Cinemark Holdings, Inc. — 2015 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2015. The filing also presents unaudited fourth-quarter results. Dollar figures are in U.S. dollars; financial amounts are in millions unless stated otherwise.
Business context and reporting period
Cinemark operates movie theatres in the United States and Latin America, reporting two segments: U.S. and international. At year-end it operated 513 theatres and 5,796 screens in 15 countries; approximately 280.1 million patrons attended during 2015. Admissions and concessions are the main revenue sources, with concessions generally carrying higher margins. The company continued to develop premium formats and amenities, including XD auditoriums, reclining seats, and dining concepts.
Financial and operating results
| Metric | 2015 | 2014 |
|---|---|---|
| Revenue | $2,852.6 | $2,627.0 |
| Operating income | $423.2 | $363.1 |
| Operating margin | 14.8% | 13.8% |
| Net income attributable to Cinemark | $216.9 | $192.6 |
| Diluted earnings per share | $1.87 | $1.66 |
| Cash from operating activities | $455.9 | $454.6 |
| Capital expenditures | $331.7 | $244.7 |
| Cash and cash equivalents at year-end | $588.5 | $638.9 |
Annual revenue rose 8.6%; attendance increased 6.1% to 280.1 million. Concession revenue grew 10.8%, compared with 7.4% growth in admissions. U.S. revenue increased 10.5% and international revenue increased 3.4%. International results were affected by unfavorable foreign-exchange rates: average ticket price declined 9.6% and concession revenue per patron declined 3.0%.
Fourth-quarter 2015 revenue was $707.2, operating income $99.1, net income attributable to Cinemark $57.8, and diluted EPS $0.50. In fourth-quarter 2014, the corresponding amounts were $659.9, $96.1, $47.3, and $0.41.
Material changes versus the prior comparable period
- Operating income increased 16.6% year over year, and operating margin improved by about 1.0 percentage point. Higher attendance, ticket pricing, and concession spending supported growth.
- Film rentals and advertising expense rose to $976.6 from $883.1; as a share of admissions revenue, the rate increased to 55.3% from 53.7%. Management attributed the increase primarily to stronger box-office performance and a higher concentration of blockbuster releases.
- Foreign-currency exchange losses increased to $16.8 from $6.2. Currency translation losses were also substantial: $125.5 in other comprehensive loss for 2015.
- Cash from operations was nearly flat, while capital expenditures increased by $87.0 to $331.7, including $26.3 for the Plano headquarters building. Cash declined by $50.3 during the year.
- Long-term debt declined modestly to $1,814.6 from $1,823.0. Cinemark amended its term loan in May 2015, extending its maturity from December 2019 to May 2022.
Debt, liquidity, cash flow, and capital allocation
Year-end cash was $588.5. The company had no revolving-credit borrowings and $100.0 of available capacity on its revolver. Approximately $579.0 of debt bore variable interest rates; management estimated that a 100-basis-point rate increase would add about $5.8 to annual interest expense. The company reported $8.4 of debt maturing in 2016 and stated it was in compliance with debt covenants.
In addition to debt, reported obligations included $227.7 of capital lease obligations and $1,699.9 of future operating lease obligations. Contractual obligations totaled $4,562.8, including scheduled interest and purchase commitments. Cash dividends paid in 2015 were $115.9, with four declared quarterly dividends of $0.25 per share. A $0.27-per-share fourth-quarter dividend was approved after year-end, payable in March 2016.
Cash used in investing activities was $328.1, principally reflecting theatre investment. The company spent $199.3 on existing theatres and $132.4 on new theatres in 2015. It expected to fund committed development with operating cash flow, credit-facility borrowings, debt issuance, sale-leasebacks, or sales of excess real estate.
Outlook, management commentary, risks, and unusual items
- Outlook: No quantified revenue, earnings, or cash-flow guidance is provided. The filing describes plans for 2016, including 15–20 additional XD auditoriums, new theatre openings, continued international satellite-delivery installation, and further premium seating and dining concepts.
- Business sensitivity: Results depend on the availability and performance of films; attendance and revenue are seasonal and can vary substantially with release schedules. Competition includes other exhibitors, home viewing and other entertainment options.
- International exposure: Foreign currency, economic instability, inflation, regulation, and limits on cash transfers may affect international results. Brazil accounted for approximately 10.2% of consolidated 2015 revenue.
- Leverage and fixed commitments: Significant debt and lease obligations require ongoing cash flows and may constrain investment, dividends, and financial flexibility. Variable-rate debt creates interest-rate exposure.
- Legal matters: The company faces federal and state antitrust investigations concerning film clearances, potential coordination or communications among theatre circuits, and related joint ventures. It also faces a California wage-and-hour case; the court denied class certification and a representative PAGA action, but the plaintiff may appeal. The company could not predict the investigations’ or litigation’s outcomes.
- Unusual items: Long-lived asset impairment charges were $8.8, affecting theatres in the U.S., Colombia, and Ecuador. The company recorded a $0.9 loss on amendment of its debt agreement and $16.8 in foreign-currency exchange losses. The effective tax rate increased to 37.1% from 33.1%.
- Accounting and controls: The company early adopted certain accounting updates, including presentation of debt issuance costs as a deduction from debt. Deloitte issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective.
Important facts for investors to verify
- Whether attendance and concession growth can be sustained, and how future film slates affect admissions and film-rental costs.
- Foreign-exchange trends and their impact on international ticket prices, reported revenue, earnings, and accumulated translation losses.
- Cash generation relative to elevated theatre investment, lease obligations, debt service, and dividends.
- Debt terms, variable-rate exposure, covenant headroom, and the company’s ability to meet long-term lease and debt commitments.
- Developments in the antitrust investigations and California employment litigation, including any appeals or potential financial effects.
- Progress and returns on planned theatre openings, XD installations, satellite capabilities, and premium-format investments.