Cinemark Holdings, Inc. — 2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013. This is an annual report; fourth-quarter figures are identified separately below. Amounts are in U.S. dollars unless stated otherwise.
Business context
Cinemark operated 482 theatres and 5,563 screens in the U.S. and Latin America, across 13 countries at year-end, and reported approximately 276.6 million patrons for 2013. It reports U.S. and international operating segments. The company acquired 32 Rave theatres with 483 screens in May and completed the sale of its Mexico theatres on November 15.
Financial performance and liquidity
| Metric | 2013 | 2012 | Change |
|---|---|---|---|
| Revenue | $2,682.9 million | $2,473.5 million | +8.5% |
| Operating income / margin | $415.5 million / 15.5% | $383.7 million / 15.5% | +8.3% |
| Net income attributable to Cinemark / diluted EPS | $148.5 million / $1.28 | $168.9 million / $1.47 | -12.1% / -12.9% |
| Adjusted EBITDA | $625.3 million | $589.2 million | +6.1% |
| Cash from operating activities | $309.7 million | $395.2 million | -21.6% |
| Capital expenditures | $259.7 million | $220.7 million | +17.6% |
- Admissions revenue rose 8.0% and concession revenue rose 9.6%. Concessions were 31.5% of revenue and generally carry higher margins than admissions.
- U.S. revenue increased 12.0%, with attendance up 8.3%, average ticket price up 3.4% to $6.95 and concession revenue per patron up 3.0% to $3.44. International revenue increased 0.7%; attendance declined 0.7%, partly reflecting the Mexico sale and currency effects.
- Operating margin held at 15.5%; higher film rental, labor, lease, utilities and administrative costs broadly tracked revenue and the expanded theatre base. Net income fell despite higher operating income, mainly because of the debt-redemption charge described below.
- Year-end cash was $599.9 million, down from $742.7 million. Current assets were $729.6 million and current liabilities $395.7 million. Cash from operations less capital expenditures was approximately $50.0 million.
- Long-term debt was $1,832.8 million, with $9.9 million due in 2014; capital lease obligations were $216.4 million. Operating lease commitments totaled $2,065.1 million, including $254.9 million due within one year. The $100 million revolving credit line was undrawn and available. Approximately $243 million of debt was variable-rate; a 100-basis-point rate increase was estimated to add $2.4 million to annual interest expense.
- Interest expense was $124.7 million. The reported ratio of earnings to fixed charges was 2.23x. The company stated it was in compliance with debt covenants at year-end.
Fourth quarter and material changes
Fourth-quarter 2013 revenue was $651.9 million, operating income $80.7 million, and net income attributable to Cinemark $15.6 million, or $0.13 per diluted share. In fourth-quarter 2012, the respective figures were $611.5 million, $86.2 million, and $27.8 million, or $0.24 per share. Fourth-quarter 2013 included $21.4 million of income tax expense related to the Mexico sale.
- In May 2013, Cinemark issued $530 million of 4.875% senior notes due 2023 and used proceeds to redeem its 8.625% notes due 2019. The redemption resulted in a $72.3 million early-retirement loss, including a $56.6 million make-whole premium. This substantially reduced reported 2013 net income.
- The Rave acquisition expanded the U.S. circuit; 34 U.S. theatres were acquired during 2013 in total, with approximately $259.2 million spent on theatre acquisitions. The Mexico theatre sale generated approximately $126.2 million in proceeds and a $3.5 million pretax gain.
- Operating cash flow decreased primarily due to the $56.6 million make-whole premium paid on the note redemption. Investing cash outflow increased to $364.7 million, reflecting acquisitions and higher capital spending, partly offset by Mexico sale proceeds.
- Foreign currency translation losses were $47.7 million in 2013. International results remain exposed to exchange rates, economic conditions and local regulation.
Outlook, plans and key risks
- The filing provides no numerical revenue or earnings guidance. Management planned approximately $90 million of remaining investment for committed domestic screens and $70 million for committed international screens; further development and acquisitions depended on opportunities and funding.
- Management expected to complete international digital conversion in early 2014, planned 45–55 additional XD premium auditoriums during 2014, and cited planned theatre openings in the U.S., Bolivia and Paraguay.
- Results are seasonal and depend on the timing and commercial success of films. Other principal risks include competition from exhibitors and at-home entertainment, shorter theatrical release windows, substantial debt and lease commitments, interest-rate and foreign-currency exposure, and uncertainty around expansion and acquisition returns.
- Other exposures include potential asset impairments, dependence on NCM advertising revenues and distributions, ADA compliance litigation risk, environmental regulation, and restrictions on dividends under debt agreements. Management characterized ordinary-course pending litigation exposure as not material; the filing does not quantify potential outcomes for all contingencies.
- The board raised the quarterly dividend from $0.21 to $0.25 per share in August 2013. A $0.25 fourth-quarter dividend was declared in February 2014, subject to the company’s financial condition and debt restrictions.
Important facts for investors to verify
- How much of the 2013 U.S. revenue and attendance growth was attributable to the Rave acquisition versus comparable-theatre trends.
- Whether operating cash flow can recover while capital spending, dividends, and debt and lease obligations remain substantial.
- The recurring earnings and cash-flow impact of the Mexico divestiture, foreign exchange movements, and the 2013 debt refinancing.
- Progress on committed theatre openings, digital conversion, and XD expansion, including realized returns on invested capital.
- Current debt maturities, covenant and dividend capacity, and exposure to variable rates; the filing’s figures are as of December 31, 2013.