Cinemark Holdings, Inc. 2009 Annual Report (10-K) Summary
Business Context and Reporting Period
This Form 10-K covers the fiscal year ended December 31, 2009. Cinemark Holdings, Inc. is the second-largest motion picture exhibitor globally by attendance and screen count, operating 424 theatres and 4,896 screens across the U.S., Canada, and 13 Latin American countries. The company operates two reportable segments: U.S. markets and International markets. In 2009, the company reported approximately 236.7 million patrons worldwide.
Key Financial Metrics
| Metric | 2009 Value | 2008 Value |
|---|---|---|
| Total Revenues | $1,976.5 million | $1,742.3 million |
| Operating Income | $250.5 million | $60.2 million |
| Net Income (Consolidated) | $100.8 million | $(44.4) million |
| Net Income Attributable to Cinemark | $97.1 million | $(48.3) million |
| Diluted EPS | $0.87 | $(0.45) |
| Cash and Cash Equivalents | $437.9 million | $349.6 million |
| Long-Term Debt | $1,543.7 million | $1,508.5 million |
| Operating Cash Flow | $176.8 million | $257.3 million |
| Capital Expenditures | $124.8 million | $106.1 million |
Margins: Operating margin improved significantly to 12.7% in 2009 compared to 3.5% in 2008. Concession sales represented approximately 30.5% of total revenues.
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 13.4% year-over-year, driven by a 12.0% increase in attendance and a 2.4% increase in average ticket price. U.S. admissions revenue grew 15.4%, while International admissions revenue grew 12.4%.
- Profitability Turnaround: The company returned to profitability, recording net income of $97.1 million compared to a net loss of $48.3 million in 2008. This was largely due to a significant reduction in impairment charges.
- Impairment Charges: Asset impairment charges dropped dramatically to $11.9 million in 2009 from $113.5 million in 2008. The 2008 charges were driven by a reduction in valuation multiples due to the financial crisis; 2009 charges were limited to specific underperforming theatres.
- Debt Restructuring: The company issued $470 million in 8.625% senior notes in June 2009. Proceeds were used to repurchase approximately $419.4 million of 9 3/4% senior discount notes, resulting in a $27.9 million loss on early retirement of debt.
- Attendance: Worldwide attendance rose to 236.7 million patrons, a 12.0% increase from 2008.
Guidance, Outlook, and Risks
Management Commentary & Outlook: Management highlighted the success of the "Avatar" release and the growing adoption of 3-D and digital projection technologies. The company plans to accelerate the rollout of 3-D compatible digital projection systems to a majority of its first-run U.S. theatres through a joint venture (DCIP). Capital expenditures for 2010 are expected to focus on new theatre openings in the U.S. and Latin America.
Risks and Contingencies:
- Chile Earthquake: A magnitude 8.8 earthquake occurred in Chile on February 27, 2010, affecting 11 of the company's theatres. The company expects to reopen seven theatres shortly and is assessing damage to the remaining four. Revenues from Chile represented 1.6% of total 2009 revenues.
- DCIP Transaction: In March 2010, the company signed agreements with DCIP to lease digital projection systems. This transaction involves a contribution of existing equipment and cash, resulting in an estimated $1.8 million loss to be recorded in Q1 2010.
- Debt Obligations: The company has substantial long-term debt and lease obligations. Approximately 50.8% of long-term debt accrues interest at variable rates, exposing the company to interest rate risk.
- Film Slate Dependency: Results remain highly dependent on the quality and quantity of films released by studios, particularly during summer and holiday seasons.
Key Facts for Investor Verification
- Debt Maturity Profile: Verify the impact of the March 2010 amendment to the senior secured credit facility, which extended the maturity of approximately $924 million of term loan debt to April 2016.
- Impairment Methodology: Confirm the valuation multiples used for goodwill and long-lived asset impairment testing (reduced to 6.5x cash flows in 2009) and monitor for future adjustments if stock price or attendance declines.
- Chile Recovery: Monitor the timeline for reopening the four damaged Chilean theatres and the adequacy of insurance coverage for business interruption and property damage.
- Digital Conversion Costs: Track the capital expenditure requirements and lease obligations associated with the DCIP digital projection rollout and the associated write-down of existing 35mm equipment.
- Dividend Sustainability: Review the company's ability to maintain its quarterly dividend of $0.18 per share given the debt covenants and the recent debt restructuring.