Cinemark Holdings, Inc. — FY2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. This is an annual filing, not a standalone quarterly report; the filing also presents unaudited fourth-quarter results. Amounts below are U.S. dollars unless noted.
Business context and reporting period
Cinemark operated 554 theatres with 6,132 screens across the United States and 15 Latin American countries. Approximately 280 million guests attended during 2019. The company reports U.S. and international operating segments; its business depends substantially on film availability and performance, admissions, concessions, and advertising.
Key financial metrics
| Metric | FY2019 | FY2018 | Change |
|---|---|---|---|
| Revenue | $3,283.1 million | $3,221.7 million | +1.9% |
| Operating income / margin | $338.4 million / 10.3% | $388.4 million / 12.1% | Income down 12.9% |
| Net income attributable to Cinemark / diluted EPS | $191.4 million / $1.63 | $213.8 million / $1.83 | Income down 10.5% |
| Operating cash flow | $562.0 million | $556.9 million | Up $5.1 million |
| Capital expenditures | $303.6 million | $346.1 million | Down $42.4 million |
| Adjusted EBITDA | $745.0 million | $781.5 million | Down 4.7% |
FY2019 admissions revenue was $1,805.3 million, down 1.6%; concession revenue rose 4.7% to $1,161.1 million, and other revenue increased 13.6% to $316.7 million. Attendance declined 0.9% to 279.6 million. The operating margin declined as operating costs grew faster than revenue; long-lived asset impairment charges rose to $57.0 million from $32.4 million. Net margin was approximately 5.8%.
| Fourth-quarter metric | Q4 2019 | Q4 2018 |
|---|---|---|
| Revenue | $788.8 million | $798.5 million |
| Operating income | $66.4 million | $76.7 million |
| Net income attributable to Cinemark | $26.3 million | $19.4 million |
| Diluted EPS | $0.22 | $0.17 |
At year-end, cash and cash equivalents were $488.3 million, compared with $426.2 million a year earlier. Long-term debt was $1,801.3 million, including $6.6 million current; $98.9 million of revolving-credit capacity remained available and the revolver was undrawn. Current assets were $635.0 million and current liabilities were $708.8 million. The company generated operating cash flow of $562.0 million and spent $303.6 million on capital expenditures.
Debt obligations were accompanied by substantial lease commitments. At December 31, 2019, the present value of operating and finance lease liabilities totaled $1,597.3 million; undiscounted scheduled lease payments totaled $1,929.2 million. About $196.3 million of debt was variable-rate after swaps. Management reported compliance with debt covenants.
Material changes versus the prior comparable period
- Revenue grew modestly, but operating income and Adjusted EBITDA fell; operating margin contracted by 1.8 percentage points.
- U.S. attendance fell 4.9%, while average ticket price rose 3.0% and concession revenue per patron rose 10.2%. International attendance increased 6.8%, but currency depreciation reduced reported revenue growth; international revenue increased 2.8% as reported versus 19.7% in constant currency.
- Impairment charges increased to $57.0 million. Conversely, loss on disposal of assets and other decreased to $12.0 million from $38.7 million, which had included litigation reserves.
- Cinemark adopted lease accounting standard ASC 842 in 2019, recognizing operating lease right-of-use assets and liabilities. This materially changed balance-sheet presentation and affected expense classifications and year-over-year comparability.
- The company disclosed an immaterial prior-period error in its accounting for the National CineMedia (NCM) significant financing component. The 2018 balance sheet and opening retained earnings were restated; the 2018 full-year correction reduced other revenue by $1.4 million, increased NCM interest expense by $4.7 million, and reduced net income by $4.6 million.
Outlook, management commentary, risks and unusual items
- The filing provides no formal quantified revenue, earnings, or cash-flow guidance. Management described continued investment in theatre amenities and selective expansion. Signed commitments totaled 243 screens at an estimated cost of $150 million; 150 screens and $90 million of estimated cost were expected to open during 2020.
- The board approved a fourth-quarter 2019 dividend of $0.36 per share, payable March 20, 2020. FY2019 dividends declared were $1.36 per share. Future dividends remain subject to board discretion, cash needs, and debt restrictions.
- Risks include dependence on the quantity, timing, and success of films; competition from other exhibitors and streaming or other entertainment; substantial debt and long-term leases; foreign-exchange and economic volatility in Latin America; and potential increases in labor costs. Argentina was treated as a highly inflationary economy beginning July 2018.
- Legal matters include an appeal of an antitrust jury award in the Flagship Theatre litigation, for which a reserve had been recorded, and federal and state antitrust investigations involving film clearances and possible coordination. Cinemark said it would defend the cases and cooperate with the investigations; outcomes could not be predicted. A 2019 patent-infringement suit was also disclosed.
- FY2019 long-lived asset impairment charges related to certain new-concept theatres and theatres affected by competition or market conditions. Management reported no goodwill or tradename impairment. The independent auditor identified long-lived asset impairment testing as a critical audit matter because of the judgment involved in forecasting theatre cash flows.
- Management reported effective disclosure controls and internal control over financial reporting; the auditor issued unqualified opinions on the financial statements and internal controls.
Most important facts for investors to verify
- Whether attendance, pricing, and concession spending can stabilize operating margins, particularly in the U.S.
- The sustainability of operating cash flow and dividends relative to capital spending, debt service, and lease payments.
- Debt maturities, variable-rate exposure, covenant headroom, and the company’s capacity to fund committed theatre projects.
- The outcome and potential financial exposure from the Flagship appeal and ongoing antitrust investigations.
- The effect of foreign-exchange movements and inflation in Latin America on reported results and cash generation.
- The 2018 NCM restatement and ASC 842 accounting impacts when comparing periods; quarterly figures are unaudited, and the filing does not make all accounting effects directly comparable.