Cinemark Holdings, Inc. — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012; filed May 7, 2012. Amounts are in U.S. dollars. Cinemark operates movie theatres in the United States and Latin America.
Financial performance
| Metric | Q1 2012 | Q1 2011 | Change |
|---|---|---|---|
| Total revenue | $578.8 million | $483.1 million | +19.8% |
| Operating income | $89.5 million | $48.8 million | +83.5% |
| Net income attributable to Cinemark | $42.1 million | $25.0 million | +68.7% |
| Diluted EPS | $0.37 | $0.22 | +$0.15 |
| Adjusted EBITDA | $140.3 million | $102.7 million | +36.6% |
| Cash from operations | $97.7 million | $61.0 million | +$36.7 million |
Operating margin improved to 15.5% from 10.1%; net income attributable to Cinemark was 7.3% of revenue versus 5.2%. Adjusted EBITDA margin was 24.2%, compared with 21.3%.
Admissions revenue rose 19.9% and concession revenue rose 22.6%. Attendance increased 14.3% to 61.5 million patrons. In the U.S., attendance grew 19.2%, average ticket price increased 4.7% to $6.70, and concession revenue per patron increased 5.1% to $3.30. International attendance rose 6.4%, average ticket price rose 2.7% to $4.94, and concession revenue per patron rose 9.3% to $2.24.
Liquidity, debt and investment
- Cash and cash equivalents were $528.6 million at March 31, up from $521.4 million at year-end. Current assets were $619.3 million and current liabilities were $295.8 million.
- Long-term debt carrying value, including current maturities, was $1.569 billion; capital lease obligations totaled $142.7 million. Cash exceeded operating cash flow uses, but debt remained substantial. The company had no revolver borrowings and $150 million of available revolving capacity.
- Operating cash flow of $97.7 million less $47.0 million of capital expenditures implies approximately $50.8 million of cash flow after capital expenditures, before acquisitions and financing.
- Capital expenditures were $47.0 million, up from $35.8 million. The company also spent $14.1 million to acquire a U.S. theatre. It reported approximately $182 million of remaining estimated development spending for committed domestic and international screens.
- Cash dividends paid were $24.0 million; the declared dividend was $0.21 per common share, unchanged from the prior-year quarter.
- The company reported a 5.4-to-1 actual coverage ratio against a 2-to-1 minimum specified in its senior-note indentures and stated it was in compliance with its debt agreements.
Material changes and management commentary
- Revenue and earnings benefited from a strong U.S. film slate, particularly The Hunger Games and The Lorax, as well as higher ticket and concession spending. U.S. revenue rose 24.4%; international segment revenue rose 10.0%.
- Higher revenue supported improved operating leverage. Film rentals and advertising increased in dollars but declined as a share of admissions revenue; facility lease, utilities and other costs also declined as a share of total revenue.
- International growth included theatres acquired in Argentina in 2011. Brazil revenue was $78.4 million versus $86.8 million a year earlier, while other foreign-country revenue increased.
- Interest expense rose to $32.1 million from $29.3 million, primarily reflecting the 2011 refinancing of term debt with 7.375% senior subordinated notes. Income tax expense increased to $27.9 million from $9.0 million; the effective tax rate was 39.4% versus 26.3%. The prior-year rate benefited from a $3.6 million tax benefit related to tax settlements and closed years.
- Management cited films scheduled for the remainder of 2012, including sequels and anticipated original titles, but provided no specific financial guidance. Results are seasonal and depend on film release timing and performance; the quarter is not necessarily indicative of full-year results.
Risks, contingencies and unusual items
- Key business risks include the quality and quantity of film releases, competition from other exhibitors and alternative entertainment, fixed theatre lease costs, and changes in attendance and spending per patron.
- A 100-basis-point increase in market interest rates was estimated to raise annual interest expense by approximately $2.8 million on unhedged variable-rate debt. A 10% simultaneous adverse currency move was estimated to reduce the net book value of international investments by $52.5 million and international net income by $2.0 million.
- The company recorded $0.2 million of long-lived asset impairment, down from $1.0 million. It reported no first-quarter events indicating potential goodwill impairment.
- The CEO announced retirement; Tim Warner was appointed CEO. The filing says pending ordinary-course legal matters were not considered material individually or in aggregate. It reported no material changes to previously disclosed risk factors.
- Foreign-currency translation contributed $15.8 million to other comprehensive income, and the RealD investment recorded a $6.8 million pretax unrealized gain. These items affected comprehensive income and equity rather than reported operating revenue.
Important facts for investors to verify
- Whether attendance and per-patron spending remain strong as the film slate changes, particularly in the U.S. and international markets.
- How the committed theatre expansion spending, acquisition activity and related funding affect cash generation and leverage.
- Debt maturities, floating-rate exposure, interest-rate swap coverage and continued compliance with debt covenants.
- The sustainability of the quarter’s earnings improvement, considering seasonality, film costs, tax-rate variability and currency effects.
- Whether there are material developments in legal proceedings or other contingencies beyond the filing’s statement that existing matters were not material.