|
|
$ |
1,021.2 |
|
|
$ |
247.7 |
|
|
$ |
290.0 |
|
|
$ |
1,248.1 |
|
|
$ |
1,311.2 |
|
|
|
|
|
|
Consolidated. Film rentals and advertising costs were $612.2 million, or 54.3% of
admissions revenues, for 2008 compared to $589.7 million, or 54.2% of admissions revenues, for
2007. The increase in film rentals and advertising costs for 2008 of $22.5 million was
primarily due to a $39.5 million increase in admissions revenues. Concession supplies expense
was $86.6 million, or 16.2% of concession revenues, for 2008 compared to $81.1 million, or
15.7% of concession revenues, for 2007. The increase in concession supplies expense of $5.5
million was primarily due to an $18.3 million increase in concession revenues and an increase
in the concession supplies rate. The increased rate was primarily due to the relative increase
in concession revenues from our international operations and increases in product costs from
some of our international concession suppliers. |
|
|
|
Salaries and wages increased to $181.0 million for 2008 from $173.3 million for 2007, facility
lease expense increased to $225.6 million for 2008 from $212.7 million for 2007 and utilities
and other costs increased to $205.8 million for 2008 from $191.3 million for 2007, all of which
increased primarily due to increased revenues, new theatre openings and the impact of exchange
rates in certain countries in which we operate. |
|
|
|
U.S. Film rentals and advertising costs were $494.6 million, or 55.6% of admissions
revenues, for 2008 compared to $485.2 million, or 55.2% of admissions revenues, for 2007. The
increase in film rentals and advertising costs for 2008 of $9.4 million was primarily due to
the increase in admissions revenues and higher film rentals and advertising rates. Concession
supplies expense was $58.5 million, or 13.7% of concession revenues, for 2008 compared to
$57.8 million, or 13.6% of concession revenues, for 2007. |
|
|
|
Salaries and wages increased to $149.5 million for 2008 from $146.7 million for 2007, facility
lease expense increased to $166.8 million for 2008 from $161.7 million for 2007 and utilities
and other costs increased to $151.8 million for 2008 from $149.0 million for 2007, all of which
increased primarily due to new theatre openings. |
|
|
|
International. Film rentals and advertising costs were $117.6 million, or 49.4% of
admissions revenues, for 2008 compared to $104.5 million, or 50.1% of admissions revenues, for
2007. The increase in film rentals and advertising costs of $13.1 million was due to a $29.5
million increase in admissions revenues, partially offset by a decrease in our film rental and
advertising rate. Concession supplies expense was $28.1 million, or 25.9% of concession
revenues, for 2008 compared to $23.3 million, or 25.3% of concession revenues, for 2007. The
increase in concession supplies expense of $4.8 million was primarily due to the $16.2 million
increase in concession revenues and the increased rate due to increases in product costs from
some of our concession suppliers. |
|
|
|
Salaries and wages increased to $31.5 million for 2008 from $26.6 million for 2007, facility
lease expense increased to $58.8 million for 2008 from $51.0 million for 2007 and utilities and
other costs increased to $54.0 million for 2008 from $42.3 million for 2007, all of which
increased primarily due to increased revenues, new theatre openings and the impact of exchange
rates in certain countries in which we operate. |
22
General and Administrative Expenses. General and administrative expenses increased to $89.8
million for 2008 from $78.9 million for 2007. The increase was primarily due to increased incentive
compensation expense of $4.4 million, increased share based award compensation expense of $1.8
million, increased service charges of $1.7 million related to increased credit card activity,
increased professional fees of $0.5 million, including audit fees related to Sarbanes-Oxley (SOX)
compliance, and increased legal fees of $2.2 million.
Termination of Profit Participation Agreement. Upon consummation of Cinemark Holdings, Inc.s
initial public offering on April 24, 2007, we exercised our option to terminate the amended and
restated profit participation agreement with our CEO Alan Stock and purchased Mr. Stocks profit
interest in two theatres during May 2007 for $6.9 million pursuant to the terms of the amended and
restated profit participation agreement. In addition, we incurred $0.1 million of payroll taxes
related to the termination. See Note 23 to our consolidated financial statements.
Depreciation and Amortization. Depreciation and amortization expense, including amortization
of favorable leases, was $158.0 million for 2008 compared to $151.7 million for 2007 primarily due
to new theatre openings.
Impairment of Long-Lived Assets. We recorded asset impairment charges on assets held and used
of $113.5 million for 2008 compared to $86.6 million for 2007. Impairment charges for 2008
consisted of $34.6 million of theatre properties, $78.6 million of goodwill associated with theatre
properties, and $0.3 million of intangible assets associated with theatre properties. 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. See Notes 10 and 11 to our consolidated financial statements.
(Gain) Loss on Sale of Assets and Other. We recorded a loss on sale of assets and other of
$8.5 million during 2008 compared to a gain on sale of assets and other of $3.0 million during
2007. The loss recorded during 2008 was primarily related to the write-off of theatre equipment
that was replaced, the write-off of prepaid rent for an international theatre, and damages to
certain of our theatres in Texas related to Hurricane Ike. The gain recorded during 2007 primarily
related to the sale of real property associated with one theatre in the U.S.
Interest Expense. Interest costs incurred, including amortization of debt issue costs, was
$116.1 million for 2008 compared to $145.6 million for 2007. The decrease was primarily due to the
repurchase of substantially all of our outstanding 9% senior subordinated notes that occurred
during March and April 2007, the repurchase of a portion of our 9 3/4% senior discount notes during
the second half of 2007 and 2008, and a reduction in the variable interest rates on a portion of
our long-term debt. In addition, during the 2008 period, we recorded a gain of approximately $5.4
million as a component of interest expense related to the change in fair value of one of our
interest rate swap agreements that was deemed not highly effective. See Note 14 to our consolidated
financial statements for further discussion of our interest rate swap agreements.
Gain on NCM Transaction. During 2007, we recorded a gain of $210.8 million on the sale of a
portion of our equity investment in NCM in conjunction with the initial public offering of NCM,
Inc. common stock. Our ownership interest in NCM was reduced from approximately 25% to
approximately 14% as part of this sale of stock in the offering. See Note 6 to our consolidated
financial statements.
Gain on Fandango Transaction. During 2007, we recorded a gain of $9.2 million as a result of
the sale of our investment in stock of Fandango, Inc. See Note 8 to our consolidated financial
statements.
(Gain) Loss on Early Retirement of Debt. During 2008, we recorded a gain on early retirement
of debt of $1.7 million as a result of the repurchase of $47.0 million aggregate principal amount
at maturity of our 9 3/4% senior discount notes partially offset by the write-off of unamortized debt
issue costs. During 2007, we recorded a loss on early retirement of debt of $13.5 million as a
result of the repurchase of $332.1 million aggregate principal amount of 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, and the related write-off of unamortized debt issue costs and the payment of
premiums, fees and expenses. See Note 13 to our consolidated financial statements.
Distributions from NCM. We recorded distributions received from NCM of $18.8 million during
2008 and $11.5 million during 2007, which were in excess of the carrying value of our investment.
See Note 6 to our consolidated financial statements.
23
Income Taxes. Income tax expense of $20.7 million was recorded for 2008 compared to $109.5
million recorded for 2007. The effective tax rate of (73.3)% for 2008 reflects the impact of our
2008 goodwill impairment charges, which are not deductible for income tax purposes. The effective
tax rate in 2008 net of the impact from the goodwill impairment charges would have been
approximately 41.1%. 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%.
Analysis of Year Ended December 31, 2007
Revenues. Total revenues were $1,682.8 million for the year ended December 31, 2007. The table
below, presented by reportable operating segment, summarizes our revenue performance and certain
key performance indicators that impact our revenues for the year ended December 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
International |
|
|
|
|
|
|
|
|
Operating |
|
Operating |
|
|
|
|
|
|
|
|
Segment |
|
Segment |
|
Consolidated |
|
|
|
|
|
|
|
Admissions revenues (in millions) |
|
$ |
879.1 |
|
|
$ |
208.4 |
|
|
$ |
1,087.5 |
|
|
|
|
|
Concession revenues (in millions) |
|
$ |
424.4 |
|
|
$ |
92.1 |
|
|
$ |
516.5 |
|
|
|
|
|
Other revenues (in millions) (1) |
|
$ |
45.6 |
|
|
$ |
33.2 |
|
|
$ |
78.8 |
|
|
|
|
|
Total revenues (in millions) (1) |
|
$ |
1,349.1 |
|
|
$ |
333.7 |
|
|
$ |
1,682.8 |
|
|
|
|
|
Attendance (in millions) |
|
|
151.7 |
|
|
|
61.0 |
|
|
|
212.7 |
|
|
|
|
|
Revenues per screen (in dollars) (1) |
|
$ |
376,771 |
|
|
$ |
341,451 |
|
|
$ |
369,200 |
|
|
|
|
|
|
|
|
(1) |
|
U.S. operating segment revenues include eliminations of
intercompany transactions with the international operating segment. See
Note 22 of our consolidated financial statements. |
|
|
Consolidated. Admissions revenues of $1,087.5 million was attributable to
attendance of 212.7 million patrons and an average ticket price of $5.11. Concession revenues
of $516.5 million was attributable to attendance of 212.7 million patrons and a concession
revenues per patron rate of $2.43. The 2007 period was the first full year of operations of
the 77 Century theatres acquired during the period from October 5, 2006 to December 31, 2006.
See Note 5 to the consolidated financial statements for discussion of the Century Acquisition.
The attendance levels were reflective of the solid slate of films released during 2007 and
new theatre openings. Average ticket prices and concession revenues per patron were reflective
of price increases and favorable exchange rates in certain countries in which we operate. |
|
|
|
U.S. Admissions revenues of $879.1 million was attributable to attendance of 151.7
million patrons for 2007 and an average ticket price of $5.79. Concession revenues of $424.4
million was attributable to attendance of 151.7 million patrons and a concession revenues per
patron rate of $2.80. The 2007 period was the first full year of operations of the 77 Century
theatres acquired during the period from October 5, 2006 to December 31, 2006. See Note 5 to
the consolidated financial statements for discussion of the Century Acquisition. The
attendance levels were reflective of the solid slate of films released during 2007 and new
theatre openings. Average ticket prices and concession revenues per patron were reflective of
price increases. |
|
|
|
International. Admissions revenues of $208.4 million was attributable to attendance
of 61.0 million patrons and an average ticket price of $3.42. Concession revenues of $92.1
million was attributable to attendance of 61.0 million patrons and a concession revenues per
patron rate of $1.51. Attendance levels were reflective of new theatre openings and average
ticket prices and concession revenues per patron were reflective of price increases and
favorable exchange rates in certain countries in which we operate. |
24
Theatre Operating Costs (excludes depreciation and amortization expense). Theatre operating
costs were $1,248.1 million, or 74.2% of revenues, for 2007. The table below, presented by
reportable operating segment, summarizes our theatre operating costs for 2007 (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
International |
|
|
|
|
|
|
|
|
Operating |
|
Operating |
|
|
|
|
|
|
|
|
Segment |
|
Segment |
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Film rentals and advertising |
|
$ |
485.2 |
|
|
$ |
104.5 |
|
|
$ |
589.7 |
|
|
|
|
|
Concession supplies |
|
$ |
57.8 |
|
|
$ |
23.3 |
|
|
$ |
81.1 |
|
|
|
|
|
Salaries and wages |
|
$ |
146.7 |
|
|
$ |
26.6 |
|
|
$ |
173.3 |
|
|
|
|
|
Facility lease expense |
|
$ |
161.7 |
|
|
$ |
51.0 |
|
|
$ |
212.7 |
|
|
|
|
|
Utilities and other |
|
$ |
149.0 |
|
|
$ |
42.3 |
|
|
$ |
191.3 |
|
|
|
|
|
|
|
|
Total theatre operating costs |
|
$ |
1,000.4 |
|
|
$ |
247.7 |
|
|
$ |
1,248.1 |
|
|
|
|
|
|
|
|
|
|
Consolidated. Film rentals and advertising costs were $589.7 million representing
54.2% of admissions revenues. Our film rental and advertising rate is reflective of higher
than average rates on certain blockbuster sequels that were released during 2007. Concession
supplies expense was $81.1 million representing 15.7% of concession revenues. |
|
|
|
Salaries and wages were $173.3 million, which represents 10.3% of total revenues and is
reflective of salaries and wages related to the 77 Century theatres acquired during the period
from October 5, 2006 to December 31, 2006, an increase in minimum wages in the U.S., and new
theatre openings. Facility lease expense was $212.7 million, which represented 12.6% of total
revenues and included expenses related to the 77 Century theatres acquired during the period
from October 5, 2006 to December 31, 2006, percentage rent related to the increased revenues and
new theatre openings. Utilities and other costs was $191.3 million, which represented 11.4% of
total revenues and included expenses related to the 77 Century theatres acquired during the
period from October 5, 2006 to December 31, 2006 and new theatre openings. See Note 5 to the
consolidated financial statements for discussion of the Century Acquisition. |
|
|
|
U.S. Film rentals and advertising costs were $485.2 million representing 55.2% of
admissions revenues. Film rentals and advertising costs reflected higher than average rates
due to certain blockbuster sequels released during 2007. Concession supplies expense was $57.8
million representing 13.6% of concession revenues. |
|
|
|
Salaries and wages was $146.7 million, which represented 10.9% of total revenues and was
reflective of salaries and wages related to the 77 Century theatres acquired during the period
from October 5, 2006 to December 31, 2006, an increase in minimum wages in the U.S., and new
theatre openings. Facility lease expense was $161.7 million, which represented 12.0% of total
revenues, and included expenses related to the 77 Century theatres acquired during the period
from October 5, 2006 to December 31, 2006, percentage rent related to the increased revenues and
new theatre openings. Utilities and other costs were $149.0 million, which represented 11.0% of
total revenues and included expenses related to the 77 Century theatres acquired during the
period from October 5, 2006 to December 31, 2006 and new theatre openings. See Note 5 to the
consolidated financial statements for discussion of the Century Acquisition. |
|
|
|
International. Film rentals and advertising costs were $104.5 million, representing
50.1% of admissions revenues. Concession supplies expense was $23.3 million, representing
25.3% of concession revenues. |
|
|
|
Salaries and wages were $26.6 million, representing 8.0% of total revenues, facility lease
expense was $51.0 million, representing 15.3% of total revenues, and utilities and other costs
was $42.3 million, representing 12.7% of total revenues, all of which included expenses related
to new theatre openings. |
General and Administrative Expenses. General and administrative expenses were $78.9 million
and included salaries, wages and related costs of $45.8 million, professional fees of $7.9 million,
and service charges related to credit card activity of $7.4 million, all of which were reflective
of the 77 Century theatres acquired during the period from October 5, 2006 to December 31, 2006. See Note 5 to the consolidated financial statements for discussion
of the Century Acquisition.
25
Termination of Profit Participation Agreement. Upon consummation of Cinemark Holdings, Inc.s
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 23 to our consolidated financial statements.
Depreciation and Amortization. Depreciation and amortization expense, including amortization
of favorable leases, was $151.7 million and included the impact of the Century Acquisition and new
theatre openings. See Note 5 to the consolidated financial statements for discussion of the Century
Acquisition.
Impairment of Long-Lived Assets. We recorded asset impairment charges on assets held and used
of $86.6 million, which 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.
Gain on Sale of Assets and Other. We recorded a gain on sale of assets and other of $3.0
million, which primarily related to the sale of real property associated with one theatre in the
U.S.
Interest Expense. Interest costs incurred, including amortization of debt issue costs, was
$145.6 million. See Note 13 to our consolidated financial statements for a discussion of our
long-term debt and related interest rates.
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. See Notes 12 and 13
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. We recorded income tax expense of $109.5 million, which represented an effective
tax rate of 56.3% The effective tax rate, net of the impact from the goodwill impairment charges,
would have been approximately 41.8%. See Note 20 to our consolidated financial statements.
26
Analysis of Period from January 1, 2006 to October 4, 2006
Revenues. Total revenues were $829.1 million for the period from January 1, 2006 to October 4,
2006. The table below, presented by reportable operating segment, summarizes our revenue
performance and certain key performance indicators that impact our revenues for the period from
January 1, 2006 to October 4, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
International |
|
|
|
|
|
|
Operating |
|
Operating |
|
|
|
|
|
|
Segment |
|
Segment |
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Admissions revenues (in millions)
|
|
$ |
370.4 |
|
|
$ |
143.8 |
|
|
$ |
514.2 |
|
|
|
Concession revenues (in millions)
|
|
$ |
199.1 |
|
|
$ |
61.1 |
|
|
$ |
260.2 |
|
|
|
Other revenues (in millions) (1)
|
|
$ |
36.8 |
|
|
$ |
17.9 |
|
|
$ |
54.7 |
|
|
|
Total revenues (in millions) (1)
|
|
$ |
606.3 |
|
|
$ |
222.8 |
|
|
$ |
829.1 |
|
|
|
Attendance (in millions)
|
|
|
81.6 |
|
|
|
46.9 |
|
|
|
128.5 |
|
|
|
Revenues per screen (in dollars) (1)
|
|
$ |
247,564 |
|
|
$ |
240,583 |
|
|
$ |
245,649 |
|
|
|
|
|
|
(1) |
|
U.S. operating segment revenues include eliminations of
intercompany transactions with the international operating segment. See
Note 22 of our consolidated financial statements. |
|
|
Consolidated. Admissions revenues of $514.2 million was attributable to attendance of
128.5 million patrons and an average ticket price of $4.00. Concession revenues of $260.2
million was attributable to attendance of 128.5 million patrons and a concession revenues per
patron rate of $2.03. |
|
|
|
U.S. Admissions revenues of $370.4 million was attributable to attendance of 81.6
million patrons and an average ticket price of $4.54. Concession revenues of $199.1 million
was attributable to attendance of 81.6 million patrons and a concession revenues per patron
rate of $2.44. |
|
|
|
International. Admissions revenues of $143.8 million was attributable to attendance
of 46.9 million patrons and an average ticket price of $3.06. Concession revenues of $61.1
million was attributable to attendance of 46.9 million patrons and a concession revenues per
patron rate of $1.30. |
Theatre Operating Costs (excludes depreciation and amortization expense). Theatre operating
costs were $606.3 million, or 73.1% of revenues, for the period from January 1, 2006 to October 4,
2006. The table below, presented by reportable operating segment, summarizes our theatre operating
costs for the period from January 1, 2006 to October 4, 2006 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
International |
|
|
|
|
Operating |
|
Operating |
|
|
|
|
Segment |
|
Segment |
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Film rentals and advertising |
|
$ |
203.1 |
|
|
$ |
71.9 |
|
|
$ |
275.0 |
|
Concession supplies |
|
$ |
26.3 |
|
|
$ |
15.6 |
|
|
$ |
41.9 |
|
Salaries and wages |
|
$ |
62.2 |
|
|
$ |
16.8 |
|
|
$ |
79.0 |
|
Facility lease expense |
|
$ |
75.9 |
|
|
$ |
33.6 |
|
|
$ |
109.5 |
|
Utilities and other |
|
$ |
72.3 |
|
|
$ |
28.6 |
|
|
$ |
100.9 |
|
|
|
|
Total theatre operating costs |
|
$ |
439.8 |
|
|
$ |
166.5 |
|
|
$ |
606.3 |
|
|
|
|
|
|
Consolidated. Film rentals and advertising costs were $275.0 million, representing
53.5% of admissions revenues. Concession supplies expense was $41.9 million, representing
16.1% of concession revenues. |
27
|
|
Salaries and wages was $79.0 million, representing 9.5% of total revenues, facility lease
expense was $109.5 million, representing 13.2% of total revenues, and utilities and other costs
were $100.9 million, representing 12.2% of total revenues. |
|
|
|
U.S. Film rentals and advertising costs were $203.1 million, representing 54.8% of
admissions revenues. Concession supplies expense was $26.3 million, representing 13.2% of
concession revenues. |
|
|
|
Salaries and wages were $62.2 million, representing 10.3% of total revenues, facility lease
expense was $75.9 million, representing 12.5% of total revenues, and utilities and other costs
were $72.3 million, representing 11.9% of total revenues, all of which reflected the impact of
new theatre openings. |
|
|
|
International. Film rentals and advertising costs were $71.9 million, representing
50.0% of admissions revenues. Concession supplies expense was $15.6 million, representing
25.5% of concession revenues. |
|
|
|
Salaries and wages were $16.8 million, representing 7.5% of total revenues, facility lease
expense was $33.6 million, representing 15.1% of total revenues, and utilities and other costs
were $28.6 million, representing 12.8% of total revenues, all of which reflected the impact of
new theatre openings. |
General and Administrative Expenses. General and administrative expenses were $46.0 million
and included salaries, wages and related costs of $28.1 million, professional fees of $3.4 million,
and service charges related to credit card activity of $3.2 million.
Depreciation and Amortization. Depreciation and amortization expense, including amortization
of favorable leases, was $60.0 million.
Impairment of Long-Lived Assets. We recorded asset impairment charges on assets held and used
of $5.7 million, which was for theatre properties.
Loss on Sale of Assets and Other. We recorded a loss on sale of assets and other of $2.9
million, which primarily related to a loss on the exchange of a theatre in the United States with a
third party, the write-off of intangible assets for closed theatres, lease termination fees
incurred due to theatre closures and the replacement of certain theatre assets.
Interest Expense. Interest costs incurred, including amortization of debt issue costs, was
$69.2 million. See Note 13 to our consolidated financial statements for a discussion of our
long-term debt and related interest rates.
Loss on Early Retirement of Debt. We recorded a loss on early retirement of debt of
approximately $3.3 million related to the repurchase of $10.0 million aggregate principal amount of
our 9% senior subordinated notes and $39.8 million aggregate principal amount at maturity of our 9
3/4% senior discount notes. See Note 13 to our consolidated financial statements.
Income Taxes. We recorded income tax expense of $9.1 million, which represented an effective
tax rate of 24.0%. See Note 20 to our consolidated financial statements.
28
Analysis of Period from October 5, 2006 to December 31, 2006
Revenues. Total revenues were $391.5 million for the period from October 5, 2006 to December
31, 2006. The table below, presented by reportable operating segment, summarizes our revenue
performance and certain key performance indicators that impact our revenues for the period from
October 5, 2006 to December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
International |
|
|
|
|
|
|
Operating |
|
Operating |
|
|
|
|
|
|
Segment |
|
Segment |
|
Consolidated |
|
|
|
|
|
Admissions revenues (in millions)
|
|
$ |
207.6 |
|
|
$ |
38.5 |
|
|
$ |
246.1 |
|
|
|
Concession revenues (in millions)
|
|
$ |
98.3 |
|
|
$ |
17.3 |
|
|
$ |
115.6 |
|
|
|
Other revenues (in millions) (1)
|
|
$ |
22.5 |
|
|
$ |
7.3 |
|
|
$ |
29.8 |
|
|
|
Total revenues (in millions) (1)
|
|
$ |
328.4 |
|
|
$ |
63.1 |
|
|
$ |
391.5 |
|
|
|
Attendance (in millions)
|
|
|
37.2 |
|
|
|
12.6 |
|
|
|
49.8 |
|
|
|
Revenues per screen (in dollars) (1)
|
|
$ |
100,939 |
|
|
$ |
66,203 |
|
|
$ |
93,072 |
|
|
|
|
|
|
(1) |
|
U.S. operating segment revenues include eliminations of
intercompany transactions with the international operating segment. See
Note 22 of our consolidated financial statements. |
|
|
Consolidated. Admissions revenues of $246.1 million was attributable to attendance
of 49.8 million patrons and an average ticket price of $4.94. Concession revenues of $115.6
million was attributable to attendance of 49.8 million patrons and concession revenues per
patron rate of $2.32. |
|
|
|
U.S. Admissions revenues of $207.6 million was attributable to attendance of 37.2
million patrons and an average ticket price of $5.59. Concession revenues of $98.3 million was
attributable to attendance of 37.2 million patrons and a concession revenues per patron rate
of $2.65. |
|
|
|
International. Admissions revenues of $38.5 million was attributable to attendance
of 12.6 million patrons and an average ticket price of $3.05. Concession revenues of $17.3
million was attributable to attendance of 12.6 million patrons and a concession revenues per
patron rate of $1.37. |
Theatre Operating Costs (excludes depreciation and amortization expense). Theatre operating
costs were $279.9 million, or 71.5% of revenues, for the period from October 5, 2006 to December
31, 2006. The table below, presented by reportable operating segment, summarizes our theatre
operating costs for the period from October 5, 2006 to December 31, 2006 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
International |
|
|
|
|
Operating |
|
Operating |
|
|
|
|
Segment |
|
Segment |
|
Consolidated |
|
|
|
Film rentals and advertising |
|
$ |
112.3 |
|
|
$ |
18.7 |
|
|
$ |
131.0 |
|
Concession supplies |
|
$ |
12.4 |
|
|
$ |
4.7 |
|
|
$ |
17.1 |
|
Salaries and wages |
|
$ |
33.6 |
|
|
$ |
6.0 |
|
|
$ |
39.6 |
|
Facility lease expense |
|
$ |
38.6 |
|
|
$ |
9.7 |
|
|
$ |
48.3 |
|
Utilities and other |
|
$ |
36.0 |
|
|
$ |
7.9 |
|
|
$ |
43.9 |
|
|
|
|
Total theatre operating costs |
|
$ |
232.9 |
|
|
$ |
47.0 |
|
|
$ |
279.9 |
|
|
|
|
|
|
Consolidated. Film rentals and advertising costs were $131.0 million, representing
53.2% of admissions revenues. Concession supplies expense was $17.1 million, representing
14.8% of concession revenues. |
|
|
|
Salaries and wages were $39.6 million, representing 10.1% of total revenues, facility lease
expense was $48.3 million, representing 12.3% of total revenues, and utilities and other costs
were $43.9 million, representing 11.2% of total revenues. |
29
|
|
U.S. Film rentals and advertising costs were $112.3 million, representing 54.1% of
admissions revenues. Concession supplies expense was $12.4 million, representing 12.6% of
concession revenues. |
|
|
|
Salaries and wages were $33.6 million, representing 10.2% of total revenues, facility lease
expense was $38.6 million, representing 11.8% of total revenues, and utilities and other costs
were $36.0 million, representing 11.0% of total revenues, all of which reflected the impact of
new theatre openings. |
|
|
|
International. Film rentals and advertising costs were $18.7 million, representing
48.6% of admissions revenues. Concession supplies expense was $4.7 million, representing 27.2%
of concession revenues. |
|
|
|
Salaries and wages were $6.0 million, representing 9.5% of total revenues, facility lease
expense was $9.7 million, representing 15.4% of total revenues, and utilities and other costs
were $7.9 million, representing 12.5% of total revenues, all of which reflected the impact of
new theatre openings. |
General and Administrative Expenses. General and administrative expenses were $21.8 million
and included salaries, wages and related costs of $12.3 million, professional fees of $2.3 million,
and service charges related to credit card activity of $1.6 million.
Depreciation and Amortization. Depreciation and amortization expense, including amortization
of favorable leases, was $34.9 million.
Impairment of Long-Lived Assets. We recorded asset impairment charges on assets held and used
of $23.3 million, which consisted of $8.4 million of theatre properties, $13.6 million of goodwill
associated with theatre properties, and $1.3 million of intangible assets associated with theatre
properties. See Notes 10 and 11 to our consolidated financial statements.
Loss on Sale of Assets and Other. We recorded a loss on sale of assets and other of $2.3
million, which primarily related to the sale of real property associated with one of our U.S.
theatres.
Interest Expense. Interest costs incurred, including amortization of debt issue costs, was
$42.2 million. See Note 13 to our consolidated financial statements for a discussion of our
long-term debt and related interest rates.
Loss on Early Retirement of Debt. We recorded a loss on early retirement of debt of
approximately $5.8 million related to the refinancing of our existing term loan in connection with
the Century Acquisition. See Notes 5 and 13 to our consolidated financial statements.
Income Taxes. We recorded income tax expense of $3.1 million, which represented an effective
tax rate of (18.1%). See Note 20 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.
30
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of December 31, 2008, 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, 2008, 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, 2008 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, 2008, our
internal control over financial reporting was effective.
Certifications of our CEO and our CFO, which are required in accordance with Rule 13a-14 of
the Exchange Act, are attached as exhibits to this Annual Report. This Controls and Procedures
section includes the information concerning the controls evaluation referred to in the
certifications, and it should be read in conjunction with the certifications for a more complete
understanding of the topics presented.
The Companys independent auditors, Deloitte & Touche LLP, with direct access to the Companys
board of directors through its Audit Committee, have audited the consolidated financial statements
prepared by the Company. Their report on the consolidated financial statements is included in Part
II, Item 8. Financial Statements and Supplementary Data. Deloitte & Touche LLP has issued an
attestation report on the Companys internal control over financial reporting. Deloitte & Touche
LLPs report on the Companys internal control over financial reporting is included herein.
Changes in Internal Control Over Financial Reporting
There 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 occurred
during the quarter ended December 31, 2008 that materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
Limitations on Controls
Management does not expect that our disclosure controls and procedures or our internal control
over financial reporting will prevent or detect all errors or fraud. Any control system, no matter
how well designed and operated, is based upon certain assumptions and can provide only reasonable,
not absolute, assurance that its objectives will be met. Further, no evaluation of controls can
provide absolute assurance that misstatements due to error or fraud will not occur or that all
control issues and instances of fraud, if any, within the Company have been detected.
31
Attestation Report of Deloitte & Touche, LLP
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of
Cinemark, Inc.
Plano, Texas
We have audited the internal control over financial reporting of Cinemark, Inc. and
subsidiaries (the Company) as of December 31, 2008, based on criteria established in Internal
Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. The Companys management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal control over
financial reporting, included in the accompanying managements report on internal control over
financial reporting. Our responsibility is to express an opinion on the Companys internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed by, or under the
supervision of, the companys principal executive and principal financial officers, or persons
performing similar functions, and effected by the companys board of directors, management, and
other personnel to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A companys internal control over financial reporting includes
those policies and procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including
the possibility of collusion or improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any
evaluation of the effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2008, based on the criteria established in Internal
Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
We have also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated financial statements as of and for the year ended
December 31, 2008 and our report dated March 10, 2009 expressed an unqualified opinion on those
financial statements.
/s/ Deloitte & Touche LLP
Dallas, Texas
March 10, 2009
32
PART III
Item 14. Principal Accounting Fees and Services
For the years ended December 31, 2007 and 2008, Deloitte & Touche, LLP, our independent
auditor, billed the aggregate fees listed in the table below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees |
|
2007 |
|
2008 |
|
|
|
|
Audit |
|
$ |
1.5 |
|
|
$ |
2.0 |
|
|
|
|
|
Audit Related |
|
|
0.1 |
|
|
|
|
|
|
|
|
|
Tax (1) |
|
|
0.2 |
|
|
|
0.2 |
|
|
|
|
|
Other (2) |
|
|
1.7 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3.5 |
|
|
$ |
2.2 |
|
|
|
|
|
|
|
|
|
|
|
(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.
33
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 12, 2009 |
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 12, 2009 |
|
|
|
|
|
|
|
|
|
|
/s/ Alan W. Stock
|
|
Chief Executive Officer |
|
March 12, 2009 |
|
|
(principal
executive officer)
|
|
|
|
|
|
|
|
/s/ Robert Copple
|
|
Executive Vice President; Treasurer and Chief |
|
March 12, 2009 |
|
|
Financial Officer (principal financial and
accounting officer)
|
|
|
|
|
|
|
|
/s/ Benjamin D. Chereskin |
|
Director
|
|
March 12, 2009 |
|
|
|
|
|
|
|
|
|
|
/s/ Vahe A. Dombalagian |
|
Director
|
|
March 12, 2009 |
|
|
|
|
|
|
|
|
|
|
/s/ Peter R. Ezersky |
|
Director
|
|
March 12, 2009 |
|
|
|
|
|
|
|
|
|
|
|
/s/ Enrique F. Senior |
|
Director
|
|
March 12, 2009 |
|
|
|
|
|
|
|
|
|
|
/s/ Raymond W. Syufy |
|
Director
|
|
March 12, 2009 |
|
|
|
|
|
|
|
|
|
|
/s/ Carlos M. Sepulveda |
|
Director
|
|
March 12, 2009 |
|
|
|
|
|
|
|
|
|
|
/s/ Roger T. Staubach |
|
Director
|
|
March 12, 2009 |
|
|
|
|
|
|
|
|
|
|
/s/ Donald G. Soderquist |
|
Director
|
|
March 12, 2009 |
|
|
|
|
|
|
|
|
|
|
/s/ Steven Rosenberg |
|
Director
|
|
March 12, 2009 |
|
|
|
|
|
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-43 |
|
|
|
|
|
|
|
|
|
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, 2007 (Successor) and 2008 (Successor), and the related consolidated
statements of operations, stockholders equity (deficiency) and comprehensive income (loss), and
cash flows for the period from January 1, 2006 to October 4, 2006 (Predecessor), the period from October 5, 2006 to
December 31, 2006 (Successor), and each of the two years in the period ended December 31, 2008 (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. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such consolidated financial statements present fairly, in all material
respects, the financial position of Cinemark, Inc. and subsidiaries as of December 31, 2007 (Successor) and
2008 (Successor), and the results of their operations and their cash flows for the period from January 1, 2006 to October 4, 2006 (Predecessor), the period from October 5, 2006 to
December 31, 2006 (Successor), and each of the two years in the
period ended December 31, 2008 (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 Accounting Standards
Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes an interpretation of
SFAS No. 109.
We have also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Companys internal control over financial reporting as of
December 31, 2008, based on the criteria established in Internal ControlIntegrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated
March 10, 2009 expressed an unqualified opinion on the Companys internal control over financial
reporting.
/s/ Deloitte & Touche LLP
Dallas, Texas
March 10, 2009
F-2
CINEMARK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2007 |
|
|
2008 |
|
|
|
(Successor) |
|
|
(Successor) |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
233,402 |
|
|
$ |
313,687 |
|
Inventories |
|
|
7,000 |
|
|
|
8,024 |
|
Accounts receivable |
|
|
34,832 |
|
|
|
24,628 |
|
Income tax receivable |
|
|
18,422 |
|
|
|
6,688 |
|
Deferred tax asset |
|
|
5,215 |
|
|
|
2,799 |
|
Prepaid expenses and other |
|
|
10,070 |
|
|
|
9,319 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
308,941 |
|
|
|
365,145 |
|
|
|
|
|
|
|
|
|
|
THEATRE PROPERTIES AND EQUIPMENT |
|
|
|
|
|
|
|
|
Land |
|
|
97,532 |
|
|
|
96,718 |
|
Buildings |
|
|
389,581 |
|
|
|
396,028 |
|
Property under capital lease |
|
|
178,347 |
|
|
|
184,248 |
|
Theatre furniture and equipment |
|
|
558,483 |
|
|
|
546,393 |
|
Leasehold interests and improvements |
|
|
572,081 |
|
|
|
539,167 |
|
Theatres under construction |
|
|
22,481 |
|
|
|
2,046 |
|
|
|
|
|
|
|
|
Total |
|
|
1,818,505 |
|
|
|
1,764,600 |
|
Less accumulated depreciation and amortization |
|
|
504,439 |
|
|
|
556,317 |
|
|
|
|
|
|
|
|
Theatre properties and equipment, net |
|
|
1,314,066 |
|
|
|
1,208,283 |
|
|
|
|
|
|
|
|
|
|
OTHER ASSETS |
|
|
|
|
|
|
|
|
Goodwill |
|
|
1,134,689 |
|
|
|
1,039,818 |
|
Intangible assets net |
|
|
353,047 |
|
|
|
341,768 |
|
Investments in and advances to affiliates |
|
|
5,071 |
|
|
|
23,952 |
|
Deferred charges and other assets net |
|
|
77,393 |
|
|
|
49,033 |
|
|
|
|
|
|
|
|
Total other assets |
|
|
1,570,200 |
|
|
|
1,454,571 |
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
3,193,207 |
|
|
$ |
3,027,999 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Current portion of long-term debt |
|
$ |
9,166 |
|
|
$ |
12,450 |
|
Current portion of capital lease obligations |
|
|
4,684 |
|
|
|
5,532 |
|
Current FIN 48 liability |
|
|
|
|
|
|
10,775 |
|
Accounts payable |
|
|
50,977 |
|
|
|
54,596 |
|
Accrued film rentals |
|
|
42,140 |
|
|
|
43,750 |
|
Accrued interest |
|
|
8,735 |
|
|
|
4,343 |
|
Accrued payroll |
|
|
21,614 |
|
|
|
23,995 |
|
Accrued property taxes |
|
|
23,031 |
|
|
|
23,486 |
|
Accrued other current liabilities |
|
|
57,830 |
|
|
|
52,185 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
218,177 |
|
|
|
231,112 |
|
|
|
|
|
|
|
|
|
|
LONG-TERM LIABILITIES |
|
|
|
|
|
|
|
|
Long-term debt, less current portion |
|
|
1,514,579 |
|
|
|
1,496,012 |
|
Capital lease obligations, less current portion |
|
|
116,486 |
|
|
|
118,180 |
|
Deferred income taxes |
|
|
168,475 |
|
|
|
135,417 |
|
Long-term portion FIN 48 liability |
|
|
15,500 |
|
|
|
6,748 |
|
Deferred lease expenses |
|
|
19,235 |
|
|
|
23,371 |
|
Deferred revenue NCM |
|
|
172,696 |
|
|
|
189,847 |
|
Other long-term liabilities |
|
|
36,214 |
|
|
|
40,663 |
|
|
|
|
|
|
|
|
Total long-term liabilities |
|
|
2,043,185 |
|
|
|
2,010,238 |
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES (see Note 21) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MINORITY INTERESTS IN SUBSIDIARIES |
|
|
16,182 |
|
|
|
12,971 |
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Class A common stock, $0.001 par value: 40,000,000 shares authorized,
27,896,316 outstanding at December 31, 2007 and 2008 |
|
|
28 |
|
|
|
28 |
|
Additional paid-in-capital |
|
|
806,742 |
|
|
|
870,210 |
|
Retained earnings (deficit) |
|
|
76,198 |
|
|
|
(24,213 |
) |
Accumulated other comprehensive income (loss) |
|
|
32,695 |
|
|
|
(72,347 |
) |
|
|
|
|
|
|
|
Total stockholders equity |
|
|
915,663 |
|
|
|
773,678 |
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
|
$ |
3,193,207 |
|
|
$ |
3,027,999 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
F-3
CINEMARK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THE PERIODS FROM JANUARY 1, 2006 TO OCTOBER 4, 2006 (PREDECESSOR) AND OCTOBER 5, 2006 TO DECEMBER 31, 2006 (SUCCESSOR)
AND THE YEARS ENDED DECEMBER 31, 2007 (SUCCESSOR) AND 2008 (SUCCESSOR)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2006 to |
|
|
|
October 5, 2006 to |
|
|
Year Ended |
|
|
Year Ended |
|
|
|
October 4, 2006 |
|
|
|
December 31, 2006 |
|
|
December 31, 2007 |
|
|
December 31, 2008 |
|
|
|
(Predecessor) |
|
|
|
(Successor) |
|
|
(Successor) |
|
|
(Successor) |
|
REVENUES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Admissions |
|
$ |
514,183 |
|
|
|
$ |
246,092 |
|
|
$ |
1,087,480 |
|
|
$ |
1,126,977 |
|
Concession |
|
|
260,223 |
|
|
|
|
115,575 |
|
|
|
516,509 |
|
|
|
534,836 |
|
Other |
|
|
54,683 |
|
|
|
|
29,838 |
|
|
|
78,852 |
|
|
|
80,474 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
829,089 |
|
|
|
|
391,505 |
|
|
|
1,682,841 |
|
|
|
1,742,287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST OF OPERATIONS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Film rentals and advertising |
|
|
275,005 |
|
|
|
|
130,982 |
|
|
|
589,717 |
|
|
|
612,248 |
|
Concession supplies |
|
|
41,863 |
|
|
|
|
17,157 |
|
|
|
81,074 |
|
|
|
86,618 |
|
Salaries and wages |
|
|
79,002 |
|
|
|
|
39,614 |
|
|
|
173,290 |
|
|
|
180,950 |
|
Facility lease expense |
|
|
109,513 |
|
|
|
|
48,246 |
|
|
|
212,730 |
|
|
|
225,595 |
|
Utilities and other |
|
|
100,924 |
|
|
|
|
43,884 |
|
|
|
191,279 |
|
|
|
205,814 |
|
General and administrative expenses |
|
|
45,958 |
|
|
|
|
21,810 |
|
|
|
78,916 |
|
|
|
89,800 |
|
Termination of profit participation agreement |
|
|
|
|
|
|
|
|
|
|
|
6,952 |
|
|
|
|
|
Depreciation and amortization |
|
|
59,913 |
|
|
|
|
34,281 |
|
|
|
148,781 |
|
|
|
155,326 |
|
Amortization of favorable leases |
|
|
130 |
|
|
|
|
667 |
|
|
|
2,935 |
|
|
|
2,708 |
|
Impairment of long-lived assets |
|
|
5,741 |
|
|
|
|
23,337 |
|
|
|
86,558 |
|
|
|
113,532 |
|
(Gain) loss on sale of assets and other |
|
|
2,938 |
|
|
|
|
2,345 |
|
|
|
(2,953 |
) |
|
|
8,488 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of operations |
|
|
720,987 |
|
|
|
|
362,323 |
|
|
|
1,569,279 |
|
|
|
1,681,079 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME |
|
|
108,102 |
|
|
|
|
29,182 |
|
|
|
113,562 |
|
|
|
61,208 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(69,191 |
) |
|
|
|
(42,220 |
) |
|
|
(145,596 |
) |
|
|
(116,058 |
) |
Interest income |
|
|
5,563 |
|
|
|
|
1,477 |
|
|
|
11,271 |
|
|
|
11,326 |
|
Gain on NCM transaction |
|
|
|
|
|
|
|
|
|
|
|
210,773 |
|
|
|
|
|
Gain on Fandango transaction |
|
|
|
|
|
|
|
|
|
|
|
9,205 |
|
|
|
|
|
Foreign currency exchange gain (loss) |
|
|
94 |
|
|
|
|
(352 |
) |
|
|
438 |
|
|
|
986 |
|
Gain (loss) on early retirement of debt |
|
|
(3,315 |
) |
|
|
|
(5,782 |
) |
|
|
(13,456 |
) |
|
|
1,698 |
|
Distributions from NCM |
|
|
|
|
|
|
|
|
|
|
|
11,499 |
|
|
|
18,838 |
|
Dividend income |
|
|
101 |
|
|
|
|
|
|
|
|
50 |
|
|
|
49 |
|
Equity in income (loss) of affiliates |
|
|
(1,800 |
) |
|
|
|
154 |
|
|
|
(2,462 |
) |
|
|
(2,373 |
) |
Minority interests in (income) loss of subsidiaries |
|
|
(1,790 |
) |
|
|
|
321 |
|
|
|
(792 |
) |
|
|
(3,895 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense) |
|
|
(70,338 |
) |
|
|
|
(46,402 |
) |
|
|
80,930 |
|
|
|
(89,429 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME TAXES |
|
|
37,764 |
|
|
|
|
(17,220 |
) |
|
|
194,492 |
|
|
|
(28,221 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes |
|
|
9,078 |
|
|
|
|
3,111 |
|
|
|
109,509 |
|
|
|
20,690 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) |
|
$ |
28,686 |
|
|
|
$ |
(20,331 |
) |
|
$ |
84,983 |
|
|
$ |
(48,911 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
THE PERIODS FROM JANUARY 1, 2006 TO OCTOBER 4, 2006 (PREDECESSOR) AND OCTOBER 5, 2006 TO DECEMBER 31, 2006 (SUCCESSOR)
AND THE YEARS ENDED DECEMBER 31, 2007 (SUCCESSOR) AND 2008 (SUCCESSOR)
(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, 2006 |
|
|
27,896 |
|
|
$ |
28 |
|
|
$ |
604,443 |
|
|
$ |
(702,768 |
) |
|
$ |
(60,185 |
) |
|
$ |
(158,482 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
) |
Non cash capital contribution from Cinemark
Holdings, Inc. related to the Century
Acquisition |
|
|
|
|
|
|
|
|
|
|
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. related to bond repurchases |
|
|
|
|
|
|
|
|
|
|
63,694 |
|
|
|
|
|
|
|
|
|
|
|
63,694 |
|
|
|
|
|
Non cash capital contribution from Cinemark
Holdings, Inc. related to income taxes |
|
|
|
|
|
|
|
|
|
|
53,351 |
|
|
|
|
|
|
|
|
|
|
|
53,351 |
|
|
|
|
|
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
adjustments on interest rate swap
agreements, net of taxes of $7,074 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(48,911 |
) |
|
|
|
|
|
|
(48,911 |
) |
|
$ |
(48,911 |
) |
Share based awards compensation expense |
|
|
|
|
|
|
|
|
|
|
4,638 |
|
|
|
|
|
|
|
|
|
|
|
4,638 |
|
|
|
|
|
Tax benefit related to stock option exercises |
|
|
|
|
|
|
|
|
|
|
474 |
|
|
|
|
|
|
|
|
|
|
|
474 |
|
|
|
|
|
Capital contribution from Cinemark Holdings,
Inc. related to bond repurchases |
|
|
|
|
|
|
|
|
|
|
42,207 |
|
|
|
|
|
|
|
|
|
|
|
42,207 |
|
|
|
|
|
Noncash capital contribution from Cinemark
Holdings, Inc. related to the Central America
share exchange |
|
|
|
|
|
|
|
|
|
|
12,949 |
|
|
|
|
|
|
|
|
|
|
|
12,949 |
|
|
|
|
|
Noncash capital contribution from Cinemark
Holdings, Inc. related to the Ecuador share
exchange |
|
|
|
|
|
|
|
|
|
|
3,200 |
|
|
|
|
|
|
|
|
|
|
|
3,200 |
|
|
|
|
|
Dividends paid to Cinemark Holdings, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(51,500 |
) |
|
|
|
|
|
|
(51,500 |
) |
|
|
|
|
Fair value adjustments on interest rate swap
agreements, net of taxes of $2,442 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22,063 |
) |
|
|
(22,063 |
) |
|
|
(22,063 |
) |
Amortizaton of accumulated other comprehensive
loss on terminated swap agreement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,351 |
|
|
|
1,351 |
|
|
|
1,351 |
|
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(84,330 |
) |
|
|
(84,330 |
) |
|
|
(84,330 |
) |
|
|
|
|
|
|
Successor balance at December 31, 2008 |
|
|
27,896 |
|
|
$ |
28 |
|
|
$ |
870,210 |
|
|
$ |
(24,213 |
) |
|
$ |
(72,347 |
) |
|
$ |
773,678 |
|
|
$ |
(153,953 |
) |
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
F-5
CINEMARK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THE PERIODS FROM JANUARY 1, 2006 TO OCTOBER 4, 2006 (PREDECESSOR) AND OCTOBER 5, 2006 TO DECEMBER 31, 2006 (SUCCESSOR)
AND THE YEARS ENDED DECEMBER 31, 2007 (SUCCESSOR) AND 2008 (SUCCESSOR)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2006 to |
|
|
|
October 5, 2006 to |
|
|
Year Ended |
|
|
Year Ended |
|
|
|
October 4, 2006 |
|
|
|
December 31, 2006 |
|
|
December 31, 2007 |
|
|
December 31, 2008 |
|
|
|
(Predecessor) |
|
|
|
(Successor) |
|
|
(Successor) |
|
|
(Successor) |
|
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
28,686 |
|
|
|
$ |
(20,331 |
) |
|
$ |
84,983 |
|
|
$ |
(48,911 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income (loss) to cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
58,564 |
|
|
|
|
33,241 |
|
|
|
144,629 |
|
|
|
151,425 |
|
Amortization of intangible and other assets |
|
|
1,479 |
|
|
|
|
1,707 |
|
|
|
7,087 |
|
|
|
6,609 |
|
Amortization of long-term prepaid rents |
|
|
816 |
|
|
|
|
197 |
|
|
|
1,146 |
|
|
|
1,717 |
|
Amortization of debt issue costs |
|
|
3,082 |
|
|
|
|
1,183 |
|
|
|
4,727 |
|
|
|
4,696 |
|
Amortization of deferred revenues, deferred lease incentives and other |
|
|
(582 |
) |
|
|
|
(71 |
) |
|
|
(2,508 |
) |
|
|
(3,735 |
) |
Amortization of debt premium |
|
|
(1,173 |
) |
|
|
|
(763 |
) |
|
|
(678 |
) |
|
|
|
|
Amortization of accumulated other comprehensive loss related to interest rate swap agreement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,351 |
|
Impairment of long-lived assets |
|
|
5,741 |
|
|
|
|
23,337 |
|
|
|
86,558 |
|
|
|
113,532 |
|
Share based awards compensation expense |
|
|
2,148 |
|
|
|
|
716 |
|
|
|
2,881 |
|
|
|
4,638 |
|
Gain on NCM transaction |
|
|
|
|
|
|
|
|
|
|
|
(210,773 |
) |
|
|
|
|
Gain on Fandango transaction |
|
|
|
|
|
|
|
|
|
|
|
(9,205 |
) |
|
|
|
|
(Gain) loss on sale of assets and other |
|
|
2,938 |
|
|
|
|
2,345 |
|
|
|
(2,953 |
) |
|
|
8,488 |
|
Gain on change in fair value of interest rate swap agreement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,422 |
) |
Write-off unamortized debt issue costs and debt premium
related to the early retirement of debt |
|
|
1,183 |
|
|
|
|
5,782 |
|
|
|
(15,661 |
) |
|
|
839 |
|
Accretion of interest on senior discount notes |
|
|
30,222 |
|
|
|
|
10,203 |
|
|
|
41,423 |
|
|
|
40,294 |
|
Deferred lease expenses |
|
|
724 |
|
|
|
|
378 |
|
|
|
5,979 |
|
|
|
4,350 |
|
Deferred income tax expenses |
|
|
(7,986 |
) |
|
|
|
1,580 |
|
|
|
(34,614 |
) |
|
|
(25,975 |
) |
Equity in (income) loss of affiliates |
|
|
1,800 |
|
|
|
|
(154 |
) |
|
|
2,462 |
|
|
|
2,373 |
|
Minority interests in income (loss) of subsidiaries |
|
|
1,790 |
|
|
|
|
(321 |
) |
|
|
792 |
|
|
|
3,895 |
|
Tax benefit related to stock option exercises |
|
|
|
|
|
|
|
|
|
|
|
1,353 |
|
|
|
474 |
|
Interest paid on repurchased senior discount notes |
|
|
|
|
|
|
|
|
|
|
|
(16,592 |
) |
|
|
(15,186 |
) |
Increase in deferred revenues related to NCM transaction |
|
|
|
|
|
|
|
|
|
|
|
174,001 |
|
|
|
|
|
Increase in deferred revenues related to Fandango transaction |
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
644 |
|
Changes in other assets and liabilities |
|
|
(54,388 |
) |
|
|
|
21,624 |
|
|
|
54,078 |
|
|
|
12,974 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
75,044 |
|
|
|
|
80,653 |
|
|
|
324,115 |
|
|
|
259,070 |
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to theatre properties and equipment |
|
|
(77,902 |
) |
|
|
|
(29,179 |
) |
|
|
(146,304 |
) |
|
|
(106,109 |
) |
Proceeds from sale of theatre properties and equipment |
|
|
1,236 |
|
|
|
|
5,210 |
|
|
|
37,532 |
|
|
|
2,539 |
|
Increase in escrow deposit due to like-kind exchange |
|
|
|
|
|
|
|
|
|
|
|
(22,739 |
) |
|
|
(2,089 |
) |
Return of escrow deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,828 |
|
Acquisition of Century Theatres, Inc., net of cash acquired |
|
|
|
|
|
|
|
(531,383 |
) |
|
|
|
|
|
|
|
|
Acquisition of one theatre in the U.S. and two theatres in Brazil |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,111 |
) |
Net proceeds from sale of NCM stock |
|
|
|
|
|
|
|
|
|
|
|
214,842 |
|
|
|
|
|
Net proceeds from sale of Fandango stock |
|
|
|
|
|
|
|
|
|
|
|
11,347 |
|
|
|
|
|
Investment in joint venture DCIP |
|
|
|
|
|
|
|
|
|
|
|
(1,500 |
) |
|
|
(4,000 |
) |
Other |
|
|
271 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used for) investing activities |
|
|
(76,395 |
) |
|
|
|
(555,352 |
) |
|
|
93,178 |
|
|
|
(94,942 |
) |
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital contribution from parent to fund retirement of senior discount notes |
|
|
|
|
|
|
|
|
|
|
|
63,694 |
|
|
|
42,207 |
|
Dividends paid to parent |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(51,500 |
) |
Retirement of senior discount notes |
|
|
(24,950 |
) |
|
|
|
|
|
|
|
(43,136 |
) |
|
|
(29,559 |
) |
Retirement of senior subordinated notes |
|
|
(10,000 |
) |
|
|
|
|
|
|
|
(332,066 |
) |
|
|
(3 |
) |
Proceeds from senior secured credit facility |
|
|
|
|
|
|
|
1,120,000 |
|
|
|
|
|
|
|
|
|
Proceeds from other long-term debt |
|
|
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 |
|
|
(5,009 |
) |
|
|
|
(3,886 |
) |
|
|
(19,438 |
) |
|
|
(10,430 |
) |
Payments on capital leases |
|
|
|
|
|
|
|
(839 |
) |
|
|
(3,759 |
) |
|
|
(4,901 |
) |
Debt issue costs |
|
|
|
|
|
|
|
(22,926 |
) |
|
|
|
|
|
|
|
|
Termination of interest rate swap agreement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,725 |
) |
Other |
|
|
(1,226 |
) |
|
|
|
(52 |
) |
|
|
(1,730 |
) |
|
|
(1,231 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used for) financing activities |
|
|
(38,912 |
) |
|
|
|
478,854 |
|
|
|
(336,435 |
) |
|
|
(68,142 |
) |
EFFECT OF EXCHANGE RATE CHANGES
ON CASH AND CASH EQUIVALENTS |
|
|
268 |
|
|
|
|
740 |
|
|
|
5,445 |
|
|
|
(15,701 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
|
(39,995 |
) |
|
|
|
4,895 |
|
|
|
86,303 |
|
|
|
80,285 |
|
CASH AND CASH EQUIVALENTS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period |
|
|
182,199 |
|
|
|
|
142,204 |
|
|
|
147,099 |
|
|
|
233,402 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period |
|
$ |
142,204 |
|
|
|
$ |
147,099 |
|
|
$ |
233,402 |
|
|
$ |
313,687 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL INFORMATION (see Note 19)
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., Brazil, and Colombia during the year ended December 31, 2008.
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 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. 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, 2008, 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 $86, $0, $618 and $270 of interest incurred during the development and
construction of theatres during the period from January 1, 2006 to October 4, 2006, the period from
October 5, 2006 to December 31, 2006, and years ended December 31, 2007 and 2008, respectively.
Depreciation is provided using the straight-line method over the estimated useful lives of the
assets as follows:
|
|
|
Category |
|
Useful Life |
Buildings on owned land
|
|
40 years |
Buildings on leased land
|
|
Lesser of lease term or useful life |
Buildings under capital lease
|
|
Lesser of lease term or useful life |
Theatre furniture and equipment
|
|
5 to 15 years |
Leasehold improvements
|
|
Lesser of lease term or useful life |
In accordance with Statement of Financial Accounting Standards (SFAS) No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets, the Company reviews long-lived assets for
impairment indicators on a quarterly basis or whenever events or changes in circumstances indicate
the carrying amount of the assets may not be fully recoverable.
F-7
CINEMARK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
The Company considers actual theatre level cash flows, future years budgeted theatre level
cash flows, theatre property and equipment carrying values, amortizing intangible assets carrying
values, the age of a recently built theatre, competitive theatres in the marketplace, changes in
foreign currency exchange rates, the impact of recent ticket price changes, available lease renewal
options and other factors considered relevant in its assessment of impairment of individual theatre
assets. Long-lived assets are evaluated for impairment on an individual theatre basis, which the
Company believes is the lowest applicable level for which there are identifiable cash flows. The
impairment evaluation is based on the estimated undiscounted cash flows from continuing use through
the remainder of the theatres useful life. The remainder of the useful life correlates with the
available remaining lease period, which includes the probability of renewal periods for leased
properties and a period of twenty years for fee owned properties. If the estimated undiscounted
cash flows are not sufficient to recover a long-lived assets carrying value, the Company then
compares the carrying value of the asset group (theatre) with its estimated fair value. Fair value
is determined based on a multiple of cash flows, which was eight times for the evaluations
performed during 2006, 2007 and the first, second and third quarters of 2008 and six and a half
times for the evaluation performed during the fourth quarter of 2008. 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 11.
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 is tested for impairment on an annual basis during the fourth quarter or whenever
events or changes in circumstances indicate the carrying value of goodwill might exceed its
estimated fair value. The Company evaluates goodwill for impairment at the reporting unit level and
has allocated goodwill to the reporting unit based on an estimate of its relative fair value.
Goodwill impairment is evaluated using a two-step approach requiring the Company to compute the
fair value of a reporting unit and compare it with its carrying value. If the carrying value of the
reporting unit exceeds its estimated fair value, a second step is performed to measure the
potential goodwill impairment. Fair value is determined based on a multiple of cash flows, which
was eight times for the goodwill impairment evaluations performed during 2006 and 2007 and six and
a half times for the evaluation performed during 2008. 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. Prior to January 1, 2008, the Company
considered its theatres reporting units for purposes of evaluating goodwill for impairment. Recent
changes in the organization, including changes in the structure of the Companys executive
management team, Cinemark Holdings, Inc.s initial public offering of common stock, the resulting
changes in the level at which the Companys management team evaluates the business on a regular
basis, and the Century Acquisition that increased the size of the Companys theatre base by
approximately 25%, led the Company to conclude that its U.S. regions and international countries
are now more reflective of how it manages and operates its business. Accordingly, the Companys
U.S. regions and international countries represent the appropriate reporting units for purposes of
evaluating goodwill for impairment. Consequently, effective January 1, 2008, the Company changed
the reporting unit to sixteen regions in the U.S. and each of its eight countries internationally
(Honduras, El Salvador, Nicaragua, Costa Rica and Panama are considered one reporting unit) from
approximately four hundred theatres. The goodwill impairment test performed during December 2007
that resulted in the recording of impairment charges during the year ended December 31, 2007
reflected the final calculation utilizing theatres as reporting units. See Notes 10 and 11.
Tradename intangible assets are tested for impairment at least annually during the fourth
quarter or whenever events or changes in circumstances indicate the carrying value may not be
recoverable. The Company estimates the fair value of its tradenames by applying an estimated
market royalty rate that could be charged for the use of the Companys tradename to forecasted
future revenues, with an adjustment for the present value of such royalties. If the estimated fair
value is less than the carrying value, the tradename intangible asset is written down to the
estimated fair value.
F-8
CINEMARK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
The table below summarizes the Companys intangible assets and the amortization method used
for each type of intangible asset:
|
|
|
Intangible Asset |
|
Amortization Method |
Goodwill
|
|
Indefinite-lived |
Tradename
|
|
Indefinite-lived |
Capitalized licensing fees
|
|
Straight-line method over 15 years. The
remaining terms of the underlying agreements
range from 6 to 11 years. |
Vendor contracts
|
|
Straight-line method over the terms of the
underlying contracts. The remaining terms of
the underlying contracts range from 1 to 14
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 28 years. |
Other intangible assets
|
|
Straight-line method over the terms of the
underlying agreement. The remaining term of the
underlying agreement is 10 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 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, 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 $1,259, $3,162, $5,516 and $7,629
during the period
F-9
CINEMARK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
from January 1, 2006 to October 4, 2006, the period from October 5, 2006 to December 31, 2006 and
years ended December 31, 2007 and 2008, respectively.
Film rental costs are accrued based on the applicable box office receipts and either the
mutually agreed upon firm terms or sliding scale formula, which are established prior to the
opening of the film, or estimates of the final mutually agreed upon settlement, which occurs at the
conclusion of the film run, subject to the film licensing arrangement. Under a firm terms formula,
the Company pays the distributor a mutually agreed upon specified percentage of box office
receipts, which reflects either a mutually agreed upon aggregate rate for the life of the film or
rates that decline over the term of the run. Under the sliding scale formula, film rental is paid
as a percentage of box office revenues using a pre-determined matrix based upon box office
performance of the film. The settlement process allows for negotiation of film rental fees upon
the conclusion of the film run based upon how the film performs. Estimates are based on the
expected success of a film over the length of its run in theatres. The success of a film can
typically be determined a few weeks after a film is released when initial box office performance of
the film is known. Accordingly, final settlements typically approximate estimates since box office
receipts are known at the time the estimate is made and the expected success of a film over the
length of its run in theatres can typically be estimated early in the films run. The final film
settlement amount is negotiated at the conclusion of the films run based upon how a film actually
performs. If actual settlements are different than those estimated, film rental costs are adjusted
at that time. The Company recognizes advertising costs and any cost sharing arrangements with film
distributors in the same accounting period. The Companys advertising costs are expensed as
incurred. Advertising expenses for the period from January 1, 2006 to October 4, 2006, the period
from October 5, 2006 to December 31, 2006 and years ended December 31, 2007 and 2008 were $11,285,
$4,441, $17,252 and $16,839, respectively.
Accounting for Share Based Awards 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. The Company had approximately 4,554,253 unvested options outstanding on January 1, 2006. See
Note 18 for discussion of all the Companys share based awards and related compensation expense.
Income Taxes The Company participates in the consolidated 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 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
F-10
CINEMARK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
than 50 percent likely of being realized upon ultimate settlement. Differences between tax
positions taken in a tax return and amounts recognized in the financial statements result in (1) a
change in a liability for income taxes payable or (2) a change in an income tax refund receivable,
a deferred tax asset or a deferred tax liability or both (1) and (2). The Company accrues interest
and penalties on its FIN 48 tax provisions.
Segments As of December 31, 2008, 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 22.
Use of Estimates The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires the use of estimates and
assumptions that affect the reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the periods presented. The
Companys consolidated financial statements include amounts that are based on managements best
estimates and judgments. Actual results could differ from those estimates.
Foreign Currency Translations The assets and liabilities of the Companys foreign
subsidiaries are translated into U.S. dollars at current exchange rates as of the balance sheet
date, and revenues and expenses are translated at average monthly exchange rates. The resulting
translation adjustments are recorded in the consolidated balance sheet in accumulated other
comprehensive income (loss).
Fair Value Measurements The Company has interest rate swap agreements that are adjusted to
fair value on a recurring basis (quarterly). The Companys fair value measurements are based on
projected future interest rates as provided by the counterparties to the interest rate swap
agreements and the fixed rates that the Company is obligated to pay under these agreements.
Therefore, the Companys measurements use significant unobservable inputs, which fall in Level 3
under SFAS No. 157 Fair Value Measurements. Below is a reconciliation of our interest rate swap
values, as included in other long-term liabilities on the consolidated balance sheets, from the
beginning of the year to the end of the year:
|
|
|
|
|
Beginning balance January 1, 2008 |
|
$ |
(18,422 |
) |
Total gains (losses): |
|
|
|
|
Included in earnings (as component of interest expense) |
|
|
5,422 |
|
Included in accumulated other comprehensive loss |
|
|
(24,506 |
) |
Settlements |
|
|
12,725 |
|
|
|
|
|
Ending balance December 31, 2008 |
|
$ |
(24,781 |
) |
|
|
|
|
See Note 14 for further discussion of the terms of the Companys interest rate swap
agreements.
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. The Company provides the assumptions, including both
quantitative and qualitative information, about the specified asset or liability to the third party
valuation firms. The Company primarily utilizes the third parties to accumulate comparative data
from multiple sources and assemble a report that summarizes the information obtained. The Company
then uses the information to determine fair value. The third party valuation firms are supervised
by Company personnel who are knowledgeable about valuations and fair value. The Company evaluates
the appropriateness of the valuation methodology utilized by the third party valuation firm.
Comprehensive Income (Loss) Total comprehensive income (loss) for the period from January
1, 2006 to October 4, 2006, the period from October 5, 2006 to December 31, 2006 and years ended
December 31, 2007 and 2008, was $32,558,
($8,134), $106,215 and $(153,953), respectively. Total comprehensive income (loss) consists of
net income (loss), foreign currency translation adjustments, fair value adjustments on the
Companys interest rate swap agreements and the
F-11
CINEMARK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
amortization of accumulated other comprehensive loss related to the Companys terminated swap
agreement. See Notes 14 and 15.
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 did not 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 was effective for the Company beginning January 1,
2008. The Company did not elect the fair value option. Adoption of this statement did not not have
a significant impact on the Companys consolidated financial statements.
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 rather than being capitalized as part of the cost of the acquisition. 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. Adoption of this statement is not expected to have a significant 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 no longer be shown as an expense item for
all periods presented, but will be included in consolidated net income on the face of the income
statement. SFAS No. 160 requires disclosure, on the face of the consolidated income statement, of
the amounts of consolidated net income attributable to the parent and the noncontrolling interest.
SFAS No. 160 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. Adoption of this
statement is not expected to have a significant impact on the Companys consolidated financial
statements.
In March 2008, the FASB issued SFAS No. 161 Disclosures about Derivative Instruments and
Hedging Activitiesan Amendment of FASB Statement No. 133. This statement intends to improve
financial reporting about derivative instruments and hedging activities by requiring enhanced
disclosures about their impact on an entitys financial position, financial performance, and cash
flows. SFAS No. 161 requires disclosures regarding the objectives for using derivative instruments,
the fair values of derivative instruments and their related gains and losses, and the accounting
for derivatives and related hedged items. SFAS No. 161 is effective for fiscal years and interim
periods beginning after November 15, 2008, with early
adoption permitted. The adoption of SFAS No. 161 will not impact the Companys consolidated
financial statements, and the Company does not expect the statement to have a significant impact on
its disclosures.
F-12
CINEMARK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
In June 2008, the FASB issued FASB Staff Position Emerging Issues Task Force 03-6-1,
Determining Whether Instruments Granted in Share Based Payment Transactions Are Participating
Securities (FSP-EITF 03-6-1). Under FSP-EITF 03-6-1, unvested share based payment awards that
contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are
participating securities and shall be included in the computation of earnings per share pursuant to
the two-class method. FSP-EITF 03-6-1 is effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods within those years and requires
retrospective application. The adoption of FSP-EITF 03-6-1 is not expected to have a significant
impact on the Companys earnings per share calculations.
3. INITIAL PUBLIC OFFERING OF CINEMARK HOLDINGS, INC.S 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, all of which are recorded in its additional paid-in-capital. The
selling stockholders granted the underwriters a 30-day option to purchase up to an additional
2,800,000 shares of 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 its outstanding 9 3/4% senior discount notes. See Note 13. Cinemark Holdings, Inc.
expects to continue to use the net proceeds to repurchase a portion of the remaining 9 3/4%
senior discount notes. The 9 3/4% senior discount notes are not subject to repurchase at the
Companys option until March 15, 2009. Accordingly, if the Company is unable to repurchase the 9
3/4% senior discount notes at acceptable prices, Cinemark Holdings, Inc. will evaluate the use of 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 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%.
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.
F-13
CINEMARK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
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.
F-14
CINEMARK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
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:
|
|
|
|
|
Current assets (1) |
|
$ |
32,635 |
|
Fixed assets |
|
|
548,451 |
|
Goodwill |
|
|
640,436 |
|
Tradename |
|
|
136,000 |
|
Other long term assets |
|
|
4,956 |
|
Net unfavorable leases |
|
|
(9,360 |
) |
Current liabilities |
|
|
(74,488 |
) |
Other long term liabilities |
|
|
(229,957 |
) |
|
|
|
|
Total |
|
$ |
1,048,673 |
|
|
|
|
|
|
|
|
(1) |
|
Includes cash of $7,290. |
The tradename and net unfavorable leases are presented as intangible assets on the Companys
consolidated balance sheets as of December 31, 2007 and 2008. 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 was 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 term loan
were used to finance a portion of the $531,225 cash portion of the purchase price, to 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 related fees and expenses. See Note 13 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 year ended December 31, 2006 to give effect to the
Century Acquisition as if the acquisition had occurred at the beginning of the 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-15
CINEMARK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
|
|
|
|
|
|
|
Pro Forma |
|
|
|
Year Ended |
|
|
|
December 31, 2006 |
|
|
|
(unaudited) |
|
|
|
|
|
|
Revenues |
|
|
|
|
Admissions |
|
$ |
1,029,881 |
|
Concession |
|
|
487,416 |
|
Other |
|
|
94,807 |
|
|
|
|
|
Total revenues |
|
$ |
1,612,104 |
|
Cost of operations |
|
|
|
|
Film rentals and advertising |
|
|
546,144 |
|
Concession supplies |
|
|
75,359 |
|
Salaries and wages |
|
|
160,689 |
|
Facility lease expense |
|
|
203,335 |
|
Utilities and other |
|
|
184,699 |
|
General and administrative expenses (1) |
|
|
84,619 |
|
Depreciation and amortization (2)(3) |
|
|
136,936 |
|
Impairment of long-lived assets |
|
|
29,485 |
|
Loss on sale of assets and other |
|
|
5,345 |
|
|
|
|
|
Total cost of operations |
|
|
1,426,611 |
|
Operating income |
|
|
185,493 |
|
Interest expense (4) |
|
|
(170,134 |
) |
Other expense |
|
|
(5,370 |
) |
|
|
|
|
Income before income taxes |
|
|
9,989 |
|
Income taxes (5) |
|
|
6,024 |
|
|
|
|
|
Net income |
|
$ |
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 recorded 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-16
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. For 2008, the annual payment per digital screen is eight hundred forty
dollars. The theatre access fee paid in the aggregate to Regal, AMC and the Company will not be
less than 12% of NCMs Aggregate Advertising Revenue (as defined in the 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 NCM including without limitation, approval of the budget, incurrence of indebtedness,
consummating or amending material agreements, approving dividends, amending
F-17
CINEMARK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
the NCM operating agreement, hiring or termination of the chief executive officer, chief financial
officer, chief technology officer or chief marketing officer of NCM and the dissolution or
liquidation of NCM.
During 2008, NCM performed a common unit adjustment calculation in accordance with the Common
Unit Adjustment Agreement dated as of February 13, 2007 between NCM, Inc. and the Company, Regal
and AMC. The common unit adjustment is based on the change in the number of screens operated by
and attendance of the Company, AMC and Regal. As a result of the common unit adjustment
calculation, the Company received an additional 846,303 common units of NCM, each of which is
convertible into one share of NCM, Inc. common stock. The Company recorded the additional common
units received at fair value as an investment with a corresponding adjustment to deferred revenue
of $19,020. The common unit adjustment resulted in an increase in the Companys ownership
percentage in NCM from approximately 14.0% to approximately 14.5%.
Subsequent to the annual common unit adjustment discussed above, in May 2008, Regal completed
an acquisition of another theatre circuit that required an extraordinary common unit adjustment
calculation by NCM in accordance with the Common Unit Adjustment Agreement. As a result of this
extraordinary common unit adjustment, Regal was granted additional common units of NCM, which
resulted in dilution of the Companys ownership interest in NCM from 14.5% to 14.1%. The Company
recognized a change of interest loss of approximately $75 during the year ended December 31, 2008
as a result of this extraordinary common unit adjustment, which is reflected in (gain) loss on sale
of assets and other on the consolidated statement of operations.
As of December 31, 2008, the Company owned a total of 13,991,652 common units of NCM.
Below is a summary of activity with NCM as included in the Companys consolidated financial
statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2006 |
|
|
October 5, 2006 |
|
|
|
|
to |
|
|
to |
|
Year Ended December 31, |
|
|
October 4, 2006 |
|
|
December 31, 2006 |
|
2007 |
|
2008 |
|
|
(Predecessor) |
|
|
(Successor) |
|
(Successor) |
|
(Successor) |
|
|
|
|
Other revenue |
|
$ |
18,833 |
|
|
|
$ |
10,555 |
|
|
$ |
5,664 |
|
|
$ |
1,764 |
|
Equity income (loss) |
|
$ |
(1,889 |
) |
|
|
$ |
184 |
|
|
$ |
(1,284 |
) |
|
$ |
840 |
|
Distributions from NCM |
|
$ |
|
|
|
|
$ |
|
|
|
$ |
11,499 |
|
|
$ |
18,838 |
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
2007 |
|
2008 |
|
|
(Successor) |
|
(Successor) |
|
|
|
Accounts receivable from NCM |
|
$ |
225 |
|
|
$ |
228 |
|
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. During
the year ended December 31, 2008, the Company, AMC and Regal each invested an additional $4,000 in
DCIP.
The Company is accounting for its investment in DCIP under the equity method of accounting.
During the years ended December 31, 2007 and 2008, the Company recorded equity losses in DCIP of
approximately $1,240 and $3,243, respectively, relating to this investment. The Companys
investment basis in DCIP was $260 and $1,017 at December 31, 2007 and 2008, respectively, which is
included in investments in and advances to affiliates on the consolidated balance sheets.
F-18
CINEMARK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
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). The Company paid $2,800 of the consideration
to Syufy Enterprises, LP in accordance with the terms of agreements entered into as part of the
Century Acquisition. The carrying value of the Companys investment in stock of Fandango, Inc. was
$2,142. As a result of the sale of its investment, the Company recorded a gain of $9,205 in the
consolidated statement of operations for the year ended December 31, 2007.
As part of the sale of its investment in stock of Fandango, Inc., the Company amended its
exclusive ticketing and distribution agreement with Fandango, Inc. and received proceeds of $5,000.
The proceeds were recorded as deferred revenue on the Companys consolidated balance sheet and are
being amortized straight-line over the term of the amended ticketing and distribution agreement,
which expires December 2011.
In accordance with the terms of its senior secured credit facility, the Company used
approximately $9,914 of the net proceeds to pay down its term loan. The payment was made on August
10, 2007 and was applied against the current portion of long-term debt.
9. SHARE EXCHANGES WITH MINORITY PARTNERS
During May 2008, the Companys partners in Central America (the Central American Partners)
exercised an option available to them under an Exchange Option Agreement dated February 7, 2007
between Cinemark Holdings, Inc. and the Central American Partners. Under this option, which was
contingent upon completion of an initial public offering of common stock by Cinemark Holdings,
Inc., the Central American Partners were entitled to exchange their shares in Cinemark Equity
Holdings Corporation, which is the Companys Central American holding company, for shares of
Cinemark Holdings, Inc.s common stock. The number of shares to be exchanged was determined based
on Cinemark Holdings, Inc.s equity value and the equity value of the Central American Partners
interest in Cinemark Equity Holdings Corporation, both of which are defined in the Exchange Option
Agreement. As a result of this exchange on October 1, 2008, Cinemark Holdings, Inc. issued 902,981
shares of its common stock to the Companys Central American Partners (the Central America Share
Exchange). Simultaneously, Cinemark Holdings, Inc. contributed the shares it received in Cinemark
Equity Holdings Corporation to the Company. As a result of this transaction, the Company owns 100%
of the shares in Cinemark Equity Holdings Corporation.
The Company accounted for the transaction as a step acquisition. The purchase price of the
shares in Cinemark Equity Holdings Corporation was recorded based on the fair value of the shares
issued by Cinemark Holdings, Inc. of $12,949 plus related transaction costs of $2, which totaled
approximately $12,951. The following table represents the allocation of purchase price to the
assets acquired and liabilities assumed:
|
|
|
|
|
Net unfavorable leases |
|
$ |
(443 |
) |
Vendor contract |
|
|
1,034 |
|
Tradename |
|
|
892 |
|
Goodwill |
|
|
8,222 |
|
Reduction of minority interest liability |
|
|
3,246 |
|
|
|
|
|
|
|
$ |
12,951 |
|
|
|
|
|
The net book values of fixed assets approximated fair value. The net unfavorable leases,
vendor contracts and tradename are presented as intangible assets on the Companys consolidated
balance sheet as of December 31, 2008. The goodwill recorded as a result of the acquisition is not
deductible for tax purposes.
During July 2008, the Companys partners in Ecuador (the Ecuador Partners) exercised an
option available to them under an Exchange Option Agreement dated April 24, 2007 between Cinemark
Holdings, Inc. and the Ecuador Partners. Under this option, which was contingent upon completion of
an initial public offering of common stock by Cinemark Holdings, Inc., the Ecuador Partners were
entitled to exchange their shares in Cinemark del Ecuador S.A. for shares of Cinemark Holdings,
Inc.s common stock. The number of shares to be exchanged was determined based on Cinemark
Holdings, Inc.s equity value and the equity value of the Ecuador Partners interest in Cinemark
del Ecuador S.A., both of
F-19
CINEMARK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
which are defined in the Exchange Option Agreement. As a result of this exchange on November 6,
2008, Cinemark Holdings, Inc. issued 393,615 shares of its common stock to the Companys Ecuador
partners (the Ecuador Share Exchange). Simultaneously, Cinemark Holdings, Inc. contributed the
shares it received in Cinemark del Ecuador S.A. to the Company. As a result of this transaction,
the Company owns 100% of the shares of Cinemark del Ecuador S.A.
The Company accounted for the transaction as a step acquisition. The purchase price of the
shares in Cinemark del Ecuador S.A. was recorded based on the fair value of the shares issued by
Cinemark Holdings, Inc., which was approximately $3,200.
The following table represents the allocation of purchase price to the assets acquired and
liabilities assumed:
|
|
|
|
|
Net unfavorable leases |
|
$ |
(161 |
) |
Tradename |
|
|
313 |
|
Goodwill |
|
|
1,473 |
|
Reduction of minority interest liability |
|
|
1,575 |
|
|
|
|
|
|
|
$ |
3,200 |
|
|
|
|
|
The net book value of fixed assets approximated fair value. The net unfavorable leases and
tradename are presented as intangible assets on the Companys consolidated balance sheet as of
December 31, 2008. The goodwill recorded as a result of the acquisition is not deductible for tax
purposes.
10. GOODWILL AND OTHER INTANGIBLE ASSETS NET
The Companys goodwill was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
International |
|
|
|
|
Operating |
|
Operating |
|
|
|
|
Segment |
|
Segment |
|
Total |
Successor Balance at January 1, 2007 |
|
$ |
1,056,816 |
|
|
$ |
148,607 |
|
|
$ |
1,205,423 |
|
Purchase price allocation adjustment for Century Acquisition (1) |
|
|
(18,109 |
) |
|
|
|
|
|
|
(18,109 |
) |
Impairment charges |
|
|
(60,154 |
) |
|
|
(7,571 |
) |
|
|
(67,725 |
) |
Foreign currency translation adjustment and other (2) |
|
|
595 |
|
|
|
14,505 |
|
|
|
15,100 |
|
|
|
|
Successor Balance at December 31, 2007 |
|
$ |
979,148 |
|
|
$ |
155,541 |
|
|
$ |
1,134,689 |
|
Impairment charges |
|
|
(78,579 |
) |
|
|
|
|
|
|
(78,579 |
) |
Acquisition of one U.S. theatre (3) |
|
|
2,892 |
|
|
|
|
|
|
|
2,892 |
|
Acquisition of two Brazil theatres (4) |
|
|
|
|
|
|
2,247 |
|
|
|
2,247 |
|
Central America share exchange (5) |
|
|
|
|
|
|
8,222 |
|
|
|
8,222 |
|
Ecuador share exchange (5) |
|
|
|
|
|
|
1,473 |
|
|
|
1,473 |
|
Foreign currency translation adjustments |
|
|
|
|
|
|
(31,126 |
) |
|
|
(31,126 |
) |
|
|
|
Successor Balance at December 31, 2008 |
|
$ |
903,461 |
|
|
$ |
136,357 |
|
|
$ |
1,039,818 |
|
|
|
|
|
|
|
(1) |
|
See Note 5 regarding the acquisition of Century Theatres, Inc. |
|
(2) |
|
U.S. operating segment includes one theatre located in Canada. |
|
(3) |
|
The Company acquired one theatre in the U.S. during 2008 for approximately
$5,011, which resulted in an allocation of $2,892 to goodwill and $2,119 to theatre
properties and equipment. |
|
(4) |
|
The Company acquired two theatres in Brazil during 2008 for approximately $5,100
which resulted in a preliminary allocation of $2,247 to goodwill, $2,368 to theatre
properties and equipment, and $485 to intangible assets. |
|
(5) |
|
See Note 9. |
F-20
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, |
|
|
2007 |
|
Additions (1) |
|
Amortization |
|
Impairment |
|
Other |
|
2008 |
Intangible assets with finite lives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized licensing fees: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross carrying amount |
|
$ |
5,138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,138 |
|
Accumulated amortization |
|
|
(1,565 |
) |
|
|
|
|
|
|
(426 |
) |
|
|
|
|
|
|
|
|
|
|
(1,991 |
) |
|
|
|
Net carrying amount |
|
$ |
3,573 |
|
|
|
|
|
|
|
(426 |
) |
|
|
|
|
|
|
|
|
|
$ |
3,147 |
|
|
|
|
Vendor contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross carrying amount |
|
|
56,973 |
|
|
|
1,519 |
|
|
|
|
|
|
|
|
|
|
|
(2,652 |
) |
|
|
55,840 |
|
Accumulated amortization |
|
|
(23,342 |
) |
|
|
|
|
|
|
(3,322 |
) |
|
|
|
|
|
|
|
|
|
|
(26,664 |
) |
|
|
|
Net carrying amount |
|
$ |
33,631 |
|
|
|
1,519 |
|
|
|
(3,322 |
) |
|
|
|
|
|
|
(2,652 |
) |
|
$ |
29,176 |
|
|
|
|
Net favorable leases: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross carrying amount |
|
|
20,691 |
|
|
|
(604 |
) |
|
|
|
|
|
|
(577 |
) |
|
|
(1,857 |
) |
|
|
17,653 |
|
Accumulated amortization |
|
|
(15,581 |
) |
|
|
|
|
|
|
(2,708 |
) |
|
|
257 |
|
|
|
681 |
|
|
|
(17,351 |
) |
|
|
|
Net carrying amount |
|
$ |
5,110 |
|
|
|
(604 |
) |
|
|
(2,708 |
) |
|
|
(320 |
) |
|
|
(1,176 |
) |
|
$ |
302 |
|
|
|
|
Other intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross carrying amount |
|
|
69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4 |
) |
|
|
65 |
|
Accumulated amortization |
|
|
(20 |
) |
|
|
|
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
(24 |
) |
|
|
|
Net carrying amount |
|
$ |
49 |
|
|
|
|
|
|
|
(4 |
) |
|
|
|
|
|
|
(4 |
) |
|
$ |
41 |
|
|
|
|
Total net intangible assets with finite
lives |
|
$ |
42,363 |
|
|
|
915 |
|
|
|
(6,460 |
) |
|
|
(320 |
) |
|
|
(3,832 |
) |
|
$ |
32,666 |
|
Intangible assets with indefinite lives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tradename |
|
|
310,681 |
|
|
|
1,205 |
|
|
|
|
|
|
|
|
|
|
|
(2,784 |
) |
|
|
309,102 |
|
Other unamortized intangible assets |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets net |
|
$ |
353,047 |
|
|
|
2,120 |
|
|
|
(6,460 |
) |
|
|
(323 |
) |
|
|
(6,616 |
) |
|
$ |
341,768 |
|
|
|
|
|
|
|
(1) |
|
Includes approximately $485 of vendor contracts recorded as a result of the
acquisition of two theatres in Brazil during 2008. Includes approximately $1,034 of vendor
contracts, $443 of net unfavorable leases and $892 of tradename recorded as a result of the
Central America Share Exchange (see Note 9). Includes approximately $161 of net unfavorable
leases and $313 of tradename recorded as a result of the Ecuador Share Exchange (see Note 9). |
Amortization expense of $6,609 for the year ended December 31, 2008 included $6,460 of
amortization for intangible assets and $149 of amortization for other assets. Estimated aggregate
future amortization expense for intangible assets is as follows:
|
|
|
|
|
For the year ended December 31, 2009 |
|
$ |
5,270 |
|
For the year ended December 31, 2010 |
|
|
5,057 |
|
For the year ended December 31, 2011 |
|
|
4,617 |
|
For the year ended December 31, 2012 |
|
|
3,731 |
|
For the year ended December 31, 2013 |
|
|
3,001 |
|
Thereafter |
|
|
10,990 |
|
|
|
|
|
Total |
|
$ |
32,666 |
|
|
|
|
|
F-21
CINEMARK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
11. 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. See Note 1 for discussion of the Companys impairment evaluation.
The Companys long-lived asset impairment losses are summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from |
|
|
Period from |
|
|
|
|
January 1, 2006 |
|
|
October 5, 2006 |
|
|
|
|
to |
|
|
to |
|
Year Ended December 31, |
|
|
October 4, 2006 |
|
|
December 31, 2006 |
|
2007 |
|
2008 |
|
|
(Predecessor) |
|
|
(Successor) |
|
(Successor) |
|
(Successor) |
|
|
|
|
|
|
United States theatre properties |
|
$ |
5,731 |
|
|
|
$ |
5,315 |
|
|
$ |
12,423 |
|
|
$ |
27,761 |
|
International theatre properties |
|
|
10 |
|
|
|
|
3,094 |
|
|
|
1,799 |
|
|
|
6,869 |
|
|
|
|
|
|
|
Subtotal |
|
$ |
5,741 |
|
|
|
$ |
8,409 |
|
|
$ |
14,222 |
|
|
$ |
34,630 |
|
Intangible assets (see Note 10) |
|
|
|
|
|
|
|
1,334 |
|
|
|
4,611 |
|
|
|
323 |
|
Goodwill (see Note 10) |
|
|
|
|
|
|
|
13,594 |
|
|
|
67,725 |
|
|
|
78,579 |
|
|
|
|
|
|
|
Impairment of long-lived assets |
|
$ |
5,741 |
|
|
|
$ |
23,337 |
|
|
$ |
86,558 |
|
|
$ |
113,532 |
|
|
|
|
|
|
|
12. DEFERRED CHARGES AND OTHER ASSETS NET
As of December 31, deferred charges and other assets net consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, |
|
|
|
2007 |
|
|
2008 |
|
|
|
(Successor) |
|
|
(Successor) |
|
Debt issue costs |
|
$ |
37,660 |
|
|
$ |
37,422 |
|
Less: Accumulated amortization |
|
|
(9,522 |
) |
|
|
(14,218 |
) |
|
|
|
|
|
|
|
Subtotal |
|
|
28,138 |
|
|
|
23,204 |
|
Long-term prepaid rents |
|
|
17,457 |
|
|
|
16,833 |
|
Construction advances and other deposits |
|
|
24,080 |
|
|
|
1,677 |
|
Equipment to be placed in service |
|
|
4,821 |
|
|
|
5,413 |
|
Other |
|
|
2,897 |
|
|
|
1,906 |
|
|
|
|
|
|
|
|
Total |
|
$ |
77,393 |
|
|
$ |
49,033 |
|
|
|
|
|
|
|
|
During the year ended December 31, 2008, the Company wrote off approximately $839 of debt
issue costs related to the repurchase of $47,000 aggregate principal amount at maturity of its 9 3/4%
senior discount notes. See Note 13.
During December 2007, the Company elected to use the proceeds of approximately $22,739 from
the sale of real property to pursue the purchase of a like-kind property in accordance with the
Internal Revenue Code and as a result, the proceeds were deposited to an escrow account. During
2008, the Company elected to use the proceeds of approximately $2,089 from the sale of real
properties to pursue the purchase of like-kind properties in accordance with the Internal Revenue
Code and as a result, the proceeds were deposited to an escrow account. The Company did not
purchase like-kind properties and the deposits of approximately $24,828 were returned to the
Company during the year ended December 31, 2008.
F-22
CINEMARK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
13. LONG-TERM DEBT
Long-term debt as of December 31 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, |
|
|
2007 |
|
2008 |
|
|
(Successor) |
|
(Successor) |
|
|
|
Cinemark USA, Inc. term loan |
|
$ |
1,101,686 |
|
|
$ |
1,094,800 |
|
Cinemark, Inc. 9 3/4% senior discount notes due 2014 |
|
|
415,768 |
|
|
|
411,318 |
|
Cinemark USA, Inc. 9% senior subordinated notes due 2013 |
|
|
184 |
|
|
|
181 |
|
Other long-term debt |
|
|
6,107 |
|
|
|
2,163 |
|
|
|
|
Total long-term debt |
|
|
1,523,745 |
|
|
|
1,508,462 |
|
Less current portion |
|
|
9,166 |
|
|
|
12,450 |
|
|
|
|
Long-term debt, less current portion |
|
$ |
1,514,579 |
|
|
$ |
1,496,012 |
|
|
|
|
Senior Discount Notes
On March 31, 2004, Cinemark, Inc. issued approximately $577,173 aggregate principal amount at
maturity of 9 3/4% senior discount notes due 2014. Interest on the notes 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.
Prior to 2006, in one open market purchase, Cinemark, Inc. repurchased $1,840 aggregate
principal amount at maturity of its 9 3/4% senior discount notes for approximately $1,302 including
accreted interest of $174.
During 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. The Company recorded a loss on
early retirement of debt of $2,375 during the year ended December 31, 2006, related to these
repurchases, which consisted of premiums paid and the write-off of unamortized debt issue costs.
Cinemark, Inc. funded the 2006 and prior repurchases with available cash from its operations.
During 2007, Cinemark, Inc. repurchased in six open market purchases a total of $69,155
aggregate principal amount at maturity of its 9 3/4% senior discount notes for approximately $63,694,
including accreted interest of $16,592 and cash premiums of $3,966. Cinemark, Inc. funded these
transactions with proceeds from 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 these repurchases, which consisted of premiums paid, other fees and the write-off of
unamortized debt issue costs.
During March 2008, in one open market purchase, Cinemark, Inc. repurchased $10,000 aggregate
principal amount at maturity of its 9 3/4% senior discount notes for approximately $8,950, including
accreted interest of $2,929 and a discount of $152. During October 2008, in seven open market
purchases, Cinemark, Inc. repurchased approximately $30,000 aggregate principal amount at maturity
of its 9 3/4% senior discount notes for approximately $27,340, including accreted interest of
approximately $9,764 and a discount of $1,507. During November 2008, in two open market purchases,
Cinemark, Inc. repurchased $7,000 aggregate principal amount at maturity of its 9 3/4% senior
discount notes for approximately $5,918, including accreted interest of $2,493 and a discount of
$878. Cinemark, Inc. funded these transactions with proceeds from Cinemark Holdings, Inc.s initial
public offering. The Company recorded a gain on early retirement of debt of approximately $1,698
related to these 2008 repurchases, which included gains on the repurchases offset by the write-off
of unamortized debt issue costs.
As of December 31, 2008, the accreted principal balance of the notes was approximately
$411,318 and the aggregate principal amount at maturity was approximately $419,403.
F-23
CINEMARK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
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 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 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, 2008, there was $1,094,800 outstanding under the term loan and no borrowings
outstanding under the revolving credit line. A minimum of approximately $121,431 was available for
borrowing under the revolving credit line. The availability of the Companys revolving credit
facility may have recently been impacted by the bankruptcy of one of the lenders under the
facility. As such, while the Company currently has only $69 (related to a letter of credit)
outstanding under the $150 million revolving credit facility, it is uncertain whether this lender
would fund its $28,500 commitment under the revolving credit facility. The average interest rate on
outstanding borrowings under the senior secured credit facility at December 31, 2008 was 4.3% 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.
F-24
CINEMARK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
On March 14, 2007, Cinemark USA, Inc. amended its senior secured credit facility to, among
other things, modify the interest rate on the term loans under the senior secured credit facility,
modify certain prepayment terms and covenants, and facilitate the tender offer for the 9% senior
subordinated notes. The term loans now accrue interest, at Cinemark USA, Inc.s option, at: (A) the
base rate equal to the higher of (1) the prime lending rate as set forth on the British Banking
Association Telerate page 5, or (2) the federal funds effective rate from time to time plus 0.50%,
plus a margin that ranges from 0.50% to 0.75% per annum, or (B) a eurodollar rate plus a margin
that ranges from 1.50% to 1.75%, per annum. In each case, the
margin is a function of the corporate credit rating applicable to the borrower. The interest
rate on the revolving credit line was not amended. Additionally, the amendment removed any
obligation to prepay amounts outstanding under the senior secured credit facility in an amount
equal to the amount of the net cash proceeds received from the NCM Transaction or from excess cash
flows, and imposed a 1% prepayment premium for one year on certain prepayments of the term loans.
Cinemark USA, Inc.s obligations under the senior secured credit facility are guaranteed by
Cinemark Holdings, Inc., Cinemark, 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., 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, and Cinemark,
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 its
subsidiaries from paying a dividend or otherwise distributing cash to its stockholders unless (1)
the Company is not in default, and the distribution would not cause the Company to be in default,
under the senior secured credit facility; and (2) the aggregate amount of certain dividends,
distributions, investments, redemptions and capital expenditures made since October 5, 2006,
including dividends declared by the board of directors, is less than the sum of (a) the aggregate
amount of cash and cash equivalents received by Cinemark Holdings, Inc. or Cinemark USA, Inc. as
common equity since October 5, 2006, (b) Cinemark USA, Inc.s consolidated EBITDA minus 1.75 times
its consolidated interest expense, each as defined in the senior secured credit facility, since
October 1, 2006, (c) $150 million and (d) certain other amounts specified in the senior secured
credit facility, subject to certain adjustments specified in the senior secured credit facility.
The dividend restriction is subject to certain exceptions specified in the senior secured credit
facility.
The senior secured credit facility also includes customary events of default, including, among
other things, payment default, covenant default, breach of representation or warranty, bankruptcy,
cross-default, material ERISA events, certain types of change of control, material money judgments
and failure to maintain subsidiary guarantees. If an event of default occurs, all commitments under
the senior secured credit facility may be terminated and all obligations under the senior secured
credit facility could be accelerated by the lenders, causing all loans outstanding (including
accrued interest and fees payable thereunder) to be declared immediately due and payable.
Former Senior Secured Credit Facility
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 year ended December 31, 2006, the Company recorded a
loss on early retirement of debt of $5,782 related to the write-off of unamortized debt issue costs
associated with the former senior secured credit facility.
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.
F-25
CINEMARK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
Prior to 2006, Cinemark USA, Inc. repurchased a total of $17,750 aggregate principal amount of
its 9% senior subordinated notes. The transaction was funded by Cinemark USA, Inc. with available
cash from operations.
During 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 $126 during the year ended December 31, 2006
related to the 2006 repurchases, 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.
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, which consisted of tender offer repurchase costs, including premiums paid and other
fees, and the write-off of unamortized debt issue costs, partially offset by the write-off of an
unamortized bond premium.
During 2008, in one open market purchase, Cinemark USA, Inc. repurchased $3 aggregate
principal amount of its 9% senior subordinated notes.
As of December 31, 2008, Cinemark USA, Inc. had outstanding approximately $181 aggregate
principal amount of 9% senior subordinated notes. Cinemark USA, Inc. may redeem the remaining 9%
senior subordinated notes at its option at any time.
Covenant Compliance and Debt Maturity
As of December 31, 2008, the Company was in full compliance with all agreements, including
related covenants, governing its outstanding debt. The Companys long-term debt at December 31,
2008 matures as follows:
|
|
|
|
|
2009 |
|
$ |
12,450 |
|
2010 |
|
|
12,113 |
|
2011 |
|
|
11,200 |
|
2012 |
|
|
271,600 |
|
2013 |
|
|
789,781 |
|
Thereafter |
|
|
419,403 |
|
|
|
|
|
Total |
|
$ |
1,516,547 |
|
|
|
|
|
The estimated fair value of the Companys long-term debt at December 31, 2008 was
approximately $1,449,147. This amount does not include prepayment penalties that would be incurred
upon the early extinguishment of certain debt issues.
Debt issue costs of $37,422, less accumulated amortization of $14,218, 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, 2008 (See Note 12).
F-26
CINEMARK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
14. INTEREST RATE SWAP AGREEMENTS
During 2007 and 2008, the Company entered into three interest rate swap agreements. The
interest rate swap agreements qualify for cash flow hedge accounting in accordance with SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities. The fair values of the
interest rate swaps are recorded on the Companys consolidated balance sheet as an asset or
liability with the effective portion of the interest rate swaps gains or losses reported as a
component of accumulated other comprehensive income (loss) and the ineffective portion reported in
earnings.
In March 2007, the Company entered into two interest rate swap agreements with effective dates
of August 13, 2007 and terms of five years each. The interest rate swaps were designated to hedge
approximately $500,000 of the Companys variable rate debt obligations under its senior secured
credit facility. Under the terms of the interest rate swap agreements, the Company pays fixed rates
of 4.918% and 4.922% on $375,000 and $125,000, respectively, of variable rate debt and receives
interest at a variable rate based on the 3-month LIBOR. The 3-month LIBOR rate on each reset date
determines the variable portion of the interest rate swaps for the three-month period following the
reset date. No premium or discount was incurred upon the Company entering into the interest rate
swaps because the pay and receive rates on the interest rate swaps represented prevailing rates for
each counterparty at the time the interest rate swaps were consummated. The Company estimates the
fair values of the interest rate swaps by comparing estimated future interest payments to be made
under forecasted future 3-month LIBOR to the fixed rates in accordance with the interest rate swaps
On September 14, 2008, the counterparty to the $375,000 interest rate swap agreement filed for
bankruptcy protection. As a result, the Company determined that on September 15, 2008, when the
counterpartys credit rating was downgraded, the interest rate swap was no longer highly effective.
On October 1, 2008, this interest rate swap was terminated by the Company. The change in fair
value of this interest rate swap agreement from inception to September 14, 2008 of $18,147 was
recorded as a component of accumulated other comprehensive loss. The change in fair value from
September 15, 2008 through September 30, 2008 of $3,324 and the gain on termination of $2,098 were
recorded in earnings as a component of interest expense during the year ended December 31, 2008.
Upon termination of this swap, the Company paid approximately $13,804, including accrued interest
of $1,079, pursuant to the terms of the interest rate swap agreement. The Company determined that
the forecasted transactions hedged by this interest rate swap are still probable to occur, thus the
total amount reported in accumulated other comprehensive income (loss) related to this swap of
$18,147 is being amortized on a straight-line basis to interest expense over the period during
which the forecasted transactions are expected to occur, which is September 15, 2008 through August
13, 2012. The Company amortized approximately $1,351 to interest expense during the year ended
December 31, 2008. The Company will amortize approximately $4,633 to interest expense over the next
twelve months.
On October 3, 2008, the Company entered into one interest rate swap agreement with an
effective date of November 14, 2008 and a term of four years. The interest rate swap was designated
to hedge approximately $100,000 of the Companys variable rate debt obligations under its senior
secured credit facility for three years and $75,000 of the Companys variable rate debt obligations
under its senior secured credit facility for four years. Under the terms of the interest rate swap
agreement, the Company pays a fixed rate of 3.63% on $175,000 of variable rate debt and receives
interest at a variable rate based on the 1-month LIBOR. The 1-month LIBOR rate on each reset date
determines the variable portion of the interest rate swap for the one-month period following the
reset date. No premium or discount was incurred upon the Company entering into the interest rate
swap because the pay and receive rates on the interest rate swap represented prevailing rates for
the counterparty at the time the interest rate swap was consummated.
As of December 31, 2008, the fair values of the $125,000 interest rate swap and the $175,000
interest rate swap were liabilities of approximately $13,304 and $11,477, respectively, which have
been reported as a component of other long-term liabilities. These interest rate swaps exhibited no
ineffectiveness during the years ended December 31, 2007 and 2008, therefore changes in the fair
value of these swaps have been reported as a component of accumulated other comprehensive income
(loss).
F-27
CINEMARK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
15. FOREIGN CURRENCY TRANSLATION
The accumulated other comprehensive income (loss) account in stockholders equity of $32,695
and $(72,347) at December 31, 2007 and December 31, 2008, respectively, includes the cumulative
foreign currency adjustments of $44,043 and $(40,287), respectively, from translating the financial
statements of the Companys international subsidiaries.
In 2007 and 2008, all foreign countries where the Company has operations were deemed
non-highly inflationary. Thus, any fluctuation in the currency results in a cumulative foreign
currency translation adjustment recorded to accumulated other comprehensive income (loss).
On December 31, 2008, the exchange rate for the Brazilian real was 2.36 reais to the U.S.
dollar (the exchange rate was 1.77 reais to the U.S. dollar at December 31, 2007). As a result, the
effect of translating the December 31, 2008 Brazilian financial statements into U.S. dollars is
reflected as a cumulative foreign currency translation adjustment to the accumulated
other comprehensive income (loss) account as a decrease in stockholders equity of $49,951. At
December 31, 2008, the total assets of the Companys Brazilian subsidiaries were U.S. $170,378.
On December 31, 2008, the exchange rate for the Mexican peso was 13.78 pesos to the U.S.
dollar (the exchange rate was 10.92 pesos to the U.S. dollar at December 31, 2007). As a result,
the effect of translating the December 31, 2008 Mexican financial statements into U.S. dollars is
reflected as a cumulative foreign currency translation adjustment to the accumulated other
comprehensive income (loss) account as a decrease in stockholders equity of $26,734. At December
31, 2008, the total assets of the Companys Mexican subsidiaries were U.S. $123,148.
On December 31, 2008, the exchange rate for the Chilean peso was 648.00 pesos to the U.S.
dollar (the exchange rate was 497.70 pesos to the U.S. dollar at December 31, 2007). As a result,
the effect of translating the December 31, 2008 Chilean financial statements into U.S. dollars is
reflected as a cumulative foreign currency translation adjustment to the accumulated other
comprehensive income (loss) account as a decrease in stockholders equity of $4,019. At December
31, 2008, the total assets of the Companys Chilean subsidiaries were U.S. $19,621.
The effect of translating the December 31, 2008 financial statements of our other
international subsidiaries, with local currencies other than the U.S. dollar, is reflected as a
cumulative foreign currency translation adjustment to the accumulated other comprehensive income
(loss) account as a decrease in stockholders equity of $3,626.
16. INVESTMENTS IN AND ADVANCES TO AFFILIATES
The Company had the following investments in and advances to affiliates at December 31:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
2007 |
|
2008 |
|
|
(Successor) |
|
(Successor) |
|
|
|
Investment in National CineMedia LLC investment, at equity |
|
$ |
|
|
|
$ |
19,141 |
|
Investment in DCIP investment at equity 33% interest |
|
|
260 |
|
|
|
1,017 |
|
Cinemark Core Pacific, Ltd. (Taiwan) investment, at cost 14% interest |
|
|
1,383 |
|
|
|
1,383 |
|
Other |
|
|
3,428 |
|
|
|
2,411 |
|
|
|
|
Total |
|
$ |
5,071 |
|
|
$ |
23,952 |
|
|
|
|
During 2008, NCM performed a common unit adjustment calculation in accordance with the Common
Unit Adjustment Agreement dated as of February 13, 2007 between NCM, Inc. and the Company, Regal
and AMC. As a result of the common unit adjustment calculation, the Company received an additional
846,303 common units of NCM, each of which is convertible into one share of NCM, Inc. common stock.
The Company recorded the additional common units received at fair value as an investment with a
corresponding adjustment to deferred revenue of $19,020. The common unit adjustment resulted in an
increase in the Companys ownership percentage in NCM from approximately 14.0% at December 31, 2007
to approximately 14.5%. The Companys ownership percentage in NCM was subsequently reduced from
14.5% to 14.1% as of December 31, 2008 as a result of an extraordinary common unit adjustment in
which Regal was granted additional common units of NCM. The Companys basis in these additional
shares was increased to $19,141 as of December 31, 2008 as a result
F-28
CINEMARK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
of equity income of
approximately $840, offset by distributions received of approximately $644 and a change of interest
loss of approximately $75 recorded during 2008. See Note 6.
During 2007, the Company invested $1,500 for a one-third ownership in DCIP. The Companys
basis was reduced to $260 as of December 31, 2007 as a result of equity losses of $1,240 recorded
during 2007. During 2008, the Company invested an additional $4,000 in DCIP. The Companys basis
was reduced to $1,017 as of December 31, 2008 as a result of equity losses of $3,243 recorded
during 2008. See Note 7.
17. MINORITY INTERESTS IN SUBSIDIARIES
Minority ownership interests in subsidiaries of the Company were as follows at December 31:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
2007 |
|
2008 |
|
|
(Successor) |
|
(Successor) |
|
|
|
Cinemark Partners II 49.2% interest |
|
$ |
8,260 |
|
|
$ |
8,114 |
|
Cinemark Equity Holdings Corp. (Central America) |
|
|
2,344 |
|
|
|
181 |
|
Cinemark Colombia, S.A. 49.0% interest |
|
|
2,766 |
|
|
|
3,105 |
|
Greeley Ltd. 49.0% interest |
|
|
1,244 |
|
|
|
1,015 |
|
Cinemark del Ecuador, S.A. |
|
|
1,196 |
|
|
|
|
|
Cinemark de Mexico, S.A. de C.V. 0.6% interest |
|
|
326 |
|
|
|
203 |
|
Others |
|
|
46 |
|
|
|
353 |
|
|
|
|
Total |
|
$ |
16,182 |
|
|
$ |
12,971 |
|
|
|
|
During May 2008, the Companys partners in Central America (the Central American Partners)
exercised an option available to them under an Exchange Option Agreement dated February 7, 2007
between Cinemark Holdings, Inc. and the Central American Partners. Under this option, which was
triggered by completion of an initial public offering of common stock by Cinemark Holdings, Inc.,
the Central American Partners are entitled to exchange their shares in Cinemark Equity Holdings
Corporation, which is Cinemark Holdings, Inc.s Central American holding company, for shares of
Cinemark Holdings, Inc.s common stock. The exchange of shares occurred during October 2008 at
which time Cinemark Holdings, Inc. contributed the shares it received in Cinemark Equity Holdings
Corporation to the Company. See Note 9. Prior to the exchange, the Company owned approximately 51%
of the shares in Cinemark Equity Holdings Corporation and subsequent to the exchange, the Company
owns 100% of the shares in Cinemark Equity Holdings Corporation. The Companys Panama subsidiary is
80% owned by Cinemark Equity Holdings Corporation and 20% owned by a minority partner.
During July 2008, the Companys partners in Ecuador (the Ecuador Partners) exercised an
option available to them under an Exchange Option Agreement dated April 24, 2007 between Cinemark
Holdings, Inc. and the Ecuador Partners. Under this option, which was triggered by completion of an
initial public offering of common stock by Cinemark Holdings, Inc., the Ecuador Partners are
entitled to exchange their shares in Cinemark del Ecuador S.A. for shares of Cinemark Holdings,
Inc.s common stock. The exchange of shares occurred during November 2008 at which time Cinemark
Holdings, Inc. contributed the shares it received in Cinemark del Ecuador S.A. to the Company. See
Note 9. Prior to the exchange, the Company owned 60% of the shares in Cinemark del Ecuador S.A.
and subsequent to the exchange, the Company owns 100% of the shares in Cinemark del Ecuador S.A.
F-29
CINEMARK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
18. 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.
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 On September 30, 2004, Cinemark, Inc.s board of directors and the
majority of its stockholders approved the 2004 Long Term Incentive Plan (the 2004 Plan) under
which 9,097,360 shares of common stock are available for issuance to selected employees, directors
and consultants of the Company. The 2004 Plan provided for restricted share grants, incentive
option grants and nonqualified option grants.
On August 2, 2006, Cinemark Holdings, Inc. was formed as the Delaware holding company of
Cinemark, Inc. Under a share exchange agreement dated August 7, 2006, each outstanding share of
Cinemark, Inc.s Class A common stock was exchanged for an equivalent number of shares of Cinemark
Holdings, Inc. common stock. The share exchange was completed on October 5, 2006.
In November 2006, Cinemark Holdings, Inc.s board of directors amended the 2004 Plan to
provide that no additional awards may be granted under the 2004 Plan. At that time, the Board of
Cinemark Holdings, Inc. and the majority of Cinemark Holdings, Inc.s stockholders approved the
2006 Long Term Incentive Plan (the 2006 Plan) and all options to purchase shares of Cinemark
Inc.s Class A common stock under the 2004 Plan were exchanged for an equal number of options to
purchase shares of Cinemark Holdings, Inc.s common stock under the 2006 Plan. The 2006 Plan is
substantially similar to the 2004 Plan.
During September 2007, Cinemark Holdings, Inc. filed a registration statement with the
Securities and Exchange Commission on Form S-8 for purposes of registering shares available for
issuance under the 2006 Plan.
During October 2007, Cinemark Holdings, Inc.s board of directors and a majority of its
stockholders approved an amendment to the 2006 Plan to provide for the ability to exercise an
option on a cashless basis, by decreasing the number of shares deliverable upon the exercise of
such option by an amount equal to the number of shares having an aggregate fair market value equal
to the aggregate exercise price of such option. The amendment did not result in any additional
compensation expense to the Company.
During March 2008, Cinemark Holdings, Inc.s board of directors approved the Amended and
Restated Cinemark Holdings, Inc. 2006 Long Term Incentive Plan (the Restated Incentive Plan). The
Restated Incentive Plan amends and restates the 2006 Plan, to (i) increase the number of shares
reserved for issuance from 9,097,360 shares of common stock to 19,100,000 shares of common stock
and (ii) permit the Compensation Committee of Cinemark Holdings, Inc.s board of directors (the
Compensation Committee) to award participants restricted stock units and performance awards. The
right of a participant to exercise or receive a grant of a restricted stock unit or performance
award may be subject to the satisfaction of such performance or objective business criteria as
determined by the Compensation Committee. With the exception of the
changes identified in (i) and (ii) above, the Restated Incentive Plan does not materially
differ from the 2006 Plan. The
F-30
CINEMARK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
Restated Incentive Plan was approved by Cinemark Holdings, Inc.s
stockholders at its annual meeting held on May 15, 2008.
During August 2008, Cinemark Holdings, Inc. filed a registration statement with the Securities
and Exchange Commission on Form S-8 for the purpose of registering the additional shares available
for issuance under the Restated Incentive Plan.
Stock Options 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. The weighted average remaining contractual term of these outstanding options is
approximately 5.75 years. All stock option information has been adjusted to give effect to a
2.9585-for-1 stock split effected by Cinemark Holdings, Inc. on April 9, 2007.
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.
A summary of stock option activity and related information for the period from January 1, 2006
to October 4, 2006, the period from October 5, 2006 to December 31, 2006, and the years ended
December 31, 2007 and 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from |
|
|
Period from |
|
|
|
|
|
|
|
|
January 1, 2006 |
|
|
October 5, 2006 |
|
|
|
|
|
|
|
|
to |
|
|
to |
|
Year Ended |
|
Year Ended |
|
|
|
|
October 4, 2006 |
|
|
December 31, 2006 |
|
December 31, 2007 |
|
December 31, 2008 |
|
|
|
|
(Predecessor) |
|
|
(Successor) |
|
(Successor) |
|
(Successor) |
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Average |
|
|
|
|
|
Average |
|
|
|
|
|
Average |
|
Aggregate |
|
|
|
|
|
|
Exercise |
|
|
|
|
|
|
Exercise |
|
|
|
|
|
Exercise |
|
|
|
|
|
Exercise |
|
Intrinsic |
|
|
Shares |
|
Price |
|
|
Shares |
|
Price |
|
Shares |
|
Price |
|
Shares |
|
Price |
|
Value |
Outstanding at January 1 |
|
|
6,998,786 |
|
|
$ |
7.63 |
|
|
|
|
6,989,689 |
|
|
$ |
7.63 |
|
|
|
6,980,593 |
|
|
$ |
7.63 |
|
|
|
6,323,429 |
|
|
$ |
7.63 |
|
|
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(9,097 |
) |
|
$ |
7.63 |
|
|
|
|
(4,493 |
) |
|
$ |
7.63 |
|
|
|
(112,416 |
) |
|
$ |
7.63 |
|
|
|
(14,492 |
) |
|
$ |
7.63 |
|
|
|
|
|
Exercised |
|
|
|
|
|
$ |
7.63 |
|
|
|
|
(4,603 |
) |
|
$ |
7.63 |
|
|
|
(544,748 |
) |
|
$ |
7.63 |
|
|
|
(169,267 |
) |
|
$ |
7.63 |
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31 |
|
|
6,989,689 |
|
|
$ |
7.63 |
|
|
|
|
6,980,593 |
|
|
$ |
7.63 |
|
|
|
6,323,429 |
|
|
$ |
7.63 |
|
|
|
6,139,670 |
|
|
$ |
7.63 |
|
|
$ |
(1,228 |
) |
|
|
|
|
|
|
Vested options at December 31 |
|
|
3,487,090 |
|
|
$ |
7.63 |
|
|
|
|
3,834,295 |
|
|
$ |
7.63 |
|
|
|
4,647,460 |
|
|
$ |
7.63 |
|
|
|
5,809,343 |
|
|
$ |
7.63 |
|
|
$ |
(1,162 |
) |
|
|
|
|
|
|
F-31
CINEMARK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
The total intrinsic value of options exercised during the period from January 1, 2006 to
October 4, 2006, the period from October 5, 2006 to December 31, 2006, and years ended December 31,
2007 and 2008, was $0, $0, $4,961, and $1,191, respectively.
During 2008, the Company changed its estimated forfeiture rate from 10% to 5%, based on actual
cumulative stock option forfeitures. The cumulative impact of the reduction in forfeiture rate was
approximately $528 and was recorded as additional compensation expense during the year ended
December 31, 2008.
The Company recorded total compensation expense of $3,393 and a tax benefit of approximately
$1,279 during the year ended December 31, 2008, related to the outstanding stock options. As of
December 31, 2008, the remaining unrecognized compensation expense related to outstanding stock
options was $760 and the weighted average period over which this remaining compensation expense
will be recognized is approximately three months. All options outstanding at December 31, 2008 have
a weighted average remaining contractual life of approximately 5.75 years.
Below is a summary of the Companys nonvested stock options as of and for the year ended
December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
|
|
|
Grant Date |
Nonvested Stock Options |
|
Shares |
|
Fair Value |
Outstanding at January 1, 2008 |
|
|
1,675,969 |
|
|
$ |
3.51 |
|
Granted |
|
|
|
|
|
|
|
|
Vested |
|
|
(1,331,150 |
) |
|
$ |
3.51 |
|
Forfeited |
|
|
(14,492 |
) |
|
$ |
3.51 |
|
|
|
|
Outstanding at December 31, 2008 (1) |
|
|
330,327 |
|
|
$ |
3.51 |
|
|
|
|
|
|
|
(1) |
|
The Company expects approximately 314,000 of these options to
vest. |
Restricted Stock During the year ended December 31, 2008, Cinemark Holdings, Inc. granted
353,948 shares of restricted stock to employees of the Company. The fair value of the shares of
restricted stock was determined based on the market value of Cinemark Holdings, Inc.s stock on the
dates of grant, which ranged from $8.87 to $14.65 per share. The Company assumed forfeiture rates
ranging from zero to 2% for the restricted stock awards. The restricted stock vests over periods
ranging from one year to four years based on continued service by the independent director or
employee.
There was no restricted stock activity during the period from January 1, 2006 to October 4,
2006, the period from October 5, 2006 to December 31, 2006, or the year ended December 31, 2007. A
summary of restricted stock activity for the year ended December 31, 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Average |
|
|
Number of |
|
Grant Date |
|
|
Shares |
|
Fair Value |
|
|
|
|
|
|
|
|
|
Outstanding at January 1 |
|
|
|
|
|
$ |
|
|
Granted |
|
|
353,948 |
|
|
$ |
13.35 |
|
Vested |
|
|
(152 |
) |
|
$ |
13.14 |
|
Forfeited |
|
|
(6,499 |
) |
|
$ |
13.14 |
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31 |
|
|
347,297 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2008, the Company changed its estimated forfeiture rate on certain of these grants from
2% to 5%, based on actual cumulative restricted stock forfeitures. The cumulative impact of the
increased forfeiture rate was approximately $14 and was recorded as a reduction in compensation
expense during the year ended December 31, 2008.
F-32
CINEMARK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
The Company recorded total compensation expense of $919 related to these restricted stock
awards during the year ended December 31, 2008. As of December 31, 2008, the remaining unrecognized
compensation expense related to these restricted stock awards was approximately $3,648 and the
weighted average period over which this remaining compensation
expense will be recognized is approximately 2.75 years. The total fair value of shares vested
during the year ended December 31, 2008 was $2. Upon vesting, the Company receives an income tax
deduction. The Company recognized a tax benefit of $1 during the year ended December 31, 2008
related to the restricted stock that vested during 2008. The recipients of restricted stock are
entitled to receive dividends and to vote their respective shares, however the sale and transfer of
the restricted shares is prohibited during the restriction period.
Restricted Stock Units During the year ended December 31, 2008, Cinemark Holdings, Inc.
granted restricted stock units representing 204,361 hypothetical shares of its common stock under
the Restated Incentive Plan. The restricted stock units vest based on a combination of financial
performance factors and continued service. The financial performance factors are based on an
implied equity value concept that determines an internal rate of return (IRR) during the three
fiscal year period ending December 31, 2010 based on a formula utilizing a multiple of Adjusted
EBITDA subject to certain specified adjustments (as defined in the restricted stock unit award
agreement). The financial performance factors for the restricted stock units have a threshold,
target and maximum level of payment opportunity. If the IRR for the three year period is at least
8.5%, which is the threshold, one-third of the restricted stock units vest. If the IRR for the
three year period is at least 10.5%, which is the target, two-thirds of the restricted stock units
vest. If the IRR for the three year period is at least 12.5%, which is the maximum, 100% of the
restricted stock units vest. All payouts of restricted stock units that vest are subject to an
additional one year service requirement and will be paid in the form of common stock if the
participant continues to provide services through the fourth anniversary of the grant date.
Restricted stock unit award participants are eligible to receive dividend equivalent payments if
and at the time the restricted stock unit awards become vested.
Below is a table summarizing the potential restricted stock unit awards at each of the three
levels of financial performance (excluding forfeiture assumptions):
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
Shares |
|
Value at |
|
|
Vesting |
|
Grant |
at IRR of at least 8.5%
|
|
|
68,116 |
|
|
$ |
885 |
|
at IRR of at least 10.5%
|
|
|
136,239 |
|
|
$ |
1,771 |
|
at IRR of at least 12.5%
|
|
|
204,361 |
|
|
$ |
2,656 |
|
Due to the fact that the IRR for the three year period ending December 31, 2010 could not be
determined at the time of grants, the Company estimated that the most likely outcome is the
achievement of the mid-point IRR level. As a result, the total compensation expense to be recorded
for the restricted stock unit awards is $1,755 assuming a total of 135,027 units will vest at the
end of the four year period, using a forfeiture rate ranging from zero to 2%. If during the service
period, additional information becomes available to lead the Company to believe a different IRR
level will be achieved for the three year period ending December 31, 2010, the Company will
reassess the number of units that will vest and adjust its compensation expense accordingly on a
prospective basis over the remaining service period. The fair value of the number of units
expected to vest was determined based on the market value of Cinemark Holdings, Inc.s stock on the
dates of grant, which ranged from $12.89 to $13.14 per share. The Company recorded compensation
expense of $326 related to these awards during the year ended December 31, 2008. As of December 31,
2008, the remaining unrecognized compensation expense related to these restricted stock unit awards
was $1,429 and the weighted average period over which this remaining compensation expense will be
recognized is approximately 3.25 years.
F-33
CINEMARK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
19. SUPPLEMENTAL CASH FLOW INFORMATION
The following is provided as supplemental information to the consolidated statements of cash
flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2006 |
|
|
October 5, 2006 |
|
|
|
|
to |
|
|
to |
|
Year Ended December 31, |
|
|
October 4, 2006 |
|
|
December 31, 2006 |
|
2007 |
|
2008 |
|
|
(Predecessor) |
|
|
(Successor) |
|
(Successor) |
|
(Successor) |
|
|
|
|
|
|
Cash paid for interest |
|
$ |
43,132 |
|
|
|
$ |
22,584 |
|
|
$ |
132,029 |
|
|
$ |
94,533 |
|
Cash paid for income taxes, net of refunds received |
|
$ |
26,616 |
|
|
|
$ |
428 |
|
|
$ |
139,443 |
|
|
$ |
36,203 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash investing and financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in construction lease obligations related to
construction of theatres |
|
$ |
(2,151 |
) |
|
|
$ |
2,546 |
|
|
$ |
(2,546 |
) |
|
$ |
|
|
Changes in accounts payable and accrued expenses for the
acquisition of theatre properties and equipment (1) |
|
$ |
(7,832 |
) |
|
|
$ |
11,494 |
|
|
$ |
(9,754 |
) |
|
$ |
3,723 |
|
Exchange of theatre properties |
|
$ |
5,400 |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Theatre properties and equipment acquired under capital lease |
|
$ |
|
|
|
|
$ |
|
|
|
$ |
9,102 |
|
|
$ |
7,911 |
|
Capital contribution from Cinemark Holdings, Inc. as a
result of the Century Acquisition (See Note 5) |
|
$ |
|
|
|
|
$ |
150,000 |
|
|
$ |
|
|
|
$ |
|
|
Capital contribution from Cinemark Holdings, Inc. related to
income taxes |
|
$ |
|
|
|
|
$ |
|
|
|
$ |
53,351 |
|
|
$ |
|
|
Capital contribution from Cinemark Holdings, Inc. as a
result of the Central America Share Exchange (See Note 9) |
|
$ |
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
12,949 |
|
Capital contribution from Cinemark Holdings, Inc. as a
result of the Ecuador Share Exchange (See Note 9) |
|
$ |
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
3,200 |
|
Investment in NCM (See Note 6) |
|
$ |
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
19,020 |
|
|
|
|
(1) |
|
Additions to theatre properties and equipment included in accounts payable as of December 31, 2007 and 2008 were $10,266 and $13,989, respectively. |
During December 2007, the Company elected to use the proceeds of approximately $22,739 from
the sale of real property to pursue the purchase of a like-kind property in accordance with the
Internal Revenue Code and as a result, the proceeds were deposited to an escrow account. During
2008, the Company elected to use the proceeds of approximately $2,089 from the sale of real
properties to pursue the purchase of like-kind properties in accordance with the Internal Revenue
Code and as a result, the proceeds were deposited to an escrow account. The Company did not
purchase like-kind properties and the deposits of approximately $24,828 were returned to the
Company during the year ended December 31, 2008.
F-34
CINEMARK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
20. INCOME TAXES
Income (loss) before income taxes consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2006 |
|
|
October 5, 2006 |
|
|
|
|
to |
|
|
to |
|
Year Ended December 31, |
|
|
October 4, 2006 |
|
|
December 31, 2006 |
|
2007 |
|
2008 |
|
|
(Predecessor) |
|
|
(Successor) |
|
(Successor) |
|
(Successor) |
|
|
|
|
|
|
Income (loss) before income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
$ |
20,546 |
|
|
|
$ |
(6,213 |
) |
|
$ |
181,727 |
|
|
$ |
(55,344 |
) |
Foreign |
|
|
17,218 |
|
|
|
|
(11,007 |
) |
|
|
12,765 |
|
|
|
27,123 |
|
|
|
|
|
|
|
Total |
|
$ |
37,764 |
|
|
|
$ |
(17,220 |
) |
|
$ |
194,492 |
|
|
$ |
(28,221 |
) |
|
|
|
|
|
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
11,021 |
|
|
|
|
8,266 |
|
|
|
121,517 |
|
|
|
37,316 |
|
Foreign |
|
|
5,312 |
|
|
|
|
(5,567 |
) |
|
|
5,519 |
|
|
|
4,620 |
|
State |
|
|
731 |
|
|
|
|
137 |
|
|
|
17,087 |
|
|
|
4,729 |
|
|
|
|
|
|
|
Total current expense |
|
$ |
17,064 |
|
|
|
$ |
2,836 |
|
|
$ |
144,123 |
|
|
$ |
46,665 |
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
(3,725 |
) |
|
|
|
(8,358 |
) |
|
|
(33,103 |
) |
|
|
(28,138 |
) |
Foreign |
|
|
(4,905 |
) |
|
|
|
8,976 |
|
|
|
286 |
|
|
|
7,330 |
|
State |
|
|
644 |
|
|
|
|
(343 |
) |
|
|
(1,797 |
) |
|
|
(5,167 |
) |
|
|
|
|
|
|
Total deferred expense |
|
$ |
(7,986 |
) |
|
|
$ |
275 |
|
|
$ |
34,614 |
|
|
$ |
(25,975 |
) |
|
|
|
|
|
|
Income tax expense |
|
$ |
9,078 |
|
|
|
$ |
3,111 |
|
|
$ |
109,509 |
|
|
$ |
20,690 |
|
|
|
|
|
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, |
|
|
October 5, |
|
|
|
|
2006 |
|
|
2006 |
|
|
|
|
to |
|
|
to |
|
Year Ended December 31, |
|
|
October 4, 2006 |
|
|
December 31, 2006 |
|
2007 |
|
2008 |
|
|
(Predecessor) |
|
|
(Successor) |
|
(Successor) |
|
(Successor) |
|
|
|
|
|
|
Computed normal tax expense (benefit) |
|
$ |
13,217 |
|
|
|
$ |
(6,027 |
) |
|
$ |
68,073 |
|
|
$ |
(9,877 |
) |
Goodwill |
|
|
(42 |
) |
|
|
|
4,764 |
|
|
|
23,050 |
|
|
|
27,503 |
|
Foreign inflation adjustments |
|
|
(1,553 |
) |
|
|
|
3,356 |
|
|
|
(620 |
) |
|
|
464 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and
local income taxes, net of federal income tax impact |
|
|
893 |
|
|
|
|
(134 |
) |
|
|
9,861 |
|
|
|
(2,527 |
) |
Foreign losses not benefited and other changes in valuation allowance |
|
|
(1,909 |
) |
|
|
|
1,872 |
|
|
|
(536 |
) |
|
|
1,459 |
|
Foreign tax rate differential |
|
|
40 |
|
|
|
|
906 |
|
|
|
3,721 |
|
|
|
1,537 |
|
Foreign dividends, including Section 965 |
|
|
433 |
|
|
|
|
145 |
|
|
|
1,405 |
|
|
|
2,084 |
|
Other net |
|
|
(2,001 |
) |
|
|
|
(1,771 |
) |
|
|
4,555 |
|
|
|
47 |
|
|
|
|
|
|
|
Income taxes |
|
$ |
9,078 |
|
|
|
$ |
3,111 |
|
|
$ |
109,509 |
|
|
$ |
20,690 |
|
|
|
|
|
|
|
The Company reinvests the undistributed earnings of its foreign subsidiaries, with the
exception of its subsidiary in Ecuador. Accordingly, deferred U.S. federal and state income taxes
are provided only on the undistributed earnings of the Companys Ecuador subsidiary. As of
December 31, 2008, the cumulative amount of undistributed earnings of the foreign subsidiaries on
which the Company has not recognized income taxes was approximately $106,000.
F-35
CINEMARK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
Deferred Income Taxes
The tax effects of significant temporary differences and tax loss and tax credit carryforwards
comprising the net long-term deferred income tax liabilities as of December 31, 2007 and 2008
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
2007 |
|
2008 |
|
|
(Successor) |
|
(Successor) |
Deferred liabilities: |
|
|
|
|
|
|
|
|
Theatre properties and equipment |
|
$ |
128,191 |
|
|
$ |
105,079 |
|
Deferred intercompany sales |
|
|
13,719 |
|
|
|
14,543 |
|
Intangible asset contracts |
|
|
11,505 |
|
|
|
9,545 |
|
Intangible asset tradenames |
|
|
117,197 |
|
|
|
114,379 |
|
Intangible asset net favorable leases |
|
|
1,731 |
|
|
|
354 |
|
Investment in partnerships |
|
|
36,216 |
|
|
|
36,364 |
|
|
|
|
Total deferred liabilities |
|
|
308,559 |
|
|
|
280,264 |
|
|
|
|
Deferred assets: |
|
|
|
|
|
|
|
|
Deferred lease expenses |
|
|
7,375 |
|
|
|
11,923 |
|
Theatre properties and equipment |
|
|
7,248 |
|
|
|
9,693 |
|
Deferred revenue NCM and Fandango |
|
|
67,961 |
|
|
|
65,613 |
|
Capital lease obligations |
|
|
46,194 |
|
|
|
46,098 |
|
Bonds |
|
|
(989 |
) |
|
|
|
|
Interest rate swaps agreements |
|
|
7,074 |
|
|
|
9,515 |
|
Debt issue costs |
|
|
557 |
|
|
|
|
|
Tax loss carryforwards |
|
|
14,359 |
|
|
|
12,342 |
|
Alternative minimum tax and other credit carryforwards |
|
|
2,903 |
|
|
|
3,606 |
|
Other expenses, not currently deductible for tax purposes |
|
|
2,489 |
|
|
|
2,319 |
|
|
|
|
Total deferred assets |
|
|
155,171 |
|
|
|
161,109 |
|
|
|
|
Net deferred income tax liability before valuation allowance |
|
|
153,388 |
|
|
|
119,155 |
|
Valuation allowance against deferred assets |
|
|
9,872 |
|
|
|
13,463 |
|
|
|
|
Net deferred income tax liability |
|
$ |
163,260 |
|
|
$ |
132,618 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability Foreign |
|
$ |
11,542 |
|
|
$ |
16,645 |
|
Net deferred tax liability U.S. |
|
|
151,718 |
|
|
|
115,973 |
|
|
|
|
Total |
|
$ |
163,260 |
|
|
$ |
132,618 |
|
|
|
|
The Companys valuation allowance against deferred tax assets increased from $9,872 at
December 31, 2007 to $13,463 at December 31, 2008. The increase in the valuation allowance was
primarily due to an increase in the valuation allowance related to state and foreign 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.
The vast majority of state net operating losses may be carried forward for up to twenty years with
the last expiring year being 2026.
F-36
CINEMARK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
Uncertain Tax Positions
The following is a reconciliation of the total amounts of unrecognized tax benefits excluding
interest and penalties since the adoption 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 |
|
Gross increases tax positions in prior period |
|
|
37 |
|
Gross decreases tax positions in prior period |
|
|
(166 |
) |
Gross increases current-period tax positions |
|
|
2,397 |
|
Gross decreases current-period tax positions |
|
|
(752 |
) |
Reductions due to lapse in statute of limitations |
|
|
(33 |
) |
|
|
|
|
Balance at December 31, 2008 |
|
$ |
13,976 |
|
|
|
|
|
The Company had $15,500 and $17,523 of gross unrecognized tax benefits, including interest and
penalties as of December 31, 2007 and December 31, 2008, respectively. Of these amounts, $10,768
and $13,851 represent the amount of unrecognized tax benefits that if recognized would impact the
effective income tax rate for the years ended December 31, 2007 and 2008, respectively. The
Company had $3,007 and $3,547 accrued for interest and/or penalties as of December 31, 2007 and
2008, respectively.
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and
multiple state and foreign jurisdictions, and the Company is routinely under audit by many
different tax authorities. The Company believes that its accrual for tax liabilities is adequate
for all open audit years based on its assessment of many factors including past experience and
interpretations of tax law. This assessment relies on estimates and assumptions and may involve a
series of complex judgments about future events. The Company is no longer subject to income tax
audits from the Internal Revenue Service for years before 2002. The Company is no longer subject
to state income tax examinations by tax authorities in its major state jurisdictions for years
before 2002. The Company is no longer subject to non-U.S. income tax examinations by tax
authorities in its major non-U.S. tax jurisdictions for years before 2003.
The Company is currently under examination by the Internal Revenue Service for the 2002-2005
tax years. It is reasonably possible that the 2002-2004 audits could be completed within the next
twelve months. This completion could result in a decrease in the Companys total unrecognized
benefits of approximately $10,000, which includes approximately $2,000 of accrued interest. As a
result, the Company reclassified approximately $10,000 to current FIN48 liability during the year
ended December 31, 2008.
21. 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 $19,235 and $23,371 at December 31, 2007 and 2008, 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:
F-37
CINEMARK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from |
|
|
Period from |
|
|
|
|
January 1, 2006 |
|
|
October 5, 2006 |
|
|
|
|
to |
|
|
to |
|
Year Ended December 31, |
|
|
October 4, 2006 |
|
|
December 31, 2006 |
|
2007 |
|
2008 |
|
|
(Predecessor) |
|
|
(Successor) |
|
(Successor) |
|
(Successor) |
|
|
|
|
|
|
Fixed rent expense |
|
$ |
89,296 |
|
|
|
$ |
37,815 |
|
|
$ |
164,915 |
|
|
$ |
175,368 |
|
Contingent rent expense |
|
|
20,217 |
|
|
|
|
10,431 |
|
|
|
47,815 |
|
|
|
50,227 |
|
|
|
|
|
|
|
Facility lease expense |
|
|
109,513 |
|
|
|
|
48,246 |
|
|
|
212,730 |
|
|
|
225,595 |
|
Corporate office rent expense |
|
|
1,067 |
|
|
|
|
543 |
|
|
|
1,996 |
|
|
|
2,041 |
|
|
|
|
|
|
|
Total rent expense |
|
$ |
110,580 |
|
|
|
$ |
48,789 |
|
|
$ |
214,726 |
|
|
$ |
227,636 |
|
|
|
|
|
|
|
Future minimum lease payments under noncancelable operating and capital leases that have
initial or remaining terms in excess of one year at December 31, 2008 are due as follows:
|
|
|
|
|
|
|
|
|
|
|
Operating |
|
|
Capital |
|
|
|
Leases |
|
|
Leases |
|
2009 |
|
$ |
175,185 |
|
|
$ |
17,744 |
|
2010 |
|
|
173,793 |
|
|
|
17,997 |
|
2011 |
|
|
170,059 |
|
|
|
16,959 |
|
2012 |
|
|
165,778 |
|
|
|
17,098 |
|
2013 |
|
|
162,213 |
|
|
|
17,230 |
|
Thereafter |
|
|
992,104 |
|
|
|
140,950 |
|
|
|
|
|
|
|
|
Total |
|
$ |
1,839,132 |
|
|
$ |
227,978 |
|
|
|
|
|
|
|
|
|
Amounts representing interest payments |
|
|
|
|
|
|
104,266 |
|
|
|
|
|
|
|
|
|
Present value of future minimum payments |
|
|
|
|
|
$ |
123,712 |
|
Current portion of capital lease obligations |
|
|
|
|
|
|
5,532 |
|
|
|
|
|
|
|
|
|
Capital lease obligations, less current portion |
|
|
|
|
|
$ |
118,180 |
|
|
|
|
|
|
|
|
|
Employment Agreements Effective June 16, 2008, Cinemark Holdings, Inc. entered into new
employment agreements with Alan W. Stock, Timothy Warner, Robert Copple and Michael Cavalier and
effective December 15, 2008, Cinemark Holdings, Inc. entered into new employment agreements with
Lee Roy Mitchell, Rob Carmony, and John Lundin. Collectively these new employment agreements are
herein referred to as the New Employment Agreements. Each of Messrs. Mitchell, Stock, Warner,
Copple, Cavalier, Carmony and Lundin had an employment agreement with Cinemark, Inc., which became
effective as of March 12, 2004 (the Original Employment Agreements). The New Employment
Agreements replace the Original Employment Agreements. The New Employment Agreements have an
initial term of three years subject to an automatic extension for a one-year period, unless the
employment agreements are terminated. Messers. Mitchell, Stock, Warner, Copple, Cavalier, Carmony
and Lundin will receive base salaries of $795, $603, $442, $416, $338, $348, and $291 respectively,
during 2008, which are subject to review during the term of the employment agreements for increase
(but not decrease) each year by Cinemark Holdings, Inc.s Compensation Committee. In addition,
Messers. Mitchell, Stock, Warner, Copple, Cavalier, Carmony and Lundin are eligible to receive
annual cash incentive bonuses upon the Company meeting certain performance targets established by
Cinemark Holdings, Inc.s Compensation Committee for the fiscal year. Messers. Mitchell, Stock,
Warner, Copple, Cavalier, Carmony and Lundin qualify for the Companys 401(k) matching program and
are also entitled to certain additional benefits including life insurance and disability insurance.
The New Employment Agreements provide for severance payments upon termination of employment, the
amount and nature of which depends upon the reason for the termination of employment. Effective
June 16, 2008, Cinemark Holdings, Inc. terminated its employment agreement with Tandy Mitchell.
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 $1,430 and $1,795 were made in 2007 (for plan year 2006) and 2008 (for
plan year 2007), respectively. A liability of approximately $1,834 has been recorded at December
31, 2008 for contribution payments to be made in 2009 (for plan year 2008).
F-38
CINEMARK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
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, 2007 and 2008.
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.
From time to time, the Company is involved in other various legal proceedings arising from the
ordinary course of its business operations, such as personal injury claims, employment matters,
landlord-tenant disputes and contractual disputes, some of which are covered by insurance. The
Company believes its potential liability with respect to proceedings currently pending is not
material, individually or in the aggregate, to the Companys financial position, results of
operations and cash flows.
22. SEGMENTS
At December 31, 2008, the Company managed 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.
F-39
CINEMARK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
Below is a breakdown of select financial information by reportable operating segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from |
|
|
Period from |
|
|
|
|
January 1, 2006 |
|
|
October 5, 2006 |
|
|
|
|
to |
|
|
to |
|
Year Ended December 31, |
|
|
October 4, 2006 |
|
|
December 31, 2006 |
|
2007 |
|
2008 |
|
|
(Predecessor) |
|
|
(Successor) |
|
(Successor) |
|
(Successor) |
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
$ |
607,729 |
|
|
|
$ |
328,955 |
|
|
$ |
1,352,042 |
|
|
$ |
1,360,176 |
|
International |
|
|
222,780 |
|
|
|
|
63,074 |
|
|
|
333,624 |
|
|
|
385,817 |
|
Eliminations |
|
|
(1,420 |
) |
|
|
|
(524 |
) |
|
|
(2,825 |
) |
|
|
(3,706 |
) |
|
|
|
|
|
|
Total revenues |
|
$ |
829,089 |
|
|
|
$ |
391,505 |
|
|
$ |
1,682,841 |
|
|
$ |
1,742,287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from |
|
|
Period from |
|
|
|
|
January 1, 2006 |
|
|
October 5, 2006 |
|
|
|
|
to |
|
|
to |
|
Year Ended December 31, |
|
|
October 4, 2006 |
|
|
December 31, 2006 |
|
2007 |
|
2008 |
|
|
(Predecessor) |
|
|
(Successor) |
|
(Successor) |
|
(Successor) |
|
|
|
|
|
|
Adjusted EBITDA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
$ |
135,300 |
|
|
|
$ |
82,545 |
|
|
$ |
310,202 |
|
|
$ |
292,000 |
|
International |
|
|
45,212 |
|
|
|
|
8,558 |
|
|
|
67,138 |
|
|
|
78,805 |
|
|
|
|
|
|
|
Total Adjusted EBITDA |
|
$ |
180,512 |
|
|
|
$ |
91,103 |
|
|
$ |
377,340 |
|
|
$ |
370,805 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
2007 |
|
2008 |
|
|
(Successor) |
|
(Successor) |
|
|
|
Capital Expenditures: |
|
|
|
|
|
|
|
|
U.S. |
|
$ |
110,496 |
|
|
$ |
77,193 |
|
International |
|
|
35,808 |
|
|
|
28,916 |
|
|
|
|
Total Capital Expenditures |
|
$ |
146,304 |
|
|
$ |
106,109 |
|
|
|
|
The following table sets forth a reconciliation of net income (loss) to Adjusted EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from |
|
|
Period from |
|
|
|
|
January 1, 2006 |
|
|
October 5, 2006 |
|
|
|
|
to |
|
|
to |
|
Year Ended December 31, |
|
|
October 4, 2006 |
|
|
December 31, 2006 |
|
2007 |
|
2008 |
|
|
(Predecessor) |
|
|
(Successor) |
|
(Successor) |
|
(Successor) |
|
|
|
|
|
|
Net income (loss) |
|
$ |
28,686 |
|
|
|
$ |
(20,331 |
) |
|
$ |
84,983 |
|
|
$ |
(48,911 |
) |
Add (deduct): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes |
|
|
9,078 |
|
|
|
|
3,111 |
|
|
|
109,509 |
|
|
|
20,690 |
|
Interest expense (1) |
|
|
69,191 |
|
|
|
|
42,220 |
|
|
|
145,596 |
|
|
|
116,058 |
|
Gain on NCM transaction |
|
|
|
|
|
|
|
|
|
|
|
(210,773 |
) |
|
|
|
|
Gain on Fandango transaction |
|
|
|
|
|
|
|
|
|
|
|
(9,205 |
) |
|
|
|
|
(Gain) loss on early retirement of debt |
|
|
3,315 |
|
|
|
|
5,782 |
|
|
|
13,456 |
|
|
|
(1,698 |
) |
Other income (2) |
|
|
(2,168 |
) |
|
|
|
(1,600 |
) |
|
|
(8,505 |
) |
|
|
(6,093 |
) |
Termination of profit participation agreement |
|
|
|
|
|
|
|
|
|
|
|
6,952 |
|
|
|
|
|
Depreciation and amortization |
|
|
59,913 |
|
|
|
|
34,281 |
|
|
|
148,781 |
|
|
|
155,326 |
|
Amortization of net favorable leases |
|
|
130 |
|
|
|
|
667 |
|
|
|
2,935 |
|
|
|
2,708 |
|
Impairment of long-lived assets |
|
|
5,741 |
|
|
|
|
23,337 |
|
|
|
86,558 |
|
|
|
113,532 |
|
(Gain) loss on sale of assets and other |
|
|
2,938 |
|
|
|
|
2,345 |
|
|
|
(2,953 |
) |
|
|
8,488 |
|
Deferred lease expenses |
|
|
724 |
|
|
|
|
378 |
|
|
|
5,979 |
|
|
|
4,350 |
|
Amortization of long-term prepaid rents |
|
|
816 |
|
|
|
|
197 |
|
|
|
1,146 |
|
|
|
1,717 |
|
Share based awards compensation expense |
|
|
2,148 |
|
|
|
|
716 |
|
|
|
2,881 |
|
|
|
4,638 |
|
|
|
|
|
|
|
Adjusted EBITDA |
|
$ |
180,512 |
|
|
|
$ |
91,103 |
|
|
$ |
377,340 |
|
|
$ |
370,805 |
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes amortization of debt issue costs. |
|
(2) |
|
Includes interest income, foreign currency exchange gain (loss), dividend income,
equity in loss of affiliates and minority interests in income of subsidiaries and excludes
distributions from NCM. |
F-40
CINEMARK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
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 |
|
|
|
|
January 1, 2006 |
|
|
October 5, 2006 |
|
|
|
|
to |
|
|
to |
|
Year Ended December 31, |
|
|
October 4, 2006 |
|
|
December 31, 2006 |
|
2007 |
|
2008 |
|
|
(Predecessor) |
|
|
(Successor) |
|
(Successor) |
|
(Successor) |
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. and Canada |
|
$ |
607,729 |
|
|
|
$ |
328,955 |
|
|
$ |
1,352,042 |
|
|
$ |
1,360,176 |
|
Mexico |
|
|
55,704 |
|
|
|
|
15,885 |
|
|
|
74,983 |
|
|
|
78,292 |
|
Brazil |
|
|
98,950 |
|
|
|
|
29,605 |
|
|
|
157,158 |
|
|
|
186,159 |
|
Other foreign countries |
|
|
68,126 |
|
|
|
|
17,584 |
|
|
|
101,483 |
|
|
|
121,366 |
|
Eliminations |
|
|
(1,420 |
) |
|
|
|
(524 |
) |
|
|
(2,825 |
) |
|
|
(3,706 |
) |
|
|
|
|
|
|
Total |
|
$ |
829,089 |
|
|
|
$ |
391,505 |
|
|
$ |
1,682,841 |
|
|
$ |
1,742,287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
2007 |
|
2008 |
|
|
(Successor) |
|
(Successor) |
|
|
|
Theatres properties and equipment, net |
|
|
|
|
|
|
|
|
U.S. and Canada |
|
$ |
1,137,244 |
|
|
$ |
1,073,551 |
|
Mexico |
|
|
59,201 |
|
|
|
38,290 |
|
Brazil |
|
|
72,635 |
|
|
|
58,641 |
|
Other foreign countries |
|
|
44,986 |
|
|
|
37,801 |
|
|
|
|
Total |
|
$ |
1,314,066 |
|
|
$ |
1,208,283 |
|
|
|
|
23. 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, the Companys Chairman
of the Board, who owns approximately 12% of Cinemark Holdings, Inc.s issued and outstanding shares
of common stock. Annual rent is approximately $118 plus certain taxes, maintenance expenses and
insurance. The Company recorded $149, $120 and $127 of facility lease and other operating expenses
payable to Plitt Plaza joint venture during the years ended December 31, 2006, 2007 and 2008,
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 $191, $82 and $92 of management fee
revenues during the years ended December 31, 2006, 2007 and 2008, respectively, and received $600,
$0 and $0 of distributions from Laredo during the years ended December 31, 2006, 2007 and 2008,
respectively. All such amounts are included in the Companys consolidated financial statements with
the intercompany amounts eliminated in consolidation.
The Company has an informal agreement with Copper Beech Capital, LLC to use, on occasion, a
private aircraft owned by Copper Beech Capital, LLC. Copper Beech Capital, LLC is owned by Mr.
Mitchell and his wife, Tandy Mitchell. The private aircraft is used by Mr. Mitchell and other
executives who accompany Mr. Mitchell to business meetings for the Company. The Company reimburses
Copper Beech Capital, LLC the actual costs of fuel usage and the expenses of the pilots, landing
fees, storage fees and similar expenses incurred during the trip. For the twelve months ended
December 31, 2008, the aggregate amounts paid to Copper Beech Capital, LLC for the use of the
aircraft was approximately $136.
The Company leases 23 theatres and two parking facilities from Syufy Enterprises, LP (Syufy)
or affiliates of Syufy, which owns approximately 8% of Cinemark Holdings, Inc.s issued and
outstanding shares of common stock. Raymond
F-41
CINEMARK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
Syufy is one of Cinemark Holdings, Inc.s directors and is an officer of the general partner of
Syufy. Of these 25 leases, 21 have fixed minimum annual rent in an aggregate amount of approximately $22,258. The four leases
without minimum annual rent have rent based upon a specified percentage of gross sales as defined
in the lease with no minimum annual rent. For the years ended December 31, 2006, 2007 and 2008, the
Company paid approximately $349, $1,529 and $1,333, respectively, in percentage rent for these four
leases.
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. During the years ended December 31, 2006 and 2007,
respectively, the Company recorded $620 and $114 in profit participation expense payable to Mr.
Stock, which is included in general and administrative expenses on the Companys consolidated
statement of operations. After Cinemark Holdings, Inc.s initial public offering of common stock in
April 2007, 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 for
approximately $14,147 of consideration and paid $2,800 of the cash consideration to Syufy in
accordance with the Century Acquisition agreement.
24. VALUATION AND QUALIFYING ACCOUNTS
The Companys valuation allowance for deferred tax assets for the period from January 1, 2006
to October 4, 2006, the period from October 5, 2006 to December 31, 2006 and the years ended
December 31, 2007 and 2008 were as follows:
|
|
|
|
|
|
|
Valuation |
|
|
|
Allowance |
|
|
|
for Deferred |
|
|
|
Tax Assets |
|
Predecessor Balance at January 1, 2006 |
|
$ |
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 |
|
Additions |
|
|
4,200 |
|
Deductions |
|
|
(609 |
) |
|
|
|
|
Successor Balance at December 31, 2008 |
|
$ |
13,463 |
|
|
|
|
|
F-42
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Members of
National CineMedia, LLC
Centennial, CO
We have audited the accompanying balance sheets of National CineMedia, LLC (the Company) as
of January 1, 2009 and December 27, 2007, and the related statements of operations, members
equity (deficit), and cash flows for the year ended January 1, 2009, the period February 13, 2007
through December 27, 2007, the period December 29, 2006 through February 12, 2007, and for the
year ended December 28, 2006. 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 financial statements present fairly, in all material respects, the
financial position of the Company as of January 1, 2009 and December 27, 2007, and the results of
its operations and its cash flows for the year ended January 1, 2009, the period February 13, 2007
through December 27, 2007, the period December 29, 2006 through February 12, 2007, and for the
year ended December 28, 2006 in conformity with accounting principles generally accepted in the
United States of America.
/s/ DELOITTE & TOUCHE LLP
Denver, CO
March 5, 2009
F-43
NATIONAL CINEMEDIA, LLC
BALANCE SHEETS
(In millions)
|
|
|
|
|
|
|
|
|
|
|
January 1, 2009 |
|
|
December 27, 2007 |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
34.1 |
|
|
$ |
7.5 |
|
Receivables, net of allowance of $2.6 and $1.5 million, respectively |
|
|
92.0 |
|
|
|
91.6 |
|
Prepaid expenses |
|
|
1.6 |
|
|
|
1.9 |
|
Prepaid management fees to managing member |
|
|
0.5 |
|
|
|
0.5 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
128.2 |
|
|
|
101.5 |
|
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $27.0 and $17.3 million, respectively |
|
|
28.0 |
|
|
|
22.2 |
|
INTANGIBLE ASSETS, net of accumulated
amortization of $1.5 and $0 million, respectively |
|
|
111.8 |
|
|
|
|
|
OTHER ASSETS: |
|
|
|
|
|
|
|
|
Debt issuance costs, net |
|
|
11.1 |
|
|
|
13.0 |
|
Investment in affiliate |
|
|
|
|
|
|
7.0 |
|
Restricted cash |
|
|
0.3 |
|
|
|
0.3 |
|
Other long-term assets |
|
|
0.5 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
Total other assets |
|
|
11.9 |
|
|
|
20.5 |
|
|
|
|
|
|
|
|
TOTAL |
|
$ |
279.9 |
|
|
$ |
144.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND MEMBERS EQUITY/(DEFICIT) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
Amounts due to founding members |
|
|
25.6 |
|
|
|
15.8 |
|
Amounts due to managing member |
|
|
22.1 |
|
|
|
16.7 |
|
Accrued expenses |
|
|
6.3 |
|
|
|
10.0 |
|
Accrued payroll and related expenses |
|
|
5.7 |
|
|
|
7.2 |
|
Accounts payable |
|
|
11.2 |
|
|
|
6.6 |
|
Deferred revenue |
|
|
3.4 |
|
|
|
3.3 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
74.3 |
|
|
|
59.6 |
|
OTHER LIABILITIES: |
|
|
|
|
|
|
|
|
Borrowings |
|
|
799.0 |
|
|
|
784.0 |
|
Interest rate swap agreements |
|
|
87.7 |
|
|
|
14.4 |
|
Other long-term liabilities |
|
|
4.5 |
|
|
|
|
|
|
|
|
|
|
|
|
Total other liabilities |
|
|
891.2 |
|
|
|
798.4 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
965.5 |
|
|
|
858.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES (NOTE 10) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MEMBERS EQUITY/(DEFICIT) |
|
|
(685.6 |
) |
|
|
(713.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL |
|
$ |
279.9 |
|
|
$ |
144.2 |
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
F-44
NATIONAL CINEMEDIA, LLC
STATEMENTS OF OPERATIONS
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period |
|
|
|
Period |
|
|
|
|
|
|
|
|
|
|
February 13, |
|
|
|
December 29, |
|
|
Year Ended |
|
|
|
Year Ended |
|
|
2007 through |
|
|
|
2006 through |
|
|
December |
|
|
|
January 1, |
|
|
December 27, |
|
|
|
February 12, |
|
|
28, |
|
|
|
2009 |
|
|
2007 |
|
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
REVENUE: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising (including revenue from
founding members of $43.3, $40.9,
$0.0 and $0.0 million, respectively) |
|
$ |
330.3 |
|
|
$ |
282.7 |
|
|
|
$ |
20.6 |
|
|
$ |
188.2 |
|
Administrative feesfounding members |
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
|
5.4 |
|
Meetings and events |
|
|
38.9 |
|
|
|
25.4 |
|
|
|
|
2.9 |
|
|
|
25.4 |
|
Other |
|
|
0.3 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
369.5 |
|
|
|
308.3 |
|
|
|
|
23.6 |
|
|
|
219.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising operating costs |
|
|
18.7 |
|
|
|
9.1 |
|
|
|
|
1.1 |
|
|
|
9.2 |
|
Meetings and events operating costs |
|
|
25.1 |
|
|
|
15.4 |
|
|
|
|
1.4 |
|
|
|
11.1 |
|
Network costs |
|
|
17.0 |
|
|
|
13.3 |
|
|
|
|
1.7 |
|
|
|
14.7 |
|
Theatre access fees/circuit share
costsfounding members |
|
|
49.8 |
|
|
|
41.5 |
|
|
|
|
14.4 |
|
|
|
130.1 |
|
Selling and marketing costs |
|
|
47.9 |
|
|
|
40.9 |
|
|
|
|
5.2 |
|
|
|
38.2 |
|
Administrative costs |
|
|
14.5 |
|
|
|
10.0 |
|
|
|
|
2.8 |
|
|
|
16.4 |
|
Administrative fee managing member |
|
|
9.7 |
|
|
|
9.2 |
|
|
|
|
|
|
|
|
|
|
Severance plan costs |
|
|
0.5 |
|
|
|
1.5 |
|
|
|
|
0.4 |
|
|
|
4.2 |
|
Depreciation and amortization |
|
|
12.4 |
|
|
|
5.0 |
|
|
|
|
0.7 |
|
|
|
4.8 |
|
Other costs |
|
|
1.3 |
|
|
|
0.9 |
|
|
|
|
|
|
|
|
0.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
196.9 |
|
|
|
146.8 |
|
|
|
|
27.7 |
|
|
|
229.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME (LOSS) |
|
|
172.6 |
|
|
|
161.5 |
|
|
|
|
(4.1 |
) |
|
|
(10.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense, Net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings |
|
|
51.8 |
|
|
|
48.0 |
|
|
|
|
0.1 |
|
|
|
0.6 |
|
Change in derivative fair value |
|
|
14.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income and other |
|
|
(0.2 |
) |
|
|
(0.2 |
) |
|
|
|
|
|
|
|
(0.1 |
) |
|
|
|
|
|
|
Total |
|
|
65.8 |
|
|
|
47.8 |
|
|
|
|
0.1 |
|
|
|
0.5 |
|
Impairment and related loss |
|
|
11.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) |
|
$ |
95.3 |
|
|
$ |
113.7 |
|
|
|
$ |
(4.2 |
) |
|
$ |
(10.5 |
) |
|
|
|
|
|
|
See accompanying notes to financial statements.
F-45
NATIONAL CINEMEDIA, LLC
STATEMENTS OF MEMBERS EQUITY/(DEFICIT)
(In millions)
|
|
|
|
|
|
|
Total |
|
|
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 |
) |
|
|
|
|
|
|
|
|
|
|
BalanceFebruary 13, 2007 |
|
$ |
(0.3 |
) |
Contribution of severance plan payments |
|
|
1.5 |
|
Capital contribution from managing member |
|
|
746.1 |
|
Capital contribution from founding member |
|
|
11.2 |
|
Distribution to managing member |
|
|
(53.3 |
) |
Distribution 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 |
|
$ |
99.3 |
|
|
|
|
|
Share-based compensation expense |
|
|
1.0 |
|
|
|
|
|
BalanceDecember 27, 2007 |
|
$ |
(713.8 |
) |
|
|
|
|
Contribution of severance plan payments |
|
|
0.5 |
|
Capital contribution from managing member |
|
|
0.6 |
|
Capital contribution from founding members |
|
|
4.7 |
|
Distribution to managing member |
|
|
(55.5 |
) |
Distribution to founding members |
|
|
(75.5 |
) |
Units issued for purchase of intangible asset |
|
|
116.1 |
|
Comprehensive Income: |
|
|
|
|
Unrealized (loss) on cash flow hedge |
|
$ |
(59.1 |
) |
Net income |
|
|
95.3 |
|
|
|
|
|
Total Comprehensive Income |
|
$ |
36.2 |
|
Share-based compensation expense |
|
|
1.1 |
|
|
|
|
|
BalanceJanuary 1, 2009 |
|
$ |
(685.6 |
) |
|
|
|
|
See accompanying notes to financial statements.
F-46
NATIONAL CINEMEDIA, LLC
STATEMENTS OF CASH FLOWS
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period |
|
|
Period |
|
|
|
|
|
|
|
|
February 13, |
|
|
December 29, |
|
|
|
|
Year Ended |
|
2007 through |
|
|
2006 through |
|
Year Ended |
|
|
January 1, |
|
December 27, |
|
|
February 12, |
|
December 28, |
|
|
2009 |
|
2007 |
|
|
2007 |
|
2006 |
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income(loss) |
|
$ |
95.3 |
|
|
$ |
113.7 |
|
|
|
$ |
(4.2 |
) |
|
$ |
(10.5 |
) |
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
12.4 |
|
|
|
5.0 |
|
|
|
|
0.7 |
|
|
|
4.8 |
|
Non-cash severance plan and share-based compensation |
|
|
1.5 |
|
|
|
2.5 |
|
|
|
|
0.7 |
|
|
|
6.1 |
|
Non-cash impairment and related loss |
|
|
11.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized and unrealized hedging transactions |
|
|
14.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of debt issuance costs and loss on
repayment of debt |
|
|
1.9 |
|
|
|
1.7 |
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivablesnet |
|
|
(0.4 |
) |
|
|
(40.3 |
) |
|
|
|
12.6 |
|
|
|
(27.3 |
) |
Accounts payable and accrued expenses |
|
|
(0.7 |
) |
|
|
10.4 |
|
|
|
|
(4.4 |
) |
|
|
4.4 |
|
Amounts due to founding members and managing member |
|
|
0.4 |
|
|
|
(51.1 |
) |
|
|
|
(3.7 |
) |
|
|
33.4 |
|
Payment of severance plan costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3.5 |
) |
Other |
|
|
0.1 |
|
|
|
(1.3 |
) |
|
|
|
0.5 |
|
|
|
0.9 |
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
136.2 |
|
|
|
40.6 |
|
|
|
|
2.2 |
|
|
|
8.3 |
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(16.6 |
) |
|
|
(13.8 |
) |
|
|
|
(0.5 |
) |
|
|
(6.3 |
) |
Investment in restricted cash |
|
|
|
|
|
|
(0.3 |
) |
|
|
|
|
|
|
|
|
|
Investment in affiliate |
|
|
|
|
|
|
(7.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) investing activities |
|
|
(16.6 |
) |
|
|
(21.1 |
) |
|
|
|
(0.5 |
) |
|
|
(6.3 |
) |
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reimbursement (payment) of offering costs and fees |
|
|
|
|
|
|
4.7 |
|
|
|
|
(0.1 |
) |
|
|
(4.0 |
) |
Proceeds from borrowings |
|
|
139.0 |
|
|
|
924.0 |
|
|
|
|
13.0 |
|
|
|
66.0 |
|
Repayments of borrowings |
|
|
(124.0 |
) |
|
|
(150.0 |
) |
|
|
|
(13.0 |
) |
|
|
(56.0 |
) |
Proceeds from managing member contributions |
|
|
0.6 |
|
|
|
746.1 |
|
|
|
|
|
|
|
|
|
|
Proceeds from founding member contributions |
|
|
9.7 |
|
|
|
7.5 |
|
|
|
|
|
|
|
|
0.9 |
|
Distribution to founding members and managing member |
|
|
(118.3 |
) |
|
|
(1,538.0 |
) |
|
|
|
|
|
|
|
(0.9 |
) |
Payment of debt issuance costs |
|
|
|
|
|
|
(14.6 |
) |
|
|
|
|
|
|
|
|
|
Proceeds of short-term borrowings from founding members |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.0 |
|
Repayments of short-term borrowings to founding members |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4.3 |
) |
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
(93.0 |
) |
|
|
(20.3 |
) |
|
|
|
(0.1 |
) |
|
|
4.7 |
|
|
|
|
|
|
|
CHANGE IN CASH AND CASH EQUIVALENTS |
|
|
26.6 |
|
|
|
(0.8 |
) |
|
|
|
1.6 |
|
|
|
6.7 |
|
CASH AND CASH EQUIVALENTS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period |
|
|
7.5 |
|
|
|
8.3 |
|
|
|
|
6.7 |
|
|
|
|
|
|
|
|
|
|
|
End of period |
|
$ |
34.1 |
|
|
$ |
7.5 |
|
|
|
$ |
8.3 |
|
|
$ |
6.7 |
|
|
|
|
|
|
|
(Continued)
See accompanying notes to financial statements.
F-47
NATIONAL CINEMEDIA, LLC
STATEMENTS OF CASH FLOWS (CONTINUED)
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period |
|
|
Period |
|
|
|
|
|
|
|
|
February 13, |
|
|
December 29, |
|
Year Ended |
|
|
|
|
|
|
2007 through |
|
|
2006 through |
|
December |
|
|
Year Ended |
|
December 27, |
|
|
February 12, |
|
28, |
|
|
January 1, 2009 |
|
2007 |
|
|
2007 |
|
2006 |
|
|
|
|
|
|
Supplemental disclosure of non-cash financing and investing
activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution for severance plan payments |
|
$ |
0.5 |
|
|
$ |
1.5 |
|
|
|
$ |
0.4 |
|
|
$ |
4.2 |
|
Increase in distributions payable to founding members and
managing member |
|
$ |
49.7 |
|
|
$ |
37.0 |
|
|
|
|
|
|
|
|
|
|
Contributions from members collected after period end |
|
$ |
0.4 |
|
|
$ |
3.7 |
|
|
|
|
|
|
|
|
|
|
Integration payment from founding member collected after
period end |
|
$ |
1.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of an intangible asset with subsidiary equity |
|
$ |
116.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
$ |
8.3 |
|
|
$ |
44.0 |
|
|
|
$ |
0.1 |
|
|
$ |
0.4 |
|
See accompanying notes to the financial statements.
F-48
NATIONAL CINEMEDIA LLC
NOTES TO FINANCIAL STATEMENTS
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Formation 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, allowing 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 multi-year 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. All assets contributed to and liabilities assumed by NCM LLC were recorded on
NCM LLCs accounting 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. Cinemark became a founding
member on July 15, 2005.
Initial Public Offering and Related Transactions
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 its IPO to purchase a 44.8% interest in NCM LLC, paying NCM LLC $746.1 million,
which included reimbursement to NCM LLC for expenses the Company 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 January 1, 2009, NCM LLC had 99,419,620 membership units outstanding, of which 42,109,966
(42.4%) were owned by NCM, Inc., 24,903,259 (25.0%) were owned by RCM, 18,414,743 (18.5%) were
owned by AMC, and 13,991,652 (14.1%) 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 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
F-49
NATIONAL CINEMEDIA LLC
NOTES TO FINANCIAL STATEMENTS
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)
beginning February 13, 2007 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 Company has prepared its financial statements and related notes in accordance with
accounting principles generally accepted in the United States of America and the rules and
regulations of the Securities and Exchange Commission (SEC).
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 NCM, Inc. IPO
including modifications to the ESAs 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 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 the NCM, Inc. and 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 the SEC 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
F-50
NATIONAL CINEMEDIA LLC
NOTES TO FINANCIAL STATEMENTS
and related debt, 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.
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, as was
the case for fiscal year 2008.
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.
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 in subsequent periods, 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. 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 IPO was completed.
Administrative fees earned by the Company prior to the IPO for its services in fulfilling the
legacy contracts were based on a percentage of legacy contract revenue (32% during 2006 and the
2007 pre-IPO period).
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 and subsequent periods, 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. We calculate 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 our business, we have 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 January 1, 2009 and December 27, 2007, other non-current assets included
restricted cash of $0.3, which secures a letter of credit used as a lease deposit on NCM LLCs New
York office.
F-51
NATIONAL CINEMEDIA LLC
NOTES TO FINANCIAL STATEMENTS
Receivables Trade accounts receivable are uncollateralized and represent a large number of
geographically dispersed debtors. Refer to Note 2. Bad debts are provided for using the allowance
for doubtful accounts method based on historical experience and managements evaluation of
outstanding receivables 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 susceptible to significant changes. 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.
Long-lived AssetsProperty and equipment is stated at cost, net of accumulated depreciation
or amortization. Refer to Note 3. 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:
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|
|
Equipment
|
|
4-10 years |
Computer hardware and software
|
|
3-5 years |
Leasehold improvements
|
|
Lesser of lease term or asset life |
We account for the costs of software and web site development costs developed or obtained for
internal use in accordance with American Institute of Certified Public Accountants Statement of
Position (SOP) 98-1, Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use and EITF 00-2, Accounting for Web Site Development Costs. The SOP and EITF requires
the capitalization of certain costs incurred in developing or obtaining software for internal use.
The majority of our software costs and web site development costs, which are included in equipment,
are depreciated over three to five years. As of January 1, 2009 and December 27, 2007, we had a net
book value of $11.8 million and $9.3 million, respectively, of capitalized software and web site
development costs. We recorded approximately $4.9 million, $2.8 million, $0.3 million and $1.9
million for the year ended January 1, 2009, the 2007 post-IPO period, 2007 pre-IPO period and the
year ended December 28, 2006, respectively, in depreciation expense.
Construction in progress includes costs relating to installations of our equipment into
affiliate theatres. Assets under construction are not depreciated until placed into service.
Intangible assets consist of contractual rights and are stated at cost, net of accumulated
amortization. Refer to Note 4. The Company records amortization using the straight-line method
over the estimated useful life of the intangibles.
We 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 that could affect the value of an asset. Thus far, none of the
above triggering events has resulted in any material 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 and subsequent periods 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 2008 and the 2007 post-IPO period, amounts due to/from
managing member include 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.
F-52
NATIONAL CINEMEDIA LLC
NOTES TO FINANCIAL STATEMENTS
Assets and Liabilities Measured at Fair Value on a Recurring BasisThe fair values of the
Companys assets and liabilities measured on a recurring basis pursuant to SFAS No. 157, Fair Value
Measurements, which the Company adopted December 28, 2007, is as follows (in millions):
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Fair Value Measurements at Reporting Date Using |
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Quoted Prices in |
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At |
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Active Markets for |
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Significant Other |
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Significant |
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January 1, |
|
Identical Assets |
|
Observable Inputs |
|
Unobservable Inputs |
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2009 |
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(Level 1) |
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(Level 2) |
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(Level 3) |
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ASSETS: |
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Investment in Affiliate (1) |
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LIABILITIES: |
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|
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|
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Interest Rate Swap Agreements (2) |
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$ |
87.7 |
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$ |
87.7 |
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(1) |
|
During 2007, NCM LLC invested $7.0 million of cash in 6% convertible preferred stock and
related option on the common stock of IdeaCast, Inc. (IdeaCast), a start-up company that operates
an advertising network in fitness centers and health clubs throughout the United States. 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 give 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 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. Until the fourth quarter of 2008, the Company based its recurring estimated fair value
of the investment in IdeaCast on a discounted cash flow model that probability weights IdeaCasts
potential future cash flows under various scenarios and managements judgment, which is based in
part on communications with IdeaCast and their lender. During the fourth quarter of 2008, the
Company recorded a full impairment to the value of the investment and the carrying value was
adjusted to zero due to IdeaCasts defaults on its senior debt during the fourth quarter of 2008
and resulting illiquidity. The Company determined the impairment was other-than-temporary and the
unrealized loss was reported as an impairment loss in the statement of operations since the fair
value was determined to be significantly below cost and recoverability was deemed unlikely. The
key factors identified by management in making these assessments and determining the amounts were
events of default on IdeaCasts convertible debt that emerged after the fourth quarter 2008
IdeaCast operating results were analyzed and after IdeaCast failed to make a scheduled debt service
payment and ongoing discussions with the convertible debt lender. Refer to Note 10 for additional
details. |
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Fair Value |
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Measurements Using |
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|
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Significant |
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|
|
Unobservable Inputs |
|
|
|
(Level 3) |
|
|
|
(in millions) |
|
|
|
Year Ended |
|
Investment in Affiliate |
|
January 1, 2009 |
|
Beginning Balance |
|
$ |
7.0 |
|
Total gains or losses (realized/unrealized) |
|
|
|
|
Included in earnings |
|
|
(7.0 |
) |
Included in other comprehensive income |
|
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|
Purchases, sales, issuances, and
settlements, net |
|
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Transfers in and/or out of Level 3 |
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Ending Balance |
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(2) |
|
In February 2007, NCM LLC has entered into interest rate swap agreements with four
counterparties, which qualified for and were 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 Companys variable rate debt to a fixed rate of 6.734%. |
On September 15, 2008, Lehman Brothers Holdings Inc. (Lehman) filed for protection under
Chapter 11 of the federal Bankruptcy Code in the United States Bankruptcy Court for the Southern
District of New York. Lehman Brothers Special Financing (LBSF), a subsidiary of Lehman, is the
counterparty to a notional amount of $137.5 million of NCM
F-53
NATIONAL CINEMEDIA LLC
NOTES TO FINANCIAL STATEMENTS
LLCs interest rate swaps, and Lehman is
a guarantor of LBSFs obligations under such swap. NCM LLC notified LBSF on September 18, 2008
that, as a result of the bankruptcy of Lehman, an event of default had occurred under the swap with
respect to which LBSF was the defaulting party. As a result, as permitted under the terms of NCM
LLCs swap agreement with LBSF, the Company withheld interest rate swap payments of $1.5 million
that were due to LBSF. As of January 1, 2009 the interest rate swap agreement had not been
terminated. On October 3, 2008, LBSF also filed for Chapter 11 protection, which constituted
another default by LBSF under the swap. To the Companys knowledge, LBSF has neither communicated
its intent, nor has it taken any action in bankruptcy court to assume or reject its swap agreement
with NCM LLC. In addition, while the bankruptcy court has authorized LBSF to assign certain of its
hedges that have not been terminated under certain circumstances, we have not received any notice
that Lehman has assigned, or has entered into any negotiations to assign its swap agreement with
NCM LLC. As of January 1, 2009, NCM LLCs interest rate swaps liability was $87.7 million, of
which $21.9 million is related to the LBSF swap.
Both at inception and on an on-going basis the Company performs an effectiveness test using
the hypothetical derivative method. The fair values of the interest rate swaps with the
counterparties other than LBSF (representing notional amounts of $412.5 million associated with a
like amount of the variable rate debt) are recorded on the Companys balance sheet as a liability
with the change in fair value recorded in other comprehensive income since the instruments other
than LBSF were determined to be perfectly effective at January 1, 2007 and December 27, 2007.
There were no amounts reclassified into current earnings due to ineffectiveness during the periods
presented other than as described below.
The Company performed an effectiveness test for the swaps with LBSF as of September 14, 2008,
the day immediately prior to the default date, and determined they were effective on that date. As
a result, the fair values of the interest rate swap on that date was recorded as a liability with
an offsetting amount recorded in other comprehensive income. Cash flow hedge accounting was
discontinued on September 15, 2008 due to the event of default and the inability of the Company to
continue to demonstrate the swap would be effective. The Company continues to record the interest
rate swap with LBSF at fair value with any change in the fair value recorded in the statement of
operations. During the period from September 15, 2008 to January 1, 2009, there was a $13.8
million increase in the fair value of the liability and the Company recorded an offsetting debit to
interest expense. In accordance with SFAS No. 133, the net derivative loss as of September 14,
2008 related to the discontinued cash flow hedge with LBSF shall continue to be reported in
accumulated other comprehensive income unless it is probable that the forecasted transaction will
not occur by the end of the originally specified time period. Accordingly, the net derivative loss
will be amortized to interest expense over the remaining term of the interest rate swap through
February 13, 2015. The amount amortized during the year ended January 1, 2009 was $0.4 million.
The Company estimates approximately $1.3 million will be amortized to interest expense in the next
12 months.
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.
Accumulated Other Comprehensive Income/LossAccumulated other comprehensive income/loss is
composed of the following (in millions):
|
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|
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|
|
Hedging |
|
|
|
Transactions |
|
BalanceFebruary 13, 2007 |
|
$ |
|
|
Change in fair value |
|
|
(14.4 |
) |
|
|
|
|
BalanceDecember 27, 2007 |
|
|
(14.4 |
) |
|
|
|
|
Change in fair value |
|
|
(59.5 |
) |
Reclassifications into earnings |
|
|
0.4 |
|
|
|
|
|
BalanceJanuary 1, 2009 |
|
$ |
(73.5 |
) |
|
|
|
|
Debt Issuance CostsIn relation to the issuance of long-term debt discussed in Note 7, we
have a balance of $11.1 million and $13.0 million in deferred financing costs as of January 1, 2009
and December 27, 2007, respectively. These debt issuance costs are being amortized over the terms
of the underlying obligation and are included in interest expense.
For the year ended January 1, 2009, 2007 post-IPO period, 2007 pre-IPO period and the year
ended December 28, 2006 we amortized $1.9 million, $1.6 million, $0.0 million and $0.0 million of
debt issuance costs, respectively.
F-54
NATIONAL CINEMEDIA LLC
NOTES TO FINANCIAL STATEMENTS
Other Long-Terms Assets and LiabilitiesOn April 29, 2008, NCM LLC, IdeaCast, the IdeaCast
lender and certain of its stockholders agreed to a financial restructuring of IdeaCast. Among
other things, the restructuring resulted in the reduction of the price at which the preferred stock
held by NCM LLC can be converted into common stock; the lender being granted an option to put, or
require NCM LLC to purchase, up to $10 million of the funded convertible debt at par, on or after
December 31, 2010 through March 31, 2011; NCM LLC being granted an option to call, or require the
lender to sell to NCM LLC up to $10 million of funded convertible debt at par, at any time before
the put is exercised in whole; and an amendment to the preexisting option to acquire additional
IdeaCast common stock. The put is accounted for under FIN No. 45 (as amended), Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others. Refer to Note 10 for additional details. The estimated fair value of the
call of $2.4 million was recorded to other long-term assets and the estimated fair value of the put
of $2.4 million was recorded in other long-term liabilities during the second quarter of 2008. The
Company based its estimated fair value of the call and put on a discounted cash flow model that
probability weights IdeaCasts business potential future cash flows under various scenarios,
including the likelihood of the call, put or option being executed and managements judgment, which
is based in part on communications with IdeaCast and their lender. During the fourth quarter of
2008, the Company recorded an impairment to the value of the call and the carrying value was
adjusted to zero since the Company determined that the put was probable. The Company determined
the impairment was other-then-temporary and the unrealized loss was reported as a non-operating
loss in the statement of operations since the fair value was determined to be significantly below
cost and the realizable value is not equal to or greater than the carrying value.
Fair Value of Financial InstrumentsThe carrying amounts of cash and cash equivalents,
accounts payable, accrued expenses and the revolving 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 amounts and fair value of interest rate swap agreements are the same
since the Company accounts for these instruments at fair value. As the Companys term loan does
not have an active market, the Company has estimated the fair value of the term loan to be $514.8
million based on our analysis of current credit market conditions. The carrying value of the term
loan was $725.00 million as of January 1, 2009.
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.
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.
Recent Accounting Pronouncements
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities. The new standard changes the manner of presentation and related disclosures of
the fair values of derivative instruments and their gains and losses. It also provides more
information about an entitys liquidity by requiring disclosure of derivative features that are
credit risk related. SFAS No. 161 is effective for fiscal years beginning after November 15, 2008.
The Company is evaluating the impact of SFAS No. 161 on its financial statements.
In April 2008, the FASB issued FASB Staff Position (FSP) No. FAS 142-3, Determination of the
Useful Life of Intangible Assets, which improves the consistency of the useful life of a recognized
intangible asset among various pronouncements. FSP SFAS No. 142-3 is effective for fiscal years
beginning after December 15, 2008. The Company is evaluating the impact of FSP SFAS No. 142-3 on
its financial statements.
In June 2008, the FASB issued FSP No. EITF 03-6-1, Determining Whether Instruments Granted in
Share-Based Payment Transactions are Participating Securities, which addresses whether instruments
granted in share-based payment transactions are participating securities prior to vesting and,
therefore, need to be included in the earnings allocation in
computing earnings per share under the two-class method. FSP No. EITF 03-6-1 is effective for
fiscal years beginning after December 15, 2008. The Company is evaluating the impact of FSP No.
EITF 03-6-1 on its financial statements.
F-55
NATIONAL CINEMEDIA LLC
NOTES TO FINANCIAL STATEMENTS
The Company has considered all other recently issued accounting pronouncements and does not
believe the adoption of such pronouncements will have a material impact on its financial
statements.
2. RECEIVABLES (in millions)
|
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|
|
|
|
|
|
|
|
|
As of |
|
As of |
|
|
January 1, 2009 |
|
December 27, 2007 |
|
|
|
Trade accounts |
|
$ |
91.3 |
|
|
$ |
92.2 |
|
Other |
|
|
3.3 |
|
|
|
0.9 |
|
Less allowance for doubtful accounts |
|
|
(2.6 |
) |
|
|
(1.5 |
) |
|
|
|
Total |
|
$ |
92.0 |
|
|
$ |
91.6 |
|
|
|
|
At January 1, 2009 , there was one client and one advertising agency group through which the
Company sources national advertising revenue representing approximately 10% and 20%, respectively,
of the Companys outstanding gross receivable balance; however, none of the individual contracts
related to the advertising agency were more than 10% of advertising revenue. At December 27,
2007, there was one individual account representing approximately 15% of the Companys gross
receivable balance. The collectability risk is reduced by dealing with large, nationwide firms who
have strong reputations in the advertising industry and stable financial conditions.
|
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Period |
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|
Period |
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|
|
|
|
February 13, |
|
|
December 29, |
|
|
|
|
|
|
|
|
2007 through |
|
|
2006 through |
|
Year Ended |
|
|
Year Ended |
|
December 27, |
|
|
February 12, |
|
December 28, |
|
|
January 1, 2009 |
|
2007 |
|
|
2007 |
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
ALLOWANCE FOR DOUBTFUL ACCOUNTS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
$ |
1.5 |
|
|
$ |
1.1 |
|
|
|
$ |
1.1 |
|
|
$ |
0.5 |
|
Provision for bad debt |
|
|
2.3 |
|
|
|
1.0 |
|
|
|
|
0.1 |
|
|
|
0.8 |
|
Write-offs, net |
|
|
(1.2 |
) |
|
|
(0.6 |
) |
|
|
|
(0.1 |
) |
|
|
(0.2 |
) |
|
|
|
|
|
|
Balance at end of period |
|
$ |
2.6 |
|
|
$ |
1.5 |
|
|
|
$ |
1.1 |
|
|
$ |
1.1 |
|
|
|
|
|
|
|
3. PROPERTY AND EQUIPMENT (in millions)
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
As of |
|
|
|
January 1, 2009 |
|
|
December 27, 2007 |
|
Equipment |
|
$ |
53.3 |
|
|
$ |
37.3 |
|
Leasehold Improvements |
|
|
1.4 |
|
|
|
1.4 |
|
Less accumulated depreciation |
|
|
(27.0 |
) |
|
|
(17.3 |
) |
|
|
|
|
|
|
|
Subtotal |
|
|
27.7 |
|
|
|
21.4 |
|
Construction in Progress |
|
|
0.3 |
|
|
|
0.8 |
|
|
|
|
|
|
|
|
Total property and equipment |
|
$ |
28.0 |
|
|
$ |
22.2 |
|
|
|
|
|
|
|
|
For the year ended January 1, 2009, 2007 post-IPO period, 2007 pre-IPO period and the year
ended December 28, 2006 we recorded depreciation of $10.2 million, $4.8 million, $0.6 million and
$4.0 million, respectively.
4. INTANGIBLE ASSETS
During 2008, NCM LLC issued 2,544,949 common membership units to its founding members in
connection with its rights of exclusive access to net new theatres and attendees added by the
founding members to NCM LLCs network and 2,913,754 common membership units to Regal in connection
with the closing of its acquisition of Consolidated Theatres.
The Company recorded an intangible asset of $116.1 million representing the contractual
rights. The Company based the
F-56