Cinemark Holdings, Inc. — Q2 2013 Form 10-Q
Reporting period: Three and six months ended June 30, 2013; filed August 6, 2013. Cinemark operates movie theatres in the U.S. and Latin America. Unless otherwise noted, financial amounts below are in millions of dollars.
Financial performance
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Revenue | $725.6 | $649.6 | $1,273.4 | $1,228.4 |
| Operating income | $134.0 | $113.9 | $199.6 | $203.4 |
| Operating margin | 18.5% | 17.5% | 15.7% | 16.6% |
| Adjusted EBITDA | $178.0 | $157.0 | $294.3 | $297.3 |
| Net income | $20.8 | $52.1 | $53.9 | $95.0 |
| Net income attributable to Cinemark | $20.3 | $51.6 | $52.9 | $93.7 |
| Diluted EPS | $0.18 | $0.45 | $0.46 | $0.82 |
- Q2 revenue increased 11.7%, led by U.S. revenue growth of 16.4%; international revenue rose 1.7%. Consolidated attendance increased 6.7% in the quarter. The U.S. increase reflected stronger attendance and ticket pricing, as well as the late-May Rave acquisition; international attendance declined 1.1%.
- For the first half, revenue grew 3.7%, while operating income declined 1.8% and Adjusted EBITDA declined 1.0%. Film rental and advertising costs, concession supply costs, and general and administrative expenses increased.
- Q2 and first-half net income included a $72.3 million loss on early retirement of debt. Excluding this unusual charge, reported earnings comparisons would differ; the filing does not present adjusted net income or adjusted EPS.
- Operating cash flow was $113.5 million for the first half, versus $175.4 million a year earlier. Capital expenditures were $90.4 million; investing cash outflow was $334.4 million, including $259.2 million for U.S. theatre acquisitions. Cash declined $227.2 million from year-end to $515.5 million.
Financial position and material transactions
- At June 30, cash was $515.5 million and current assets were $641.7 million, compared with current liabilities of $385.5 million. The company reported $100 million of available capacity on its revolving credit line, with no revolver borrowings outstanding.
- Long-term debt carrying value was $1.828 billion, excluding capital lease obligations; capital lease obligations totaled approximately $228 million. Debt fair value was $1.809 billion. Total operating lease obligations were $2.259 billion.
- In May, Cinemark issued $530 million of 4.875% senior notes due 2023 and used the proceeds to redeem $470 million of 8.625% notes due 2019. The redemption included a $56.6 million make-whole premium and write-offs of unamortized debt costs. The refinancing lowered the coupon on the redeemed notes but generated the $72.3 million reported extinguishment loss.
- Cinemark acquired 32 Rave theatres with 483 screens for approximately $236.9 million in cash, plus assumed liabilities, on May 29. It also acquired two theatres with 30 screens for approximately $22.4 million. The Rave purchase price allocation was preliminary.
- The company agreed to sell its Mexican subsidiaries, comprising 31 theatres and 290 screens, for approximately $125.5 million, subject to closing adjustments and Mexican competition review; closing was expected in the second half of 2013.
Outlook, risks and unusual items
- No specific revenue, earnings or full-year financial guidance is provided. Management described film release timing and popularity as key drivers of attendance and noted the seasonal nature of results. The filing identified anticipated film releases for the remainder of 2013, but outcomes remain uncertain.
- Management estimated remaining development spending of approximately $127 million for 215 committed domestic screens and $96 million for 119 committed international screens. The company expected to fund development with operating cash flow, debt capacity, debt issuance, sale-leasebacks and/or real estate sales; actual development spending and opportunities may change.
- The Department of Justice required divestiture of three theatres acquired from Rave. Cinemark agreed in July to sell them to Carmike, subject to DOJ approval, with closing expected in Q3 2013.
- Key exposures include film availability and box-office performance, competition and local market conditions, foreign currency movements, interest rates, and substantial lease and debt commitments. A 100-basis-point increase in market rates was estimated to increase annual interest expense by about $2.5 million on unhedged variable-rate debt. Cinemark said it was in compliance with debt covenants.
- Foreign currency translation adjustments were a significant drag on comprehensive income: the first-half translation loss was $39.2 million. Management reported no material changes to previously disclosed risk factors or legal proceedings and considered pending legal matters immaterial.
Important facts for investors to verify
- How much of revenue and attendance growth came from Rave and other acquired theatres versus underlying comparable-theatre performance.
- The final Rave purchase-price allocation, integration results, required theatre divestiture, and completion and proceeds of the planned Mexico sale.
- The effect of the debt refinancing on ongoing interest expense, cash generation and debt maturity obligations, alongside the one-time $72.3 million extinguishment loss.
- Whether planned theatre development spending and the regular dividend remain supportable given first-half operating cash flow, liquidity and lease commitments.