Cinemark Holdings, Inc. - 10-Q Summary (Period Ended June 30, 2009)
Business Context and Reporting Period
This report covers the quarterly period ended June 30, 2009. Cinemark Holdings, Inc. is the second-largest motion picture exhibitor globally by attendance and screen count, operating in the U.S., Canada, and 13 Latin American countries. The company operates two reportable segments: U.S. and International.
Key Financial Metrics
| Metric | Six Months Ended June 30, 2009 | Six Months Ended June 30, 2008 |
|---|---|---|
| Total Revenues | $943.3 million | $858.2 million |
| Net Income (Consolidated) | $38.2 million | $23.0 million |
| Net Income (Attributable to Cinemark) | $36.2 million | $20.8 million |
| Diluted EPS | $0.33 | $0.19 |
| Adjusted EBITDA | $218.8 million | $184.0 million |
| Cash and Equivalents (End of Period) | $382.7 million | $396.3 million |
| Total Long-Term Debt | $1,566.6 million | $1,508.5 million |
| Operating Cash Flow | ($10.7 million) used | $139.0 million provided |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 9.9% year-over-year, driven by an 11.7% increase in attendance. U.S. admissions revenue rose 14.8%, while International admissions revenue declined 2.0% due to unfavorable foreign exchange rates.
- Profitability: Net income attributable to Cinemark increased 74.4% to $36.2 million. Operating income rose 39.3% to $121.1 million.
- Debt Restructuring: The company issued $470 million in 8.625% Senior Notes due 2019. Proceeds were used to repurchase approximately $402.5 million of 9.75% Senior Discount Notes due 2014. This transaction resulted in a $26.8 million loss on early retirement of debt.
- Acquisitions: Acquired four U.S. theaters with 82 screens from Muvico Entertainment for $49.0 million in cash.
- Operating Cash Flow: Operating cash flow turned negative ($10.7 million used) compared to a positive $139.0 million in the prior year. This was primarily due to the payment of $152.0 million in accreted interest related to the debt repurchase, which is classified as an operating activity.
Guidance, Outlook, and Risks
- Capital Expenditures: The company estimates remaining capital expenditures of approximately $34 million for 86 domestic screens and $22 million for 40 international screens to be developed in the remainder of 2009 and beyond.
- Dividends: A cash dividend of $0.18 per share was declared on July 29, 2009, payable September 1, 2009.
- Debt Redemption: The company notified the trustee of its intent to redeem the remaining $16.9 million of 9.75% Senior Discount Notes on September 8, 2009, expecting to record an additional loss of approximately $1.1 million.
- Risk Factors:
- Foreign Exchange: Significant exposure to currency fluctuations in Latin America, which negatively impacted international revenue per patron.
- Interest Rate Risk: Approximately $790.9 million of variable rate debt outstanding; a 100 basis point increase would raise annual interest expense by ~$7.9 million.
- Seasonality: Results are heavily dependent on the release schedule of major motion pictures.
- Credit Facility: Uncertainty regarding the funding commitment of one insolvent lender ($28.5 million) under the revolving credit facility.
Investor Verification Checklist
- Verify the impact of the $26.8 million debt retirement loss on the effective tax rate and future interest expense savings.
- Confirm the status of the insolvent lender under the revolving credit facility and its impact on available liquidity.
- Monitor foreign exchange rates in Brazil, Mexico, and Chile, as these significantly impact reported international revenues and asset values.
- Review the progress of the registration statement for the new 8.625% Senior Notes to ensure no "Registration Default" penalties (additional interest) are triggered.
- Assess the sustainability of the 11.7% attendance growth given the competitive film slate for the remainder of 2009.