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, 1998
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 12, 1998
183,814 shares of Class B Common Stock (including options to
acquire 7,012 shares of Class B Common Stock exercisable
within 60 days of such date) as of November 12, 1998
<PAGE>
CINEMARK USA, INC. AND SUBSIDIARIES
Index
Page
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
as of September 30, 1998 (unaudited)
and December 31, 1997 3
Condensed Consolidated Statements of Income
(unaudited) for the three and nine month
periods ended September 30, 1998 and 1997 4
Condensed Consolidated Statements of Cash
Flows (unaudited) for the nine month
periods ended September 30, 1998 and 1997 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
<PAGE>
<TABLE>
<CAPTION>
CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30 DECEMBER 31,
1998 1997
(Unaudited)
--------------------------------------------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $20,610,114 $31,788,380
Temporary cash investments 341,156 331,156
Inventories 3,205,407 2,234,231
Receivables from affiliates and other 35,840,695 31,452,216
--------------------------------------------------
Total current assets 59,997,372 65,805,983
THEATER PROPERTIES AND EQUIPMENT 786,292,472 644,192,945
Less accumulated depreciation and amortization (118,102,804) (95,251,013)
--------------------------------------------------
Theater properties and equipment - net 668,189,668 548,941,932
OTHER ASSETS:
Certificates of deposit 3,305,708 1,525,852
Investments in and advances to affiliates 21,109,486 23,931,120
Intangible assets - net 5,935,597 4,413,301
Deferred charges and other - net 22,302,686 16,978,652
--------------------------------------------------
Total other assets 52,653,477 46,848,925
--------------------------------------------------
TOTAL $780,840,517 $661,596,840
==================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $1,076,342 $380,730
Accounts payable and accrued expenses 67,486,060 76,656,443
--------------------------------------------------
Total current liabilities 68,562,402 77,037,173
LONG-TERM LIABILITIES:
Senior credit agreements 173,936,357 185,000,000
Senior subordinated notes 380,280,324 276,360,038
Deferred lease expenses 14,230,959 13,064,630
Deferred gain and other 8,152,122 2,483,533
Deferred income taxes 19,798,378 10,937,029
--------------------------------------------------
Total long-term liabilities 596,398,140 487,845,230
MINORITY INTERESTS IN SUBSIDIARIES 34,155,998 26,732,561
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, 234,013 shares issued 49,537,547 49,537,547
Additional paid-in capital 11,047,882 10,201,882
Unearned compensation - stock options (1,717,725) (1,534,791)
Retained earnings 65,998,410 47,096,688
Treasury stock, 57,211 Class B shares at cost (24,198,890) (24,198,890)
Cumulative foreign currency translation adjustment (18,943,262) (11,120,575)
--------------------------------------------------
Total shareholders' equity 81,723,977 69,981,876
--------------------------------------------------
TOTAL $780,840,517 $661,596,840
==================================================
</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 MONTH ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
REVENUES:
Admissions $103,913,412 $76,284,636 $265,366,057 $205,767,673
Concessions 54,972,765 41,615,188 141,863,239 112,743,129
Other 5,738,849 3,307,938 12,591,513 8,470,150
------------------------------------------------------------------
Total 164,625,026 121,207,762 419,820,809 326,980,952
COSTS AND EXPENSES:
Cost of operations:
Film rentals 51,194,951 39,697,328 131,905,040 103,625,591
Concession supplies 9,392,262 7,055,929 22,922,612 17,240,657
Salaries and wages 18,716,250 15,224,185 50,172,697 42,107,401
Facility leases 16,814,790 9,900,498 44,280,349 28,302,633
Advertising 4,317,834 2,523,824 10,562,171 7,687,632
Utilities and other 20,353,739 13,796,365 54,740,591 42,630,329
------------------------------------------------------------------
Total 120,789,826 88,198,129 314,583,460 241,594,243
General and administrative expenses 8,472,756 7,209,213 23,398,154 20,476,515
Depreciation and amortization 9,634,104 10,189,447 25,495,192 20,471,274
------------------------------------------------------------------
Total 138,896,686 105,596,789 363,476,806 282,542,032
------------------------------------------------------------------
OPERATING INCOME 25,728,340 15,610,973 56,344,003 44,438,920
OTHER INCOME (EXPENSE):
Interest expense (10,788,040) (8,690,205) (29,480,236) (23,071,897)
Amortization of debt issue cost (168,429) (178,469) (529,911) (527,487)
Amortization of bond discount (145,129) (18,625) (122,542) (55,875)
Interest Income 345,721 43,525 2,527,511 547,756
Other gains and losses 7,681 410,040 1,060,178 408,068
Foreign currency exchange gain (loss) (389,956) (47,411) (1,098,791) (71,095)
Minority interests in subsidiaries 552,832 45,065 415,634 113,232
Equity in income of affiliates 205,837 524,507 1,200,756 957,906
------------------------------------------------------------------
Total (10,379,483) (7,911,573) (26,027,401) (21,699,392)
------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 15,348,857 7,699,400 30,316,602 22,739,528
AND EXTRAORDINARY ITEMS
INCOME TAXES 5,876,811 3,406,449 11,414,880 10,257,330
------------------------------------------------------------------
NET INCOME BEFORE EXTRAORDINARY ITEMS 9,472,046 4,292,951 18,901,722 12,482,198
EXTRAORDINARY ITEMS
Loss on early extinguishments of debt, net of
income tax benefit of $42,054 -- -- -- (55,746)
------------------------------------------------------------------
NET INCOME $9,472,046 $4,292,951 $18,901,722 12,426,452
==================================================================
EARNINGS PER SHARE
Net Income
Basic $53.12 $23.92 $106.01 $69.23
Diluted $50.78 $22.87 $101.33 $66.19
Basic:
Weighted average common shares outstanding 178,302 179,493 178,302 179,493
===================================================================
Diluted:
Weighted average common shares outstanding 178,302 179,493 178,302 179,493
Dilutive stock options 8,235 8,236 8,235 8,236
------------------------------------------------------------------
Adjusted weighted average common shares 186,537 187,729 186,537 187,729
==================================================================
</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,
1998 1997
<S> <C> <C>
OPERATIONS:
Net Income $18,901,722 $12,426,452
Noncash items in net income :
Depreciation 24,385,578 19,656,382
Amortization 1,109,614 1,347,502
Deferred lease expenses 1,166,329 1,719,885
Deferred income tax expense 8,861,349 540,567
Debt issued for accrued interest 2,850,100
Amortization of debt premium and discounts 652,453
Amortized compensation - stock options 663,066 1,669,404
Equity in income of affiliate (1,200,756) (957,906)
Minority interests (415,634) (113,232)
Other gains 38,613 (408,068)
Cash from (used for) operating working capital:
Inventories (971,176) (623,428)
Tax and other receivables (4,504,814) (7,005,000)
Accounts payable and accrued expenses (9,627,967) (6,896,839)
--------------------------------------------------
Net cash from operations 39,058,377 24,205,819
INVESTING ACTIVITIES:
Additions to theatre properties (284,656,008) (125,842,263)
Sale of theatre properties 133,802,332
Increase in deferred issue costs and other assets (4,077,211) (9,573,494)
Decrease/(Increase) in advances to affiliates 4,022,390 (10,241,913)
--------------------------------------------------
Net cash (used for) investing activities (150,908,497) (145,657,670)
FINANCING ACTIVITIES:
Issuance of Senior Subordinated Notes 103,950,000 77,250,000
Decrease in long-term debt (203,446,337) (79,148,172)
Increase in long-term debt 192,396,139 127,365,000
Purchase of Treasury Stock (4,013,737)
Minority investment in subsidiaries, net 7,839,071 1,075,131
--------------------------------------------------
Net cash from financing activities 100,738,873 122,528,222
EFFECT OF EXCHANGE RATE CHANGES ON CASH (67,019) --
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (11,178,266) 1,076,371
CASH AND CASH EQUIVALENTS:
Beginning of period 31,788,380 14,081,226
--------------------------------------------------
End of period $20,610,114 $15,157,597
==================================================
SUPPLEMENTAL INFORMATION:
Cash paid for interest $37,797,868 $24,644,847
==================================================
Cash paid for income taxes $3,750,500 $6,935,511
==================================================
</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 norma
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, 1997 included in the Annual Report filed on Form 10-K by the
Company under the Securities Exchange Act of 1934 on March 31, 1998.
Operating results for the three and nine months ended September 30,
1998 are not necessarily indicative of the results to be achieved for the full
year.
2. FAS 130 - Comprehensive Net Income
Beginning in 1998, the Company adopted SFAS 130 "Reporting Comprehensive
Income" ("SFAS No. 130"). SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components in the financial statements.
The following components are reflected in the Company's comprehensive income:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net income $9,472,046 $4,292,951 $18,901,722 $12,426,452
Foreign currency 100,246 (1,320) (7,822,687) (34,015)
---------------------- ----------------- ------------------ ----------------
Comprehensive income $9,572,292 $4,291,631 $11,079,035 $12,392,437
====================== ================= ================== ================
</TABLE>
3. Reporting Segments
The Company operates in a single industry as a motion picture
exhibitor. The Company is a multinational corporation with consolidated
operations in the United States, Mexico, Brazil and Ecuador. In prior years,
foreign operations did not meet the requirements for disclosure. Information
about the Company's operations in different geographic areas for the nine
months ended September 30, 1998 is as follows:
<TABLE>
<CAPTION>
Other Foreign
United States Subsidiaries Eliminations Consolidated
<S> <C> <C> <C> <C>
Total revenues $360,481,548 $60,649,099 ($1,309,838) $419,820,809
==================== ====================== ========================================
Operating income $52,767,659 $3,576,344 $56,344,003
==================== ====================== ========================================
Total assets $707,952,481 $165,464,487 ($92,576,451) $780,840,517
==================== ====================== ========================================
</TABLE>
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.
<TABLE>
<CAPTION>
% of Revenues % of Revenues
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
--------------- -------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Revenues:
Admissions 63.1 63.0 63.2 62.9
Concessions 33.4 34.3 33.8 34.5
Other 3.5 2.7 3.0 2.6
--- --- --- ---
Total revenues 100.0 100.0 100.0 100.0
Cost of operations 73.4 72.8 74.9 73.8
General and administrative expenses 5.2 5.9 5.6 6.3
Depreciation and amortization 5.8 8.4 6.1 6.3
Operating income 15.6 12.9 13.4 13.6
Interest expense 6.6 7.2 7.0 7.1
Income before income taxes 9.3 6.4 7.2 7.0
Net income 5.8 3.5 4.5 3.8
</TABLE>
Revenues
Revenues for the quarter ended September 30, 1998 increased to $164.6
million from $121.2 million for the quarter ended September 30, 1997, a 35.8%
increase. The company generated revenues for the nine month period ended
September 30, 1998 (the "1998 period") of $419.8 million compared to $327.0
million for the nine months ended September 30, 1997 (the "1997 period"). The
increases in revenues are primarily attributable to an 31.5% increase in
attendance in the third quarter of 1998 versus 1997, and a 27.6% increase in
attendance for the 1998 period versus the 1997 period. The attendance increases
are the result of the net addition of 446 screens since the third quarter of
1997. The increase in revenues are also due to a 7.0% increase in admission and
concession revenues per patron in the third quarter of 1998 as compared to the
third quarter of 1997, and a 5.0% increase in admission and concession revenues
per patron in the 1998 period as compared to the 1997 period. Revenues per
average screen increased 1.4% to $198,028 for the 1998 period from $195,329 for
the 1997 period.
Cost of Operations
Cost of operations, as a percentage of revenues, increased to 73.4% in the
third quarter of 1998 from 72.8% in the third quarter of 1997. The increase as
a percentage of revenues resulted from an increase in facility lease expense as
a percentage of total revenues to 10.2% in the third quarter of 1998 from 8.2%
in the third quarter of 1997 partially as a result of a sale leaseback
transaction which occurred in the first quarter of 1998, an increase in
advertising expense as a percentage of total revenues to 2.6% in the third
quarter of 1998 from 2.0% in the third quarter of 1997, and an increase in
utility and other operating costs as a percentage of total revenues to 12.4% in
the third quarter of 1998 from 11.4% in the third quarter of 1997. These
increases were partially offset by a decrease in film rental expense as a
percentage of admission revenues to 49.3 in the third quarter of 1998 from
7
<PAGE>
52.0% in third quarter of 1997, and a decrease in salaries and wages as a
percentage of total revenues to 11.4% in the third quarter of 1998 from 12.6%
in the third quarter of 1997.
Cost of operations, as a percentage of revenues, increased to 74.9% in
the 1998 period from 73.8% for the same period in 1997. The increase as a
percentage of revenues resulted from an increase in concession expense as a
percentage of concession revenues to 16.2% in the 1998 period from 15.3% in the
1997 period and an increase in facility costs as a percentage of total revenues
to 10.6% in the 1998 period from 8.7% in the 1997 period partially as a result
of the sale leaseback transaction which occurred in the first quarter of 1998.
These increases were partially offset by a decrease in film rental expense as a
percentage of admission revenues to 49.7% in the 1998 period from 50.4% in the
1997 period, and a decrease in payroll costs as a percentage of total revenues
to 12.0% in the 1998 period from 12.9% in the 1997 period.
General and Administrative Expenses
General and administrative expenses, as a percentage of revenues, decreased
to 5.2% in the third quarter of 1998 from 5.9% in the third quarter of 1997.
General and administrative expenses as a percentage of revenues also decreased
in the nine month period ended September 30, 1998 to 5.5% from 6.3% for the
same period in 1997. The decrease in general and administrative expenses as a
percentage of revenues is reflective of the Company's expanding base of
revenues due to continuing growth in the number of screens owned and operated
by the Company.
Depreciation and Amortization
Depreciation and amortization increased 18.5% to $9.6 million in the third
quarter of 1998 from $8.1 million in the second quarter of 1998. For the 1998
period, depreciation and amortization increased 24.4% to $25.5 million from
$20.5 million in the 1997 period. The increase is the result of the net
addition (net of the sale leaseback transaction which occurred in the first
quarter of 1998) of $184.2 million in theater property and equipment since the
third quarter of 1997, a 38% increase. The difference in the percentage
increase in depreciation and amortization compared to the increase in theater
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 discount and
premium, and capitalized interest, increased 25.0% during the third quarter of
1998 to $12.0 million from $9.6 million in the third quarter of 1997. Interest
costs incurred in the 1998 period, including amortization of debt discount and
premium, and capitalized interest, increased 33.2% to $34.1 million from $25.6
million in the 1997 period. The increase in interest costs incurred for the
third quarter and the 1998 period was due principally to an increase in average
debt outstanding resulting from borrowings under the Company's credit facility,
and the issuance of $105 million of Senior Subordinated Notes.
Income Taxes
Income taxes increased to $5.9 million for the third quarter of 1998 from
$3.4 million in the third quarter of 1997. Income taxes also increased to $11.4
million for the 1998 period from $10.3 million for the same period in 1997. The
Company's effective tax rate for the first nine months of 1998 was 37.7%
compared to 45.1% for the first nine months of 1997. The effective rate has
decreased due to certain foreign subsidiaries reporting income for the 1998
period which have been offset by losses for which deferred tax assets were
fully reserved in prior periods. Other permanent differences, primarily
goodwill, have also decreased.
8
<PAGE>
Net Income
Net income of $9.5 million for the third quarter of 1998 included the
consolidated net income of Cinemark International (net of minority interest) of
$2.1 million. Net income of $4.3 million for the third quarter of 1997 included
the consolidated net losses of Cinemark International (net of minority
interest) of $500,000. Net income of $18.9 million for the 1998 period included
the consolidated net income of Cinemark International (net of minority
interest) of $3.4 million. Net income of $12.4 million for the 1997 period
included the consolidated net losses of Cinemark International (net of minority
interest) of $1.7 million.
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 historically has not required traditional working capital
financing.
The Company's theaters are typically equipped with modern projection and
sound equipment, with approximately 80% of the screens operated by the Company
having been built in the 1990's. The Company's investing activities have been
principally in connection with new theater openings and acquisitions of
existing theaters and theater circuits. As of November 12, 1998, the Company
has opened eighteen theaters (334 screens)in the U.S. and has six additional
theaters (89 screens) under construction and scheduled to open by the end of
1998. Certain of these theaters will be megaplexes which may cost in excess of
$15 million per theater. The Company also plans to open approximately 350
screens in the U.S. in 1999. The Company currently estimates that its capital
expenditures for the development of these approximately 750 screens in the U.S.
in 1998 and 1999 will be approximately $450 million. As of November 12, 1998,
the Company had expended approximately $240 million toward the development of
these screens. The Company plans to fund capital expenditures for its
development from cash flow from operations, borrowings under the Credit
Facility and the sale and leaseback of theater properties. Actual expenditures
for theatre development and acquisitions during 1998 and 1999 are subject to
change based upon the availability of attractive opportunities for expansion of
the Company's theater circuit.
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 the Company's $125 million 12%
Senior Notes due 2002 ("Senior Notes") pursuant to a tender offer, to reduce
borrowings under the Company's Credit Facility and for general corporate
purposes.
In January 1997, the Company repurchased an aggregate of 267 shares of
Class B common stock from a retiring employee for approximately $.5 million. 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.
On June 26, 1997, the Company issued the Series D Notes due 2008 which bear
interest at a rate of 9-5/8% per annum, payable semi-annually on February 1 and
August 1 of each year. The Series D Notes were issued at 103.0% of the
principal face amount. The net proceeds to the Company from the issuance of the
Series D Notes (net of fees and expenses) was approximately $77.1 million. The
proceeds of the Series D Notes were applied to reduce the Company's
indebtedness under the Credit Facility.
9
<PAGE>
On January 14, 1998, the Company issued $105 million aggregate principal
amount of 8-1/2% Series A Senior Subordinated Notes due 2008 (the "Series A
Notes") pursuant to Rule 144A (the "Offering"). The net proceeds of the
Offering were used by the Company to reduce the Company's indebtedness under
the then existing credit facility. The Company exchanged the Series A Notes on
March 17, 1998 for 8-1/2% Series B Senior Subordinated Notes.
On February 12, 1998, the Company replaced its existing credit facility
with a reducing, revolving credit agreement ("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 $350.0 million in the aggregate. The Credit Facility is a reducing
revolving credit facility; therefore, at the end of each quarter during the
calendar year 2001, 2002, 2003, 2004 and 2005, the aggregate commitment is
reduced in the amount of $8,750,000, $11,812,500, $13,125,000, $12,031,000 and
$6,562,500, respectively. The Company is required to prepay all loans
outstanding in excess of the aggregate commitment as reduced pursuant to the
terms of the Credit Facility. Borrowings under the Credit Facility are secured
by a pledge of 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 12, 1998, the Company had borrowed $135 million under the Credit
Facility with the average interest rate on such borrowings being 6.5% per
annum.
On February 24, 1998, the Company completed a sale leaseback transaction
with affiliates of Primus Capital L.L.C. (the "Sale Leaseback"). Pursuant to
the Sale Leaseback, the Company sold the land, buildings and site improvements
of twelve theatre properties to special purpose entities formed by Primus
Capital L.L.C. for an aggregate purchase price equal to approximately $131.5
million. Simultaneously with the sale, the Company entered into operating
leases for such properties for a base term equal to approximately 20 at a fixed
aggregate monthly rental payment of $1.1 million or $13.4 million annually.
In 1992, the Company formed Cinemark International, Inc. To develop and
acquire theatres in international markets. As of November 12, 1998, Cinemark
International operated 39 theaters (370 screens) principally in Latin America.
The following table summarizes Cinemark International's holdings in each
international market, the number of theaters and screens in such markets as of
November 12, 1998, and the number of theaters and screens which are either
under construction or scheduled to be under construction in 1998.
<TABLE>
<CAPTION>
Year of Ownership Operating 1998 Construction
Country Formation % Theaters/Screens Theaters/Screens
<S> <C> <C> <C> <C>
Mexico 1992 95% 15 theaters(153 screens) 4 theaters(34 screens)
Chile 1992 50% 6 theaters (49 screens) 4 theaters(30 screens)
Argentina 1995 25% 4 theaters (34 screens) 1 theater (10 screens)
Argentina 1997 100% - 2 theaters(15 screens)
Brazil 1996 60% 8 theaters (86 screens) 5 theaters(40 screens)
Ecuador 1996 60% 2 theaters (16 screens) -
Peru 1996 50% 1 theater (12 screens) -
Central America 1997 50% 3 theaters (20 screens) 4 theaters (25 screens)
Total 39 theaters(370 screens) 20 theaters(154 screens)
</TABLE>
10
<PAGE>
Cinemark International plans to invest up to an additional $75 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.
On November 18, 1997, Cinemark International executed a credit agreement
with Bank of America National Trust and Savings Association for itself and as
Administrative Agent as amended in December 1997 (the "Cinemark International
Credit Agreement"). The Cinemark International Credit Agreement is a revolving
credit facility and provides for a loan to Cinemark International of up to $30
million in the aggregate. The Cinemark International Credit Agreement is
secured by a pledge of substantially all of the stock of Cinemark Mexico and an
unconditional guaranty of Cinemark Mexico. Pursuant to the terms of the
Cinemark International Credit Agreement, funds borrowed bear interest at a rate
per annum equal to the Offshore Rate (as defined in the Cinemark International
Credit Agreement) or the Base Rate (as defined in the Cinemark International
Credit Agreement) as the case may be, plus the Applicable Margin (as defined in
the Cinemark International Credit Agreement). As of November 12, 1998 Cinemark
International had borrowed $30 million under the Cinemark International Credit
Agreement, the proceeds of which were used to repurchase all of the outstanding
12% Senior Subordinated PIK Notes of Cinemark Mexico. The effective interest
rate on such borrowings as of November 12, 1998 is 6.7% per annum.
On August 26, 1998, the Company formed Cinemark Investments Corporation for
the purpose of financing its Brazilian operations by investing in foreign fixed
rate notes issued by Cinemark LTDA, an indirect Brazilian subsidiary of the
Company. On September 11, 1998, Cinemark Investments Corporation executed a
credit agreement with Bank of America that provides Cinemark Investments
Corporation up to $20 million in the aggregate under a revolving line of credit
facility. The Cinemark Investments Corporation Credit Agreement is secured by
an assignment of certain fixed rate notes issued by Cinemark LTDA to Cinemark
Investments Corporation and an unconditional guarantee by Cinemark USA.
Pursuant to the terms of the Cinemark Investments Corporation Credit Agreement,
funds borrowed bear interest at a rate per annum equal to the Offshore Rate or
the Base Rate (both defined in the Cinemark Investments Corporation Credit
Agreement) as the case may be. As of November 12, 1998 Cinemark Investments
Corporation had borrowed $15 million under the Cinemark Investments Corporation
Credit Agreement, the proceeds of which were used to purchase fixed rate notes
bearing interest at 13.25%. The effective interest rate on such borrowings as
of November 12, 1998 is 7.1% per annum.
Year 2000 Compliance
The Company recognizes that the arrival of the Year 2000 poses a unique
worldwide challenge to the ability of all systems to recognize the date change
from December 31, 1999 to January 1, 2000, and, like other companies, has been
assessing and updating its computer applications and business processes to
ensure their continued functionality.
The Year 2000 compliance effort is underway across the Company, and is
following a process of assessment, modification and testing. At the present
time, the necessary modifications to the day-to-day operating and reporting
systems for all theaters (both those in the US and abroad) have been
successfully completed to ensure Year 2000 compliance. With respect to the
financial reporting and operational databases associated with the US Corporate
office and the various International Corporate offices, the necessary
modifications to ensure Year 2000 compliance are expected to be completed by
December 31, 1998 and June 30, 1999, respectively. The costs to modify the
existing systems to ensure Year 2000 compliance are expected to be less than
$.1 million at the completion of the project.
Since the core business of the Company centers around the collection of
cash at the theater box office, an unanticipated Year 2000 computer failure
should not have an adverse impact on the Company's ability to continue with
day-to-day operations. The impact from a system failure from a practical
standpoint should only affect the financial reporting and operational analysis
that is presently performed at the Corporate office. In the most reasonably
likely worst case scenario, the Company could return to a manual system of
recording daily admissions revenues from a day-to-day operating standpoint.
11
<PAGE>
The Company operates a large number of geographically dispersed theaters
and has a large supplier base and believes that this will mitigate any adverse
impact. The Company has initiated formal communications with its significant
suppliers, customers, and critical business partners to determine the extent to
which the Company may be vulnerable in the event that those parties fail to
properly remediate their own Year 2000 issues. The Company has taken steps to
monitor the progress made by those parties, and intends to test critical system
interfaces, as the Year 2000 approaches. The Company will develop appropriate
contingency plans in the event that a significant exposure is identified
relative to the dependencies on third-party systems. While the company is not
presently aware of any such significant exposure, there can be no guarantee
that the systems of third-parties on which the Company relies will be converted
in a timely manner, or that failure to properly convert by another Company
would not have a material adverse effect on the Company.
The Company is in process of formulating its contingency plan for the Year
2000 compliance issue and anticipates a completion date of 1999.
The Company simultaneously purchased a new Year 2000 compliant financial
reporting and distribution system that it expect to go live with sometime in
1999. The decision to purchase this new system at a cost of more than $1
million was made by management in order to effectively handle the increasing
financial reporting and analysis needs of the Company in the years to come as
the Company continues at its rapid growth rate.
Other Issues
The Company intends that this report be governed by the "safe harbor"
provision of the Private Securities Litigation Reform Act of 1995 (the "PSLR
Act") with respect to statements that may be deemed to be forward-looking
statements under the PSLR Act. Such forward-looking statements may include, but
are not limited to, the Company and any of its subsidiaries' long-term theater
strategy. Actual results could differ materially from those indicated by such
forward-looking statements due to a number of factors.
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, 1998
Condensed Consolidating Statement of
Income (unaudited) for the nine months
ended September 30, 1998
Condensed Consolidating Statement of Cash Flow (unaudited)
for the nine months ended September 30, 1998
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, 1998
(Unaudited)
Restricted Unrestricted
Subsidiaries Subsidiaries Eliminations TOTAL
ASSETS
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $15,393,861 $5,216,253 -- $20,610,114
Temporary cash investments -- 341,156 -- 341,156
Inventories 1,820,942 1,384,465 -- 3,205,407
Receivables from affiliates and other 24,541,172 31,344,406 (20,044,883) 35,840,695
---------------------------------------------------------------------------
Total current assets 41,755,975 38,286,280 (20,044,883) 59,997,372
THEATER PROPERTIES AND EQUIPMENT 673,719,546 112,572,926 -- 786,292,472
Less accumulated depreciation and amortization (109,666,120) (8,436,684) -- (118,102,804)
---------------------------------------------------------------------------
Theater properties and equipment - net 564,053,426 104,136,242 -- 668,189,668
OTHER ASSETS:
Certificates of deposit 2,365,537 940,171 -- 3,305,708
Investments in and advances to affiliates 76,440,688 17,200,366 (72,531,568) 21,109,486
Intangible assets - net 5,935,597 -- -- 5,935,597
Deferred charges and other - net 17,401,258 4,901,428 -- 22,302,686
---------------------------------------------------------------------------
Total other assets 102,143,080 23,041,965 (72,531,568) 52,653,477
---------------------------------------------------------------------------
TOTAL $707,952,481 $165,464,487 ($92,576,451) $780,840,517
===========================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $333,006 $743,336 -- $1,076,342
Accounts payable and accrued expenses 56,530,836 33,464,297 (22,509,073) 67,486,060
---------------------------------------------------------------------------
Total current liabilities 56,863,842 34,207,633 (22,509,073) 68,562,402
LONG-TERM LIABILITIES:
Senior credit agreement 143,936,357 30,000,000 -- 173,936,357
Senior subordinated notes - Cinemark USA, Inc. 380,280,324 -- -- 380,280,324
Deferred lease expenses 13,357,168 873,791 -- 14,230,959
Deferred gain and other 6,600,563 1,551,559 -- 8,152,122
Deferred income taxes 19,180,172 618,206 -- 19,798,378
----------------------------------------------------------------------------
Total long-term liabilities 563,354,584 33,043,556 -- 596,398,140
MINORITY INTERESTS IN SUBSIDIARIES 6,010,078 28,145,920 -- 34,155,998
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 49,537,547 1,000 (1,000) 49,537,547
Additional paid-in capital 11,047,882 91,973,880 (91,973,880) 11,047,882
Unearned compensation - stock options (1,717,725) 2,520 (2,520) (1,717,725)
Retained earnings (deficit) 65,998,410 (3,739,116) 3,739,116 65,998,410
Treasury stock, 57,211 Class B shares (24,198,890) -- -- (24,198,890)
Cumulative foreign currency translation adjustment (18,943,262) (18,170,906) 18,170,906 (18,943,262)
----------------------------------------------------------------------------
Total shareholders' equity 81,723,977 70,067,378 (70,067,378) 81,723,977
----------------------------------------------------------------------------
TOTAL $707,952,481 $165,464,487 ($92,576,451) $780,840,517
============================================================================
</TABLE>
Note: "Restricted Subsidiaries" and "Unrestricted Subsidiaries" are defined in
the Indenture for the Senior Subordinated 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, 1998
(Unaudited)
Restricted Unrestricted
Subsidiaries Subsidiaries Eliminations TOTAL
<S> <C> <C> <C> <C>
REVENUES:
Admissions $225,017,193 $40,348,864 -- $265,366,057
Concessions 123,755,428 18,107,811 -- $141,863,239
Other 11,708,927 2,192,424 (1,309,838) $12,591,513
----------------------------------------------------------------------------
Total 360,481,548 60,649,099 (1,309,838) $419,820,809
COSTS AND EXPENSES:
Cost of operations:
Film rentals 113,263,603 18,641,437 -- 131,905,040
Concession supplies 17,003,036 5,919,576 -- 22,922,612
Salaries and wages 44,649,354 5,523,343 -- 50,172,697
Facility leases 38,297,969 5,982,380 -- 44,280,349
Advertising 8,332,369 2,229,802 -- 10,562,171
Utilities and other 46,117,294 8,623,297 -- 54,740,591
----------------------------------------------------------------------------
Total 267,663,625 46,919,835 -- 314,583,460
General and administrative expenses 18,908,048 5,799,944 (1,309,838) 23,398,154
Depreciation and amortization 21,142,216 4,352,976 -- 25,495,192
----------------------------------------------------------------------------
Total 307,713,889 57,072,755 (1,309,838) 363,476,806
----------------------------------------------------------------------------
OPERATING INCOME 52,767,659 3,576,344 -- 56,344,003
OTHER INCOME (EXPENSE):
Interest expense (27,025,595) (2,454,641) -- (29,480,236)
Amortization of debt issue costs (483,036) (46,875) -- (529,911)
Amortization of debt discount/premium (122,542) -- -- (122,542)
Interest Income 940,501 1,587,010 -- 2,527,511
Other gains (losses) 1,017,403 42,775 -- 1,060,178
Foreign currency exchange loss -- (1,098,791) -- (1,098,791)
Minority interests (267,887) 683,521 -- 415,634
Equity in income of affiliates 3,323,150 1,305,940 (3,428,334) 1,200,756
------------------------------------------------------------------------------
Total (22,618,006) 18,939 (3,428,334) (26,027,401)
------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 30,149,653 3,595,283 (3,428,334) 30,316,602
INCOME TAXES 11,247,931 166,949 -- 11,414,880
------------------------------------------------------------------------------
NET INCOME $18,901,722 $3,428,334 ($3,428,334) $18,901,722
==============================================================================
</TABLE>
Note: "Restricted Subsidiaries" and "Unrestricted Subsidiaries" are defined
in the Indenture for the Senior Subordinated 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, 1998
(UNAUDITED)
Restricted Unrestricted
Subsidiaries Subsidiaries Eliminations TOTAL
<S> <C> <C> <C> <C>
OPERATIONS:
Net income $18,901,722 $3,428,334 ($3,428,334) $18,901,722
Noncash items in net income:
Depreciation 20,032,602 4,352,976 -- 24,385,578
Amortization 736,102 373,512 -- 1,109,614
Deferred lease expenses 887,038 279,291 -- 1,166,329
Deferred income tax benefit 8,243,144 618,205 -- 8,861,349
Amortization of debt discount and premiums 605,578 46,875 -- 652,453
Amortized compensation - stock option 663,066 -- -- 663,066
Equity in income (loss) of affiliate (3,323,150) (1,305,940) 3,428,334 (1,200,756)
Minority interests 267,887 (683,521) -- (415,634)
Other gains (1,017,403) 1,056,016 -- 38,613
Cash from(used for) operating working capital: -- -- -- --
Inventories (178,087) (793,089) -- (971,176)
Tax and other receivables (15,381,030) 10,876,216 -- (4,504,814)
Accounts payable and accrued expenses (13,346,322) 3,718,355 -- (9,627,967)
-----------------------------------------------------------------------
Net cash from (used for) operations 17,091,147 21,967,230 -- 39,058,377
INVESTING ACTIVITIES:
Additions to theatre properties (238,016,177) (46,639,831) -- (284,656,008)
Sale of theatre properties 133,802,332 -- -- 133,802,332
Decrease (increase) in deferred issue costs and other assets 1,925,262 (6,002,473) -- (4,077,211)
Decrease (increase) in advances to affiliates 512,598 3,509,792 -- 4,022,390
-----------------------------------------------------------------------
Net cash used for investing activities (101,775,985) (49,132,512) -- (150,908,497)
FINANCING ACTIVITIES:
Issuance of Senior Subordinated Notes 103,950,000 -- -- 103,950,000
Decrease in long-term debt (203,446,337) -- -- (203,446,337)
Increase in long-term debt 190,963,576 1,432,563 -- 192,396,139
Minority investment in subsidiaries, net 5,335,259 2,503,812 -- 7,839,071
Decrease in theatre development advance -- -- -- --
Cinemark USA investment in Cinemark International -- -- -- --
Net cash from financing activities 96,802,498 3,936,375 -- 100,738,873
Effect of exchange rate changes on cash (67,019) -- -- (67,019)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 12,050,641 (23,228,907) -- (11,178,266)
CASH AND CASH EQUIVALENTS: -- -- -- --
Beginning of period 3,343,220 28,445,160 -- 31,788,380
----------------------------------------------------------------------
End of period 15,393,861 $5,216,253 -- $20,610,114
======================================================================
SUPPLEMENTAL INFORMATION:
Cash paid for interest $36,172,819 $1,625,049 -- $37,797,868
=====================================================================
Cash paid for income taxes $3,750,500 -- -- $3,750,500
======================================================================
</TABLE>
Note: "Restricted Subsidiaries" and "Unrestricted Subsidiaries" are defined
in the Indenture for the Senior Subordinated 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 12, 1998
/Jeffrey J. Stedman/
Jeffrey J. Stedman
Senior Vice President and
Chief Financial Officer
17
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 20,610,114
<SECURITIES> 341,156
<RECEIVABLES> 35,840,695
<ALLOWANCES> 0
<INVENTORY> 3,205,407
<CURRENT-ASSETS> 59,997,372
<PP&E> 786,292,472
<DEPRECIATION> 118,102,804
<TOTAL-ASSETS> 780,840,517
<CURRENT-LIABILITIES> 68,562,402
<BONDS> 380,280,324
0
0
<COMMON> 49,537,562
<OTHER-SE> 32,186,415
<TOTAL-LIABILITY-AND-EQUITY> 780,840,517
<SALES> 419,820,809
<TOTAL-REVENUES> 419,820,809
<CGS> 0
<TOTAL-COSTS> 363,476,806
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,480,236
<INCOME-PRETAX> 30,316,602
<INCOME-TAX> 11,414,880
<INCOME-CONTINUING> 18,901,722
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,901,722
<EPS-PRIMARY> 0
<EPS-DILUTED> 101.33
</TABLE>
