Cinemark Holdings, Inc. — Q1 2011 10-Q
Reporting period: Three months ended March 31, 2011; filed May 5, 2011. Financial statements are unaudited. Cinemark operates movie theatres in the U.S. and multiple Latin American markets, reporting U.S. and international segments.
Financial performance
Amounts are in millions of U.S. dollars except per-share data, attendance, and where noted.
| Metric | Q1 2011 | Q1 2010 | Change |
|---|---|---|---|
| Revenue | $483.1 | $516.6 | -6.5% |
| Operating income / margin | $48.8 / 10.1% | $71.8 / 13.9% | -32.1% |
| Adjusted EBITDA | $102.7 | $121.8 | -15.7% |
| Net income attributable to Cinemark | $25.0 | $35.1 | -28.9% |
| Diluted EPS | $0.22 | $0.31 | -29.0% |
| Cash provided by operating activities | $61.0 | $44.1 | +$16.9 |
| Capital expenditures | $35.8 | $19.5 | +$16.3 |
- U.S. revenue fell 15.1% to $328.7 million and segment Adjusted EBITDA declined to $68.8 million from $89.4 million. U.S. attendance fell 15.7%, while average ticket price decreased 2.3% to $6.40.
- International revenue rose 19.4% to $154.4 million and segment Adjusted EBITDA increased to $33.9 million from $32.4 million. Attendance grew 7.9%; reported growth also benefited from exchange rates and pricing.
- Consolidated attendance declined 8.0% to 53.8 million. Average ticket price decreased 1.2% to $5.79, while concession revenue per patron increased 4.2% to $2.73.
- Film rentals and advertising expense decreased to $165.2 million, but facility lease, utilities and other, general and administrative, and depreciation costs increased. Interest expense rose to $29.3 million from $26.0 million.
- Net income was $25.3 million, including $0.4 million attributable to noncontrolling interests. The effective tax rate was 26.3%, versus 35.1%; a $3.6 million tax benefit from tax settlements and closures reduced Q1 2011 tax expense.
Cash, debt, and liquidity
- Cash and cash equivalents were $463.3 million at March 31, 2011, versus $465.0 million at year-end 2010. Current assets were $536.5 million and current liabilities $239.7 million.
- Long-term debt carrying value was approximately $1.530 billion, plus capital lease obligations of $138.5 million. The company had no revolving-credit borrowings and reported $150 million of available revolving capacity.
- Operating cash flow was $61.0 million; investing activities used $35.9 million and financing activities used $28.7 million. Cash declined $1.7 million during the quarter. Operating cash flow less capital expenditures was approximately $25.3 million.
- The company paid $23.9 million in dividends, or $0.21 per share. The filing reports compliance with all debt agreements and covenants at quarter-end.
Material changes, outlook, and risks
- The main earnings pressure was the U.S. downturn: weaker attendance and ticket prices outweighed international growth. Management cited fewer blockbuster releases in the U.S.; film quality and release timing are key drivers of attendance and film costs.
- Cinemark planned further theatre development. At quarter-end, it had commitments for 127 domestic screens and 93 international screens, with estimated remaining development expenditures of approximately $62 million and $66 million, respectively. Actual development spending remained subject to available opportunities.
- No specific full-year revenue or earnings guidance is provided. Management cautioned that results are seasonal and that quarterly performance is not necessarily indicative of full-year results.
- Digital conversion is an ongoing investment and cost factor: 1,881 digital projection systems were leased under the DCIP-related arrangement, and accelerated depreciation on replaced domestic 35mm projectors was $3.5 million in the quarter.
- Interest-rate exposure: a 100-basis-point increase was estimated to raise annual interest expense by approximately $4.2 million on unhedged variable-rate debt. A 10% adverse simultaneous currency movement was estimated to reduce the net book value of international investments by about $49 million and international net income by about $2 million.
- The company recorded $1.0 million of long-lived asset impairment charges, associated with theatres affected by competition or adverse market conditions. Management said pending legal proceedings were not expected to be material; it reported no material changes to previously disclosed risk factors.
Investor verification points
- Assess whether U.S. attendance and ticket-price trends improved after the quarter, and whether the planned film slate delivered the expected draw.
- Track international growth separately from foreign-exchange effects and evaluate segment profitability and cash generation.
- Verify planned theatre-development spending, returns on new screens, and the continuing costs and benefits of digital conversion.
- Monitor debt maturities, interest-rate exposure, covenant compliance, and the sustainability of dividends alongside capital needs.
- Consider the $3.6 million discrete tax benefit when comparing the reported tax rate and earnings with future periods.