Strategic Audit

U.S. Division

May 2013

MGT 496.001

Evan Favors

Andrew Chais

Chris Clark

Rachel Fransen

Stephen Jeffers

Cory Svean

James Wichert

Page | 1

Page | 2

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.

Page | 3

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

Page | 4

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

Page | 5

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

Page | 6

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.

Page | 7

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

Page | 8

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.

Page | 9

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

Page | 10

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

Page | 11

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.

Page | 12

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

Page | 13

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

Page | 14

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%.

Page | 15

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

Page | 16

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 post-

turnaround 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.

Page | 17

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

Page | 18

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

Page | 19

$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

Page | 20

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 | 21

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 | 22

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 | 23

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 | 24

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-25-

year-low.html

http://business.time.com/2013/01/04/reports-of-the-death-of-the-movies-have-been-greatly-

exaggerated/

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 | 25

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 Description

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

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 | 26

theater company

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

1. Unable to control what movies

come out at what time of year

2. Recent events have affected image

in eyes of consumer

3. Customer attendance relies solely

on movies offered

4. Missing business from customers

who are hosting the movie night at

their homes

5. Have to front the high costs of

providing 3D movies to keep

customers coming

Opportunities

1. Safety initiatives

2. Technological innovation

3. Customer loyalty

4. Growth potential

5. Foreign growth

1. Need to make customers feel safe

and protected upon entry

2. Continue with technological

advances

3. Studies have shown that consumers

are not loyal to particular theater

companies. They base decision off

of proximity, film showing, and

amenities.

4. Acquisition will allow Cinemark to

tap into new markets.

5. Growth in central and South

America will increase revenues

Threats

1. Lawsuits

2. Early home viewing

3. Competitive price pressures

4. Existing market competitors

5. New entrants

1. Currently facing lawsuits that could

damage reputation

2. Early home viewings take away

revenues

3. Constantly trying to remain equal

with main competitors

4. Consumers are not loyal to a theater

brand

5. Few barriers to new entry exist

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

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

Opportunities

1. Safety initiatives

2. Technological innovation

SO Strategies

1. Establish the Cinemark

name as the leader in

WO Strategies

1. Increased size will result

in a lower cost of goods

Page | 27

3. Customer loyalty

4. Growth potential

5. Foreign growth

6. Indoor branding

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)

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)

Threats

1. Lawsuits

2. Early home viewing

3. Competitive price

pressures

4. Existing market

competitors

5. New entrants

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)

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)

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

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

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

WO Strategies

1. Consider backing out of

international theater

locations and focus strictly

on US (W5, O3)

Page | 28

5. Expanding past the theater

industry through merger

all movie indoor products

(S2, O3)

2. Steady revenue stream

through merger of photo

company (W4, O5)

Threats

1. Competitive price

pressures

2. Existing market

competitors

3. Lack of customer loyalty

4. New entrants

5. Barriers to new entrants

are few

ST Strategies

1. Create ideal customer

experience with indoor

branding (S2, T3)

2. Purchase small companies,

which will cut competition

(S1,T4)

WT Strategies

1. International failure if

remain in unfamiliar

market (W5, T2)

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

Weaknesses

1. Substantial debt

obligations

2. Small market cap

3. Substantial lease

obligations

4. Relations with suppliers

5. High costs of 3D

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)

WO Strategies

1. Limited window to

maintain 3-D competitive

edge (W2, O1)

2. Relations with concession

Page | 29

5. Supplier contracting suppliers (W4, O2)

Threats

1. Early home viewing

2. Industry attendance

3. Decline in motion pictures

available

4. Substitutes

5. Night out alternatives

ST Strategies

1. Market as whole date night

experience with luxury

cinemas (S5, T5)

WT Strategies

1. Contract with suppliers to

reduce costs (W4, T4)

Table 5: Netflix SWOT Matrix

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

Weaknesses

1. Reliant on postal service

for DVD services

2. Damaged reputation

3. Limited selection

4. Demographic issues

5. Poor management

Opportunities

1. Integration with

broadband-enabled

devices to allow for

recurring revenue streams

SO Strategies

1. Integrating with HBO or

other new content provider

2. Consider taking out the

competition like Red Box

WO Strategies

1. Rising costs to consumers

to raise income and reduce

costs

2. Reduce DVD use to only

Page | 30

2. Internal expansion

3. Internet TV

4. Original product

5. New content

or adopting them into your

company

customers who currently

use it.

3. New management

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

ST Strategies

1. Discontinue DVD services

to reduce costs and begin

to offer all customers

streaming video only.

2. Contract with content

providers to set established

prices

WT Strategies

1. Allocating funds to

integrate with HBO

2. Develop checks and

balances system to

improve management

Appendix C: Macroeconomic U.S. Consumer Strength Indicators

Page | 31

Appendix D: Cinemark Organizational Charts Cinemark Pre-Recommendation Organizational Chart

Page | 32

Cinemark Post-Recommendation Organizational Chart

Page | 33

Page | 34

Appendix E: Value Chain Analysis and Sales Composition Regal Cinemas

Pre-Recommendations Value Chain Analysis Diagram

Supply Chain

• 4

Operations

• 6

Distribution

• 7

Sales/Marketing

• 5

Customer Service

• 7

Profit Margin

• 3

Etc.LegalHuman

ResourcesAdministrative

Page | 35

Post-Recommendations Value Chain Analysis Diagram

Supply Chain

• 4

Operations

• 7

Distribution

• 6

Sales/Marketing

• 5

Customer Service

• 6

Profit Margin

• 4

etc. LegalHumam

ResourcesAdministrative

Supply Chain

• 7

Operatons

• 9

Distribution

• 8

Sales/Marketing

• 8

Customer Sevice

• 8

Profit Magrin

• 6

etc. LegalHumam

ResourcesAdministrative

Page | 36

Appendix F: Porter’s Five Forces Model

Appendix G: Strategic Group Maps PRE

Page | 37

$-

$100

$200

$300

$400

$500

$600

$- $50 $100 $150 $200 $250

Re

ve

nu

e p

er

Scr

ee

n (

in 0

00

s)

Revenue per Employee (in 000s)

Revenue per Screen Vs Revenue per Employee

Regal

Cinemark

Carmike

Page | 38

$-

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$- $1,000 $2,000 $3,000 $4,000 $5,000 $6,000

Re

ve

nu

e p

er

Th

ea

ter

(in

00

0s)

Operating Costs per Theater (in 000s)

Rev per Theater Vs Operating Costs per Theater

Regal

Cinemark

Carmike

Page | 39

$-

$500,000.00

$1,000,000.00

$1,500,000.00

$2,000,000.00

$2,500,000.00

$3,000,000.00

$3,500,000.00

$- $25,000 $50,000 $75,000 $100,000 $125,000 $150,000 $175,000 $200,000

Op

era

tin

g C

ost

s (i

n 0

00

s)

Net Income (in 000s)

Op Costs Vs Net Income

Regal

Cinemark

Carmike

Netflix

Page | 40

0

5,000

10,000

15,000

20,000

25,000

30,000

$- $500.00 $1,000.00 $1,500.00 $2,000.00

Nu

mb

er

of

Em

plo

ye

es

Revenue per Employee (in 000s)

# Employees Vs Revenue per Employee

Regal

Cinemark

Carmike

Netflix

Page | 41

$(0.02)

$-

$0.02

$0.04

$0.06

$0.08

$0.10

$0.12

$0.14

$0.16

$0.18

$0.20

$- $0.20 $0.40 $0.60 $0.80 $1.00 $1.20

Op

era

tin

g I

nco

me

/R

ev

en

ue

Operating Cost/Revenue

Operating Income/Rev Vs Operating Cost/Rev

Cinemark

Regal

Carmike

Netflix

Page | 42

$(0.02)

$-

$0.02

$0.04

$0.06

$0.08

$0.10

$0.12

$0.14

$0.16

$0.18

$0.20

$- $0.20 $0.40 $0.60 $0.80 $1.00 $1.20

Op

era

tin

g I

nco

me

/R

ev

en

ue

Operating Cost/Revenue

Operating Income/Rev Vs Operating Cost/Rev

Cinemark

Regal

Carmike

Netflix

Page | 43

-40.00%

-20.00%

0.00%

20.00%

40.00%

60.00%

80.00%

-5.00% 0.00% 5.00% 10.00% 15.00% 20.00%

RO

E

ROA

ROA Vs ROE

Regal

Cinemark

Carmike

Netflix

Page | 44

Appendix H: IE Matrices PRE

$(50,000)

$-

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$400,000

$450,000

0.00% 5.00% 10.00% 15.00% 20.00%

Op

era

tin

g I

nco

me

ROA

ROA Vs Operating Income

Regal

Cinemark

Carmike

Netflix

Page | 45

POST

CINEMARK IFE/EFE

1

2

3

4

1 2 3 4T

he

EF

E T

ota

l W

eig

hte

d S

core

The IFE Total Weighted Score

Pre IE Matrix

Cinemark

Carmike

Netflix

Regal

1

2

3

4

1.00 2.00 3.00 4.00

Th

e E

FE

To

tal

We

igh

ted

Sco

re

The IFE Total Weighted Score

Post IE Matrix

Cinemark

Carmike

Netflix

Page | 46

Strengths Pre-weight Rating

Weighted Score

Post-Weight

Rating

Weighted Score

1. Strong/Well known company brand name 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 0.12 2 0.24

0.12 2

0.24

6. Great Economies of Scale 0.08 3

0.24

0.08 4

0.32

Weaknesses Pre-weight

Rating

Weighted Score

Post-Weight

Rating

Weighted Score

7. Limited control over movie industry 0.11 2 0.22 0.11 3 0.33

8. Corporate Image 0.08 4 0.32 0.08 4 0.32

9. Revenues based on film popularity 0.1 3 0.3 0.1 3 0.3

10. Unable to cater to the at home experience 0.08 1 0.08 0.08 2 0.16

11. High costs of 3D 0.1 2 0.2 0.1 3 0.3

Total 1.00 2.66 1.10

3.12

Opportunities Pre-weight Rating

Weighted Score

Post-Weight

Rating

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 | 47

Threats Pre-weight Rating

Weighted Score

Post-Weight

Rating

Weighted Score

6. Lawsuits 0.08 3 0.24 0.08 3 0.24

7. Early home viewing 0.13 2 0.26 0.13 2 0.26

8. Competitive Price pressures 0.09 4 0.36 0.09 4 0.36

9. Existing Market Competitors 0.11 2 0.22 0.11 3 0.33

10. New Entrants 0.07 4 0.28 0.07 4 0.28

Total 1.00 2.82 1.00 3.37

CARMIKE IFE/EFE

Strengths Pre-

weight Rating Weighted

Score Post-

Weight Rating Weighted

Score

3-D Capabilities 0.07 3

0.21

0.07 3

0.21

Screenvision advertising

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 Pre-

weight

Rating Weighted

Score Post-

Weight Rating Weighted

Score

6. Substantial debt obligations 0.15 1 0.15 0.15 2 0.3

7. Small market cap 0.11 2 0.22 0.11 3 0.33

8. Substantial lease obligations 0.11 2 0.22 0.1 2 0.2

Lost Interest in 3D 0.13 2 0.26 0.13 3 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 | 48

Opportunities Pre-

weight Rating Weighted

Score Post-

Weight Rating Weighted

Score

1. New technologies 0.15 4

0.60

0.16 4 0.64

2. Customer Experience

0.13 3

0.39

0.14 3 0.42

3. Growth potential 0.12 3

0.36

0.12 3 0.36

4. Piracy Protection 0.07 2

0.14

0.07 2 0.14

5

- 0

Threats Pre-

weight Rating Weighted

Score Post-

Weight Rating Weighted

Score

6. Early home viewing 0.13 2 0.26 0.13 2 0.26

7. Industry attendance 0.12 3 0.36 0.12 3 0.36

8. Decline in motion pictures available 0.11 2 0.22 0.11 3 0.33

9. Substitutes 0.09 2 0.18 0.09 2 0.18

10. Direct competition 0.08 3 0.24 0.08 2 0.16

Total 1.00 2.39 1.02 2.85

NETFLIX IFE/EFE

Strengths Pre-

weight Rating

Weighted Score

Post-Weight

Rating

Weighted Score

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 0.10 4

0.40

0.10 4

0.40

4. Advanced streaming technology

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 Pre-

weight

Rating

Weighted Score

Post-Weight

Rating

Weighted Score

6. Reliant on postal service for DVD services 0.08 2 0.16 0.08 2

0.16

Page | 49

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

Total 1.00 2.76 1.07

3.04

Opportunities Pre-

weight Rating

Weighted Score

Post-Weight

Rating

Weighted Score

1. Integration with broadband-enabled 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 3

0.39

0.13 3

0.39

Threats Pre-

weight Rating

Weighted Score

Post-Weight

Rating

Weighted Score

6. Multichannel video programming distributors 0.10 2 0.2 0.10 2

0.20

7. Internet movie and TV content providers 0.12 2 0.24 0.12 2

0.24

8. DVD rental outlets and kiosk services 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

Total 1.00 2.26 1.00 2.50

REGAL IFE/EFE

Page | 50

Strengths Pre-

weight Rating

Weighted Score

Post-Weight

Rating

Weighted Score

1. Scale economies 0.09 3

0.27 0 0

-

2. Digital Technology 0.15 4

0.60 0 0

-

3. Well-known company name

0.12 4

0.48 0 0

-

4. Broad customer base 0.10 3

0.30 0 0

-

Weaknesses Pre-

weight

Rating

Weighted Score

Post-Weight

Rating

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 0.15 2 0.3 0 0 -

9. Revenue relies on popularity of films 0.16 3 0.48 0 0

-

Total 1.00 2.99 0.00

-

Opportunities Pre-

weight Rating

Weighted Score

Post-Weight

Rating

Weighted Score

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

-

5 - 0 0

-

Threats Pre-

weight Rating

Weighted Score

Post-Weight

Rating

Weighted Score

6. Competitive price pressures 0.10 3 0.3 0 0

-

7. Existing market competitors 0.12 4 0.48 0 0

-

Page | 51

8. Lack of customer loyalty 0.08 2 0.16 0 0 -

9. New entrants 0.13 4 0.52 0 0 -

10. Barriers to new entrants are few 0.10 3 0.3 0 0

-

Total 1.00 2.95 0.00 -

Appendix I: CSA/ISA Matrix PRE

POST

0

3

6

9

0369

ISA

CSA

CSA/ISA

Netflix

Regal

Cinemark

Carmike

Page | 52

Appendix J: BCG Matrix PRE

0

3

6

9

0369

ISA

CSA

Post CSA/ISA

Netflix

Cinemark

Carmike

Page | 53

POST

Appendix K: Company Life Cycle

(20.00)

-

20.00

- 0.50 1.00

Gro

wth

Ra

te

Market Share

BCG

Cinemark

Carmike

Netflix

Regal

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

2012 2011 2010 2009 2008 2007 2006 2005 2004

Re

ve

nu

es

(00

0s)

Years

Cinemark Revenue per Year

Page | 54

2,200,000

2,300,000

2,400,000

2,500,000

2,600,000

2,700,000

2,800,000

2,900,000

3,000,000

2012 2011 2010 2009 2008 2007 2006 2005 2004

Re

ve

nu

es

(00

0s)

Years

Regal Revenue per Year

420,000

440,000

460,000

480,000

500,000

520,000

540,000

560,000

2012 2011 2010 2009 2008 2007 2006 2005 2004

Re

ve

nu

es

(00

0s)

Years

Carmike Revenue per year

Page | 55

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

2012 2011 2010 2009 2008 2007 2006 2005 2004

Re

ve

nu

es

(00

0s)

Years

Netflix Revenue per Year

Page | 56

Appendix L: SPACE Matrix

Appendix M: Grand Strategy Matrix

Page | 57

Appendix N: Edward Altman’s Z-Score Table X: Edward Altman’s Z-Score

Page | 58

Appendix O: Financial Tables

0

0.5

1

1.5

2

Z-S

core

Z-Score

2010 2011 2012 Three Year Average

0

2

4

6

8

10

12

14

16

18

20

2012 2011 2010 2009 2008

Liquidity Ratios

Net Current Assets % TA

Current Ratio

Quick Ratio

Page | 59

0

1

2

3

4

5

6

7

8

2012 2011 2010 2009 2008

Debt Management

Interest Coverage

TD to Equity

LT Debt to Equity

0

50

100

150

200

250

300

350

400

450

Asset Managemet

2008

2009

2010

2011

2012

Page | 60

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

2012 2011 2010 2009 2008

Revenue/Employee

Revenue/Employee

0

2

4

6

8

10

12

14

2012 2011 2010 2009 2008

Per Share

Book Value/Share

Cash Flow/Share

Page | 61

Appendix P: Financial Trends

Table X: Cinemark Industry and Primary Competitors’ ROE Trends

-20

0

20

40

60

80

100

120

2012 2011 2010 2009 2008

Profitability Ratios

Calculated Tox Rate %

EBITDA Margin %

ROI % (Operating)

ROE % (Net)

ROA % (Net)

Page | 62

Table X: Cinemark Industry and Primary Competitors’ EBITDA Margin Trends

-250

-200

-150

-100

-50

0

50

100

150

200

2009 2010 2011 2012

Per

cen

tag

e (%

)ROE TRENDS

Industry Average

Cinemark

Regal

Carmike

Page | 63

Table X: Cinemark Industry and Primary Competitors’ Revenue Per Employee Trends

0

5

10

15

20

25

2009 2010 2011 2012

Per

cen

tag

e (%

)EBITDA Margin Trends

Indusrty Average

Cinemark

Regal

Carmike

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

2009 2010 2011 2012

$ P

er Y

ear

Revenue Per Employee

Industry Average

Cinemark

Regal

Carmike

Page | 64

Appendix Q: Cinemark’s Revenue, Expenses, and Net Income Table X: Cinemark Expenses, Net Income, and Revenue

R- first year cost reductions s- requiring capital distribution T- ebit/eps analysis

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

2009 2010 2011 2012

$ P

er Y

ear

Expenses, Net Income, Revenue For Cinemark (In Thousands)

Expenses

Net Income

Revenue

Page | 65

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

$-

$200.00

$400.00

$600.00

$800.00

$1,000.00

$1,200.00

$1,400.00

$1,600.00

425 850 1700

EP

S

EBIT(Millions)

EPS/EBIT Analysis

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)

Combinationg (90%E 10%D)