Strategic Audit
U.S. Division
May 2013
MGT 496.001
Evan Favors
Andrew Chais
Chris Clark
Rachel Fransen
Stephen Jeffers
Cory Svean
James Wichert
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Table of Contents
I. EXECTIVE SUMMARY RACHEL – HAS TO BE DONE LAST ...................................................................... 5
II. CINEMARK’S PAST AND CURRENT STRATEGIES .................................................................................... 6
PAST STRATEGIES ................................................................................................................................................................... 6
CURRENT VISION, MISSION, AND STRATEGIES .................................................................................................................. 6
NEW VISION AND MISSION .................................................................................................................................................... 7
III. SWOT AND ENVIRONMENT ANALYSIS ..................................................................................................... 7
CINEMARK’S SWOT ANALYSIS ............................................................................................................................................. 7
CINEMARK’S SWOT MATRIX ................................................................................................................................................ 8
REGAL ENTERTAINMENT GROUP SWOT MATRIX ............................................................................................................ 8
CARMIKE CINEMAS INCORPORATED SWOT MATRIX ....................................................................................................... 9
NETFLIX SWOT MATRIX ....................................................................................................................................................... 9
MACRO-ECONOMIC FACTORS AND CINEMARK .................................................................................................................. 9
CINEMARK ORGANIZATIONAL STRUCTURE.............................................................................................. 10
CURRENT ORGANIZATIONAL STRUCTURE AND REORGANIZATION .............................................................................. 10
CINEMARK UNIQUE POSITION ....................................................................................................................... 11
KEY SUCCESS FACTORS ........................................................................................................................................................ 11
DISTINCTIVE CORE COMPETENCIES AND CORE COMPETENCIES .................................................................................. 12
VALUE CHAIN ANALYSIS ..........................................................................................ERROR! BOOKMARK NOT DEFINED.
MARKET AND COMPETITIVE ANALYSIS CHRIS ........................................................................................ 13
PORTER’S FIVE FORCES MODEL OF COMPETITION ......................................................................................................... 13
STRATEGIC GROUP MAP ...................................................................................................................................................... 14
COMPETITIVE STRENGTH ASSESSMENT ............................................................................................................................ 15
COMPANY LIFE CYCLE .......................................................................................................................................................... 16
SPACE MATRIX .................................................................................................................................................................... 17
GRAND STRATEGY MATRIX .....................................................................................ERROR! BOOKMARK NOT DEFINED.
FINANCIAL ANALYSIS ........................................................................................................................................ 17
EDWARD ALTMAN Z-SCORE ............................................................................................................................................... 17
TREND ANALYSIS .................................................................................................................................................................. 17
REVENUES, EXPENSES, AND NET INCOME ........................................................................................................................ 18
EBIT/EPS ANALYSIS ........................................................................................................................................................... 20
PRO FORMA BEFORE NEW STRATEGY IMPLEMENTATION ............................................................................................ 20
PRO FORMA POST NEW STRATEGY IMPLEMENTATION ................................................................................................. 20
NET WORTH AND STOCK PRICE ANALYSIS ...................................................................................................................... 21
RECOMMENDATIONS AND IMPLEMENTATION JEFFERS ...................................................................... 21
SHORT-TERM RECOMMENDATIONS................................................................................................................................... 21
LONG-TERM RECOMMENDATIONS ..................................................................................................................................... 22
QSPM ..................................................................................................................................................................................... 22
GRAND STRATEGY MATRIX ................................................................................................................................................. 22
BALANCED SCORE CARD ...................................................................................................................................................... 22
OPERATIONAL IMPROVEMENTS.......................................................................................................................................... 22
TURNAROUND TIMELINE ..................................................................................................................................................... 23
CHANGE RESISTANCE ........................................................................................................................................................... 23
CONTINGENCY PLANS ........................................................................................................................................................... 23
GANTT CHART ...........................................................................................................ERROR! BOOKMARK NOT DEFINED.
EBIT AND NET WORTH ASSESSMENT ..................................................................ERROR! BOOKMARK NOT DEFINED.
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EPILOGUE ANDREW ........................................................................................................................................... 24
REFERENCES ......................................................................................................................................................... 24
APPENDIX A: VISION AND MISSION .............................................................................................................. 24
CURRENT MISSION STATEMENT ........................................................................................................................................ 24
NEW VISION STATEMENT .................................................................................................................................................... 25
NEW MISSION STATEMENT ................................................................................................................................................. 25
APPENDIX B: SWOT MATRICES ...................................................................................................................... 25
APPENDIX C: MACROECONOMIC U.S. CONSUMER STRENGTH INDICATORS .................................. 30
APPENDIX D: CINEMARK ORGANIZATIONAL CHARTS........................................................................... 31
APPENDIX E: VALUE CHAIN ANALYSIS AND SALES COMPOSITION ................................................... 34
APPENDIX F: PORTER’S FIVE FORCES MODEL .......................................................................................... 36
APPENDIX G: STRATEGIC GROUP MAPS ..................................................................................................... 36
APPENDIX H: IE MATRICES .............................................................................................................................. 44
APPENDIX I: .......................................................................................................................................................... 51
APPENDIX J: BCG MATRIX ................................................................................................................................ 52
APPENDIX K: COMPANY LIFE CYCLE ............................................................................................................ 53
APPENDIX L: SPACE MATRIX .......................................................................................................................... 56
APPENDIX M: GRAND STRATEGY MATRIX................................................................................................. 56
APPENDIX N: EDWARD ALTMAN’S Z-SCORE ............................................................................................. 57
APPENDIX O: FINANCIAL TABLES ................................................................................................................. 58
APPENDIX P: FINANCIAL TRENDS ................................................................................................................. 61
APPENDIX Q: CINEMARK’S REVENUE, EXPENSES, AND NET INCOME ............................................... 64
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TABLE OF FIGURES
Figure 1:
Table 1: Cinemark SWOT Analysis
Table 2: Cinemark SWOT Strategy Matrix
Table 3: Regal Entertainment Group SWOT Strategy Matrix
Table 4: Carmike Cinemas Incorporated SWOT Matrix
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I. EXECTIVE SUMMARY
This report critically overviews the U.S. Division of Cinemark Holdings, Incorporated. The
purpose of the information is to provide an accurate and current representation of Cinemark
through research using a variety of sources, methods, and figures. Any forward thinking
statements, recommendations, or opinions offered are only the perspectives of the authors and
will not be implemented by Cinemark Holdings, Incorporated.
Cinemark Holdings Incorporated is one of the leading companies in the motion picture industry
and consists of Century Theaters, CineArts, and Tinseltown brands.
The current operations, performance, and policies of Cinemark will most likely lead the
company to uncertain future…
The new mission statement and vision statement that have been developed provide a strong sense
of direction and purpose that will allow all employees to stay engaged with Cinemark’s future.
The SWOT analysis found several opportunities and areas of improvement for Cinemark.
Additionally, it identified several key options that will allow Cinemark to be distinguishable in
the market place.
Sincerely,
U.S. Division Research Team
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II. Cinemark’s Past and Current Strategies
Past Strategies
In the past, Cinemark has been focused on a growth strategy for attendance and operations. This
included adding locations to their U.S. market and their international market under their brands
of Cinemark, Century Theaters, CineArts, and Tinseltown, as well as keeping their film
technology up to date and maintaining advanced theaters. In 2009, Cinemark began converting
their circuit from film based to digital projection technology, and in 2010, Cinemark began
integrating their NextGen concept, featuring floor-to-ceiling screens and XD technology, into
their theaters. These advances take a long time to integrate through their 465 theaters and 5,240
screens but the benefits have proven to outweigh the costs.
Current Vision, Mission, and Strategies
Currently, Cinemark is continuing with their growth strategy and they selectively build or
acquire new theaters where they can establish and maintain a strong market position. As of
December 2011, 100% of their first-run domestic theaters were fully digital and Cinemark is
continuing to convert their international theaters to digital. They are also adding XD technology
to their auditoriums, 81 of which were completed by 2011, and integrating IMAX screens to
theaters where they feel it will be most beneficial.
Current vision and mission statements for Cinemark appear to be non-existent. Refer to
Appendix A for the identified mission statement, as a vision statement could not be identified.
As there was no record of a mission statement before the Colorado shooting, it appears that the
current mission statement was released as a result of the incident, forcing the company to place
safety as its top priority for customers.
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New Vision and Mission
For the purposes of this project, Appendix A shows the updated vision and mission statements
used to create an appropriate strategic plan. The new vision statement provides a defined idea to
become the attendance and technology leader in the theater industry. The new mission statement
places a strong emphasis on offering high-end technology to all of its customers in every location
and ensuring the safety of Cinemark customers every time they enter the theater. The focuses of
the strategic plan will guide Cinemark to hit all goals set by the new statements because of its
emphasis on safety, employee training, and technology innovation.
III. SWOT and Environment Analysis
Cinemark’s SWOT Analysis
Some of Cinemark’s strengths include having the third largest circuit in the U.S. with 298
theaters and 3,916 screens in 39 states, ranking #1 or #2 by box office revenues in 25 of their top
30 U.S. markets as of December 31, 2012; being the most geographically diverse circuit in Latin
America with 167 theaters and 1,324 screens in 13 countries; and having a presence in 14 of the
top 15 metropolitan areas in Latin America as of December 31, 2012. Besides Regal
Entertainment and Carmike Cinemas, Cinemark has few theater competitors to worry about.
They already have a large customer base, many geographic locations, and access to some of the
top technological advances for the theater industry. However, there are threats in other aspects of
the industry including streaming videos from home with Netflix, movie pirating, and increasing
technology prices, which inherently affects consumers with high-ticket prices. There is also
competition in places that offer different theater experiences and theater alternatives, such as
drive-in theaters and home viewing, which allow for more movie freedom and ease for families
with small children. Movie theater alternatives such as drive-in theaters have not been evaluated
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with the SWOT analysis since most of them are privately held and not connected to a single
name. Refer to Appendix B for more details on Cinemark’s SWOT.
Cinemark’s SWOT Matrix
A number of strategies were considered to help Cinemark increase revenue and stand out from
the competition. One strategy was to purchase our largest competition, Regal Entertainment,
since brand loyalty is not common in the theater industry. Another strategy is to heighten our
security on all levels to make all customers feel safe the second they enter the theater, which will
ultimately improve Cinemark’s image and make it stand out as a safer movie theater company
compared to the competition. To overcome some key weaknesses, Cinemark should take control
of their biggest competition. Cinemark should also continue to be the leader in theater
technological innovations while operating in multiple countries. Refer to Appendix B for further
details on the SWOT matrix.
Regal Entertainment Group SWOT Matrix
Regal Entertainment is currently considered the largest and most geographically diverse in the
North American theater industry. It has over 7,000 screens in 580 locations in the United States.
As of 2013, the company has also expanded internationally to Guam, Saipan, American Samoa,
and the District of Columbia. It operates under Regal Cinemas, Edwards Theaters, and United
Artists Theaters. Besides its size, the company’s major strength is their indoor branding which
allows them to set their food and beverage costs while encouraging brand loyalty and recognition
for consumers. The company’s biggest current weakness is that they are experiencing declining
revenues due to rising technology costs. Refer to Appendix B for further details on the SWOT
matrix.
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Carmike Cinemas Incorporated SWOT Matrix
Carmike Cinemas is also considered to be a leader in the North American theater market with
over 2,000 screens in 249 locations. Unlike Cinemark and Regal theaters, Carmike has branded
itself as “America’s hometown theater” due to its positioning in rural or suburban areas with
populations under 200,000. Due to Carmike’s concentrated size, its biggest strength is that all of
its theaters are digital and many of them offer 3-D technology. It also specializes in converting
weaker, local theaters to discount theaters for the exhibition of films that have been previously
shown on a first-run basis, which allows its revenue stream not to become reliant solely on new
movie premiers. The company’s biggest weakness is its substantial debt obligations. Refer to
Appendix B for further details on the SWOT matrix.
Netflix SWOT Matrix
While Netflix does not seem like a direct competitor since it is offering such a different product,
the company actually captures some of Cinemark’s customers who are looking to stay home for
movie night. Netflix is the leader in the online streaming industry. In the past couple of years,
they have changed their business model from DVD services through the mail to instant and
streaming video. This has led to many internal issues for the company, but they have still
managed to stay a household name and provide a great user experience. Their biggest weakness
in the eyes of the consumer is that they are unable to offer newly released television shows and
movies. See Appendix B for further details on the SWOT matrix.
Macro-Economic Factors and Cinemark
In 2011, theater attendance was at the lowest it had been in 25 years as options for home
entertainment improved. Due to a 40% decrease in young consumer attendance since 2002 and a
loss of attraction towards 3-D films, rumors were spreading through the industry that the end of
the theater might be near. With more options than ever, viewers were forgoing the movie theater
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experience and spending the money to bring the experience into their own living rooms with
DVDs, streaming internet services, and movies-on-demand straight from their televisions. There
had also been a significant decrease in the amount of time between when a movie was released in
the theater and when it was released for home viewing, allowing viewers to decide to wait and
rent the movie for half of the cost.
Against all assumptions, consumers went back to the movies in 2012 and it was considered to be
the best year for the industry, bringing in domestic ticket sales of $10.84 billion. This increase
was due simply to a selection of movies that consumers were dying to see, so as the blockbuster
franchises like Iron Man, The Hobbit, and The Hunger Games continue to be released, there is
no sign of the theater industry going anywhere in the future.
Cinemark Organizational Structure
Current Organizational Structure and Reorganization
Currently, Cinemark has a tall organizational structure. Due to the size and scope of Cinemark,
their current structure is the best fit for the organization. As a whole, Cinemark has substantially
more employees than the industry average, but without the proper amount of executives, it would
be impossible for the company to maintain all of its divisions. This large employee base is due to
the fact that many of its employees are part-time. 90% of the 13,500 US employees are part time
and 37% of the 9,000 international employees are part-time.
The first step in restructuring the organization is to cut back at the lower employment levels.
While this might cause media backlash, it will ultimately save the company money. The second
step in restructuring the organization is to lay-off the Vice President of Construction, Don
Harton. His position will be taken over by the Senior Vice President of Real Estate, Tom Owens,
by combining the construction operations with real estate and development. Even though
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Cinemark will have to outsource on occasions for prominent construction projects, this slight
restructure will combine two similar divisions, serving as a cost-reduction strategy and an
improvement to efficiency.
If Cinemark is able to acquire Regal Entertainment, we would also recommend incorporating
some of their key employees into Cinemark to encourage a smooth transition. The key
employees that should be incorporated can be found in Appendix D. It is also important to note
that this list does not include Regal’s CEO.
Cinemark Unique Position
Key Success Factors
Theatrical exhibition is the primary distribution channel for new motion picture releases. A
successful theatrical release which “brands” a film is one of the major factors in determining its
success in “downstream” markets, such as digital downloads, DVDs, network and syndicated
television, video on-demand, pay-per-view television and the Internet.
International markets continue to be an increasingly important component of the overall box
office revenues generated by Hollywood films, accounting for $22.4 billion, of 2011 total
worldwide box office revenues. With the continued growth of the international motion picture
industry, it is projected the relative contribution of markets outside North America will become
even more significant.
It is projected that long-term trends in motion picture attendance in the U.S. will continue to
benefit the industry. Even during the recent recessionary period, attendance levels remained
stable as consumers selected the theatre as a preferred value for their discretionary income. With
the motion picture industry’s transition to digital projection technology, the products offered by
motion picture exhibitors continue to expand, attracting a broader base of patrons.
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Distinctive Core Competencies and Core Competencies
Cinemark’s solid operating performance is a result of disciplined operating philosophy that
centers on building high quality assets, while negotiating favorable theatre level economics,
controlling operating costs and effectively reacting to economic and market changes.
Cinemark has a leading market share in the U.S. metropolitan and suburban markets. For the
year ended December 31, 2012, they ranked either first or second based on box office revenues
in 24 out of our top 30 U.S. markets,
Since 1993, Cinemark has invested throughout Latin America in response to the continued
growth of the region. They currently operate 167 theatres and 1,324 screens in 13 countries.
They have successfully established a significant presence in major cities in the region, with
theatres in fourteen of the fifteen largest metropolitan areas. Cinemark is the largest in Brazil and
Argentina. They are well-positioned with modern, large-format theatres to take advantage of
these factors for further growth and diversification of revenues.
Cinemark offers state-of-the-art theatres, which is believed to make the theatres a preferred
destination for moviegoers in the markets. Cinemark have installed digital projection technology
in 100% of their U.S. first-run auditoriums and approximately 42% of the international
auditoriums, with plans to install digital projection technology in 100% of the international
auditoriums.
Cinemark generates a significant cash flow from operating activities as a result of several factors,
including a geographically diverse and modern theatre circuit and management’s ability to
control costs and effectively react to economic and market changes. Additionally, owning land
and buildings for 41 of our theatres is a strategic advantage that enhances cash flows. It is to be
expected level of cash flow generation will provide financial flexibility to continue to pursue
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growth opportunities, support debt payments and continue to make dividend payments to
stockholders.
Led by Chairman and founder Lee Roy Mitchell, Chief Executive Officer and President, Tim
Warner, Chief Financial Officer Robert Copple and President-International Valmir Fernandes,
the management team has many years of theatre operating experience, ranging from 16 to 54
years, executing a focused strategy that has led to consistent operating results. This management
team has successfully navigated through many industry and economic cycles.
Value Chain Analysis
Film rental rates are generally negotiated on a film-by-film and theatre-by-theatre basis. Their
solid operating performance is a result of disciplined operating philosophy that centers on
building high quality assets, while negotiating favorable theatre level economics, controlling
operating costs and effectively reacting to economic and market changes. The geographic
diversity makes them an important distribution channel to the movie studios. Cinemark generates
revenues primarily from box office receipts and concession sales advertising costs, which are
expensed as incurred, are primarily fixed at the theatre level as daily movie directories placed in
newspapers represent the largest component of advertising costs. Cinemark offers state-of-the-art
theatres, which is believed to make the theatres a preferred destination for moviegoers.
Market and Competitive Analysis Chris
Porter’s Five Forces Model of Competition
The film industry is currently facing pressures they have never experienced before. Through
Porter’s Five Forces Model in one can see the current dilemmas faced by the film industry and
its associates. Not only contending with pressure from fellow rivals like Regal, Carmike, and
AMC, Cinemark is now battling with substitutes that have only recently come to light. Home
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media has always taken away from the profits of movie theaters, but the introduction of instant
streaming and larger server capacity has become an even larger threat. Piracy is now global; one
person with a high-quality camera and a computer can now upload a film, and be spread around
to thousands of people who can easily watch for free. This threat of home media consumption is
further compiled by companies like Amazon and Netflix. Not only are these companies
increasingly pushing for the rights to release movies sooner, they are also developing their own
content, both movies and TV series alike. Fortunately for Cinemark, buyer power and new entry
threats are minimal. With an average cost of $6.72 per 2D ticket, Cinemark offers a highly
competitive price for an equal and/or superior movie-going experience. The cost of new entrants
is also very high, minimizing the likelihood that they would be a threat. Thankfully, movie
theatres are a highly profitable outlet for newly released films. Allow this allows the supplier to
put some pressure on Cinemark in relation to the leasing price of a film, the studio must get the
film out, as well as promote it, in order to turn a profit.
Strategic Group Map
The use of strategic group maps allowed for the comparison of rivals in the highly competitive
movie theater industry. By comparing Regal and Cinemark, it is apparent that the two
companies are competing fiercely. Despite having 216 million customers and revenues of 2.8
billion dollars, Cinemark was trailing close behind with 263 million customers and revenues of
2.4 billion. Although 400 million dollars behind, Cinemark pulled in higher revenues per screen
and per employee; all while having a ticket cost of nearly $2 less. Cinemark also had lower
operating costs per theater, as well as a higher overall net income. Carmike can be seen as
having little to no threat impact on Regal or Cinemark due to its minimal scope and high
operating costs. It does, however, have the highest ROA and ROE by a substantial amount,
while Netflix has a negative ROE of around 20%.
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Competitive Strength Assessment
IE Matrices
In the pre-turnaround IE matrix, Cinemark as well as selected competitors are all hovering near
the “hold and maintain” as well as the “grow and build” regions. Regal and Cinemark are just on
the cusp of the “grow and build” regions, granting them a prime opportunity to expand. Netflix
revenues are naturally growing at an astonishing rate and the given matrix shows that they
should hold and maintain their strategies. Carmike’s position also shows that it should hold and
maintain its current position.
Post-turnaround results move Cinemark into a solid “grow and build” position. The purchase of
Regal will take the company out of the post-turnaround IE Matrix and will give Carmike a boost
in both internal and external factors, but still keeping them in the “hold and maintain”. Netflix
will also move into the “grow and build” region due to their strong external factor ratings. For a
complete view of the pre and post IE matrices, as well as corresponding tables and scores, please
refer to Appendix XX.
BCG Growth/Share Matricies
Using collected financial data, Netflix has the highest percent of sales in comparison to
Cinemark and assessed competitors, holding 38% of compared sales. Cinemark holds the third
largest market share, second to Regal. Of compared competitors, Carmike has the smallest
RMSP with .06. According to the MPAA, box office growth will remain flat around 2% through
2013, while instant streaming, most notably Netflix, is expected to grow at around 12%. The
results of this matrix place Cinemark in the “Question mark” quadrant. If industry growth
declines, Cinemark is not far from entering the “Dogs” quadrant. One thing of importance
should be noted: Netflix is not a direct contender for theater market share, but is a prime
competitor for film viewing overall, due to its increase in original content and push for the early
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release of films. Due to high market share based on revenue, it is adversely forcing Regal and
Cinemark into quadrant I, whereas they would be in quadrant II if Netflix were not considered.
After the turnaround, it is expected that Cinemark will grow and place itself into the “Star”
quadrant, but only if such substantial investments are made. Due its position in the BCG Matrix,
Cinemark is capable of many strategies including market penetration, market development,
product development, and horizontal integration.
GE Nine-Cell Planning Grid
Pre-turnaround results of the CSA show that Cinemark is a strong contender in the film industry,
primarily due to its relative cost position, customer service, and reputation. That being said, the
competition is not very far behind. Cinemark achieved a score of 7.7 while Regal posted a score
of 7.68 and Netflix posted a score of 7.52. The purchase of Regal will give Cinemark a postturnaround score of 8.55 and will drop Carmike from 7 to 6.29. Netflix will slightly fall to 7.09.
As Netflix is not theater-based competitor, it’s hard to determine if this drop will hold true. All
of the competitors in this matrix are in the Invest quadrant of the nine-cell matrix. Refer to
Appendix XX for complete results of the CSA, ISA, and Nine-Cell Matrix.
Company Life Cycle
According to the MPAA, the film industry is currently in the maturity stage of the company life
cycle. Looking at the graph of the life cycle in Appendix XX, you can see that Regal is entering
the maturity stage while Cinemark is in the late growth stage. Netflix and Carmike are currently
in the growth stage, being capable of a large amount of growth before maturity. Without a
turnaround, Cinemark will enter the decline stage within 14 years.
The post-turnaround company life cycle moves Cinemark lower into the growth stage. The
technological advances, safety, and other initiatives proposed, as well as the purchase of Regal,
will allow the company to develop long-term growth.
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SPACE Matrix
The results of the Space Matrix show that Cinemark is best suited for aggressive strategies. Due
to this position, it is best that Cinemark enacts strategies that best use is dominating financial
strength and constant growth in its industry. Cinemark is also in a position to use its internal
strengths to (1) take advantage of external opportunities, (2) overcome internal weaknesses, and
(3) avoid external threats. See Appendix XX.
Grand Strategy Matrix
Cinemark currently operates in highly competitive industry with ample growth. With a
placement in Quadrant I, Cinemark is open to market development, market penetration, and
related diversification, etc. With the purchase of Regal, as well as further developments in
Latina America, Cinemark is in a strategic position to continue its current mission and to take
aggressive risks. Due to a strong but constant market growth, the arrow relating to Cinemark’s
strategic position is in lower quadrant I. Refer to Appendix XX.
Financial Analysis
Edward Altman Z-Score
Cinemark had an Edward Altman Z-Score of 0.5773 for the year 2012, which means they fall
into the “danger zone” for entering into bankruptcy. For the past three straight years, the Z-Score
has been declining. It has been 0.5773, 0.7087, and 1.650 for the years 2012, 2011 and 2010
respectively. Based on Cinemark’s current Z-Score along with the historic decline a turn-around
is in need.
Trend Analysis
Since 2009, Cinemark has experienced a steady increase in total revenues. The largest revenue
increase has come from admissions. This is due to the decline in movie rental companies such as
Blockbuster. However, Cinemark’s net income has not been as consistent as its revenues. From
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2009 to 2010, they saw an increase in net income, but from 2010 to 2011 they witnessed a
decrease. Then from 2011 to 2012, net income increased once again. Competitors in the industry
such as Regal Entertainment Group and Carmike Cinemas, Inc. experienced similar trends in
revenues and net income.
EBITDA margin trends for Cinemark and the industry have fluctuated from year to year since
2009. As the industry leader, Cinemark observed the highest percentages amongst its main
competitors from year to year as well. Seeing as Cinemark and Regal have a relatively similar
amount of employees, they have battled for revenue per employee since 2009. Similar to the
other financial trends, these values have also fluctuated year by year due to economic factors.
Cinemark’s ROE has fluctuated for the time period but has observed an overall increase from
2009 to 2012. However, Cinemark’s primary competitors have struggled with their recent ROE
trends. Regal has experienced negative percentages in each of the last four years because they
have a higher total of liabilities than assets. Carmike has experienced high ROE over the past
two years, but were also negative in the two years before. Cinemark holds a competitive
advantage due to their consistent ROE. Cinemark is in a great position to continue to grow
market share based on these current trends. Figures for these trends can be found in Appendix X.
Revenues, Expenses, and Net Income
Over the past seven years Cinemark has seen an increase of revenues of 102.66% or 25.67% per
year. Revenues for Cinemark are broken up into three different categories; admissions,
concession, and other. During 2012, Cinemark generated 63.9% of revenues from admissions,
31.2% from concession and 4.9% from other. Over the past three years these percentages have
remained pretty consistent. The percentage of admissions has remained within 2.5% for the last
three years. Concession has remained within 1.2% and the other category within .5%. In 2012
the highest quarter for revenues was the second quarter. The second quarter revenues of
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$649,606,000 increased 12.23%, which was the biggest percentage increase all year. Comparing
this to 2011, the third quarter generated the most revenues at $640,013,000. However, this was
not the highest quarterly increase, from the first to the second quarter revenues jumped up
28.45%. Movie theaters like Cinemark are heavily dependent on the releases of new movies to
draw crowds to the theaters as 63.9% of revenue came from admissions alone. Although movie
theaters do not technically suffer from seasonality, many of the most anticipated movies of the
year tend to be released during the second quarter, April-June. For example, the highest grossing
movie in 2012, Marvel’s The Avengers, which grossed $623,357,910 was released on May 04,
2012. This could have affected Cinemark’s revenues and helped explain the 12.23% increase in
revenues.
Over the past five years, net income for Cinemark has increased 91.08%. Besides our net less in
2008 of $44,430,000, the last time our net income decreased was in 2011. In 2011 we still
generated an income of $132,582,000, which was an 11.41% decrease from 2010. In 2012 we
rebounded this by producing a net income of $171,420,000, which was the highest net income in
the history of the company.
Total expenses for Cinemark in 2012, was $2,302,111,000 which was a 7.2% increase from
2011. Over the past five years expenses have increased 28.56% or 5.8% per year. This increase
in expenses could partly be explained by the increase in theater purchases and acquisitions. In
2012 Cinemark agreed to a purchase agreement with Rave Real Property Holdco, LLC, Rave
Cinemas LLC and RC Processing known as Rave to acquire “32 theaters with 483 screens
located in 12 states for approximately $240.0 million.”
Profit margin is an important aspect that is sometimes over looked. In 2012 Cinemark had a
profit margin of 6.9%. It’s lowest besides 0 when they lost money in 2008 was 5.2% which they
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achieved in 2009. In comparison to one of Cinemark’s top competitors Regal had a profit margin
of 5.1% while Cinemark’s was 6.9%. Even though Cinemark is number among competitors it
would always be good to improve profit margin.
EBIT/EPS Analysis
Checking with professor on Monday.
Pro Forma Before New Strategy Implementation
According to our Pro Forma of Cinemark’s income statement (see Appendix X) it is projected
that Cinemark will have a net income of $195 million. However, by the year 2017 we project
that net income will drop to $171 million. We suspect that even though revenues will increase
from 2012-2017 net income will decrease from 2012 to 2017. Due to the increased competition
and increased costs, we expect our net income to decrease steadily to $150 million. Due to the
rise in costs Cinemark will be getting closer to going into the red as the years go on without any
recommendations.
Pro Forma Post New Strategy Implementation
Many of our recommendations revolve around an increase in technology. The first of our
recommendations is to improve our screens to the Next Generations screens. These screens reach
from floor-to-ceiling and wall-to-wall and have higher picture quality. Our price for installing
screens into all remaining non-NexGen screen is $6.55 million. We will also allocate $2 million
for variable costs. Our next change will also involve an increase in technology. We plan to install
automated self-service ticket purchasing kiosks as well as automated turnstile doors at a price of
$2.2 million dollars. The savings for implementing these new technologies will have a savings in
labor costs of 30% or $74.1 million in savings. This will increase the profitability of ticket sales,
thus increasing our net income. Our final recommendation will be to purchase Regal
Entertainment at a price of $5 billion dollars. This move will eliminate one of our main
Page | 20
competitors, increase our market share dramatically, and will allow us to have the largest
influence on the theater industry in North America.
Net Worth and Stock Price Analysis
Waiting to speak with professor on Monday
Recommendations and Implementation Jeffers
Short-Term Recommendations
In order for Cinemark to be the leader in technology we suggest implementing an immediate
plan to enhance the overall satisfaction of the customer. The first recommendation we plan on
overseeing is the acquisition of Regal Entertainment Group. The budget we have set for
purchasing Regal is $5 billion. We plan on doing this through a combination financing plan.
Next we will continue to update all theaters with the NextGen screens at an estimated cost of
$6.55 million. The next step to improve our technology is to install self-service ticket purchasing
kiosks and install automated turnstile doors to check the customer’s ticket and direct them to
their theater. We will do this by installing this technology in the 14-16 new theaters that are
planning to open this year as a trial run. This will cost an estimated $2.2 million. When opening
these new theaters we will be hiring 30% less employees because the automated technology will
dissolve the jobs of ticket sales and ticket checkers. By implementing this technology in the
newest theaters it allows customers to familiarize themselves with this new technology and
adjust to the new yet innovative process of movie going. The next action we recommend is the
firing of Vice President Don Harton who is in charge of construction. His duties will be absorbed
by Senior Vice President Tom Owens and the real estate and development division. These
recommendations will be completed within 12 months of beginning.
Page | 21
Long-Term Recommendations
In order to maintain technological competitiveness we recommend upon the successful
implementation of the trial run with the automated ticket kiosks and turnstile doors that the
remaining 465 theaters be updated with this technology. This will cost an estimated $46.5
million dollars. This will decrease the employee costs of the company across the board by about
30%. This will also help to increase the efficiency of employees and make the customers
experience more enjoyable. As technology develops we will closely assess any adjustments to
equipment that may need to be installed in the future.
QSPM
After evaluating all of the recommendations for our strategic audit, we developed a Quantitative
Strategic Planning Matrix (QSPM) that compares the attractiveness of our strongest choices. Our
first interest was to acquire Regal Entertainment group….
Grand Strategy Matrix
Based on the Grand Strategy Matrix, we can see that Cinemark is in Quadrant II. Cinemark is
looking to expand and solidify market share in the industry. With our recommendation of
acquiring Regal we will obtain a large portion of the market and strategically place ourselves as
the market leader. (Appendix D)
Balanced Score Card
A balanced score card has been developed that has metrics in the following primary areas:
….
Please see Appendix F
Operational Improvements
Operational improvements include the fluidity of the new technology of purchasing tickets and
getting those tickets checked and directed to the theaters in the turnstiles. This improvement will
enhance the experience of the customer by giving them the most innovative experience. This
Page | 22
operational improvement will also reduce operating costs and make the movie going experience
seamless.
Turnaround Timeline
As previously noted, the recommendations are identified into two primary stages: short-term and
long-term. Short-term recommendations should be implemented immediately and should result
in results within six months. The long-term recommendations are for the continued success of
Cinemark beyond a year to five years. Please see Appendix X for a Gantt chart of the
recommendations.
Change Resistance
Cinemark will be going through numerous changes such as acquiring Regal, implementing new
technology, and consolidating our real estate and development department. These suggested
changes are necessary for Cinemark to become the industry leader.
Contingency Plans
After reviewing all of our strategy formulation data and leading into the implementation process,
it is important to be aware of the worst-case scenario. If our proposed strategy of acquiring Regal
falls through, we are confident our other recommendations will help our company increase
profits…..
Page | 23
Epilogue
Cinemark currently plans to open 14 to16 new locations. We suggest
that these locations are where Cinemark implements our
recommendations in order to test and measure the success before
implementing them into existing locations. Cinemark has been able
to provide convenience and technology unlike any other competitor
in the industry. However, there is still plenty of room to grow. With
the purchase of Regal, Cinemark will be able to greatly increase
market share and become the industry leader in that category. By
implementing turnstile doors and ticket kiosks, Cinemark will be
able to save on wages by cutting down on the number of part-time
employees while providing even more convenience for customers.
Within just the first five years of our recommendations Cinemark
will see a decrease in costs and a dramatic increase in both revenues
and profits.
References
Cinemark Holdings, Incorporated. Cinemark Annual Report, 2012.
Investor relations and corporate profile at www.Cinemark.com
http://www.dailymail.co.uk/news/article-2178341/Hollywood-Cinema-attendance-plummets-25year-low.html
http://business.time.com/2013/01/04/reports-of-the-death-of-the-movies-have-been-greatlyexaggerated/
Appendix A: Vision and Mission
Current Mission Statement
Cinemark Theaters is the organization where safety, respect, care, and concern for employees
and customers in unsurpassed. That is why Cinemark Theaters is the preferred international
motion picture exhibitor and achieves investor’s goals.
Page | 24
New Vision Statement
Cinemark will continue to capture new generations of moviegoers and maintain its current
customers with its high emphasis on safety, its incorporation of high technology movie theater
materials, and its desire to foster lifetime customer relationships through these competencies.
New Mission Statement
Cinemark Theaters is the preferred international motion picture exhibitor and prides itself in its
advanced and up-to-date technology, excellent customer service, and high priority for safety.
Appendix B: SWOT Matrices
Table 1: Cinemark SWOT Analysis
SWOT Area
Key Indicator
Strengths
1.
2.
3.
4.
5.
6.
Strong and well known
company brand name
Broad customer base
Geographical expansion
Competitive prices
Customer service
Greatest economies of scale
Description
1. Cinemark has become a household
name in the US
2. Customers of all age, race, etc.
attend
3. Theaters in North and South
America
4. Offers standard theater prices for
high-end experience
5. Provides great customer experience
6. Highest operating margin of any
Page | 25
Weaknesses
1.
2.
3.
4.
5.
Limited control over movie
industry
Corporate image
Revenues rely on popularity of
films
Unable to cater to the at home
experience
High costs of 3D
1.
2.
3.
4.
5.
Opportunities
1.
2.
3.
4.
5.
Safety initiatives
Technological innovation
Customer loyalty
Growth potential
Foreign growth
1.
2.
3.
4.
5.
Threats
1.
2.
3.
4.
5.
Lawsuits
Early home viewing
Competitive price pressures
Existing market competitors
New entrants
1.
2.
3.
4.
5.
Table 2: Cinemark SWOT Strategy Matrix
Strengths
1. Strong and well known
company brand name
2. Broad customer base
3. Geographical expansion
4. Competitive prices
5. Customer service
6. Greatest economies of
scale
Opportunities
SO Strategies
1. Safety initiatives
1. Establish the Cinemark
2. Technological innovation
name as the leader in
theater company
Unable to control what movies
come out at what time of year
Recent events have affected image
in eyes of consumer
Customer attendance relies solely
on movies offered
Missing business from customers
who are hosting the movie night at
their homes
Have to front the high costs of
providing 3D movies to keep
customers coming
Need to make customers feel safe
and protected upon entry
Continue with technological
advances
Studies have shown that consumers
are not loyal to particular theater
companies. They base decision off
of proximity, film showing, and
amenities.
Acquisition will allow Cinemark to
tap into new markets.
Growth in central and South
America will increase revenues
Currently facing lawsuits that could
damage reputation
Early home viewings take away
revenues
Constantly trying to remain equal
with main competitors
Consumers are not loyal to a theater
brand
Few barriers to new entry exist
Weaknesses
1. Limited control over
movie industry
2. Corporate image
3. Revenues rely on
popularity of films
4. Unable to cater to the at
home experience
5. High costs of 3D
WO Strategies
1. Increased size will result
in a lower cost of goods
Page | 26
3.
4.
5.
6.
Customer loyalty
Growth potential
Foreign growth
Indoor branding
Threats
1. Lawsuits
2. Early home viewing
3. Competitive price
pressures
4. Existing market
competitors
5. New entrants
theater safety (S6, O1)
2. Continue with
technological innovations
while offering competitive
pricing to consumers (S5,
02)
3. Purchase the competitor
and continue to grow
under all names (S2, O4)
4. Continue growth in South
America (S4, O5)
ST Strategies
1. Turn the lawsuits around
as an opportunity to make
positive changes in the
company (S1, T1)
2. Use massive size to reduce
ticket sales costs, which
will ultimately create
barriers for new entrants
who are unable to meet
excellent pricing (S2, T5)
Table 3: Regal Entertainment Group SWOT Strategy Matrix
Strength
1. Scale economies
2. Indoor branding
3. Digital Technology
4. Well-known company
name
5. Broad customer base
Opportunities
1. New Technology
2. Customer loyalty
3. Growth potential
4. Safety innovations
SO Strategies
1. Integrating top
technologies into all
theaters (S3, O1)
2. Private label branding for
sold (W5, O4)
2. Improve corporate image
by increasing safety at all
levels (W2, O1)
3. Consider offering
“classics” on 1 screen
when current movies are
not generating revenues as
expected (W3, O3)
WT Strategies
1. Use massive size to reduce
ticket sales costs, which
will ultimately create
barriers for new entrants
who are unable to meet
excellent pricing
2. Offer the early home
viewing theater experience
so the profit is not being
taken away from the
company completely (W4,
T2)
Weaknesses
1. High debt burden
2. Scale economies
3. Declining revenue due to
high technology costs
4. Revenue relies on
popularity of films
5. International competition
WO Strategies
1. Consider backing out of
international theater
locations and focus strictly
on US (W5, O3)
Page | 27
5. Expanding past the theater
industry through merger
Threats
1. Competitive price
pressures
2. Existing market
competitors
3. Lack of customer loyalty
4. New entrants
5. Barriers to new entrants
are few
all movie indoor products
(S2, O3)
ST Strategies
1. Create ideal customer
experience with indoor
branding (S2, T3)
2. Purchase small companies,
which will cut competition
(S1,T4)
Table 4: Carmike Cinemas Incorporated SWOT Matrix
Strengths
1. 3-D Capabilities
2. Screen vision advertising
3. All screens converted to
digital technology
4. Discount theaters
5. Customer loyalty
Opportunities
1. New technologies
2. Luxury cinemas
3. Growth potential
4. Increased safety
SO Strategies
1. Integrate luxury
experience into cinemas to
entertain guests all night
(S5, O2)
2. Steady revenue stream
through merger of photo
company (W4, O5)
WT Strategies
1. International failure if
remain in unfamiliar
market (W5, T2)
Weaknesses
1. Substantial debt
obligations
2. Small market cap
3. Substantial lease
obligations
4. Relations with suppliers
5. High costs of 3D
WO Strategies
1. Limited window to
maintain 3-D competitive
edge (W2, O1)
2. Relations with concession
Page | 28
5. Supplier contracting
Threats
1. Early home viewing
2. Industry attendance
3. Decline in motion pictures
available
4. Substitutes
5. Night out alternatives
suppliers (W4, O2)
ST Strategies
WT Strategies
1. Market as whole date night 1. Contract with suppliers to
experience with luxury
reduce costs (W4, T4)
cinemas (S5, T5)
Table 5: Netflix SWOT Matrix
Opportunities
1. Integration with
broadband-enabled
devices to allow for
recurring revenue streams
Strengths
1. Shifting focus from DVDs
to online streaming
2. Clear brand identity
3. Large subscriber base
4. Advanced streaming
technology
5. Positive user experience
SO Strategies
1. Integrating with HBO or
other new content provider
2. Consider taking out the
competition like Red Box
Weaknesses
1. Reliant on postal service
for DVD services
2. Damaged reputation
3. Limited selection
4. Demographic issues
5. Poor management
WO Strategies
1. Rising costs to consumers
to raise income and reduce
costs
2. Reduce DVD use to only
Page | 29
2. Internal expansion
3. Internet TV
4. Original product
5. New content
Threats
1. Multichannel video
programming distributors
2. Internet movie and TV
content providers
3. DVD rental outlets and
kiosk services
4. Entertainment video
retailers
5. Rising cost of content
6. Bandwidth limitations
7. Expenses are colliding
with revenues
or adopting them into your
company
customers who currently
use it.
3. New management
ST Strategies
WT Strategies
1. Discontinue DVD services 1. Allocating funds to
to reduce costs and begin
integrate with HBO
to offer all customers
2. Develop checks and
streaming video only.
balances system to
2. Contract with content
improve management
providers to set established
prices
Appendix C: Macroeconomic U.S. Consumer Strength Indicators
Page | 30
Appendix D: Cinemark Organizational Charts
Cinemark Pre-Recommendation Organizational Chart
Page | 31
Cinemark Post-Recommendation Organizational Chart
Page | 32
Page | 33
Appendix E: Value Chain Analysis and Sales Composition
Regal Cinemas
Supply Chain
•4
Operations
•6
Distribution
•7
Administrative
Human
Resources
Sales/Marketing
Customer Service
•5
Legal
•7
Profit Margin
•3
Etc.
Pre-Recommendations Value Chain Analysis Diagram
Page | 34
Supply Chain
•4
Operations
Distribution
•7
•6
Sales/Marketing
•5
Humam
Resources
Administrative
Customer Service
•6
Legal
Profit Margin
•4
etc.
Post-Recommendations Value Chain Analysis Diagram
Supply Chain
•7
Operatons
Distribution
•9
•8
Administrative
Sales/Marketing
•8
Humam
Resources
Customer Sevice
•8
Legal
Profit Magrin
•6
etc.
Page | 35
Appendix F: Porter’s Five Forces Model
Appendix G: Strategic Group Maps
PRE
Page | 36
Revenue per Screen Vs Revenue per Employee
$600
Revenue per Screen (in 000s)
$500
$400
Regal
Cinemark
$300
Carmike
$200
$100
$$-
$50
$100
$150
$200
$250
Revenue per Employee (in 000s)
Page | 37
Rev per Theater Vs Operating Costs per Theater
Revenue per Theater (in 000s)
$7,000
$6,000
$5,000
Regal
$4,000
Cinemark
Carmike
$3,000
$2,000
$1,000
$$-
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
Operating Costs per Theater (in 000s)
Page | 38
Op Costs Vs Net Income
$3,500,000.00
Operating Costs (in 000s)
$3,000,000.00
$2,500,000.00
$2,000,000.00
Regal
Cinemark
Carmike
$1,500,000.00
Netflix
$1,000,000.00
$500,000.00
$$-
$25,000 $50,000 $75,000$100,000$125,000$150,000$175,000$200,000
Net Income (in 000s)
Page | 39
# Employees Vs Revenue per Employee
30,000
Number of Employees
25,000
20,000
Regal
Cinemark
15,000
Carmike
Netflix
10,000
5,000
0
$-
$500.00
$1,000.00
$1,500.00
Revenue per Employee (in 000s)
$2,000.00
Page | 40
Operating Income/Rev Vs Operating Cost/Rev
$0.20
$0.18
Operating Income/Revenue
$0.16
$0.14
$0.12
Cinemark
Regal
$0.10
Carmike
$0.08
Netflix
$0.06
$0.04
$0.02
$$$(0.02)
$0.20
$0.40
$0.60
$0.80
$1.00
$1.20
Operating Cost/Revenue
Page | 41
Operating Income/Rev Vs Operating Cost/Rev
$0.20
$0.18
Operating Income/Revenue
$0.16
$0.14
$0.12
Cinemark
$0.10
Regal
Carmike
$0.08
Netflix
$0.06
$0.04
$0.02
$$(0.02)
$-
$0.20
$0.40
$0.60
$0.80
$1.00
$1.20
Operating Cost/Revenue
Page | 42
ROA Vs ROE
80.00%
60.00%
40.00%
Regal
ROE
Cinemark
20.00%
Carmike
Netflix
-5.00%
0.00%
0.00%
5.00%
10.00%
15.00%
20.00%
-20.00%
-40.00%
ROA
Page | 43
ROA Vs Operating Income
$450,000
$400,000
$350,000
Operating Income
$300,000
Regal
$250,000
Cinemark
Carmike
$200,000
Netflix
$150,000
$100,000
$50,000
$0.00%
5.00%
$(50,000)
10.00%
15.00%
20.00%
ROA
Appendix H: IE Matrices
PRE
Page | 44
4
3
Pre IE Matrix
2
1
The EFE Total Weighted Score
4
Cinemark
3
Carmike
Netflix
Regal
2
1
The IFE Total Weighted Score
POST
Post IE Matrix
The EFE Total Weighted Score
4.00
4
3.00
2.00
1.00
Cinemark
3
Carmike
Netflix
2
1
The IFE Total Weighted Score
CINEMARK IFE/EFE
Page | 45
Strengths
1. Strong/Well known
company brand name
Pre-weight
Rati
ng
Weighted
Score
PostWeight
Rati
ng
Weighted
Score
0.07
4 0.28
0.07
4 0.28
2. Broad Customer Base
0.08
3 0.24
0.08
3 0.24
3. Geographical Expansion
0.09
2 0.18
0.09
3 0.27
4. Competitive prices
0.09
4 0.36
0.09
4 0.36
5. Customer Service
6. Great Economies of
Scale
0.12
2 0.24
0.12
2 0.24
0.08
3 0.24
0.08
4 0.32
Weaknesses
7. Limited control over
movie industry
8. Corporate Image
9. Revenues based on film
popularity
10. Unable to cater to the
at home experience
11. High costs of 3D
Total
Opportunities
Pre-weight
Rati
ng
Weighted
Score
PostWeight
Rati
ng
Weighted
Score
0.11
0.08
2
4
0.22
0.32
0.11
0.08
3
4
0.33
0.32
0.1
3
0.3
0.1
3
0.3
0.08
1
0.08
0.08
2
0.16
0.1
2
0.2
0.1
3
0.3
1.00
Pre-weight
2.66
Rati
ng
Weighted
Score
1.10
PostWeight
3.12
Rati
ng
Weighted
Score
1. Safety Initiatives
0.06
3 0.18
0.06
3
0.18
2.Technological Innovation
0.16
4 0.64
0.16
4
0.64
3. Customer Loyalty
0.12
3 0.36
0.12
3
0.36
4. Growth potential
0.10
4 0.40
0.10
4
0.4
5. Foreign growth
0.08
3 0.24
0.08
4
0.32
Page | 46
Threats
6. Lawsuits
7. Early home viewing
8. Competitive Price
pressures
9. Existing Market
Competitors
10. New Entrants
Pre-weight
0.08
0.13
Rati
ng
3
2
Weighted
Score
0.24
0.26
0.09
4
0.36
0.09
4
0.36
0.11
0.07
1.00
2
4
0.22
0.28
2.82
0.11
0.07
1.00
3
4
0.33
0.28
3.37
Total
PostRati
Weight
ng
0.08
3
0.13
2
Weighted
Score
0.24
0.26
CARMIKE IFE/EFE
Strengths
Preweight
Weighted
Score
Rating
PostWeight
Weighted
Score
Rating
3-D Capabilities
Screenvision
advertising
0.07
3 0.21
0.07
3 0.21
0.05
2 0.10
0.05
3 0.15
Luxury Theaters
0.15
4 0.60
0.15
4 0.60
Brand Loyalty
0.14
3 0.42
0.14
3 0.42
Weaknesses
6. Substantial debt
obligations
7. Small market cap
8. Substantial lease
obligations
Lost Interest in 3D
Preweight
Rating
-
-
-
Weighted
Score
PostWeight
Rating
Weighted
Score
0.15
0.11
1
2
0.15
0.22
0.15
0.11
2
3
0.3
0.33
0.11
0.13
2
2
0.22
0.26
0.1
0.13
2
3
0.2
0.39
Cyclical Nature of
films
0.09
2
0.18
0.09
2
0.18
Total
1.00
2.36
1.08
2.78
Page | 47
Opportunities
1. New technologies
2. Customer
Experience
3. Growth potential
4. Piracy Protection
Preweight
PostWeight
Rating
Weighted
Score
0.15
4 0.60
0.16
4
0.64
0.13
3 0.39
0.14
3
0.42
0.12
3 0.36
0.12
3
0.36
0.07
2 0.14
0.07
2
0.14
PostWeight
Rating
0.13
2
0
Weighted
Score
0.26
5
Threats
6. Early home viewing
7. Industry
attendance
8. Decline in motion
pictures available
9. Substitutes
10. Direct competition
Total
Weighted
Score
Rating
Preweight
Rating
0.13
2
Weighted
Score
0.26
0.12
3
0.36
0.12
3
0.36
0.11
0.09
0.08
1.00
2
2
3
0.22
0.18
0.24
2.39
0.11
0.09
0.08
1.02
3
2
2
0.33
0.18
0.16
2.85
NETFLIX IFE/EFE
Preweight
Rati
ng
Weighted
Score
PostWeight
Rati
ng
Weighted
Score
Strengths
1. Shifting focus from DVDs to
online streaming
0.14
4 0.56
0.14
4 0.56
2. Clear brand identity
0.12
3 0.36
0.12
3 0.36
3. Large subscriber base
4. Advanced streaming
technology
0.10
4 0.40
0.10
4 0.40
0.16
3 0.48
0.16
3 0.48
5. Positive user experience
0.12
2 0.24
0.12
2 0.24
Weaknesses
6. Reliant on postal service for
DVD services
Preweight
Rati
ng
0.08
2
Weighted
Score
0.16
PostWeight
0.08
Rati
ng
Weighted
Score
2 0.16
Page | 48
7. Damaged reputation
0.06
2
0.12
0.06
3 0.18
8. Limited selection
0.09
2
0.18
0.09
3 0.27
9. Demographic issues
0.06
2
0.12
0.06
3 0.18
10. Poor management
0.07
2
0.14
0.07
3 0.21
1.07
3.04
Total
1.00
Preweight
2.76
Rati
ng
Weighted
Score
PostWeight
Rati
ng
Weighted
Score
Opportunities
1. Integration with broadbandenabled devices to allow for
recurring revenue streams
0.15
4 0.60
0.15
4 0.60
2. Internal expansion
0.12
3 0.36
0.12
3 0.36
3. Internet TV
0.08
2 0.16
0.08
2 0.16
4. Original product
0.06
3 0.18
0.06
3 0.18
5. New content
0.13
Preweight
Threats
6. Multichannel video
programming distributors
7. Internet movie and TV
content providers
8. DVD rental outlets and kiosk
services
3 0.39
Rati Weighted
ng
Score
0.13
PostWeight
3 0.39
Rati Weighted
ng
Score
0.10
2
0.2
0.10
2 0.20
0.12
2
0.24
0.12
2 0.24
0.08
1
0.08
0.08
2 0.16
9. Entertainment video retailers
0.05
2
0.1
0.05
2 0.10
10. Rising cost of content
0.11
1
0.11
0.11
1 0.11
2.26
1.00
2.50
Total
1.00
REGAL IFE/EFE
Page | 49
Preweight
Strengths
Rati
ng
Weighted
Score
PostWeight
Rati
ng
Weighted
Score
1. Scale economies
0.09
3 0.27
0
0 -
2. Digital Technology
3. Well-known company
name
0.15
4 0.60
0
0 -
0.12
4 0.48
0
0 -
4. Broad customer base
0.10
3 0.30
0
0 -
Preweight
Weaknesses
Rati
ng
Weighted
Score
PostWeight
Rati
ng
Weighted
Score
6. High debt burden
0.13
2
0.26
0
0 -
7. Scale economies
0.1
3
0.3
0
0 -
8. Declining revenue
9. Revenue relies on
popularity of films
0.15
2
0.3
0
0 -
0.16
3
0.48
0
0 -
0.00
-
Total
Opportunities
1.00
Preweight
2.99
Rati
ng
Weighted
Score
PostWeight
Rati
ng
1. New Technology
0.16
4 0.64
0
0 -
2. Customer loyalty
0.13
3 0.39
0
0 -
3. Growth potential
0.10
3 0.30
0
0 -
4. Safety innovations
0.08
2 0.16
0
0 -
-
0
5
Threats
6. Competitive price
pressures
7. Existing market
competitors
Preweight
Rati
ng
Weighted
Score
PostWeight
Weighted
Score
0 Rati
Weighted
ng
Score
0.10
3
0.3
0
0 -
0.12
4
0.48
0
0 Page | 50
8. Lack of customer loyalty
0.08
2
0.16
0
0 -
9. New entrants
10. Barriers to new entrants
are few
0.13
4
0.52
0
0 -
0.10
3
0.3
0
0 -
Total
1.00
2.95
0.00
-
Appendix I: CSA/ISA Matrix
PRE
CSA/ISA
9
6
Netflix
ISA
Regal
Cinemark
Carmike
3
0
9
6
CSA
3
0
POST
Page | 51
Post CSA/ISA
9
6
ISA
Netflix
Cinemark
Carmike
3
0
9
6
3
0
CSA
Appendix J: BCG Matrix
PRE
Page | 52
BCG
1.00
0.50
-
20.00
Growth Rate
Cinemark
Carmike
Netflix
-
Regal
(20.00)
Market Share
POST
Appendix K: Company Life Cycle
3,000,000
Cinemark Revenue per Year
Revenues (000s)
2,500,000
2,000,000
1,500,000
1,000,000
500,000
0
2012 2011 2010 2009 2008 2007 2006 2005 2004
Years
Page | 53
3,000,000
Regal Revenue per Year
Revenues (000s)
2,900,000
2,800,000
2,700,000
2,600,000
2,500,000
2,400,000
2,300,000
2,200,000
2012 2011 2010 2009 2008 2007 2006 2005 2004
Years
560,000
Carmike Revenue per year
Revenues (000s)
540,000
520,000
500,000
480,000
460,000
440,000
420,000
2012 2011 2010 2009 2008 2007 2006 2005 2004
Years
Page | 54
4,000,000
Netflix Revenue per Year
Revenues (000s)
3,500,000
3,000,000
2,500,000
2,000,000
1,500,000
1,000,000
500,000
0
2012 2011 2010 2009 2008 2007 2006 2005 2004
Years
Page | 55
Appendix L: SPACE Matrix
Appendix M: Grand Strategy Matrix
Page | 56
Appendix N: Edward Altman’s Z-Score
Table X: Edward Altman’s Z-Score
Page | 57
Z-Score
2
Z-Score
1.5
1
0.5
0
2010
2011
2012
Three Year Average
Appendix O: Financial Tables
Liquidity Ratios
20
18
16
14
12
Net Current Assets % TA
10
Current Ratio
8
Quick Ratio
6
4
2
0
2012
2011
2010
2009
2008
Page | 58
Debt Management
8
7
6
5
Interest Coverage
4
TD to Equity
3
LT Debt to Equity
2
1
0
2012
2011
2010
2009
2008
Asset Managemet
450
400
350
300
250
200
150
100
50
0
2008
2009
2010
2011
2012
Page | 59
Revenue/Employee
180,000
160,000
140,000
120,000
100,000
Revenue/Employee
80,000
60,000
40,000
20,000
0
2012
2011
2010
2009
2008
Per Share
14
12
10
8
Book Value/Share
6
Cash Flow/Share
4
2
0
2012
2011
2010
2009
2008
Page | 60
Profitability Ratios
120
100
80
Calculated Tox Rate %
EBITDA Margin %
60
ROI % (Operating)
40
ROE % (Net)
ROA % (Net)
20
0
2012
2011
2010
2009
2008
-20
Appendix P: Financial Trends
Table X: Cinemark Industry and Primary Competitors’ ROE Trends
Page | 61
ROE TRENDS
200
150
100
Percentage (%)
50
Industry Average
0
2009
-50
-100
2010
2011
2012
Cinemark
Regal
Carmike
-150
-200
-250
Table X: Cinemark Industry and Primary Competitors’ EBITDA Margin Trends
Page | 62
EBITDA Margin Trends
25
Percentage (%)
20
15
Indusrty Average
Cinemark
Regal
10
Carmike
5
0
2009
2010
2011
2012
Table X: Cinemark Industry and Primary Competitors’ Revenue Per Employee Trends
Revenue Per Employee
180,000
160,000
140,000
$ Per Year
120,000
Industry Average
100,000
Cinemark
80,000
Regal
60,000
Carmike
40,000
20,000
0
2009
2010
2011
2012
Page | 63
Appendix Q: Cinemark’s Revenue, Expenses, and Net Income
Table X: Cinemark Expenses, Net Income, and Revenue
Expenses, Net Income, Revenue For Cinemark
(In Thousands)
3,000,000
$ Per Year
2,500,000
2,000,000
Expenses
1,500,000
Net Income
Revenue
1,000,000
500,000
0
2009
2010
2011
2012
R- first year cost reductions
s- requiring capital distribution
T- ebit/eps analysis
Page | 64
EPS/EBIT Analysis
$1,600.00
$1,400.00
$1,200.00
EPS
$1,000.00
$800.00
$600.00
$400.00
$200.00
$425
850
EBIT(Millions)
Common Stock Financing
Debt Financing
Combination Financing
Combination (40%E 60%D)
Combinationg (30%E 70%D)
Combinationg (20%E 80%D)
Combinationg (10%E 90%D)
Combination (60%E 40%D)
Combination (70%E 30%D)
Combinationg (80%E 20%D)
1700
Combinationg (90%E 10%D)
u- as it proformas
v- post recommendation pro formas
w- net worth and stock price analysis
x- qpsm model
y- balanced score cards
z- gantt charts for recommendations
Page | 65