Filed Pursuant to Rule 424(b)(1)
Registration No. 333-140390
PROSPECTUS
28,000,000 Shares
Cinemark Holdings,
Inc.
Common Stock
We are offering 13,888,889 shares of our common stock in
this initial public offering. The selling stockholders named in
this prospectus are offering an additional
14,111,111 shares of our common stock. We will not receive
any proceeds from the sale of shares by the selling stockholders.
No public market currently exists for our common stock. Our
common stock has been approved for listing, subject to official
notice of issuance, on the New York Stock Exchange under the
trading symbol CNK.
Investing in our common stock involves risks. See Risk
Factors beginning on page 11.
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Per Share
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Total
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Public offering price
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$
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19.000
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$
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532,000,000
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Underwriting discount
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$
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1.045
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29,260,000
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Proceeds to Cinemark Holdings,
Inc. (before expenses)
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$
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17.955
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249,375,002
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Proceeds to the Selling
Stockholders (before expenses)
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$
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17.955
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$
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253,364,998
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The selling stockholders have granted the underwriters a
30-day
option to purchase up to an additional 2,800,000 shares of
our common stock on the same terms and conditions as set forth
above if the underwriters sell more than 28,000,000 shares
of our common stock in this offering.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
Lehman Brothers, on behalf of the underwriters, expects to
deliver the shares on or about April 27, 2007.
Joint Book-Running Managers
Co-Managers
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Banc
of America Securities LLC |
Citi |
Deutsche
Bank Securities |
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JPMorgan |
Wachovia
Securities |
April 23, 2007
TABLE OF
CONTENTS
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F-1
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You should rely only on the information contained in this
prospectus. We have not, and the underwriters have not,
authorized anyone to provide you with information that is
different. This prospectus may only be used where it is legal to
sell these securities. The information contained in this
prospectus is accurate only as of the date of this prospectus,
regardless of the time of delivery of this prospectus or of any
sale of our common stock. Our business, financial condition,
results of operations and prospects may have changed since that
date.
Dealer
Prospectus Delivery Obligation
Until May 18, 2007 (25 days after the date of this
prospectus), all dealers that effect transactions in these
securities, whether or not participating in this offering, may
be required to deliver a prospectus. This is in addition to the
dealers obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or
subscriptions.
Market
Information
Information regarding market share, market position and industry
data pertaining to our business contained in this prospectus
consists of estimates based on data and reports compiled by
industry professional organizations (including the Motion
Picture Association of America, or MPAA, PricewaterhouseCoopers
LLP, or PwC, MPA Worldwide Market Research, the National
Association of Theatre Owners, or NATO, and BIA Financial
Network, Inc., or BIAfn), industry analysts and our
knowledge of our business and markets.
i
About
Us
Financial
Presentation
On April 2, 2004, an affiliate of Madison Dearborn
Partners, LLC, or MDP, acquired approximately 83% of the capital
stock of Cinemark, Inc., pursuant to which a newly formed
subsidiary owned by an affiliate of MDP was merged with and into
Cinemark, Inc. with Cinemark, Inc. continuing as the surviving
corporation, hereinafter referred to as the MDP Merger.
Management, including Lee Roy Mitchell, Chairman and then Chief
Executive Officer, retained at such time an approximately 17%
ownership interest in Cinemark, Inc.
Cinemark Holdings, Inc. was formed on August 2, 2006. On
August 7, 2006, the Cinemark, Inc. stockholders entered
into a share exchange agreement pursuant to which they agreed to
exchange their shares of Class A common stock for an equal
number of shares of common stock of Cinemark Holdings, Inc.,
hereinafter referred to as the Cinemark Share Exchange. The
Cinemark Share Exchange and the acquisition of Century Theatres,
Inc., or Century, were completed on October 5, 2006. Prior
to October 5, 2006, Cinemark Holdings, Inc. had no assets,
liabilities or operations. On October 5, 2006, Cinemark,
Inc. became a wholly owned subsidiary of Cinemark Holdings, Inc.
As of December 31, 2006, MDP owned approximately 66% of our
capital stock, Lee Roy Mitchell and the Mitchell Special Trust
collectively owned approximately 14%, Syufy Enterprises, LP
owned approximately 11%, outside investors owned approximately
8%, and certain members of management owned the remaining 1%.
For purposes of the financial presentation in this prospectus,
the historical financial information reflects the change in
reporting entity that occurred as a result of the Cinemark Share
Exchange. Cinemark Holdings, Inc.s consolidated financial
information reflects the historical accounting basis of its
stockholders for all periods presented. Accordingly, financial
information for periods preceding the MDP Merger is presented as
Predecessor and for the periods subsequent to the MDP Merger is
presented as Successor.
The Century acquisition is reflected in the historical financial
information of Cinemark Holdings, Inc. from October 5,
2006. Because of the significance of the Century acquisition,
we have included in this prospectus historical financial
statements for Century as well as pro forma financial
information giving effect to the Century acquisition as more
fully described in Unaudited Pro Forma Condensed
Consolidated Financial Information.
Certain
Definitions
Unless the context otherwise requires, all references to
we, our, us, the
issuer or Cinemark relate to Cinemark
Holdings, Inc. or Cinemark, Inc., its predecessor, and its
consolidated subsidiaries, including Cinemark USA, Inc. and
Century. We use the term pro forma in this
prospectus to refer to information presented after giving effect
to the Century acquisition. Unless otherwise specified, all
operating and other statistical data for the U.S. include
one theatre in Canada. All references to Latin America are to
Argentina, Brazil, Chile, Colombia, Costa Rica, Ecuador, El
Salvador, Honduras, Mexico, Nicaragua, Panama and Peru. Unless
otherwise specified, all operating and other statistical data
are as of and for the year ended December 31, 2006.
ii
PROSPECTUS
SUMMARY
The following summary highlights information contained
elsewhere in this prospectus. It is not complete and does not
contain all of the information that you should consider before
investing in our common stock. You should read the entire
prospectus carefully, especially the risks of investing in our
common stock discussed under Risk Factors and the
financial statements and accompanying notes.
Cinemark
Holdings, Inc.
Our
Company
We are a leader in the motion picture exhibition industry with
396 theatres and 4,488 screens in the U.S. and Latin
America. Our circuit is the third largest in the U.S. with
281 theatres and 3,523 screens in 37 states. We are
the most geographically diverse circuit in Latin America with
115 theatres and 965 screens in 12 countries.
During the year ended December 31, 2006, over
215 million patrons attended our theatres, when giving
effect to the Century acquisition as of the beginning of the
year. Our modern theatre circuit features stadium seating for
approximately 73% of our screens.
We selectively build or acquire new theatres in markets where we
can establish and maintain a strong market position. We believe
our portfolio of modern theatres provides a preferred
destination for moviegoers and contributes to our significant
cash flows from operating activities. Our significant presence
in the U.S. and Latin America has made us an important
distribution channel for movie studios, particularly as they
look to increase revenues generated in Latin America. Our market
leadership is attributable in large part to our senior
executives, who average approximately 32 years of industry
experience and have successfully navigated us through multiple
business cycles.
We grew our total revenue per patron at the highest compound
annual growth rate, or CAGR, during the last three fiscal years
among the three largest motion picture exhibitors in the U.S.
Revenues, operating income and net income for the year ended
December 31, 2006 were $1,220.6 million,
$127.4 million and $0.8 million, respectively. On a
pro forma basis for the Century acquisition, revenues, operating
income and net loss for the year ended December 31, 2006
were $1,612.1 million, $175.6 million and
$(3.5) million, respectively. At December 31, 2006, we
had cash and cash equivalents of $147.1 million and
long-term debt, excluding capital leases, of
$1,911.7 million. Approximately $1,126.7 million, or
59%, of our total long-term debt accrues interest at variable
rates.
Acquisition
of Century Theatres, Inc.
On October 5, 2006, we completed the acquisition of
Century, a national theatre chain headquartered in
San Rafael, California with 77 theatres and 1,017
screens in 12 states, for a purchase price of approximately
$681 million and the assumption of approximately
$360 million of Century debt. The acquisition of Century
combines two family founded companies with common operating
philosophies and cultures, strong operating performances and
complementary geographic footprints. The key strategic benefits
of the acquisition include:
High Quality Theatres with Strong Operating
Performance. Centurys theatre circuit
is among the most modern in the U.S. based on 77% of their
screens featuring stadium seating. Prior to the Century
acquisition, Century achieved strong performance with revenues
of $516.0 million, operating income of $59.9 million
and net income of $18.1 million for its fiscal year ended
September 28, 2006. These results are due in part to
Centurys operating philosophy which is similar to
Cinemarks.
Strengthens Our Geographic
Footprint. The Century acquisition enhances
our geographic diversity, strengthens our presence in key large-
and medium-sized metropolitan and suburban markets such as Las
Vegas, the San Francisco Bay Area and Tucson, and
complements our existing footprint. The increased number of
theatres and markets diversifies our revenues and broadens the
composition of our overall portfolio.
Leading Share in Attractive
Markets. With the Century acquisition, we
have a leading market share in a large number of attractive
metropolitan and suburban markets. For the year ended
December 31, 2006, on a
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pro forma basis, we ranked either first or second by box office
revenues in 28 out of our top 30 U.S. markets,
including Chicago, Dallas, Houston, Las Vegas, Salt Lake City
and the San Francisco Bay Area.
Participation
in National CineMedia
In March 2005, Regal Entertainment, Inc., or Regal, and AMC
Entertainment, Inc., or AMC, formed National CineMedia, LLC, or
NCM, and on July 15, 2005, we joined NCM as one of the
founding members. NCM operates the largest in-theatre network in
the U.S. which delivers digital advertising content and
digital non-film event content to the screens and lobbies of the
three largest motion picture companies in the country. The
digital projectors currently used to display advertising will
not be used to exhibit digital film content or digital cinema.
NCMs primary activities that impact us include the
following activities:
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Advertising: NCM develops, produces,
sells and distributes a branded, pre-feature entertainment and
advertising program called FirstLook, along
with an advertising program for its lobby entertainment network,
or LEN, and various marketing and promotional products in
theatre lobbies;
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CineMeetings: NCM provides live and
pre-recorded networked and single-site meetings and events in
the theatres throughout its network; and
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Digital Programming Events: NCM
distributes live and pre-recorded concerts, sporting events and
other non-film entertainment programming to theatres across its
digital network.
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We believe that the reach, scope and digital delivery capability
of NCMs network provides an effective platform for
national, regional and local advertisers to reach a young,
affluent and engaged audience on a highly targeted and
measurable basis.
On February 13, 2007, we received $389.0 million in
connection with National CineMedia, Inc.s, or NCM,
Inc.s, initial public offering and related transactions,
or the NCM transactions. As a result of these transactions, we
will no longer receive a percentage of NCMs revenue but
rather a monthly theatre access fee which we expect will reduce
the contractual amounts required to be paid to us by NCM. In
addition, we expect to receive mandatory quarterly distributions
of excess cash from NCM. Prior to the initial public offering of
NCM, Inc. common stock, our ownership interest in NCM was
approximately 25% and subsequent to the completion of the
offering we owned a 14% interest in NCM.
Competitive
Strengths
We believe the following strengths allow us to compete
effectively.
Strong Operating Performance and
Discipline. We generated operating income and
net income of $127.4 million and $0.8 million,
respectively, for the year ended December 31, 2006. Our
strong operating performance is a result of our financial
discipline, such as negotiating favorable theatre level
economics and controlling theatre operating costs. We believe
the Century acquisition will result in additional revenues and
cost efficiencies to further improve our operating performance.
Leading Position in Our
U.S. Markets. We have a leading share in
the U.S. metropolitan and suburban markets we serve. For
the year ended December 31, 2006, on a pro forma basis we
ranked either first or second based on box office revenues in 28
out of our top 30 U.S. markets, including Chicago, Dallas,
Houston, Las Vegas, Salt Lake City and the San Francisco
Bay Area. On average, the population in over 80% of our domestic
markets, including Dallas, Las Vegas and Phoenix, is expected to
grow 61% faster than the average growth rate of the U.S.
population over the next five years, as reported by BIAfn
and U.S. census data.
Strategically Located in Heavily Populated Latin American
Markets. Since 1993, we have invested
throughout Latin America due to the growth potential of the
region. We operate 115 theatres and 965 screens in 12
countries, generating revenues of $285.9 million for the
year ended December 31, 2006. We have successfully
established a significant presence in major cities in the
region, with theatres in twelve of the fifteen largest
metropolitan areas. With the most geographically diverse circuit
in Latin America, we are an important distribution channel to
the movie studios. The regions improved economic climate
and rising
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disposable income are also a source for growth. Over the last
three years, the CAGR of our international revenue has been
greater than that of our U.S. operations. We are well-positioned
with our modern, large-format theatres and new screens to take
advantage of this favorable economic environment for further
growth and diversification of our revenues.
Modern Theatre Circuit. We have one of
the most modern theatre circuits in the industry which we
believe makes our theatres a preferred destination for
moviegoers in our markets. We feature stadium seating in 79% of
our first run auditoriums, the highest percentage among the
three largest U.S. exhibitors, and 81% of our international
screens also feature stadium seating. During 2006, we continued
our organic expansion by building 210 screens. We currently
have commitments to build 382 additional screens over the next
four years.
Strong Balance Sheet with Significant Cash Flow from
Operating Activities. We generate significant
cash flow from operating activities as a result of several
factors, including managements ability to contain costs,
predictable revenues and a geographically diverse, modern
theatre circuit requiring limited maintenance capital
expenditures. Additionally, a strategic advantage, which
enhances our cash flows, is our ownership of land and buildings.
We own 45 properties with an aggregate value in excess of
$350 million. For the year ended December 31, 2006, as
adjusted to give effect to our repurchase of approximately
$332 million of our 9% senior subordinated notes and this
offering, our net debt is approximately $1,283.1 million.
We believe our expected level of cash flow generation will
provide us with the strategic and financial flexibility to
pursue growth opportunities, support our debt payments and make
dividend payments to our stockholders.
Strong Management with Focused Operating
Philosophy. Led by Chairman and founder Lee
Roy Mitchell, Chief Executive Officer Alan Stock, President and
Chief Operating Officer Timothy Warner and Chief Financial
Officer Robert Copple, our management team has an average of
approximately 32 years of theatre operating experience
executing a focused strategy which has led to strong operating
results. Our operating philosophy has centered on providing a
superior viewing experience and selecting less competitive
markets or clustering in strategic metropolitan and suburban
markets in order to generate a high return on invested capital.
This focused strategy includes strategic site selection,
building appropriately-sized theatres for each of our markets,
and managing our properties to maximize profitability. As a
result, we grew our admissions and concessions revenues per
patron at the highest CAGR during the last three fiscal years
among the three largest motion picture exhibitors in the U.S.
Our
Strategy
We believe our operating philosophy and management team will
enable us to continue to enhance our leading position in the
motion picture exhibition industry. Key components of our
strategy include:
Establish and Maintain Leading Market
Positions. We will continue to seek growth
opportunities by building or acquiring modern theatres that meet
our strategic, financial and demographic criteria. We will
continue to focus on establishing and maintaining a leading
position in the markets we serve.
Continue to Focus on Operational
Excellence. We will continue to focus on
achieving operational excellence by controlling theatre
operating costs. Our margins reflect our track record of
operating efficiency.
Selectively Build in Profitable, Strategic Latin American
Markets. Our international expansion will
continue to focus primarily on Latin America through
construction of American-style,
state-of-the-art
theatres in major urban markets.
Our
Industry
The U.S. motion picture exhibition industry has a track
record of long-term growth, with box office revenues growing at
a CAGR of 5.7% over the last 35 years. Against this
background of steady long-term growth, the exhibition industry
has experienced periodic short-term increases and decreases in
attendance, and consequently box office revenues. In 2006 the
motion picture exhibition industry experienced a marked
improvement over 2005, with box office revenue increasing 5.5%,
after a decrease of 5.7% in 2005 over the prior year. Strong
revenue and attendance growth has been driven by a steadily
growing number of movie releases, which, according to MPAA,
reached an all-time high of 607 in 2006, up 11%. We believe this
trend
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will continue into 2007 with a strong slate of franchise films,
such as Spider-Man 3, Shrek the Third,
Pirates of the Caribbean: At Worlds End and Harry
Potter and the Order of the Phoenix.
International growth has also been strong. According to MPAA,
global box office revenues grew steadily at a CAGR of 8.2% from
2003 to 2006 as a result of the increasing acceptance of
moviegoing as a popular form of entertainment throughout the
world, ticket price increases and new theatre construction.
According to PwC, Latin Americas estimated box office
revenue CAGR was 8.4% over the same period.
Drivers
of Continued Industry Success
We believe the following market trends will drive the continued
growth and strength of our industry:
Importance of Theatrical Success in Establishing Movie
Brands and Subsequent Markets. Theatrical
exhibition is the primary distribution channel for new motion
picture releases. A successful theatrical release which
brands a film is one of the major factors in
determining its success in downstream markets, such
as home video, DVD, and network, syndicated and
pay-per-view
television.
Increased Importance of International Markets for
Box Office Success. International
markets are becoming an increasingly important component of the
overall box office revenues generated by Hollywood films,
accounting for $16 billion, or 63% of 2006 total worldwide
box office revenues according to MPAA, with many international
blockbusters such as Pirates of the Caribbean: Dead
Mans Chest, The Da Vinci Code, Ice Age: The Meltdown,
and Mission Impossible III. With continued
growth of the international motion picture exhibition industry,
we believe the relative contribution of markets outside North
America will become even more significant.
Increased Investment in Production and Marketing of Films
by Distributors. As a result of the
additional revenues generated by domestic, international and
downstream markets, studios have increased
production and marketing expenditures at a CAGR of 5.5% and
6.3%, respectively, since 1995. Over the last three years, third
party funding sources such as hedge funds have also provided
over $5 billion of incremental capital to fund new film
content production. This has led to an increase in
blockbuster features, which attract larger audiences
to theatres.
Stable Long-term Attendance Trends. We
believe that long-term trends in motion picture attendance in
the U.S. will continue to benefit the industry. Despite
historical economic and industry cycles, attendance has grown at
a 1.6% CAGR over the last 35 years to 1.45 billion
patrons in 2006. As reported by MPAA, 80% of moviegoers stated
their overall theatre experience in 2006 was time and money well
spent. Additionally, younger moviegoers in the
U.S. continue to be the most frequent patrons.
Reduced Seasonality of
Revenues. Box office revenues have
historically been highly seasonal, with a majority of
blockbusters being released during the summer and year-end
holiday season. In recent years, the seasonality of motion
picture exhibition has become less pronounced as studios have
begun to release films more evenly throughout the year. This
benefits exhibitors by allowing more effective allocation of the
fixed cost base throughout the year.
Convenient and Affordable Form of
Out-Of-Home
Entertainment. Moviegoing continues to be one
of the most convenient and affordable forms of
out-of-home
entertainment, with an estimated average ticket price in the
U.S. of $6.55 in 2006. Average prices in 2006 for other
forms of
out-of-home
entertainment in the U.S., including sporting events and theme
parks, range from approximately $22.40 to $61.60 per ticket
according to MPAA. Movie ticket prices have risen at
approximately the rate of inflation, while ticket prices for
other forms of
out-of-home
entertainment have increased at higher rates.
Recent
Developments
Repurchase
of 9% Senior Subordinated Notes
On March 6, 2007, Cinemark USA, Inc. commenced an offer to
purchase for cash any and all of its then outstanding
$332.2 million aggregate principal amount of 9% senior
subordinated notes. In connection with the tender offer,
Cinemark USA, Inc. solicited consents for certain proposed
amendments to the indenture to
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remove substantially all restrictive covenants and certain
events of default. On March 20, 2007, the early settlement
date, Cinemark USA, Inc. repurchased $332.0 million
aggregate principal amount of 9% senior subordinated notes
and executed a supplemental indenture removing substantially all
of the restrictive covenants and certain events of default. On
April 3, 2007, we purchased $66,000 of the 9% senior
subordinated notes tendered after the early settlement date.
Approximately $184,000 aggregate principal amount of
9% senior subordinated notes remain outstanding. We used
the proceeds from the NCM transactions and cash on hand to
purchase the 9% senior subordinated notes tendered pursuant
to the tender offer and consent solicitation.
Amendments
to the New Senior Secured Credit Facility
On March 14, 2007, Cinemark USA, Inc. amended its new
senior secured credit facility to, among other things, modify
the interest rate on the term loans under the new senior secured
credit facility, modify certain prepayment terms and covenants,
and facilitate the tender offer for the 9% senior subordinated
notes. The term loans now accrue interest, at Cinemark USA,
Inc.s option, at: (A) the base rate equal to the
higher of (1) the prime lending rate as set forth on the
British Banking Association Telerate page 5, or
(2) the federal funds effective rate from time to time plus
0.50%, plus a margin that ranges from 0.50% to 0.75% per annum,
or (B) a eurodollar rate plus a margin that
ranges from 1.50% to 1.75%, per annum. In each case, the margin
is a function of the corporate credit rating applicable to the
borrower. The interest rate on the revolving credit line was not
amended. Additionally, the amendment removed any obligation to
prepay amounts outstanding under the new senior secured credit
facility in an amount equal to the amount of the net cash
proceeds received from the NCM transactions or from excess cash
flows, and imposed a 1% prepayment premium for one year on
certain prepayments of the term loans.
Digital
Cinema Implementation Partners LLC
On February 12, 2007, we, along with AMC and Regal, entered
into a joint venture known as Digital Cinema Implementation
Partners LLC, or DCIP, to explore the possibility of
implementing digital cinema in our theatres and to establish
agreements with major motion picture studios for the
implementation and financing of digital cinema. In addition,
DCIP has entered into a digital cinema services agreement with
NCM for purposes of assisting DCIP in the development of digital
cinema systems. Future digital cinema developments will be
managed by DCIP, subject to certain approvals by us, AMC and
Regal.
Risk
Factors
Investing in our common stock involves risk. Our business is
subject to a number of risks including the following:
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our dependency on motion picture production and performance
could have a material adverse effect on our business;
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a deterioration in relationships with film distributors could
adversely affect our ability to license commercially successful
films at reasonable rental rates;
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we may not be able to successfully execute our business strategy
because of the competitive nature of our industry as well as
increasing competition from alternative forms of entertainment;
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alternative or downstream film distribution channels
that may drive down movie theatre attendance, limit ticket price
growth and shrink video release windows;
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our substantial lease and debt obligations could impair our
liquidity and financial condition; and
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we may not be able to identify suitable locations for expansion
or generate additional revenue opportunities.
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You should refer to the section entitled Risk
Factors, for a discussion of these and other risks, before
investing in our common stock.
Madison
Dearborn Partners
On April 2, 2004, an affiliate of MDP acquired
approximately 83% of the capital stock of Cinemark, Inc. for
approximately $518.2 million in cash. Prior to this
offering, MDP beneficially owned approximately 66% of our
outstanding common stock. MDP will receive net proceeds from
this offering of approximately $199 million after deducting
underwriting discounts and commissions. We will not receive any
of the net proceeds from the sale of shares by the selling
stockholders. Upon completion of the offering, MDP will
beneficially own approximately 47% of our common stock
(approximately 45% of our common stock if the underwriters
option to purchase additional shares is exercised in full). MDP
currently has the right, pursuant to a stockholders agreement,
to designate a majority of our Board of Directors. We expect
that, upon completion of this offering, the stockholders
agreement will be terminated and replaced with a director
nomination agreement, pursuant to which MDP would have the right
to designate nominees for five of the members of our Board of
Directors.
Corporate
Information
We are incorporated under the laws of the state of Delaware. Our
principal executive offices are located at 3900 Dallas Parkway,
Suite 500, Plano, Texas 75093. The telephone number of our
principal executive offices is
(972) 665-1000.
We maintain a website at www.cinemark.com, on which we
will, after completion of this offering, post our key corporate
governance documents, including our board committee charters and
our code of ethics. We do not incorporate the information on our
website into this prospectus and you should not consider any
information on, or that can be accessed through, our website as
part of this prospectus.
6
The
Offering
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Common stock offered by us |
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13,888,889 shares |
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Common stock offered by the selling stockholders |
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14,111,111 shares |
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Common stock to be outstanding after the offering |
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106,449,511 shares |
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Underwriters option |
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The selling stockholders have granted the underwriters a
30-day
option to purchase up to an aggregate of
2,800,000 additional shares of our common stock if the
underwriters sell more than 28,000,000 shares in this
offering. |
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Dividend policy |
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Following this offering, we intend to pay a quarterly cash
dividend at an annual rate initially equal to $0.72 per share
(or a quarterly rate initially equal to $0.18 per share) of
common stock, commencing in the third quarter of 2007, which
will be a partial dividend paid on a pro rata basis depending on
the closing date of this offering. The declaration of future
dividends on our common stock will be at the discretion of our
Board of Directors and will depend upon many factors, including
our results of operations, financial condition, earnings,
capital requirements, limitations in our debt agreements and
legal requirements. See Dividend Policy. |
|
Use of proceeds |
|
We expect to use the net proceeds that we receive from this
offering to repay outstanding debt. See Use of
Proceeds. We will not receive any proceeds from the sale
of shares by the selling stockholders. |
|
|
|
Lehman Brothers Inc. acted as initial purchaser in connection
with the offering of our
93/4%
senior discount notes. An affiliate of Lehman Brothers Inc. was
a joint lead arranger and is a lender and the administrative
agent under our new senior secured credit facility. Morgan
Stanley Senior Funding, Inc. was a joint lead arranger and is a
lender and the syndication agent under our new senior secured
credit facility. An affiliate of Deutsche Bank Securities Inc.
is a lender under our new senior secured credit facility. Lehman
Brothers Inc. acted as dealer manager and solicitation agent in
connection with Cinemark USA, Inc.s offer to purchase and
related consent solicitation of its 9% senior subordinated
notes. See Underwriting Relationships. |
|
New York Stock Exchange symbol |
|
CNK |
The outstanding share information is based on
92,560,622 shares of our common stock that will be
outstanding immediately prior to the consummation of this
offering. Unless otherwise indicated, information contained in
this prospectus regarding the number of outstanding shares of
our common stock does not include the following:
|
|
|
|
|
6,915,591 shares of our common stock issuable upon the
exercise of outstanding stock options, which have a weighted
average exercise price of $7.63 per share after giving
effect to a 2.9585-for-one stock split with respect to our
common stock effected April 9, 2007; and
|
|
|
|
an aggregate of 2,177,166 shares of our common stock
reserved for future issuance under our 2006 Long Term Incentive
Plan.
|
7
Unless otherwise indicated, all information contained in this
prospectus:
|
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|
|
gives effect to a 2.9585-for-one stock split with respect to our
common stock effected on April 9, 2007; and
|
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|
assumes no exercise of the underwriters option to purchase
up to an aggregate of 2,800,000 additional shares of our
common stock.
|
8
Summary
Consolidated Financial and Operating Information
The following table provides our summary historical consolidated
financial and operating information and unaudited pro forma
condensed consolidated financial information. The summary
information for periods through April 1, 2004 are of
Cinemark, Inc., the predecessor, and the summary information for
all subsequent periods are of Cinemark Holdings, Inc., the
successor. Our summary historical financial information for the
period January 1, 2004 to April 1, 2004, the period
April 2, 2004 to December 31, 2004 and the years ended
December 31, 2005 and 2006 is derived from our audited
consolidated financial statements appearing elsewhere in this
prospectus.
Our unaudited pro forma statement of operations information and
other financial information for the year ended December 31,
2006 gives effect to the Century acquisition as if it had been
consummated on January 1, 2006.
The unaudited pro forma condensed consolidated financial
information does not purport to represent what our results of
operations would have been had the transaction noted above
actually occurred on the date specified, nor does it purport to
project our results of operations for any future period or as of
any future date. The unaudited pro forma condensed consolidated
financial information is not comparable to our historical
financial information due to the inclusion of the effects of the
Century acquisition.
You should read the information set forth below in conjunction
with Managements Discussion and Analysis of
Financial Condition and Results of Operations,
Unaudited Pro Forma Condensed Consolidated Financial
Information and our consolidated financial statements and
related notes thereto appearing elsewhere in this prospectus.
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Cinemark, Inc.
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Cinemark Holdings, Inc.
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Predecessor
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Successor
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Period from
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Period from
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|
|
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|
|
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|
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January 1,
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April 2,
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|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
|
2004
|
|
|
|
|
|
|
|
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Pro Forma
|
|
|
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to
|
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|
|
to
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Year Ended
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|
|
Year Ended
|
|
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Year Ended
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April 1,
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December 31,
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December 31,
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December 31,
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December 31,
|
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|
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2004
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|
|
2004
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|
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2005
|
|
|
2006
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|
|
2006
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|
|
|
|
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|
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(Dollars
in thousand, except per share data)
|
|
Statement of Operations
Data(1):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Revenues:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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Admissions
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|
$
|
149,134
|
|
|
|
$
|
497,865
|
|
|
$
|
641,240
|
|
|
$
|
760,275
|
|
|
$
|
1,029,881
|
|
Concession
|
|
|
72,480
|
|
|
|
|
249,141
|
|
|
|
320,072
|
|
|
|
375,798
|
|
|
|
487,416
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|
Other
|
|
|
12,011
|
|
|
|
|
43,611
|
|
|
|
59,285
|
|
|
|
84,521
|
|
|
|
94,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
$
|
233,625
|
|
|
|
$
|
790,617
|
|
|
$
|
1,020,597
|
|
|
$
|
1,220,594
|
|
|
$
|
1,612,104
|
|
Operating Income
|
|
|
556
|
|
|
|
|
73,620
|
|
|
|
63,501
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|
|
|
127,369
|
|
|
|
175,579
|
|
Income (loss) from continuing
operations
|
|
|
(9,068
|
)
|
|
|
|
(7,842
|
)
|
|
|
(25,408
|
)
|
|
|
841
|
|
|
|
(3,548
|
)
|
Net income (loss)
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|
$
|
(10,633
|
)
|
|
|
$
|
(3,687
|
)
|
|
$
|
(25,408
|
)
|
|
$
|
841
|
|
|
$
|
(3,548
|
)
|
Net income (loss) per share(3):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.09
|
)
|
|
|
$
|
(0.05
|
)
|
|
$
|
(0.31
|
)
|
|
$
|
0.01
|
|
|
$
|
(0.04
|
)
|
Diluted
|
|
$
|
(0.09
|
)
|
|
|
$
|
(0.05
|
)
|
|
$
|
(0.31
|
)
|
|
$
|
0.01
|
|
|
$
|
(0.04
|
)
|
Weighted average shares
outstanding(3):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Basic
|
|
|
120,156
|
|
|
|
|
81,876
|
|
|
|
82,199
|
|
|
|
84,948
|
|
|
|
92,556
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|
Diluted
|
|
|
120,156
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|
|
|
|
81,876
|
|
|
|
82,199
|
|
|
|
86,618
|
|
|
|
92,556
|
|
Other Financial Data:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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Cash flow provided by (used for):
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|
|
|
|
|
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|
|
|
|
|
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|
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Operating activities
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|
$
|
10,100
|
|
|
|
$
|
112,986
|
|
|
$
|
165,270
|
|
|
$
|
155,662
|
|
|
|
|
|
Investing activities
|
|
|
(16,210
|
)
|
|
|
|
(100,737
|
)
|
|
|
(81,617
|
)
|
|
|
(631,747
|
)(2)
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|
|
|
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Financing activities
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|
|
346,983
|
|
|
|
|
(361,426
|
)
|
|
|
(3,750
|
)
|
|
|
439,977
|
|
|
|
|
|
Capital expenditures
|
|
|
(17,850
|
)
|
|
|
|
(63,158
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)
|
|
|
(75,605
|
)
|
|
|
(107,081
|
)
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|
|
|
|
9
|
|
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|
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|
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|
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Cinemark Holdings, Inc.
|
|
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Successor
|
|
|
|
As of
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|
|
December 31,
|
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|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
|
(In thousands)
|
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|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
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Cash and cash equivalents
|
|
$
|
100,248
|
|
|
$
|
182,199
|
|
|
$
|
147,099
|
|
Theatre properties and equipment,
net
|
|
|
794,723
|
|
|
|
803,269
|
|
|
|
1,324,572
|
|
Total assets
|
|
|
1,831,855
|
|
|
|
1,864,852
|
|
|
|
3,171,582
|
|
Total long-term debt and capital
lease obligations, including current portion
|
|
|
1,026,055
|
|
|
|
1,055,095
|
|
|
|
2,027,480
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|
Stockholders equity
|
|
|
533,200
|
|
|
|
519,349
|
|
|
|
689,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
Cinemark Inc.
|
|
|
|
Cinemark Holdings, Inc.
|
|
|
|
|
|
|
Predecessor
|
|
|
|
Successor
|
|
|
Cinemark
|
|
|
|
Period from
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
and
|
|
|
|
January 1,
|
|
|
|
April 2,
|
|
|
|
|
|
|
|
|
Century
|
|
|
|
2004
|
|
|
|
2004
|
|
|
|
|
|
|
|
|
Combined
|
|
|
|
to
|
|
|
|
to
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
April 1,
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2004
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
|
(Attendance in thousands)
|
|
Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theatres operated (at period end)
|
|
|
191
|
|
|
|
|
191
|
|
|
|
200
|
|
|
|
281
|
|
|
|
281
|
|
Screens operated (at period end)
|
|
|
2,262
|
|
|
|
|
2,303
|
|
|
|
2,417
|
|
|
|
3,523
|
|
|
|
3,523
|
|
Total attendance(1)
|
|
|
25,790
|
|
|
|
|
87,856
|
|
|
|
105,573
|
|
|
|
118,714
|
|
|
|
155,981
|
|
International(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theatres operated (at period end)
|
|
|
95
|
|
|
|
|
101
|
|
|
|
108
|
|
|
|
115
|
|
|
|
115
|
|
Screens operated (at period end)
|
|
|
835
|
|
|
|
|
869
|
|
|
|
912
|
|
|
|
965
|
|
|
|
965
|
|
Total attendance(1)
|
|
|
15,791
|
|
|
|
|
49,904
|
|
|
|
60,104
|
|
|
|
59,550
|
|
|
|
59,550
|
|
Worldwide(4)(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theatres operated (at period end)
|
|
|
286
|
|
|
|
|
292
|
|
|
|
308
|
|
|
|
396
|
|
|
|
396
|
|
Screens operated (at period end)
|
|
|
3,097
|
|
|
|
|
3,172
|
|
|
|
3,329
|
|
|
|
4,488
|
|
|
|
4,488
|
|
Total attendance(1)
|
|
|
41,581
|
|
|
|
|
137,760
|
|
|
|
165,677
|
|
|
|
178,264
|
|
|
|
215,531
|
|
|
|
|
(1) |
|
Statement of Operations Data (other than net income (loss)) and
attendance data exclude the results of the two United Kingdom
theatres and the eleven Interstate theatres for all periods
presented as these theatres were sold during the period from
April 2, 2004 through December 31, 2004. The results
of operations for these theatres in the 2004 periods are
presented as discontinued operations. See note 7 to our
annual consolidated financial statements. |
|
(2) |
|
Includes the cash portion of the Century acquisition purchase
price of $531.2 million. |
|
(3) |
|
Gives effect to a 2.9585-for-one stock split with respect to our
common stock effected on April 9, 2007. |
|
(4) |
|
The data excludes certain theatres operated by us in the
U.S. pursuant to management agreements that are not part of
our consolidated operations. |
|
(5) |
|
The data excludes certain theatres operated internationally
through our affiliates that are not part of our consolidated
operations. |
10
RISK
FACTORS
Before you invest in our common stock, you should understand
the high degree of risk involved. You should consider carefully
the following risks and all other information in this
prospectus, including the financial statements and related
notes. If any of the following risks actually occur, our
business, financial condition and operating results could be
adversely affected.
Risks
Related to Our Business and Industry
Our
business depends on film production and
performance.
Our business depends on both the availability of suitable films
for exhibition in our theatres and the success of those pictures
in our markets. Poor performance of films, the disruption in the
production of films, or a reduction in the marketing efforts of
the film distributors to promote their films could have an
adverse effect on our business by resulting in fewer patrons and
reduced revenues.
A
deterioration in relationships with film distributors could
adversely affect our ability to obtain commercially successful
films.
We rely on the film distributors for the motion pictures shown
in our theatres. The film distribution business is highly
concentrated, with six major film distributors accounting for
approximately 93% of U.S. box office revenues and 45 of the
top 50 grossing films during 2006. Numerous antitrust cases
and consent decrees resulting from these cases impact the
distribution of motion pictures. The consent decrees bind
certain major film distributors to license films to exhibitors
on a
theatre-by-theatre
and
film-by-film
basis. Consequently, we cannot guarantee a supply of films by
entering into long-term arrangements with major distributors. We
are therefore required to negotiate licenses for each film and
for each theatre. A deterioration in our relationship with any
of the six major film distributors could adversely affect our
ability to obtain commercially successful films and to negotiate
favorable licensing terms for such films, both of which could
adversely affect our business and operating results.
We
face intense competition for patrons and film licensing which
may adversely affect our business.
The motion picture industry is highly competitive. We compete
against local, regional, national and international exhibitors.
We compete for both patrons and licensing of motion pictures.
The competition for patrons is dependent upon such factors as
the availability of popular motion pictures, the location and
number of theatres and screens in a market, the comfort and
quality of the theatres and pricing. Some of our competitors
have greater resources and may have lower costs. The principal
competitive factors with respect to film licensing include
licensing terms, number of seats and screens available for a
particular picture, revenue potential and the location and
condition of an exhibitors theatres. If we are unable to
license successful films, our business may be adversely affected.
The
oversupply of screens in the motion picture exhibition industry
and other factors may adversely affect the performance of some
of our theatres.
During the period between 1996 and 2000, theatre exhibitor
companies emphasized the development of large multiplexes. The
strategy of aggressively building multiplexes was adopted
throughout the industry and resulted in an oversupply of screens
in the North American exhibition industry and negatively
impacted many older multiplex theatres more than expected. Many
of these theatres have long lease commitments making them
financially burdensome to close prior to the expiration of the
lease term, even theatres that are unprofitable. Where theatres
have been closed, landlords have often made rent concessions to
small independent or regional operators to keep the theatres
open since theatre buildings are typically limited in
alternative uses. As a result, some analysts believe that there
continues to be an oversupply of screens in the North American
exhibition industry, as screen counts have increased each year
since 2003. If competitors build theatres in the markets we
serve, the performance of some of our theatres could be
adversely affected due to increased competition.
11
An
increase in the use of alternative or downstream
film distribution channels and other competing forms of
entertainment may drive down movie theatre attendance and limit
ticket price growth.
We face competition for patrons from a number of alternative
motion picture distribution channels, such as videocassettes,
DVDs, network and syndicated television, video on-demand,
satellite
pay-per-view
television and downloading utilizing the Internet. Based on our
research, total home video spending, including video casettes
and DVDs, increased from $17.1 billion in 2000 to
$25.6 billion in 2005. We also compete with other forms of
entertainment competing for our patrons leisure time and
disposable income such as concerts, amusement parks and sporting
events. A significant increase in popularity of these
alternative film distribution channels and competing forms of
entertainment could have an adverse effect on our business and
results of operations.
Our
results of operations may be impacted by shrinking video release
windows.
Over the last decade, the average video release window, which
represents the time that elapses from the date of a films
theatrical release to the date a film is available on DVD, an
important downstream market, has decreased from
approximately six months to approximately four months. We cannot
assure you that this release window, which is determined by the
film studios, will not shrink further or be eliminated
altogether, which could have an adverse impact on our business
and results of operations.
We
have substantial long-term lease and debt obligations, which may
restrict our ability to fund current and future
operations.
We have significant long-term debt service obligations and
long-term lease obligations. As of December 31, 2006, we
had $1,911.7 million in
long-term
debt obligations, $115.8 million in capital lease
obligations and $2,004.2 million in long-term operating
lease obligations. On a pro forma basis, we incurred
$168.0 million of interest expense for the year ended
December 31, 2006. On a pro forma basis, we incurred
$207.0 million of rent expense for the year ended
December 31, 2006 under operating leases (with terms,
excluding renewal options, ranging from one to 30 years).
Our substantial lease and debt obligations pose risk to you by:
|
|
|
|
|
making it more difficult for us to satisfy our obligations;
|
|
|
|
requiring us to dedicate a substantial portion of our cash flow
to payments on our lease and debt obligations, thereby reducing
the availability of our cash flow to fund working capital,
capital expenditures, acquisitions and other corporate
requirements and to pay dividends;
|
|
|
|
impeding our ability to obtain additional financing in the
future for working capital, capital expenditures, acquisitions
and general corporate purposes;
|
|
|
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subjecting us to the risk of increased sensitivity to interest
rate increases on our variable rate debt, including our
borrowings under our new senior secured credit facility; and
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making us more vulnerable to a downturn in our business and
competitive pressures and limiting our flexibility to plan for,
or react to, changes in our business.
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Our ability to make scheduled payments of principal and interest
with respect to our indebtedness and service our lease
obligations will depend on our ability to generate cash flow
from our operations. To a certain extent, our ability to
generate cash flow is subject to general economic, financial,
competitive, regulatory and other factors that are beyond our
control. We cannot assure you that we will continue to generate
cash flow at current levels. If we fail to make any required
payment under the agreements governing our indebtedness or fail
to comply with the financial and operating covenants contained
in them, we would be in default and our lenders would have the
ability to require that we immediately repay our outstanding
indebtedness. If we fail to make any required payment under our
leases, we would be in default and our landlords would have the
ability to terminate our leases and re-enter the premises.
Subject to the restrictions contained in our indebtedness
agreements, we expect to incur additional indebtedness from time
to time to finance acquisitions, capital expenditures, working
capital requirements and other general business purposes. In
addition, we may need to refinance all or a portion of our
indebtedness, including our new senior secured credit facility
and our
12
93/4% senior
discount notes, on or before maturity. However, we may not be
able to refinance all or any of our indebtedness on commercially
reasonable terms or at all.
We are
subject to various covenants in our debt agreements that
restrict our ability to enter into certain
transactions.
The agreements governing our debt obligations contain various
financial and operating covenants that limit our ability to
engage in certain transactions, that require us not to allow
specific events to occur or that require us to apply proceeds
from certain transactions to reduce indebtedness. If we fail to
make any required payment under the agreements governing our
indebtedness or fail to comply with the financial and operating
covenants contained in them, we would be in default, and our
debt holders would have the ability to require that we
immediately repay our outstanding indebtedness. Any such
defaults could materially impair our financial condition and
liquidity. We cannot assure you that we would be able to
refinance our outstanding indebtedness if debt holders require
repayments as a result of a default.
General
political, social and economic conditions can adversely affect
our attendance.
Our results of operations are dependent on general political,
social and economic conditions, and the impact of such
conditions on our theatre operating costs and on the willingness
of consumers to spend money at movie theatres. If
consumers discretionary income declines as a result of an
economic downturn, our operations could be adversely affected.
If theatre operating costs, such as utility costs, increase due
to political or economic changes, our results of operations
could be adversely affected. Political events, such as terrorist
attacks, could cause people to avoid our theatres or other
public places where large crowds are in attendance.
Our
foreign operations are subject to adverse regulations and
currency exchange risk.
We have 115 theatres with 965 screens in twelve
countries in Latin America. Brazil and Mexico represented
approximately 8.0% and 4.4% of our consolidated 2006 pro forma
revenues, respectively. Governmental regulation of the motion
picture industry in foreign markets differs from that in the
United States. Regulations affecting prices, quota systems
requiring the exhibition of locally-produced films and
restrictions on ownership of land may adversely affect our
international operations in foreign markets. Our international
operations are subject to certain political, economic and other
uncertainties not encountered by our domestic operations,
including risks of severe economic downturns and high inflation.
We also face the additional risks of currency fluctuations, hard
currency shortages and controls of foreign currency exchange and
transfers abroad, all of which could have an adverse effect on
the results of our international operations.
We may
not be able to generate additional revenues or realize expected
value from our investment in NCM.
We, along with Regal and AMC, are founding members of NCM. After
the completion of NCM, Inc.s initial public offering, we
continue to own a 14% interest in NCM. In connection with the
NCM, Inc. initial public offering, we modified our Exhibitor
Services Agreement to reflect a shift from circuit share expense
under the prior exhibitor service agreement, which obligated NCM
to pay us a percentage of revenue, to a monthly theatre access
fee. The theatre access fee will significantly reduce the
contractual amounts paid to us by NCM.
Cinema advertising is a small component of the
U.S. advertising market. Accordingly, NCM competes with
larger, established and well known media platforms such as
broadcast radio and television, cable and satellite television,
outdoor advertising and Internet portals. NCM also competes with
other cinema advertising companies and with hotels, conference
centers, arenas, restaurants and convention facilities for its
non-film related events to be shown in our auditorium.
In-theatre advertising may not continue to attract major
advertisers or NCMs in-theatre advertising format may not
be received favorably by the theatre-going public. If NCM is
unable to generate expected sales of advertising, it may not
maintain the level of profitability we hope to achieve, its
results of operations may be adversely affected and our
investment in and revenues from NCM may be adversely impacted.
13
We are
subject to uncertainties related to digital cinema, including
potentially high costs of re-equipping theatres with projectors
to show digital movies.
Digital cinema is still in an experimental stage in our
industry. Some of our competitors have commenced a roll-out of
digital equipment for exhibiting feature films. There are
multiple parties vying for the position of being the primary
generator of the digital projector roll-out for exhibiting
feature films. However, significant obstacles exist that impact
such a roll-out plan including the cost of digital projectors,
the substantial investment in re-equipping theatres and
determining who will be responsible for such costs. We cannot
assure you that we will be able to obtain financing arrangements
to fund our portion of the digital cinema roll-out nor that such
financing will be available to us on acceptable terms, if at all.
On February 12, 2007, we, along with AMC and Regal entered
into a joint venture known as Digital Cinema Implementation
Partners LLC to explore the possibility of implementing digital
cinema in our theatres and to establish agreements with major
motion picture studios for the implementation and financing of
digital cinema. In addition, DCIP has entered into a digital
cinema services agreement with NCM for purposes of assisting
DCIP in the development of digital cinema systems. Future
digital cinema developments will be managed by DCIP, subject to
certain approvals by us, AMC and Regal.
We are
subject to uncertainties relating to future expansion plans,
including our ability to identify suitable acquisition
candidates or site locations.
We have greatly expanded our operations over the last decade
through targeted worldwide theatre development and the Century
acquisition. We will continue to pursue a strategy of expansion
that will involve the development of new theatres and may
involve acquisitions of existing theatres and theatre circuits
both in the U.S. and internationally. There is significant
competition for potential site locations and existing theatre
and theatre circuit acquisition opportunities. As a result of
such competition, we may not be able to acquire attractive site
locations, existing theatres or theatre circuits on terms we
consider acceptable. We cannot assure you that our expansion
strategy will result in improvements to our business, financial
condition or profitability. Further, our expansion programs may
require financing above our existing borrowing capacity and
internally generated funds. We cannot assure you that we will be
able to obtain such financing nor that such financing will be
available to us on acceptable terms.
If we
do not comply with the Americans with Disabilities Act of 1990
and a consent order we entered into with the Department of
Justice, we could be subject to further
litigation.
Our theatres must comply with Title III of the Americans
with Disabilities Act of 1990, or the ADA, and analogous state
and local laws. Compliance with the ADA requires among other
things that public facilities reasonably accommodate
individuals with disabilities and that new construction or
alterations made to commercial facilities conform to
accessibility guidelines unless structurally
impracticable for new construction or technically
infeasible for alterations. In March 1999, the Department of
Justice, or DOJ, filed suit against us in Ohio alleging certain
violations of the ADA relating to wheelchair seating
arrangements in certain of our stadium-style theatres and
seeking remedial action. We and the DOJ have resolved this
lawsuit and a consent order was entered by the
U.S. District Court for the Northern District of Ohio,
Eastern Division, on November 15, 2004. Under the consent
order, we are required to make modifications to wheelchair
seating locations in fourteen stadium-style movie theatres and
spacing and companion seating modifications in 67 auditoriums at
other stadium-styled movie theatres. These modifications must be
completed by November 2009. If we fail to comply with the ADA,
remedies could include imposition of injunctive relief, fines,
awards for damages to private litigants and additional capital
expenditures to remedy non-compliance. Imposition of significant
fines, damage awards or capital expenditures to cure
non-compliance could adversely affect our business and operating
results.
We
depend on key personnel for our current and future
performance.
Our current and future performance depends to a significant
degree upon the continued contributions of our senior management
team and other key personnel. The loss or unavailability to us
of any member of our senior
14
management team or a key employee could significantly harm us.
We cannot assure you that we would be able to locate or employ
qualified replacements for senior management or key employees on
acceptable terms.
We are
subject to impairment losses due to potential declines in the
fair value of our assets.
We review long-lived assets for impairment on a quarterly basis
or whenever events or changes in circumstances indicate the
carrying amount of the assets may not be fully recoverable.
We assess many factors when determining whether to impair
individual theatre assets, including actual theatre level cash
flows, future years budgeted theatre level cash flows, theatre
property and equipment carrying values, theatre goodwill
carrying values, the age of a recently built theatre,
competitive theatres in the marketplace, changes in foreign
currency exchange rates, the impact of recent ticket price
changes, available lease renewal options and other factors
considered relevant in our assessment of impairment of
individual theatre assets. The evaluation is based on the
estimated undiscounted cash flows from continuing use through
the remainder of the theatres useful life. The remainder
of the useful life correlates with the available remaining lease
period, which includes the probability of renewal periods, for
leased properties and a period of twenty years for fee owned
properties. If the estimated undiscounted cash flows are not
sufficient to recover a long-lived assets carrying value,
we then compare the carrying value of the asset with its
estimated fair value. Fair value is determined based on a
multiple of cash flows, which was eight times for the evaluation
performed as of December 31, 2006. When estimated fair
value is determined to be lower than the carrying value of the
long-lived asset, the asset is written down to its estimated
fair value. Significant judgment is involved in estimating cash
flows and fair value. Managements estimates are based on
historical and projected operating performance as well as recent
market transactions.
We also test goodwill and other intangible assets for impairment
at least annually in accordance with Statement of Financial
Accounting Standards (SFAS) No. 142,
Goodwill and Other Intangible Assets.
Goodwill and other intangible assets are tested for impairment
at the reporting unit level at least annually or whenever events
or changes in circumstances indicate the carrying value may not
be recoverable. Factors considered include significant
underperformance relative to historical or projected business
and significant negative industry or economic trends. Goodwill
impairment is evaluated using a two-step approach requiring us
to compute the fair value of a reporting unit (generally at the
theatre level), and compare it with its carrying value. If the
carrying value of the theatre exceeds its fair value, a second
step would be performed to measure the potential goodwill
impairment. Fair value is estimated based on a multiple of cash
flows, which was eight times for the evaluation performed as of
December 31, 2006. Significant judgment is involved in
estimating cash flows and fair value. Managements
estimates are based on historical and projected operating
performance as well as recent market transactions.
We recorded asset impairment charges, including goodwill
impairment charges, of $1.0 million, $36.7 million,
$51.7 million and $28.5 million for the period
January 1, 2004 to April 1, 2004, the period
April 2, 2004 to December 31, 2004 and the year ended
December 31, 2005 and 2006, respectively. During 2004, we
recorded $620.5 million of goodwill as a result of the MDP
Merger, and during 2006, we recorded $658.5 million of
goodwill as a result of the Century acquisition. We record
goodwill at the theatre level. This results in more volatile
impairment charges on an annual basis due to changes in market
conditions and box office performance and the resulting impact
on individual theatres. We cannot assure you that additional
impairment charges will not be required in the future, and such
charges may have an adverse effect on our financial condition
and results of operations. See Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
Our
results of operations vary from period to period based upon the
quantity and quality of the motion pictures that we show in our
theatres.
Our results of operations vary from period to period based upon
the quantity and quality of the motion pictures that we show in
our theatres. The major film distributors generally release the
films they anticipate will be most successful during the summer
and holiday seasons. Consequently, we typically generate higher
revenues during these periods. Due to the dependency on the
success of films released from one period to the
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next, results of operations for one period may not be indicative
of the results for the following period or the same period in
the following year.
Risks
Related to Our Corporate Structure
The
interests of MDP may not be aligned with yours.
We are controlled by an affiliate of MDP. MDP will beneficially
own approximately 47% of our common stock after the offering
(approximately 45% of our common stock if the underwriters
option to purchase additional shares is exercised in full). We
expect that the stockholders agreement among our current
stockholders will be terminated upon completion of the offering
and replaced by a director nomination agreement pursuant to
which MDP will be entitled to designate nominees for five
members of our Board of Directors. However, MDP currently has
the right to designate a majority of our Board of Directors and
would continue to hold such right after the offering if the
stockholders agreement is not terminated. Accordingly, we expect
that MDP will influence and effectively control our corporate
and management policies and determine, without the consent of
our other stockholders, the outcome of any corporate transaction
or other matters submitted to our stockholders for approval,
including potential mergers or acquisitions, asset sales and
other significant corporate transactions. MDP could take other
actions that might be desirable to MDP but not to other
stockholders.
Investors
in this offering will experience immediate
dilution.
Investors purchasing shares of our common stock in this offering
will experience immediate dilution of $24.92 per share. You
will suffer additional dilution if stock, restricted stock,
stock options or other equity awards, whether currently
outstanding or subsequently granted, are exercised.
Our
ability to pay dividends may be limited or otherwise
restricted.
We have never declared or paid any dividends on our common
stock. Our ability to pay dividends is limited by our status as
a holding company and the terms of our indentures, our new
senior secured credit facility and certain of our other debt
instruments, which restrict our ability to pay dividends and the
ability of certain of our subsidiaries to pay dividends,
directly or indirectly, to us. Under our debt instruments, we
may pay a cash dividend up to a specified amount, provided we
have satisfied certain financial covenants in, and are not in
default under, our debt instruments. Furthermore, certain of our
foreign subsidiaries currently have a deficit in retained
earnings which prevents them from declaring and paying dividends
from those subsidiaries. The declaration of future dividends on
our common stock will be at the discretion of our Board of
Directors and will depend upon many factors, including our
results of operations, financial condition, earnings, capital
requirements, limitations in our debt agreements and legal
requirements. We cannot assure you that any dividends will be
paid in the anticipated amounts and frequency set forth in this
prospectus, if at all.
Provisions
in our corporate documents and certain agreements, as well as
Delaware law, may hinder a change of control.
Provisions that will be in our amended and restated certificate
of incorporation and bylaws, as well as provisions of the
Delaware General Corporation Law, could discourage unsolicited
proposals to acquire us, even though such proposals may be
beneficial to you. These provisions include:
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authorization of our Board of Directors to issue shares of
preferred stock without stockholder approval;
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a board of directors classified into three classes of directors
with the directors of each class, subject to shorter initial
terms for some directors, having staggered, three-year terms;
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provisions regulating the ability of our stockholders to
nominate directors for election or to bring matters for action
at annual meetings of our stockholders; and
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provisions of Delaware law that restrict many business
combinations and provide that directors serving on classified
boards of directors, such as ours, may be removed only for cause.
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16
Certain provisions of the
93/4% senior
discount notes indenture and the new senior secured credit
facility may have the effect of delaying or preventing future
transactions involving a change of control. A
change of control would require us to make an offer
to the holders of our
93/4% senior
discount notes to repurchase all of the outstanding notes at a
purchase price equal to 101% of the aggregate principal amount
outstanding plus accrued unpaid interest to the date of the
purchase. A change of control would also be an event
of default under our new senior secured credit facility.
We
will be subject to the requirements of Section 404 of the
Sarbanes-Oxley Act and if we are unable to timely comply with
Section 404, our profitability, stock price and results of
operations and financial condition could be materially adversely
affected.
We will be required to comply with certain provisions of
Section 404 of the Sarbanes-Oxley Act of 2002 as of
December 31, 2007. Section 404 requires that we
document and test our internal control over financial reporting
and issue managements assessment of our internal control
over financial reporting. This section also requires that our
independent registered public accounting firm opine on those
internal controls and managements assessment of those
controls as of December 31, 2008. We are currently
evaluating our existing controls against the standards adopted
by the Committee of Sponsoring Organizations of the Treadway
Commission. During the course of our ongoing evaluation and
integration of the internal control over financial reporting, we
may identify areas requiring improvement, and we may have to
design enhanced processes and controls to address issues
identified through this review. We cannot be certain at this
time that we will be able to successfully complete the
procedures, certification and attestation requirements of
Section 404. If we fail to comply with the requirements of
Section 404 or if we or our auditors identify and report
material weakness, the accuracy and timeliness of the filing of
our annual and quarterly reports may be negatively affected and
could cause investors to lose confidence in our reported
financial information, which could have a negative effect on the
trading price of our common stock.
Risks
Related to This Offering
The
market price of our common stock may be volatile.
Prior to this offering, there has been no public market for our
common stock, and there can be no assurance that an active
trading market for our common stock will develop or continue
upon completion of the offering. The securities markets have
recently experienced extreme price and volume fluctuations and
the market prices of the securities of companies have been
particularly volatile. The initial price to the public of our
common stock will be determined through our negotiations with
the underwriters. This market volatility, as well as general
economic or political conditions, could reduce the market price
of our common stock regardless of our operating performance. In
addition, our operating results could be below the expectations
of investment analysts and investors and, in response, the
market price of our common stock may decrease significantly and
prevent investors from reselling their shares of our common
stock at or above the offering price. In the past, companies
that have experienced volatility in the market price of their
stock have been the subject of securities class action
litigation. If we were the subject of securities class action
litigation, it could result in substantial costs, liabilities
and a diversion of managements attention and resources.
Future
sales of our common stock may adversely affect the prevailing
market price.
If a large number of shares of our common stock is sold in the
open market after this offering, or the perception that such
sales will occur, the trading price of our common stock could
decrease. In addition, the sale of these shares could impair our
ability to raise capital through the sale of additional common
stock. After this offering, we will have an aggregate of
184,457,732 shares of our common stock authorized but
unissued and not reserved for specific purposes. In general, we
may issue all of these shares without any action or approval by
our stockholders. We may issue shares of our common stock in
connection with acquisitions.
Upon consummation of the offering, we will have
106,449,511 shares of our common stock outstanding. Of
these shares, all shares sold in the offering, other than
shares, if any, purchased by our affiliates, will be freely
tradable. The remaining shares of our common stock will be
restricted securities as that term is defined in
Rule 144 under the Securities Act. Restricted securities
may not be resold in a public distribution except in compliance
with the registration requirements of the Securities Act or
pursuant to an exemption therefrom, including the exemptions
provided by Regulation S and Rule 144 promulgated
under the Securities Act.
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We, all of our directors and executive officers, holders of more
than 5% of our outstanding stock and the selling stockholders
have entered into
lock-up
agreements and, with limited exceptions, have agreed not to,
among other things, sell or otherwise dispose of our common
stock for a period of 180 days after the date of this
prospectus. After this
lock-up
period, certain of our existing stockholders will be able to
sell their shares pursuant to registration rights we have
granted to them. We cannot predict whether substantial amounts
of our common stock will be sold in the open market in
anticipation of, or following, any divestiture by any of our
existing stockholders, our directors or executive officers of
their shares of common stock.
Currently, there are 9,092,757 shares of our common stock
reserved for issuance under our 2006 Long Term Incentive Plan,
of which 6,915,591 shares of common stock are issuable upon
exercise of options outstanding as of the date hereof, of which
4,398,380 are currently exercisable or will become exercisable
within 60 days after March 31, 2007. The sale of
shares issued upon the exercise of stock options could further
dilute your investment in our common stock and adversely affect
our stock price.
18
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements
based on our current expectations, assumptions, estimates and
projections about our business and our industry. They include
statements relating to:
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future revenues, expenses and profitability;
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the future development and expected growth of our business;
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projected capital expenditures;
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attendance at movies generally or in any of the markets in which
we operate;
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the number or diversity of popular movies released and our
ability to successfully license and exhibit popular films;
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national and international growth in our industry;
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competition from other exhibitors and alternative forms of
entertainment; and
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determinations in lawsuits in which we are defendants.
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You can identify forward-looking statements by the use of words
such as may, should, will,
could, estimates, predicts,
potential, continue,
anticipates, believes,
plans, expects, future and
intends and similar expressions which are intended
to identify forward-looking statements. These statements are not
guarantees of future performance and are subject to risks,
uncertainties and other factors, some of which are beyond our
control and difficult to predict and could cause actual results
to differ materially from those expressed or forecasted in the
forward-looking statements. In evaluating forward-looking
statements, you should carefully consider the risks and
uncertainties described in Risk Factors and
elsewhere in this prospectus. All forward-looking statements
attributable to us or persons acting on our behalf are expressly
qualified in their entirety by the cautionary statements and
risk factors contained in this prospectus. Forward-looking
statements contained in this prospectus reflect our view only as
of the date of this prospectus. Neither we nor the underwriters
undertake any obligation, other than as required by law, to
update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.
19
USE OF
PROCEEDS
We estimate that we will receive net proceeds from this offering
of approximately $246.7 million after deducting
underwriting discounts and commissions and estimated offering
expenses of $17.2 million payable by us. We will not
receive any of the net proceeds from the sale of shares by the
selling stockholders.
We intend to use the net proceeds that we will receive to
repurchase a portion of our outstanding
93/4%
senior discount notes or repay debt outstanding under our new
senior secured credit facility. Our
93/4%
senior discount notes are not currently subject to repurchase at
our option. Accordingly, if we are unable to repurchase our
93/4%
senior discount notes at prices that are acceptable to us, we
will use the net proceeds from this offering to repay term loan
debt outstanding under our new senior credit facility.
Management will have significant flexibility in applying our net
proceeds of this offering. Pending the application of the net
proceeds, we expect to invest the proceeds in short-term,
investment-grade marketable securities or money market
obligations.
As of April 1, 2007, our outstanding principal balance
under our new senior credit facility was $1,114.4 million
in term loans and there were no amounts outstanding under the
revolving credit line as of the date hereof. The term loan
matures on October 5, 2013 and the revolving credit line
matures on October 5, 2012, except that, under certain
circumstances, both would mature on August 1, 2012. Our
effective interest rate on the term loan was 7.4% as of
December 31, 2006. The net proceeds of the term loan were
used to finance a portion of the purchase price for the Century
acquisition, repay in full the loans outstanding under our
former senior secured credit facility, repay certain existing
indebtedness of Century and to pay for related fees and
expenses. The revolving credit line is used for our general
corporate purposes. As of the date hereof, we had outstanding
approximately $535.6 million aggregate principal amount at
maturity of our
93/4%
senior discount notes. Our
93/4%
senior discount notes mature in 2014. For more information on
our outstanding debt, see Managements Discussion and
Analysis of Financial Condition and Results of
Operations Liquidity and Capital Resources and
Recent
Developments Amendments to the New Senior
Secured Credit Facility.
Lehman Brothers Inc. acted as initial purchaser in connection
with the offering of our
93/4%
senior discount notes. An affiliate of Lehman Brothers Inc. was
a joint lead arranger and is a lender and the administrative
agent under our new senior secured credit facility. Morgan
Stanley Senior Funding, Inc. was a joint lead arranger and is a
lender and the syndication agent under our new senior secured
credit facility. Lehman Brothers, Inc. acted as dealer manager
and solicitation agent in connection with Cinemark USA,
Inc.s offer to purchase and related consent solicitation
of its 9% senior subordinated notes.
DIVIDEND
POLICY
We have never declared or paid any dividends on our common
stock. Following this offering and subject to legally available
funds, we intend to pay a quarterly cash dividend at an annual
rate initially equal to $0.72 per share (or a quarterly
rate initially equal to $0.18 per share) of common stock,
commencing in the third quarter of 2007, which will be a partial
dividend paid on a pro rata basis depending on the closing date
of this offering. Our ability to pay dividends is limited by our
status as a holding company and the terms of our indentures, our
new senior secured credit facility and certain of our other debt
instruments, which restrict our ability to pay dividends to our
stockholders and the ability of certain of our subsidiaries to
pay dividends, directly or indirectly, to us. Under our debt
instruments, we may pay a cash dividend up to a specified
amount, provided we have satisfied certain financial covenants
in, and are not in default under, our debt instruments. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations Liquidity and
Capital Resources for further discussion regarding the
restrictions on our ability to pay dividends contained in our
debt instruments. Furthermore, certain of our foreign
subsidiaries currently have a deficit in retained earnings which
prevents them from declaring and paying dividends from those
subsidiaries. The declaration of future dividends on our common
stock will be at the discretion of our Board of Directors and
will depend upon many factors, including our results of
operations, financial condition, earnings, capital requirements,
limitations in our debt agreements and legal requirements. We
cannot assure you that any dividends will be paid in the
anticipated amounts and frequency set forth in this prospectus,
if at all.
20
CAPITALIZATION
The following table presents our cash and cash equivalents and
capitalization as of December 31, 2006. Our cash and cash
equivalents and capitalization is presented:
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on an as adjusted basis to reflect (i) the repurchase of
approximately $332.0 million of our 9% senior subordinated
notes with the proceeds from the NCM transactions and
(ii) our receipt of the estimated net proceeds from this
offering and the application of those proceeds.
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You should read this table in conjunction with the historical
consolidated financial statements and related notes included
elsewhere in this prospectus.
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As of December 31, 2006
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Actual
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As Adjusted
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(Unaudited)
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(In thousands)
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Cash and cash equivalents
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$
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147,099
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$
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147,099
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Long-term debt, including current
maturities:
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New Senior Secured Credit
Facility(1)
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1,117,200
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870,525
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93/4% Senior
Discount Notes due 2014(1)
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|
|
434,073
|
|
|
|
434,073
|
|
9% Senior Subordinated Notes
due 2013(2)
|
|
|
350,820
|
|
|
|
184
|
|
Capital lease obligations
|
|
|
115,827
|
|
|
|
115,827
|
|
Other indebtedness
|
|
|
9,560
|
|
|
|
9,560
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
2,027,480
|
|
|
|
1,430,169
|
|
Minority interest in subsidiaries
|
|
|
16,613
|
|
|
|
16,613
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par
value, authorized 300,000,000 shares and
92,560,622 actual shares and 106,449,511 as adjusted shares
issued and outstanding(3)
|
|
|
93
|
|
|
|
106
|
|
Additional paid-in capital
|
|
|
685,433
|
|
|
|
932,095
|
|
Accumulated other comprehensive
loss
|
|
|
11,463
|
|
|
|
11,463
|
|
Retained earnings (deficit)
|
|
|
(7,692
|
)
|
|
|
(7,692
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
689,297
|
|
|
|
935,972
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
2,733,390
|
|
|
$
|
2,382,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
We intend to repurchase a portion of our outstanding
93/4%
senior discount notes with the net proceeds from this offering.
Our
93/4%
senior discount notes are not currently subject to repurchase at
our option. If we are unable to repurchase our
93/4%
senior discount notes at prices that are acceptable to us, we
will use the net proceeds from this offering to repay term loan
debt outstanding under our senior secured credit facility.
Accordingly, we have reflected the use of the net proceeds from
this offering as a prepayment of such term loans under our
senior secured credit facility. |
|
(2) |
|
Actual amounts shown include unamortized debt premiums of
approximately $18.6 million associated with the issuance of
the 9% senior subordinated notes. |
|
(3) |
|
The number of shares of common stock is based upon the number of
shares of our common stock outstanding at December 31,
2006, giving effect to a 2.9585-for-one stock split effected on
April 9, 2007. |
The number of shares of our common stock shown in the table
above does not include 6,915,591 shares of common stock
issuable upon the exercise of outstanding stock options at a
weighted average exercise price of approximately $7.63 per
share or an aggregate of 2,177,166 shares of common stock
reserved for future issuance under our 2006 Long Term Incentive
Plan.
21
DILUTION
Purchasers of common stock offered by this prospectus will
suffer an immediate and substantial dilution in net tangible
book value (deficit) per share. Our net tangible book value
(deficit) as of December 31, 2006 was approximately
$(876.9) million, or approximately $(9.47) per share
of common stock. Net tangible book value (deficit) per share
represents the amount of total tangible assets less total
liabilities, divided by the number of shares of common stock
outstanding.
Dilution in net tangible book value (deficit) per share
represents the difference between the amount per share paid by
purchasers of our common stock in this offering and the net
tangible book value (deficit) per share of our common stock
immediately after this offering. After giving effect to our sale
of 13,888,889 shares of common stock in this offering and
after deduction of the underwriting discounts and commissions
and estimated offering expenses payable by us, our net tangible
book value (deficit) as of December 31, 2006 would have
been approximately $(630.2) million, or $(5.92) per
share. This represents an immediate increase in net tangible
book value (deficit) of $3.55 per share of common stock to
existing stockholders and an immediate dilution of
$24.92 per share to purchasers of common stock in this
offering.
|
|
|
|
|
|
|
|
|
Initial public offering price per
share of common stock
|
|
|
|
|
|
$
|
19.00
|
|
Net tangible book value (deficit)
per share as of December 31, 2006
|
|
$
|
(9.47
|
)
|
|
|
|
|
Increase per share attributable to
new investors
|
|
$
|
3.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net tangible book value (deficit)
per share after the offering
|
|
|
|
|
|
$
|
(5.92
|
)
|
|
|
|
|
|
|
|
|
|
Net tangible book value dilution
per share to new investors
|
|
|
|
|
|
$
|
24.92
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth, as of December 31, 2006,
the total consideration paid and the average price per share
paid by our existing stockholders and by new investors, before
deducting underwriting discounts and commissions and estimated
offering expenses payable by us.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
Shares Purchased
|
|
|
Total Consideration
|
|
|
Price Per
|
|
|
|
Number
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
Share
|
|
|
Existing stockholders
|
|
|
92,560,622
|
|
|
|
87.0
|
%
|
|
$
|
682,744,000
|
|
|
|
72.1
|
%
|
|
$
|
7.38
|
|
New investors
|
|
|
13,888,889
|
|
|
|
13.0
|
%
|
|
$
|
263,888,891
|
|
|
|
27.9
|
%
|
|
$
|
19.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
106,449,511
|
|
|
|
100.0
|
%
|
|
$
|
946,632,891
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2006, there were outstanding options to
purchase a total of 6,915,591 shares of our common stock at
a weighted average exercise price of approximately
$7.63 per share, which excludes 2,177,166 shares
reserved for issuance under our 2006 Long Term Incentive Plan.
If all of these options were exercised, the dilution to the new
investors would be less by approximately $0.83 per share. The
information discussed above is illustrative only.
22
SELECTED
HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING
INFORMATION
The following tables set forth our selected historical
consolidated financial and operating information as of and for
the periods indicated. The selected historical information for
periods through April 1, 2004 are of Cinemark, Inc., the
predecessor, and the selected historical information for all
subsequent periods are of Cinemark Holdings, Inc., the
successor. Our financial information for the period
January 1, 2004 to April 1, 2004, the period
April 2, 2004 to December 31, 2004 and the years ended
December 31, 2005 and 2006 is derived from our audited
consolidated financial statements appearing elsewhere in this
prospectus. Our financial information for each of the years
ended December 31, 2002 and 2003 is derived from our
audited consolidated financial statements which are not included
in this prospectus.
Our unaudited pro forma statement of operations information and
other financial information for the year ended December 31,
2006 gives effect to the Century acquisition as if it had been
consummated on January 1, 2006.
The unaudited pro forma condensed consolidated financial
information does not purport to represent what our results of
operations would have been had the transaction noted above
actually occurred on the date specified, nor does it purport to
project our results of operations for any future period or as of
any future date. The unaudited pro forma condensed consolidated
financial information is not comparable to our historical
financial information due to the inclusion of the effects of the
Century acquisition.
You should read the selected historical consolidated financial
and operating information set forth below in conjunction with
Managements Discussion and Analysis of Financial
Condition and Results of Operations, Unaudited Pro
Forma Condensed Consolidated Financial Information and our
consolidated financial statements and related notes appearing
elsewhere in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cinemark, Inc.
|
|
|
|
Cinemark Holdings, Inc.
|
|
|
|
Predecessor
|
|
|
|
Successor
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
Year Ended
|
|
|
January 1,2004
|
|
|
|
April 2, 2004
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
to
|
|
|
|
to
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2002
|
|
|
2003
|
|
|
April 1, 2004
|
|
|
|
December 31, 2004
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
|
(Dollars in thousands, except per share data)
|
|
Statement of Operations
Data(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Admissions
|
|
$
|
595,287
|
|
|
$
|
597,548
|
|
|
$
|
149,134
|
|
|
|
$
|
497,865
|
|
|
$
|
641,240
|
|
|
$
|
760,275
|
|
|
$
|
1,029,881
|
|
Concession
|
|
|
291,807
|
|
|
|
300,568
|
|
|
|
72,480
|
|
|
|
|
249,141
|
|
|
|
320,072
|
|
|
|
375,798
|
|
|
|
487,416
|
|
Other
|
|
|
48,760
|
|
|
|
52,756
|
|
|
|
12,011
|
|
|
|
|
43,611
|
|
|
|
59,285
|
|
|
|
84,521
|
|
|
|
94,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
$
|
935,854
|
|
|
$
|
950,872
|
|
|
$
|
233,625
|
|
|
|
$
|
790,617
|
|
|
$
|
1,020,597
|
|
|
$
|
1,220,594
|
|
|
$
|
1,612,104
|
|
Operating Income
|
|
|
130,443
|
|
|
|
135,563
|
|
|
|
556
|
|
|
|
|
73,620
|
|
|
|
63,501
|
|
|
|
127,369
|
|
|
|
175,579
|
|
Income (loss) from continuing
operations
|
|
|
40,509
|
|
|
|
47,389
|
|
|
|
(9,068
|
)
|
|
|
|
(7,842
|
)
|
|
|
(25,408
|
)
|
|
|
841
|
|
|
|
(3,548
|
)
|
Net income (loss)
|
|
$
|
35,476
|
|
|
$
|
44,649
|
|
|
$
|
(10,633
|
)
|
|
|
$
|
(3,687
|
)
|
|
$
|
(25,408
|
)
|
|
$
|
841
|
|
|
|
(3,548
|
)
|
Net income (loss) per share(3):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.30
|
|
|
$
|
0.37
|
|
|
$
|
(0.09
|
)
|
|
|
$
|
(0.05
|
)
|
|
$
|
(0.31
|
)
|
|
$
|
0.01
|
|
|
|
(0.04
|
)
|
Diluted
|
|
$
|
0.30
|
|
|
$
|
0.37
|
|
|
$
|
(0.09
|
)
|
|
|
$
|
(0.05
|
)
|
|
$
|
(0.31
|
)
|
|
$
|
0.01
|
|
|
|
(0.04
|
)
|
Weighted average shares
outstanding(3):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
119,856
|
|
|
|
119,867
|
|
|
|
120,156
|
|
|
|
|
81,876
|
|
|
|
82,199
|
|
|
|
84,948
|
|
|
|
92,556
|
|
Diluted
|
|
|
120,190
|
|
|
|
120,692
|
|
|
|
120,156
|
|
|
|
|
81,876
|
|
|
|
82,199
|
|
|
|
86,618
|
|
|
|
92,556
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow provided by (used for):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
150,119
|
|
|
$
|
135,522
|
|
|
$
|
10,100
|
|
|
|
$
|
112,986
|
|
|
$
|
165,270
|
|
|
$
|
155,662
|
|
|
|
|
|
Investing activities
|
|
|
(34,750
|
)
|
|
|
(47,151
|
)
|
|
|
(16,210
|
)
|
|
|
|
(100,737
|
)
|
|
|
(81,617
|
)
|
|
|
(631,747
|
)(2)
|
|
|
|
|
Financing activities
|
|
|
(96,140
|
)
|
|
|
(45,738
|
)
|
|
|
346,983
|
|
|
|
|
(361,426
|
)
|
|
|
(3,750
|
)
|
|
|
439,977
|
|
|
|
|
|
Capital expenditures
|
|
|
(38,032
|
)
|
|
|
(51,002
|
)
|
|
|
(17,850
|
)
|
|
|
|
(63,158
|
)
|
|
|
(75,605
|
)
|
|
|
(107,081
|
)
|
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cinemark, Inc.
|
|
|
|
Cinemark Holdings, Inc.
|
|
|
|
Predecessor
|
|
|
|
Successor
|
|
|
|
As of December 31,
|
|
|
|
2002
|
|
|
2003
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
63,719
|
|
|
$
|
107,322
|
|
|
|
$
|
100,248
|
|
|
$
|
182,199
|
|
|
$
|
147,099
|
|
Theatre properties and equipment,
net
|
|
|
791,731
|
|
|
|
775,880
|
|
|
|
|
794,723
|
|
|
|
803,269
|
|
|
|
1,324,572
|
|
Total assets
|
|
|
916,814
|
|
|
|
960,736
|
|
|
|
|
1,831,855
|
|
|
|
1,864,852
|
|
|
|
3,171,582
|
|
Total long-term debt and capital
lease obligations, including current portion
|
|
|
692,587
|
|
|
|
658,431
|
|
|
|
|
1,026,055
|
|
|
|
1,055,095
|
|
|
|
2,027,480
|
|
Stockholders equity
|
|
|
27,664
|
|
|
|
76,946
|
|
|
|
|
533,200
|
|
|
|
519,349
|
|
|
|
689,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cinemark
|
|
|
|
Cinemark, Inc.
|
|
|
|
Cinemark Holdings, Inc.
|
|
|
and
|
|
|
|
Predecessor
|
|
|
|
Successor
|
|
|
Century
|
|
|
|
|
|
|
|
|
|
Period From
|
|
|
|
Period From
|
|
|
|
|
|
|
|
|
Combined
|
|
|
|
Year Ended
|
|
|
January 1, 2004
|
|
|
|
April 2, 2004
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
to
|
|
|
|
to
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2002
|
|
|
2003
|
|
|
April 1, 2004
|
|
|
|
December 31, 2004
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
|
(Attendance in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States(4)(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theatres operated (at period end)
|
|
|
188
|
|
|
|
189
|
|
|
|
191
|
|
|
|
|
191
|
|
|
|
200
|
|
|
|
281
|
|
|
|
281
|
|
Screens operated (at period end)
|
|
|
2,215
|
|
|
|
2,244
|
|
|
|
2,262
|
|
|
|
|
2,303
|
|
|
|
2,417
|
|
|
|
3,523
|
|
|
|
3,523
|
|
Total attendance(1)
|
|
|
111,959
|
|
|
|
112,581
|
|
|
|
25,790
|
|
|
|
|
87,856
|
|
|
|
105,573
|
|
|
|
118,714
|
|
|
|
155,981
|
|
International(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theatres operated (at period end)
|
|
|
92
|
|
|
|
97
|
|
|
|
95
|
|
|
|
|
101
|
|
|
|
108
|
|
|
|
115
|
|
|
|
115
|
|
Screens operated (at period end)
|
|
|
816
|
|
|
|
852
|
|
|
|
835
|
|
|
|
|
869
|
|
|
|
912
|
|
|
|
965
|
|
|
|
965
|
|
Total attendance(1)
|
|
|
60,109
|
|
|
|
60,553
|
|
|
|
15,791
|
|
|
|
|
49,904
|
|
|
|
60,104
|
|
|
|
59,550
|
|
|
|
59,550
|
|
Worldwide(4)(5)(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theatres operated (at period end)
|
|
|
280
|
|
|
|
286
|
|
|
|
286
|
|
|
|
|
292
|
|
|
|
308
|
|
|
|
396
|
|
|
|
396
|
|
Screens operated (at period end)
|
|
|
3,031
|
|
|
|
3,096
|
|
|
|
3,097
|
|
|
|
|
3,172
|
|
|
|
3,329
|
|
|
|
4,488
|
|
|
|
4,488
|
|
Total attendance(1)
|
|
|
172,068
|
|
|
|
173,134
|
|
|
|
41,581
|
|
|
|
|
137,760
|
|
|
|
165,677
|
|
|
|
178,264
|
|
|
|
215,531
|
|
|
|
|
(1) |
|
Statement of Operations Data (other than net income (loss)) and
attendance data exclude the results of the two United Kingdom
theatres and the eleven Interstate theatres for all periods
presented as these theatres were sold during the period from
April 2, 2004 to December 31, 2004. The results of
operations for these theatres in the 2003 and 2004 periods are
presented as discontinued operations. See note 7 to our
annual consolidated financial statements. |
|
(2) |
|
Includes the cash portion of the Century acquisition purchase
price of $531.2 million. |
|
(3) |
|
Gives effect to a 2.9585-for-one stock split with respect to our
common stock effected on April 9, 2007. |
|
(4) |
|
The data excludes certain theatres operated by us in the
U.S. pursuant to management agreements that are not part of
our consolidated operations. |
|
(5) |
|
The data excludes certain theatres operated internationally
through our affiliates that are not part of our consolidated
operations. |
|
(6) |
|
The data for 2003 excludes theatres, screens and attendance for
eight theatres and 46 screens acquired on December 31,
2003, as the results of operations for these theatres are not
included in our 2003 consolidated results of operations. |
24
UNAUDITED
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
We prepared the following unaudited pro forma condensed
consolidated financial information by applying pro forma
adjustments to our historical consolidated financial statements.
The unaudited pro forma condensed consolidated statements of
operations for the year ended December 31, 2006 gives
effect to the Century acquisition as if it had occurred on
January 1, 2006. The unaudited pro forma condensed
consolidated statements of operations for the year ended
December 31, 2006 do not give effect to the repurchase of
approximately $332,066 aggregate principal amount of Cinemark
USA, Inc.s 9% senior subordinated notes as discussed in
Note 7 to the unaudited pro forma condensed consolidated
financial information.
We based the unaudited pro forma adjustments upon available
information and certain assumptions that we believe are
reasonable under the circumstances. Assumptions underlying the
unaudited pro forma adjustments are described in the
accompanying notes. The unaudited pro forma information
presented with respect to the Century acquisition, including
allocations of purchase price, is based on preliminary estimates
of the fair values of assets acquired and liabilities assumed,
available information and assumptions and will be revised as
requested information becomes available. The actual adjustments
to our consolidated financial statements will differ from the
unaudited pro forma adjustments, and the differences may be
material.
We are providing the unaudited pro forma condensed consolidated
financial information for informational purposes only. The
unaudited pro forma condensed consolidated financial information
does not purport to represent what our results of operations or
financial condition would have been had the transactions
described below actually occurred on the dates assumed, nor do
they purport to project our results of operations or financial
condition for any future period or as of any future date. You
should read the unaudited pro forma condensed consolidated
financial information in conjunction with our audited annual
consolidated financial statements and related notes for the year
ended December 31, 2006, and Centurys audited annual
consolidated financial statements and related notes for its
fiscal year ended September 28, 2006 included in this
prospectus.
The
Century Acquisition
On October 5, 2006, we completed the acquisition of
Century, a national theatre chain with 77 theatres and
1,017 screens in 12 states. The purchase price was
approximately $681 million and the assumption of
approximately $360 million of debt. We incurred
approximately $7 million of transaction fees and expenses
that were capitalized as part of the acquisition. Cinemark USA,
Inc., a wholly-owned subsidiary of Cinemark Holdings, Inc.,
acquired approximately 77% of the issued and outstanding capital
stock of Century and Syufy Enterprises, LP, or Syufy,
contributed the remaining shares of capital stock of Century to
us in exchange for 10,024,776 shares of our common stock.
In connection with the closing of the Century acquisition,
Cinemark USA, Inc. entered into a new senior secured credit
facility, and used the proceeds of the $1,120 million new
term loan to fund a portion of the purchase price, to pay
off approximately $360 million under Centurys then
existing credit facility and to repay in full all outstanding
amounts under Cinemark USA, Inc.s former senior secured
credit facility of approximately $254 million. Cinemark
USA, Inc. used approximately $53 million of its existing
cash to fund the payment of the remaining portion of the
purchase price and related transaction expenses. Additionally,
Cinemark USA, Inc. advanced approximately $17 million of
cash to Century to satisfy working capital obligations.
The Century acquisition is accounted for using purchase
accounting. Under the purchase method of accounting, the total
consideration paid is allocated to Centurys tangible and
intangible assets and liabilities based on their estimated fair
values as of the date of the Century acquisition. As of the date
hereof, we have not completed the valuation studies necessary to
estimate the fair values of the assets acquired and liabilities
assumed and the related allocation of purchase price. In
presenting the unaudited pro forma financial information, we
have allocated the purchase price to the assets acquired and
liabilities assumed based on preliminary estimates of their fair
values. A final determination of these fair values will reflect
our consideration of valuations, assisted by third-party
appraisers. These final valuations will be based on the actual
net tangible and intangible assets that exist as of the closing
date of the Century acquisition. Any final adjustments will
change the allocations of the purchase price, which could affect
the initial fair values
25
assigned to the assets and liabilities and could result in
changes to the unaudited pro forma condensed consolidated
financial information, including a change to goodwill.
We have integrated the Century operations into our existing
business. We have consolidated Centurys corporate office
processes into our existing processes, resulting in a net
elimination of personnel and general and administrative cost.
Additionally, we have transitioned the Century theatres into our
existing concession supply and screen advertising contracts. For
purposes of the unaudited pro forma financial information, we
have not made any pro forma adjustment to reflect synergies
resulting from our integration efforts.
Century used a 52/53 week fiscal year ending with the last
Thursday in September. For purposes of the unaudited pro forma
financial information, Centurys historical financial
information has been conformed to reflect the historical
financial information on a calendar year basis, consistent with
our fiscal year reporting.
26
Cinemark
Holdings, Inc.
Unaudited
Pro Forma Condensed Consolidated Statement of Operations
For the
Year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Century
|
|
|
Adjustments
|
|
|
|
|
|
|
Cinemark
|
|
|
Century
|
|
|
Stub
|
|
|
to Reflect Century
|
|
|
|
|
|
|
Historical(1)
|
|
|
Historical(2)
|
|
|
Period(3)
|
|
|
Acquisition
|
|
|
Pro Forma
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Admissions
|
|
$
|
760,275
|
|
|
$
|
264,902
|
|
|
$
|
4,704
|
|
|
$
|
|
|
|
$
|
1,029,881
|
|
Concession
|
|
|
375,798
|
|
|
|
109,641
|
|
|
|
1,977
|
|
|
|
|
|
|
|
487,416
|
|
Other
|
|
|
84,521
|
|
|
|
10,161
|
|
|
|
125
|
|
|
|
|
|
|
|
94,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,220,594
|
|
|
|
384,704
|
|
|
|
6,806
|
|
|
|
|
|
|
|
1,612,104
|
|
COST OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Film rentals and advertising
|
|
|
405,987
|
|
|
|
137,711
|
|
|
|
2,446
|
|
|
|
|
|
|
|
546,144
|
|
Concession supplies
|
|
|
59,020
|
|
|
|
16,043
|
|
|
|
296
|
|
|
|
|
|
|
|
75,359
|
|
Salaries and wages
|
|
|
118,616
|
|
|
|
41,216
|
|
|
|
857
|
|
|
|
|
|
|
|
160,689
|
|
Facility lease expense
|
|
|
161,374
|
|
|
|
44,733
|
|
|
|
843
|
|
|
|
|
|
|
|
206,950
|
|
Utilities and other
|
|
|
144,808
|
|
|
|
39,226
|
|
|
|
665
|
|
|
|
|
|
|
|
184,699
|
|
General and administrative expenses
|
|
|
67,768
|
|
|
|
32,271
|
|
|
|
252
|
|
|
|
(15,672
|
)(6)
|
|
|
84,619
|
|
Depreciation and amortization
|
|
|
95,821
|
|
|
|
36,200
|
|
|
|
795
|
|
|
|
4,929
|
(4)
|
|
|
137,745
|
|
Amortization of net favorable
leases
|
|
|
3,649
|
|
|
|
|
|
|
|
|
|
|
|
22
|
(5)
|
|
|
3,671
|
|
Impairment of long-lived assets
|
|
|
28,537
|
|
|
|
406
|
|
|
|
|
|
|
|
|
|
|
|
28,943
|
|
Loss on sale of assets and other
|
|
|
7,645
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
7,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of operations
|
|
|
1,093,225
|
|
|
|
347,867
|
|
|
|
6,154
|
|
|
|
(10,721
|
)
|
|
|
1,436,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME
|
|
|
127,369
|
|
|
|
36,837
|
|
|
|
652
|
|
|
|
10,721
|
|
|
|
175,579
|
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(105,986
|
)
|
|
|
(26,033
|
)
|
|
|
(617
|
)
|
|
|
(29,392
|
)(7)
|
|
|
(162,028
|
)
|
Amortization of debt issue costs
|
|
|
(3,342
|
)
|
|
|
(454
|
)
|
|
|
(14
|
)
|
|
|
(2,213
|
)(7)
|
|
|
(6,023
|
)
|
Interest income
|
|
|
7,040
|
|
|
|
567
|
|
|
|
|
|
|
|
|
|
|
|
7,607
|
|
Other income (expense)
|
|
|
(11,555
|
)
|
|
|
(609
|
)
|
|
|
1
|
|
|
|
|
|
|
|
(12,163
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses
|
|
|
(113,843
|
)
|
|
|
(26,529
|
)
|
|
|
(630
|
)
|
|
|
(31,605
|
)
|
|
|
(172,607
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAXES
|
|
|
13,526
|
|
|
|
10,308
|
|
|
|
22
|
|
|
|
(20,884
|
)
|
|
|
2,972
|
|
Income taxes
|
|
|
12,685
|
|
|
|
4,376
|
|
|
|
|
|
|
|
(10,541
|
)(8)
|
|
|
6,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
$
|
841
|
|
|
$
|
5,932
|
|
|
$
|
22
|
|
|
$
|
(10,343
|
)
|
|
$
|
(3,548
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE SHARES
OUTSTANDING(9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
84,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
92,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
86,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
92,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS PER SHARE(9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to unaudited proforma condensed consolidated financial
information.
27
Cinemark
Holdings, Inc.
Notes to
Unaudited Pro Forma Condensed Consolidated Financial
Information
(Dollars
in thousands)
|
|
|
(1) |
|
Cinemark historical results include the results of operations of
Century Theatres from October 5, 2006 to December 31,
2006. |
|
(2) |
|
Century historical results include the results of operations of
Century Theatres from December 29, 2005 to
September 28, 2006. |
|
(3) |
|
Century stub period results include the results of operations of
Century Theatres from September 29, 2006 to October 4,
2006 (the period prior to the Century Acquisition). |
|
(4) |
|
Reflects the depreciation related to the increase in theatre
property and equipment to fair value pursuant to purchase
accounting for the Century acquisition. |
|
(5) |
|
Reflects the amortization associated with intangible assets
recorded pursuant to the purchase method of accounting for the
Century acquisition as follows: |
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Amortization Period
|
|
Goodwill
|
|
$
|
602,695
|
|
|
Indefinite life
|
Tradenames
|
|
|
136,000
|
|
|
Indefinite life
|
Net unfavorable leases
|
|
|
(5,600
|
)
|
|
Remaining term of the lease
commitments ranging from one to thirty years
|
Both goodwill and tradenames are indefinite-lived intangible
assets. As a result, goodwill and tradenames will not be
amortized but will be evaluated for impairment at least
annually. Pro forma amortization expense for the net unfavorable
leases is estimated at $22.
The unaudited pro forma condensed consolidated financial
information reflect our preliminary allocation of the purchase
price to tangible assets, liabilities, goodwill and other
intangible assets. The final purchase price allocation may
result in a different allocation for tangible and intangible
assets than that presented in these unaudited pro forma
condensed consolidated financial information. An increase or
decrease in the amount of purchase price allocated to
amortizable assets would impact the amount of annual
amortization expense. Identifiable intangible assets have been
amortized on a straight-line basis in the unaudited pro forma
condensed consolidated statements of operation.
|
|
|
(6) |
|
To give effect to the elimination of change of control payments
to Centurys management. |
|
(7) |
|
Reflects interest expense and amortization of debt issuance
costs resulting from the changes to our debt structure: |
|
|
|
|
|
Interest expense recorded on the
Cinemark USA, Inc.s existing term loan
|
|
$
|
(13,879
|
)
|
Interest expense recorded on
Centurys existing credit facility
|
|
|
(18,217
|
)
|
Interest expense on the new
$1,120,000 term loan(a)
|
|
|
61,488
|
|
|
|
|
|
|
Interest expense
|
|
$
|
29,392
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Reflects estimated interest rate of 7.32% (the initial LIBOR
borrowing rate) on the new senior credit facility for the period
January 1, 2006 to October 4, 2006, the period in 2006
during which the new senior secured credit facility was not
in effect.
|
|
|
|
|
|
Amortization of debt issue costs on
Cinemark USA, Inc.s existing term loan
|
|
$
|
(179
|
)
|
Amortization of debt issue costs on
Centurys existing credit facility
|
|
|
(454
|
)
|
Amortization of debt issue costs on
the new $1,120,000 term loan(a)
|
|
|
2,846
|
|
|
|
|
|
|
Amortization of debt issue costs
|
|
$
|
2,213
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Reflects debt issue costs on the new senior secured credit
facility for the period January 1, 2006 to October 4,
2006, the period in 2006 during which the new senior secured
credit facility was not in effect.
|
Subsequent to December 31, 2006, Cinemark USA, Inc.
repurchased $332,066 aggregate principal amount of its 9% senior
subordinated notes with the proceeds from the NCM transactions
and cash on hand. As a result of the repurchase of the 9% senior
subordinated notes, pro forma annual interest expense, which
includes amortization of bond premiums, will be reduced by
approximately $26,790 and pro forma amortization of debt issue
costs will be reduced by approximately $138 on an annual basis.
Pro forma net income (loss) would increase by approximately
$16,426 and basic and diluted earnings (loss) per share would
increase by approximately $0.18. The redemption of the 9% senior
subordinated notes has not been reflected in the unaudited pro
forma condensed consolidated statement of operations above.
|
|
|
(8) |
|
To reflect the tax effect of the pro forma adjustments at our
statutory income tax rate of 39%. |
(9) |
|
Gives effect to a 2.9585-for-one stock split with respect to our
common stock effected on April 9, 2007. |
28
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in
conjunction with the financial statements and accompanying notes
included in this prospectus.
Overview
On April 2, 2004, an affiliate of MDP acquired
approximately 83% of the capital stock of Cinemark, Inc.,
pursuant to which a newly formed subsidiary owned by an
affiliate of MDP was merged with and into Cinemark, Inc. with
Cinemark, Inc. continuing as the surviving corporation.
Management, including Lee Roy Mitchell, Chairman and then Chief
Executive Officer, retained approximately 17% ownership interest
in Cinemark, Inc. In December 2004, MDP sold approximately 10%
of its stock in Cinemark, Inc., to outside investors and in July
2005, Cinemark, Inc. issued additional shares to another outside
investor.
Cinemark Holdings, Inc. was formed on August 2, 2006. On
August 7, 2006, the Cinemark, Inc. stockholders entered
into a share exchange agreement pursuant to which they agreed to
exchange their shares of Class A common stock for an equal
number of shares of common stock of Cinemark Holdings, Inc. The
Cinemark Share Exchange and the Century Theatres, Inc.
acquisition were completed on October 5, 2006. Prior to
October 5, 2006, Cinemark Holdings, Inc. had no assets,
liabilities or operations. On October 5, 2006, Cinemark,
Inc. became a wholly owned subsidiary of Cinemark Holdings, Inc.
As of December 31, 2006, MDP owned approximately 66% of our
capital stock, Lee Roy Mitchell and the Mitchell Special Trust
collectively owned approximately 14%, Syufy Enterprises, LP
owned approximately 11%, outside investors owned approximately
8%, and certain members of management owned the remaining 1%.
For purposes of the financial presentation in this prospectus,
the historical financial information reflects the change in
reporting entity that occurred as a result of the Cinemark Share
Exchange. Cinemark Holdings, Inc.s consolidated financial
information reflects the historical accounting basis of its
stockholders for all periods presented. Accordingly, financial
information for periods preceding the MDP Merger is presented as
Predecessor and for the periods subsequent to the MDP Merger is
presented as Successor. The Century acquisition is reflected in
the historical financial information of Cinemark Holdings, Inc.
from October 5, 2006. Because of the significance of the
Century acquisition, we have included in this prospectus
historical financial statements for Century as well as pro forma
financial information giving effect to the Century acquisition
as more fully described in Unaudited Pro Forma Condensed
Consolidated Financial Information.
We have prepared our discussion and analysis of the results of
operations for the year ended December 31, 2005 (successor)
by comparing those results with the results of operations of the
Predecessor for the period January 1, 2004 to April 1,
2004 combined with the results of operations of the Successor
for the period April 2, 2004 to December 31, 2004.
Although this combined presentation does not comply with GAAP we
believe this presentation provides a meaningful method of
comparison of the 2004 and 2005 results.
For financial reporting purposes at December 31, 2006, we
have two reportable operating segments, our U.S. operations and
our international operations.
Revenues
and Expenses
We generate revenues primarily from box office receipts and
concession sales with additional revenues from screen
advertising sales and other revenue streams, such as vendor
marketing programs, pay phones, ATM machines and electronic
video games located in some of our theatres. Our investment in
NCM has assisted us in expanding our offerings to advertisers,
exploring ancillary revenue sources such as digital video
monitor advertising, third party branding, and the use of
theatres for non-film events. In addition, we are able to use
theatres during non-peak hours for concerts, sporting events,
and other cultural events. Successful films released during the
year ended December 31, 2006 included Ice
Age 2: The Meltdown, Pirates of the
Caribbean: Dead Mans Chest, The Da Vinci Code, X
Men 3, Cars, Talladega Nights and Superman
Returns. Our revenues are affected by changes in
attendance and average admissions and concession revenues per
29
patron. Attendance is primarily affected by the quality and
quantity of films released by motion picture studios. Films
scheduled for release during 2007 include Spider-Man 3,
Shrek the Third, Pirates of the Caribbean: At
Worlds End, and Harry Potter and the Order of the
Phoenix.
Film rental costs are variable in nature and fluctuate with our
admissions revenues. Film rental costs as a percentage of
revenues are generally higher for periods in which more
blockbuster films are released. Film rental costs can also vary
based on the length of a films run. Generally, a film that
runs for a longer period results in lower film rental costs as a
percentage of revenues. Film rental rates are negotiated on a
film-by-film
and
theatre-by-theatre
basis. Advertising costs, which are expensed as incurred, are
primarily fixed at the theatre level as daily movie directories
placed in newspapers represent the largest component of
advertising costs. The monthly cost of these advertisements is
based on, among other things, the size of the directory and the
frequency and size of the newspapers circulation.
Concession supplies expense is variable in nature and fluctuates
with our concession revenues. We purchase concession supplies to
replace units sold. We negotiate prices for concession supplies
directly with concession vendors and manufacturers to obtain
bulk rates.
Although salaries and wages include a fixed cost component (i.e.
the minimum staffing costs to operate a theatre facility during
non-peak periods), salaries and wages move in relation to
revenues as theatre staffing is adjusted to handle changes in
attendance.
Facility lease expense is primarily a fixed cost at the theatre
level as most of our facility leases require a fixed monthly
minimum rent payment. Certain of our leases are subject to
percentage rent only while others are subject to percentage rent
in addition to their fixed monthly rent if a target annual
revenue level is achieved. Facility lease expense as a
percentage of revenues is also affected by the number of
theatres under operating leases versus the number of theatres
under capital leases and the number of fee-owned theatres.
Utilities and other costs include certain costs that are fixed
such as property taxes, certain costs that are variable such as
liability insurance, and certain costs that possess both fixed
and variable components such as utilities, repairs and
maintenance and security services.
Critical
Accounting Policies
We prepare our consolidated financial statements in conformity
with accounting principles generally accepted in the United
States of America. As such, we are required to make certain
estimates and assumptions that we believe are reasonable based
upon the information available. These estimates and assumptions
affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of
revenues and expenses during the periods presented. The
significant accounting policies, which we believe are the most
critical to aid in fully understanding and evaluating our
reported consolidated financial results, include the following:
Revenue
and Expense Recognition
Revenues are recognized when admissions and concession sales are
received at the box office. Other revenues primarily consist of
screen advertising. Screen advertising revenues are recognized
over the period that the related advertising is delivered
on-screen or in-theatre. We record proceeds from the sale of
gift cards and other advanced sale-type certificates in current
liabilities and recognize admissions and concession revenue when
a holder redeems the card or certificate. We recognize
unredeemed gift cards and other advanced sale-type certificates
as revenue only after such a period of time indicates, based on
historical experience, the likelihood of redemption is remote,
and based on applicable laws and regulations. In evaluating the
likelihood of redemption, we consider the period outstanding,
the level and frequency of activity, and the period of
inactivity.
Film rental costs are accrued based on the applicable box office
receipts and either the mutually agreed upon firm terms
established prior to the opening of the picture or estimates of
the final mutually agreed upon settlement, which occurs at the
conclusion of the picture run, subject to the film licensing
arrangement. Estimates are based on the expected success of a
film over the length of its run in theatres. The success of a
film can typically be determined a few weeks after a film is
released when initial box office performance of the film is
known. Accordingly, final settlements typically approximate
estimates since box office receipts are
30
known at the time the estimate is made and the expected success
of a film over the length of its run in theatres can typically
be estimated early in the films run. The final film
settlement amount is negotiated at the conclusion of the
films run based upon how a film actually performs. If
actual settlements are higher than those estimated, additional
film rental costs are recorded at that time. We recognize
advertising costs and any sharing arrangements with film
distributors in the same accounting period. Our advertising
costs are expensed as incurred.
Facility lease expense is primarily a fixed cost at the theatre
level as most of our facility leases require a fixed monthly
minimum rent payment. Certain of our leases are subject to
monthly percentage rent only, which is accrued each month based
on actual revenues. Certain of our other theatres require
payment of percentage rent in addition to fixed monthly rent if
a target annual revenue level is achieved. Percentage rent
expense is recorded for these theatres on a monthly basis if the
theatres historical performance or forecasted performance
indicates that the annual target will be reached. The estimate
of percentage rent expense recorded during the year is based on
a trailing twelve months of revenues. Once annual revenues are
known, which is generally at the end of the year, the percentage
rent expense is adjusted based on actual revenues.
Theatre properties and equipment are depreciated using the
straight-line method over their estimated useful lives. In
estimating the useful lives of our theatre properties and
equipment, we have relied upon our experience with such assets
and our historical replacement period. We periodically evaluate
these estimates and assumptions and adjust them as necessary.
Adjustments to the expected lives of assets are accounted for on
a prospective basis through depreciation expense.
Impairment
of Long-Lived Assets
We review long-lived assets for impairment on a quarterly basis
or whenever events or changes in circumstances indicate the
carrying amount of the assets may not be fully recoverable. We
assess many factors including the following to determine whether
to impair individual theatre assets:
|
|
|
|
|
actual theatre level cash flows;
|
|
|
|
future years budgeted theatre level cash flows;
|
|
|
|
theatre property and equipment carrying values;
|
|
|
|
goodwill carrying values;
|
|
|
|
amortizing intangible asset carrying values;
|
|
|
|
the age of a recently built theatre;
|
|
|
|
competitive theatres in the marketplace;
|
|
|
|
changes in foreign currency exchange rates;
|
|
|
|
the impact of recent ticket price changes;
|
|
|
|
available lease renewal options; and
|
|
|
|
other factors considered relevant in our assessment of
impairment of individual theatre assets.
|
Long-lived assets are evaluated for impairment on an individual
theatre basis, which we believe is the lowest applicable level
for which there are identifiable cash flows. The evaluation is
based on the estimated undiscounted cash flows from continuing
use through the remainder of the theatres useful life. The
remainder of the useful life correlates with the available
remaining lease period, which includes the possibility of
renewal periods, for leased properties and a period of twenty
years for fee owned properties. If the estimated undiscounted
cash flows are not sufficient to recover a long-lived
assets carrying value, we then compare the carrying value
of the asset group (theatre) with its estimated fair value. Fair
values are determined based on a multiple of undiscounted cash
flows, which was seven times as of December 31, 2005 and
eight times for the evaluation performed as of December 31,
2006. When estimated fair value is determined to be lower than
the carrying value of the asset group (theatre), the asset group
(theatre) is written down to its estimated fair value.
31
Significant judgment is involved in estimating cash flows and
fair value. Managements estimates are based on historical
and projected operating performance as well as recent market
transactions.
Impairment
of Goodwill and Intangible Assets
We evaluate goodwill and tradename for impairment annually at
fiscal year-end and any time events or circumstances indicate
the carrying amount of the goodwill and intangible assets may
not be fully recoverable. We evaluate goodwill for impairment at
the reporting unit level (generally a theatre) and have
allocated goodwill to the reporting unit based on an estimate of
its relative fair value. The evaluation is a two-step approach
requiring us to compute the fair value of a theatre and compare
it with its carrying value. If the carrying value exceeds fair
value, a second step is performed to measure the potential
goodwill impairment. Fair value is determined based on a
multiple of cash flows, which was seven times as of
December 31, 2005 and eight times for the evaluation
performed as of December 31, 2006. Significant judgment is
involved in estimating cash flows and fair value.
Managements estimates are based on historical and
projected operating performance as well as recent market
transactions.
Acquisitions
We account for acquisitions under the purchase method of
accounting in accordance with SFAS No. 141,
Business Combinations. The purchase method
requires that we estimate the fair value of the assets acquired
and liabilities assumed and allocate consideration paid
accordingly. For significant acquisitions, we obtain independent
third party valuation studies for certain of the assets acquired
and liabilities assumed to assist us in determining fair value.
The estimation of the fair values of the assets acquired and
liabilities assumed involves a number of estimates and
assumptions that could differ materially from the actual amounts
recorded.
Income
Taxes
We use an asset and liability approach to financial accounting
and reporting for income taxes. Deferred income taxes are
provided when tax laws and financial accounting standards differ
with respect to the amount of income for a year and the basis of
assets and liabilities. A valuation allowance is recorded to
reduce the carrying amount of deferred tax assets unless it is
more likely than not those assets will be realized. Income taxes
are provided on unremitted earnings from foreign subsidiaries
unless such earnings are expected to be indefinitely reinvested.
Income taxes have also been provided for potential tax
assessments. The related tax accruals are recorded in accordance
with SFAS No. 5, Accounting for
Contingencies. To the extent contingencies are
probable and estimable, an accrual is recorded within current
liabilities in the consolidated balance sheet. To the extent tax
accruals differ from actual payments or assessments, the
accruals will be adjusted.
Recent
Developments
National
CineMedia
In March 2005, Regal and AMC formed NCM, and on July 15,
2005, we joined NCM, as one of the founding members. NCM
operates the largest digital in-theatre network in the
U.S. for cinema advertising and non-film events and
combines the cinema advertising and non-film events businesses
of the three largest motion picture exhibition companies in the
U.S. On February 13, 2007, NCM, Inc., a newly formed entity
that now serves as a member and the sole manager of NCM,
completed an initial public offering of its common stock. In
connection with the NCM, Inc. public offering, NCM, Inc. became
a member and the sole manager of NCM, and we amended the
operating agreement of NCM and the Exhibitor Services Agreement
pursuant to which NCM provides advertising, promotion and event
services to our theatres.
Prior to the initial public offering of NCM, Inc. common stock,
our ownership interest in NCM was approximately 25% and
subsequent to the completion of the offering we owned a 14%
interest in NCM. Prior to pricing the initial public offering of
NCM, Inc., NCM completed a recapitalization whereby
(1) each issued and outstanding Class A unit of NCM
was split into 44,291 Class A units, and (2) following
such split of Class A Units, each issued and outstanding
Class A Unit was recapitalized into one common unit and one
32
preferred unit. As a result, we received 14,159,437 common units
and 14,159,437 preferred units. All existing preferred units of
NCM, or 55,850,951 preferred units, held by us, Regal and AMC
were redeemed by NCM on a pro rata basis on February 13,
2007. NCM utilized the proceeds of its new $725.0 million
term loan facility and a portion of the proceeds it received
from NCM, Inc.s initial public offering to redeem all of
its outstanding preferred units. Each preferred unit was
redeemed for $13.7782 and we received approximately
$195.1 million as payment in full for redemption of all of
our preferred units in NCM. Upon payment of such amount, each
preferred unit was cancelled and the holders of the preferred
units ceased to have any rights with respect to the preferred
units.
NCM has also paid us a portion of the proceeds it received from
NCM, Inc. in the initial public offering for agreeing to modify
NCMs payment obligation under the prior exhibitor services
agreement. The modification agreed to by us reflects a shift
from circuit share expense under the prior exhibitor service
agreement, which obligated NCM to pay us a percentage of
revenue, to the monthly theatre access fee described below. The
theatre access fee will significantly reduce the contractual
amounts paid to us by NCM. In exchange for our agreement to so
modify the agreement, NCM paid us approximately
$174 million upon execution of the Exhibitor Services
Agreement on February 13, 2007. Regal and AMC similarly
altered their exhibitor services arrangements with NCM.
At the closing of the initial public offering, the underwriters
exercised their over-allotment option to purchase additional
shares of common stock of NCM, Inc. at the initial public
offering price, less underwriting discounts and commissions. In
connection with the over-allotment option exercise, Regal, AMC
and us each sold to NCM, Inc. common units of NCM on a pro rata
basis at the initial public offering price, less underwriting
discounts and expenses. We sold 1,014,088 common units to NCM,
Inc. for proceeds of $19.9 million, and upon completion of
this sale of common units, we owned 13,145,349 common units of
NCM, or a 14% interest. In the future, we expect to receive
mandatory quarterly distributions of excess cash from NCM.
In consideration for NCMs exclusive access to our theatre
attendees for on-screen advertising and use of off-screen
locations within our theatres for the lobby entertainment
network and lobby promotions, we will receive a monthly theatre
access fee under the Exhibitor Services Agreement. The theatre
access fee is composed of a fixed payment per patron, initially
$0.07, and a fixed payment per digital screen, which may be
adjusted for certain enumerated reasons. The payment per theatre
patron will increase by 8% every five years, with the first such
increase taking effect after 2011, and the payment per digital
screen, initially $800 per digital screen per year, will
increase annually by 5%, beginning after 2007. The theatre
access fee paid in the aggregate to Regal, AMC and us will not
be less than 12% of NCMs Aggregate Advertising Revenue (as
defined in the Exhibitor Services Agreement), or it will be
adjusted upward to reach this minimum payment. Additionally,
with respect to any on-screen advertising time provided to our
beverage concessionaire, we are required to purchase such time
from NCM at a negotiated rate. The Exhibitor Services Agreement
has, except with respect to certain limited services, a term of
30 years.
We used the proceeds from the Exhibitor Services Agreement
modification payment, the preferred unit redemption and the sale
of common units to NCM, Inc. in connection with the exercise of
the over-allotment option and cash on hand to purchase our
9% senior subordinated notes issued by Cinemark USA, Inc.
pursuant to an offer to purchase and consent solicitation
described below.
Digital
Cinema Implementation Partners, LLC
On February 12, 2007, we, along with AMC and Regal, entered
into a joint venture known as Digital Cinema Implementation
Partners LLC, or DCIP, to explore the possibility of
implementing digital cinema in our theatres and to establish
agreements with major motion picture studios for the
implementation and financing of digital cinema. In addition,
DCIP has entered into a digital cinema services agreement with
NCM for purposes of assisting DCIP in the development of digital
cinema systems. Future digital cinema developments will be
managed by DCIP, subject to approval by us, along with our
partners AMC and Regal.
33
Repurchase
of 9% Senior Subordinated Notes
On March 6, 2007, Cinemark USA, Inc. commenced an offer to
purchase for cash any and all of its then outstanding
$332.2 million aggregate principal amount of 9% senior
subordinated notes. In connection with the tender offer,
Cinemark USA, Inc. solicited consents for certain proposed
amendments to the indenture to remove substantially all
restrictive covenants and certain events of default. On
March 20, 2007, the early settlement date, Cinemark USA,
Inc. repurchased $332.0 million aggregate principal amount
of 9% senior subordinated notes and executed a supplemental
indenture removing substantially all of the restrictive
covenants and certain events of default. On April 3, 2007,
we purchased $66,000 of the 9% senior subordinated notes
tendered after the early settlement date. Approximately $184,000
aggregate principal amount of 9% senior subordinated notes
remain outstanding. We used the proceeds from the NCM
transactions and cash on hand to purchase the 9% senior
subordinated notes tendered pursuant to the tender offer and
consent solicitation.
Amendments
to the New Senior Secured Credit Facility
On March 14, 2007, Cinemark USA, Inc. amended its new
senior secured credit facility to, among other things, modify
the interest rate on the term loans under the new senior secured
credit facility, modify certain prepayment terms and covenants,
and facilitate the tender offer for the 9% senior subordinated
notes. The term loans now accrue interest, at Cinemark USA,
Inc.s option, at: (A) the base rate equal to the
higher of (1) the prime lending rate as set forth on the
British Banking Association Telerate page 5, or
(2) the federal funds effective rate from time to time plus
0.50%, plus a margin that ranges from 0.50% to 0.75% per annum,
or (B) a eurodollar rate plus a margin that
ranges from 1.50% to 1.75%, per annum. In each case, the margin
is a function of the corporate credit rating applicable to the
borrower. The interest rate on the revolving credit line was not
amended. Additionally, the amendment removed any obligation to
prepay amounts outstanding under the new senior secured credit
facility in an amount equal to the amount of the net cash
proceeds received from the NCM transactions or from excess cash
flows, and imposed a 1% prepayment premium for one year on
certain prepayments of the term loans.
Results
of Operations
On October 5, 2006, we completed the Century acquisition
for a purchase price of approximately $681 million and the
assumption of approximately $360 million of debt of
Century. Of the total purchase price, $150 million
consisted of the issuance of 10,024,776 shares of our
common stock. We also incurred approximately $7.4 million
in transaction costs. Results of operations for the year ended
December 31, 2006 reflect the inclusion of operations for
the 77 Century theatres acquired beginning on the date of
acquisition, October 5, 2006. See note 4 to our annual
consolidated financial statements.
34
The following table sets forth, for the periods indicated, the
percentage of revenues represented by certain items reflected in
our consolidated statements of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
Operating data (in
millions)(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Admissions
|
|
$
|
647.0
|
|
|
$
|
641.2
|
|
|
$
|
760.3
|
|
Concession
|
|
|
321.6
|
|
|
|
320.1
|
|
|
|
375.8
|
|
Other
|
|
|
55.6
|
|
|
|
59.3
|
|
|
|
84.5
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
1,024.2
|
|
|
$
|
1,020.6
|
|
|
$
|
1,220.6
|
|
|
|
|
|
|
|
Theatre operating
costs(2)(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
Film rentals and advertising
|
|
$
|
348.8
|
|
|
$
|
347.7
|
|
|
$
|
406.0
|
|
Concession supplies
|
|
|
53.8
|
|
|
|
52.5
|
|
|
|
59.0
|
|
Salaries and wages
|
|
|
103.1
|
|
|
|
101.5
|
|
|
|
118.6
|
|
Facility lease expense
|
|
|
128.7
|
|
|
|
138.5
|
|
|
|
161.4
|
|
Utilities and other
|
|
|
113.0
|
|
|
|
123.8
|
|
|
|
144.8
|
|
|
|
|
|
|
|
Total theatre operating costs
|
|
$
|
747.4
|
|
|
$
|
764.0
|
|
|
$
|
889.8
|
|
|
|
|
|
|
|
Operating data as a percentage
of total
revenues(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Admissions
|
|
|
63.2
|
%
|
|
|
62.8
|
%
|
|
|
62.3
|
%
|
Concession
|
|
|
31.4
|
|
|
|
31.4
|
|
|
|
30.8
|
%
|
Other
|
|
|
5.4
|
|
|
|
5.8
|
|
|
|
6.9
|
%
|
|
|
|
|
|
|
Total revenues
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
Theatre operating
costs(2)(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
Film rentals and advertising
|
|
|
53.9
|
%
|
|
|
54.2
|
%
|
|
|
53.4
|
%
|
Concession supplies
|
|
|
16.7
|
|
|
|
16.4
|
|
|
|
15.7
|
|
Salaries and wages
|
|
|
10.1
|
|
|
|
9.9
|
|
|
|
9.7
|
|
Facility lease expense
|
|
|
12.6
|
|
|
|
13.6
|
|
|
|
13.2
|
|
Utilities and other
|
|
|
11.0
|
|
|
|
12.1
|
|
|
|
11.9
|
|
Total theatre operating costs
|
|
|
73.0
|
%
|
|
|
74.9
|
%
|
|
|
72.9
|
%
|
|
|
|
|
|
|
Average screen count (month end
average)(1)
|
|
|
3,135
|
|
|
|
3,239
|
|
|
|
3,628
|
|
|
|
|
|
|
|
Revenues per average
screen(1)
|
|
$
|
326,664
|
|
|
$
|
315,104
|
|
|
$
|
336,437
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Results exclude our two United Kingdom theatres and our eleven
Interstate theatres sold during 2004. The results of operations
for these theatres are presented as discontinued operations for
2004. |
|
(2) |
|
All costs are expressed as a percentage of total revenues,
except film rentals and advertising, which are expressed as a
percentage of admissions revenues, and concession supplies,
which are expressed as a percentage of concession revenues. |
|
(3) |
|
Excludes depreciation and amortization expense. |
35
Comparison
of Years Ended December 31, 2006 and December 31,
2005
Revenues. Total revenues increased
$200.0 million to $1,220.6 million for 2006 from
$1,020.6 million for 2005, representing a 19.6% increase.
The table below, presented by reportable operating segment,
summarizes our
year-over-year
revenue performance and certain key performance indicators that
impact our revenues.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Operating Segment
|
|
|
|
|
|
International Operating Segment
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
2005
|
|
|
2006
|
|
|
% Change
|
|
|
2005
|
|
|
2006
|
|
|
% Change
|
|
|
2005
|
|
|
2006
|
|
|
% Change
|
|
|
Admissions revenues
(in millions)
|
|
$
|
472.0
|
|
|
$
|
577.9
|
|
|
|
22.4
|
%
|
|
$
|
169.2
|
|
|
$
|
182.4
|
|
|
|
7.8
|
%
|
|
$
|
641.2
|
|
|
$
|
760.3
|
|
|
|
18.6
|
%
|
Concession revenues
(in millions)
|
|
$
|
248.7
|
|
|
$
|
297.4
|
|
|
|
19.6
|
%
|
|
$
|
71.4
|
|
|
$
|
78.4
|
|
|
|
9.8
|
%
|
|
$
|
320.1
|
|
|
$
|
375.8
|
|
|
|
17.4
|
%
|
Other revenues
(in
millions)(1)
|
|
$
|
35.6
|
|
|
$
|
59.4
|
|
|
|
66.9
|
%
|
|
$
|
23.7
|
|
|
$
|
25.1
|
|
|
|
5.9
|
%
|
|
$
|
59.3
|
|
|
$
|
84.5
|
|
|
|
42.5
|
%
|
Total revenues (in
millions)(1)
|
|
$
|
756.3
|
|
|
$
|
934.7
|
|
|
|
23.6
|
%
|
|
$
|
264.3
|
|
|
$
|
285.9
|
|
|
|
8.2
|
%
|
|
$
|
1,020.6
|
|
|
$
|
1,220.6
|
|
|
|
19.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attendance
(in millions)
|
|
|
105.6
|
|
|
|
118.7
|
|
|
|
12.4
|
%
|
|
|
60.1
|
|
|
$
|
59.6
|
|
|
|
(1.0
|
)%
|
|
|
165.7
|
|
|
|
178.3
|
|
|
|
7.6
|
%
|
Revenues per
screen(1)
|
|
$
|
321,833
|
|
|
$
|
346,812
|
|
|
|
7.8
|
%
|
|
$
|
297,316
|
|
|
$
|
306,459
|
|
|
|
3.1
|
%
|
|
$
|
315,104
|
|
|
$
|
336,437
|
|
|
|
6.8
|
%
|
|
|
|
(1) |
|
U.S. operating segment revenues include eliminations of
intercompany transactions with the international operating
segment. See note 20 to our consolidated financial
statements. |
|
|
|
|
|
Consolidated. The increase in
admissions revenues of $119.1 million was attributable to a
7.6% increase in attendance from 165.7 million patrons for
2005 to 178.3 million patrons for 2006, which contributed
$57.2 million, and a 10.2% increase in average ticket price
from $3.87 for 2005 to $4.26 for 2006, which contributed
$61.9 million. This increase included additional admissions
revenues for the 77 Century theatres acquired during the fourth
quarter of 2006. The increase in concession revenues of
$55.7 million was attributable to the 7.6% increase in
attendance, which contributed $30.3 million, and a 9.1%
increase in concession revenues per patron from $1.93 for 2005
to $2.11 for 2006, which contributed $25.4 million. This
increase included additional concession revenues for the
77 Century theatres acquired during the fourth quarter. The
increase in attendance was attributable to the additional
attendance from the 77 Century theatres acquired, the solid
slate of films released during 2006 and new theatre openings.
The increases in average ticket price and concession revenues
per patron were due to the higher ticket price structure at the
77 Century theatres acquired, price increases and favorable
exchange rates in certain countries in which we operate. The
42.5% increase in other revenues was primarily attributable to
incremental screen advertising revenues resulting from our
participation in the NCM joint venture.
|
|
|
|
U.S. The increase in admissions
revenues of $105.9 million was attributable to a 12.4%
increase in attendance from 105.6 million patrons for 2005
to 118.7 million patrons for 2006, which contributed
$58.7 million, and an 8.9% increase in average ticket price
from $4.47 for 2005 to $4.87 for 2006, which contributed
$47.2 million. This increase included additional admissions
revenues for the 77 Century theatres acquired during the fourth
quarter of 2006. The increase in concession revenues of
$48.7 million was attributable to the 12.4% increase in
attendance, which contributed $31.0 million, and a 6.3%
increase in concession revenues per patron from $2.36 for 2005
to $2.51 for 2006, which contributed $17.7 million. This
increase included additional concession revenues for the
77 Century theatres acquired during the fourth quarter. The
increase in attendance was attributable to the additional
attendance from the 77 Century theatres acquired, the solid
slate of films released during 2006 and new theatre openings.
The increases in average ticket price and concession revenues
per patron were due to the higher ticket price structure at the
77 Century theatres acquired and price increases. The 66.9%
increase in other revenues was primarily attributable to
incremental screen advertising revenues resulting from our
participation in the joint venture with NCM.
|
36
|
|
|
|
|
International. The increase in
admissions revenues of $13.2 million was attributable to an
8.8% increase in average ticket price from $2.82 for 2005 to
$3.06 for 2006, which contributed $14.7 million, partially
offset by a 1.0% decrease in attendance, which contributed
$(1.5) million. The decrease in attendance was due to
increased competition in certain markets. The increase in
concession revenues of $7.0 million was attributable to a
10.9% increase in concession revenues per patron from $1.19 for
2005 to $1.32 for 2006, which contributed $7.7 million,
partially offset by the 1.0% decrease in attendance, which
contributed $(0.7) million. The increases in average ticket
price and concession revenues per patron were due to price
increases and favorable exchange rates in certain countries in
which we operate.
|
Theatre Operating Costs (excludes depreciation and
amortization expense). Theatre operating costs
were $889.8 million, or 72.9% of revenues, for 2006
compared to $764.0 million, or 74.9% of revenues, for 2005.
The decrease, as a percentage of revenues, was primarily due to
the increase in revenues and the fixed nature of some of our
theatre operating costs, such as components of salaries and
wages, facility lease expense, and utilities and other costs.
The table below, presented by reportable operating segment,
summarizes our year-over-year theatre operating costs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Operating Segment
|
|
|
International Operating Segment
|
|
|
Consolidated
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
Film rentals and advertising
|
|
$
|
263.7
|
|
|
$
|
315.4
|
|
|
$
|
84.0
|
|
|
$
|
90.6
|
|
|
$
|
347.7
|
|
|
$
|
406.0
|
|
Concession supplies
|
|
|
34.5
|
|
|
|
38.7
|
|
|
|
18.0
|
|
|
|
20.3
|
|
|
$
|
52.5
|
|
|
$
|
59.0
|
|
Salaries and wages
|
|
|
80.8
|
|
|
|
95.8
|
|
|
|
20.7
|
|
|
|
22.8
|
|
|
$
|
101.5
|
|
|
$
|
118.6
|
|
Facility lease expense
|
|
|
97.7
|
|
|
|
117.0
|
|
|
|
40.8
|
|
|
|
44.4
|
|
|
$
|
138.5
|
|
|
$
|
161.4
|
|
Utilities and other
|
|
|
90.7
|
|
|
|
108.3
|
|
|
|
33.1
|
|
|
|
36.5
|
|
|
$
|
123.8
|
|
|
$
|
144.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total theatre operating costs
|
|
$
|
567.4
|
|
|
$
|
675.2
|
|
|
$
|
196.6
|
|
|
$
|
214.6
|
|
|
$
|
764.0
|
|
|
$
|
889.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated. Film rentals and
advertising costs were $406.0 million, or 53.4% of
admissions revenues, for 2006 compared to $347.7 million,
or 54.2% of admissions revenues, for 2005. The increase in film
rentals and advertising costs for 2006 of $58.3 million is
due to increased admissions revenues, which contributed
$65.7 million, and a decrease in our film rental and
advertising rate, which contributed $(7.4) million. The
decrease in film rentals and advertising costs as a percentage
of admissions revenues was due to a more favorable mix of films
resulting in lower average film rental rates in 2006 compared
with 2005 which had certain blockbuster films with higher than
average film rental rates. Concession supplies expense was
$59.0 million, or 15.7% of concession revenues, for 2006
compared to $52.5 million, or 16.4% of concession revenues,
for 2005. The increase in concession supplies expense of
$6.5 million is primarily due to increased concession
revenues, which contributed $8.5 million, and a decrease in
our concession supplies rate, which contributed
$(2.0) million. The decrease in concession supplies expense
as a percentage of revenues was primarily due to concession
sales price increases.
|
Salaries and wages increased to $118.6 million for 2006
from $101.5 million for 2005 primarily due to the
additional salaries and wages related to the 77 Century
theatres, the increase in attendance and new theatre openings.
Facility lease expense increased to $161.4 million for 2006
from $138.5 million for 2005 primarily due to the
additional expense related to the 77 Century theatres,
increased percentage rent related to the increased revenues and
new theatre openings. Utilities and other costs increased to
$144.8 million for 2006 from $123.8 million for 2005
primarily due to the additional costs related to the
77 Century theatres, higher utility and janitorial supplies
costs at our existing theatres and new theatre openings.
|
|
|
|
|
U.S. Film rentals and advertising costs
were $315.4 million, or 54.6% of admissions revenues, for
2006 compared to $263.7 million, or 55.9% of admissions
revenues, for 2005. The increase in film rentals and advertising
costs for 2006 of $51.7 million is due to increased
admissions revenues, which
|
37
|
|
|
|
|
contributed $59.2 million, and a decrease in our film
rentals and advertising rate, which contributed
$(7.5) million. The decrease in film rentals and
advertising costs as a percentage of admissions revenues was due
to a more favorable mix of films resulting in lower average film
rental rates in 2006 compared with 2005 which had certain
blockbuster films with higher than average film rental rates.
Concession supplies expense was $38.7 million, or 13.0% of
concession revenues, for 2006 compared to $34.5 million, or
13.9% of concession revenues, for 2005. The increase in
concession supplies expense of $4.2 million is due to
increased concession revenues, which contributed
$6.7 million, and a decrease in our concession supplies
rate, which contributed $(2.5) million. The decrease in
concession supplies expense as a percentage of revenues was
primarily due to concession sales price increases.
|
Salaries and wages increased to $95.8 million for 2006 from
$80.8 million for 2005 primarily due to the additional
salaries and wages related to the 77 Century theatres, the
increase in attendance and new theatre openings. Facility lease
expense increased to $117.0 million for 2006 from
$97.7 million for 2005 primarily due to the additional
expense related to the 77 Century theatres, increased
percentage rent related to increased revenues and new theatre
openings. Utilities and other costs increased to
$108.3 million for 2006 from $90.7 million for 2005
primarily due to additional costs related to the 77 Century
theatres, higher utility and janitorial supplies costs at our
existing theatres and new theatre openings.
|
|
|
|
|
International. Film rentals and
advertising costs were $90.6 million, or 49.7% of
admissions revenues, for 2006 compared to $84.0 million, or
49.6% of admissions revenues, for 2005. The increase in film
rentals and advertising costs for 2006 is primarily due to
increased admissions revenues. Concession supplies expense was
$20.3 million, or 25.9% of concession revenues, for 2006
compared to $18.0 million, or 25.2% of concession revenues,
for 2005. The increase in concession supplies expense of
$2.3 million is due to increased concession revenues, which
contributed $1.8 million, and an increase in our concession
supplies rate, which contributed $0.5 million.
|
Salaries and wages increased to $22.8 million for 2006 from
$20.7 million for 2005 primarily due to new theatre
openings. Facility lease expense increased to $44.4 million
for 2006 from $40.8 million for 2005 primarily due to
increased percentage rent related to increased revenues and new
theatre openings. Utilities and other costs increased to
$36.5 million for 2006 from $33.1 million for 2005
primarily due to higher utility and janitorial supplies costs at
our existing theatres and new theatre openings.
General and Administrative Expenses. General
and administrative expenses increased to $67.8 million for
2006 from $50.9 million for 2005 primarily due to a
$3.7 million increase due to incentive compensation
expense, a $3.0 million increase to salaries and wages, a
$2.9 million increase to stock option compensation expense
related to the adoption of SFAS No. 123 (R), and a
$1.3 million increase in service charges related to
increased credit card activity and additional overhead costs
associated with the integration of the Century.
Depreciation and Amortization. Depreciation
and amortization expense, including amortization of favorable
leases, was $99.5 million for 2006 compared to
$86.1 million for 2005 primarily due to the Century
acquisition and new theatre openings.
Impairment of Long-Lived Assets. We recorded
asset impairment charges on assets held and used of
$28.5 million for 2006 compared to $51.7 million for
2005. Impairment charges for 2006 and 2005 included the
write-down of theatres to their fair values. Impairment charges
for 2006 consisted of $13.6 million of theatre properties,
$13.6 million of goodwill associated with theatre
properties and $1.3 million of intangible assets associated
with theatre properties. Impairment charges for 2005 consisted
of $6.4 million of theatre properties and
$45.3 million of goodwill associated with theatre
properties. We record goodwill at the theatre level, which
results in more volatile impairment charges on an annual basis
due to changes in market conditions and box office performance
and the resulting impact on individual theatres. Significant
judgment is involved in estimating cash flows and fair value.
Managements estimates are based on historical and
projected operating performance as well as recent market
transactions. See notes 9 and 10 to our consolidated
financial statements.
38
Loss on Sale of Assets and Other. We recorded
a loss on sale of assets and other of $7.6 million during
2006 compared to $4.4 million during 2005. The loss
recorded during 2006 primarily related to a loss on the exchange
of a theatre in the United States with a third party, lease
termination fees and asset write-offs incurred due to theatre
closures and the replacement of certain theatre assets. The loss
recorded during 2005 was primarily due to property damages
sustained at three of our theatres due to hurricanes along the
Gulf of Mexico coast and the write-off of some theatre equipment
that was replaced.
Interest Expense. Interest costs incurred,
including amortization of debt issue costs, was
$109.3 million for 2006 compared to $84.1 million for
2005. The increase was primarily due to the financing associated
with the Century acquisition.
Loss on Early Retirement of Debt. During 2006,
we recorded a loss on early retirement of debt of
$8.3 million which was a result of the refinancing
associated with the Century acquisition, the repurchase of
$10.0 million aggregate principal amount of Cinemark USA,
Inc.s 9% senior subordinated notes, and the
repurchase of $39.8 million aggregate principal amount at
maturity of our
93/4% senior
discount notes, all of which resulted in the write-off of
unamortized debt issue costs and the payment of fees and
expenses. See notes 4 and 12 to our consolidated financial
statements.
Income Taxes. Income tax expense of
$12.7 million was recorded for 2006 compared to
$9.4 million recorded for 2005. The effective tax rate for
2006 reflects the impact of purchase accounting adjustments
resulting from the Century acquisition. The effective tax rate
for 2005 reflects the impact of purchase accounting adjustments
and related goodwill impairment charges resulting from the MDP
Merger. See note 18 to our consolidated financial
statements.
Comparison
of Years Ended December 31, 2005 and December 31,
2004
Revenues. Total revenues for 2005 decreased to
$1,020.6 million from $1,024.2 million for 2004,
representing a 0.4% decrease. The table below, presented by
reportable operating segment, summarizes our year-over-year
revenue performance and certain key performance indicators that
impact our revenues.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Operating Segment
|
|
|
|
|
|
International Operating Segment
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
%
|
|
|
Year Ended December 31,
|
|
|
%
|
|
|
Year Ended December 31,
|
|
|
%
|
|
|
|
2004
|
|
|
2005
|
|
|
Change
|
|
|
2004
|
|
|
2005
|
|
|
Change
|
|
|
2004
|
|
|
2005
|
|
|
Change
|
|
|
Admissions revenues
(in millions)
|
|
$
|
489.0
|
|
|
$
|
472.0
|
|
|
|
(3.5
|
)%
|
|
$
|
158.0
|
|
|
$
|
169.2
|
|
|
|
7.1
|
%
|
|
$
|
647.0
|
|
|
$
|
641.2
|
|
|
|
(0.9
|
)%
|
Concession revenues
(in millions)
|
|
$
|
255.9
|
|
|
$
|
248.7
|
|
|
|
(2.8
|
)%
|
|
$
|
65.7
|
|
|
$
|
71.4
|
|
|
|
8.7
|
%
|
|
$
|
321.6
|
|
|
$
|
320.1
|
|
|
|
(0.5
|
)%
|
Other revenues
(in
millions)(1)
|
|
$
|
37.1
|
|
|
$
|
35.6
|
|
|
|
(4.0
|
)%
|
|
$
|
18.5
|
|
|
$
|
23.7
|
|
|
|
28.1
|
%
|
|
$
|
55.6
|
|
|
$
|
59.3
|
|
|
|
6.7
|
%
|
Total revenues
(in
millions)(1)
|
|
$
|
782.0
|
|
|
$
|
756.3
|
|
|
|
(3.3
|
)%
|
|
$
|
242.2
|
|
|
$
|
264.3
|
|
|
|
9.1
|
%
|
|
$
|
1,024.2
|
|
|
$
|
1,020.6
|
|
|
|
(0.4
|
)%
|
Attendance
(in millions)
|
|
|
113.6
|
|
|
|
105.6
|
|
|
|
(7.1
|
)%
|
|
|
65.7
|
|
|
|
60.1
|
|
|
|
(8.5
|
)%
|
|
|
179.3
|
|
|
|
165.7
|
|
|
|
(7.6
|
)%
|
Revenues per
screen(1)
|
|
$
|
341,747
|
|
|
$
|
321,833
|
|
|
|
(5.8
|
)%
|
|
$
|
286,364
|
|
|
$
|
297,316
|
|
|
|
3.8
|
%
|
|
$
|
326,664
|
|
|
$
|
315,104
|
|
|
|
(3.5
|
)%
|
|
|
|
|
(1)
|
U.S. operating segment revenues include eliminations of
intercompany transactions with the international operating
segment. See note 20 to our consolidated financial
statements.
|
|
|
|
|
|
Consolidated. The decrease in
admissions revenues of $5.8 million was due to the
7.6% decline in attendance, which contributed
$(48.1) million, partially offset by the 7.3% increase
in average ticket prices, which contributed $42.3 million.
The decline in concession revenues of $1.5 million was also
attributable to the decline in attendance, which contributed
$(23.7) million, partially offset by the
7.7% increase in concession revenues per patron, which
contributed $22.2 million. The decline in attendance for
2005 was primarily due to the decline in the quality of films
released during 2005 compared to 2004. The increases in average
ticket prices and concession revenues per patron were
|
39
|
|
|
|
|
primarily due to price increases and also due to favorable
exchange rates in certain countries in which we operate.
|
|
|
|
|
|
U.S. The decrease in admissions
revenues of $17.0 million was attributable to the 7.1%
decrease in attendance from 113.6 million patrons for 2004
to 105.6 million patrons for 2005, which contributed
$(34.7) million, partially offset by a 3.9% increase in
average ticket price from $4.30 for 2004 to $4.47 for 2005,
which contributed $17.7 million. The decline in concession
revenues of $7.2 million was attributable to the 7.1%
decrease in attendance, which contributed $(18.2) million,
partially offset by a 4.6% increase in concession revenues per
patron from $2.25 per patron for 2004 to $2.36 per patron
for 2005, which contributed $11.0 million. The decline in
attendance for 2005 was primarily due to the decline in the
quality of films released during 2005 compared to 2004. The
increases in average ticket prices and concession revenues per
patron were primarily due to price increases.
|
|
|
|
International. The increase in
admissions revenues of $11.2 million was attributable to a
17.1% increase in average ticket price from $2.40 for 2004 to
$2.82 for 2005, which contributed $24.6 million, partially
offset by the 8.5% decrease in attendance from 65.7 million
patrons for 2004 to 60.1 million patrons for 2005, which
contributed $(13.4) million. The increase in concession
revenues of $5.7 million was attributable to an 18.6%
increase in concession revenues per patron from $1.00 per
patron for 2004 to $1.19 per patron for 2005, which contributed
$11.2 million, partially offset by the 8.5% decrease in
attendance, which contributed $(5.5) million. The decline
in attendance for 2005 was primarily due to the decline in the
quality of films released during 2005 compared to 2004. The
increases in average ticket prices and concession revenues per
patron were primarily due to price increases and also favorable
exchange rates in certain countries in which we operate.
|
Theatre Operating Costs (excludes depreciation and
amortization expense). Theatre operating costs
were $764.0 million, or 74.9% of revenues, for 2005
compared to $747.4 million, or 73.0% of revenues, for 2004.
The increase, as percentage of revenues, was primarily due to
the decrease in revenues and the fixed nature of some of our
theatre operating costs, such as components of facility lease
expense and utilities and other costs. The table below,
presented by reportable operating segment, summarizes our
year-over-year theatre operating costs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International
|
|
|
Consolidated
|
|
|
|
U.S. Operating Segment
|
|
|
Operating Segment
|
|
|
Year Ended
|
|
|
|
Year Ended December 31,
|
|
|
Year Ended December 31,
|
|
|
December 31,
|
|
|
|
2004
|
|
|
2005
|
|
|
2004
|
|
|
2005
|
|
|
2004
|
|
|
2005
|
|
|
Film rentals and advertising
|
|
$
|
270.1
|
|
|
$
|
263.7
|
|
|
$
|
78.7
|
|
|
$
|
84.0
|
|
|
$
|
348.8
|
|
|
$
|
347.7
|
|
Concession supplies
|
|
|
37.2
|
|
|
|
34.5
|
|
|
|
16.6
|
|
|
|
18.0
|
|
|
$
|
53.8
|
|
|
$
|
52.5
|
|
Salaries and wages
|
|
|
84.9
|
|
|
|
80.8
|
|
|
|
18.2
|
|
|
|
20.7
|
|
|
$
|
103.1
|
|
|
$
|
101.5
|
|
Facility lease expense
|
|
|
93.7
|
|
|
|
97.7
|
|
|
|
35.0
|
|
|
|
40.8
|
|
|
$
|
128.7
|
|
|
$
|
138.5
|
|
Utilities and other
|
|
|
85.2
|
|
|
|
90.7
|
|
|
|
27.8
|
|
|
|
33.1
|
|
|
$
|
113.0
|
|
|
$
|
123.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total theatre operating costs
|
|
$
|
571.1
|
|
|
$
|
567.4
|
|
|
$
|
176.3
|
|
|
$
|
196.6
|
|
|
$
|
747.4
|
|
|
$
|
764.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated. Film rentals and
advertising costs were $347.7 million, or 54.2% of
admissions revenues, for 2005 compared to $348.8 million,
or 53.9% of admissions revenues, for 2004. The $1.1 million
decrease in film rentals and advertising costs for 2005 is due
to decreased admissions revenues, which contributed
$(3.8) million, offset by an increase in our film rentals
and advertising rate, which contributed $2.7 million. The
increase in film rentals and advertising costs as a percentage
of admissions revenues was primarily related to the high film
rental costs associated with certain blockbuster films released
during 2005. Concession supplies expense was $52.5 million,
or 16.4% of concession revenues, for 2005 compared to
$53.8 million, or 16.7% of concession revenues, for 2004.
The decrease in concession supplies expense of $1.3 million
is primarily due to a decrease in our concession supplies rate.
The decrease in concession supplies expense as a percentage of
concession revenues was primarily due to concession sales price
increases and an increase in concession rebates received from
certain vendors.
|
40
|
|
|
|
|
Salaries and wages decreased to $101.5 million for 2005
from $103.1 million for 2004 primarily due to strategic
reductions in certain variable salaries and wages related to the
decrease in attendance. Facility lease expense increased to
$138.5 million for 2005 from $128.7 million for 2004
primarily due to new theatre openings. Utilities and other costs
increased to $123.8 million for 2005 from
$113.0 million for 2004 primarily due to higher utility
costs and new theatre openings.
|
|
|
|
|
|
U.S. Film rentals and advertising costs
were $263.7 million, or 55.9% of admissions revenues, for
2005 compared to $270.1 million, or 55.2% of admissions
revenues, for 2004. The decrease of $6.4 million in film
rentals and advertising costs for 2005 is due to decreased
admissions revenues, which contributed $(9.4) million,
offset by an increase in our film rentals and advertising rate,
which contributed $3.0 million. The increase in film
rentals and advertising costs as a percentage of admissions
revenues was due to high film rental costs associated with
certain blockbuster films released during 2005. Concession
supplies expense was $34.5 million, or 13.9% of concession
revenues, for 2005 compared to $37.2 million, or 14.5% of
concession revenues, for 2004. The decrease in concession
supplies expense of $2.7 million is due to decreased
concession revenues, which contributed $(1.0) million, and
a decrease in our concession supplies rate, which contributed
$(1.7) million. The decrease in concession supplies expense
as a percentage of revenues was primarily due to concession
sales price increases.
|
Salaries and wages decreased to $80.8 million for 2005 from
$84.9 million for 2004 primarily due to strategic
reductions in certain variable salaries and wages related to the
decrease in attendance. Facility lease expense increased to
$97.7 million for 2005 from $93.7 million for 2004
primarily due to increased percentage rent related to increased
revenues and new theatre openings. Utilities and other costs
increased to $90.7 million for 2005 from $85.2 million
for 2004 primarily due to higher utility and janitorial supplies
costs at our existing theatres and new theatre openings.
|
|
|
|
|
International. Film rentals and
advertising costs were $84.0 million, or 49.6% of
admissions revenues, for 2005 compared to $78.7 million, or
49.8% of admissions revenues, for 2004. The increase in film
rentals and advertising costs of $5.3 million for 2005 is
primarily due to increased admissions revenues. Concession
supplies expense was $18.0 million, or 25.2% of concession
revenues, for 2005 compared to $16.6 million, or 25.3% of
concession revenues, for 2004. The increase in concession
supplies expense of $1.4 million is primarily due to
increased concession revenues.
|
Salaries and wages increased to $20.7 million for 2005 from
$18.2 million for 2004 primarily due to new theatre
openings. Facility lease expense increased to $40.8 million
for 2005 from $35.0 million for 2004 primarily due to
increased percentage rent related to increased revenues and new
theatre openings. Utilities and other costs increased to
$33.1 million for 2005 from $27.8 million for 2004
primarily due to higher utility and janitorial supplies costs at
our existing theatres and new theatre openings.
General and Administrative Expenses. General
and administrative expenses decreased to $50.9 million for
2005 from $51.7 million for 2004. The decrease was
primarily due to a reduction in incentive compensation expense.
Stock Option Compensation and Change of Control Expenses
related to the MDP Merger. Stock option
compensation expense of $16.3 million and change of control
fees of $15.7 million were recorded during 2004 as a result
of the MDP Merger. See note 3 to our consolidated financial
statements.
Depreciation and Amortization. Depreciation
and amortization expense, including amortization of net
favorable leases, was $86.1 million for 2005 compared to
$78.2 million for 2004. The increase was primarily due to
the amortization of intangible assets recorded during April 2004
as a result of the MDP Merger, new theatre openings during the
latter part of 2004 and 2005 and amortization of intangible
assets recorded as a result of the final purchase price
allocations for the Brazil and Mexico acquisitions. See
note 5 to our consolidated financial statements.
Impairment of Long-Lived Assets. We recorded
asset impairment charges on long-lived assets held and used of
$51.7 million during 2005 and $37.7 million during
2004. Impairment charges for 2005 and 2004 included the
write-down of certain theatres to their fair values. Impairment
charges for 2005 consisted of
41
$6.4 million of theatre properties and $45.3 million
of goodwill associated with theatre properties. Impairment
charges for 2004 consisted of $2.0 million of theatre
properties and $35.7 million of goodwill associated with
theatre properties. During 2004, we recorded $620.5 million
of goodwill as a result of the MDP Merger. We record goodwill at
the theatre level which results in more volatile impairment
charges on an annual basis due to changes in market conditions
and box office performance and the resulting impact on
individual theatres. Significant judgment is involved in
estimating cash flows and fair value. Managements
estimates are based on historical and projected operating
performance as well as recent market transactions. See
notes 8 and 9 to our consolidated financial statements.
Loss on Sale of Assets and Other. We recorded
a loss on sale of assets and other of $4.4 million during
2005 and $3.1 million during 2004. The loss recorded during
2005 was primarily due to property damages sustained at certain
of our theatres due to the recent hurricanes along the Gulf of
Mexico coast and the write-off of theatre equipment that was
replaced. The loss recorded during 2004 consisted of a loss on
sale of a land parcel, the write-off of a license agreement that
was terminated, the write-off of theatre equipment that was
replaced, and the write-off of theatre equipment and goodwill
associated with theatres that closed during the year.
Interest Expense. Interest costs incurred,
including amortization of debt issue costs, was
$84.1 million for 2005 compared to $70.7 million for
2004. The increase in interest expense is due to the issuance of
the
93/4% senior
discount notes on March 31, 2004, the amortization of the
related debt issue costs and an increase in average interest
rates on our variable rate debt.
Interest Income. Interest income of
$6.6 million was recorded for 2005 compared to
$2.0 million for 2004. The increase in interest income is
due to increased cash balances and increased average interest
rates earned on such balances.
Loss on Early Retirement of Debt. During 2004,
we recorded a loss on early retirement of debt of
$3.3 million, which represented the write-off of
unamortized debt issue costs, unamortized bond discount, tender
offer repurchase costs, including premiums paid, and other fees
associated with the repurchase and subsequent retirement of our
81/2% senior
subordinated notes and a portion of our 9% senior
subordinated notes related to the MDP Merger. See note 12
to our consolidated financial statements.
Income Taxes. Income tax expense of
$9.4 million was recorded for 2005 compared to
$14.6 million recorded for 2004. The 2005 and 2004
effective tax rates reflect the impact of purchase accounting
adjustments and related goodwill impairment charges resulting
from the MDP Merger. See Note 18 to our consolidated
financial statements.
Income from Discontinued Operations, Net of
Taxes. We recorded income from discontinued
operations, net of taxes, of $2.6 million during 2004. The
income for 2004 includes the results of operations of our two
United Kingdom theatres that were sold on April 30, 2004,
the loss on sale of the two United Kingdom theatres, the results
of operations of the eleven Interstate theatres that were sold
on December 23, 2004 and the gain on sale of the Interstate
theatres. See note 7 to our consolidated financial
statements.
Liquidity
and Capital Resources
Operating
Activities
We primarily collect our revenues in cash, mainly through box
office receipts and the sale of concession supplies. In
addition, a majority of our theatres provide the patron a choice
of using a credit card, in place of cash, which we convert to
cash over a range of one to six days. Because our revenues are
received in cash prior to the payment of related expenses, we
have an operating float and historically have not
required traditional working capital financing. Cash provided by
operating activities amounted to $123.1 million,
$165.3 million and $155.7 million for the years ended
December 31, 2004, 2005 and 2006, respectively. The
increase in cash provided by operating activities from 2004 to
2005 is primarily the result of an increase in our income tax
payable balance of approximately $20.2 million at
December 31, 2005 compared to December 31, 2004
related to the timing of our income tax payments. Our accounts
payable and accrued liabilities also increased approximately
$14.1 million at December 31, 2005 compared to
December 31, 2004 primarily due
42
to the increase in business and resulting expenses in December
2005 compared with December 2004 and the timing of our payments
of such liabilities.
Since the issuance of the
93/4% senior
discount notes on March 31, 2004, interest has accreted
rather than been paid in cash, which has benefited our operating
cash flows for the periods presented. Interest will be paid in
cash commencing September 15, 2009, at which time our
operating cash flows will be impacted by these cash payments.
We have experienced a net loss for two of the last three fiscal
years, which is primarily a result of our increased interest
expense related to our capital structure, increased goodwill
impairment expense related to the 2004 MDP Merger and the
Century acquisition in 2006 combined with our policy of
recording goodwill at the theatre level, which results in more
volatile impairment charges on an annual basis due to changes in
market conditions and box office performance and the resulting
impact on individual theatres. During 2004, we recorded
$620.5 million of goodwill as a result of the MDP Merger
and during 2006, we recorded $658.5 million of goodwill as
a result of the Century acquisition. Impairment expense related
to goodwill was $35.7 million, $45.3 million and
$13.6 million for the years ended December 31, 2004,
2005 and 2006, respectively. Interest expense was
$70.7 million, $84.1 million and $109.3 million
for the years ended December 31, 2004, 2005 and 2006,
respectively. The increase in interest expense from 2004 to 2005
is due to the issuance of the
93/4% senior
discount notes on March 31, 2004 in connection with the MDP
Merger, the amortization of the related debt issue costs and an
increase in average interest rates on our variable rate debt.
The increase in interest expense from 2005 to 2006 is primarily
due to the financing associated with the Century acquisition on
October 5, 2006. Upon completion of this offering, we plan
to use a portion of the proceeds to prepay a portion of our
long-term debt, which will result in lower interest expense.
Investing
Activities
Our investing activities have been principally related to the
development and acquisition of additional theatres. New theatre
openings and acquisitions historically have been financed with
internally generated cash and by debt financing, including
borrowings under our senior secured credit facility. Cash used
for investing activities, as reflected in the consolidated
statements of cash flows, amounted to $116.9 million,
$81.6 million and $631.7 million for the years ended
December 31, 2004, 2005 and 2006, respectively. The
increase in cash used for investing activities for the year
ended December 31, 2006 is primarily due to the cash
portion of the Century acquisition purchase price of
$531.2 million (See Note 4 to our consolidated
financial statements) and increased capital expenditures.
Capital expenditures for the years ended December 31, 2004,
2005 and 2006 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New
|
|
Existing
|
|
|
Period
|
|
Theatres
|
|
Theatres
|
|
Total
|
|
Year Ended December 31, 2004
|
|
$
|
61.5
|
|
|
$
|
19.5
|
|
|
$
|
81.0
|
|
Year Ended December 31, 2005
|
|
$
|
50.3
|
|
|
$
|
25.3
|
|
|
$
|
75.6
|
|
Year Ended December 31, 2006
|
|
$
|
68.8
|
|
|
$
|
38.3
|
|
|
$
|
107.1
|
|
During August 2004, our Brazilian partners exercised their
option to cause us to purchase all of their shares of common
stock of Cinemark Brasil S.A., which represented 47.2% of total
common stock of Cinemark Brasil S.A. We purchased the
partners shares of Cinemark Brasil S.A. for approximately
$45.0 million with available cash on August 18, 2004.
See note 5 to our consolidated financial statements for
further discussion of this acquisition.
During September 2004, we purchased shares of common stock of
Cinemark Mexico USA, Inc. from our Mexican partners, increasing
our ownership interest in this subsidiary from 95.0% to 99.4%.
The purchase price was approximately $5.4 million and was
funded with available cash and borrowings on our revolving
credit line of our former senior secured credit facility. See
note 5 to our consolidated financial statements for further
discussion of this acquisition.
43
During July 2005, we purchased a 20.7% interest in NCM for
approximately $7.3 million. Under the terms of the
Exhibitor Services Agreement with NCM, we installed digital
distribution technology for advertising and other non-film
content in certain of our domestic theatres, which resulted in
capital expenditures of $9.7 million during the year ended
December 31, 2005 and $11.3 million during the year
ended December 31, 2006. As a result of the Century
acquisition, we owned approximately 25% of NCM and committed to
install digital distribution technology in the majority of the
theatres acquired, which we estimate will result in capital
expenditures of approximately $6.6 million of which as of
December 31, 2006, we had spent approximately
$3.8 million. We expect to complete the installation of
digital technology in our theatres for advertising and other
non-film content at a cost of $2.8 million during the first
quarter of 2007. See note 6 to our consolidated financial
statements for further discussion of the NCM joint venture.
During October 2006, we completed the Century acquisition for a
purchase price of approximately $681 million and the
assumption of approximately $360 million of debt of
Century. Of the total purchase price, $150 million
consisted of the issuance of 10,024,776 shares of our
common stock. We also incurred approximately $7.4 million
in transaction costs. See note 4 to our consolidated
financial statements for further discussion of this acquisition.
We continue to expand our U.S. theatre circuit. We opened
14 new theatres with 179 screens and acquired one theatre
with 12 screens in an exchange for one of our theatres
during the year ended December 31, 2006. We also completed
the acquisition of Century with 77 theatres and
1,017 screens. At December 31, 2006, our total
domestic screen count was 3,523 screens (12 of which are in
Canada). At December 31, 2006, we had signed commitments to
open 13 new theatres with 200 screens in domestic markets
during 2007 and open eight new theatres with 126 screens
subsequent to 2007. We estimate the remaining capital
expenditures for the development of all of the 326 domestic
screens will be approximately $123.0 million. Actual
expenditures for continued theatre development and acquisitions
are subject to change based upon the availability of attractive
opportunities.
We also continue to expand our international theatre circuit. We
opened seven new theatres with 53 screens during the year
ended December 31, 2006, bringing our total international
screen count to 965 screens. At December 31, 2006, we
had signed commitments to open four new theatres with
27 screens in international markets during 2007 and open
three new theatres with 29 screens subsequent to 2007. We
estimate the remaining capital expenditures for the development
of all of the 56 international screens will be approximately
$32.0 million. Actual expenditures for continued theatre
development and acquisitions are subject to change based upon
the availability of attractive opportunities.
We plan to fund capital expenditures for our continued
development with cash flow from operations, borrowings under our
new senior secured credit facility, subordinated note
borrowings, proceeds from sale leaseback transactions
and/or sales
of excess real estate.
Financing
Activities
Cash provided by (used for) financing activities, as reflected
in the consolidated statements of cash flows, amounted to
$(14.4) million, $(3.8) million and $440.0 million
during the years ended December 31, 2004, 2005 and 2006,
respectively. We may from time to time, subject to compliance
with our debt instruments, purchase on the open market our debt
securities depending upon the availability and prices of such
securities.
44
Long-term debt consisted of the following as of
December 31, 2005 and 2006:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005
|
|
|
December 31, 2006
|
|
|
Cinemark, Inc.
93/4% senior
discount notes due 2014
|
|
$
|
423,978
|
|
|
$
|
434,073
|
|
Cinemark USA, Inc. 9% senior
subordinated notes due 2013
|
|
|
364,170
|
|
|
|
350,820
|
|
Cinemark USA, Inc. term loan
|
|
|
255,450
|
|
|
|
1,117,200
|
|
Other long-term debt
|
|
|
11,497
|
|
|
|
9,560
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
1,055,095
|
|
|
|
1,911,653
|
|
Less current portion
|
|
|
6,871
|
|
|
|
14,259
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current
portion
|
|
$
|
1,048,224
|
|
|
$
|
1,897,394
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2006, we had borrowings of
$1,117.2 million outstanding on the term loan under our new
senior secured credit facility, $434.1 million accreted
amount at December 31, 2006 outstanding under our
93/4%
senior discount notes and approximately $332.2 million
aggregate principal amount outstanding under the 9% senior
subordinated notes, respectively, and had $149.9 million in
available borrowing capacity under our revolving credit
facility. On a pro forma basis, we incurred $168.0 million
of interest expense for the year ended December 31, 2006.
We were in full compliance with all agreements governing our
outstanding debt at December 31, 2006.
On March 30, 2007, we entered into interest rate swap
agreements with five year terms with respect to a total of
$500 million of our variable rate indebtedness. Under the
terms of the interest rate swap agreements, we will pay interest
at fixed rates of 4.918% and 4.922% and will receive interest at
a variable rate based on
3-month
LIBOR. The interest rate swap qualifies for cash flow hedge
accounting treatment in accordance with
SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended, and,
as such, we have effectively hedged our exposure to variability
in the future cash flows attributable to the
3-month
LIBOR on $500 million of our indebtedness.
As of December 31, 2006, our long-term debt obligations,
scheduled interest payments on long-term debt, future minimum
lease obligations under non-cancelable operating and capital
leases, scheduled interest payments under capital leases,
outstanding letters of credit, obligations under employment
agreements and purchase commitments for each period indicated
are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
Less Than
|
|
|
|
|
|
After
|
|
|
Total
|
|
One Year
|
|
1-3 Years
|
|
4-5 Years
|
|
5 Years
|
|
|
(In millions)
|
|
Long-term debt(1)(2)
|
|
$
|
2,013.2
|
|
|
$
|
14.3
|
|
|
$
|
27.7
|
|
|
$
|
23.6
|
|
|
$
|
1,947.6
|
|
Scheduled interest payments on
long-term debt(3)
|
|
|
953.4
|
|
|
|
112.6
|
|
|
|
237.2
|
|
|
|
322.6
|
|
|
|
281.0
|
|
Operating lease obligations
|
|
|
2,004.2
|
|
|
|
163.7
|
|
|
|
334.7
|
|
|
|
320.1
|
|
|
|
1,185.7
|
|
Capital lease obligations
|
|
|
115.8
|
|
|
|
3.6
|
|
|
|
8.7
|
|
|
|
10.4
|
|
|
|
93.1
|
|
Scheduled interest payments on
capital leases
|
|
|
119.0
|
|
|
|
12.4
|
|
|
|
23.5
|
|
|
|
21.4
|
|
|
|
61.7
|
|
Letters of credit
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employment agreements
|
|
|
9.3
|
|
|
|
3.1
|
|
|
|
6.2
|
|
|
|
|
|
|
|
|
|
Purchase commitments(4)
|
|
|
162.7
|
|
|
|
78.1
|
|
|
|
71.6
|
|
|
|
12.5
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,377.7
|
|
|
$
|
387.9
|
|
|
$
|
709.6
|
|
|
$
|
710.6
|
|
|
$
|
3,569.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes the
93/4% senior
discount notes in the aggregate principal amount at maturity of
$535.6 million. |
|
(2) |
|
On April 3, 2007, we completed a tender offer for
approximately $332.0 million aggregate principal amount of
our 9% senior subordinated notes. See note 26 of our
consolidated financial statements. |
45
|
|
|
(3) |
|
Amounts include scheduled interest payments on fixed rate and
variable rate debt agreements. Estimates for the variable rate
interest payments were based on interest rates in effect on
December 31, 2006. The average interest rates on our fixed
rate and variable rate debt were 9.5% and 7.4%, respectively, as
of December 31, 2006. |
|
(4) |
|
Includes estimated remaining capital expenditures associated
with the construction of new theatres to which we were committed
as of December 31, 2006. |
Cinemark,
Inc.
93/4% Senior
Discount Notes
On March 31, 2004, Cinemark, Inc. issued approximately
$577.2 million aggregate principal amount at maturity of
93/4% senior
discount notes due 2014. The gross proceeds at issuance of
approximately $360.0 million were used to fund in part the
MDP Merger. Interest on the notes accretes until March 15,
2009 up to their aggregate principal amount. Cash interest will
accrue and be payable semi-annually in arrears on March 15 and
September 15, commencing on September 15, 2009. Due to
Cinemark, Inc.s holding company status, payments of
principal and interest under these notes will be dependent on
loans, dividends and other payments from its subsidiaries.
Cinemark, Inc. may redeem all or part of the
93/4% senior
discount notes on or after March 15, 2009.
On September 22, 2005, Cinemark, Inc. repurchased
$1.8 million aggregate principal amount at maturity of its
93/4% senior
discount notes as part of an open market purchase for
approximately $1.3 million, including accreted interest.
During May 2006, as part of four open market purchases,
Cinemark, Inc. repurchased $39.8 million aggregate
principal amount at maturity of its
93/4% senior
discount notes for approximately $31.7 million, including
accreted interest of $5.4 million. Cinemark, Inc. funded
these transactions with available cash from its operations. As
of December 31, 2006, the accreted principal balance of the
notes was approximately $434.1 million and the aggregate
principal amount at maturity will be approximately
$535.6 million. The open market repurchase costs, including
premiums paid and a portion of the unamortized debt issue costs
of $0.1 million and $2.4 million related to the
repurchase of the
93/4%
senior discount notes, were recorded as a loss on early
retirement of debt in our consolidated statements of operations
for the years ended December 31, 2005 and 2006,
respectively.
The indenture governing the
93/4% senior
discount notes contains covenants that limit, among other
things, dividends, transactions with affiliates, investments,
sales of assets, mergers, repurchases of our capital stock,
liens and additional indebtedness. The dividend restriction
contained in the indenture prevents Cinemark, Inc. from paying a
dividend or otherwise distributing cash to its stockholders
unless (1) it is not in default, and the distribution would
not cause it to be in default, under the indenture; (2) it
would be able to incur at least $1.00 more of indebtedness
without the ratio of its consolidated cash flow to its fixed
charges (each as defined in the indenture, and calculated on a
pro forma basis for the most recently ended four full fiscal
quarters for which internal financial statements are available,
using certain assumptions and modifications specified in the
indenture, and including the additional indebtedness then being
incurred) falling below two to one (the senior notes debt
incurrence ratio test); and (3) the aggregate amount
of distributions made since March 31, 2004, including the
distribution proposed, is less than the sum of (a) half of
its consolidated net income (as defined in the indenture) since
February 11, 2003, (b) the net proceeds to it from the
issuance of stock since April 2, 2004, and (c) certain
other amounts specified in the indenture, subject to certain
adjustments specified in the indenture. The dividend restriction
is subject to certain exceptions specified in the indenture.
Upon certain specified types of change of control of Cinemark,
Inc., Cinemark, Inc. would be required under the indenture to
make an offer to repurchase all of the
93/4% senior
discount notes at a price equal to 101% of the accreted value of
the notes plus accrued and unpaid interest, if any, through the
date of repurchase. This initial public offering is not
considered a change of control under the indenture.
Cinemark
USA, Inc. 9% Senior Subordinated Notes
On February 11, 2003, Cinemark USA, Inc. issued
$150 million principal amount of 9% senior
subordinated notes due 2013 and on May 7, 2003, Cinemark
USA, Inc. issued an additional $210 million aggregate
principal amount of 9% senior subordinated notes due 2013,
collectively referred to as the 9% senior
46
subordinated notes. Interest is payable on February 1 and
August 1 of each year. On April 6, 2004, as a result
of the MDP Merger and in accordance with the terms of the
indenture governing the 9% senior subordinated notes,
Cinemark USA, Inc. made a change of control offer to purchase
the 9% senior subordinated notes at a purchase price of
101% of the aggregate principal amount. Approximately
$17.8 million aggregate principal amount of the
9% senior subordinated notes were tendered. The payment of
the change of control price was funded with available cash by
Cinemark USA, Inc. on June 1, 2004. The unamortized bond
premiums paid, and other fees of $1.0 million related to
the retirement of the 9% notes were recorded as a gain on early
retirement of debt in our consolidated statements of operations
for the period from April 2, 2004 to December 31, 2004.
During May 2006, as part of three open market purchases,
Cinemark USA, Inc. repurchased $10.0 million aggregate
principal amount of its 9% senior subordinated notes for
approximately $11.0 million, including accrued and unpaid
interest. The transactions were funded by Cinemark USA, Inc.
with available cash from operations. As a result of the
transactions, we recorded a loss on early retirement of debt of
$0.1 million during the year ended December 31, 2006,
which included the write-off of unamortized debt issue costs and
unamortized bond premium related to the retired subordinated
notes.
As of December 31, 2006, Cinemark USA, Inc. had outstanding
approximately $332.2 million aggregate principal amount of
9% senior subordinated notes. Cinemark USA, Inc. may redeem
the remaining 9% senior subordinated notes on or after
February 1, 2008.
The 9% senior subordinated notes are general, unsecured
obligations and are subordinated in right of payment to the new
senior secured credit facility and other senior indebtedness.
The notes are guaranteed by certain of Cinemark USA, Inc.s
domestic subsidiaries. The guarantees are subordinated to the
senior indebtedness of the subsidiary guarantors, including
their guarantees of the new senior secured credit facility. The
notes are effectively subordinated to the indebtedness and other
liabilities of Cinemark USA, Inc.s nonguarantor
subsidiaries.
On March 6, 2007, Cinemark USA, Inc. commenced an offer to
purchase for cash any and all of its then outstanding
$332.2 million aggregate principal amount of 9% senior
subordinated notes. In connection with the tender offer,
Cinemark USA, Inc. solicited consents for certain proposed
amendments to the indenture to remove substantially all
restrictive covenants and certain events of default. On
March 20, 2007, the early settlement date, Cinemark USA,
Inc. repurchased $332.0 million aggregate principal amount
of 9% senior subordinated notes and executed a supplemental
indenture removing substantially all of the restrictive
covenants and certain events of default. On April 3, 2007,
we purchased $66,000 of the 9% senior subordinated notes
tendered after the early settlement date. Approximately $184,000
aggregate principal amount of 9% senior subordinated notes
remain outstanding. We used the proceeds from the NCM
transactions and cash on hand to purchase the 9% senior
subordinated notes tendered pursuant to the tender offer and
consent solicitation.
Other
Debt Transactions in Connection with MDP Merger
On March 16, 2004, in connection with the MDP Merger,
Cinemark USA, Inc. initiated a tender offer for its then
outstanding $105 million aggregate principal amount
81/2% senior
subordinated notes due 2008 and a consent solicitation to remove
substantially all restrictive covenants in the indenture
governing those notes. On March 25, 2004, a supplemental
indenture removing substantially all of the covenants was
executed and became effective on the date of the MDP Merger. In
April 2004, Cinemark USA, Inc. redeemed approximately
$94.2 million aggregate principal amount of
81/2% senior
subordinated notes that were tendered, pursuant to the tender
offer, utilizing a portion of the proceeds from its former
senior secured credit facility. On April 14, 2004, after
the expiration of the tender offer, Cinemark USA, Inc. redeemed
an additional $50,000 aggregate principal amount of
81/2% senior
subordinated notes that were tendered, leaving outstanding
approximately $10.8 million aggregate principal amount of
81/2% senior
subordinated notes. The unamortized bond discount, tender offer
repurchase costs, including premiums paid, and other fees of
$4.4 million related to the retirement of the
81/2%
notes were recorded as a loss on early retirement of debt in our
consolidated statements of operations for the period from
April 2, 2004 to December 31, 2004.
47
On April 6, 2004, as a result of the consummation of the
MDP Merger and in accordance with the terms of the indenture
governing its 9% senior subordinated notes, Cinemark USA,
Inc. made a change of control offer to purchase the 9% senior
subordinated notes at a purchase price of 101% of the aggregate
principal amount, plus accrued and unpaid interest, if any, at
the date of purchase. Approximately $17.8 million in
aggregate principal amount of the 9% senior subordinated notes
were tendered and not withdrawn in the change of control offer,
which expired on May 26, 2004. Cinemark USA, Inc. paid the
change of control price with available cash on June 1, 2004.
On July 28, 2004, Cinemark USA, Inc. provided notice to the
holders of its remaining outstanding
81/2% senior
subordinated notes due 2008 of its election to redeem all
outstanding notes at a redemption price of 102.833% of the
aggregate principal amount plus accrued interest. On
August 27, 2004, Cinemark USA, Inc. redeemed the remaining
$10.8 million aggregate principal amount of notes utilizing
available cash and borrowings under its former revolving credit
line. The unamortized bond premium, tender offer repurchase
costs, including premiums paid, and other fees of
$0.1 million related to the retirement of the
81/2%
notes were recorded as a gain on early retirement of debt in our
consolidated statements of operations for the period from
April 2, 2004 to December 31, 2004.
New
Senior Secured Credit Facility
On October 5, 2006, in connection with the Century
acquisition, Cinemark USA, Inc., entered into a new senior
secured credit facility. The new senior secured credit facility
provides for a seven year term loan of $1.12 billion and a
$150 million revolving credit line that matures in six
years unless its 9% senior subordinated notes have not been
refinanced by August 1, 2012 with indebtedness that matures
no earlier than seven and one-half years after the closing date
of the new senior secured credit facility, in which case the
maturity date of the revolving credit line becomes
August 1, 2012. The net proceeds of the term loan were used
to finance a portion of the $531.2 million cash portion of
the Century acquisition, repay in full the $253.5 million
outstanding under the former senior secured credit facility,
repay $360.0 million of existing indebtedness of Century
and to pay for related fees and expenses. The revolving credit
line was left undrawn at closing. The revolving credit line is
used for our general corporate purposes.
At December 31, 2006, there was $1,117.2 million
outstanding under the new term loan and no borrowings
outstanding under the new revolving credit line. Approximately
$149.9 million was available for borrowing under the new
revolving credit line, giving effect to a $69,000 letter of
credit outstanding. The average interest rate on outstanding
borrowings under the new senior secured credit facility at
December 31, 2006 was 7.4% per annum.
Under the term loan, principal payments of $2.8 million are
due each calendar quarter beginning December 31, 2006
through September 30, 2012 and increase to
$263.2 million each calendar quarter from December 31,
2012 to maturity at October 5, 2013. Prior to the amendment
to the senior secured credit facility discussed below, the term
loan accrued interest, at Cinemark USA, Inc.s option, at:
(A) the base rate equal to the higher of (1) the prime
lending rate as set forth on the British Banking Association
Telerate page 5 or (2) the federal funds effective
rate from time to time plus 0.50%, plus a margin that ranges
from 0.75% to 1.00% per annum, or (B) a
eurodollar rate plus a margin that ranges from 1.75%
to 2.00% per annum, in each case as adjusted pursuant to
Cinemark USA, Inc.s corporate credit rating. Borrowings
under the revolving credit line bear interest, at Cinemark USA,
Inc.s option, at: (A) a base rate equal to the higher
of (1) the prime lending rate as set forth on the British
Banking Association Telerate page 5 and (2) the
federal funds effective rate from time to time plus 0.50%, plus
a margin that ranges from 0.50% to 1.00% per annum, or
(B) a eurodollar rate plus a margin that ranges
from 1.50% to 2.00% per annum, in each case as adjusted pursuant
to Cinemark USA, Inc.s consolidated net senior secured
leverage ratio as defined in the credit agreement. Cinemark USA,
Inc. is required to pay a commitment fee calculated at the rate
of 0.50% per annum on the average daily unused portion of
the new revolving credit line, payable quarterly in arrears,
which rate decreases to 0.375% per annum for any fiscal
quarter in which Cinemark USA, Inc.s consolidated net
senior secured leverage ratio on the last day of such fiscal
quarter is less than 2.25 to 1.0.
48
On March 14, 2007, Cinemark USA, Inc. amended its new
senior secured credit facility to, among other things, modify
the interest rate on the term loans under the new senior secured
credit facility, modify certain prepayment terms and covenants,
and facilitate the tender offer for the 9% senior subordinated
notes. The term loans now accrue interest, at Cinemark USA,
Inc.s option, at: (A) the base rate equal to the
higher of (1) the prime lending rate as set forth on the
British Banking Association Telerate page 5, or
(2) the federal funds effective rate from time to time plus
0.50%, plus a margin that ranges from 0.50% to 0.75% per annum,
or (B) a eurodollar rate plus a margin that
ranges from 1.50% to 1.75%, per annum. In each case, the margin
is a function of the corporate credit rating applicable to the
borrower. The interest rate on the revolving credit line was not
amended. Additionally, the amendment removed any obligation to
prepay amounts outstanding under the new senior secured credit
facility in an amount equal to the amount of the net cash
proceeds received from the NCM transactions or from excess cash
flows, and imposed a 1% prepayment premium for one year on
certain prepayments of the term loans.
Cinemark USA, Inc.s obligations under the new senior
secured credit facility are guaranteed by Cinemark Holdings,
Inc., Cinemark, Inc., CNMK Holding, Inc., and certain of
Cinemark USA, Inc.s domestic subsidiaries and are secured
by mortgages on certain fee and leasehold properties and
security interests in substantially all of Cinemark USA,
Inc.s and the guarantors personal property,
including, without limitation, pledges of all of Cinemark USA,
Inc.s capital stock, all of the capital stock of Cinemark,
Inc., CNMK Holding, Inc. and certain of Cinemark USA,
Inc.s domestic subsidiaries and 65% of the voting stock of
certain of its foreign subsidiaries.
The new senior secured credit facility contains usual and
customary negative covenants for transactions of this type,
including, but not limited to, restrictions on Cinemark USA,
Inc.s ability, and in certain instances, its
subsidiaries and Cinemark Holdings, Inc.s, Cinemark,
Inc.s and CNMK Holding, Inc.s ability, to
consolidate or merge or liquidate, wind up or dissolve;
substantially change the nature of its business; sell, transfer
or dispose of assets; create or incur indebtedness; create
liens; pay dividends, repurchase stock and voluntarily
repurchase or redeem the
93/4%
senior discount notes; and make capital expenditures and
investments. The new senior secured credit facility also
requires Cinemark USA, Inc. to satisfy a consolidated net senior
secured leverage ratio covenant as determined in accordance with
the new senior secured credit facility. The dividend restriction
contained in the new senior secured credit facility prevents us
and any of our subsidiaries from paying a dividend or otherwise
distributing cash to its stockholders unless (1) we are not
in default, and the distribution would not cause us to be in
default, under the new senior secured credit facility; and
(2) the aggregate amount of certain dividends,
distributions, investments, redemptions and capital expenditures
made since October 5, 2006, including the distribution
currently proposed, is less than the sum of (a) the
aggregate amount of cash and cash equivalents received by
Cinemark Holdings, Inc. or Cinemark USA, Inc. as common equity
since October 5, 2006, (b) Cinemark USA, Inc.s
consolidated EBITDA minus two times its consolidated interest
expense, each as defined in the new senior secured credit
facility, since October 1, 2006, (c) $150,000,000 and
(d) certain other amounts specified in the new senior
secured credit facility, subject to certain adjustments
specified in the new senior secured credit facility. The
dividend restriction is subject to certain exceptions specified
in the new senior secured credit facility.
The new senior secured credit facility also includes customary
events of default, including, among other things, payment
default, covenant default, breach of representation or warranty,
bankruptcy, cross-default, material ERISA events, certain types
of change of control, material money judgments and failure to
maintain subsidiary guarantees. If an event of default occurs,
all commitments under the new senior secured credit facility may
be terminated and all obligations under the new senior secured
credit facility could be accelerated by the lenders, causing all
loans outstanding (including accrued interest and fees payable
thereunder) to be declared immediately due and payable. This
initial public offering is not considered a change of control
under the new senior secured credit facility.
Former
Senior Secured Credit Facility
On April 2, 2004, Cinemark USA, Inc. amended its then
existing senior secured credit facility in connection with the
MDP Merger. The former senior secured credit facility provided
for a $260 million seven year term loan and a
$100 million six and one-half year revolving credit line.
The net proceeds from the
49
former senior secured credit facility were used to repay the
term loan under its then existing senior secured credit facility
of approximately $163.8 million and to redeem the
approximately $94.2 million aggregate principal amount of
its then outstanding $105 million aggregate principal
amount
81/2% senior
subordinated notes due 2008 that were tendered pursuant to the
tender offer.
On October 5, 2006, in connection with the Century
acquisition, the $253.5 million outstanding under the
former senior secured credit facility was repaid in full with a
portion of the proceeds from the new senior secured credit
facility. The unamortized debt issue costs of $5.8 million
related to the former senior secured credit facility that was
repaid in full were recorded as a loss on early retirement of
debt in our consolidated statements of operations for the year
ended December 31, 2006.
Covenant
Compliance
As of December 31, 2006, we are in full compliance with all
agreements, including related covenants, governing our
outstanding debt.
The indenture governing the
93/4%
senior discount notes requires Cinemark, Inc. to have a fixed
charge coverage ratio (as determined under the indenture) of at
least 2.0 to 1.0 in order to incur additional indebtedness,
issue preferred stock or make certain restricted payments,
including dividends to us. Fixed charge coverage ratio is
defined as the ratio of consolidated cash flow of Cinemark, Inc.
and its subsidiaries to their fixed charges for the four most
recent fiscal quarters, giving pro forma effect to certain
events as specified in the indenture. Fixed charges is defined
as consolidated interest expense of Cinemark, Inc. and its
subsidiaries, subject to certain adjustments as provided in the
indenture. Cinemark, Inc.s failure to meet the fixed
charge coverage ratio described above could restrict its ability
to incur debt or make dividend payments. Cinemark, Inc.s
fixed charge coverage ratio under the indenture was 2.24 as of
December 31, 2006, which was in excess of the 2.0 to 1.0
requirement described above.
We believe we will continue to be in compliance with the fixed
charge coverage ratio as our interest expense is expected to
decrease as a result of the repurchase of approximately
$332 million aggregate principal amount of our 9% senior
subordinated notes on March 20, 2007. In addition, upon
completion of this offering, we plan to use a portion of the
proceeds to prepay a portion of our remaining long-term debt,
which will result in lower interest expense.
Ratings
We are rated by nationally recognized rating agencies. The
significance of individual ratings varies from agency to agency.
However, companies assigned ratings at the top end of the
range have, in the opinion of certain rating agencies, the
strongest capacity for repayment of debt or payment of claims,
while companies at the bottom end of the range have the weakest
capability. Ratings are always subject to change and there can
be no assurance that our current ratings will continue for any
given period of time. A downgrade of our debt ratings, depending
on the extent, could increase the cost to borrow funds. Below
are our latest ratings per category, which were current as of
April 1, 2007.
|
|
|
|
|
|
|
|
|
Category
|
|
Moodys
|
|
|
Standard and Poors
|
|
|
Corporate Rating
|
|
|
B1
|
|
|
|
B
|
|
Cinemark, Inc.
93/4%
Senior Discount Notes
|
|
|
B3
|
|
|
|
CCC+
|
|
Cinemark USA, Inc. Senior Secured
Credit Facility
|
|
|
Ba3
|
|
|
|
B
|
|
New
Accounting Pronouncements
On May 18, 2006, the State of Texas passed a bill to
replace the current franchise tax with a new margin tax to be
effective January 1, 2008. We estimate the new margin tax
will not have a significant impact on our income tax expense or
its deferred tax assets and liabilities.
In June 2006, the Financial Accounting Standards Board, or FASB,
issued FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes an Interpretation of FASB No.
109 (FIN 48). FIN 48 clarifies the
accounting and reporting for income taxes recognized in
accordance with SFAS No. 109 Accounting for
50
Income Taxes, and recognition, measurement,
presentation and disclosure of uncertain tax positions taken or
expected to be taken in income tax returns. The evaluation of a
tax position in accordance with this interpretation is a
two-step process. The first step is recognition: The enterprise
determines whether it is more likely than not that a tax
position will be sustained upon examination, including
resolution of any related appeals or litigation processes, based
on the technical merits of the position. In evaluating whether a
tax position has met the more-likely-than-not recognition
threshold, the enterprise should presume that the position will
be examined by the appropriate taxing authority that would have
full knowledge of all relevant information. The second step is
measurement: A tax position that meets the more-likely-than-not
recognition threshold is measured to determine the amount of
benefit to recognize in the financial statements. The tax
position is measured at the largest amount of benefit that is
greater than 50 percent likely of being realized upon
ultimate settlement. Differences between tax positions taken in
a tax return and amounts recognized in the financial statements
will generally result in (1) an increase in a liability for
income taxes payable or (2) a reduction of an income tax
refund receivable or a reduction in a deferred tax asset or an
increase in a deferred tax liability or both (1) and (2).
The Company will adopt FIN 48 in the first quarter of 2007.
The Company is currently evaluating the impact the
interpretation may have on its consolidated financial position,
cash flows and results of operations.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements. Among other
requirements, this statement defines fair value, establishes a
framework for using fair value to measure assets and
liabilities, and expands disclosures about fair value
measurements. The statement applies whenever other statements
require or permit assets or liabilities to be measured at fair
value. SFAS No. 157 is effective for fiscal years
beginning after November 15, 2007. We are evaluating the
impact of SFAS No. 157 on our consolidated financial
statements.
In September 2006, the SEC issued Staff Accounting Bulletin
(SAB) No. 108, Considering the Effects
of Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements, which provides
interpretive guidance regarding the consideration given to prior
year misstatements when determining materiality in current year
financial statements. SAB No. 108 is effective for fiscal
years ending after November 15, 2006. The adoption of SAB
No. 108 did not have a significant impact on our
consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and
Financial Liabilities. SFAS No. 159 provides
companies with an option to report selected financial assets and
liabilities at fair value and establishes presentation and
disclosure requirements designed to facilitate comparisons
between companies that choose different measurement attributes
for similar types of assets and liabilities.
SFAS No. 159 is effective for fiscal years beginning
after November 15, 2007. We are in the process of
evaluating the impact of the adoption of this statement on our
consolidated financial statements.
Seasonality
Our revenues have historically been seasonal, coinciding with
the timing of releases of motion pictures by the major
distributors. Generally, the most successful motion pictures
have been released during the summer, extending from Memorial
Day to Labor Day, and during the holiday season, extending from
Thanksgiving through year-end. The unexpected emergence of a hit
film during other periods can alter this seasonality trend. The
timing of such film releases can have a significant effect on
our results of operations, and the results of one quarter are
not necessarily indicative of results for the next quarter or
for the same period in the following year.
Quantitative
and Qualitative Disclosures About Market Risk
We have exposure to financial market risks, including changes in
interest rates, foreign currency exchange rates and other
relevant market prices.
Interest
Rate Risk
An increase or decrease in interest rates would affect interest
costs relating to our variable rate debt facilities. We and our
subsidiaries are currently parties to variable rate debt
facilities. At December 31, 2006,
51
there was an aggregate of approximately $1,126.7 million of
variable rate debt outstanding under these facilities. Based on
the interest rates in effect on the variable rate debt
outstanding at December 31, 2006, a 1% increase in market
interest rates would increase our annual interest expense by
approximately $11 million.
On March 30, 2007, we entered into interest rate swap
agreements with five year terms with respect to a total of
$500 million of our variable rate indebtedness. Under the
terms of the interest rate swap agreements, we will pay interest
at fixed rates of 4.918% and 4.922% and will receive interest at
a variable rate based on
3-month
LIBOR. The interest rate swap qualifies for cash flow hedge
accounting treatment in accordance with SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities, as amended, and, as such, we have
effectively hedged our exposure to variability in the future
cash flows attributable to the
3-month
LIBOR on $500 million of our indebtedness.
The tables below provide information about our long-term fixed
rate and variable rate debt agreements as of December 31,
2005 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected Maturity as of December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
|
|
|
Interest
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
Thereafter
|
|
|
Total
|
|
|
Value
|
|
|
Rate
|
|
|
Fixed rate
|
|
$
|
0.1
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
886.4
|
|
|
$
|
886.5
|
|
|
$
|
812.1
|
|
|
|
9.5
|
%
|
Variable rate
|
|
|
14.2
|
|
|
|
14.9
|
|
|
|
12.8
|
|
|
|
12.4
|
|
|
|
11.2
|
|
|
|
1,061.2
|
|
|
|
1,126.7
|
|
|
|
1,146.8
|
|
|
|
7.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
$
|
14.3
|
|
|
$
|
14.9
|
|
|
$
|
12.8
|
|
|
$
|
12.4
|
|
|
$
|
11.2
|
|
|
$
|
1,947.6
|
|
|
$
|
2,013.2
|
|
|
$
|
1,958.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected Maturity as of December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
|
|
|
Interest
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
Thereafter
|
|
|
Total
|
|
|
Value
|
|
|
Rate
|
|
|
Fixed rate
|
|
$
|
0.1
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
939.5
|
|
|
$
|
939.6
|
|
|
$
|
792.8
|
|
|
|
9.5
|
%
|
Variable rate
|
|
|
6.8
|
|
|
|
5.5
|
|
|
|
4.3
|
|
|
|
4.1
|
|
|
|
185.1
|
|
|
|
61.1
|
|
|
|
266.9
|
|
|
|
268.4
|
|
|
|
6.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
$
|
6.9
|
|
|
$
|
5.5
|
|
|
$
|
4.3
|
|
|
$
|
4.1
|
|
|
$
|
185.1
|
|
|
$
|
1,000.6
|
|
|
$
|
1,206.5
|
|
|
$
|
1,061.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
Currency Exchange Rate Risk
We are also exposed to market risk arising from changes in
foreign currency exchange rates as a result of our international
operations. Generally, we export from the U.S. certain of
the equipment and construction interior finish items and other
operating supplies used by our international subsidiaries.
Principally all the revenues and operating expenses of our
international subsidiaries are transacted in the countrys
local currency. Generally accepted accounting principles in the
U.S. require that our subsidiaries use the currency of the
primary economic environment in which they operate as their
functional currency. If our subsidiaries operate in a highly
inflationary economy, generally accepted accounting principles
in the U.S. require that the U.S. dollar be used as
the functional currency for the subsidiary. Currency
fluctuations result in us reporting exchange gains (losses) or
foreign currency translation adjustments relating to our
international subsidiaries depending on the inflationary
environment of the country in which we operate. As of
December 31, 2006, none of the international countries in
which we operate were considered highly inflationary. Based upon
our equity ownership in our international subsidiaries as of
December 31, 2006, holding everything else constant, a 10%
immediate unfavorable change in each of the foreign currency
exchange rates to which we are exposed would decrease the net
fair value of our investments in our international subsidiaries
by approximately $30 million.
52
BUSINESS
Our
Company
We are a leader in the motion picture exhibition industry with
396 theatres and 4,488 screens in the U.S. and Latin
America. Our circuit is the third largest in the U.S. with
281 theatres and 3,523 screens in 37 states. We
are the most geographically diverse circuit in Latin America
with 115 theatres and 965 screens in 12 countries.
During the year ended December 31, 2006, over
215 million patrons attended our theatres, when giving
effect to the Century acquisition as of the beginning of the
year. Our modern theatre circuit features stadium seating for
approximately 73% of our screens.
We selectively build or acquire new theatres in markets where we
can establish and maintain a strong market position. We believe
our portfolio of modern theatres provides a preferred
destination for moviegoers and contributes to our significant
cash flows from operating activities. Our significant presence
in the U.S. and Latin America has made us an important
distribution channel for movie studios, particularly as they
look to increase revenues generated in Latin America. Our market
leadership is attributable in large part to our senior
executives, who average approximately 32 years of industry
experience and have successfully navigated us through multiple
business cycles.
We grew our total revenue per patron at the highest CAGR during
the last three fiscal years among the three largest motion
picture exhibitors in the U.S. Revenues, operating income and
net income for the year ended December 31, 2006 were
$1,220.6 million, $127.4 million and
$0.8 million, respectively. On a pro forma basis for the
Century acquisition, revenues, operating income and net loss for
the year ended December 31, 2006 were
$1,612.1 million, $175.6 million and
$(3.5) million, respectively. At December 31, 2006, we
had cash and cash equivalents of $147.1 million and
long-term debt, excluding capital leases, of
$1,911.7 million. Approximately $1,126.7 million, or
59%, of our total long-term debt accrues interest at variable
rates.
On April 2, 2004, an affiliate of MDP acquired
approximately 83% of the capital stock of Cinemark, Inc.,
pursuant to which a newly formed subsidiary owned by an
affiliate of MDP was merged with and into Cinemark, Inc. with
Cinemark, Inc. continuing as the surviving corporation.
Simultaneously with the merger, MDP purchased shares of common
stock of Cinemark, Inc. for approximately $518.2 million in
cash. Management, including Lee Roy Mitchell, Chairman and then
Chief Executive Officer, retained approximately 17% ownership
interest in Cinemark, Inc. Concurrently with the closing of the
MDP Merger, we entered into a number of financing transactions,
which significantly increased our indebtedness. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations Liquidity and
Capital Resources.
In December 2004, MDP sold approximately 10% of its stock in
Cinemark, Inc., to outside investors and in July 2005, Cinemark,
Inc. issued additional shares to another outside investor.
Cinemark Holdings, Inc. was formed on August 2, 2006. On
August 7, 2006, the Cinemark, Inc. stockholders entered
into a share exchange agreement pursuant to which they agreed to
exchange their shares of Class A common stock for an equal
number of shares of common stock of Cinemark Holdings, Inc. The
Cinemark Share Exchange and the Century Theatres, Inc.
acquisition were completed on October 5, 2006. Prior to
October 5, 2006, Cinemark Holdings, Inc. had no assets,
liabilities or operations. On October 5, 2006, Cinemark,
Inc. became a wholly owned subsidiary of Cinemark Holdings, Inc.
As of December 31, 2006, MDP owned approximately 66% of our
capital stock, Lee Roy Mitchell and the Mitchell Special Trust
collectively owned approximately 14%, Syufy Enterprises, LP
owned approximately 11%, outside investors owned approximately
8%, and certain members of management owned the remaining 1%.
Acquisition
of Century Theatres, Inc.
On October 5, 2006, we completed the acquisition of
Century, a national theatre chain headquartered in
San Rafael, California with 77 theatres and
1,017 screens in 12 states, for a purchase price of
approximately $681 million and the assumption of
approximately $360 million of Century debt. The acquisition
of Century
53
combines two family founded companies with common operating
philosophies and cultures, strong operating performances and
complementary geographic footprints. The key strategic benefits
of the acquisition include:
High Quality Theatres with Strong Operating
Performance. Centurys theatre circuit
is among the most modern in the U.S. based on 77% of their
screens featuring stadium seating. Prior to the Century
acquisition, Century achieved strong performance with revenues
of $516.0 million, operating income of $59.9 million
and net income of $18.1 million for its fiscal year ended
September 28, 2006. These results are due in part to
Centurys operating philosophy which is similar to
Cinemarks.
Strengthens Our Geographic
Footprint. The Century acquisition enhances
our geographic diversity, strengthens our presence in key large-
and medium-sized metropolitan and suburban markets such as Las
Vegas, the San Francisco Bay Area and Tucson, and
complements our existing footprint. The increased number of
theatres and markets diversifies our revenues and broadens the
composition of our overall portfolio.
Leading Share in Attractive
Markets. With the Century acquisition, we
have a leading market share in a large number of attractive
metropolitan and suburban markets. For the year ended
December 31, 2006, on a pro forma basis, we ranked either
first or second by box office revenues in 28 out of our top 30
U.S. markets, including Chicago, Dallas, Houston, Las
Vegas, Salt Lake City and the San Francisco Bay Area.
Participation
in National CineMedia
In March 2005, Regal and AMC formed NCM and on July 15,
2005, we joined NCM as one of the founding members. NCM
operates the largest in-theatre network in the U.S. which
delivers digital advertising content and digital non-film event
content to the screens and lobbies of the three largest motion
picture companies in the country. The digital projectors
currently used to display advertising will not be used to
exhibit digital film content or digital cinema. NCMs
primary activities that impact us include the following
activities:
|
|
|
|
|
Advertising: NCM develops, produces,
sells and distributes a branded, pre-feature entertainment and
advertising program called FirstLook, along
with an advertising program for its LEN and various marketing
and promotional products in theatre lobbies;
|
|
|
|
CineMeetings: NCM provides live and
pre-recorded networked and single-site meetings and events in
the theatres throughout its network; and
|
|
|
|
Digital Programming Events: NCM
distributes live and pre-recorded concerts, sporting events and
other non-film entertainment programming to theatres across its
digital network.
|
We believe that the reach, scope and digital delivery capability
of NCMs network provides an effective platform for
national, regional and local advertisers to reach a young,
affluent and engaged audience on a highly targeted and
measurable basis.
On February 13, 2007, we received $389.0 million in
connection with NCM, Inc.s initial public offering and
related transactions. As a result of these transactions, we will
no longer receive a percentage of NCMs revenue but rather
a monthly theatre access fee which we expect will reduce the
contractual amounts required to be paid to us by NCM. In
addition, we expect to receive mandatory quarterly distributions
of excess cash from NCM. Prior to the initial public offering of
NCM, Inc. common stock, our ownership interest in NCM was
approximately 25% and subsequent to the completion of the
offering we owned a 14% interest in NCM.
In our international markets, we generally outsource our screen
advertising to local companies who have established
relationships with local advertisers that provide similar
benefits as NCM.
Motion
Picture Industry Overview
Domestic
Markets
The U.S. motion picture exhibition industry has a track
record of long-term growth, with box office revenues growing at
a CAGR of 5.7% over the last 35 years. Against this
background of steady long-term growth, the exhibition industry
has experienced periodic short-term increases and decreases in
attendance and
54
consequently box office revenues. In 2006 the motion picture
exhibition industry experienced a marked improvement over 2005
with box office revenue increasing 5.5%, after a decrease of
5.7% in 2005 over the prior year. Strong revenue and attendance
growth has been driven by a steadily growing number of movie
releases, which, according to MPAA, reached an all-time high of
607 in 2006, up 11%. We believe this trend will continue into
2007 with a strong slate of franchise films, such as
Spider-Man 3, Shrek the Third, Pirates of the Caribbean:
At Worlds End and Harry Potter and the Order of the
Phoenix.
The following table represents the results of a survey by MPAA
Worldwide Market Research outlining the historical trends in
U.S. box office revenues for the ten year period from 1996 to
2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Box
|
|
|
|
|
|
Average
|
|
|
|
Office
|
|
|
|
|
|
Ticket
|
|
Year
|
|
Revenues
|
|
|
Attendance
|
|
|
Price
|
|
|
|
($ in millions)
|
|
|
(in millions)
|
|
|
|
|
|
1996
|
|
$
|
5,912
|
|
|
|
1,339
|
|
|
$
|
4.42
|
|
1997
|
|
$
|
6,366
|
|
|
|
1,388
|
|
|
$
|
4.59
|
|
1998
|
|
$
|
6,949
|
|
|
|
1,481
|
|
|
$
|
4.69
|
|
1999
|
|
$
|
7,448
|
|
|
|
1,465
|
|
|
$
|
5.08
|
|
2000
|
|
$
|
7,661
|
|
|
|
1,421
|
|
|
$
|
5.39
|
|
2001
|
|
$
|
8,413
|
|
|
|
1,487
|
|
|
$
|
5.66
|
|
2002
|
|
$
|
9,520
|
|
|
|
1,639
|
|
|
$
|
5.81
|
|
2003
|
|
$
|
9,489
|
|
|
|
1,574
|
|
|
$
|
6.03
|
|
2004
|
|
$
|
9,539
|
|
|
|
1,536
|
|
|
$
|
6.21
|
|
2005
|
|
$
|
8,991
|
|
|
|
1,403
|
|
|
$
|
6.41
|
|
2006
|
|
$
|
9,488
|
|
|
|
1,449
|
|
|
$
|
6.55
|
|
International
Markets
International growth has also been strong. According to MPAA,
global box office revenues grew steadily at a CAGR of 8.2% from
2003 to 2006 as a result of the increasing acceptance of
moviegoing as a popular form of entertainment throughout the
world, ticket price increases and new theatre construction.
According to PwC, Latin Americas estimated box office
revenue CAGR was 8.4% over the same period.
Growth in Latin America is expected to be fueled by a
combination of continued development of modern theatres,
attractive demographics (i.e., a significant teenage
population), strong product from Hollywood and the emergence of
a local film industry. In many Latin American countries the
local film industry had been dormant because of the lack of
sufficient theatres to screen the film product. The development
of new modern multiplex theatres has revitalized the local film
industry and, in Mexico, Brazil and Argentina, successful local
film product often provides incremental growth opportunities.
We believe many international markets for theatrical exhibition
have historically been underserved and that certain of these
markets, especially those in Latin America, will continue to
experience growth as additional modern stadium-styled theatres
are introduced.
Drivers
of Continued Industry Success
We believe the following market trends will drive the continued
growth and strength of our industry:
Importance of Theatrical Success in Establishing Movie
Brands and Subsequent Markets. Theatrical
exhibition is the primary distribution channel for new motion
picture releases. A successful theatrical release which
brands a film is one of the major factors in
determining its success in downstream markets, such
as home video, DVD, and network, syndicated and
pay-per-view
television.
Increased Importance of International Markets for
Box Office Success. International
markets are becoming an increasingly important component of the
overall box office revenues generated by Hollywood films,
accounting for $16 billion, or 63% of 2006 total worldwide
box office revenues according to MPAA
55
with many international blockbusters such as Pirates of the
Caribbean: Dead Mans Chest, The Da Vinci Code, Ice Age:
The Meltdown, and Mission Impossible III. With
continued growth of the international motion picture exhibition
industry, we believe the relative contribution of markets
outside North America will become even more significant.
Increased Investment in Production and Marketing of Films
by Distributors. As a result of the
additional revenues generated by domestic, international and
downstream markets, studios have increased
production and marketing expenditures at a CAGR of 5.5% and
6.3%, respectively, since 1995. Over the last three years, third
party funding sources such as hedge funds have also provided
over $5 billion of incremental capital to fund new film
content production. This has led to an increase in
blockbuster features, which attract larger audiences
to theatres.
Stable Long-term Attendance Trends. We
believe that long-term trends in motion picture attendance in
the U.S. will continue to benefit the industry. Despite
historical economic and industry cycles, attendance has grown at
a 1.6% CAGR over the last 35 years to 1.45 billion
patrons in 2006. As reported by MPAA, 80% of moviegoers stated
their overall theatre experience in 2006 was time and money well
spent. Additionally, younger moviegoers in the
U.S. continue to be the most frequent patrons.
Reduced Seasonality of
Revenues. Box office revenues have
historically been highly seasonal, with a majority of
blockbusters being released during the summer and year-end
holiday season. In recent years, the seasonality of motion
picture exhibition has become less pronounced as studios have
begun to release films more evenly throughout the year. This
benefits exhibitors by allowing more effective allocation of the
fixed cost base throughout the year.
Convenient and Affordable Form of
Out-Of-Home
Entertainment. Moviegoing continues to be one
of the most convenient and affordable forms of
out-of-home
entertainment, with an estimated average ticket price in the
U.S. of $6.55 in 2006. Average prices in 2006 for other
forms of
out-of-home
entertainment in the U.S., including sporting events and theme
parks, range from approximately $22.40 to $61.60 per ticket
according to MPAA. Movie ticket prices have risen at
approximately the rate of inflation, while ticket prices for
other forms of
out-of-home
entertainment have increased at higher rates.
Competitive
Strengths
We believe the following strengths allow us to compete
effectively.
Strong Operating Performance and
Discipline. We generated operating income and
net income of $127.4 million and $0.8 million,
respectively, for the year ended December 31, 2006. Our
strong operating performance is a result of our financial
discipline, such as negotiating favorable theatre level
economics and controlling theatre operating costs. We believe
the Century acquisition will result in additional revenues and
cost efficiencies to further improve our operating performance.
Leading Position in Our
U.S. Markets. We have a leading share in
the U.S. metropolitan and suburban markets we serve. For
the year ended December 31, 2006, on a pro forma basis we
ranked either first or second based on box office revenues in 28
out of our top 30 U.S. markets, including Chicago, Dallas,
Houston, Las Vegas, Salt Lake City and the San Francisco
Bay Area. On average, the population in over 80% of our domestic
markets, including Dallas, Las Vegas and Phoenix, is expected to
grow 61% faster than the average growth rate of the U.S.
population over the next five years, as reported by BIAfn
and U.S. census data.
Strategically Located in Heavily Populated Latin American
Markets. Since 1993, we have invested
throughout Latin America due to the growth potential of the
region. We operate 115 theatres and 965 screens in 12
countries, generating revenues of $285.9 million for the
year ended December 31, 2006. We have successfully
established a significant presence in major cities in the
region, with theatres in twelve of the fifteen largest
metropolitan areas. With the most geographically diverse circuit
in Latin America, we are an important distribution channel to
the movie studios. The regions improved economic climate
and rising disposable income are also a source for growth. Over
the last three years, the CAGR of our international revenue has
been greater than that of our U.S. operations. We are
well-positioned with our modern, large-
56
format theatres and new screens to take advantage of this
favorable economic environment for further growth and
diversification of our revenues.
Modern Theatre Circuit. We have one of
the most modern theatre circuits in the industry which we
believe makes our theatres a preferred destination for
moviegoers in our markets. We feature stadium seating in 79% of
our first run auditoriums, the highest percentage among the
three largest U.S. exhibitors, and 81% of our international
screens also feature stadium seating. During 2006, we continued
our organic expansion by building 210 screens. We currently have
commitments to build 382 additional screens over the next
four years.
Strong Balance Sheet with Significant Cash Flow from
Operating Activities. We generate
significant cash flow from operating activities as a result of
several factors, including managements ability to contain
costs, predictable revenues and a geographically diverse, modern
theatre circuit requiring limited maintenance capital
expenditures. Additionally, a strategic advantage, which
enhances our cash flows, is our ownership of land and buildings.
We own 45 properties with an aggregate value in excess of
$350 million. For the year ended December 31, 2006, as
adjusted to give effect to our repurchase of approximately
$332 million of our 9% senior subordinated notes and this
offering, our net debt is approximately $1,283.1 million.
We believe our expected level of cash flow generation will
provide us with the strategic and financial flexibility to
pursue growth opportunities, support our debt payments and make
dividend payments to our stockholders.
Strong Management with Focused Operating
Philosophy. Led by Chairman and founder Lee
Roy Mitchell, Chief Executive Officer Alan Stock, President and
Chief Operating Officer Timothy Warner and Chief Financial
Officer Robert Copple, our management team has an average of
approximately 32 years of theatre operating experience
executing a focused strategy which has led to strong operating
results. Our operating philosophy has centered on providing a
superior viewing experience and selecting less competitive
markets or clustering in strategic metropolitan and suburban
markets in order to generate a high return on invested capital.
This focused strategy includes strategic site selection,
building appropriately-sized theatres for each of our markets,
and managing our properties to maximize profitability. As a
result, we grew our admissions and concessions revenues per
patron at the highest CAGR during the last three fiscal years
among the three largest motion picture exhibitors in the U.S.
Our
Strategy
We believe our operating philosophy and management team will
enable us to continue to enhance our leading position in the
motion picture exhibition industry. Key components of our
strategy include:
Establish and Maintain Leading Market
Positions. We will continue to seek growth
opportunities by building or acquiring modern theatres that meet
our strategic, financial and demographic criteria. We will
continue to focus on establishing and maintaining a leading
position in the markets we serve.
Continue to Focus on Operational
Excellence. We will continue to focus on
achieving operational excellence by controlling theatre
operating costs. Our margins reflect our track record of
operating efficiency.
Selectively Build in Profitable, Strategic Latin American
Markets. Our international expansion will
continue to focus primarily on Latin America through
construction of American-style,
state-of-the-art
theatres in major urban markets.
Recent
Developments
National
CineMedia
In March 2005, Regal and AMC formed NCM, and on July 15,
2005, we joined NCM, as one of the founding members. NCM
operates the largest digital in-theatre network in the
U.S. for cinema advertising and non-film events and
combines the cinema advertising and non-film events businesses
of the three largest motion picture exhibition companies in the
country. On February 13, 2007, NCM, Inc., a newly formed
entity that now serves as a member and the sole manager of NCM,
completed an initial public offering of its common stock. In
connection with the NCM, Inc. public offering, NCM, Inc. became
a member and the sole manager of NCM, and we amended the
operating agreement of NCM and the Exhibitor Services Agreement
pursuant to which NCM provides advertising, promotion and event
services to our theatres.
57
Prior to the initial public offering of NCM, Inc. common stock,
our ownership interest in NCM was approximately 25% and
subsequent to the completion of the offering we owned a 14%
interest in NCM. Prior to pricing the initial public offering of
NCM, Inc., NCM completed a recapitalization whereby
(1) each issued and outstanding Class A unit of NCM
was split into 44,291 Class A units, and (2) following
such split of Class A Units, each issued and outstanding
Class A Unit was recapitalized into one common unit and one
preferred unit. As a result, we received 14,159,437 common units
and 14,159,437 preferred units. All existing preferred units of
NCM, or 55,850,951 preferred units, held by us, Regal, AMC were
redeemed on a pro rata basis on February 13, 2007. NCM
utilized the proceeds of its new $725.0 million term loan
facility and a portion of the proceeds it received from NCM,
Inc. from the initial public offering to redeem all of its
outstanding preferred units. Each preferred unit was redeemed by
NCM for $13.7782 and we received approximately
$195.1 million as payment in full for redemption of all of
our preferred units in NCM. Upon payment of such amount, each
preferred unit was cancelled and the holders of the preferred
units ceased to have any rights with respect to the preferred
units.
NCM has also paid us a portion of the proceeds it received from
NCM, Inc. in the initial public offering for agreeing to modify
NCMs payment obligation under the prior exhibitor services
agreement. The modification agreed to by us reflects a shift
from circuit share expense under the prior exhibitor service
agreement, which obligated NCM to pay us a percentage of
revenue, to the monthly theatre access fee described below. The
theatre access fee will significantly reduce the contractual
amounts paid to us by NCM. In exchange for our agreement to so
modify the agreement, NCM paid us approximately
$174 million upon execution of the Exhibitor Services
Agreement on February 13, 2007. Regal and AMC similarly
altered their exhibitor services arrangements with NCM.
At the closing of the initial public offering, the underwriters
exercised their over-allotment option to purchase additional
shares of common stock of NCM, Inc. at the initial public
offering price, less underwriting discounts and commissions. In
connection with the over-allotment option exercise, Regal, AMC
and us each sold to NCM, Inc. common units of NCM on a pro rata
basis at the initial public offering price, less underwriting
discounts and expenses. We sold 1,014,088 common units to NCM,
Inc. for proceeds of $19.9 million, and upon completion of
this sale of common units, we owned 13,145,349 common units of
NCM, or a 14% interest. In the future, we expect to receive
mandatory quarterly distributions of excess cash from NCM.
In consideration for NCMs exclusive access to our theatre
attendees for on-screen advertising and use of off-screen
locations within our theatres for the lobby entertainment
network and lobby promotions, we will receive a monthly theatre
access fee under the Exhibitor Services Agreement. The theatre
access fee is composed of a fixed payment per patron, initially
$0.07, and a fixed payment per digital screen, which may be
adjusted for certain enumerated reasons. The payment per theatre
patron will increase by 8% every five years, with the first such
increase taking effect after 2011, and the payment per digital
screen, initially $800 per digital screen per year, will
increase annually by 5%, beginning after 2007. The theatre
access fee paid in the aggregate to Regal, AMC and us will not
be less than 12% of NCMs Aggregate Advertising Revenue (as
defined in the Exhibitor Services Agreement), or it will be
adjusted upward to reach this minimum payment. Additionally,
with respect to any on-screen advertising time provided to our
beverage concessionaire, we are required to purchase such time
from NCM at a negotiated rate. The Exhibitor Services Agreement
has, except with respect to certain limited services, a term of
30 years.
We used the proceeds from the Exhibitor Services Agreement
modification payment, the preferred unit redemption and the sale
of common units to NCM, Inc. in connection with the exercise of
the over-allotment option and cash on hand to purchase our
9% senior subordinated notes issued by Cinemark USA, Inc.
pursuant to an offer to purchase and consent solicitation.
Digital
Cinema Implementation Partners LLC
On February 12, 2007, we, along with AMC and Regal, entered
into a joint venture known as Digital Cinema Implementation
Partners LLC to explore the possibility of implementing digital
cinema in our theatres and to establish agreements with major
motion picture studios for the implementation and financing of
digital cinema. In addition, DCIP has entered into a digital
cinema services agreement with NCM for purposes of
58
assisting DCIP in the development of digital cinema systems.
Future digital cinema developments will be managed by DCIP,
subject to certain approvals by us, AMC and Regal.
Theatre
Operations
As of December 31, 2006, we operated 396 theatres and
4,488 screens in 37 states, one Canadian province and
12 Latin American countries. Our theatres in the U.S. are
primarily located in mid-sized U.S. markets, including
suburbs of major metropolitan areas. We believe these markets
are generally less competitive and generate high, stable
margins. Our theatres in Latin America are primarily located in
major metropolitan markets, which we believe are generally
underscreened. The following tables summarize the geographic
locations of our theatre circuit as of December 31, 2006.
United
States Theatres
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Total
|
|
State
|
|
Theatres
|
|
|
Screens
|
|
|
Texas
|
|
|
75
|
|
|
|
969
|
|
California
|
|
|
64
|
|
|
|
729
|
|
Ohio
|
|
|
19
|
|
|
|
207
|
|
Utah
|
|
|
12
|
|
|
|
155
|
|
Nevada
|
|
|
9
|
|
|
|
138
|
|
Colorado
|
|
|
7
|
|
|
|
111
|
|
Illinois
|
|
|
8
|
|
|
|
106
|
|
Arizona
|
|
|
7
|
|
|
|
98
|
|
Kentucky
|
|
|
7
|
|
|
|
83
|
|
Oregon
|
|
|
6
|
|
|
|
82
|
|
Pennsylvania
|
|
|
5
|
|
|
|
73
|
|
Louisiana
|
|
|
5
|
|
|
|
68
|
|
Oklahoma
|
|
|
6
|
|
|
|
67
|
|
New Mexico
|
|
|
4
|
|
|
|
54
|
|
Virginia
|
|
|
4
|
|
|
|
52
|
|
Michigan
|
|
|
3
|
|
|
|
50
|
|
Indiana
|
|
|
5
|
|
|
|
46
|
|
North Carolina
|
|
|
4
|
|
|
|
41
|
|
Mississippi
|
|
|
3
|
|
|
|
41
|
|
Florida
|
|
|
2
|
|
|
|
40
|
|
Iowa
|
|
|
4
|
|
|
|
39
|
|
Arkansas
|
|
|
3
|
|
|
|
30
|
|
Georgia
|
|
|
2
|
|
|
|
27
|
|
New York
|
|
|
2
|
|
|
|
27
|
|
South Carolina
|
|
|
2
|
|
|
|
22
|
|
Kansas
|
|
|
1
|
|
|
|
20
|
|
Alaska
|
|
|
1
|
|
|
|
16
|
|
New Jersey
|
|
|
1
|
|
|
|
16
|
|
Missouri
|
|
|
1
|
|
|
|
14
|
|
South Dakota
|
|
|
1
|
|
|
|
14
|
|
Tennessee
|
|
|
1
|
|
|
|
14
|
|
Wisconsin
|
|
|
1
|
|
|
|
14
|
|
Massachusetts
|
|
|
1
|
|
|
|
12
|
|
Delaware
|
|
|
1
|
|
|
|
10
|
|
59
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Total
|
|
State
|
|
Theatres
|
|
|
Screens
|
|
|
West Virginia
|
|
|
1
|
|
|
|
10
|
|
Minnesota
|
|
|
1
|
|
|
|
8
|
|
Montana
|
|
|
1
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
Total United States
|
|
|
280
|
|
|
|
3,511
|
|
Canada
|
|
|
1
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
281
|
|
|
|
3,523
|
|
|
|
|
|
|
|
|
|
|
International
Theatres
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Total
|
|
Country
|
|
Theatres
|
|
|
Screens
|
|
|
Brazil
|
|
|
36
|
|
|
|
311
|
|
Mexico
|
|
|
30
|
|
|
|
293
|
|
Chile
|
|
|
12
|
|
|
|
91
|
|
Central America(1)
|
|
|
12
|
|
|
|
80
|
|
Argentina
|
|
|
9
|
|
|
|
77
|
|
Colombia
|
|
|
8
|
|
|
|
50
|
|
Ecuador
|
|
|
4
|
|
|
|
26
|
|
Peru
|
|
|
4
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
115
|
|
|
|
965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes Honduras, El Salvador, Nicaragua, Costa Rica and Panama. |
We first entered Latin America with the opening of theatres in
Chile in 1993 and Mexico in 1994. Since 1993, through our
focused international strategy, we have developed into the most
geographically diverse circuit in Latin America. We presently
have theatres in twelve of the fifteen largest metropolitan
areas in Latin America. We have balanced our risk through a
diversified international portfolio with operations in twelve
countries in Latin America. In addition, we have achieved
significant scale in Mexico and Brazil, the two largest Latin
American economies.
We believe that certain markets within Latin America continue to
be underserved and penetration of movie screens per capita in
Latin American markets is substantially lower than in the U.S.
and European markets. We will continue to build and expand our
presence in underserved international markets, with emphasis on
Latin America, and fund our expansion primarily with cash flow
generated in those markets. We are able to mitigate exposure in
the costs of our international operations to currency
fluctuations by using local currencies to fund substantially all
aspects of our operations, including film and facility lease
expense. Our geographic diversity throughout Latin America has
allowed us to maintain consistent revenue growth notwithstanding
currency fluctuations that may affect any particular market.
Film
Licensing
In the U.S., we license films from film distributors that are
owned by major film production companies or from independent
film distributors that distribute films for smaller production
companies. For new release films, film distributors typically
establish geographic zones and offer each available film to one
theatre in each zone. The size of a film zone is generally
determined by the population density, demographics and box
office revenues potential of a particular market or region. A
film zone can range from a radius of two to five miles in major
metropolitan and suburban areas to up to fifteen miles in small
towns. We currently operate theatres in 228 first run film zones
in the U.S. New film releases are licensed at the
discretion of the film distributors. As the sole exhibitor in
approximately 84% of the first run film zones in which we
operate, we have maximum access to film product, which allows us
to select those pictures we believe will be the most
60
successful in our markets from those offered to us by
distributors. We usually license films on an allocation basis in
film zones where we face competition.
In the international markets in which we operate, distributors
do not allocate film to a single theatre in a geographic film
zone, but allow competitive theatres to play the same films
simultaneously. In these markets, films are still licensed on a
theatre-by-theatre
and
film-by-film
basis. Our theatre personnel focus on providing excellent
customer service, and we provide a modern facility with the most
up-to-date
sound systems, comfortable stadium style seating and other
amenities typical of modern American-style multiplexes, which we
believe gives us a competitive advantage in markets where
competing theatres play the same films. Of the 965 screens
we operate in international markets approximately 86% have no
direct competition from other theatres.
Our film rental licenses in the U.S. typically state that
rental fees are based on either mutually agreed upon firm terms
established prior to the opening of the picture or on a mutually
agreed upon settlement at the conclusion of the picture run.
Under a firm terms formula, we pay the distributor a specified
percentage of box office receipts, which reflects either a
mutually agreed upon aggregate rate for the life of the film or
rates that decline over the term of the run. Firm term film
rental fees that decline over the term of the run generally
start at 60% to 70% of box office receipts, gradually declining
to as low as 30% over a period of four to seven weeks. The
settlement process allows for negotiation of film rental fees
upon the conclusion of the film run based upon how the film
performs. Internationally, our film rental licenses are based on
mutually agreed upon firm terms established prior to the opening
of the picture. The film rental percentages paid by our
international locations are generally lower than in the
U.S. markets and gradually decline over a period of several
weeks.
With the Century acquisition, we now operate nine art theatres
with 36 screens operated under the Cine-Arts brand. Cine-Arts
will allow us to take advantage of the growth in the art and
independent market driven by the more mature patron. There has
been an increased interest in art, foreign and documentary
films. High profile film festivals, such as the Sundance
festival, have contributed to growth and interest in this genre.
Recent hits such as Brokeback Mountain and Little Miss
Sunshine have demonstrated the box office potential of art
and independent films.
Concessions
Concession sales are our second largest revenue source,
representing approximately 31% of total pro forma revenues for
the year ended December 31, 2006. Concession sales have a
much higher margin than admissions sales. We have devoted
considerable management effort to increase concession sales and
improve operating margins. These efforts include implementation
of the following strategies:
|
|
|
|
|
Optimization of product mix. Concession
products are primarily comprised of various sizes of popcorn,
soft drinks and candy. Different varieties and flavors of candy
and soft drinks are offered at theatres based on preferences in
that particular geographic region. Specially priced combos are
launched on a regular basis to increase average concession
purchases as well as to attract new buyers. Kids meals are
also offered and packaged towards younger patrons.
|
|
|
|
Staff training. Employees are continually
trained in suggestive-selling and
upselling techniques. This training occurs
on-the-job.
Consumer promotions conducted at the concession stand always
include a motivational element which rewards theatre staff for
exceptional combo sales during the period.
|
A formalized crew program is in place to reward front line
employees who excel in delivering rapid service. The Speed of
Service (SOS) program is held annually to kick off peak business
periods and refresh training and the importance of speed at the
front line.
Also, a year-round crew incentive called Pour More &
Score is in place. All concession programs include a
points-earning opportunity designed to primarily drive sales of
drinks and popcorn. Theatres compete against their own prior
year performance in an effort to win staff prizes.
61
|
|
|
|
|
Theatre design. Our theatres are designed to
optimize efficiencies at the concession stands, which include
multiple service stations to facilitate serving more customers
quicker. We strategically place large concession stands within
theatres to heighten visibility, reduce the length of concession
lines, and improve traffic flow around the concession stands.
Centurys concession areas are designed as individual
stations which allow customers to select their choice of
refreshments and proceed to the cash register. This design
permits efficient service, enhanced choice and superior
visibility of concession items. As we continue to integrate
Century into our operations, we will evaluate this concession
design against our historical design to determine the most
optimum layout.
|
|
|
|
Cost control. We negotiate prices for
concession supplies directly with concession vendors and
manufacturers to obtain bulk rates. Concession supplies are
distributed through a national distribution network. The
concession distributor supplies and distributes inventory to the
theatres, which place volume orders directly with the vendors to
replenish stock. The concession distributor is paid a percentage
fee for warehousing and delivery of concession goods on a weekly
basis.
|
Marketing
In the U.S., we rely on newspaper display advertisements,
substantially paid for by film distributors, newspaper directory
film schedules, generally paid for by us, and Internet
advertising, which has emerged as a strong media source to
inform patrons of film titles and showtimes. Radio and
television advertising spots, generally paid for by film
distributors, are used to promote certain motion pictures and
special events. We also exhibit previews of coming attractions
and films presently playing on the other screens which we
operate in the same theatre or market. We have successfully used
the Internet to provide patrons access to movie times, the
ability to buy and print their tickets at home and purchase gift
cards and other advanced sale-type certificates. The Internet is
becoming a popular way to check movie showtimes and may, over
time, replace the traditional newspaper advertisements. Many
newspapers add an Internet component to their advertising and
add movie showtimes to their Internet sites. We use monthly web
contests with film distributor partners to drive traffic to our
website and ensure that customers visit often. Over time, the
Internet may allow us to reduce our advertising costs associated
with newspaper directory advertisements. In addition, we work on
a regular basis with all of the film distributors to promote
their films with local, regional and national programs that are
exclusive to our theatres. These may involve customer contests,
cross-promotions with third parties, media on-air tie-ins and
other means to increase traffic to a particular film showing at
one of our theatres.
Internationally, we partner with large multi-national
corporations, in the larger metropolitan areas in which we have
theatres, to promote our brand, our image and to increase
attendance levels at our theatres. Our customers are encouraged
to register on our website to receive weekly information via
e-mail for
showtime information, invitations to special screenings,
sponsored events and promotional information. In addition, some
of our customers request to receive showtime information via
their cellular phones.
Our marketing department also focuses on maximizing ancillary
revenue generating opportunities, which include the following:
sale of our gift cards, gift certificates and discount tickets,
which are called SuperSavers. We market these programs to such
business representatives as realtors, human resource managers,
incentive program managers and hospital and pharmaceutical
personnel. Gift cards and gift certificates can be purchased at
our theatres. Gift cards, gift certificates and SuperSavers are
also sold online, via phone, fax, email and regular mail and
fulfilled in-house from the local corporate office.
Online
Sales
Our patrons may purchase advance tickets for all of our domestic
screens and 302 of our international screens by accessing our
corporate website at www.cinemark.com or
www.fandango.com. Our Internet initiatives help improve
customer satisfaction, allowing patrons who purchase tickets
over the Internet to often bypass lines at the box office by
printing their tickets at home or picking up their tickets at
kiosks in the theatre lobby.
62
Point of
Sale Systems
We developed our own proprietary point of sale system to further
enhance our ability to maximize revenues, control costs and
efficiently manage operations. The system, which is installed in
all of our U.S. theatres and some of our international
theatres, provides corporate management with real-time
admissions and concession revenues reports that allow managers
to make timely changes to movie schedules, including extending
film runs, increasing the number of screens on which successful
movies are being played, or substituting films when gross
receipts do not meet expectations. Real-time seating and box
office information is available to box office personnel,
preventing overselling of a particular film and providing faster
and more accurate responses to customer inquiries regarding
showtimes and available seating. The system tracks concession
sales, provides in-theatre inventory reports allowing for
efficient inventory management and control, has multiple
language capabilities, offers numerous ticket pricing options,
integrates Internet ticket sales and processes credit card
transactions. Barcode scanners, pole displays, touch screens,
credit card readers and other equipment can be integrated with
the system to enhance its functions. In some of our
international locations, we use point of sale systems that have
been developed by third parties for the motion picture industry,
which have been certified as compliant with applicable
governmental regulations.
Competition
We are one of the leading motion picture exhibitors in terms of
both revenues and the number of screens in operation. We compete
against local, regional, national and international exhibitors
with respect to attracting patrons, licensing films and
developing new theatre sites.
We are the sole exhibitor in approximately 84% of the 228 first
run film zones in which our first run U.S. theatres
operate. In film zones where there is no direct competition from
other theatres, we select those films we believe will be the
most successful from among those offered to us by film
distributors. Where there is competition, we usually license
films based on an allocation process. Of the 965 screens we
operate outside of the U.S., approximately 86% of those screens
have no direct competition from other theatres. The principal
competitive factors with respect to film licensing are:
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location, accessibility and capacity of an exhibitors
theatre;
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theatre comfort;
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quality of projection and sound equipment;
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level of customer service; and
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licensing terms.
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The competition for customers is dependent upon factors such as
the availability of popular films, the location of theatres, the
comfort and quality of theatres and ticket prices. Our ticket
prices at first run and discount theatres are competitive with
ticket prices of competing theatres.
We also face competition from a number of other motion picture
exhibition delivery systems, such as DVD, network and syndicated
television, video on-demand,
pay-per-view
television and downloading utilizing the Internet. We do not
believe that these additional distribution channels have
adversely affected theatre attendance; however, we can give no
assurance that these or other alternative delivery systems will
not have an adverse impact on attendance in the future. We also
face competition from other forms of entertainment competing for
the publics leisure time and disposable income, such as
concerts, theme parks and sporting events.
Corporate
Operations
We maintain a corporate office in Plano, Texas that provides
oversight for our domestic and international theatres. Domestic
operations include theatre operations support, film licensing
and settlements, human resources, legal, finance and accounting,
operational audit, theatre maintenance and construction,
Internet and information systems, real estate and marketing. Our
U.S. operations are divided into sixteen regions, each of
which is headed by a region leader.
International personnel in the corporate office include our
President of Cinemark International, L.L.C. and directors/vice
presidents in charge of film licensing, marketing, concessions,
theatre operations support,
63
theatre maintenance and construction, real estate, legal,
operational audit, information systems and accounting. We have a
chief financial officer in both Brazil and Mexico, which are our
two largest international markets. We have eight regional
offices in Latin America responsible for the local management of
operations in twelve individual countries. Each regional office
is headed by a general manager and includes personnel in film
licensing, marketing, human resources, operations and
accounting. The regional offices are staffed with nationals from
the region to overcome cultural and operational barriers.
Training is conducted at the corporate office to establish
consistent standards throughout our international operations.
Employees
We have approximately 13,600 employees in the U.S.,
approximately 10% of whom are full time employees and 90% of
whom are part time employees. We have approximately
5,100 employees in our international markets, approximately
47% of whom are full time employees and approximately 53% of
whom are part time employees. Nineteen U.S. employees are
represented by unions under collective bargaining agreements.
Some of our international locations are subject to union
regulations. We regard our relations with our employees to be
satisfactory.
Regulations
The distribution of motion pictures is largely regulated by
federal and state antitrust laws and has been the subject of
numerous antitrust cases. We have not been a party to such
cases, but the manner in which we can license films from certain
major film distributors is subject to consent decrees resulting
from these cases. Consent decrees bind certain major film
distributors and require the films of such distributors to be
offered and licensed to exhibitors, including us, on a
theatre-by-theatre
and
film-by-film
basis. Consequently, exhibitors cannot assure themselves a
supply of films by entering long-term arrangements with major
distributors, but must negotiate for licenses on a
theatre-by-theatre
and
film-by-film
basis.
We are subject to various general regulations applicable to our
operations including the ADA. We develop new theatres to be
accessible to the disabled and we believe we are in substantial
compliance with current regulations relating to accommodating
the disabled. Although we believe that our theatres comply with
the ADA, we have been a party to lawsuits which claim that our
handicapped seating arrangements do not comply with the ADA or
that we are required to provide captioning for patrons who are
deaf or are severely hearing impaired.
Our theatre operations are also subject to federal, state and
local laws governing such matters as wages, working conditions,
citizenship, health and sanitation requirements and licensing.
Financial
Information About Geographic Areas
We have operations in the U.S., Canada, Mexico, Argentina,
Brazil, Chile, Ecuador, Peru, Honduras, El Salvador, Nicaragua,
Costa Rica, Panama and Colombia, which are reflected in the
consolidated financial statements. Below is a breakdown of
select financial information by geographic area:
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Period from
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Period from
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January 1, 2004
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April 2, 2004
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Year Ended
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Year Ended
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to
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to
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December 31,
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December 31,
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April 1, 2004
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December 31, 2004
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2005
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2006
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(Predecessor)
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(Successor)
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|
(Successor)
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|
(Successor)
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Revenues(1)
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|
U.S. and Canada
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$
|
175,563
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|
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|
$
|
607,831
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|
$
|
757,902
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|
|
$
|
936,684
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|
Mexico
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17,801
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|
58,347
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|
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|
74,919
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|
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|
71,589
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|
Brazil
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21,775
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69,097
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|
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|
112,182
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|
128,555
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|
Other foreign countries
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18,889
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56,311
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77,213
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85,710
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Eliminations
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(403
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)
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(969
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)
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(1,619
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)
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(1,944
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)
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Total
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$
|
233,625
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$
|
790,617
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$
|
1,020,597
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$
|
1,220,594
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64
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December 31,
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December 31,
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2005
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2006
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(Successor)
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(Successor)
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Theatre properties and
equipment, net
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U.S. and Canada
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$
|
646,841
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$
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1,169,456
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Mexico
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55,366
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51,272
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Brazil
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|
52,371
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|
55,749
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|
Other foreign countries
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48,691
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|
|
|
48,095
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|
|
|
|
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Total
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$
|
803,269
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|
$
|
1,324,572
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|
(1) |
|
Revenues for all periods do not include results of the two
United Kingdom theatres or the eleven Interstate theatres, which
were sold during 2004, as the results of operations for these
theatres are included as discontinued operations. |
Properties
United
States
As of December 31, 2006, we operated 236 theatres,
with 2,882 screens, pursuant to leases and own the land and
building for 45 theatres, with 641 screens, in the
U.S. During the year ended December 31, 2006, we
opened 14 new theatres with 179 screens and acquired
one theatre with 12 screens in an exchange for one of
our theatres. As part of the Century acquisition, on
October 5, 2006, we acquired 77 theatres, with
1,017 screens, in 12 states. Our leases are generally
entered into on a long-term basis with terms, including renewal
options, generally ranging from 20 to 45 years. As of
December 31, 2006, approximately 9% of our theatre leases
in the U.S., covering 21 theatres with 158 screens,
have remaining terms, including optional renewal periods, of
less than five years and approximately 72% of our theatre leases
in the U.S., covering 190 theatres with 2,543 screens,
have remaining terms, including optional renewal periods, of
more than 15 years. The leases generally provide for a
fixed monthly minimum rent payment, with certain leases also
subject to additional percentage rent if a target annual revenue
level is achieved. We lease an office building in Plano, Texas
for our corporate office.
International
As of December 31, 2006, internationally, we operated
115 theatres, with 965 screens, all of which are
leased pursuant to ground or building leases. During the year
ended December 31, 2006, we opened seven new theatres with
53 screens in Latin America. Our international leases are
generally entered into on a long term basis with terms generally
ranging from 10 to 20 years. The leases generally provide
for contingent rental based upon operating results (some of
which are subject to an annual minimum). Generally, these leases
include renewal options for various periods at stipulated rates.
One international theatre with eight screens has a remaining
term, including optional renewal periods, of less than five
years. Approximately 29% of our international theatre leases,
covering 33 theatres and 279 screens, have remaining
terms, including optional renewal periods, of between six and
15 years and approximately 70% of our international theatre
leases, covering 81 theatres and 678 screens, have
remaining terms, including optional renewal periods, of more
than 15 years.
See note 19 to our annual consolidated financial statements
for information regarding our domestic and international lease
commitments. We periodically review the profitability of each of
our theatres, particularly those whose lease terms are nearing
expiration, to determine whether to continue its operations.
Legal
Proceedings
We resolved a lawsuit filed by the DOJ in March 1999 which
alleged certain violations of the ADA relating to wheelchair
seating arrangements in certain of our stadium-style theatres.
We and the DOJ agreed to a consent order which was entered by
the U.S. District Court for the Northern District of Ohio,
Eastern Division, on November 15, 2004. Under the consent
order, we are required to make modifications to wheelchair
seating locations in fourteen stadium-style movie theatres in
California, Kentucky, Michigan, Ohio,
65
Oregon and Tennessee, and spacing and companion seating
modifications in 67 auditoriums at other stadium-styled movie
theatres in Illinois, Kansas, Missouri, New York and Utah. These
modifications must be completed by November 2009. We are
currently in compliance with the consent order. Upon completion
of these modifications, these theatres will comply with
wheelchair seating requirements, and no further modifications
will be required to our other existing stadium-style movie
theatres in the United States. In addition, under the consent
order, the DOJ approved the seating plans for nine
stadium-styled movie theatres then under construction and also
created a safe harbor framework for us to construct all of our
future stadium-style movie theatres. The DOJ has stipulated that
all theatres built in compliance with the consent order will
comply with the wheelchair seating requirements of the ADA. We
do not believe that our requirements under the consent order
will materially affect our business or financial condition.
From time to time, we are involved in various other legal
proceedings arising from the ordinary course of our business
operations, such as personal injury claims, employment matters,
landlord-tenant disputes and contractual disputes, most of which
are covered by insurance. We believe our potential liability,
with respect to proceedings currently pending, is not material,
individually or in the aggregate, to our financial position,
results of operations and cash flows.
66
MANAGEMENT
Executive
Officers and Directors
Set forth below is the name, age, position and a brief account
of the business experience of our executive officers and
directors:
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Name
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Age
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Position
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Lee Roy Mitchell
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70
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Chairman of the Board; Director
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Alan W. Stock
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46
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Chief Executive Officer
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Timothy Warner
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62
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President; Chief Operating Officer
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Tandy Mitchell
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56
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Executive Vice President;
Assistant Secretary
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Robert Copple
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48
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Executive Vice President;
Treasurer; Chief Financial Officer; Assistant Secretary
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Robert Carmony
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49
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Senior Vice President-Operations
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Michael Cavalier
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40
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Senior Vice President-General
Counsel; Secretary
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Walter Hebert, III
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61
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Senior Vice President-Purchasing
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Tom Owens
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50
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Senior Vice President-Real Estate
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John Lundin
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57
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Vice President-Film Licensing
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Don Harton
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49
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Vice President-Construction
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Terrell Falk
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56
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Vice President-Marketing and
Communications
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Benjamin D. Chereskin(1)
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48
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Director
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James N. Perry, Jr.(1)
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|
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46
|
|
|
Director
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Robin P. Selati(1)
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|
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41
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Director
|
Vahe A. Dombalagian(1)
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|
|
33
|
|
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Director
|
Enrique F. Senior(1)
|
|
|
63
|
|
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Director
|
Peter R. Ezersky(1)
|
|
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46
|
|
|
Director
|
Raymond W. Syufy
|
|
|
44
|
|
|
Director
|
Joseph E. Syufy
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41
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Director
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|
(1) |
|
We have determined that each of these directors satisfies the
independence requirements of current SEC rules and the listing
standards of the New York Stock Exchange except that
Messrs. Chereskin, Perry, Selati and Dombalagian are not
deemed independent under applicable SEC rules for the purposes
of serving on our audit committee. |
Lee Roy Mitchell has served as Chairman of the board
since March 1996 and as a Director since our inception in 1987.
Mr. Mitchell served as our Chief Executive Officer since
our inception until December 2006. Mr. Mitchell was Vice
Chairman of the Board of Directors from March 1993 until March
1996 and was President from our inception in 1987 until March
1993. From 1985 until 1987, Mr. Mitchell served as
President and Chief Executive Officer of a predecessor
corporation. Since June 1999, Mr. Mitchell serves as a
director of Texas Capital Bancshares, Inc., a bank holding
company. Mr. Mitchell also serves on the Board of Directors
of the National Association of Theatre Owners, National
CineMedia, Inc., Champions for Life and Dallas County Community
College. Mr. Mitchell has been engaged in the motion
picture exhibition business for over 50 years.
Mr. Mitchell is the husband of Tandy Mitchell.
Alan W. Stock has served as Chief Executive Officer since
December 2006. Mr. Stock served as President from March
1993 until December 2006 and as Chief Operating Officer from
March 1992 until December 2006. Mr. Stock also served as a
Director from April 1992 until April 2004. Mr. Stock was
Senior Vice President from June 1989 until March 1993.
67
Timothy Warner has served as President and Chief
Operating Officer since December 2006. Mr. Warner served as
Senior Vice President from May 2002 until December 2006 and
President of Cinemark International, L.L.C. from
August 1996 until December 2006.
Tandy Mitchell has served as Executive Vice President
since June 1989 and Assistant Secretary since December
2003. Mrs. Mitchell also served as Vice Chairman of the
board from March 1996 until April 2004. Mrs. Mitchell is
the wife of Lee Roy Mitchell and sister of Walter
Hebert, III.
Robert Copple has served as Executive Vice President
since January 2007 and as Senior Vice President, Treasurer,
Chief Financial Officer and Assistant Secretary since August
2000 and also served as a Director from September 2001 until
April 2004. Mr. Copple was acting Chief Financial Officer
from March 2000 until August 2000. From August 1997 until March
2000, Mr. Copple was President of PBA Development, Inc., an
investment management and venture capital company controlled by
Mr. Mitchell. From June 1993 until July 1997,
Mr. Copple was Director of Finance of our company. Prior to
joining our company, Mr. Copple was a Senior Manager with
Deloitte & Touche, LLP where he was employed from 1982
until 1993.
Robert Carmony has served as Senior Vice
President-Operations since July 1997, as Vice
President Operations from March 1996 until July 1997
and as Director of Operations from June 1988 until March 1996.
Michael Cavalier has served as Senior Vice
President-General Counsel since January 2006, as Vice
President-General Counsel since August 1999, as Assistant
Secretary from May 2001 until December 2003 and as
Secretary since December 2003. From July 1997 until July 1999,
Mr. Cavalier was General Counsel of our company and from
July 1993 until July 1997 was Associate General Counsel.
Walter Hebert, III has served as Senior Vice
President Purchasing since January 2007 and as
Vice President Purchasing and Special Projects since
July 1997 and was the Director of Purchasing from October 1996
until July 1997. From December 1995 until October 1996,
Mr. Hebert was the President of 2 Day
Video, Inc., a 21-store video chain that was our
subsidiary. Mr. Hebert is the brother of Tandy Mitchell.
Tom Owens has served as Senior Vice President
Real Estate since January 2007 and as Vice
President-Development since December 2003 and as Director of
Real Estate since April 2002. From 1998 until April 2001,
Mr. Owens was President of NRE, a company he founded that
specialized in the development and financing of motion picture
theatres. From 1996 until 1998, Mr. Owens served as
President of Silver Cinemas International, Inc., a motion
picture exhibitor. From 1993 until 1996, Mr. Owens served
as our Vice President Development.
John Lundin has served as Vice President-Film Licensing
since September 2000 and as Head Film Buyer from September 1997
until September 2000 and was a film buyer from September 1994
until September 1997.
Don Harton has served as Vice President-Construction
since July 1997. From August 1996 until July 1997,
Mr. Harton was Director of Construction.
Terrell Falk has served as Vice President-Marketing and
Communications since April 2001. From March 1998 until
May 2001, Ms. Falk was Director of Large Format
Theatres, overseeing the marketing and operations of our IMAX
theatres.
Benjamin D. Chereskin has served as a Director since
April 2004. Mr. Chereskin is a Managing Director of MDP and
co-founded the firm in 1993. Previously, Mr. Chereskin was
with First Chicago Venture Capital for nine years.
Mr. Chereskin currently serves on the Board of Directors of
Tuesday Morning Corporation.
James N. Perry, Jr. has served as a Director since
April 2004. Mr. Perry is a Managing Director of MDP and
co-founded the firm in 1993. Previously, Mr. Perry was with
First Chicago Venture Capital for eight years. Mr. Perry
currently serves on the Board of Directors of Cbeyond
Communications, Inc., Univision Communications Inc., Sorenson
Communications Inc., Intelsat Holdings, Ltd. and MetroPCS
Communications, Inc.
Robin P. Selati has served as a Director since April
2004. Mr. Selati is a Managing Director of MDP and
co-founded the firm in 1993. Previously, Mr. Selati was
with Alex. Brown & Sons Incorporated, an investment
68
bank. Mr. Selati currently serves on the Board of Directors
of Tuesday Morning Corporation, Carrols Restaurant Group, Inc.,
Ruths Chris Steak House, Inc. and Pierre Holding Corp.
Vahe A. Dombalagian has served as a Director since April
2004. Mr. Dombalagian is a Director of MDP and has been
employed by the firm since July 2001. From 1997 to 1999,
Mr. Dombalagian was an Associate with Texas Pacific Group,
a private equity firm.
Enrique F. Senior has served as a Director since July
2005. Mr. Senior is a Managing Director of Allen &
Company LLC, formerly Allen & Company Incorporated, and
has been employed by the firm since 1973. Previously
Mr. Senior was with White, Weld & Company for
three years. Mr. Senior currently serves on the Board of
Directors of Grupo Televisa S.A. de C.V. and Coca Cola FEMSA
S.A. de C.V.
Peter R. Ezersky has served as a Director since April
2005. Mr. Ezersky is a Managing Principal of Quadrangle
Group LLC and co-founded the firm in 2000. Previously,
Mr. Ezersky was with Lazard Freres & Co. for
ten years and The First Boston Corporation for four years.
Mr. Ezersky currently serves on the Board of Directors of
MGM Holdings, Dice Holdings and Publishing Group of America.
Raymond W. Syufy has served as a Director since October
2006. Mr. Syufy began working for Century in 1977 and held
positions in each of the major departments within Century. In
1994, Mr. Syufy was named President of Century and was
later appointed Chief Executive Officer and Chairman of the
Board of Century. Mr. Syufy resigned as an officer and
director of Century upon the consummation of the Century
acquisition. Mr. Syufy currently serves as Chairman of the
Board of the National Association of Theatre Owners of
California and Nevada and as a director on the Board of
Fandango, Inc. Mr. Syufy is the brother of Joseph
Syufy.
Joseph E. Syufy has served as a Director since October
2006. Mr. Syufy began working for Century in 1981 and
worked in various departments within Century. In 1998,
Mr. Syufy was named President of Century and was later
appointed Chief Executive Officer and then Vice Chairman of the
Board of Century. Mr. Syufy resigned as an officer and
director of Century upon the consummation of the Century
acquisition. Mr. Syufy is the brother of Raymond Syufy.
Our Board
of Directors and Committees
Board of Directors. Our amended and restated
certificate of incorporation authorizes the Board of Directors
to determine the number of directors on our Board of Directors.
We expect that, upon completion of this offering, our Board of
Directors will consist of nine members and will be divided into
three classes that serve staggered three-year terms, provided
that the initial term for certain classes of directors will be
one or two years depending on the class.
Newly elected directors and any additional directorships
resulting from an increase in the number of directors will be
distributed among the three classes so that, as nearly as
possible, each class will consist of one-third of the directors.
The stockholders agreement currently contains a voting agreement
pursuant to which the parties will vote their securities, and
will take all other reasonably necessary or desirable actions,
to elect and continue in office fourteen members of our Board of
Directors, composed of two persons designated by Lee Roy
Mitchell and the Mitchell Special Trust, or the Mitchell
investors, nine persons designated by MDP, one person designated
by Quadrangle Capital Partners LP, Quadrangle Select Partners
LP, Quadrangle (Cinemark) Capital Partners LP and Quadrangle
Capital Partners A LP, or Quadrangle, and two persons
designated by Syufy. Our Board of Directors currently has five
vacancies. We expect that the stockholders agreement will be
terminated upon completion of this offering and replaced by a
director nomination agreement pursuant to which the Mitchell
investors would be entitled to designate two nominees for our
Board of Directors, MDP would be entitled to designate five
nominees for our Board of Directors, Quadrangle would be
entitled to designate one nominee for our Board of Directors and
Syufy would be entitled to designate one nominee for our Board
of Directors. We expect that the director nomination agreement
will additionally designate the applicable class of director for
each designated nominee. If the director nomination agreement is
not entered into, the stockholders agreement will remain in
place after the offering.
69
Upon completion of this offering, a majority of the members of
our Board of Directors will satisfy the independence
requirements of the listing standards of the New York Stock
Exchange.
Audit Committee. Upon completion of this
offering, our audit committee will be composed of
Messrs. Chereskin, Dombalagian and Ezersky. Currently, only
Mr. Ezersky satisfies the independence requirements of
current SEC rules and the listing standards of the New York
Stock Exchange to serve on the audit committee. Within 90 days
after completion of this offering, we expect that a majority of
the members of our audit committee will satisfy the independence
requirements of current SEC rules and the listing standards of
the New York Stock Exchange. In addition, within one year after
completion of the offering, we expect that our audit committee
will be composed of three members who will satisfy the
independence requirements of current SEC rules and the listing
standards of the New York Stock Exchange. We also expect that
one of the members of the audit committee will qualify as an
audit committee financial expert as defined under these rules
and listing standards, and the other members of our audit
committee will satisfy the financial literacy standards for
audit committee members under these rules and listing standards.
The functions of the audit committee will include the following:
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|
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|
|
assist the Board of Directors in its oversight responsibilities
regarding (1) the integrity of our financial statements,
(2) our risk management compliance with legal and
regulatory requirements, (3) our system of internal
controls regarding finance and accounting and (4) our
accounting, auditing and financial reporting processes
generally, including the qualifications, independence and
performance of the independent auditor;
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|
prepare the report required by the SEC for inclusion in our
annual proxy or information statement;
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|
|
|
appoint, retain, compensate, evaluate and terminate our
independent accountants;
|
|
|
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approve audit and non-audit services to be performed by the
independent accountants;
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establish procedures for the receipt, retention and treatment of
complaints received by our company regarding accounting,
internal accounting controls or auditing matters, and the
confidential, anonymous submission by employees of concerns
regarding questionable accounting or auditing matters; and
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perform such other functions as the Board of Directors may from
time to time assign to the audit committee.
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The specific functions and responsibilities of the audit
committee are set forth in an audit committee charter.
Compensation Committee. Upon completion of
this offering, our compensation committee will be composed of
Messrs. Chereskin and Dombalagian and each of them will
qualify as outside directors under
Section 162(m) of the Internal Revenue Code of 1986, as
amended, or the Code, and non-employee directors under
Rule 16b-3 of the Exchange Act and will satisfy the
independence requirements of the listing standards of the New
York Stock Exchange. The compensation committee has a written
charter setting forth the compensation committees purpose
and responsibilities. The principal responsibilities of the
compensation committee will be to review and approve corporate
goals and objectives relevant to the compensation of our
officers, evaluate their performance in light of these goals,
determine and approve our executive officers compensation
based on such evaluation, establish policies, and periodically
determine matters involving compensation of officers, recommend
changes in employee benefit programs, grant or recommend the
grant of stock options and stock awards under our incentive
plans and review the disclosures in the Compensation Discussion
and Analysis and produce a committee report for inclusion in our
proxy statement, information statement or annual report on
Form 10-K,
as required by the SEC.
Nominating and Corporate Governance
Committee. Upon completion of this offering, our
nominating and corporate governance committee will consist of
Messrs. Chereskin and Dombalagian and each of them will
satisfy the independence requirements of the listing standards
of the New York Stock Exchange. The nominating and corporate
governance committee has a written charter setting forth the
nominating and corporate governance committees purpose and
responsibilities. Subject to the rights of certain stockholders
to nominate directors pursuant to the contemplated director
nomination agreement, the principal responsibilities of the
nominating and corporate governance committee will be to assist
our Board of Directors in identifying individuals qualified to
70
serve as members of our Board of Directors, make recommendations
to our Board of Directors concerning committee appointments,
develop and recommend to our Board of Directors a set of
corporate governance principles for our company and oversee our
Board of Directors annual self-evaluation process and our
Board of Directors evaluation of management.
Other Committees. Pursuant to our bylaws, our
Board of Directors may, from time to time, establish other
committees to facilitate the management of our business and
operations.
Compensation
Committee Interlocks and Insider Participation
None of our executive officers served as a member of the Board
of Directors or the compensation committee of any entity that
has one or more executive officers serving on our Board of
Directors or on the compensation committee of our Board of
Directors. Mr. Chereskin served as the only member of our
compensation committee during the last completed fiscal year.
Executive
Compensation
Compensation
Discussion and Analysis
The compensation committee is responsible for establishing the
compensation for the companys chief executive officer and
other senior executives, including all executive vice
presidents. The compensation committee also establishes
executive compensation policies, incentive compensation
policies, employee benefit plans and determines cash and equity
awards thereunder. In so doing, the compensation committee has
the responsibility to develop, implement, and manage
compensation policies and programs that seek to enhance our long
term competitive advantage and sustainable profitability,
thereby contributing to the value of our stockholders
investment. Our Board of Directors has adopted a written charter
for the compensation committee setting forth the compensation
committees purpose and responsibilities.
Overview
of Compensation Program
Our compensation programs are designed to attract, retain, and
motivate key executive personnel who possess the skills and
qualities necessary to successfully perform in this industry.
Elements of compensation for our executives include: annual
salary, stock option awards and cash bonus awards. In making
compensation decisions with respect to each of these elements,
the compensation committee considers the competitive market for
executives and compensation levels provided by comparable
companies. The compensation committee intends to review the
compensation practices of companies in our peer group and
companies of comparable size and financial performance with whom
we compete for talent.
Components
of Compensation
Base
Salary
The compensation committee seeks to keep base salary
competitive. Base salaries for the Chief Executive Officer and
the other executive officers are determined by the compensation
committee based on a variety of factors. These factors include
the nature and responsibility of the position, the expertise of
the individual executive, the competitiveness of the market for
the executives services and, except in the case of his own
compensation, the recommendations of the chief executive
officer. The compensation committee may also consider other
judgmental factors deemed relevant by the compensation committee
in determining base salary.
Annual
Performance-Based Cash Incentive Compensation
In setting compensation, the compensation committee considers
annual cash incentives based on company performance to be an
important tool in motivating and rewarding the performance of
our executive officers. Performance-based cash incentive
compensation is paid to our executive officers pursuant to our
incentive bonus program.
71
Performance-based cash incentive compensation payouts to
participants under our incentive bonus program are dependent
upon our performance relative to Adjusted EBITDA target levels
which are established in the discretion of our board of
directors at the beginning of each year. This plan provides
named executive officers with a bonus of 20% of the
executives annual base salary if the minimum Adjusted
EBITDA threshold is met and up to 80% of the executives
annual base salary if Adjusted EBITDA reaches the
stretch goal. If our performance is between the
minimum and maximum Adjusted EBITDA targets, such executives
will receive a prorated bonus between 20% and 80% of his annual
base salary. If the Adjusted EBITDA targets are met, the
appropriate bonuses are paid. There are no discretionary
components to the payments under our incentive bonus program. In
2005, the minimum Adjusted EBITDA target was not met and no plan
participant received a bonus under our incentive bonus program.
In 2006, the minimum Adjusted EBITDA target was met and plan
participants qualified for a bonus paid in 2007.
Long
Term Equity Incentive Compensation
We believe that long-term performance is achieved through an
ownership culture that encourages such performance by our
executive officers through the use of stock and stock-based
awards. In November 2006, our Board of Directors and the
majority of our stockholders approved the 2006 Long Term
Incentive Plan, or 2006 Plan, under which 9,097,360 shares
of common stock were available for issuance to our selected
employees, directors and consultants. The following awards may
be granted under the 2006 Plan: (1) options intended to
qualify as incentive stock options under Section 422 of the
Code, (2) non-qualified stock options not specifically
authorized or qualified for favorable federal income tax
consequences, and (3) restricted stock awards consisting of
shares of common stock that are subject to a substantial risk of
forfeiture (vesting) restriction for some period of time. Our
2006 Plan was established to provide certain of our employees,
including our executive officers, with incentives to help align
those employees interests with the interests of
stockholders. The compensation committee, in consultation with
our board of directors and the Chief Executive Officer, has the
discretion to recommend the grant of options to purchase our
common stock or restricted stock awards to eligible participants
under the 2006 Plan. The compensation committee believes that
the use of stock and stock-based awards offers the best approach
to achieving our compensation goals.
The 2006 Plan is substantially similar to the 2004 Long Term
Incentive Plan, or 2004 Plan, created by Cinemark, Inc. The 2004
Plan was approved by Cinemark, Inc.s Board of Directors
and the majority of its stockholders on September 30, 2004.
Under the 2004 Plan, Cinemark, Inc. made grants of options on
two occasions. On September 30, 2004, options to purchase
6,986,731 shares were granted with 9.9% vesting on the
grant date and the remainder vesting daily on a pro rata basis
through April 2, 2009. On January 28, 2005, more
options to purchase 12,055 shares were granted, which vest
daily on a pro rata basis over five years. All options expire
ten years after the date granted. In connection with the Century
acquisition, we assumed the obligations of Cinemark, Inc. under
the 2004 Plan to assure that stock acquired on exercise of an
option issued under the 2004 Plan will be common stock of
Cinemark Holdings, Inc. The terms of the option agreements
entered into under the 2004 Plan will continue to govern the
options. The option will otherwise be subject to the provisions
in our 2006 Plan.
Perquisites
With limited exceptions, the compensation committees
policy is to provide benefits and perquisites to our executives
that are substantially the same as those offered to our other
employees at or above the level of vice president. The benefits
and perquisites that may be available in addition to those
available to our other employees include life insurance premiums
and long term disability.
Summary
of Compensation for our Named Executive Officers
Lee
Roy Mitchell
For his service as our Chairman of the Board of Directors and
Chief Executive Officer, Mr. Mitchell received a base
salary of $763,958 during 2006. Mr. Mitchells base
salary is subject to annual review for increase (but not
decrease) each year by our Board of Directors or committee or
delegate thereof. In addition,
72
Mr. Mitchell is eligible to receive an annual cash
incentive bonus upon our meeting certain performance targets
established by our Board of Directors or the compensation
committee, as described above. Mr. Mitchell qualifies for
our 401(k) matching program, pursuant to which he received
$11,550 in company contributions in 2006. Mr. Mitchell is
also entitled to additional fringe benefits including life
insurance benefits of not less than $5 million, disability
benefits of not less than 66% of base salary, a luxury
automobile and a membership at a country club. Upon
Mr. Mitchells termination of employment, he is
entitled to severance payments, the amount of which depends upon
the reason for the termination of employment. In any case,
Mr. Mitchell will receive all accrued compensation and
benefits as well as any vested stock options. If his employment
is terminated without cause or he resigns for good reason,
Mr. Mitchell will also receive his annual base salary for a
period of twelve months and an amount equal to the most recent
annual bonus he received prior to the date of termination.
Alan
W. Stock, Timothy Warner, Robert Copple and Robert
Carmony
For their service as officers, Alan W. Stock, Timothy Warner,
Robert Copple and Robert Carmony received a base salary during
2006 of $452,097, $366,616, $330,118 and $318,247, respectively.
The base salary of each of Messrs. Stock, Warner, Copple
and Carmony is subject to annual review for increase (but not
decrease) each year by our Board of Directors or committee or
delegate thereof. In addition, each of these employees is
eligible to receive an annual cash incentive bonus upon our
meeting certain performance targets established by our Board of
Directors or the compensation committee, as described above.
Messrs. Stock, Warner, Copple and Carmony each qualify for
our 401(k) matching program, pursuant to which they each
received $11,550 in company contributions in 2006. Each of
Messrs. Stock, Warner, Copple and Carmony is also entitled
to certain additional benefits including life insurance and
disability benefits.
Profit
Participation
We entered into an amended and restated profit participation
agreement on March 12, 2004 with Mr. Stock, which
became effective April 2, 2004 and amends an amended and
restated profit participation agreement with Mr. Stock
effective May 19, 2002. Under the agreement, Mr. Stock
receives a profit interest in two theatres. Mr. Stock
received payments totaling $618,837 during the year ended
December 31, 2006 under the profit participation agreement.
Upon consummation of the offering, we intend to exercise an
option to purchase Mr. Stocks interest in the
theatres for a price equal to the greater of (1) stated
price reduced by any payments received by Mr. Stock during
the term and (2) 49% of adjusted theatre level cash flow
multiplied by seven, plus cash and value of inventory associated
with the two theatres, minus necessary reserves, minus accrued
liabilities and accounts payable associated with the
two theatres. As of the date of this prospectus, the price
is expected to be approximately $6.9 million. We do not
intend for arrangements such as this to be part of our
compensation program following the completion of this offering
and, as a result, we do not intend to enter into similar
arrangements with our executive officers in the future.
Compensation
Committee
Upon completion of this offering, our compensation committee
will consist of at least two or more members. The principal
responsibilities of the compensation committee will be to review
and approve corporate goals and objectives relevant to the
compensation of our executive officers, evaluate their
performance in light of these goals, determine and approve our
executive officers compensation based on such evaluation and
establish policies including with respect to the following:
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the allocation between long-term and currently paid out
compensation;
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the allocation between cash and non-cash compensation, and among
different forms of non-cash compensation;
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the allocation among each different form of long-term award;
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how the determination is made as to when awards are granted,
including awards of equity-based compensation such as
options; and
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stock ownership guidelines and any policies regarding hedging
the economic risk of such ownership.
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Tax
Implications of Executive Compensation Policy
Under Section 162(m) of the Internal Revenue Code, a public
company generally may not deduct compensation in excess of
$1,000,000 paid to its chief executive officer and the four
other most highly compensated executive officers unless certain
performance and other requirements are met. Our intent generally
is to design and administer executive compensation programs in a
manner that will preserve the deductibility of compensation paid
to our executive officers, and we believe that a substantial
portion of our current executive compensation program (including
the stock options and other awards that may be granted to our
named executive officers as described above) satisfies the
requirements for exemption from the $1,000,000 deduction
limitation. However, our compensation committee will have the
authority to award performance based compensation that is not
deductible and we cannot guarantee that it will only award
deductible compensation to our executive officers. We reserve
the right to design programs that recognize a full range of
performance criteria important to our success, even where the
compensation paid under such programs may not be deductible. The
compensation committee will continue to monitor the tax and
other consequences of our executive compensation program as part
of its primary objective of ensuring that compensation paid to
our executive officers is reasonable, performance-based and
consistent with our goals.
Summary
Compensation
The following table contains summary information concerning the
total compensation earned during 2006 by our Chief Executive
Officer, chief financial officer and our three other most highly
compensated executive officers serving in this capacity as of
December 31, 2006, whose total compensation exceeded
$100,000 for the fiscal year ended December 31, 2006.
Summary
Compensation Table for the Fiscal Year Ended December 31,
2006
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Non-Equity
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Incentive Plan
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All Other
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Salary
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Option Awards
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Compensation
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Compensation
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Total
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Name and Principal Position
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Year
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($)
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($)(1)
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($)(2)
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($)
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($)
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Lee Roy Mitchell
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2006
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$
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763,958
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$
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$
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385,773
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$
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24,701
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(4)
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$
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1,174,432
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Chairman of the Board(3)
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Alan W. Stock
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2006
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452,097
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415,761
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227,698
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634,180
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(5)
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1,729,736
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Chief Executive Officer(3)
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Timothy Warner
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2006
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366,616
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415,761
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184,645
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14,772
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(6)
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981,794
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President and Chief Operating
Officer(3)
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Robert Copple
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2006
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330,118
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415,761
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166,263
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16,631
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(7)
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928,773
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Executive Vice President and Chief
Financial Officer
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Robert Carmony
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2006
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318,247
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270,244
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160,284
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15,578
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(8)
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764,353
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Senior Vice President
Operations
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(1) |
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These amounts represent the dollar amount of compensation cost
we recognized during 2006 for awards granted during 2004 based
on the grant date fair value of the named executive
officers option awards in accordance with
SFAS 123(R). See note 10 to our consolidated financial
statements for assumptions used in determining compensation
expense on options granted in accordance with SFAS 123R. |
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(2) |
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Bonuses were earned in 2006 and paid in March 2007. |
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(3) |
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Effective December 12, 2006, Mr. Mitchell stepped down
as our Chief Executive Officer. Mr. Stock was elected to
replace Mr. Mitchell as our Chief Executive Officer.
Mr. Mitchell will continue to serve as our Chairman of the
Board of Directors. Mr. Stock had previously served as our
President since March 1993 and as Chief Operating Officer since
March 1992. Effective December 12, 2006, Mr. Warner
was elected to replace Mr. Stock as our President and Chief
Operating Officer. Mr. Warner had previously served as our
Senior Vice President since May 2002 and President of Cinemark
International, L.L.C. since August 1996. |
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(4) |
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Represents an $11,550 annual matching contribution to
Mr. Mitchells 401(k) savings plan, $10,250
representing the value of the use of a company vehicle for one
year and $2,901 of life insurance premiums and disability
insurance paid by us for the benefit of Mr. Mitchell. |
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(5) |
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Represents an $11,550 annual matching contribution to
Mr. Stocks 401(k) savings plan, $3,793 of life
insurance premiums and disability insurance paid by us for the
benefit of Mr. Stock and payments of $618,837 under
Mr. Stocks profit participation agreement for certain
of our theatres. |
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(6) |
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Represents an $11,550 annual matching contribution to
Mr. Warners 401(k) savings plan and $3,222 of life
insurance premiums and disability insurance paid by us for the
benefit of Mr. Warner. |
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(7) |
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Represents an $11,550 annual matching contribution to
Mr. Copples 401(k) savings plan and $5,081 of life
insurance premiums and disability insurance paid by us for the
benefit of Mr. Copple. |
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(8) |
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Represents an $11,550 annual matching contribution to
Mr. Carmonys 401(k) savings plan and $4,028 of life
insurance premiums and disability insurance paid by us for the
benefit of Mr. Carmony. |
Grants
of Plan-Based Awards
There were no stock option grants or awards to the named
executive officers during the fiscal year ended
December 31, 2006.
Employment
Agreements
General
In connection with the MDP Merger, the merger agreement provided
that certain employment agreements be executed by Lee Roy
Mitchell, Tandy Mitchell, Alan Stock, Robert Copple, Timothy
Warner, Robert Carmony, John Lundin and Michael Cavalier as a
condition to MDPs closing of the MDP Merger. The terms of
the employment agreements, including the events that trigger any
payments upon termination of employment, were negotiated
directly between the executives and MDP and the forms of the
employment agreements were agreed upon in connection with the
MDP Merger.
Lee Roy
Mitchell
We entered into an employment agreement with Lee Roy Mitchell
pursuant to which Mr. Mitchell served as our Chief
Executive Officer. The employment agreement became effective
upon the consummation of the MDP Merger. Effective
December 12, 2006, Mr. Mitchell stepped down as our
Chief Executive Officer and will continue to serve as our
Chairman of the Board of Directors, and his employment agreement
was amended to reflect the change in duties. The initial term of
the employment agreement is three years, ending on April 2,
2007, subject to an automatic extension for a one-year period,
unless the employment agreement is terminated. Mr. Mitchell
received a base salary of $763,958 during 2006, which is subject
to annual review for increase (but not decrease) each year by
our Board of Directors or committee or delegate thereof. In
addition, Mr. Mitchell is eligible to receive an annual
cash incentive bonus upon our meeting certain performance
targets established by our Board of Directors or the
compensation committee for the fiscal year. Mr. Mitchell is
also entitled to additional fringe benefits including life
insurance benefits of not less than $5 million, disability
benefits of not less than 66% of base salary, a luxury
automobile and a membership at a country club. The employment
agreement provides for severance payments upon termination of
employment, the amount and nature of which depends upon the
reason for the termination of employment. If Mr. Mitchell
resigns for good reason or is terminated by us without cause (as
defined in the agreement), Mr. Mitchell will receive:
accrued compensation (which includes base salary and a pro rata
bonus) through the date of
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termination; any previously vested stock options and accrued
benefits, such as retirement benefits, in accordance with the
terms of the plan or agreement pursuant to which such options or
benefits were granted; his annual base salary as in effect at
the time of termination for a period of twelve months following
such termination; and an amount equal to the most recent annual
bonus he received prior to the date of termination.
Mr. Mitchells equity-based or performance-based
awards will become fully vested and exercisable upon such
termination or resignation. Mr. Mitchell may choose to
continue to participate in our benefit plans and insurance
programs on the same terms as other actively employed senior
executives for a one-year period.
In the event Mr. Mitchells employment is terminated
due to his death or disability, Mr. Mitchell or his estate
will receive: accrued compensation (which includes base salary
and a pro rata bonus) through the date of termination; any
previously vested stock options and accrued benefits, such as
retirement benefits, in accordance with the terms of the plan or
agreement pursuant to which such options or benefits were
granted; his annual base salary as in effect at the time of
termination for a period of six months following such
termination; a lump sum payment equal to an additional six
months of base salary payable six months after the date of
termination; and any benefits payable to Mr. Mitchell
and/or his beneficiaries in accordance with the terms of any
applicable benefit plan.
In the event Mr. Mitchells employment is terminated
by us for cause or under a voluntary termination (as defined in
the agreement), Mr. Mitchell will receive accrued base
salary through the date of termination and any previously vested
rights under a stock option or similar incentive compensation
plan in accordance with the terms of such plan.
Mr. Mitchell will also be entitled, for a period of five
years, to tax preparation assistance upon termination of his
employment for any reason other than for cause or under a
voluntary termination. The employment agreement contains various
covenants, including covenants related to confidentiality,
non-competition (other than certain permitted activities as
defined therein) and non-solicitation.
Tandy
Mitchell, Alan Stock, Robert Copple, Timothy Warner, Robert
Carmony, John Lundin and Michael Cavalier
We entered into executive employment agreements with each of
Alan Stock, Timothy Warner, Tandy Mitchell, Robert Copple,
Robert Carmony, Michael Cavalier and John Lundin pursuant to
which Mr. Stock, Mr. Warner, Mrs. Mitchell and Messrs.
Copple, Carmony, Cavalier and Lundin serve, respectively, as our
Chief Executive Officer, President, Executive Vice President,
Senior Vice President and Chief Financial Officer, Senior Vice
President of Operations, Senior Vice President-General Counsel
and Vice President of Film Licensing. The employment agreements
became effective upon the consummation of the MDP Merger.
Effective December 12, 2006, Mr. Stock was elected to
replace Mr. Mitchell as our Chief Executive Officer,
Mr. Warner was elected to replace Mr. Stock as our
President and Chief Operating Officer and their employment
agreements were amended to reflect the change in duties.
Effective January 25, 2006, Mr. Copple was promoted to
Executive Vice President and his employment agreement was
amended to reflect this change. The initial term of each
employment agreement is three years, ending on April 2,
2007, subject to automatic extensions for a one-year period at
the end of each year of the term, unless the agreement is
terminated. Pursuant to the employment agreements, each of these
individuals receives a base salary, which is subject to annual
review for increase (but not decrease) each year by our Board of
Directors or committee or delegate thereof. In addition, each of
these executives is eligible to receive an annual cash incentive
bonus upon our meeting certain performance targets established
by our Board of Directors or the compensation committee for the
fiscal year.
Our Board of Directors has adopted a stock option plan and
granted each executive stock options to acquire such number of
shares as set forth in that executives employment
agreement. The executives stock options vest and become
exercisable twenty percent per year on a daily pro rata basis
and shall be fully vested and exercisable five years after the
date of the grant, as long as the executive remains continuously
employed by us. Upon consummation of a sale of our company, the
executives stock options will accelerate and become fully
vested.
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The employment agreement with each executive provides for
severance payments on substantially the same terms as the
employment agreement for Mr. Mitchell and an amount equal
to the most recent annual bonus he or she received prior to the
date of termination and a pro rata portion of any annual bonus
earned during the fiscal year in which termination occurred
based upon the number of days worked in such year.
Each executive will also be entitled to office space and support
services for a period of not more than three months following
the date of any termination except for termination for cause.
The employment agreements contain various covenants, including
covenants related to confidentiality, non-competition and
non-solicitation.
401(k)
Plan
We sponsor a defined contribution savings plan, or 401(k) Plan,
whereby certain employees may elect to contribute, in whole
percentages between 1% and 50% of such employees
compensation, provided no employees elective contribution
shall exceed the amount permitted under Section 402(g) of
the Code ($15,000 in 2006 and $15,500 for 2007). We may make an
annual discretionary matching contribution. For plan years
beginning in 2002, our discretionary matching contributions
immediately vest.
2006
Long Term Incentive Plan
Cinemark Holdings, Inc. was formed on August 2, 2006 in
connection with the planned acquisition pursuant to a stock
purchase agreement, dated August 7, 2006, of Century by
Cinemark USA, Inc. The Century acquisition was completed on
October 5, 2006. On October 5, 2006, pursuant a
Contribution and Exchange Agreement, dated August 7, 2006,
among the then stockholders of Cinemark, Inc., the parties
exchanged their shares of Class A common stock of Cinemark,
Inc. for shares of common stock of Cinemark Holdings, Inc. In
connection with the Century acquisition, we assumed the
obligations of Cinemark, Inc. under the 2004 Plan to assure that
stock acquired on exercise of an option issued under the 2004
Plan will be common stock of Cinemark Holdings, Inc. The terms
of the option agreements entered into under the 2004 Plan will
continue to govern the options. The options will otherwise be
subject to the provisions in our 2006 Plan described below.
In November 2006, our Board of Directors and the majority of our
stockholders approved the 2006 Plan under which
9,097,360 shares of common stock were available for
issuance to our selected employees, directors and consultants.
There are currently options to purchase 6,915,591 shares of
common stock outstanding under the 2006 Plan with a weighted
average exercise price of $7.63 per share. The board of
Cinemark, Inc. has amended the 2004 Plan to provide that no
additional awards may be granted under the 2004 Plan. The 2006
Plan is substantially similar to the 2004 Plan.
Types of Awards. The following awards may be
granted under the 2006 Plan: (1) options intended to
qualify as incentive stock options under Section 422 of the
Code, (2) non-qualified stock options not specifically
authorized or qualified for favorable federal income tax
consequences, and (3) restricted stock awards consisting of
shares of common stock that are subject to a substantial risk of
forfeiture (vesting) restriction for some period of time.