Cinemark Holdings, Inc. — FY2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011; filed February 29, 2012. The filing also reports unaudited fourth-quarter results. Cinemark operates U.S. and Latin American movie theatres and reports U.S. and international segments.
Business context and financial performance
- At year-end, Cinemark operated 456 theatres and 5,152 screens in the U.S. and 13 Latin American countries. Worldwide attendance was 247.4 million, up 2.6% from 2010.
- FY2011 revenue was $2.280 billion, up 6.5%. Admissions revenue rose 4.7% to $1.472 billion; concession revenue rose 8.5% to $696.8 million; other revenue rose 19.1% to $111.2 million.
- Operating income increased 5.3% to $308.5 million; operating margin was 13.5%, versus 13.7% in 2010. Net income attributable to Cinemark fell 10.7% to $130.6 million; diluted EPS was $1.14, versus $1.29.
- Operating cash flow was $391.2 million, up from $264.8 million. Capital expenditures were $184.8 million; cash used in investing was $247.1 million. Year-end cash and equivalents were $521.4 million.
- Year-end long-term debt was $1.572 billion, including $12.1 million current; capital lease obligations were $141.2 million. Operating lease commitments totaled $1.904 billion. The company had $150 million available on its revolving credit line and no revolver borrowings.
- Interest expense was $123.1 million. Approximately $285.3 million of debt was variable-rate and unhedged; management estimated a 100-basis-point rate increase would add about $2.9 million to annual interest expense. An additional $620.6 million of term debt was hedged.
Fourth-quarter results and changes versus 2010
- Q4 2011 revenue was $535.9 million, versus $524.9 million in Q4 2010. Operating income was $61.5 million, versus $67.6 million; net income attributable to Cinemark was $18.3 million, versus $38.0 million. Diluted EPS was $0.16, versus $0.33.
- FY2011 consolidated revenue growth was driven mainly by international markets: international revenue rose 23.4% to $696.1 million, while U.S. segment revenue increased 0.4% to $1.584 billion. U.S. attendance declined 1.7%; international attendance increased 11.1%.
- Average ticket price increased 2.1% to $5.95 and concession revenue per patron increased 6.0% to $2.82. International growth also reflected new theatres, the Argentina acquisition, pricing and favorable currency effects.
- Costs and expenses increased with circuit expansion and international activity. Concession supplies rose to 16.1% of concession revenue from 15.2%; general and administrative expense rose to $127.6 million from $109.0 million. Operating margin edged lower despite higher revenue.
Outlook, risks and notable items
- No quantified revenue, earnings or cash-flow guidance is provided. Management planned to continue selective theatre development, digital conversion and premium-format expansion. Committed development included 181 domestic screens (estimated remaining spend of about $110 million) and 65 international screens (about $72 million). Cinemark planned 20–30 additional XD auditoriums in 2012.
- In 2011, the company issued $200 million of 7.375% senior subordinated notes, primarily to prepay $157.2 million of unextended term debt. The remaining term loan balance was about $905.9 million; approximately $866.6 million was due in April 2016. Management said it was in compliance with debt covenants.
- Unusual items included a $12.6 million other-than-temporary impairment of the RealD investment, a $4.9 million debt-retirement loss, and $7.0 million of long-lived-asset impairment charges. The RealD investment’s year-end fair value was $9.7 million, down from $28.0 million.
- Management cited dependence on film availability and performance, seasonal attendance, competition from other entertainment and home viewing, substantial debt and lease obligations, variable interest rates, foreign-exchange and political risks, and execution and financing risks related to expansion. A 10% adverse move in all exposed currencies was estimated to reduce international subsidiaries’ aggregate net book value by about $50 million.
- The board declared a fourth-quarter dividend of $0.21 per share, payable March 16, 2012, subject to debt-agreement restrictions. CEO Alan Stock announced his retirement in February 2012 and was to provide transition and consulting services; verify the resulting leadership roles and succession details.
- Management and the auditor reported effective internal control over financial reporting; Deloitte issued an unqualified opinion on the financial statements. The filing describes ordinary-course litigation and states that pending matters were not expected to be material in aggregate.
Key facts for investors to verify
- Reconcile the reported Q4 earnings decline with quarterly filings and the full-year unusual-item disclosures.
- Review debt maturities, covenant and dividend restrictions, lease commitments, and the refinancing plan for the large 2016 term-loan maturity.
- Assess whether international growth and planned development generate adequate returns after capital spending and foreign-exchange effects.
- Check current film slate, attendance, ticket pricing and concession trends against the company’s reliance on successful releases and seasonal peaks.
- Confirm the CEO transition, subsequent dividend declarations, and the status of the Argentina acquisition review.