Cinemark Holdings, Inc. quarterly report, Q3 FY2008

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Cinemark Holdings, Inc. - 10-Q Summary (Period Ended Sept 30, 2008)

Business Context and Reporting Period

This Quarterly Report on Form 10-Q covers the period ended September 30, 2008. Cinemark Holdings, Inc. is a leading motion picture exhibitor operating theatres in the U.S., Canada, and various Latin American countries. The company operates two reportable segments: U.S. and International. As of October 31, 2008, there were 108,434,877 shares of common stock outstanding.

Key Financial Metrics

Metric Three Months Ended Sept 30, 2008 Nine Months Ended Sept 30, 2008
Total Revenues $476.2 million $1,334.5 million
Net Income $20.4 million $41.2 million
Operating Income $52.7 million $139.6 million
Adjusted EBITDA $102.1 million $286.1 million
Cash from Operating Activities N/A $169.7 million
Cash and Cash Equivalents $371.3 million (Balance Sheet) N/A
Total Debt (Long-term + Current) $1,537.6 million N/A
Diluted EPS $0.19 $0.38

Material Changes vs. Prior Period

  • Revenue Growth: Total revenues increased 1.0% ($4.7 million) in the third quarter and 3.5% ($44.9 million) for the nine-month period compared to 2007. This growth was driven by a 6.3% increase in average ticket prices and a 5.8% increase in concession revenue per patron, partially offset by a 2.5% decline in consolidated attendance.
  • Segment Performance: International revenues grew 26.1% in the quarter and 20.0% year-to-date, driven by attendance growth and favorable exchange rates. U.S. revenues declined 5.2% in the quarter and 0.6% year-to-date due to an 8.4% drop in attendance.
  • Profitability: Net income for the nine months ended Sept 30, 2008 ($41.2 million) was significantly lower than the prior year ($142.7 million). The 2007 period included a one-time $210.8 million gain from the National CineMedia (NCM) transaction and a $9.2 million gain from the Fandango transaction, which were absent in 2008.
  • Costs: Theatre operating costs as a percentage of revenue increased to 75.0% in 2008 from 73.8% in 2007. Film rental rates increased due to the release of high-grossing films like The Dark Knight.
  • Impairment: Impairment charges for long-lived assets were $8.1 million for the nine months ended Sept 30, 2008, a significant decrease from $60.4 million in the same period in 2007 (which included substantial goodwill impairment).

Guidance, Outlook, Risks, and Unusual Items

  • Dividends: The company declared a quarterly cash dividend of $0.18 per share on November 6, 2008, payable December 11, 2008.
  • Debt Management: In October 2008 (subsequent to the period end), the company repurchased approximately $30 million of its 9 3/4% senior discount notes. It also terminated an interest rate swap covering $375 million of variable debt due to the counterparty's bankruptcy filing and entered into a new swap agreement to hedge $175 million of debt.
  • Capital Expenditures: Capital expenditures for the nine months ended Sept 30, 2008, were $71.3 million. The company estimates remaining capital expenditures for committed domestic and international screen development to be approximately $86.4 million.
  • Risks:
    • Interest Rate Risk: The company has approximately $800.4 million in variable rate debt. A 100 basis point increase in rates would increase annual interest expense by approximately $8.0 million.
    • Foreign Currency: A 10% unfavorable change in foreign exchange rates would decrease the net book value of international investments by approximately $36.5 million.
    • Seasonality: Results are heavily influenced by the timing of film releases, with peak seasons in summer and holidays.
  • Unusual Items: The 2007 results were skewed by large one-time gains from asset sales (NCM and Fandango). The 2008 results include a $3.3 million gain related to the change in fair value of an interest rate swap and losses related to Hurricane Ike damages in Texas.

Investor Verification Checklist

  • Attendance Trends: Verify the sustainability of the 2.5% year-to-date attendance decline and its impact on future revenue growth.
  • Debt Covenants: Review the impact of the insolvent lender on the $150 million revolving credit facility availability (approx. $28.5 million uncertainty).
  • Interest Rate Exposure: Assess the effectiveness of the new interest rate swap agreement entered in October 2008 in mitigating variable rate risk.
  • International Currency: Monitor the impact of exchange rate fluctuations on the International segment's reported earnings and asset values.
  • Capital Allocation: Confirm the company's ability to fund the estimated $86.4 million in remaining capital expenditures while maintaining its dividend policy.