Cinemark Holdings, Inc. — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013; filed May 7, 2013. Cinemark operates movie theatres in the U.S. and Latin America and reports U.S. and international segments. Unless noted otherwise, amounts below are in millions of dollars.
Financial performance and liquidity
| Metric | Q1 2013 | Q1 2012 | Change |
|---|---|---|---|
| Revenue | $547.8 | $578.8 | (5.4%) |
| Operating income | $65.6 | $89.5 | (26.7%) |
| Operating margin | 12.0% | 15.5% | (3.5) percentage points |
| Net income | $33.1 | $42.9 | (22.9%) |
| Net income attributable to Cinemark | $32.6 | $42.1 | (22.6%) |
| Diluted EPS | $0.28 | $0.37 | (24.3%) |
| Adjusted EBITDA | $116.3 | $140.3 | (17.2%) |
| Operating cash flow | $42.6 | $97.7 | (56.4%) |
| Capital expenditures | $36.9 | $47.0 | (21.5%) |
Cash and cash equivalents were $724.3 at March 31, down from $742.7 at year-end 2012. Current assets were $820.7 and current liabilities $321.7. Long-term debt, including current maturities, was $1,761.8; capital lease obligations totaled a further $154.7. The $100.0 revolving facility was undrawn and available. Long-term debt fair value was $1,849.4. The company reported compliance with its debt agreements.
Cash flow from operations fell mainly because of higher payments of accounts payable and accrued expenses. Investing activities used $31.2; financing activities used $29.1, including $24.1 of dividends paid. The declared dividend was $0.21 per share.
Performance changes and management commentary
- U.S. revenue declined 11.1% to $363.6 and attendance fell 12.8% to 34.7 million, primarily because the quarter had fewer blockbuster releases than Q1 2012. Average ticket price rose 0.9% to $6.76 and concession revenue per patron rose 3.0% to $3.40.
- International revenue increased 8.5% to $184.2; attendance rose 4.6% to 22.7 million, attributed primarily to new theatres. Average ticket price increased 2.4% to $5.06 and concession revenue per patron increased 7.1% to $2.40.
- U.S. Adjusted EBITDA decreased to $80.1 from $104.3, while international Adjusted EBITDA was broadly flat at $36.2 versus $36.0. Consolidated Adjusted EBITDA margin, calculated as Adjusted EBITDA divided by revenue, was approximately 21.2%, down from 24.2%.
- General and administrative expense increased to $37.8 from $34.1, mainly due to higher salaries and incentive compensation and Rave-related professional fees. Depreciation and amortization increased to $39.0 from $36.8. Asset impairment charges were $0.8 versus $0.2 and related to theatres affected by competition or adverse local conditions.
- The effective tax rate was 24.3%, compared with 39.4%, reflecting items related to the Mexico subsidiaries. Management notes that interim tax rates may vary from the normalized annual rate.
Outlook, transactions, risks and contingencies
- Management gave no specific full-year earnings or revenue guidance. It emphasized film-release timing as a key attendance driver, noted the seasonal nature of results, and cautioned that one quarter is not indicative of full-year performance. It identified anticipated 2013 releases, including sequels and original films, as part of the forthcoming slate.
- The company expected to acquire 32 Rave theatres with 483 screens for an estimated $240.0, subject to closing adjustments and antitrust approval, with closing expected in Q2 2013. It planned to use existing cash to fund the acquisition.
- Cinemark agreed to sell its Mexican subsidiaries, comprising 31 theatres and 290 screens, for approximately $130.0, subject to closing adjustments and Mexican competition review. Closing was expected in the second half of 2013; consideration was payable in pesos.
- At quarter-end, the company had commitments for 193 domestic screens and 99 international screens, with estimated remaining development capital expenditures of approximately $119 and $88, respectively. These estimates and timing are subject to change.
- Market risks include variable-rate debt and foreign-currency exposure. A 100-basis-point rise in interest rates was estimated to increase annual interest expense by approximately $2.5. A simultaneous 10% adverse currency movement was estimated to reduce the net book value of international investments by $51.4 and quarterly international net income by $1.3.
- Legal proceedings were described as ordinary-course matters, with potential liability believed not material; the filing reported no material changes to previously disclosed proceedings or risk factors. Interest-rate swaps had a $13.0 fair-value liability. Theatre impairment estimates depend on management judgments about cash flows and fair value.
Key facts for investors to verify
- Whether U.S. attendance and revenue recover with the 2013 film slate, and whether international growth continues.
- Completion, final consideration and financing impact of the Rave acquisition and Mexico theatre sale, including required regulatory approvals.
- Cash generation and planned development spending relative to the dividend, debt service and acquisition funding needs.
- Debt, lease obligations, covenant capacity and sensitivity to interest-rate and currency movements.
- The RealD investment disclosure reports a March 31, 2013 fair value of $15.9 but refers to a closing share price dated March 28, 2012; verify the valuation date, which is unclear in the filing text.