Cinemark Holdings, Inc. — 2014 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2014; the filing also provides unaudited fourth-quarter results. Cinemark operated 495 theatres and 5,676 screens across the U.S. and 13 Latin American countries. It reported U.S. and international operating segments. The 2014 international comparison was affected by the November 2013 sale of its Mexico theatres.
Key financial metrics
| Metric | FY 2014 | FY 2013 |
|---|---|---|
| Revenue | $2,627.0 million | $2,682.9 million |
| Operating income / margin | $363.1 million / 13.8% | $415.5 million / 15.5% |
| Net income attributable to Cinemark / diluted EPS | $192.6 million / $1.66 | $148.5 million / $1.28 |
| Adjusted EBITDA | $596.5 million | $625.3 million |
| Cash from operating activities | $454.6 million | $309.7 million |
| Capital expenditures | $244.7 million | $259.7 million |
| Cash and cash equivalents at year-end | $638.9 million | $599.9 million |
| Long-term debt at year-end | $1,823.0 million | $1,832.8 million |
Year-end current assets were $741.0 million and current liabilities were $414.4 million (current ratio approximately 1.79). In addition to debt, the company reported $218.5 million in capital lease obligations and $1,814.3 million in operating lease commitments. Approximately $236 million of debt bore variable rates; $450 million of term-loan debt was hedged with swaps. The revolver had $100 million available and no borrowings outstanding. The company paid $1.00 per common share in dividends during 2014.
In the fourth quarter, revenue was $659.9 million, operating income $96.1 million, net income attributable to Cinemark $47.3 million, and diluted EPS $0.41. The comparable 2013 quarter recorded $651.9 million, $80.7 million, $15.6 million, and $0.13, respectively.
Material changes versus prior periods
- Annual revenue declined 2.1%; admissions revenue fell 3.6% and attendance fell 4.6% to 263.9 million. U.S. attendance declined 1.9%, while international attendance declined 9.5%, reflecting the Mexico divestiture and currency effects.
- U.S. segment revenue rose 1.2%, supported by higher concession spending per patron and ticket prices, despite lower attendance. International revenue declined 10.0%.
- Operating income fell 12.6% and Adjusted EBITDA fell 4.6%; operating margin decreased to 13.8% from 15.5%. Net income attributable to Cinemark increased 29.7%, helped by lower interest expense and a lower effective tax rate (33.1% versus 42.9%).
- Operating cash flow increased to $454.6 million, which management attributed primarily to timing of receivable collections and supplier payments. The 2013 comparison included a $72.3 million loss on early debt retirement and a $21.4 million tax expense related to the Mexico sale, contributing to the weak prior-year fourth-quarter net result.
- 2014 included $6.6 million of long-lived asset impairment charges and a $15.7 million loss on asset sales and other, primarily from equipment retirements, theatre lease terminations, and a vendor contract termination.
Outlook, commentary, and risks
- No quantified company-wide revenue or earnings guidance is provided. Management planned to develop committed projects totaling 211 screens over the next three years, with estimated remaining construction expenditures of about $134 million; it also expected to spend about $24 million to purchase its Plano headquarters building in early 2015. Plans included installing 20–30 additional XD auditoriums in 2015.
- The board approved a fourth-quarter 2014 dividend of $0.25 per share, payable in March 2015. Future dividends remain subject to board discretion, cash needs, and debt-agreement restrictions.
- Key business risks include dependence on the availability and performance of popular films, competition from exhibitors and at-home entertainment, potentially shorter theatrical release windows, and seasonal variation in film releases. The filing estimated U.S. industry box office declined about 5.2% in 2014.
- International operations face currency, inflation, political, regulatory, and economic risks. A 10% unfavorable simultaneous currency move was estimated to reduce the net book value of international investments by about $36 million.
- Debt and lease commitments are substantial, with $659.4 million of debt scheduled to mature in 2019 and extensive long-term lease obligations. A 100-basis-point increase in rates on unhedged variable-rate debt was estimated to raise annual interest expense by about $2.4 million.
- A putative California wage-and-hour class and representative action remained in discovery; no class had been certified and no loss reserve was recorded. The company stated it could not predict the outcome but believed potential liability was not material.
Important facts for investors to verify
- How much of the international attendance and revenue decline reflects the Mexico sale versus ongoing weakness and foreign-exchange movements.
- Whether operating margins and attendance recover, and how film release quality and the 2015 slate affect results.
- The sustainability of operating cash flow given its stated sensitivity to collection and payment timing, planned capital spending, dividends, and debt service.
- Debt maturity, covenant and dividend capacity, and the practical availability of reported cash across subsidiaries and countries.
- The assumptions behind theatre impairment estimates and the eventual outcome or exposure from the California employment litigation.