Cinemark Holdings, Inc. — FY 2016 Form 10-K
Reporting period: Fiscal year ended December 31, 2016. This is an annual report, not a standalone fourth-quarter filing; quarterly figures below are included in the 10-K. Cinemark operated 526 theatres and 5,903 screens in the U.S. and 15 Latin American countries, with worldwide attendance of approximately 287.2 million.
Financial performance
| Metric | FY 2016 | FY 2015 |
|---|---|---|
| Revenue | $2,918.8 million | $2,852.6 million |
| Operating income / margin | $422.9 million / 14.5% | $423.2 million / 14.8% |
| Net income attributable to Cinemark / diluted EPS | $255.1 million / $2.19 | $216.9 million / $1.87 |
| Adjusted EBITDA | $706.1 million | $682.8 million |
| Cash provided by operating activities | $451.8 million | $455.9 million |
| Capital expenditures | $326.9 million | $331.7 million |
| Cash and cash equivalents at year-end | $561.2 million | $588.5 million |
| Total debt, including current portion | $1,823.0 million | $1,814.6 million |
- Revenue increased 2.3%; admissions revenue rose 1.3% and concession revenue rose 5.7%, while other revenue declined 7.1%.
- Worldwide attendance grew 2.5%. Consolidated average ticket price fell 1.1% to $6.23, while concession revenue per patron rose 3.0% to $3.45.
- U.S. revenue increased 4.4%. International revenue declined 3.7% as reported, but rose 12.9% at constant currency; foreign exchange obscured underlying growth.
- Net income attributable to Cinemark increased 17.6%, supported in part by a lower effective tax rate (28.8%, versus 37.1% in 2015). Management cited a foreign holding and financing structure that improved the ability to use previously valuation-allowanced foreign tax credits.
- Cash from operations less capital expenditures was approximately $124.9 million, a simple derived cash-flow measure. Cash used for financing activities was $152.6 million.
- Concession revenue was 33.9% of total revenue; management notes concession sales carry substantially higher margins than admissions.
Fourth-quarter results
For Q4 2016, revenue was $700.9 million, down 0.9% from $707.2 million in Q4 2015. Operating income was $84.8 million, down from $99.1 million. Net income attributable to Cinemark was $77.0 million, up from $57.8 million, and diluted EPS was $0.66 versus $0.50. The filing provides quarterly totals but does not clearly attribute the year-over-year Q4 movements to specific causes.
Balance sheet, debt and capital allocation
- Long-term debt was $1,823.0 million; $663.8 million, approximately 36%, bore variable rates. A 100-basis-point rate increase was estimated to add about $6.6 million to annual interest expense.
- Operating lease obligations totaled $1,680.0 million and capital lease obligations $255.4 million. Total contractual obligations were reported at $4,471.1 million, including debt, leases, scheduled interest and other commitments.
- The company had $100 million available on its revolving credit line and no revolver borrowings at year-end. Management reported compliance with debt covenants.
- During 2016, Cinemark issued $225 million of 4.875% senior notes and redeemed $200 million of 7.375% senior subordinated notes. The refinancing and credit-facility amendments generated a $13.4 million loss on debt amendments and refinancing, while reducing interest expense year over year.
- Cash dividends paid were $125.5 million; the quarterly dividend increased to $0.27 per share during 2016. A subsequent $0.29-per-share Q4 dividend was approved on February 22, 2017, payable March 20, 2017, subject to the stated record date.
Changes, outlook and risks
- Operating income was nearly flat despite revenue growth: higher film rental costs, wages and depreciation offset sales gains. The operating margin declined to 14.5% from 14.8%.
- U.S. attendance rose 1.7%; international attendance rose 4.1%, but reported international revenue was pressured by currency translation. Foreign currency exposure remains material, particularly in Latin America.
- Capital investment remained elevated, with $237.1 million spent on existing theatres and $89.8 million on new theatres in 2016. The company reported commitments for 101 domestic and 44 international screens, with estimated remaining development spending of approximately $61 million and $18 million, respectively.
- Management planned 10–15 additional XD auditoriums in 2017 and further recliner, premium-concept and motion-seat installations. The filing does not provide formal earnings or revenue guidance.
- Key business risks include reliance on the volume and success of film releases, seasonality, competition from other exhibitors and home entertainment, potentially shrinking theatrical release windows, substantial debt and lease commitments, interest-rate and currency changes, labor costs, and the execution and returns of theatre investments.
- Legal matters include a California wage-and-hour class/PAGA case (class and representative certification were denied, with plaintiff appeal pending), a private antitrust case, and federal and state antitrust investigations involving film clearances and possible coordination. The company denies wrongdoing; outcomes and potential losses were not predictable.
- Long-lived asset impairment charges declined to $2.8 million from $8.8 million, affecting theatres in the U.S., Colombia and Ecuador. The company reported no impairment trigger for goodwill or tradenames in its 2016 assessments.
- Revenue recognition standard changes were scheduled for adoption in 2018; Cinemark was evaluating potential effects on its NCM agreement, loyalty program, stored-value card breakage and other ancillary revenues. Lease-accounting changes were also under evaluation.
Important facts for investors to verify
- Whether reported international growth at constant currency translates into durable U.S.-dollar results, and how exposure to Brazil and other currencies evolves.
- Whether attendance, ticket pricing and concession spending support margins as film slate quality and release timing change.
- Debt and lease service capacity, variable-rate exposure, covenant and dividend restrictions, and the economics of the 2016 refinancing.
- Returns on theatre remodels, recliners, XD and new-screen commitments, including the effect of temporarily closed screens during renovation.
- Developments and potential financial exposure in the antitrust investigations and pending litigation.
- The impact of upcoming accounting standards, particularly revenue recognition and lease capitalization, on reported results and balance-sheet ratios.