Cinemark Holdings, Inc. — Q3 2013 Form 10-Q
Business context and reporting period. The filing covers the three and nine months ended September 30, 2013; financial statement amounts are unaudited. Cinemark operates movie theatres in the U.S. and Latin America. Results include 32 theatres acquired from Rave on May 29, 2013, so year-over-year growth partly reflects the larger theatre base.
Key financial results
Amounts below are in millions of dollars except per-share data and percentages.
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Revenue | $757.6 | $633.6 | $2,031.0 | $1,862.0 |
| Operating income | $135.2 | $94.2 | $334.8 | $297.6 |
| Operating margin | 17.8% | 14.9% | 16.5% | 16.0% |
| Net income attributable to Cinemark | $80.0 | $47.4 | $132.9 | $141.1 |
| Diluted EPS | $0.69 | $0.41 | $1.15 | $1.23 |
| Adjusted EBITDA | $190.2 | $148.4 | $484.5 | $445.7 |
- Q3 revenue increased 19.6%; admissions revenue rose 19.2% and concession revenue 21.1%. Consolidated attendance grew 16.2%, including 22.8% growth in the U.S. and 6.7% internationally.
- Nine-month revenue increased 9.1% and operating income 12.5%, but attributable net income declined 5.8%. The 2013 period included a $72.3 million loss on early debt retirement.
- Q3 operating margin improved by 2.9 percentage points; nine-month margin improved by 0.5 points. Q3 results reflected a strong film slate, higher attendance and the Rave acquisition. U.S. attendance and revenue benefited materially from Rave; international average ticket price was pressured by foreign-exchange effects.
- Nine-month income tax expense was $62.7 million, a 31.8% effective rate versus 38.2% in 2012; management noted Mexico-related items affected the 2013 rate.
Cash flow, liquidity and debt
- Cash from operations for the first nine months was $178.5 million, down from $274.2 million. Capital expenditures were $159.5 million, making operating cash flow less capital expenditures $19.0 million, versus $127.6 million in 2012.
- Investing cash outflow was $393.9 million, including $259.2 million for U.S. theatre acquisitions. Cash declined $262.9 million during the period to $479.8 million.
- At September 30, 2013, long-term debt was $1.827 billion, compared with $1.764 billion at December 31, 2012. The company also reported $222.1 million of capital lease obligations and $2.137 billion of operating lease obligations.
- Cinemark issued $530 million of 4.875% notes due 2023 and redeemed $470 million of 8.625% notes due 2019. The redemption included a $56.6 million make-whole premium. The refinancing lowered the stated coupon on the replaced notes but generated the one-time $72.3 million accounting loss.
- The company had $100 million available on its revolving credit line and no revolver borrowings. It reported compliance with debt covenants; its stated actual coverage ratios were 6.8x for the 4.875% notes and 7.1x for the 5.125% notes, against a 2.0x minimum.
- The board declared dividends of $0.25 per share in Q3; dividends declared for the first nine months totaled $0.67 per share. Future dividends remain discretionary and subject to cash needs and debt restrictions.
Material developments, outlook and risks
- The Rave acquisition added 32 theatres and 483 screens for approximately $236.9 million in cash plus assumed liabilities. The company also acquired two theatres in separate transactions. Three Rave theatres were divested as required by the Department of Justice.
- A proposed sale of 31 Mexican theatres for approximately $123.6 million was blocked by Mexico’s competition authority in August. Cinemark appealed and awaited reconsideration; completion and proceeds were uncertain at the filing date.
- The company planned additional development: estimated remaining capital expenditures of approximately $129 million for 220 domestic screens and $89 million for 117 international screens. These commitments were subject to change. Management expected to fund development with operating cash flow, borrowing capacity and potentially debt issuance, sale-leasebacks or real-estate sales.
- There was no specific earnings or revenue guidance in the provided filing text. Management emphasized the dependence of results on film quality and release timing, attendance, concession spending and seasonal box-office patterns. The release slate scheduled for the rest of 2013 included several sequels and anticipated original titles.
- Key exposures include competition and theatre-level impairment risk, foreign-exchange movements, variable interest rates, and substantial fixed lease commitments. A 100-basis-point rate increase was estimated to add approximately $2.4 million to annual interest expense on unhedged variable-rate debt. No material changes to previously disclosed risk factors or legal proceedings were reported.
- Q3 unusual items included $0.1 million of impairment charges and a $0.6 million loss on asset sales and other; the nine-month period included $2.1 million of impairment charges and a $2.5 million gain on asset sales and other. The filing reported no interim goodwill impairment indicators.
Important facts for investors to verify
- How much of reported growth and attendance improvement is attributable to Rave, and how acquired theatres perform on a comparable basis.
- Whether the Mexico theatre sale appeal succeeds, and the final sale price and timing if it proceeds.
- Cash generation after capital spending and acquisition outlays, alongside planned theatre-development commitments and dividend payments.
- The long-term effect of the debt refinancing, including interest savings relative to the make-whole premium and other refinancing costs.
- International earnings sensitivity to currency movements, film-release performance and competition, as well as compliance with debt covenants and liquidity availability.