Cinemark Holdings Inc (CNK) 2009 Q2 法說會逐字稿

Good morning. My name is Ashley and I will be your conference operator today. At this time, I would like to welcome everyone to the Cinemark second quarter earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions).

Thank you. Ms. Sacks, you may begin your conference.

Thank you, and welcome to Cinemark's fiscal second quarter 2009 earnings call. Before we begin, let me remind you that in accordance with the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995, the Company knows that certain matters to be discussed by members of management during this call may constitute forward-looking statements.

Such statements are subject to risks, uncertainties, and other factors that may cause Cinemark's actual performance to be materially different from the performance indicated or implied by such statements. Such risk factors as set forth in the Company's SEC filings.

Today, Cinemark CEO, Alan Stock, and CFO, Robert Copple, will be discussing the second quarter results. I'll now turn the call over to Alan.

Thank you, Nikki. And thank you all for joining us on the call this morning.

On today's call, I would like to comment on the industry's and Cinemark's calendar second quarter 2009 results, the upcoming film slate, and Cinemark's digital cinema and 3-D strategy. After my comments, our Chief Financial Officer, Robert Copple, will take us through the details of our second quarter results.

The strong start to 2009 for the exhibition industry continued into the second quarter, with April, May, and June all setting new domestic box office records. According to industry sources, the domestic box office was up approximately 12.5% for the calendar period, accelerating from 9.5% increase in the first quarter.

This continued strength proves that consumers continue to value the cinema as one of the most attractive forms of out-of-home entertainment, and that the industry can experience solid growth when there is quality content.

Led by Disney's 3-D hit, Up, 10 films grossed more than $100 million during the second quarter of 2009, including Star Trek; the Hangover; X-Men Origins; Wolverine; Night at the Museum II -- Battle of the Smithsonian; Fast and the Furious; Angels and Demons; Monsters vs. Aliens; and Terminator Salvation. Our second quarter also benefited from the first full week of Transformers.

Turning to Cinemark's performance in the second quarter of 2009, the combination of strong domestic box office results and even stronger performance in our international operations allowed us to report a 14.4% increase in worldwide attendance, and a 21% increase in adjusted EBITDA for the quarter. Our attendance growth was driven by increases in both our domestic and international segments, as well as the addition of new theaters.

We also experienced modest increases in both our domestic and international average ticket prices and concession revenues per patron, before the impact of unfavorable changes in foreign exchange rates -- as consumers are not only still going to the movies, but they are continuing to buy concessions while they are there.

Our domestic box office revenues were up 17.9% in the second quarter, significantly outperforming the estimated US industry box office growth of 12.5%. Our domestic attendance increased 13.7%, due to the strong performance of the films I mentioned earlier.

In light of economic conditions, we have continued to maintain our conservative approach to pricing, with some selective modest increases in May to certain categories in our box office. Our average ticket price increased 3.6% in our domestic circuit compared to Q2 of 2008. We implemented a small price increase across certain concession items, as we normally do heading into the summer box office season, and plan to continue a conservative stance with respect to our pricing strategies.

Moving to our international results, our performance in the quarter was even stronger than our domestic operations, in both attendance growth and increases in average ticket and concession per patron in local currencies. In fact, our performance was so strong that we still experienced year-over-year growth in our international revenues, even after considering the negative impact of foreign currency exchange rates.

Our international attendance grew 16.2% for the quarter or 13.1% per average screen during the second quarter of 2009, due to the success of films such as Angels and Demons, X-Men Origins, Wolverine, and Fast and Furious. In addition to the US product, we continue to benefit from the strong performance of local film product.

International average ticket prices and concession revenues per patron also increased in local currencies. Additionally, the foreign exchange impact lessened slightly during the quarter.

The third quarter began with strong openings from Harry Potter and the Half-Blood Prince; Ice Age -- Dawn of the Dinosaurs; and the continued performance of Transformers -- Revenge of the Fallen. Each of these three films has grossed more than $150 million during the quarter, with Harry Potter surpassing $260 million, and Ice Age exceeding $180 million.

Transformers continued its strong run during July, bringing its total gross to more than $390 million. We are optimistic about the lineup for the remainder of the quarter, which includes a number of high-profile films and a number of 3-D releases, including G.I. Joe -- The Rise of the Cobra, and Julie and Julia, both opening today, followed by The Final Destination in 3-D; another Tyler Perry film, I Can Do Bad All By Myself; and the 3-D release, Cloudy with a Chance of Meatballs.

The fourth quarter includes the highly anticipated releases of Robert Zemeckis' A Christmas Carol, and James Cameron's Avatar, both showcasing 3-D.

We're also excited about a number of other films coming to the screen in the fourth quarter, including the next installment of the sensational Twilight series, New Moon; 2012; Old Dogs; Alvin and the Chipmunks -- the Squeakquel; and Sherlock Holmes.

Beyond 2009, there are already over 25 3-D films in the pipeline for release over the next few years. Given the success of Monsters vs. Aliens, Up, and Ice Age -- Dawn of the Dinosaur thus far in 2009, we remain optimistic about the growth opportunities for 3-D.

During the second quarter, our 3-D box office per screen outperformed the average 2-D per screen in the range of 3 to 3.5 times, depending on the film. We find it encouraging that even in a very difficult economic environment, consumers value the premium movie-going experience that 3-D provides.

We currently have 307 3-D projectors deployed worldwide, and once financing for DCIP is finalized, we will begin a broader deployment of up to 1,500 Real D 3-D screens throughout our worldwide circuit. DCIP is in the final stages of due diligence with investors and is working to secure the necessary equity commitment. Simultaneously, DCIP is completing the documents to allow it to move forward with the debt portion of the financing.

We continue to work closely with DCIP to finalize the financing as well as prepare our Company to be able to execute the rollout quickly, once the financing has been secured. In order to facilitate the financing and provide a platform for the 3-D product being released, we have rolled out, on a limited basis, digital projectors that we envision being utilized as a capital contribution to the equity of DCIP, when the financing is complete.

If the equity financing is not completed timely, we are considering alternatives, including additional funding by us, combined with DCIP debt financing, to begin a broader rollout of digital and 3-D technology.

We also announced during the second quarter that we have partnered with Digital Cinema pioneer, Barco; DLP Cinema technology provider, Texas Instruments; and media server provider, Doremi, to install 4K digital projectors across our entire circuit once DCIP financing is secured. The agreement also includes plans for our international operations, which would bring the overall deployment to more than 4,600 screens.

The delay in the timing of the original DCIP financing timetable has allowed the industry to direct its focus on the 4K technology rather than 2K. And we feel our choice of technology partners provides us the ability to provide our patrons with the highest quality viewing experience, combined with an efficient and proven technology.

Beyond 3-D, we are pursuing opportunities to enhance growth and differentiate our existing theaters, such as the new XD -- Extreme Digital Large-screen Auditorium, which we first introduced last quarter. While XD is still in its initial test phase, we have been very encouraged by the results thus far.

We recently opened our second XD screen near Salt Lake City, Utah, just before the opening of Harry Potter. With the summer season ending, we will begin a broader rollout of our XD technology. There are 10 to 15 new XD auditoriums that will be open during the next three to six months in both new and existing theaters. We are completing our review of additional markets for the next wave of conversions to begin when this initial group is completed.

We are continuing to expand our theater footprint, both domestically and internationally. There has been some slowdown in commercial project development -- particularly in the US, given the current economic environment and its impact on developers -- but we are still finding opportunities for organic growth and are also seeing opportunities to supplement this with selective acquisitions.

Domestically, we opened three theaters with 38 screens during the second quarter. We currently have signed commitments to open one theater with 16 additional screens during the remainder of 2009, and five theaters with seven new screens subsequent to 2009.

We feel there is still significant opportunity to further penetrate our Latin American markets. We opened three theaters to 20 screens internationally during the second quarter. We currently have signed commitments to open an additional three theaters with 18 screens during the remainder of 2009, and three theaters with 22 screens subsequent to 2009. We will continue to seek high-quality locations for organic builds, and evaluate acquisition opportunities that meet our return metrics in both the international and domestic markets.

Overall, the second quarter was another highlight for the exhibition industry, with double-digit growth in a very difficult economic environment. Our high-quality theater circuit, international diversity, and strong operating focus allowed us to report higher box office growth in the industry, and a 21% growth in our adjusted EBITDA. We are pleased to see that the cinema continues to provide an attractive, low-cost form of entertainment for our customers.

We continue to focus on opportunities that will contribute to our long-term growth, including our Digital Cinema initiatives and expansion of our XD auditoriums, both of which will allow us to take advantage of the growing amount of 3-D and alternative content. We will continue to control our costs and selectively invest in expanding our theater footprint, improving our existing circuit, and pursuing accretive and attractive acquisitions that will further enhance our industry-leading position.

With that, I'll now turn the call over to Robert to discuss the quarter's financial results in more detail.

Thanks, Alan. I will review our second quarter 2009 financial performance in more detail and discuss our balance sheet.

During the second quarter, on a worldwide basis, our attendance increased by 14.4% over the second quarter of 2008. Our total revenues increased by 13.2% and our adjusted EBITDA margin further expanded to 23.3%.

Admissions revenues increased 15.2% to $339.1 million, and concession revenues increased 12.3% to $158.9 million. We experienced increases in both our domestic and international average ticket prices, and concession revenues per patron before the impact of foreign exchange rates.

Adjusted EBITDA for the second quarter of 2009 was $120.8 million compared to $99.8 million for the second quarter of 2008 -- an increase of 21%. On a segment basis for the quarter, our US operations experienced a 13.7% increase in attendance. Domestic admissions revenues were $276.2 million, representing a 17.9% increase over 2008, exceeding the estimated calendar quarter industry box office increase of approximately 12.5%.

Our average ticket price increased 3.6%, driven primarily by the greater number of 3-D films. Concession revenues increased 14.8% to $131.2 million. Our concession revenue per patron increased by approximately 1%, as we implemented modest price increases across certain products during the quarter.

Our total domestic revenues increased 16.5% to $418.5 million, and adjusted EBITDA increased 27.6% to $100.6 million. Our domestic adjusted EBITDA margin increased 210 basis points, primarily driven by the additional leverage gained off of higher attendance.

Within our international segment, attendance was up a robust 16.2% for the quarter or 13.1% per average screen, exceeding our US segment growth. Our average ticket prices and concession revenues per patron both experienced growth for the quarter in local currencies. Admissions revenues were $62.9 million, driven by stronger attendance increases, new theaters, and an increase in ticket prices and local currencies.

Concession revenues were $27.7 million, driven higher in local currencies by increases in pricing and attendance growth. Our solid growth in attendance more than offset the impact of foreign exchange rates, driving our international revenues up 1.1% in the second quarter.

Adjusted EBITDA for our international segment was $20.2 million, compared to $21 million in the second quarter of 2008, and our EBITDA margin was 20.4%. Our consolidated film rentals and advertising costs for the second quarter of 2009 were $190.9 million or 56.3% of admission revenues compared to $163.8 million or 55.6% of admissions revenues for 2008.

Concessions supply costs were $24 million or 15.1% of concession revenues for the same quarter of 2009, compared to $23.2 million or 16.4% of concession revenues for the second quarter of 2008. For the second quarter of 2009, salaries and wages were $52 million or 10% of revenues, compared to $45.3 million or 9.9% of revenues for the second quarter of 2008, primarily driven by increased staffing due to higher attendance and new theater openings.

General and administrative expenses were $23.7 million or 4.6% of revenues compared to $24.5 million or 5.4% of revenues in the second quarter of 2008. G&A expenses include non-cash share-based awards compensation expense, up $0.8 million for 2009 versus $1.2 million for 2008. Our 2009 expense also includes severance costs of approximately $0.5 million.

During the second quarter, we recorded asset impairment charges of $3.9 million compared to $1.3 million in the second quarter of 2008. As a reminder, these impairments are non-cash charges to earnings and did not affect the Company's liquidity or cash flows from operating activities.

As previously announced, we completed a new $470 million offering of eight and five-eighths senior notes due 2019, and used the proceeds to complete a tender offer for our 9.75% senior discount notes due 2014. Approximately $402 million of the $409 million in principal of our senior discount notes was tendered. The Company has called the remaining $16.9 million in principle that was not tendered, and will complete the retirement of the debt in early September.

I might note that when you review our cash flow statement, you will see that the accreted value of the notes we purchased, $402 million, is separated into two parts. First, accreted interest on the [PIC] notes from previous years of $152 million is included in operating activities. And second, the regional issue value of the notes prior to any accretion of $250 million is reflected in financing activities.

This refinancing served to both extend our current debt maturities by five years and reduce our weighted average interest rate. As relative to the refinancing, we recorded a loss on early retirement of debt of approximately $26.8 million related to the note repurchased and write-off of unamortized debt issue costs.

Including the loss on early debt retirement, pretax net income for the quarter was $24.1 million compared to $28.5 million in the second quarter of 2008. Net income attributable to Cinemark Holdings, Inc. for the quarter was $18.7 million or $0.17 per diluted share, compared to net income of $15.5 million or $0.14 per diluted share in the second quarter of 2008.

Our effective tax rate was 17.9% for the second quarter of 2009 compared to 41.6% for the second quarter of 2008. The lower rate is the result of an impact of two discrete items that produced a net benefit of approximately $4.9 million. These are specific tax adjustments, not annualized into the normal tax rate for the year, so the effect is a 100% current impact to the quarterly rate.

These items relate to adjustments to our deferred tax accounts and FIN 48 liabilities. Neither has a current impact on cash taxes.

Our balance sheet position remains one of the strongest in our industry. At June 30, 2009, our cash position was $383 million, resulting in a net debt position of $1.18 billion. This level of net debt results in a leverage ratio of approximately 2.9 times adjusted EBITDA. We continue to believe that our cash position, relative debt level, and the timing of the maturities on our long-term debt, leave us well-positioned to be able to take advantage of opportunities that arise as a result of the current economic environment.

At June 30, 2009, our domestic screen count was 3,842 screens, 12 of which are in Canada. During the quarter, we opened 38 screens in three theaters in domestic markets and closed two theaters with 10 screens. As of June 30, 2009, we had signed commitments to open one new theater with 16 screens in domestic markets during 2009, and opened five new theaters with 70 screens in the domestic market subsequent to 2009.

Our total international screen count at June 30, 2009 was 1,047 screens. We opened three theaters with 20 screens in our international markets during the quarter and closed five screens. As of June 30, 2009, we had signed commitments to open three new theaters with 18 screens in international markets during 2009, and three new theaters with 22 screens subsequent to 2009.

During the second quarter, we invested $38.9 million in capital expenditures, including $16.3 million on new construction and theater additions, and $21.7 million in CapEx maintenance. The increase in CapEx maintenance this year is due in large part to the continued investment in our digital footprint expansion that Alan mentioned earlier.

Currently, we estimate that our gross total CapEx before disposition proceeds for 2009 will be approximately $120 million to $130 million, which includes CapEx maintenance.

In summary, during the second quarter, we generated solid growth in both our domestic and international operations, and completed a successful refinancing to strengthen our balance sheet. Consumers responded well to the film slate, and despite difficult early third quarter comparisons, we remain optimistic regarding the lineup for the remainder of the year.

Even during this challenging environment, customers continue to choose the movies as an affordable and exciting form of entertainment. We are optimistic that we will soon be able to begin the broader digital and 3-D rollout, as DCIP works through the debt and equity negotiations and moves forward with financing.

Given the diversity of our international footprint, organic growth, acquisition opportunities, and opportunities associated with digital and 3G technology, we believe we are well-positioned for sustainable long-term growth.

We will now be glad to answer your questions.

(Operator Instructions). James Marsh, Piper Jaffray.

A couple of quick questions here. First, I'm just trying to figure out what's going on with your market share. It looks like typically there's [due] kind of 9.2% to 9.4% of box office. It looks like you spiked up to 10%. Are there any specific things that helped drive that? Is it weather or certain strength of products, certain regions, et cetera?

And then I have a follow-up.

Yes, I don't know that there's -- when you look at percentage share of any one movie or as you calculate that, we can be -- there's probably a fairly diverse range, most likely depending on the type of film and where it's stronger. Every movie has -- when it's released, might play stronger in one part of the country or another, or types of film play differently for us in these areas.

So, I don't know that there's anything necessarily different than what it's been in the past, as we look at how we rank, percentage-wise.

Okay. And maybe you guys could just give me a little update on your current thinking on ticket prices. It looks like Regal was up 7%; Carmike was up in that 6% range. And you guys are down closer to 3.5%. Is this just based on earlier price increases rolling through or do you think you have a different view on how to price tickets in this environment?

Well, I think as we -- as I said it in the beginning, our goal -- Cinemark's goal always is to be fairly conservative and be careful, especially in this environment, of how we approach our ticket pricing. So we were conservative.

Remember too, that IMAX drives a lot of what Regal had. And I think they reflected some of that in their call. Of course, we only have six IMAX screens. But our goal as a company always has been to focus on attendance. We want to make sure that we're keeping attendance driving and again, if you look at our results, we feel we did a pretty good job with that.

So we'll continue, as we stated, to be somewhat cautious how we look at pricing and looking at the environment that we're in today and trying to be conservative in that approach.

Okay. And then just one last one here. You talked about rolling out some additional digital projectors that would later be viewed as a capital contribution to DCIP. Could you quantify how many projectors you're talking about there?

That's actually still being worked through. I mean, as Alan said, we have, I think, 307 digital projectors worldwide; I think somewhere in the 270 to 280 range in that US. Actually it's quite lower than that in that US -- owned is probably in the 220 range.

We would contribute what we own today to DCIP as part of an equity investment. I think the high and low is still being worked out. We're still working with DCIP and the potential equity and debt financing of it. And now we're really into end drive in what we're willing to put in.

We're not talking by any means about funding all of our digital rollout, but we're hoping to increasing our investment to move this on down the road. Again, I don't think in terms of what we're looking at as a total company, we feel with -- at least where DCIP is today, that it would be a significant investment that would throw off cash flows or anything. But definitely, it might be greater than what we put in today.

Understood. Okay, thanks very much and congratulations on an excellent quarter.

Barton Crockett, Lazard Capital.

Thanks for taking my question here. Getting back to the price [I heard] domestically, I think you said on the transcript that it was principally driven by 3-D surcharges. So if I heard that correctly, that that would tell me that there really was no price hike; there was really a mix shift towards 3-D. And I'm just wondering if that's correct.

And I was also wondering, Regal gave us, on their call, a sense of the incremental variable expense from both 3-D and IMAX so we could back into a profit contribution from that. I was wondering if you guys could do something similar for us.

Barton, you are right, it's primarily 3-D. There was probably -- there was some minor price increase related to 2-D, and again, you've got to be a little careful with all that because some of it's -- where's your shift in audience and all that as well.

But it definitely was primarily driven by 3-D, which reflects, as Alan had said, kind of our conservative approach. Again, don't take that to mean we haven't raised price anywhere, but we're balancing our major prices with increases at the top end but being sure we're providing, on slower days and things like that, matinee pricing, senior pricing, those type things.

(multiple speakers) Well, and then, the second part of your question on expenses of 3-D and IMAX -- ours is maybe a little simpler in that when you think about it, I mean, (inaudible) that we have six IMAX screens there -- not the digital IMAX; we haven't entered into any joint ventures. So really all we're dealing with is 3-D.

As far as what the cost of showing 3-D is, I think everyone's reasonably aware of the general Real D deal that people have, where they pay an amount per patron, which ours is pretty much similar to everybody else's. And that's only what I would argue is incremental cost to us. I mean, clearly, if I'm having additional 3-D attendance, I might be having payroll and other costs like that. But film rental is pretty much the same as our regular film. So to me, our only cost -- and it is a cost, but it's just the increment relating to Real D.

I understand it's incremental to Real D. I mean, can you quantify that? Or -- Regal told us that they're closing their other theater operating expense line versus rental, and I was wondering if you could tell us where it falls for you.

Yes, it does. It flows into other theater expenses for us as well. Again, I think -- I can't say what my contract is, but I think what's generally been thrown out and what people feel the general Real D cost is about $0.50 a patron.

Okay, all right. Could you -- you talked about capacity to respond to events in the industry and one event right now is national amusements. The other event is your interest in potentially funding some of the digital projectors as we bridge over to DCIP.

Can you just update us on what -- how much capacity do you think you have for acquisitions? Do you see any -- what your current thinking is on national amusements and whether the digital projector might limit your ability to pursue something like national amusements.

Well, obviously, you're aware of our cash position and what our balance sheet looks like. I think for us, it's really a function for national amusements and just determining, again, as we work through this process of which of those assets we can buy at the right price.

I think we've stated in the past, we're not necessarily interested in the entire circuit. We have been looking at pieces or portions of that company. So we are still in the middle of that process and not really sure where that's going to go. And I don't think that is necessarily related or effects or changes how we would view what we move forward on the digital front, either.

The digital front is a different scenario that we have to determine what our capital, if any, and how it goes into the model, and then how that relates to the debt financing and how we would work that through with the different contracts. So, we feel, again, we're well-positioned on our balance sheet to give us flexibility to really maximize, in our opinion, our best shareholder return. And that's how we're approaching this.

Okay. And then one other quick question. Can you give us what the ticket price and concession per cap would have been, excluding FX internationally? What the change would have been?

Yes, I mean, with respect to our foreign side, I think that's what you're asking me -- if I looked at -- I mean, since we did have different currencies, [therefore,] we look at it on a constant dollar basis. And that's probably as close as we can get to what it would have been.

Our average ticket price increase internationally would have been 10.2% for the quarter and our concession per cap would have been up 7%.

Okay. That's great. Thanks a lot.

Ben Shapiro, Thomas Weisel.

Ben Shapiro here on behalf of Ben Mogil. He would have liked to be here himself, but he's out at a conference. I just have two questions. Firstly -- and I know you just touched upon this with Barton's question -- I'm just wondering if you can quantify how much IMAX and 3-D revenue contribution there actually was in the quarter, and how much of the average ticket price growth came from those two categories?

And then my second question is, can you provide any commentary on how the new MUVICO screens are faring, maybe relative to the overall box office so far in the third quarter?

With respect to prices again, I think as either we'd talked to James or Barton -- yes, primary was driven by 3-D. And if I looked at 3% plus increase we have, I mean, I'd say 95 plus percent of that was 3-D oriented. I don't know -- I have a breakout of 3-D versus 2-D box office.

I would say, again, it's not easy to say we performed per se in line with industry, because everybody has a different percentage of projectors at this point; it's not necessarily consistent among the industry. I think generally for us, if we looked at our relative screen count of projectors -- I'll kind of look at it domestically -- would probably be somewhere in the area of -- 3-D was probably around 9% of our box.

And then -- was the last question --?

MUVICO.

Oh, MUVICO. Yes, MUVICO -- we look at that as an asset no different than a new build, so we -- I mean, obviously I track every asset we own, but again, that particular purchase was done in order to supplement our billing program because our billing program -- because of the development community, is not as extensive as what it's been in the past.

So we really don't, per se, track those assets individually. We've really looked at it as just, again, an extension, trying to get to our general 200 or so net screens a year. I mean, they performed well, just like our other assets. They've definitely been a great asset for us.

Okay, that's great. Thanks.

Eric Handler, MKM Partners.

Thanks for taking my question. Can you talk maybe a little bit more about your XD screens and others -- not a lot of data points yet, but in your Dallas theater, maybe you can give some perspective of -- what type of uplift you're seeing in terms of revenue and attendance versus whatever that particular theater was doing before, or relative to the existing screens in that theater complex?

And also on the M&A market, as the regional players are scrambling for access to capital to -- for their digital migration, are you seeing more deals being shopped around?

All right, Eric, in regards to XD, and I don't know there's a -- we don't really have a way at this point in time -- the thing is fairly new. I can tell you from a business standpoint, that their theater and the movies have certainly done well. I mean, it's only been open a few months.

As we said in the past, we do charge about a $3.00 ticket price uplift for that auditorium. And the other hard thing that's a little hard to track -- and this is a little unique to the XD, is actually one of the benefits of it -- is we literally almost single week put a different film in there. So when a new movie opens, that movie most of the time goes into that auditorium and gets an uplift from it.

So I don't know how we can give you numbers yet or tell you where it's going. We can just simply tell you that the response from the customer base, and as we monitor how people like it and view it and how they go to that experience, we feel good about it. And that's why we, again, have -- like to continue forward with our expansion.

We put the other one in Salt Lake City and think that it's going to be something that continues to drive, in our opinion, just people's excitement about going to the movies and getting something that's fabulous. (multiple speakers)

Is there a way to monitor a market share per screen in a particular DMA?

Well, maybe a different way to look at it, because one of the things that we found when you do something like this is, a lot of times it's an uplift -- not just to that, let's say auditorium, because we have the data, obviously, to look at an auditorium of what it did before, what it did afterwards. But you know, again, that might affect the rest of the theater.

So a little bit to your point, we monitor how that theater performs as part of the overall DMA that it's in, what it did previously. And we look at overall attendance in that theater.

There's been a very distinct uplift in the theater that that the XD screen is in with respect to overall attendance in it. It's outperformed our -- not only the general DMA but our general theater chains. And for the market position, that theater, the way we've looked at the DMA, used to be ranked fifth in the DMA. Now it's ranked second.

So in all methods we measure it, it is successful and clearly, we're looking at what our investment was versus what the uplift was. We're a little hesitant to give out numbers at the moment, just because we would like a little more time behind it; but we would tell you, with everything it's done, again, just the uplift of the overall theater, the performance of that theater's attendance, the performance of that screen's attendance, we feel it's very successful.

We have no doubt, as Alan said -- we're poised to roll out another 10 to 15 in the next three to six months. So we're very comfortable with what we think it will achieve for us. We'd just like a little more data points before we start providing it to everybody and letting people build models off of it.

I think, Eric, your other question -- was it more M&A-related, just what's out there perhaps or being shopped around. I'm not sure we've seen necessarily any more or less. As you are probably well aware, the last couple of years, there's been a fair amount of things coming to the table. And we certainly have looked at all of them.

I don't know what that means for -- as we move into the future. We certainly know there's some sponsor groups out there that are interested in getting out of their position in the theater business, which could bring some things to the table. So I don't know that it's going to necessarily going to change a whole lot, but we, as a company, will continue to look at those opportunities as they come to the table.

Tony Wible, Janney.

I was hoping to focus a little bit on the international markets. Within the US, there's been a cut in the film production rate with the lower budget films start coming to market with the credit environment. Are you seeing a similar cut in the film slates in your overseas markets or some of those domestic films?

Well, remember, probably 90% of the product that we play internationally does come from the US here, although a lot of the smaller stuff never makes it down there either.

The international film development really varies by country on what's out there. And I think as I mentioned earlier, we saw just this past quarter and this year, a number of really good films released domestically in those countries. Brazil has had some good film.

So I don't think the production of any of the local product in those different countries has really changed in this environment. A lot of that's driven by the government, the sponsor, and have a lot to do with promoting film development in those countries. And obviously, like it does here, some of those films can perform very well and others don't.

Not all markets have their own film distribution but Brazil is a good market that does. Mexico has some. So for us, I don't know that much of that has really changed or will change in the future.

And then the 3-D premiums that you're collecting today, have you done any work or surveys to suggest where you think that could move to over time? Absent, obviously, the economic malaise that we're kind of in?

I don't know there's an easy way to do a survey or figure out obviously people -- what you have to test and do is, as you work through the pricing model, just see how people react and if they're accepting that or not.

And certainly, as you've seen in the numbers here, they certainly have no problem paying what we're charging today. We, recently, I think this past spring, many people including ourselves, went up in some of the 3-D pricing when Monsters vs. Aliens came out. So our goal for the 3-D pricing, just as it is in all pricing, is just to evaluate on a market-by-market basis.

As we stated, we vary between probably $2 and $4 on that up charge. Right now, most of our theaters are around a $3 up charge. So we do think, as we continue to move on down the path on the quality and the film that's coming out, that just gives us an opportunity to continue to evaluate how to price and what to do with that 3-D model. But it, I think flows very closely, is tied to how we also look at the rest of our box office pricing.

And with the current, I guess, 3-D infrastructure that you have, which is obviously limited by DCIP, do you feel like you can accommodate the 25 3-D films that are now on the slate coming down, in the sense that you would keep them in those theaters as long as you would like, as opposed to maybe having to shorten the length of run to accommodate other new 3-D films?

Well, a lot of that has to do obviously as to when, how close to each other those films are released and how much time between it. And we obviously are hopeful that DCIP gets funded here relatively quick and we can begin ramping.

And understand, as we've said it before, when DCIP does fund or there's a financing mechanism or however we move forward with this, the first place we'll begin rollout is 3-D. So we'll concentrate on that and make sure we get that footprint up to a level that can accommodate films adequately and moving on into the future.

Great. Thanks. And them last question I had is just on XD. Any commentary from your patrons in the one theater that you have now and how they felt like the XD experience might have stacked up versus IMAX? And is there any kind of push-back, just given the difference in brand, albeit the new IMAX screens are certainly smaller than the old IMAX screens?

Yes, I don't know that we've had a lot of comments direct comparison necessarily to IMAX. The way this theater is positioned, and we ourselves have an IMAX theater in this market, we haven't necessarily seen changes or fluctuations in that IMAX theater as a result of XD.

I think really what it's just done is a lot of people don't necessarily want to drive wherever those IMAX theaters are. And this screen is a very good viewing experience. So, the only commentary I can tell you, those who have gone -- and we invite anyone to come look at it -- it's just a great place to watch a movie. It's a huge screen and has incredible sound.

So the commentary we get is, that is a great experience. And especially when some of these big action-driven movies have come through -- the Star Treks and the X-Men and things like that, people just really, really want to go to that type of a theater and like XD to watch it, because the experience is phenomenal.

But even having said that, it's done well with whatever film is in there, because it changes the environment in the way you watch a film.

We've had some very positive feedback. Most people, once they go to the screen -- the hard part is they come out and they say that's all they want to see from now on, because it is a very unique experience.

Well, congratulations on that, then. Thanks.

Eric Wold, Merriman Curhan Ford.

Most of my questions have been answered. A couple of follow-ups. One, on the XD. Of the 10 to 15 to be installed in the next three to six months, how many of those will be in Latin America? And then your sense of what the opportunity for those in Latin America is versus domestically.

I think right now, most all of those 10 to 15 are here domestically. We have identified a few areas that we'll focus on internationally. We're wanting to make sure, again, the results and the data and how it occurs here domestically works, and we've got the model down good. But we are working toward -- and that's something that would probably be more done in 2010, as we look toward the international market and to determine which ones and the best areas to approach it down there.

I mean, we definitely feel that there's an opportunity in Latin America. We're looking at it, especially in some of our new builds, if we can incorporate it.

The screens -- some of these lend themselves a little easier in Latin America because you tend to build larger auditoriums with less screens, but it's also looking at that and because, really, of our positioning in some of these markets, just choosing what theaters we want to put them in. But we do feel like there's a great opportunity in Latin America and we will push it down there.

Have you got a sense that the appetite for price increases on XD in Latin America is similar to US in terms of the percentage increase over a regular ticket price?

Yes, we would think it should be the same. I mean, again, IMAX is a brand. Now, granted it's not available much in theaters down there by any stretch, but watching a large screen format or something premium in the international markets has done very well -- 3-D, a great example. 3-D performs very well internationally.

So we feel like the model and the experience as we can deliver it would -- we would not get pushback on a price increase.

And then lastly on the rollout of digital 3-D -- I guess semi on your own, ahead of DCIP getting funding, similar to what Regal is doing. Regal gave a number of -- they could add about 150 screens before the holidays. Have you thought about a sense of kind of a range of what you could add in incremental screens before the holidays?

Well, as Robert stated, we're still kind of working on that model. Our number wouldn't probably be that big. I mean, a lot of it just depends on -- we're very close here trying to work out some deals on the DCIP side of the equation.

But of course, we've got our XD screens that -- those, obviously, are digital screens that would be rolling out, so that 10 to 15. And there might be some others; we've got a few new theaters that are opening, stuff like that. But it's not going to be a significant number by any stretch.

Okay, thank you guys very much.

George Hawkey, Barclays Capital.

Most of my questions have been answered, but I just had one brief one. What is the breakdown of the contribution of 3-D to the growth in ticket pricing for the quarter? That's all.

Again, 3-D with respect to our ticket price increase is a little over 3% domestically, really was driven by 3-D. And so I think it's around 95% or so of that increase would have been attributable to the incremental pricing we have on 3-D product, and somewhat. XD wouldn't have influenced it that much in terms of our total circuit, but it -- obviously, that's a price increase as well.

Great. Thank you.

David Miller, Caris & Company.

Just a housekeeping item. You guys mentioned in your prepared remarks that international attendance growth outpaced US attendance growth. That's actually pretty surprising. And correct me if I'm wrong here, but I had thought that there was actually just a myriad of product from the US that played internationally on a lag. So, I, for example, I think Up is more of a story for you guys internationally in the current quarter than it was in the June quarter.

So, was there a Brazilian film or a film from, say, the Mexican film industry, or some local regional film that played very well in the quarter, that resulted in such a very nice international attendance number in the quarter?

Well, as every quarter kind of happens here, every film kind of plays differently. We know, obviously, Angels and Demons was one that performed better internationally. It performed very well internationally. Wolverine played well; Fast and the Furious. So, there were many there.

Brazil had a -- there was a couple of local film products that opened well -- [Debo], one of them was called. I'm not going to know how to pronounce the other one. But there were a couple of films that did do well on a local level, for some Brazilian film. But I think in general, you just kind of have to look at the films that did play, translated pretty well, just from the standpoint that they liked them. You know? It just is one of those kind of quarters [if] the business is well.

Mexico did very well with Up. Again, Angels and Demons did well. A lot of the films obviously country-to-country, they're sometimes released different times. And some of them are released [day and date] here with the US.

So that's going to always be the case the way it flows through the release cycle for the international market. But I think it's a good way to look at it, that was just a good quarter. The film translated well and the local product did well and people wanted to go to the movies.

And again, we've been seeing this now for a number of quarters, where Latin America has been able to outperform the domestic side. Not necessarily just Cinemark; I mean it's just outperforming the US in general with respect to its attendance increases.

Okay. And then just very quickly, Robert, on the international side, average ticket price -- excluding foreign exchange, what was the percentage hike there quarter-on-quarter?

The ticket price, excluding FX, was about 10.2%. And the concession was about 7%.

Okay, wonderful. Thank you.

Jeff Logsdon, BMO Capital.

Thank you. Great quarter, guys. What impact will the change in minimum wage that went into effect last month have on your overall expenses?

It definitely will impact us. In a circuit like ours, we'll have a number of minimum wage individuals. Historically, we've been able to offset that through price increases. As Alan has said, we're being somewhat conservative at the moment on that. It's something we're going to have to evaluate in light of the change.

I would say over an annual period, looking at this particular increase, it's probably somewhere in the ball park $3 million and maybe a little higher range of potential impact. And again, we'll look to see ways to offset that from a margin point of view. No end pricing but in this environment, it will be a little more difficult.

The positive part -- and again, as Alan said, we're going to be conservative on this, but we are going -- our normal price increases generally happen in the November/December timeframe. So, we will be looking into the other side of it to see what we can do with some things like that.

Secondly, relative to DCIP, will your international screens and rollout of digital be part of your contribution into DCIP? Or will that be held separately and therefore financed separately by you guys?

It will be separate from the US DCIP rollout. We have been working with some foreign exhibitors just like we have in the US with Regal and AMC, looking at what alternatives might be available to us, both from a group basis for financing the rollout and negotiating contracts.

While we've been -- we're active in that process, some of it will work off of how DCIP ends up being financed. I mean, again, it won't be part of the financing, but the model, at least, will be an important part of how we look at international.

So, something's still developing. We have been rolling it out just like we have in the US currently, using our equity, but as we move forward, again, we'll look at some similar model.

Great. Thank you.

Barton Crockett, Lazard Capital.

Great. I was just curious -- you guys are going for that [the] Barco projector and I've heard push-back, people who have argued that it's not -- maybe be not as ready for primetime as the Sony technology. And I was wondering if you could talk about your view on that, and what due diligence you've done to make yourselves comfortable that those projectors will be able to do the job.

Well, we can tell you, one thing, Barton, we, obviously -- living here in Dallas, the home of TI and having the opportunity to see what that chip and that technology can do, we're certainly comfortable. We know that the image and projector and the quality of what we get out of the DLP is extremely good.

As we've sat down and talked to them, and talked to their engineers, and looked at it and understood what that 4K technology means to the DLP side of the equation, we think it's phenomenal. We think that the picture quality, and when you sit and try to analyze the difference between three different projectors, I mean, I would challenge anybody as you sit in the room to try to really figure out -- you really starting to slice hairs.

But I can assure you that we're very comfortable with the quality and what we gain out of the products that we chose, both from the Barco side, the TI chip, and the Doremi server that is going to produce an extremely effective screen presentations.

Okay. But beyond that, you think these projectors will be ready to install when the DCIP financing is here?

Oh, absolutely. I mean, again, what they're doing here from the 4K, 2K standpoint is -- 2K chips go in and 2K projectors can go in now. And then I can -- and actually upgrade them to the 4K chip when it becomes available next year.

So you've got to realize, too, that all projectors including Sony that they advertise as 4K, when it's projected in 3-D, any 3-D image, is always only 2K. It can only be 2K -- because that's the way that stuff is done and it's broken out when it's projected that way. So it's irrelevant whether you have a 2K or 4K when you're projecting a 3-D image.

But we have done extensive tests. In fact, our theater next to our office here that has our XD auditorium in it, the XD is a very high quality DLP 2K projector. That image is absolutely fantastic. And in this theater, we also have 17 Sony 4K projectors in there. And as our customers -- and as you look and you go from auditorium to auditorium, I mean, we're getting great images from both.

So we certainly, obviously, like the Sony image and feel it's great. And we also think the DLP TI technology is very good. And I think the bottom line here is, and as we stated earlier -- because of some of the delays has actually allowed all of these equipment manufacturers to make and produce a piece of equipment that is very good.

And we think that's where we are today -- whether it is Sony or whether it's our Barco choice or wherever we're going with it, the goal here is just to get a good image on the screen, of which we are achieving.

But the thrust of my question was what's the image quality and more just the reliability of the heat generation and just how much does it break down?

From that standpoint, Barton, actually that is where DLP is by far superior to Sony. Sony is an incredible generator of heat and that's one of the biggest issues that they've had.

(multiple speakers) Yes, Barton, we have been looking, obviously, at all the projectors for some time. And with respect to Barco, they make what we would call very efficient projector. It's designed for the kid that's up there -- I mean, there's interchangeable parts, it's very easy to fix, to work on. You don't have to tear a whole lot apart if anything goes down on it.

They're actually very reliable. But again, we look at -- you've got 16-year-old, 18-year-old kids up there working on things. We always want to make sure everything is efficient and easy to use as possible.

And to your point, I mean, key generation, breaking down -- we've been using Barco projectors and Sony, and Christie and NEC, and they all make great projectors. We had just decided that from an overall efficiency point of view, this was the best and easiest to use, the way 3-D fits on it, works very easily to move it on and off of it for 2-D and 3-D films.

And as you're mentioning actually, not just the heat generation; the bulb life, the electrical efficiency of it, in terms of the power it uses -- we think this is actually the top choice we could have made.

Good. Thank you very much.

Andrew Finkelstein, Barclays Capital.

Just a question on the balance sheet, Robert. You've obviously made some progress pushing out maturities recently, but you're sitting on a lot of cash -- sort of all combine that with a free cash flow question. Any thoughts on excess free cash flow, the dividend?

And then also M&A -- are there smaller opportunities, maybe away from national amusements and international opportunities that you're looking at or thinking that could be a use of cash? Thanks.

Clearly, our dividend and then there's the decision at the Board level. We just announced our current dividend, which is in line with the historic rate we've been paying of $0.18 a share. So clearly, we haven't made any move in that direction on a current basis. The Board obviously will always be reviewing that and looking at it.

I still think in this current economic environment, with the opportunities we feel will be out there, both to your point domestically and internationally, having that capability with the balance sheet we have and people have been asking about digital -- it gives us a lot of flexibility with ultimately what we do with digital. We think it's an important part of how our Company is positioned today, and our not feeling like it's burning a hole in our pocket by any means to find a use for it.

I mean, we -- as we did with MUVICO, as we're looking at other deals, if we can find tuck-in acquisitions that are accretive to our Company -- and again, that can be in international as well as domestic markets -- then we'll do those. And if not, we'll continue to build, which we'll do anyway, but we're looking at where we can expand there, using money, obviously, for XD and then to the extent, let's say, for digital.

Okay. And then sorry if you mentioned this earlier in the call -- Robert, did you mention how much each -- the XD conversions cost per screen?

We did not. We haven't provided a model on that yet. We're still -- as Alan mentioned, we just opened our second one. I think after we open a few more of the new group that we talked about, the 10 to 15, we'll have a better feel for that.

Putting it in a new theater is relatively inexpensive because, primarily, what you're doing is adding some sound systems and a few upgrades. So that part is [still] nominal.

The more difficult part is when you're going back into a theater and remodeling it for XD, we're trying to get what we feel like will be a reasonable average to provide people of what that cost will be. And that really enters into where we put them and how many we put out there. We can convert any auditorium we want, but there's some cost level that won't make sense to us.

And arguably, it's not that different really than what anybody would look at in putting an IMAX in, because you really -- you do some very similar work. I mean, you're looking at the relative size of the auditorium and then making some changes to accommodate the size of the screen and sound systems and stuff.

Okay, thanks.

At this time, there are no further questions. Do you have any closing remarks?

No, we'd just like to thank everyone for participating today and we look forward to speaking with you again next quarter.

That concludes today's conference. Thank you for your participation. You may now disconnect.