Cinemark Holdings, Inc. — FY 2018 Form 10-K
Reporting period: Year ended December 31, 2018; the filing also presents unaudited fourth-quarter results. Cinemark operated 546 theatres and 6,048 screens across the U.S. and 15 Latin American countries, with 282.1 million guests for the year.
Financial performance and position
| Metric | FY 2018 | FY 2017 | Change |
|---|---|---|---|
| Revenue | $3,221.7 million | $2,991.5 million | +7.7% |
| Operating income | $388.4 million | $392.3 million | -1.0% |
| Operating margin | 12.1% | 13.1% | -1.0 percentage point |
| Net income attributable to Cinemark | $213.8 million | $264.2 million | -19.1% |
| Diluted EPS | $1.83 | $2.26 | -19.0% |
| Operating cash flow | $556.9 million | $529.0 million | +5.3% |
| Capital expenditures | $346.1 million | $380.9 million | -9.1% |
Revenue growth reflected stronger U.S. results and a substantial increase in reported other revenue. Admissions revenue rose 2.2% and concession revenue rose 6.7%; other revenue rose 76.7%, in part due to ASC 606 accounting changes. Reported revenue growth therefore is not wholly comparable with the prior year. Cash used in investing activities was $451.4 million, including $78.4 million to acquire additional National CineMedia (NCM) units. Cash used in financing activities was $192.6 million, primarily reflecting dividends.
U.S. revenue increased 14.3% to $2.539 billion, with attendance up 6.3%, average ticket price up 1.4%, and concession revenue per patron up 6.4%. International revenue fell 11.3% as reported, but declined 1.7% in constant currency; attendance fell 5.7% and average ticket price declined 9.8% as reported, with currency weakness a significant factor. International Adjusted EBITDA fell to $132.9 million from $165.6 million; U.S. Adjusted EBITDA rose to $648.6 million from $558.2 million.
Fourth quarter: Revenue was $798.5 million versus $750.0 million in Q4 2017; operating income was $76.7 million versus $88.7 million; net income attributable to Cinemark was $19.4 million versus $95.1 million; diluted EPS was $0.17 versus $0.82.
At year-end, cash and cash equivalents were $426.2 million, down from $522.5 million. Gross long-term debt was $1.809 billion, including $8.0 million due within one year; approximately $202.9 million was variable-rate debt after swaps. Available revolver capacity was $98.8 million, and the company reported compliance with debt covenants. Contractual operating lease obligations were $1.785 billion and capital lease obligations were $259.5 million. The current ratio was approximately 1.18, based on current assets of $559.0 million and current liabilities of $474.7 million.
Material changes and unusual items
- Net income declined despite revenue growth, reflecting higher operating costs, a higher tax expense, foreign-exchange losses, and newly reported NCM-related interest expense.
- Utilities and other costs rose to $448.1 million from $355.0 million, primarily because ASC 606 required certain transactional fees to be presented gross rather than net. The change also lifted reported other revenue.
- ASC 606 adoption increased opening retained earnings by $40.5 million, net of tax, and affected revenue recognition for loyalty points and NCM agreements. It also introduced $19.7 million of non-cash NCM interest expense in 2018.
- Long-lived asset impairment charges increased to $32.4 million from $15.1 million. Loss on disposal of assets and other rose to $38.7 million, including theatre remodel asset retirements and litigation reserves.
- The effective tax rate was 30.7%, including a $19.2 million non-cash net charge related to the Tax Act and subsequent guidance; the 2017 rate of 23.0% included a $44.9 million one-time tax benefit.
- Argentina was treated as a highly inflationary economy beginning July 1, 2018. Foreign currency translation losses contributed to a $62.3 million other comprehensive loss in 2018.
Outlook, risks, and contingencies
The filing provides no formal revenue or earnings guidance. Cinemark expected to continue investing in theatre development and renovations, primarily using operating cash flow and potentially credit facilities, debt issuance, sale-leasebacks, or real-estate sales. At year-end, it had commitments for 212 additional screens over three years; remaining development capital expenditures were estimated at approximately $80 million for 124 U.S. screens and $52 million for 88 international screens. Management cited plans to expand premium XD, Luxury Lounger, motion-seat, and enhanced food-and-beverage offerings.
The company declared a fourth-quarter 2018 dividend of $0.34 per share, payable March 22, 2019. Future dividends remain subject to board discretion, cash needs, and debt-agreement restrictions. The company adopted the new lease standard on January 1, 2019 and estimated recognition of $1.4–$1.7 billion in operating lease liabilities.
Key business risks include dependence on the volume and performance of film releases, competition from other exhibitors and at-home entertainment, long-term debt and lease commitments, foreign exchange and economic volatility in Latin America, labor-cost increases, and potential impairment of theatre assets or goodwill. Legal matters include a California antitrust jury award that Cinemark intends to appeal, a proposed settlement in a California wage-statement class action subject to court approval, and federal and state antitrust investigations into film clearances and related matters. The company stated it could not predict the investigations’ scope or outcome.
Most important facts for investors to verify
- Separate underlying revenue growth from ASC 606 effects, especially the large increase in other revenue and gross presentation of transactional fees.
- Assess the durability of U.S. attendance gains and the weaker international results, including foreign-exchange exposure and local economic conditions.
- Review cash flow after capital spending, the $1.4–$1.7 billion lease-liability transition, and total debt and lease obligations.
- Track the antitrust investigations, jury award appeal, and proposed wage-claim settlement, including potential cash exposure beyond recorded reserves.
- Evaluate whether the $32.4 million asset impairment charge and the NCM investment’s fair value below carrying value signal further impairment risk.
- Confirm dividend capacity and covenant compliance as capital requirements, debt maturities, and operating performance evolve.