UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________.
Commission file number 33-77444 and 333-11895
CINEMARK USA, INC.
(Exact name of Registrant as specified in its charter)
Texas 75-2206284
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7502 Greenville Ave., Suite 800, LB-9, Dallas, Texas 75231
(Address of principal executive offices) (Zip Code)
(214) 696-1644
(Registrant's telephone number including area code)
-------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___ The Registrant became
subject to the filing requirements of the Securities Exchange Act of 1934 on
June 10, 1992.
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
1,500 shares of Class A Common Stock as of November 7, 1997
183,114 shares of Class B Common Stock (including options
to acquire 6,412 shares of Class B Common Stock exercisable
within 60 days of such date) as of November 7, 1997
<PAGE>
CINEMARK USA, INC. AND SUBSIDIARIES
Index
Page
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
as of September 30, 1997 (unaudited)
and December 31, 1996 3
Condensed Consolidated Statements of Income
(unaudited) for the three and nine month
periods ended September 30, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows
(unaudited) for the nine month periods
ended September 30, 1997 and 1996 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7
PART II OTHER INFORMATION
Item 5. Other Information 13
Item 6(b). Reports on Form 8-K 13
SIGNATURES 17
2
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
1997 1996
(Unaudited)
-------------------------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ............................................ $ 15,157,597 $ 14,081,226
Temporary cash investments ........................................... 310,408 301,408
Inventories .......................................................... 1,919,751 1,296,323
Tax and other receivables ............................................ 18,275,453 11,270,453
-------------------------------
Total current assets .............................................. 35,663,209 26,949,410
THEATRE PROPERTIES AND EQUIPMENT ........................................ 573,455,738 450,842,912
Less accumulated depreciation and amortization ....................... (89,440,869) (73,421,992)
-------------------------------
Theatre properties and equipment - net ............................ 484,014,869 377,420,920
OTHER ASSETS:
Certificates of deposit .............................................. 1,525,852 1,525,852
Investments in and advances to affiliates ............................ 17,249,811 6,049,992
Intangible assets - net .............................................. 4,617,097 5,417,049
Deferred charges and other - net ..................................... 23,616,871 15,542,244
-------------------------------
Total other assets ............................................ 47,009,631 28,535,137
-------------------------------
TOTAL ............................................................. $ 566,687,709 $ 432,905,467
===============================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt .................................... $ 510,738 $ 1,002,313
Accounts payable and accrued expenses ................................ 52,075,082 58,969,423
-------------------------------
Total current liabilities ......................................... 52,585,820 59,971,736
LONG-TERM LIABILITIES:
Revolving credit agreement ........................................... 120,000,000 70,000,000
12% senior notes - Cinemark USA, Inc. ................................ -- 1,630,000
9.625% senior subordinated notes - Cinemark USA, Inc. ................ 276,392,165 199,137,042
12% senior subordinated notes-Cinemark Mexico (USA), Inc.............. 28,561,000 25,710,900
Deferred lease expenses .............................................. 12,783,184 11,580,629
Theatre development advance and other ................................ 785,167 845,357
Deferred income taxes ................................................ 6,467,176 5,926,609
-------------------------------
Total long-term liabilities ....................................... 444,988,692 314,830,537
MINORITY INTERESTS IN SUBSIDIARIES ...................................... 1,702,481 740,582
SHAREHOLDERS' EQUITY :
Class A common stock, $.01 par value; 10,000,000 shares
authorized, 1,500 shares issued and outstanding ..................... 15 15
Class B common stock, no par value; 1,000,000 shares
authorized, 233,913 and 233,176 shares issued, respectively.......... 49,537,447 49,536,710
Additional paid-in capital ........................................... 10,181,790 9,182,880
Unearned compensation - stock options ................................ (1,764,223) (2,434,717)
Retained earnings .................................................... 44,818,043 32,391,591
Treasury stock, 57,211 and 54,965 Class B shares
at cost, respectively ............................................. (24,198,890) (20,184,416)
Cumulative foreign currency translation adjustment ................... (11,163,466) (11,129,451)
-------------------------------
Total shareholders' equity ........................................ 67,410,716 57,362,612
-------------------------------
TOTAL ............................................................. $ 566,687,709 $ 432,905,467
===============================
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
<TABLE>
<CAPTION>
CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
REVENUES:
Admissions .................................... $ 76,284,636 $ 59,662,112 $205,767,673 $157,070,386
Concessions ................................... 41,615,188 33,458,048 112,743,129 86,964,258
Other ......................................... 3,307,938 4,039,222 8,470,150 11,428,384
------------------------------------------------------------------
Total ...................................... 121,207,762 97,159,382 326,980,952 255,463,028
COSTS AND EXPENSES:
Cost of operations:
Film rentals ................................ 39,697,328 31,577,169 103,625,591 78,492,838
Concession supplies ......................... 7,055,929 5,171,222 17,240,657 14,195,192
Salaries and wages .......................... 15,224,185 13,323,204 42,107,401 34,586,807
Facility leases ............................. 9,900,498 9,489,796 28,302,633 25,433,526
Advertising ................................. 2,523,824 1,995,898 7,687,632 6,168,604
Utilities and other ......................... 13,796,365 13,124,220 42,630,329 36,084,609
------------------------------------------------------------------
Total ................................. 88,198,129 74,681,509 241,594,243 194,961,576
General and administrative expenses.......... 7,209,213 5,236,610 20,476,515 16,636,133
Depreciation and amortization................ 10,189,447 8,301,874 20,471,274 16,973,399
------------------------------------------------------------------
Total ................................. 105,596,789 88,219,993 282,542,032 228,571,108
------------------------------------------------------------------
OPERATING INCOME ................................. 15,610,973 8,939,389 44,438,920 26,891,920
OTHER INCOME (EXPENSE):
Interest expense .............................. (8,690,205) (4,759,510) (23,071,897) (14,111,297)
Amortization of debt issue cost ............... (178,469) (78,863) (527,487) (402,563)
Amortization of bond discount ................. (18,625) (60,498) (55,875) (151,622)
Interest Income ............................... 43,525 382,255 547,756 690,054
Other gains and losses ........................ 410,040 (373,306) 408,068 3,322,906
Foreign currency exchange gain (loss).......... (47,411) 45,619 (71,095) (3,221)
Minority interests in subsidiaries............. 45,065 73,940 113,232 120,518
Equity in income of affiliates ................... 524,507 1,015,672 957,906 1,417,171
------------------------------------------------------------------
Total ...................................... (7,911,573) (3,754,691) (21,699,392) (9,118,054)
------------------------------------------------------------------
INCOME BEFORE INCOME TAXES
AND EXTRAORDINARY ITEMS ....................... 7,699,400 5,184,698 22,739,528 17,773,866
INCOME TAXES ..................................... 3,406,449 2,552,957 10,257,330 7,978,470
------------------------------------------------------------------
INCOME BEFORE EXTRAORDINARY ITEMS ................ 4,292,951 2,631,741 12,482,198 9,795,396
EXTRAORDINARY ITEMS:
Loss on early extinguishments of debt, net of
income tax benefit of $5,748,322, $42,054 and
$6,083,007, respectively .................... -- (8,789,825) (55,746) (9,124,510)
------------------------------------------------------------------
NET INCOME ....................................... $ 4,292,951 $ (6,158,084) $ 12,426,452 $ 670,886
==================================================================
EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE:
Before extraordinary item ..................... $ 22.92 $ 14.00 $ 66.49 $ 53.85
==================================================================
Net income .................................... $ 22.92 $ (32.76) $ 66.19 $ 3.69
==================================================================
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING ................................... 187,326 187,987 187,729 181,898
==================================================================
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
4
<PAGE>
<TABLE>
<CAPTION>
CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
NINE MONTHS ENDED SEPTEMBER 30,
1997 1996
------ ------
<S> <C> <C>
OPERATIONS:
Net Income .................................................................... $ 12,426,452 $ 670,886
Loss on early extinguishments of debt ......................................... -- 15,207,517
Noncash items in net income :
Depreciation ............................................................... 19,656,382 14,046,142
Amortization ............................................................... 1,347,502 3,481,442
Deferred lease expenses .................................................... 1,202,555 1,843,211
Amortization of prepaid leases ............................................. 517,330 --
Deferred income tax expense ................................................ 540,567 (150,094)
Debt issued for accrued interest ........................................... 2,850,100 2,006,371
Amortized compensation - stock options ..................................... 1,669,404 932,110
Equity in income of affiliate .............................................. (957,906) (1,417,171)
Minority interests ......................................................... (113,232) (120,518)
(Gain) loss on sale of assets .............................................. (408,068) 344,740
Cash from (used for) operating working capital:
Inventories ................................................................ (623,428) (314,127)
Tax and other receivables .................................................. (7,005,000) (3,484,665)
Accounts payable and accrued expenses ...................................... (6,896,839) 786,826
----------------------------------
Net cash from operations ................................................ 24,205,819 33,832,670
INVESTING ACTIVITIES:
Additions to theatre properties ............................................ (125,842,263) (115,955,178)
Increase in deferred issue costs and other assets .......................... (9,143,384) (9,375,678)
Increase in advances to affiliates ......................................... (10,241,913) (53,631)
----------------------------------
Net cash used for investing activities .................................. (145,227,560) (125,384,487)
FINANCING ACTIVITIES:
Issuance of Senior Subordinated Notes ...................................... 77,250,000 199,106,000
Retirement of Senior Notes ................................................. (1,630,000) (123,370,000)
Debt extinguishment costs .................................................. -- (12,135,438)
Decrease in long-term debt ................................................. (77,518,172) (77,520,568)
Increase in long-term debt ................................................. 127,365,000 70,500,000
Decrease in notes payable to related parties ............................... -- (2,086,513)
Net proceeds from common stock issuance .................................... -- 38,562,509
Increase in additional paid in capital ..................................... -- (71,336)
Purchase of treasury stock ................................................. (4,013,737) --
Minority investment in subsidiaries, net ................................... 1,075,131 --
Decrease in theatre development advance .................................... (396,095) (356,046)
----------------------------------
Net cash from financing activities ...................................... 122,132,127 92,628,608
FOREIGN CURRENCY TRANSLATION ADJUSTMENT ....................................... (34,015) 344,916
----------------------------------
INCREASE IN CASH AND CASH EQUIVALENTS ......................................... 1,076,371 1,421,707
CASH AND CASH EQUIVALENTS:
Beginning of period ........................................................ 14,081,226 13,649,724
----------------------------------
End of period .............................................................. $ 15,157,597 $ 15,071,431
==================================
SUPPLEMENTAL INFORMATION:
Cash paid for interest ...................................................... $ 24,644,847 $ 14,766,429
==================================
Cash paid for income taxes .................................................. $ 6,935,511 $ 6,251,631
==================================
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
5
<PAGE>
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Interim Financial Statements
The accompanying condensed consolidated financial statements have been
prepared by the Company, without audit, according to the rules and regulations
of the Securities and Exchange Commission. In the opinion of management, these
interim financial statements reflect all adjustments (which include only normal
recurring adjustments) necessary to state fairly the financial position and
results of operations as of and for the periods indicated.
These financial statements should be read in conjunction with the audited
annual financial statements and the notes thereto for the year ended December
31, 1996 included in the Annual Report filed on Form 10-K by the Company under
the Securities Exchange Act of 1934 on March 31, 1997.
Operating results for the three and nine months ended September 30, 1997
are not necessarily indicative of the results to be achieved for the full year.
2. FAS 52 - Highly Inflationary Economies
Beginning in 1997, generally accepted accounting principles require that
the U.S. dollar be used as the functional currency of the Company's Mexican
subsidiary for U.S. reporting purposes. As a result, fluctuations in the peso
during 1997 affecting the Company's investment in Mexico will be charged to
exchange gain or loss rather than to the cumulative adjustment account.
3. FAS 128 - Earnings per Share
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share", which will be effective for the Company for the quarter and annual
period ended December 31, 1997. SFAS No. 128 requires expanded disclosure of
earnings per share, including presentation of basic and diluted earnings per
share computations for income from continuing operations. The Company's
computations of primary and fully diluted earnings per share under APB Opinion
No. 15 for the three and nine months ended September 30, 1997 and 1996
approximate the computation of diluted earnings per share under SFAS No. 128.
4. Senior Subordinated Notes
In June 1997, the Company issued $75 million of Senior Subordinated
Notes, substantially identical to the existing Senior Subordinated Notes, at a
premium of $30.00 per $1,000 principal amount.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Results of Operations
The following table presents certain income statement items as a
percentage of revenues.
% of Revenues
----------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
------ ------ ------ ------
Revenues:
Admissions 63.0 61.4 62.9 61.5
Concessions 34.3 34.4 34.5 34.0
Other 2.7 4.2 2.6 4.5
------ ------ ------ ------
Total revenues 100.0 100.0 100.0 100.0
Cost of operations 72.8 76.9 73.9 76.3
General and administrative expenses 6.0 5.4 6.3 6.5
Depreciation and amortization 8.4 8.5 6.3 6.6
Operating income 12.9 9.2 13.6 10.6
Interest expense 7.3 5.0 7.2 5.7
Income before income taxes
and extraordinary items 6.4 5.3 7.0 7.0
Net income 3.5 (6.3) 3.8 0.3
Revenues
Revenues for the quarter ended September 30, 1997 increased to $121.2
million from $97.2 million for the quarter ended September 30, 1996, a 24.8%
increase. The increase in revenues for the third quarter is primarily
attributable to a 15.0% increase in attendance as the result of the net
addition of 166 screens since the third quarter of 1996 and a combined increase
of 6.4% in admissions and concessions per patron. Revenues per average screen
increased 10.4% to $80,132 for the third quarter of 1997 from $72,599 for the
third quarter of 1996.
The Company generated revenues for the nine months ended September 30,
1997 (the "1997 period") of $327.0 million compared to $255.5 million for the
nine months ended September 30, 1996 (the "1996 period), a 28.0% increase. The
increase in revenues for the 1997 period is primarily attributable to a 17.0%
increase in attendance as the result of the net addition of 166 screens since
the third quarter of 1996 and a combined increase of 8.3% in admissions and
concessions per patron. Revenues per average screen increased 11.6% to $219,450
in the 1997 period from $196,661 in the 1996 period.
Cost of Operations
Cost of operations, as a percentage of revenues, decreased to 72.8% in the
third quarter of 1997 from 76.9% in the third quarter of 1996. The decrease as
a percentage of revenues resulted from decreases during the quarter in salaries
and wages as a percentage of revenues to 12.6% in 1997 from 13.7% in 1996, a
decrease in facility leases as a percentage of revenues to 8.2% in 1997 from
9.8% in 1996 and a decrease in utilities and other as a percentage of revenues
to 11.4% in 1997 from 13.5% in 1996. The decreases were partially offset by an
increase in concession expense as a percentage of concession revenues to 17.0%
in 1997 from 15.5% in 1996.
7
<PAGE>
Cost of operations, as a percentage of revenues, decreased to 73.9% in the
1997 period from 76.3% in the 1996 period. The decrease as a percentage of
revenues resulted from a decrease in concession supplies as a percentage of
concession revenues to 15.3% in 1997 from 16.3% in 1996, a decrease in facility
leases as a percentage of revenues to 8.7% in 1997 from 10.0% in 1996 and a
decrease in utilities and other as a percentage of revenues to 13.0% in 1997
from 14.1% in 1996.
General and Administrative Expenses
General and administrative expenses, as a percentage of revenues,
increased to 6.0% in the third quarter of 1997 from 5.4% in the third quarter
of 1996. The absolute level of general and administrative expenses increased to
$7.2 million in the third quarter of 1997 from $5.2 million in the third
quarter of 1996. The increase in general and administrative expenses is
attributed to costs (primarily salaries and wages and consulting services)
associated with the Company's expansion program.
For the 1997 period, general and administrative costs decreased as a
percentage of revenues to 6.3% from 6.5% for the 1996 period. The decrease is
primarily attributable to the 28.0% increase in revenues from screen additions
and increases in admissions and concessions per patron. The absolute level of
general and administrative expenses increased to $20.5 million for the 1997
period from $16.6 million for the 1996 period. The increase in general and
administrative expenses is attributed to costs (primarily salaries and wages)
associated with the Company's expansion program and compensation costs
associated with the repurchase of non-qualified stock options.
Depreciation and Amortization
Depreciation and amortization increased 22.7% to $10.2 million in the
third quarter of 1997 from $8.3 million in the third quarter of 1996. For the
1997 period, depreciation and amortization increased 20.6% to $20.5 million
from $17.0 million in 1996. The increase is a result of the net addition of
$158.0 million in theatre property and equipment since the third quarter of
1996, a 48.5% increase. The difference in the percentage increase in
depreciation and amortization compared to the increase in theatre property and
equipment is a result of the timing of when the additions were placed in
service during the period.
Interest Expense
Interest costs incurred, including amortization of debt issue cost and
debt discount, increased 50.3% during the third quarter of 1997 to $9.4 million
(including capitalized interest to properties under construction) from $6.2
million (including capitalized interest)in the third quarter of 1996. Interest
costs for the 1997 period, including amortization of debt issue cost and debt
discount, increased 44.0% to $25.0 million (including capitalized interest)
from $17.4 million (including capitalized interest) in the 1996 period. The
increase in interest costs incurred for the third quarter of 1997 and the 1997
period was due principally to an increase in average debt outstanding resulting
from borrowings under the Company's Credit Facility and the issuance of the
Senior Subordinated Notes.
Income Taxes
Income taxes increased to $3.4 million for the third quarter of 1997 from
$2.6 million in the third quarter of 1996 and increased to $10.3 million for
the 1997 period from $8.0 million in the 1996 period. The Company's effective
tax rate for the third quarter of 1997 was 44.2% compared to 49.2% for the
third quarter of 1996. The effective tax rate for the 1997 period increased to
45.1% from 44.9% in 1996. The change in the effective tax rate was primarily a
result of the relative level of goodwill amortization
8
<PAGE>
and foreign losses. The effective tax rates reflect the full reserve of the
potential tax benefit associated with the loss incurred by Cinemark Mexico.
Other Gains and Losses
Other gains and losses for the 1996 period of $3.3 million is primarily
attributable to a gain from the settlement of litigation.
Extraordinary Items
In the third quarter of 1996, the Company issued $200 million aggregate
principle of 9-5/8 Senior Subordinated Notes, a portion of the proceeds of
$193.2 million (net of discount, fees and expenses) were used to repurchase
98.7% of the Company's $125 million 12% Senior Notes at a price of $1,098.33
per $1,000 principle amount. As a result, an extraordinary loss of $8.8 million
(net of related tax benefit) was recognized in connection with the premium paid
and the write-off of the unamortized debt issue cost associated with the Senior
Notes repurchased.
The 1996 Period also includes an extraordinary loss of $.3 million (net of
related tax benefit) which was recognized in connection with the writeoff of
the Company's existing bank line of credit which was replaced with a new
revolving and term credit facility in February 1996.
Net Income
Net income of $4.3 million for the third quarter of 1997 and net loss of
$6.2 million for the third quarter of 1996 included the consolidated losses of
Cinemark International of $.6 million (net of minority interest) and the
consolidated income of Cinemark International of $25 thousand (net of minority
interest), respectively. Net income of $12.4 million for the 1997 period and
$.7 million for the 1996 period includes the consolidated losses of Cinemark
International of $1.7 million (net of minority interest) and $1.1 million (net
of minority interest), respectively.
Liquidity and Capital Resources
The Company's revenues are collected in cash, primarily through box office
receipts and the sale of concession items. Because its revenues are received in
cash prior to the payment of related expenses, the Company has an operating
"float" and, as a result, historically has not required traditional working
capital financing.
The Company's theatres are typically equipped with modern projection and
sound equipment, with approximately 68% of the screens operated by the Company
having been built in the past six years. The Company's investing activities
have been principally in connection with new theatre openings and acquisitions
of existing theatres and theatre circuits. From January 1, 1997 to November 7,
1997, the Company opened in the U.S. nine theatres (128 screens)and has 15
theatres (249 screens) under construction. In addition, as of November 7, 1997,
the Company has 7 theatres (129 screens) scheduled to begin construction within
the next year for scheduled completion by the end of 1998. Certain of these
theatres will be megaplexes which may cost in excess of $15 million per
theatre. The Company currently estimates that its capital expenditures for the
development of these approximately 500 screens in the U.S. in 1997 and 1998
will be approximately $325 million. As of November 7, 1997, the Company had
expended approximately $125 million toward the development of these screens.
The Company plans to fund capital expenditures for its development from cash
flow from operations and borrowings under the Credit Facility. Actual
expenditures for theatre development and acquisitions during 1997 and 1998 are
subject to change based upon the availability of attractive opportunities for
expansion of the Company's theatre circuit.
9
<PAGE>
On August 15, 1996, the Company issued $200 million of Senior Subordinated
Notes due 2008 (the "Subordinated Notes"). The Subordinated Notes bear interest
at the rate of 9- 5/8% per annum, payable semi-annually on February 1 and
August 1 of each year. The Subordinated Notes were issued at 99.553% of the
principal face amount (a discount of $4.47 per $1,000 principal amount). The
net proceeds to the Company from the issuance of the Subordinated Notes (net of
discount, fees and expenses) were approximately $193.2 million. The proceeds
from the Subordinated Notes were used to repurchase 98.7% of the Company's $125
million 12% Senior Notes due 2002 ("Senior Notes") pursuant to a tender offer
which expired on August 15, 1996. The Senior Notes were purchased at a premium
of the $1,098.33 (including a consent fee of $25) per $1,000 principal amount,
plus accrued and unpaid interest up to the date of repurchase. Excess proceeds
were utilized to reduce borrowings under the Company's Credit Facility and for
general corporate purposes.
On June 2, 1997 the Company redeemed the remaining outstanding Senior
Notes ($1.6 million). The Senior Notes were redeemed at a premium of $1,060 per
$1,000 principal amount, plus accrued and unpaid interest up to the date of
redemption.
On June 26, 1997, the Company issued $75 million of Senior Subordinated
Notes due 2008 ("New Subordinated Notes"). The New Subordinated Notes are
substantially identical in all material respects to the Subordinated Notes,
including rate of interest. The New Subordinated Notes were issued at 103.0% of
the principal face amount (a premium of $30.00 per $1,000 principal amount).
The Company used $70 million of the proceeds to reduce the Company's
indebtedness under the Credit Facility.
On December 12, 1996, the Company replaced its existing credit facility
with the new credit facility ("Credit Facility") through a group of banks for
which Bank of America National Trust and Savings Association acts as
Administrative Agent. The Credit Facility provides for loans to the Company of
up to $225.0 million in the aggregate. The Credit Facility is a reducing
revolving credit facility at the end of each quarter during the calendar year
2000, 2001, 2002 and 2003, requiring reductions in the aggregate commitment in
the amount of $8,437,500, $11,250,000, $14,062,500 and $22,500,000,
respectively. The Company is required to prepay all loans outstanding in excess
of the aggregate commitment from time to time. The Credit Facility is secured
by a pledge of a a majority of the issued and outstanding capital stock of the
Company. Pursuant to the terms of the Credit Facility, funds borrowed currently
bear interest at a rate per annum equal to the Offshore Rate (as defined in the
Credit Facility) or the Base Rate (as defined in the Credit Facility, as the
case may be), plus the Applicable Margin (as defined in the Credit Facility).
As of November 7, 1997, the Company had borrowed $138 million under the Credit
Facility and the effective interest rate on such borrowings was 6.7% per annum.
In April 1997, the Company repurchased an aggregate of 1,242 additional
shares of Class B Common Stock issued to option holders upon the exercise of
options in April 1996. The aggregate purchase price for such shares was $2.2
million. In May and June 1997, options to acquire an aggregate of 737 shares of
Class B Common Stock were repurchased by the Company for an aggregate purchase
price of $1.3 million.
In 1992, the Company formed Cinemark International, Inc. (f/k/a Cinemark
II, Inc.) ("Cinemark International") to develop and acquire theatres in
international markets. Substantially all of the Company's operations outside of
the United States and Canada will be conducted through Cinemark International,
an unrestricted subsidiary under the Company's Indenture governing the Senior
Subordinated Notes, and its subsidiaries. As of November 7, 1997, the Company
has contributed $74.2 million to the capital of Cinemark International to fund
theatre development principally in Latin America. Cinemark International plans
to invest up to an additional $50 million in international ventures,
principally in Latin America, over the next two to three years. The Company
anticipates that investments in excess of Cinemark International's available
cash will be funded by the Company or by debt or equity financing to be
provided by third parties directly to Cinemark International or its
subsidiaries.
10
<PAGE>
In 1993, the Company incorporated Cinemark de Mexico, S.A. de C.V.
("Cinemark de Mexico") as an indirect subsidiary of Cinemark International to
pursue new development opportunities in Mexico. As of November 7, 1997,
Cinemark International and New Wave Investments AVV, an unaffiliated Aruba
corporation owned by Mexican citizens ("New Wave"), own 95.6% (95.0% on a fully
diluted basis, including the exercise of outstanding warrants) and 4.4% (4.4%
on a fully diluted basis, including the exercise of outstanding warrants),
respectively, of the common stock of Cinemark Mexico. As of November 7, 1997,
the Company operated thirteen theatres (141 screens), has one theatre (10
screens) under construction and plans to begin construction on one theatre (10
screens) during the remainder of 1997. In 1993 and 1994, Cinemark Mexico, which
is the direct parent of Cinemark de Mexico, issued $22.4 million principal
amount of 12% Senior Subordinated Notes due 2003 with detachable warrants.
Cinemark International entered into a joint venture agreement in November
1992 with a Chilean theatre operator. Cinemark Chile, S.A. currently operates
two theatres (13 screens), and as of November 7, 1997, has one theatre (12
screens) under construction and plans to begin construction on two theatres (18
screens) during the remainder of 1997. In December 1995, Cinemark entered into
a joint venture agreement with Argentine theatre operators to develop
state-of-the-art multiplex theatres in Argentina. The joint venture's business
is conducted through Cinemark Argentina, S.A., which is owned by Cinemark
Argentina Holdings, S.A. Cinemark International owns 50% of Cinemark Argentina
Holdings, S.A. Cinemark Argentina opened its first theatre (8 screens) in May
1997, has three theatres (26 screens) under construction and plans to begin
construction on one additional theatre (10 screens) during 1997. In January
1997, Cinemark International and its Chilean partner entered into a joint
venture agreement to develop state-of-the-art multiplex theatres in Peru. The
joint venture conducts its business through Cinemark del Peru, S.A., which is
50% owned by Cinemark International and 50% owned by Cinemark's Chilean
partner. Cinemark del Peru, S.A. opened its first theatre (12 screens) in July
1997.
In 1996, Cinemark LTDA, a Brazilian company ("Cinemark Brazil"), was
organized as an indirect subsidiary of Cinemark International. Cinemark Brazil
will develop modern multiplex theatres in Brazil. Cinemark Brazil has opened
three theatres (30 screens) in 1997. Additionally, Cinemark Brazil has begun
or expects to begin construction on four theatres (46 screens) during 1997.
In September 1996, Cinemark International entered into a joint venture
agreement with a prominent Ecuadorian company, to develop state-of-the-art
multiplex theatres in Ecuador. The joint venture conducts its business through
Cinemark del Ecuador, S.A. ("Cinemark Ecuador") which is 60% owned by Cinemark
International. Cinemark Ecuador opened its first theatre (7 screens) in August
1997 and expects to open one additional theatre (9 screens) during 1997.
In July 1997, Cinemark International entered into a joint venture agreement
with Cines de Centroamerica, S.A. de C.V., a Salvadoran corporation, the
shareholders of which are prominent Salvadoran companies, to develop
state-of-the-art multiplex theatres in Central America. The joint venture
agreement provides for the licensing of the Company's technology, trademark and
name. The joint venture is owned 50.1% by Cinemark International and 49.9% by
Cines de Centroamerica, S.A. de C.V. This joint venture opened one theatre (2
screens) in El Salvador in July 1997 and expects to begin construction on two
additional theatres (18 screens) during the remainder of 1997.
In February 1997, Cinemark International entered into a joint venture
agreement with Shochiku Co., Ltd., a Japanese distributor, exhibitor and
producer of movies ("Shochiku") to develop state-of-the-art multiplex theatres
in Japan. The joint venture will conduct its business through Shochiku Cinemark
Theatres, which is 26.7% owned by Cinemark International, 26.7% owned by
Shochiku, and the remaining 46.6% owned by a consortium of prominent Japanese
companies. Shochiku Cinemark Theatres opened its first theatre (7 screens) in
March 1997.
11
<PAGE>
Cinemark Mexico Exchange Offer
As of September 30, 1996, Cinemark Mexico had outstanding (i) $22.4
million aggregate principal amount of Cinemark Mexico Notes and (ii) warrants
to purchase 379,073 shares of common stock of the Company (the "Warrants"). On
September 30, 1996, Cinemark Mexico completed the Exchange Offer pursuant to
which Cinemark Mexico and the holders of all of the Cinemark Mexico Notes
exchanged all of the Cinemark Mexico Notes for a new issuance of the New Mexico
Notes. The form and terms of the New Mexico Notes are identical in all material
respects to the Cinemark Mexico Notes except that interest on the New Mexico
Notes may, on each interest payment date from February 1, 1997 through and
including February 1, 2000, be paid at the option of Cinemark Mexico in cash or
through the issuance of additional notes of the same series (the "Additional
Notes"). If the Company elects to pay accrued interest in Additional Notes in
lieu of cash, interest during the relevant interest period shall accrue at the
rate of 13% per annum. Holders of Warrants to purchase 22,222 shares of Common
Stock of Cinemark Mexico elected not to participate in the Exchange Offer. The
purpose of the Exchange Offer was to exchange New Securities for all
outstanding Cinemark Mexico Notes in order to improve Cinemark Mexico's and
Cinemark de Mexico's financial and operating flexibility. The Company exercised
its option to pay Additional Notes for the interest periods ended February 1,
1997 and August 1, 1997.
In connection with the Exchange Offer, the Company obtained the consent
of the holders of the Cinemark Mexico Notes to amend the Indenture. The Company
executed that certain Third Supplemental Indenture dated September 30, 1996
(the "Third Supplemental Indenture") which, among other things, (i) provided
for the issuance of the New Mexico Notes and the Additional Notes and (ii)
amended certain restrictions relating to financial ratios with which the
Company must comply. The Indenture requires Cinemark Mexico to maintain a Cash
Flow Coverage Ratio (as defined in the Indenture) of 2.0 to 1.0 beginning after
December 31, 1999.
12
<PAGE>
PART II. Other Information
Item 5. Other Information
Supplemental schedules specified by the Senior
Notes indenture:
Condensed Consolidating Balance Sheet
(unaudited) as of September 30, 1997
Condensed Consolidating Statement of
Income (unaudited) for the nine months
ended September 30, 1997
Condensed Consolidating Statement of
Cash Flow (unaudited) for the nine months
ended September 30, 1997
Item 6(b). Reports on Form 8-K
No reports have been filed by Registrant
during the quarter for which this report
is filed.
13
<PAGE>
<TABLE>
<CAPTION>
CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(Unaudited)
Restricted Unrestricted
Subsidiaries Subsidiaries Eliminations TOTAL
ASSETS
CURRENT ASSETS:
<S> <C> <C> <C> <C>
Cash and cash equivalents ................................. $ 7,887,268 $ 7,270,329 $ -- $ 15,157,597
Temporary cash investments ................................ -- 310,408 -- 310,408
Inventories ............................................... 1,444,120 475,631 -- 1,919,751
Tax and other receivables ................................. 25,506,628 14,581,699 (21,812,874) 18,275,453
-----------------------------------------------------------------
Total current assets ................................... 34,838,016 22,638,067 (21,812,874) 35,663,209
THEATRE PROPERTIES AND EQUIPMENT ............................. 519,272,672 54,183,066 -- 573,455,738
Less accumulated depreciation and amortization ............ (85,326,219) (4,114,650) -- (89,440,869)
-----------------------------------------------------------------
Theatre properties and equipment - net ................. 433,946,453 50,068,416 -- 484,014,869
OTHER ASSETS:
Certificates of deposit ................................... 1,525,852 -- -- 1,525,852
Investments in and advances to affiliates ................. 36,751,641 15,591,867 (35,093,697) 17,249,811
Intangible assets - net ................................... 6,829,796 -- (2,212,699) 4,617,097
Deferred charges and other - net .......................... 16,158,772 8,881,267 (1,423,168) 23,616,871
-----------------------------------------------------------------
Total other assets ..................................... 61,266,061 24,473,134 (38,729,564) 47,009,631
-----------------------------------------------------------------
TOTAL .................................................. $ 530,050,530 $ 97,179,617 ($ 60,542,438) $ 566,687,709
=================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt ......................... $ 510,738 $ -- $ -- $ 510,738
Accounts payable and accrued expenses ..................... 45,536,366 28,351,480 (21,812,764) 52,075,082
-----------------------------------------------------------------
Total current liabilities .............................. 46,047,104 28,351,480 (21,812,764) 52,585,820
LONG-TERM LIABILITIES:
Senior credit agreement ................................... 120,000,000 -- -- 120,000,000
9.625% senior subordinated notes - Cinemark USA,Inc........ 276,392,165 -- -- 276,392,165
12% senior subordinated notes-Cinemark Mexico (USA), Inc... -- 28,561,000 -- 28,561,000
Deferred lease expenses ................................... 12,206,364 576,820 -- 12,783,184
Theatre development advance and other ..................... 785,167 -- -- 785,167
Deferred income taxes ..................................... 6,806,324 1,084,020 (1,423,168) 6,467,176
-----------------------------------------------------------------
Total long-term liabilities ............................ 416,190,020 30,221,840 (1,423,168) 444,988,692
MINORITY INTERESTS IN SUBSIDIARIES ........................... 402,690 1,299,791 -- 1,702,481
SHAREHOLDERS' EQUITY:
Class A common stock, $.01 par value; 10,000,000 shares
authorized, 1,500 shares issued and outstanding .......... 15 -- -- 15
Class B common stock, no par value; 1,000,000 shares
authorized, 233,176 shares issued ........................ 49,537,447 1,000 (1,000) 49,537,447
Additional paid-in capital ................................ 10,181,790 54,164,208 (54,164,208) 10,181,790
Unearned compensation - stock options ..................... (1,764,223) -- -- (1,764,223)
Retained earnings (deficit) ............................... 44,818,043 (5,670,027) 5,670,027 44,818,043
Treasury stock, 57,211 Class B shares ..................... (24,198,890) -- -- (24,198,890)
Cumulative foreign currency translation adjustment......... (11,163,466) (11,188,675) 11,188,675 (11,163,466)
-----------------------------------------------------------------
Total shareholders' equity ............................. 67,410,716 37,306,506 (37,306,506) 67,410,716
-----------------------------------------------------------------
TOTAL .................................................. $ 530,050,530 $ 97,179,617 ($ 60,542,438) $ 566,687,709
=================================================================
</TABLE>
Note: "Restricted Subsidiaries" and "Unrestricted Subsidiaries" are defined in
the Indenture for the Senior Suboridinated Notes dated August 15, 1996.
14
<PAGE>
<TABLE>
<CAPTION>
CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(Unaudited)
Restricted Unrestricted
Subsidiaries Subsidiaries Eliminations TOTAL
<S> <C> <C> <C> <C>
REVENUES:
Admissions ................................................. $ 188,416,105 $ 17,351,568 $ -- $ 205,767,673
Concessions ................................................ 104,005,027 8,738,102 -- 112,743,129
Other ...................................................... 8,824,560 921,137 (1,275,547) 8,470,150
----------------------------------------------------------------
Total ................................................... 301,245,692 27,010,807 (1,275,547) 326,980,952
COSTS AND EXPENSES:
Cost of operations:
Film rentals ............................................. 95,820,624 7,804,967 -- 103,625,591
Concession supplies ...................................... 14,322,184 2,918,473 -- 17,240,657
Salaries and wages ....................................... 39,045,868 3,061,533 -- 42,107,401
Facility leases .......................................... 25,409,727 2,892,906 -- 28,302,633
Advertising .............................................. 7,126,183 561,449 -- 7,687,632
Utilities and other ...................................... 39,093,347 3,536,982 -- 42,630,329
----------------------------------------------------------------
Total ................................................... 220,817,933 20,776,310 -- 241,594,243
General and administrative expenses ........................ 17,450,459 4,301,603 (1,275,547) 20,476,515
Depreciation and amortization .............................. 18,891,141 1,682,784 (102,651) 20,471,274
----------------------------------------------------------------
Total ................................................... 257,159,533 26,760,697 (1,378,198) 282,542,032
----------------------------------------------------------------
OPERATING INCOME .............................................. 44,086,159 250,110 102,651 44,438,920
OTHER INCOME (EXPENSE):
Interest expense ........................................... (20,326,293) (2,745,604) -- (23,071,897)
Amortization of debt issue costs and debt discount.......... (502,030) (81,332) -- (583,362)
Interest Income ............................................ 263,395 284,361 -- 547,756
Other gains ................................................ 711,502 (303,434) -- 408,068
Foreign currency exchange gain ............................. -- (70,985) (110) (71,095)
Minority interests ......................................... (40,514) 153,746 -- 113,232
Equity in income (loss) of affiliates ...................... (1,245,527) 573,925 1,629,508 957,906
----------------------------------------------------------------
Total ................................................... (21,139,467) (2,189,323) 1,629,398 (21,699,392)
----------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM ..................................... 22,946,692 (1,939,213) 1,732,049 22,739,528
INCOME TAXES .................................................. 10,464,494 (207,164) -- 10,257,330
----------------------------------------------------------------
INCOME BEFORE EXTRAORDINARY ITEM .............................. 12,482,198 (1,732,049) 1,732,049 12,482,198
EXTRAORDINARY ITEM:
Loss on early extinguishment of debt, net of income tax
benefit of $42,054 ....................................... (55,746) -- -- (55,746)
----------------------------------------------------------------
NET INCOME (LOSS) ............................................. $ 12,426,452 ($ 1,732,049) $ 1,732,049 $ 12,426,452
================================================================
</TABLE>
Note: "Restricted Subsidiaries" and "Unrestricted Subsidiaries" are defined in
the Indenture for the Senior Suboridinated Notes dated August 15, 1996.
15
<PAGE>
<TABLE>
<CAPTION>
CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(Unaudited)
Restricted Unrestricted
Subsidiaries Subsidiaries Eliminations TOTAL
<S> <C> <C> <C> <C>
OPERATIONS:
Net income (loss) ............................................ $ 12,426,452 $ (1,732,049) $ 1,732,049 $ 12,426,452
Noncash items in net income (loss):
Depreciation .............................................. 17,975,422 1,680,960 -- 19,656,382
Amortization .............................................. 1,366,997 83,156 (102,651) 1,347,502
Deferred lease expenses ................................... 957,777 244,778 -- 1,202,555
Amortization of prepaid leases ............................ -- 517,330 -- 517,330
Deferred income tax (expense) benefit ..................... (443,094) 983,661 -- 540,567
Debt issued for accrued interest .......................... -- 9,850,100 -- 2,850,100
Amortized compensation - stock option ..................... 1,669,404 -- -- 1,669,404
Equity in income (loss) of affiliate ...................... 1,348,068 (573,925) (1,732,049) (957,906)
Minority interests ........................................ 40,514 (153,746) -- (113,232)
Gain on sale of assets .................................... (403,650) (4,418) -- (408,068)
Cash from (used for) operating working capital................ (23,472,334) 8,947,067 -- (14,525,267)
------------------------------------------------------------------
Net cash from (used for) operations .................... 11,465,556 12,842,914 (102,651) 24,205,819
INVESTING ACTIVITIES:
Additions to theatre properties ........................... (100,968,625) (24,873,638) -- (125,842,263)
Decrease (increase) in deferred issue costs
and other assets......................................... (3,530,485) (5,715,550) 102,651 (9,143,384)
Decrease (increase) in advances to affiliates.............. (23,191,534) (10,200,379) 23,150,000 (10,241,913)
-----------------------------------------------------------------
Net cash used for investing activities.................. (127,690,644) (40,789,567) 23,252,651 (145,227,560)
FINANCING ACTIVITIES:
Issuance of Senior Subordinated Notes ..................... 77,250,000 -- -- 77,250,000
Retirement of Senior Notes ................................ (1,630,000) -- -- (1,630,000)
Decrease in long-term debt ................................ (77,518,172) -- -- (77,518,172)
Increase in long-term debt ................................ 127,365,000 -- -- 127,365,000
Purchase of treasury stock ................................ (4,013,737) -- -- (4,013,737)
Minority investment in subsidiaries, net .................. -- 1,075,131 -- 1,075,131
Decrease in theatre development advance ................... (396,095) -- -- (396,095)
Cinemark USA investment in Cinemark International.......... -- 23,150,000 (23,150,000) --
-----------------------------------------------------------------
Net cash from financing activities ..................... 121,056,996 24,225,131 (23,150,000) 122,132,127
FOREIGN CURRENCY TRANSLATION ADJUSTMENT ...................... (1,015) (33,000) -- (34,015)
------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.............. 4,830,893 (3,754,522) -- 1,076,371
CASH AND CASH EQUIVALENTS:
Beginning of period ....................................... 3,056,375 11,024,851 -- 14,081,226
------------------------------------------------------------------
End of period ............................................. $ 7,887,268 $ 7,270,329 -- $ 15,157,597
==================================================================
SUPPLEMENTAL INFORMATION:
Cash paid for interest ..................................... $ 24,213,499 $ 431,348 -- $ 24,644,847
==================================================================
Cash paid for income taxes ................................. $ 6,929,450 $ 6,061 -- $ 6,935,511
==================================================================
</TABLE>
Note: "Restricted Subsidiaries" and "Unrestricted Subsidiaries" are defined in
the Indenture for the Senior Suboridinated Notes dated August 15, 1996.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunder duly authorized.
CINEMARK USA, INC.
Registrant
DATE: November 7, 1997
/Jeffrey J. Stedman/
------------------------
Jeffrey J. Stedman
Vice President and
Chief Financial Officer
17
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CINEMARK USA, INC. AND SUBSIDIARIES FORM 10-Q FOR THE NINE MONTHS
ENDING SEPTEMBER 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 15,157,597
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 1,919,751
<CURRENT-ASSETS> 35,663,209
<PP&E> 573,455,738
<DEPRECIATION> 89,440,869
<TOTAL-ASSETS> 566,687,709
<CURRENT-LIABILITIES> 52,585,820
<BONDS> 304,953,165
0
0
<COMMON> 49,537,462
<OTHER-SE> 17,873,254
<TOTAL-LIABILITY-AND-EQUITY> 566,687,709
<SALES> 326,980,952
<TOTAL-REVENUES> 326,980,952
<CGS> 0
<TOTAL-COSTS> 241,594,243
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,655,259
<INCOME-PRETAX> 22,739,528
<INCOME-TAX> 10,257,330
<INCOME-CONTINUING> 12,482,198
<DISCONTINUED> 0
<EXTRAORDINARY> (55,746)
<CHANGES> 0
<NET-INCOME> 12,426,452
<EPS-PRIMARY> 0
<EPS-DILUTED> 66.19
</TABLE>
