Cinemark Holdings, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2012; filed November 6, 2012. Cinemark operates movie theatres in the U.S. and Latin America. Unless otherwise indicated, amounts below are U.S. dollars in millions.
Financial performance
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Revenue | $633.6 | $640.0 | $1,862.0 | $1,743.7 |
| Operating income | $94.2 | $101.3 | $297.6 | $247.1 |
| Operating margin | 14.9% | 15.8% | 16.0% | 14.2% |
| Net income attributable to Cinemark | $47.4 | $46.9 | $141.1 | $112.3 |
| Diluted EPS | $0.41 | $0.41 | $1.23 | $0.98 |
| Adjusted EBITDA | $148.4 | $154.3 | $445.7 | $406.8 |
- Revenue mix: Q3 admissions fell 3.5% to $402.4, while concessions rose 2.7% to $200.1 and other revenue rose 10.7% to $31.1. For nine months, admissions increased 5.3%, concessions 9.5%, and other revenue 10.5%.
- Cash flow, nine months: Operating activities provided $274.2, versus $291.7 in 2011. Investing used $161.2, including $146.5 of capital expenditures; financing used $91.5. Cash increased $19.4 to $540.8. Operating cash flow less capital expenditures was approximately $127.6.
- Balance sheet at September 30: Current assets were $633.4 and current liabilities $282.1. Long-term debt carrying value was $1,563.5, including $11.9 current; capital lease obligations totaled $137.6. Cash was $540.8. No revolving-credit borrowings were outstanding.
- Dividends: $0.21 per share declared in Q3; $0.63 per share declared over the first nine months.
Material changes versus comparable periods
- Q3 revenue declined 1.0% and operating income declined 7.1%; reported Adjusted EBITDA decreased 3.8%. The U.S. segment’s Q3 revenue fell 5.8%, primarily as attendance dropped 7.2% amid a weaker film slate and less premium product. International revenue rose 9.4%, with attendance up 14.0%, partly reflecting theatres acquired in Argentina in 2011; foreign exchange weighed on average ticket price.
- For nine months, revenue increased 6.8%, operating income 20.4%, and attributable net income 25.7%. Attendance rose 5.7% overall. International revenue increased 12.0%; U.S. revenue increased 4.5%.
- Q3 operating margin contracted to 14.9% from 15.8%, while the nine-month margin improved to 16.0% from 14.2%. Nine-month Adjusted EBITDA grew, but Q3 EBITDA declined.
- Interest expense was lower in Q3 year over year, partly due to an interest-rate swap expiration and completion of amortization on a previously terminated swap. Nine-month interest expense increased, primarily reflecting the 2011 refinancing with 7.375% senior subordinated notes.
- Q3 loss on sale of assets and other rose to $6.7 from $1.8, primarily due to a lease-termination reserve for a planned theatre closure. Nine-month impairment charges declined to $1.5 from $3.6.
Liquidity, capital plans, outlook and risks
- At September 30, the company reported $899.0 of term-loan borrowings and $150.0 of available revolving capacity. On October 5, 2012, $76.5 of revolving capacity matured; the company reported $73.5 remaining available thereafter. Management said it was in compliance with debt agreements and covenants at quarter-end; the disclosed senior-note coverage ratio was approximately 5.6 to 1 versus a 2-to-1 minimum.
- Management planned continued theatre development, funded through operating cash flow and potentially credit facilities, debt issuance, sale-leasebacks, or excess-real-estate sales. At quarter-end, signed development commitments covered 230 domestic screens with estimated remaining spend of approximately $135 and 126 international screens with estimated remaining spend of approximately $90. These are plans and estimates, not earnings guidance.
- The filing provides no specific financial guidance. Management noted that results are seasonal and depend on film-release timing, attendance, ticket and concession spending, and the quality and quantity of films. It cited films scheduled for release during the remainder of 2012, including Skyfall, The Hobbit: An Unexpected Journey, and Life of Pi.
- Key risks include film slate variability, competition and changing local market conditions, foreign-exchange exposure, and interest-rate changes. The company estimated that a 100-basis-point rate increase would raise annual interest expense by approximately $3.9; a simultaneous 10% adverse move in relevant foreign exchange rates would reduce international subsidiary net income by approximately $8.0 and net book value by approximately $52.3.
- Management reported no material change in previously disclosed risk factors. Ordinary-course legal proceedings were not considered material individually or in aggregate. Disclosure controls were assessed as effective, with no material change in internal control reported.
- CEO Alan Stock retired; Tim Warner, formerly President and COO, became CEO. A planned theatre closure generated the Q3 lease-termination reserve noted above.
Important facts for investors to verify
- Whether U.S. attendance and Q3 operating trends recovered with subsequent film releases, and whether the international growth rate persisted.
- How foreign-exchange movements, especially in Brazil and other Latin American markets, affected reported revenue and earnings after quarter-end.
- Execution, timing, and funding of the approximately $225 million estimated remaining spend on signed screen-development commitments.
- Debt maturities, interest-rate exposure, covenant headroom, and the reduced revolving-credit availability after October 5, 2012.
- The nature and potential cash impact of the lease termination and planned theatre closure, plus any developments in legal contingencies or other unusual charges.