Cinemark Holdings, Inc. — FY 2012 Form 10-K
Reporting period: Fiscal year ended December 31, 2012. This is an annual report, not a standalone fourth-quarter filing; selected fourth-quarter figures are included below. Amounts are in U.S. dollars unless noted.
Business context
Cinemark operated 465 theatres and 5,240 screens in the U.S. and 13 Latin American countries, with approximately 263.7 million patrons during 2012. The company reported U.S. and international operating segments. Admissions and concessions are its primary revenue sources; concessions generally carry higher margins.
Financial and operating performance
| Metric | FY 2012 | FY 2011 |
|---|---|---|
| Revenue | $2,473.5 million | $2,279.6 million |
| Operating income | $383.7 million | $308.5 million |
| Operating margin | 15.5% | 13.5% |
| Net income attributable to Cinemark | $168.9 million | $130.6 million |
| Diluted EPS | $1.47 | $1.14 |
| Operating cash flow | $395.2 million | $391.2 million |
| Capital expenditures | $220.7 million | $184.8 million |
| Cash and cash equivalents at year-end | $742.7 million | $521.4 million |
- Revenue rose 8.5%; attendance increased 6.6% to 263.7 million. Admissions grew 7.4% and concession revenue 10.7%.
- U.S. revenue increased 7.1%, with attendance up 3.2%; higher ticket prices and concession spending per patron contributed. International revenue increased 11.7% and attendance 12.6%, though average ticket price declined 2.6%, partly due to unfavorable currency effects.
- Adjusted EBITDA, a company-defined measure, increased to $589.2 million from $519.5 million. International Adjusted EBITDA was $179.4 million; U.S. was $409.9 million.
- Income before taxes rose to $296.8 million, but income tax expense increased to $125.4 million from $73.1 million; the effective tax rate rose to 42.2% from 35.5%.
- Fourth-quarter 2012 revenue was $611.5 million, operating income $86.2 million, net income attributable to Cinemark $27.8 million, and diluted EPS $0.24. In Q4 2011, the corresponding figures were $535.9 million, $61.5 million, $18.3 million, and $0.16.
Debt, liquidity, and capital allocation
- Year-end long-term debt was $1,764.0 million; capital lease obligations were $150.2 million. Long-term operating lease commitments totaled $1,889.2 million. Interest expense was $123.7 million.
- Debt increased from $1,572.2 million in 2011, reflecting a December 2012 refinancing: a $700 million term loan and $400 million of 5.125% senior notes replaced the prior term loan. The new revolving facility was $100 million and undrawn at year-end; $9.5 million of debt was current.
- Approximately $250 million of debt was variable-rate, excluding $450 million hedged through interest-rate swaps. Management estimated a 100-basis-point rate increase would add about $2.5 million in annual interest expense.
- Current assets were $845.2 million and current liabilities $338.2 million. Operating cash flow less reported capital expenditures was approximately $174.5 million.
- Capital expenditures rose to $220.7 million. The company paid $96.4 million of dividends in 2012, declaring $0.21 per share quarterly; a fourth-quarter dividend of $0.21 was declared in February 2013.
Changes, outlook, risks, and notable items
- Profitability improved year over year: operating income increased 24.4% and operating margin expanded by 2.0 percentage points. Impairment charges declined to $3.0 million from $7.0 million.
- Costs increased in absolute terms, including general and administrative expense, up to $148.6 million from $127.6 million. Management cited compensation, share-based compensation, professional fees, and the Argentina theatres acquired in 2011.
- 2012 unusual costs included a $5.6 million loss on early debt retirement and a $12.2 million loss on asset sales and other, including a $6.7 million lease-termination reserve and equipment retirements.
- No formal earnings or revenue guidance is provided. Management planned 13 new international theatres with 88 screens in 2013 and nine U.S. theatres with 111 screens; remaining estimated development capital was about $89 million internationally and $123 million domestically. It also planned 40–50 additional XD premium auditoriums in 2013.
- A proposed $240 million acquisition of Rave theatres (32 theatres, 483 screens) was expected to close in Q1 2013, subject to customary conditions and antitrust approval. In February 2013, Cinemark agreed to sell its Mexican subsidiaries (31 theatres, 290 screens) for approximately $125 million, subject to adjustments and Mexican competition review; closing was expected in the second half of 2013.
- Key risks include dependence on film availability and box-office performance, competition from other exhibitors and home entertainment, seasonal results, foreign-currency and political/economic exposure, substantial debt and lease commitments, interest-rate exposure, and restrictions on dividends and other actions under debt agreements. Management reported compliance with debt covenants at year-end.
- Legal proceedings arising in the ordinary course were described as not material in the aggregate. Management and the auditor reported effective internal controls; the auditor issued an unqualified opinion on the financial statements.
Most important facts for investors to verify
- Whether the Rave acquisition and Mexican subsidiary sale closed as expected, including final prices, adjustments, approvals, and resulting changes in revenue, debt, and theatre count.
- Whether attendance and concession spending sustain growth, particularly given the international ticket-price decline and exposure to film-release quality and timing.
- Debt-service capacity after the refinancing and planned expansion, considering lease commitments, variable-rate exposure, and dividend restrictions.
- The drivers of the 2012 effective tax-rate increase and the status and potential outcomes of significant tax audits and uncertain tax positions.
- Whether currency movements, impairment assumptions, and international operating conditions materially affect reported results or asset values.