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 June 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.)
7502Greenville 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 August 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 August 12, 1998
<PAGE>
CINEMARK USA, INC. AND SUBSIDIARIES
Index
Page
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
as of June 30, 1998 (unaudited)
and December 31, 1997 3
Condensed Consolidated Statements of Income
(unaudited) for the three and six month
periods ended June 30, 1998 and 1997 4
Condensed Consolidated Statements of Cash
Flows (unaudited) for the six month
periods ended June 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 8
PART II OTHER INFORMATION
Item 5. Other Information 13
Item 6(b). Reports on Form 8-K 13
SIGNATURES 17
2
<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
1998 1997
(Unaudited)
---------------------------------------------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $28,431,492 $31,788,380
Temporary cash investments 341,156 331,156
Inventories 3,210,440 2,234,231
Receivables from affiliates and other 22,113,936 31,452,216
---------------------------------------------------
Total current assets 54,097,024 65,805,983
THEATER PROPERTIES AND EQUIPMENT 700,328,808 644,192,945
Less accumulated depreciation and amortization (110,421,568) (95,251,013)
---------------------------------------------------
Theater properties and equipment - net 589,907,240 548,941,932
OTHER ASSETS:
Certificates of deposit 2,361,520 1,525,852
Investments in and advances to affiliates 21,204,344 23,931,120
Intangible assets - net 6,066,525 4,413,301
Deferred charges and other - net 27,838,740 16,978,652
---------------------------------------------------
Total other assets 57,471,129 46,848,925
---------------------------------------------------
TOTAL $701,475,393 $661,596,840
===================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $670,797 $380,730
Accounts payable and accrued expenses 72,673,431 76,656,443
---------------------------------------------------
Total current liabilities 73,344,229 77,037,173
LONG-TERM LIABILITIES:
Senior credit agreements 107,980,073 185,000,000
Senior subordinated notes 380,287,451 276,360,038
Deferred lease expenses 13,824,615 13,064,630
Deferred gain and other 8,338,511 2,483,533
Deferred income taxes 11,990,520 10,937,029
---------------------------------------------------
Total long-term liabilities 522,421,170 487,845,230
MINORITY INTERESTS IN SUBSIDIARIES 33,779,332 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 (1,938,747) (1,534,791)
Retained earnings 56,526,364 47,096,688
Treasury stock, 57,211 Class B shares at cost (24,198,890) (24,198,890)
Cumulative foreign currency translation adjustment (19,043,508) (11,120,575)
---------------------------------------------------
Total shareholders' equity 71,930,663 69,981,876
---------------------------------------------------
TOTAL $701,475,393 $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 MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
REVENUES:
Admissions $83,146,352 $64,490,037 $161,452,645 $129,483,037
Concessions 44,344,921 35,927,736 86,890,474 71,127,941
Other 3,482,467 2,373,173 6,852,664 5,162,212
-----------------------------------------------------------------------------------
Total 130,973,740 102,790,946 255,195,783 205,773,190
COSTS AND EXPENSES:
Cost of operations:
Film rentals 42,931,055 32,647,469 80,710,089 63,928,263
Concession supplies 6,957,726 4,763,868 13,530,350 10,184,728
Salaries and wages 16,743,353 13,894,764 31,456,447 26,883,216
Facility leases 14,924,409 9,258,389 27,465,559 18,402,135
Advertising 3,547,017 2,237,354 6,244,337 5,163,808
Utilities and other 18,173,212 14,638,679 34,386,852 28,833,964
-----------------------------------------------------------------------------------
Total 103,276,772 77,440,523 193,793,634 153,396,114
General and administrative expenses 7,844,461 8,122,813 14,925,398 13,267,302
Depreciation and amortization 8,162,665 4,965,311 15,861,088 10,281,827
-----------------------------------------------------------------------------------
Total 119,283,898 90,528,647 224,580,120 176,945,243
-----------------------------------------------------------------------------------
OPERATING INCOME 11,689,842 12,262,299 30,615,663 28,827,947
OTHER INCOME (EXPENSE):
Interest expense (10,966,458) (7,157,227) (18,692,196) (14,381,692)
Amortization of debt issue cost (196,154) (174,509) (361,482) (349,018)
Amortization of bond discount 57,879 (18,625) 22,587 (37,250)
Interest Income 963,313 241,842 2,181,790 504,231
Other gains and losses 610,339 (6,757) 1,052,497 (1,972)
Foreign currency exchange gain (loss) (429,101) (56,547) (708,835) (23,684)
Minority interests in subsidiaries 214,045 41,928 (137,198) 68,167
Equity in income of affiliates 779,782 321,708 994,919 433,399
-----------------------------------------------------------------------------------
Total (8,966,355) (6,808,187) (15,647,918) (13,787,819)
-----------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 2,723,487 5,454,112 14,967,745 15,040,128
AND EXTRAORDINARY ITEMS
INCOME TAXES $434,919 2,378,072 5,538,069 6,850,881
-----------------------------------------------------------------------------------
INCOME BEFORE EXTRAORDINARY ITEMS 2,288,568 3,076,040 9,429,676 8,189,247
===================================================================================
EXTRAORDINARY ITEMS
Loss on early extinguishments of debt,
net of income tax benefit of $42,054 -- (55,746) -- (55,746)
-----------------------------------------------------------------------------------
NET INCOME $2,288,568 $3,020,294 $9,429,676 $8,133,501
===================================================================================
EARNINGS PER SHARE
Net Income Before Extraordinary Items
Basic $12.84 $17.12 $52.89 $45.57
Diluted $12.27 $16.37 $50.55 $43.57
Net Income
Basic $12.84 $16.81 $52.89 $45.26
Diluted $12.27 $16.07 $50.55 $43.28
Basic:
Weighted average common shares outstanding 178,302 179,699 178,302 179,699
===================================================================================
Diluted:
Weighted average common shares outstanding 178,302 179,699 178,302 179,699
Diluted stock options 8,235 8,236 8,235 8,236
-----------------------------------------------------------------------------------
Adjusted weighted average common shares 186,537 187,935 186,537 187,935
===================================================================================
</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)
SIX MONTHS ENDED JUNE 30,
1998 1997
<S> <C> <C>
OPERATIONS:
Net Income $9,429,676 $8,133,501
Noncash items in net income :
Depreciation 15,279,171 9,793,689
Amortization 943,399 837,156
Deferred lease expenses 759,985 754,543
Amortization of prepaid leases 203,918 234,614
Deferred income tax expense 1,053,491 1,200,563
Debt issued for accrued interest -- 1,110,400
Amortization of debt premium and discounts (22,588) 37,250
Amortized compensation - stock options 442,044 1,080,436
Equity in income of affiliate (994,919) (433,399)
Minority interests 137,198 (68,167)
Other gains (343,662) --
Cash from (used for) operating working capital:
Inventories (976,209) (576,293)
Receivables from affiliates and other 7,410,245 (3,634,313)
Accounts payable and accrued expenses (3,918,589) (5,499,679)
---------------------------------------------------
Net cash from operations 29,403,160 12,970,301
INVESTING ACTIVITIES:
Additions to theatre properties (196,237,101) (63,199,868)
Sale of theatre properties 133,802,332 --
Increase in deferred issue costs and other assets (9,246,482) (4,992,305)
Decrease/(Increase) in advances to affiliates 3,721,695 (8,855,740)
---------------------------------------------------
Net cash used for investing activities (67,959,555) (77,047,913)
FINANCING ACTIVITIES:
Issuance of Senior Subordinated Notes 103,950,000 77,250,000
Decrease in long-term debt (203,446,337) (78,646,048)
Increase in long-term debt 127,786,272 65,365,000
Purchase of Treasury Stock -- (4,013,737)
Minority investment in subsidiaries, net 6,909,573 792,407
-------------------------------------------------
Net cash from financing activities 35,199,508 60,747,622
DECREASE IN CASH AND CASH EQUIVALENTS (3,356,888) (3,329,990)
CASH AND CASH EQUIVALENTS:
Beginning of period 31,788,380 14,081,226
---------------------------------------------------
End of period $28,431,492 $10,751,236
===================================================
SUPPLEMENTAL INFORMATION:
Cash paid for interest $17,767,502 $12,945,289
===================================================
Cash paid for income taxes $3,495,845 $4,889,984
===================================================
</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, 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 six months ended June 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 Six Months Ended
June 30, June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net income $2,288,568 $3,020,294 $9,429,676 $8,133,501
Foreign currency translation adjustment (6,991,032) (14,342) (7,922,933) (32,695)
--------------- --------------- --------------- ---------------
Comprehensive income $(4,702,464) $3,005,952 $1,506,743 $8,100,806
=============== =============== =============== ===============
</TABLE>
6
<PAGE>
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 six months
ended June 30, 1998 is as follows:
<TABLE>
<CAPTION>
Other Foreign
<S> <C> <C> <C> <C>
United States Subsidiaries Eliminations Consolidated
Total revenues $220,157,261 $35,778,403 ($739,881) $255,195,783
==================== ====================== =================== ==================
Operating income $29,800,941 $746,338 $ 68,384 $30,615,663
==================== ====================== =================== ==================
Total assets $649,193,941 $140,614,254 ($ 88,332,802) $701,475,393
==================== ====================== =================== ==================
</TABLE>
4. Year 2000 Compliance
The Company recognizes that the arrival of the Year 2000 poses a
unique worlwide 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
assessed and is updating its computer applications and business processes to
provide for their continued functionality. An assessment of the readiness of
external entities which it interfaces with, such as vendors, counterparties,
customers, payment systems, and others, is ongoing.
The Company expects that the principal costs will be those associated
with the remediation and testing of its computer applications. This effort is
under way across the Company, and is following a process of inventory, scoping
and analysis, modification, testing and certification, and implementation. The
Company does not anticipate that the related overall costs will be material and
will be funded through operating cash flow. The Company anticipates completing
the Year 2000 project by no later than June 30, 1999, which is prior to any
anticipated impact on its operating systems.
7
<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 Three Months Ended
June 30, June 30,
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Admissions 63.5 62.7 63.3 62.9
Concessions 33.9 35.0 34.0 34.6
Other 2.7 2.3 2.7 2.5
------ ------ ------ ------
Total revenues 100.0 100.0 100.0 100.0
Cost of operations 78.9 75.3 75.9 74.5
General and administrative expenses 6.0 7.9 5.8 6.4
Depreciation and amortization 6.2 4.8 6.2 5.0
Operating income 8.9 11.9 12.0 14.0
Interest expense 8.5 7.2 7.4 7.2
Income before income taxes 2.1 5.3 5.9 7.3
Net income 1.7 2.9 3.7 4.0
</TABLE>
Revenues
Revenues for the quarter ended June 30, 1998 increased to $131.0 million
from $102.8 million for the quarter ended June 30, 1997, a 27.4% increase. The
company generated revenues for the six month period ended June 30, 1998 (the
"1998 period") of $255.2 million compared to $205.8 million for the six months
ended June 30, 1997 (the "1997 period"). The increases in revenues are
primarily attributable to an 18.8% increase in attendance in the second quarter
of 1998 versus 1997, and a 19.2% increase in attendance for the 1998 period
versus the 1997 period. The attendance increases are the result of the net
addition of 371 screens since the second quarter of 1997. The increase in
revenues are also due to a 7.0% increase in admission and concession revenues
per patron in the second quarter of 1998 as compared to the second quarter of
1997, and a 5.3% increase in admission and concession revenues per patron in
the 1998 period as compared to the 1997 period. Revenues per average screen
increased 1.3% to $135,454 for the 1998 period from $133,706 for the 1997
period.
Cost of Operations
Cost of operations, as a percentage of revenues, increased to 78.9% in the
second quarter of 1998 from 75.3% in the second quarter of 1997. The increase
as a percentage of revenues resulted from an increases in film rental expense
as a percentage of admission revenues to 51.6% in the second quarter of 1998
from 50.6% in the second quarter of 1997, an increase in concession expense as
a percentage of concession revenue to 15.7% in the second quarter of 1998 from
13.3% in the second quarter of 1997, and an increase in facility costs as a
percentage of total revenues to 11.4% in the second quarter of 1998
8
<PAGE>
from 9.0% in the second quarter of 1997. These increases were partially offset
by a decrease in payroll expense as a percentage of revenues to 12.8% in the
second quarter of 1998 from 13.5% in the second quarter of 1997.
Cost of operations, as a percentage of revenues, increased to 75.9% in the
1998 period from 74.5% for the same period in 1997. The increase as a
percentage of revenues resulted from an increase in film rental expense as a
percentage of admission revenues to 50.0% in the 1998 period from 49.4% in the
1997 period, an increase in concession expense as a percentage of concession
revenue to 15.6% in the 1998 period from 14.3% in the 1997 period, and an
increase in facility costs as a percentage of total revenues to 10.8% in the
1998 period from 8.9% in the 1997 period. These increases were partially offset
by a decrease in payroll costs as a percentage of revenues to 12.3% in the 1998
period from 13.1% in the 1997 period, and a decrease in utility and other costs
as a percentage of revenues to 13.5% in the 1998 period from 14.0% in the 1997
period.
General and Administrative Expenses
General and administrative expenses, as a percentage of revenues, decreased
to 6.0% in the second quarter of 1998 from 7.9% in the second quarter of 1997.
General and administrative expenses as a percentage of revenues also decreased
in the six month period ended June 30, 1998 to 5.8% from 6.5% 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. The high percentage of general and administrative expenses
relative to revenues in the second quarter of 1997 was also due to compensation
costs associated with the repurchase of non-qualified stock options.
Depreciation and Amortization
Depreciation and amortization increased 64.0% to $8.2 million in the second
quarter of 1998 from $5.0 million in the second quarter of 1997. For the 1998
period, depreciation and amortization increased 54.3% to $15.9 million from
$10.3 million in the 1997 period. The increase is a result of the net addition
of $186.4 million in theater property and equipment since the second quarter of
1997, a 36.3% 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 64.1% during the second quarter of
1998 to $12.8 million from $7.8 million in the second quarter of 1997. Interest
costs incurred in the 1998 period, including amortization of debt discount and
premium, and capitalized interest, increased 39.1% to $21.7 million from $15.6
million in the 1997 period. The increase in interest costs incurred for the
second 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.
9
<PAGE>
Income Taxes
Income taxes decreased to $435,000 for the second quarter of 1998 from $2.4
million in the second quarter of 1997. Income taxes also decreased to $5.6
million for the 1998 period from $6.9 million for the same period in 1997. The
Company's effective tax rate for the first six months of 1998 was 37.0%
compared to 45.6% for the first six 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 for in prior periods. Other permanent differences, primarily
goodwill, have also decreased.
Net Income
Net income of $2.3 million for the second quarter of 1998 included the
consolidated net losses of Cinemark International (net of minority interest) of
$400,000. Net income of $3.0 million for the second quarter of 1997 included
the consolidated net losses of Cinemark International (net of minority
interest) of $500,000. Net income of $9.4 million for the 1998 period included
the consolidated net income of Cinemark International (net of minority
interest) of $600,000. Net income of $8.1 million for the 1997 period included
the consolidated net losses of Cinemark International (net of minority
interest) of $1.2 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 78% 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 August 12, 1998, the Company
opened in the U.S. fifteen theaters (233 screens) and has thirteen theaters
(211 screens) under construction or scheduled to begin construction 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 400
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 $425 million. As of August 12, 1998, the
Company had expended approximately $153.7 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 theatre 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
10
<PAGE>
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 bea
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.
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 August 12, 1998, the Company had borrowed $87 million under the Credit
Facility and the effective interest rate on such borrowings is 6.9% 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 August 12, 1998, Cinemark
11
<PAGE>
International operated 38 theaters (364 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
August 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) 7 theaters(70 screens
Chile 1992 50% 5 theaters (43 screens) 6 theaters(46 screens)
Argentina 1995 25% 4 theaters (34 screens) 2 theaters(24 screens)
Argentina 1997 100% -- 3 theaters(20 screens)
Brazil 1996 60% 8 theaters (86 screens) 7 theaters(61 screens)
Ecuador 1996 60% 2 theaters (16 screens) --
Peru 1996 50% 1 theater (12 screens) 2 theaters(15 screens)
Central America 1997 50% 3 theaters (20 screens) 4 theaters (25 screens)
Total 38 theaters(364 screens) 31 theaters(261 screens)
</TABLE>
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 be 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 August 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 August 12, 1998 is 6.9% annum.
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 June 30, 1998
Condensed Consolidating Statement of
Income (unaudited) for the six months
ended June 30, 1998
Condensed Consolidating Statement of
Cash Flow (unaudited) for the six months
ended June 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 JUNE 30, 1998
(Unaudited)
Restricted Unrestricted
Subsidiaries Subsidiaries Eliminations TOTAL
ASSETS
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $22,736,881 $5,694,611 -- $28,431,492
Temporary cash investments -- 341,156 -- 341,156
Inventories 1,996,274 1,214,166 -- 3,210,440
Receivables from affiliates and other 7,216,384 21,668,646 (6,771,094) 22,113,936
---------------------------------------------------------------
Total current assets 31,949,539 28,918,579 (6,771,094) 54,097,024
THEATER PROPERTIES AND EQUIPMENT 601,721,025 98,607,783 -- 700,328,808
Less accumulated depreciation and amortization (103,624,359) (6,797,209) -- (110,421,568)
---------------------------------------------------------------
Theater properties and equipment - net 498,096,666 91,810,574 -- 589,907,240
OTHER ASSETS:
Certificates of deposit 2,361,520 -- -- 2,361,520
Investments in and advances to affiliates 85,204,949 15,451,055 (79,451,660) 21,204,244
Intangible assets - net 8,176,573 -- (2,110,048) 6,066,525
Deferred charges and other - net 23,404,694 4,434,046 -- 27,838,740
---------------------------------------------------------------
Total other assets 119,147,736 19,885,101 (81,561,708) 57,471,129
---------------------------------------------------------------
TOTAL $649,193,941 $140,614,254 ($88,332,802) $701,475,393
===============================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $333,006 $337,791 -- $670,797
Accounts payable and accrued expenses 63,734,643 13,288,075 (4,349,286) 72,673,432
Total current liabilities 64,067,649 13,625,866 (4,349,286) 73,344,229
LONG-TERM LIABILITIES:
Senior credit agreement 77,980,073 30,000,000 -- 107,980,073
Senior subordinated notes - Cinemark USA, Inc. 380,287,451 -- -- 380,287,451
Deferred lease expenses 13,061,488 763,127 -- 13,824,615
Deferred gain and other 6,786,952 1,551,559 -- 8,338,511
Deferred income taxes 11,781,634 208,886 -- 11,990,520
---------------------------------------------------------------
Total long-term liabilities 489,897,598 32,523,572 -- 522,421,170
MINORITY INTERESTS IN SUBSIDIARIES 4,739,118 29,040,214 -- 33,779,332
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 (1,938,747) -- -- (1,938,747)
Retained earnings (deficit) 56,526,363 (7,965,140) 7,965,140 56,526,363
Treasury stock, 57,211 Class B shares (24,198,890) -- -- (24,198,890)
Cumulative foreign currency translation adjustment (484,594) (18,585,138) 26,224 (19,043,508)
---------------------------------------------------------------
Total shareholders' equity 90,489,577 65,424,602 (83,983,516) 71,930,663
---------------------------------------------------------------
TOTAL $649,193,941 $140,614,254 ($88,332,802) $701,475,393
===============================================================
</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 SIX MONTHS ENDED JUNE 30, 1998
(Unaudited)
Restricted Unrestricted
Subsidiaries Subsidiaries Eliminations TOTAL
<S> <C> <C> <C> <C>
REVENUES:
Admissions $137,035,754 $24,416,891 -- $161,452,645
Concessions 75,854,538 11,035,936 -- $86,890,474
Other 7,600,527 325,576 (1,073,439) $6,852,664
---------------------------------------------------------------------------------
Total 220,490,819 35,778,403 (1,073,439) $255,195,783
COSTS AND EXPENSES:
Cost of operations:
Film rentals 69,622,787 11,087,302 -- 80,710,089
Concession supplies 9,903,879 3,626,471 -- 13,530,350
Salaries and wages 28,019,803 3,436,644 -- 31,456,447
Facility leases 23,548,704 3,916,855 -- 27,465,559
Advertising 5,024,944 1,219,393 -- 6,244,337
Utilities and other 29,403,761 4,983,091 -- 34,386,852
---------------------------------------------------------------------------------
Total 165,523,878 28,269,756 -- 193,793,634
General and administrative expenses 11,823,892 4,174,895 (1,073,389) 14,925,398
Depreciation and amortization 13,342,108 2,587,414 (68,434) 15,861,088
---------------------------------------------------------------------------------
Total 190,689,878 35,032,065 (1,141,823) 224,580,120
---------------------------------------------------------------------------------
OPERATING INCOME 29,800,941 746,338 68,384 30,615,663
OTHER INCOME (EXPENSE):
Interest expense (17,463,785) (1,228,411) -- (18,692,196)
Amortization of debt issue costs (330,232) (31,250) -- (361,482)
Amortization of debt discount/premium 22,587 -- -- 22,587
Interest Income 676,149 1,505,641 -- 2,181,790
Other gains (losses) 1,052,457 40 -- 1,052,497
Foreign currency exchange loss -- (708,835) -- (708,835)
Minority interests (54,863) (82,335) -- (137,198)
Equity in income of affiliates 1,215,230 343,471 (563,782) 994,919
---------------------------------------------------------------------------------
Total (14,882,457) (201,679) (563,782) (15,647,918)
---------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 14,918,484 544,659 (495,398) 14,967,745
INCOME TAXES 5,546,945 (8,876) -- 5,538,069
---------------------------------------------------------------------------------
NET INCOME $9,371,539 $553,535 ($495,398) $9,429,676
=================================================================================
</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 SIX MONTHS ENDED JUNE 30, 1998
(Unaudited)
Restricted Unrestricted
Subsidiaries Subsidiaries Eliminations TOTAL
<S> <C> <C> <C> <C>
OPERATIONS:
Net income $9,429,676 $553,535 ($553,535) $9,429,676
Noncash items in net income (loss):
Depreciation 12,760,046 2,519,125 -- 15,279,171
Amortization 943,544 68,289 (68,434) 943,399
Deferred lease expenses 485,476 274,509 -- 759,985
Amortization of prepaid leases -- 203,918 -- 203,918
Deferred income tax (expense) benefit 1,053,491 -- -- 1,053,491
Amortization of debt discount and premiums (22,588) -- -- (22,588)
Amortized compensation - stock option 442,044 -- -- 442,044
Equity in income (loss) of affiliate (1,204,983) (343,471) 553,535 (994,919)
Minority interests 54,863 82,335 -- 137,198
Gain on sale of assets (343,622) (40) -- (343,662)
Cash from (used for) operating working capital (1,765,703) 4,281,150 -- 2,515,447
-----------------------------------------------------------------------------
Net cash from (used for) operations 21,832,244 7,639,350 (68,434) 29,403,160
INVESTING ACTIVITIES:
Additions to theatre properties (155,946,729) (40,290,372) -- (196,237,101)
Sale of theatre properties 133,802,332 -- -- 133,802,332
Decrease (increase) in deferred issue costs
and other assets (10,671,371) 1,356,455 68,434 (9,246,482)
Decrease in advances to affiliates (991,550) 3,748,209 893,036 3,721,695
-----------------------------------------------------------------------------
Net cash used for investing activities (33,735,317) (35,185,708) 961,470 (67,959,555)
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 126,716,478 1,069,794 -- 127,786,272
Minority investment in subsidiaries, net 4,076,594 2,832,979 -- 6,909,573
Decrease in theatre development advance
Cinemark USA investment in Cinemark International -- 893,036 (893,036) --
-----------------------------------------------------------------------------
Net cash from financing activities 31,296,735 4,795,809 (893,036) 35,199,508
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 19,393,661 (22,750,549) -- (3,356,888)
CASH AND CASH EQUIVALENTS:
Beginning of period 3,343,220 28,445,160 -- 31,788,380
-----------------------------------------------------------------------------
End of period 22,736,881 $5,694,611 -- $28,431,492
=============================================================================
SUPPLEMENTAL INFORMATION:
Cash paid for interest $16,674,520 $1,092,982 -- $17,767,502
=============================================================================
Cash paid for income taxes $3,495,845 -- -- $3,495,845
=============================================================================
</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: August 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 28,431,492
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 3,210,440
<CURRENT-ASSETS> 54,097,024
<PP&E> 700,328,808
<DEPRECIATION> 110,421,568
<TOTAL-ASSETS> 701,475,393
<CURRENT-LIABILITIES> 73,344,228
<BONDS> 380,287,451
0
0
<COMMON> 49,537,547
<OTHER-SE> 22,393,116
<TOTAL-LIABILITY-AND-EQUITY> 701,475,393
<SALES> 255,195,783
<TOTAL-REVENUES> 255,195,783
<CGS> 0
<TOTAL-COSTS> 224,580,120
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,692,196
<INCOME-PRETAX> 14,967,745
<INCOME-TAX> 5,538,069
<INCOME-CONTINUING> 9,429,676
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,429,676
<EPS-PRIMARY> 52.89
<EPS-DILUTED> 50.55
</TABLE>
