Cinemark Holdings Inc (CNK) 2009 Q3 法說會逐字稿

Good morning. My name is Brandy and I will be your conference operator today. At this time, I would like to welcome everyone to the Cinemark third-quarter earnings conference 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. Kate Messmer of ICR, you may begin your conference.

Thank you. And welcome to Cinemark's fiscal third-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 are set forth in the Company's SEC filings. Today, Cinemark's CEO, Alan Stock, and CFO, Robert Copple, will be discussing the Company's third-quarter results. I will now turn the call over to Alan.

Thank you, Kate. And thank you for joining us on the call this morning. On today's call, I will comment on the industry and Cinemark's third-quarter 2009 results, the upcoming film slate, and Cinemark's Digital Cinema 3D and XD strategy. After my comments, our Chief Financial Officer, Robert Copple, will take us through the details of our third-quarter results.

We are very pleased with this quarter's results, as we experienced a 4.5% increase in worldwide attendance, and a 2.6% increase in adjusted EBITDA and maintained an industry-leading adjusted EBITDA margin of over 21%. Our geographic diversity has allowed us to outperform the industry, and we continue to report growth in both our North American and international circuits.

The US exhibition industry continued its robust performance, posting strong year-over-year comparisons in this difficult economic environment, and this was despite a very difficult comparison with the success of The Dark Knight in the third quarter of 2008. This quarter was led by Harry Potter and the Half-Blood Prince, which grossed over $300 million domestically. The 3D hit Ice Age, Dawn of the Dinosaurs, Transformers, Revenge of the Fallen, GI Joe, G-Force, Inglourious Basterds, and District 9, each of which grossed over $100 million during the quarter.

Year-to-date, according to industry sources, the US industry box office is up approximately 7.5%, as consumers continue to turn to the cinema as an exciting, low cost form of out-of-home entertainment. Over our industry's history, the most important driver of box office performance is the quality of film content. Both 2008 and 2009 to date have each featured a strong slate of films and we look forward to a promising lineup for the fourth quarter of 2009 and into 2010.

Turning to Cinemark's performance in the third quarter of 2009, we grew our total revenues by 4.3%, as a result of increases in our admission and concession revenues. These increases were driven by higher attendance, the addition of new theaters, and an increase in average ticket prices and concession revenues per patron, which resulted in an increase in our revenues per average screen.

Our domestic box office revenues increased 4.9% in the third quarter, as we again outperformed the estimated US industry box office, which was estimated to have been down less than 1% for the calendar quarter ended September 30th, 2009, according to industry sources.

Our domestic attendance increased a robust 4.1%, due to the strong performance of the films I mentioned earlier as well as the new screens that we've added to our circuit over the past year. We experienced a modest increase in our average ticket price for our domestic circuit compared to the third quarter of 2008. Reflecting continued conservatism in our price increases, coupled with a higher mix of family oriented films during the third quarter, which tends to lower our average ticket price. This mix of films benefited our concession revenues per patron, which was up 2.1% during the quarter.

Moving to our international operations, our results continued to outperform our domestic operations for both attendance growth and increases in average ticket price and concession revenues per patron in local currencies. Our international attendance grew 5.4% for the quarter, driving solid growth in our international revenue, despite the negative impact of foreign currency exchange rates on the results.

International box office benefited from the very strong showing of Ice Age, Dawn of the Dinosaurs, which generated twice the amount of attendance in our international circuit that US blockbusters typically produce.

Additionally, several local films released during the quarter performed very well. Our international revenues also benefited from increases in our average ticket prices, and concession revenue per patron in local currencies over the third quarter in 2008.

Going forward, we expect our international operations to generally perform in line with our domestic operations on an annual basis, although quarterly performance may vary due to the timing of holidays and film releases.

The fourth quarter is off to a solid start with industry box office up approximately 13% through the end of October, due to the success of Couples Retreat, Paranormal Activity, Zombieland, Where the Wild Things Are, Cloudy With a Chance of Meatballs in 3D and Michael Jackson's This Is It. Additionally, Robert Zemeckis' highly-anticipated release of The Christmas Carol in 3D opened this past weekend and grossed approximately $31 million. We are optimistic about the lineup for the remainder of the fourth quarter which includes James Cameron's Avatar in 3D, the next installment of the highly successful Twilight series, New Moon, 2012, Old Dogs, Disney's The Princess and the Frog, Alvin and the Chipmunks, the Squeakquel, Peter Jackson's The Lovely Bones, and Sherlock Holmes.

Looking ahead to 2010, the 3D content pipeline continues to build. There are 18 3D films scheduled for release in 2010, including Alice in Wonderland, Shrek, Forever After, How To Train Your Dragon, Toy Story 3, Oobermind, Despicable Me, Guardians of Ga'Hoole, Rapunzel, and Tron, Legacy, among other promising titles.

Additionally, subsequently to 2010, there are already 15 additional 3D titles scheduled for release. Studios are planning to release more of their films in 3D, given the anticipated continued 3D enabled projector rollout, and the proven success and popularity of 3D films to date. During the third quarter, our 3D box office per screen generated two to four times the box office gross of the average 2D screen, depending on the film. We remain optimistic about the growth opportunities that 3D could bring to Cinemark and our industry.

As you're probably aware, DCIP is in the process of raising debt financing. We feel this process is progressing well, and should reach a conclusion during the quarter. We continue to roll out digital equipment, primarily RealD, 3D enabled, in anticipation of the conclusion of the DCIP financing. We currently have 373 3D projectors deployed worldwide, and once financing for DCIP is finalized, we'll begin a broader deployment of up to 1500 RealD 3D screens throughout our worldwide circuit.

We are continuing the rollout of our successful proprietary large-screen digital format, known as XD, Cinemark Extreme Digital. The Cinemark XD auditorium offers a premium experience created through our large wall to wall and ceiling to floor screen, with plush, comfortable seating. As guests settle in for the show, they are treated to a custom JBL sound system that contains over 30 speakers which produce crisp, clear, digital sound.

While our experience with our XD brand has been limited to date, we are extremely encouraged by the results thus far. As of September 30th, 2009, we had two XD screens in operation, in Plano, Texas and near Salt Lake City, Utah. Since the end of the quarter, we have opened seven additional XD screens, bringing the total to nine that were available for the opening of A Christmas Carol. We're in the process of opening six additional XD screens this quarter for a total of 15 by year-end.

Our economic model for XD focuses on maximizing utilization of the screen by exhibiting the top releases each week, rather than focusing on selected event films. With XD, we have the flexibility to show any 2D or 3D film, which allows us to maximize attendance in the XD auditorium by showing the most popular films during any given week and show time.

We have the ability to open an XD screen in any domestic or international market. We retain all of the upside associated with the attendance lift, ticket price premiums and concession revenues that our XD experience generates, sharing only our normal film rental percentages with the studios. We charge a premium price for our XD experience over our average ticket price, generally targeted at approximately $3.

We remain committed to expanding our circuit both, domestically and internationally. While US project development has been slow given the current economic environment, our unique geographic diversity has allowed us to take advantage of international growth opportunities to supplement our domestic growth. We are still finding select opportunities for organic growth in the US and continue to evaluate opportunities to add to our circuit via acquisitions. We currently have signed commitments to open 16 screens during the remainder of 2009, and 80 screens subsequent to 2009.

There are still significant opportunities to further penetrate our Latin American markets. The international new build pipeline continues to be robust, and we are also evaluating potential international tuck-in acquisitions. During the third quarter, in our international markets, we added 19 screens. We currently have signed commitments to open an additional 14 screens during the remainder of 2009, and 32 screens subsequent to 2009.

Overall, the film industry during the third quarter benefited from a continuous stream of solid films that were able to deliver total box office grosses approximately equal to last year's third quarter, even with the success of The Dark Knight.

Our modern US theater circuit located in high growth markets, coupled with our international diversity, allowed us to report higher domestic box office growth than the industry and growth in adjusted EBITDA. We are pleased to see that the underlying drivers of our industry remain in place as our patrons continue to enjoy the cinema as an exciting, low cost form of entertainment.

We are optimistic about the additional growth opportunities ahead of us, including our Digital Cinema initiative, a broader roll-out of 3D screens and XD auditoriums, all of which will allow us to take advantage of the growing number of 3D film releases and alternative content and contribute to our long-term growth.

We will retain a strong operating focus with close supervision of our costs, while prudently continuing to grow our worldwide circuit, improving our existing theaters and pursuing accretive and attractive acquisitions as we seek to further enhance our industry-leading adjusted EBITDA margins.

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 third-quarter 2009 financial performance in more detail and discuss our balance sheet. During the third quarter, on a worldwide basis, our attendance increased by 4.5% over the third quarter of 2008. Our total revenues increased by 4.3%, and our adjusted EBITDA increased by 2.6%.

Admissions revenues increased 4.7% to $322.9 million, and concession revenues increased 4.7% to $153 million. We experienced increases in both our domestic and international average ticket prices and concession revenues per patron, before the impact of changes in foreign exchange rates.

Pretax net income for the quarter was $34.2 million, compared to $32.3 million in the third quarter of 2008. Net income attributable to Cinemark Holdings Inc. for the quarter was $21 million, or $0.19 per diluted share. Our net income was reduced by a charge related to debt retirement of $1.1 million, which I will discuss later.

Adjusted EBITDA for the third quarter of 2009 was $104.8 million, compared to $102.1 million for the third quarter of 2008, an increase of 2.6%. Our adjusted EBITDA margin was 21.1%. On a segment basis for the quarter, our US operations experienced a 4.1% increase in attendance. US admissions revenues were $246.9 million, representing a 4.9% increase over 2008, and once again outperformed the estimated calendar quarter industry box office which was down less than 1% for the calendar quarter.

Our average ticket price increased 0.8%, as the benefit of 3D content was partially offset by a shift towards children's admissions due to a mix of more kid-friendly films. Domestic concession revenues increased 6.5% to $119.8 million.

Our concession revenues per patron increased by approximately 2.1%, as we benefited from the higher mix of kid-friendly films. Our total domestic revenues increased 5.4% to $377 million, and adjusted EBITDA increased 3.7% to $77.9 million. Our domestic adjusted EBITDA margin was 20.7%.

Within our international segment, attendance increased 5.4% for the quarter, slightly exceeding our US segment growth. Our average ticket prices and concession revenues per patron both experienced solid growth for the quarter in local currencies. Admissions revenues increased 4% to $76 million, driven by attendance growth, addition of new theaters and an increase in ticket prices in local currencies.

Concession revenues, although down 1.2% on a reported basis, increased in local currencies due to selective price increases, attendance growth and a favorable mix of kid friendly films with Ice Age, Dawn of the Dinosaurs performing especially well in our international circuit.

Our growth in attendance was able to more than offset the unfavorable impact of foreign exchange rates, as our total international revenues increased by 1.2% in the third quarter. Adjusted EBITDA for our international segment was $26.9 million, compared to $27 million in the third quarter of 2008. Our EBITDA margin was 22.5%.

Our consolidated film rentals and advertising costs for the third quarter of 2009 were $175.9 million, or 54.5% of admissions revenues. Compared to $169.3 million or 54.9% of admissions revenues for the third quarter of 2008. Concession supply costs were $23.5 million, or 15.4% of concessions revenues for the third quarter of 2009, compared to $24.5 million or 16.8% of concessions revenues for the third quarter of 2008.

For the third quarter of 2009, salaries and wages were $52.7 million or 10.6% of revenues, compared to $47.4 million or 10% of revenues for the third quarter of 2008. The increase was driven primarily by increased staffing due to higher attendance, an increase in the federal and certain state minimum wages, and new theater openings.

General and administrative expenses were $23.5 million or 4.8% of revenues compared to $22.7 million or 4.8% of revenues in the third quarter of 2008. G&A expenses included non-cash share based award compensation expense of $1 million for 2009 versus $1.3 million for 2008.

During the third quarter, we recorded asset impairment charges of $3.1 million, compared to $2.3 million in the third 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.

Additionally, as previously announced, in the second quarter we completed a $470 million offering of 8.625% senior notes, due 2019. We used the proceeds to complete a tender offer, in which we repurchased $402.5 million of our $419.4 million outstanding 9.725% senior notes due 2014.

During September, we completed the retirement of the 9.75% notes by repurchasing the remaining $16.9 million outstanding, which generated a loss on early retirement of debt of $1.1 million that was included in the third quarter.

Our interest expense declined to $25.9 million compared to $27.6 million in the third quarter of 2008, reflecting the benefit of reduced rates on our variable rate debt and the lower rate on our new bonds.

Our balance sheet position is one of the most solid in our industry, and was recently strengthened as a result of our refinancing. At September 30th, 2009, our cash position was $359 million, resulting in a net debt position of $1.19 million. 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 take advantage of opportunities that lie in the current economic environment.

At September 30th, 2009, our total domestic screen count was 3,842 screens, 12 of which are in Canada. As of September 30th, 2009, we had signed commitments to open one new theater with 16 screens in domestic markets during the remainder of 2009, and six new theaters with 80 screens subsequent to 2009.

Our total international screen count at September 30th, 2009 was 1,066 screens. We acquired one theater with 15 screens and opened one new theater with four screens during the third quarter of 2009. As of September 30th, 2009, we had signed commitments to open two new theaters with 14 screens in international markets during 2009 and four new theaters with 32 screens subsequent to 2009.

During the third quarter, we invested $24.7 million in capital expenditures, including $8.1 million on new construction and theater additions, and $16.6 million in CapEx maintenance. The increase in CapEx maintenance this year is due in large part to our continued investment in our digital footprint and expansion and also our XD roll-out that Alan mentioned earlier. We estimate that our gross total CapEx before disposition proceeds for fiscal 2009 will be approximately $120 million to $130 million, which includes CapEx maintenance.

In summary, we were able to drive solid growth in both our domestic and international operations, due to strong performance of our high quality, geographically diverse theater network, and the continued addition of new theaters.

Consumers have responded well to the film slate this year and the fourth quarter is off to a great start with more promising films to come. We are confident in the long-term growth prospects for our industry and excited about the opportunities on the horizon as we begin our broader digital and 3D roll-out as well as expand our XD screen footprint. We will now be glad to answer your questions.

(Operator Instructions). Are you ready for your first question?

Yes.

Okay. That comes from the line of Eric Handler.

Hi, good morning. Thanks for taking my question. Two questions for you, actually. In looking at your domestic ticket price increases, can you give a sense of what the impact was on 3D to that total and if you subtract out 3D, because of the kid-friendly films, does that mean that average ticket prices actually went down? And then secondly, with regard to your XD screens, are you charging a $3.50 premium on top of the regular $3 premium? And then third, the asset charges are usually a little bit larger in the fourth quarter. How should we think about that on a GAAP basis? Do you think you lose money?

With respect to domestic ticket price increases, 3D for us probably represented a little over 10% of our box office and did help prices. The kid-friendly films, if you took those into account and took out the 3D, you are right, Eric. We would be slightly down. That was really a mix issue we felt like looking overall at the theaters. And again, we've been very conservative in our pricing, so it doesn't take much of a mix with the weight towards kids pricing to pull that back down a little bit.

On the XD premium, it's actually about $3 on average over our average ticket prices. With the first two it's varied a little bit in that range. We targeted most of the theaters between the mixture and our matrix average about $3.

With respect to impairment, the biggest thing that you face -- that we faced last year, as you recall when we had a big write-off, was we were having to adjust to the market multiples and so we had took our multiples down a fair -- about a turn and-a-half last year from where they had been and that caused a fairly significant impact. Obviously, we don't feel we would have that kind of impact this year. It is when we measure goodwill at year end and so there's always the chance that we'll have some hits but we would not expect it to be nearly the kind of size it's been in the last few years.

And then just with the XD, there's a $3 premium, but for 3D, is there another $3 premium on top of that?

It's generally closer to $2 when you get to 3D. However, certain films -- I mean, certain pricing within the matrix would still -- is actually higher than that, like the kids and some of that, just the way the total price works. But generally, at 3D level it's $2. When you take all the averages of 2D and 3D and again you take the matrix, because we actually ran some pretty heavy 3D through our model to determine where the pricing should land and it's really more of a matrix issue that we target a set price on the XD screen. As a result of that, it's a bigger variance on certain parts of our matrix than others. So on average, when you take all of that into account, it should run around $3.

Thank you.

Sure.

Your next question comes from the line of Barton Crockett.

Good morning.

Can you hear me?

Yes, we can hear you.

Okay. Great. Thank you. I was wondering if you could talk a little about your relative box office performance which was interesting. Did you find that in the same markets that domestically were outperforming their competitors in those markets or did you find mainly your outperformance was an issue of mix that you were in better markets than the industry average?

I think, Barton, the way we usually answer this is Cinemark obviously is a pretty diverse Company and we don't break out on a state by state or market by market basis so as reported and as you look at Cinemark, our performance is just due to the collective nature of our circuit. And, of course, you do see what happened internationally and what happened domestically but we were able to get those results just through the collective composition of the type theaters in the states and the areas that we're in. So we feel good about both domestic and international, of course, of how the results came out.

I guess we can't parse that too much closer. On the international operations, can you quantify the FX impact in the quarter?

Well, I can do that through the ticket price and concession per count. If I looked at the average ticket price, we were actually -- for the quarter, we were up about 11.8%. And the concession per cap would have been about 6%, using kind of a constant dollar approach.

Okay. All right. That's helpful. And then I know you're limited in your ability to comment on litigation with IMAX, but perhaps you can answer this one question. Is there anything in that litigation that could affect the pace of your roll-out of Cinemark XD that you see at this point?

As we stated, we believe that our position is very strong and we will continue to roll out XD as we've always planned to roll out. So at this point in time, there is no intent on our part to limit or slow down our XD roll-out.

Okay. That's great. Thanks a lot.

Your next question comes from the line of James Marsh.

Yes, hi. Good morning. I just wanted to drill down on the Latin America, South America business for a moment. Most of the growth there I think has been, I will presume, organic. But when you're building share you're building it yourself, you're not out acquiring other companies. Then you mentioned you might be looking selectively at acquisitions. Should we expect that shift of mix over time, and then I have got a followup.

Right now, international is a little over 20% I think of our total. We do see more building opportunities over the next few years there at a little higher rate than what we see -- as a relative percentage than what we see domestic. The economies are more robust. And so the weight of new builds will probably shift a little stronger towards international. Just as this quarter we acquired the one theater with the 15 screens, we'll continue to look at opportunities down there and either one-off acquisitions. That was actually a theater in Brazil, very beneficial to us in San Paulo area market. We'll look for acquisition opportunities like that that might be one theater or couple of theaters, even maybe a little larger.

It's not our intent to significantly shift the weight to our Latin American segment away from our domestic segment. I think it will naturally move a little bit, but I think we're talking in the realm of a few hundred basis points here, not -- it's not something that's going to become 30% of our business.

Okay. Understood. And then just on your pricing strategy overall for tickets, it seems like you've been kind of tracking behind the industry. I'm trying to figure out, is this kind of a more secular strategy? Let's put it this way. Is this tactical or strategic I guess is a better way to look at it. Do you expect it to be kind of a lower priced option for movie goers or is this because of your price increases feathering through that you've just been underperforming the industry recently and it will pick up later?

I think you have to sit down and analyze how we approach ticketing. We look at all of our ticketing on a theater by theater, market by market basis, and try to price accordingly. As we rolled into this year and the state of the economy, we felt it was better to approach ticketing on a more conservative basis, and we're more concerned about attendance. I think hopefully you can see the results there, that our attendance results were very good, and we've been very cautious. And I don't think when you look at our market by market, you're going to necessarily say that we're by far discounted to our competitors or anything else that's out there. We just take a more cautious approach of how we price them. And we feel as we look forward into the future, as we have always done, we'll take price increases that are appropriate for those markets and appropriate for economic times and we should be able to continue to keep pace with historical numbers that you've seen in the past.

A little bit to your point, James, we're not repositioning our self to be a discounter to the market. It's just reflective of the current economic environment.

Understood. One last follow-up. I think there was some CapEx guidance given for 2009 and I missed that number. I was just hoping you would repeat it for me.

We would estimate it's $120 million to $130 million for the year. I mean total CapEx which includes CapEx maintenance and new build.

Understood. That compares to the $105 million, whatever, last year.

Yes.

Okay. Cool. Thanks, guys. Great quarter.

Your next question comes from the line of Ben Mogil.

Hi, guys. Thank you for taking the call.

Hey, Ben.

Hi. So National Amusements, are their Latin American assets still formally up for sale? Press reports have gone both ways. I just want to get a sense of whether or not, just for the record that they're still up for sale or not if you know.

Can't really answer on specifics, but I mean, to the extent that they would be available, we would be -- we'll look at them. I think National Amusements is kind of -- when you look at the overall potential sale, as you're saying, they've definitely mentioned some things, [or may not actually have] -- there's been rumors about what's been available and I don't know that's always necessarily what's really out there in the market. But to the extent it is, I mean, we'll take a look at it.

Okay. Not sort of related so much to the S-3 that NCM filed last week with the founding members, but just conceptually, when you look at the stake that you guys have on NCM, pretty large multiple difference, and you've obviously got some CapEx and capital needs domestically for 3D. Do you sort of have a sense of whether the NCM stake that you have can been pared down, not eliminated, but pared down, and you still feel strategically it gives you what you need or is the stake that you have now kind of the number you feel is the right number to go with?

Ultimately we'll look at that, to your point, as part of our overall capital needs and really where the Board feels comfortable -- when and if they feel comfortable selling some of that asset down if we should need it for liquidity needs. I think right now, as we've said in the past, it's an asset we like a lot and we continue to hold onto it.

Okay. And just as a follow-on sort of from Barton's question. Just regionally, are there any areas of the country that are performing significantly better than the national average, up or down? I am just trying to get a sense if regionally if you are -- I know you guys have a pretty large national footprint, but regionally are there areas that are surprising you, both good and bad?

Again, it is hard to (inaudible) because we don't break out on regional or state or local levels. Again, as you follow what's happening domestically, you always are going to see though -- and I'll just always point out to you, any given film, and any given time of year, and any given type economic conditions, you do see variances state by state or market by market. But we have been very happy with the results, not that there's not a few markets that are a little down than others, and other markets that might be up. I'll just point out to you that that's the nature of our business. And every single film will play differently and I can actually show -- you can look at data and see where a particular movie might play stronger in one part of the country and not as well in another and vice versa. It really depends on many given factors here. So it's very difficult to slice out and depict any part of the country that's doing worse or better or whatever, because in general, you just see the results as a collective compilation of what we got.

Last question, and then I'll let someone else go in the queue. I may have mentioned it before, But I was having trouble following it. If I look at that time $0.21 increase in your average ticket price domestically year-over-year, of that $0.21, how much of it came from 3D and XD premiums and much of it came from pricing on 2D?

For the quarter, everything that we were up ultimately tied to the -- on a domestic basis -- so again, let's look at it (inaudible) -- on a domestic basis, to the extent that we were up, it was driven by 3D, XD premiums.

Was the average 2D price actually down a little bit in the quarter? I realize you've got the shift a little bit.

Yes, it was. It was just slightly down. And that was caused by shift. I mean, it didn't have anything -- I mean, that's what would have driven it. We clearly did not lower any ticket prices.

Okay. So on a 2D ticket sort of same adult ticket in the same market you were probably flat to mildly up. Is that fair to say?

Yes, if you looked at our overall pricing, throughout the year, we would be flat to slightly up with respect to just our -- the ticket prices we charge at a particular theater.

And in terms of sort of looking forward, you've obviously given some rough commentary on how many screens you plan to open for 2010. Are you seeing any kind of, if you will, in terms of real estate development and with you guys being anchor tenants, are you still seeing that still be relatively frozen?

Well, there's some -- of course, all of our retail mall developers and shopping center guys are trying to figure out how to get out of this. There still are some projects and the ability for us to build theaters is happening so we are getting some movement at present. But that doesn't negate the fact that many of these guys have issues that they're still trying to work through to be able to get their malls out there and be able to develop them.

So what we try to do is really take advantage of our ability, our -- the success of our business right now, the cash that we have, so the ability to go out there and be aggressive, trying to help them and figure out ways to build theaters.

Most of the growth you're going to probably see 2010 I would suspect is still going to be a little bit slower and as we move forward toward 2011, 2012, I think you'll see some of that start to relax over those periods of time.

Okay. Great. Thank you very much.

Your next question comes from the line of George Hawkey.

Hi. Thanks for taking the question. I just had one quick one about 3D internationally. Is there any commentary you can give as to what type of benefit 3D provided for the international marketplace over the past quarter?

Again, I mean, if you look at relative screen count on the international basis, we are maintaining kind of that similar 20% to 25% of our digital is in international, so that really on a proportionate basis, the availability of 3D to international is pretty much the same as the US within our circuit.

There is an upcharge in pricing and to be honest with you, I don't have that price right in front of me. The premium is somewhat similar to the US. It's going to vary by country, but there is a significant increase in pricing on the international markets. It's probably, rather than it being maybe an average of $3, here we're probably charging generally $3 to $4, down there I would say it's probably $2 to $3.

Okay. Great. Thank you.

Your next question comes from the line of Tony Wible.

Good morning, I was hoping you could give us the 3D screen count worldwide in the quarter and also what your goals are for 3D between the US and international once the funds become available and kind of how quickly you kind of build towards those goals.

Right now, I think as we mentioned in the call, we currently have 373 3D screens on a worldwide basis. And I think we told you before, of course as DCIP funds and as we begin to roll out, the key to get significantly more 3D screens is the funding and the roll-out of DCIP. And again, assuming that that were to happen here by the end of the year, and we could begin rolling out, the intent is to get our 3D screen count on a -- again, on a worldwide basis up toward the 1500 screens.

Of course, our goal would be as we begin this roll-out next year, that we would focus on the 3D first and be able to maximize our 3D screen footprint. That's going to take some time to do that but we think as we roll out throughout next year, we can hopefully get screens in and make a significant impact with all the 3D titles that are coming out next year.

Is there a particular number of screens per quarter that you would be targeting?

Well, we've always said that once you're doing a full roll-out, that you can theoretically do somewhere around 200 screens per month on a full digital roll-out. Then you've just got to back into how many can you put in 3D and how do you roll that. Now, when you just do 3D it's less efficient because you're not going -- you're trying to use your people and put some in each complex throughout the circuit. As we -- obviously once DCIP funds, there will be some delay to get all the manufacturing and everything up to speed. So that's probably a 60 to 90 day ramp-up process to get the whole system primed and ready to go and begin those roll-out schedules.

I can appreciate your conservative approach to ticket pricing but is there any particular metric or statistic that you're looking to track to indicate when you would feel comfortable increasing those rates at a faster pace?

No, I mean, to be honest with you, what we honestly do is we sit down as I mentioned and it may seem very small, but we really take a theater by theater -- we listen to our managers, we look at what's going on in every single market and determine how we want to approach ticket pricing in that market. So I don't know that there is a formula or a science. It's just we've been doing this a long time so we just have to sit down and get a feel.

Again, as the economy starts to get a better feel toward -- and each market gets a better feel, then of course we get a different approach as to how we want to take on our film -- sorry, our ticket price increases. So we'll -- as mentioned earlier, we certainly recognize that our goal isn't just to sit and freeze prices for long periods of time, but we just want to be careful. Again, if we can drive attendance and we can drive the healthy nature of our business, which we have, and that's a good sign for us, and we'll continue to move down that path.

Just maybe to be clear on that too, we haven't -- we're not decreasing any prices and really on our top prices, and again, we differentiate weekends versus weekdays, we kind of demand price. If you looked at our -- pretty much all of our major market theaters, even minor markets, there's differentiation in price, when people are showing up on Friday and Saturday nights. And those prices generally will be the same prices comparable to theaters in the marketplace.

So it's not that we're -- we feel we're moving behind our peer group. Where we might differentiate ourselves is we also have maybe a little broader matrix in terms of alternative timing. So if somebody wants to come into a matinee or before a certain time of day, not that other people don't have that, it's just something we've put a lot of focus on. And it's that -- so our -- again, overall, it's how we take a matrix of maybe nine or whatever it is, 15 different pricing potential items in a theater and how that mix works.

And then I know XD has only been around for a short period of time, but are there any trends you can comment on as opposed to the theaters that XD has been in and what you've kind of seen in the neighboring theaters that don't have XD?

Maybe a couple items that we can talk about on XD. We are, as we mentioned, putting in these 15 -- well, I guess 13 new screens get us up to 15. There is a price differential, depending on if we're adding it to a brand-new theater, when I say adding it, building it into a brand-new theater, versus we're going and retrofitting.

In looking at the theaters that we're retrofitting right now and kind of looking at our average cost on those, and again, some of those have been open, some are in process, but we would estimate that the cost probably is, you know, 450 to 475 per screen on a new theater. Excuse me, on a retrofit of a theater. And then on a new theater, it's probably running, I don't know, 75, 100. And so some of it over time on the XD roll-out will just depend on the mix on how much is going as a brand-new build versus an existing theater, but those are some ballpark CapEx numbers.

Our ROIs are difficult because obviously we're just opening these at the moment. We're very confident that we'll exceed our minimum threshold of 20% but we don't have enough data to really say what -- how high could it be. When we look at putting one in, we're not assuming that we have increases in attendance. We're solely doing it on the incremental pricing and the allocation we think that that particular screen will have.

Having said that, in our existing two theaters, we do feel like we're seeing some incremental attendance in those, so we're trying to take this on a conservative basis. After this new group has run a while, we'll be able to give you a better idea of how high the ROIs might be.

Thank you. That was good color.

Your next question comes from the line of David Gober.

Good morning, guys. Thanks for taking the questions. A couple on the cost structure. As you guys look at DCIP rolling out over the next year or so, theoretically, I think that some people have been surprised by the increased costs of maintaining digital and 3D at some of the smaller theater chains. I know in the past there's been some discussion of a potential maintenance fund driven by the VPS. Is there anything you could comment on there in terms of how DCIP is being structured and whether or not there's going to -- whether or not there will be any maintenance funds within that?

I mean, with respect to -- anything operational will ultimately be our on nickel. So to the extent that there would be additional operating costs, which I don't think we feel like long-term there would be, there's going to be different costs that vary on both sides. Certain costs relating to digital will go slightly up. Other costs over time we think will go down. And so from our longer term models we've assumed that it's flat. We think there's opportunity to actually save money but we haven't modeled that in.

And a lot of that won't be realized until the roll-out is complete. As you do partial roll-outs then that's probably the most potentially ineffective method, because some of your savings won't be realized. Over the next two or three years, we'll get all that.

With respect to maintenance, again, some of -- base maintenance will be ours. There will be some replacement costs and items like that that will be part of DCIP. So that it -- to the extent that there's more CapEx maintenance, then that could be a DCIP cost.

Okay. And on the film rental and advertising line, Regal saw a little bit of a steeper decline in terms of the percentage of revenues in that line. One of the things that they had mentioned was a decline in advertising spend. I am just curious if that makes up for the difference in terms of your results versus theirs and whether or not you could comment on if advertising spend is something that's an opportunity to cut over the next couple of years?

Yes, remember, when you're looking at Regal there's also some timing issues you've got to deal with. But certainly Cinemark has been you approached as I think Regal indicated on their call, that the newspaper advertising and the world we live in today is definitely changing. So it could be -- and again, this is not sure how they approached it, but we certainly are going into our markets and making sure that we're smart on where and how we spend our advertising dollars. So to the extent that Regal's doing the same thing, they're in larger type markets and different type markets to make those changes, then there could be some differences there.

But as we move into the future, our goal would be to maximize and make sure that people have information at the most cost effective manner that we can get and certainly newspapers is one that's on the decline right now.

Okay. Just one quick one for Alan. I think that you mentioned in your prepared remarks that going forward, you expect the international business to perform relatively in line with the US. I am just curious why that's the case, I mean, just given the historical outperformance over the last couple years and the potential growth in those markets on the ticket pricing side and concessions, et cetera.

Well, I think we made the comment just really based on the fact that it is -- most of the film that we play, plays down there. You never know how those translate and what's going to happen on the international level. You always have to look at how the timing, as I mentioned, their holidays and the release pattern of film goes.

We don't typically ever model or anticipate or say that our international market is going to outdo what it does here in the US. Again, it's been doing that and not to indicate at any stretch that there's anything off or wrong international, because it continues to perform very well. So we just more or less make a general statement that as we analyze film product going forward in the future and we look at it that we feel like it can and will or should continue to perform similar to what it has done here in the US. And you never know, I guess, for sure whether it can outstrip it or not, but it's very likely that it could.

Okay. Great. Thank you very much.

Your next question comes from the line of Jake Hindelong.

Good morning. I just want to focus a bit more on your international business. It seems that price and growth has continued to be strong ex-currency. Is it fair to think that in 2010 that pricing should again be well ahead of GDP growth in Brazil and other markets in Latin America?

It's harder to say. I mean, I think historically we've been more in line with what -- we probably looked more at inflation, we looked at the wages going up and those type of items probably mostly. I would tend to say that going forward it probably would be more in the, I don't know, 5% to 7% range, versus the 10% plus range we're seeing this year.

I mean, this was a bit of an anomaly potentially because of everything that was happening globally and going into the year. We knew that in a number of countries we were going to see some significant increases in wages at the start of the year and so we pushed price with that. And again, that was -- tended to be reactive by government to the general economy, not that different than what you saw in the US, where you've seen big minimum wage increases. But I think going forward, the wage increases will be more normalized and probably our ticket price and concession price increases would be probably more in that average single digit.

Thanks, Robert. Then just when you think about XD in international markets, can you talk about the pace of roll-out there versus the US?

I mean, our XD opportunity down there is I guess very similar to what it is here in the US. It's really a function of finding the right theaters and locations to build it. We do have a plan right now, we'll roll out one or two that will open by the end of this year and then we're in the process as we speak of identifying other locations. There's, again, a handful of spots down there that we will begin rolling out in various countries, just depending on making sure the landlords and the ability to accommodate and build out the XD auditorium.

So again, I would answer that percentage-wise or the ability to expand it down there is very similar to what it is here in the US. And we'll continue the thought process that as we find good locations, we're very excited about it down there as well.

Great. Thanks. Just one last question on the local markets in Latin America. Quarter to date, have you seen any specific films which have been working well and just over the next couple of months, any that are widely anticipated in those markets that we wouldn't necessarily know about here in the US?

I don't know if there's anything that really stands out. The international markets, Latin America in particular, has done very well. And as we stated, movies like (technical difficulty) continue with that same page, and some of the animated films can do very well in our international markets. We know we have some great animated film coming up, Planet 51 and several others, Alvin and the Chipmunks, things like that that we're excited about.

But I don't know that we -- is there anything in there? It may just -- it's really a function of trying to identify what's there. There are a couple of local Brazilian films we're trying to look toward, and some local product that could do some business for us as well. I don't know that it's anything out there, much different than it has been in the past. It's good film and it translates well, continue to produce local product as well. I think going forward, it has a good feel to it.

Great. Thank you.

(Operator Instructions). The next question comes from the line of David Miller.

Yes, hi. Robert, can you talk about the credit that you currently have with DCIP for the screens that you've already converted on your own that you thought that DCIP would convert for you? And once you're reimbursed by DCIP, once everything goes online, where is that reimbursement going to show up in the statement of cash flows? Thanks.

Actually, most everything that we have, that we've acquired to date that's on our balance sheet that's digitally related will be contributed to DCIP versus reimbursed at this point.

Got you.

Part of the DCIP capital formation is a contribution by the exhibitors, And in Cinemark's case, what we've done with the dollar amount of the contribution that we're kind of targeted to put in is buy projectors and try to ramp up as much as we can to that level. There might be a slight difference that they have to fund with cash or depending on the timing, we could end up with a couple extra projectors that would be reimbursed, but the differential will be very minor. From a cash flow point of view when we take that asset out, it will come out of fixed assets and go through investing.

Got you.

Your next question comes from the line of Jeff Logsdon.

Thank you. Relative to your 35-millimeter projectors, have you all begun the process of taking those down to zero either in the theaters that you're -- have already put digital projector into or are you accelerating the depreciation as you now anticipate a greater roll-out of digital and 3D projectors?

I would say generally what will occur is because there's so much weight on the DCIP agreement in terms of the conversion process, that the thought process from our point of view has been that upon the signing of DCIP, so that you have a roll-out schedule, we will then start accelerating the depreciation on the remaining 35 millimeters that we have in the theaters and then that will tie within with reason to the roll-out schedule that we have designed through DCIP to replace those projectors. But as of today, we haven't accelerated those because we're dependent upon the -- I mean, the design is the DCIP funding, if for some reason, that didn't occur, we can fund it ourselves, but that might change our roll-out and we would just have to evaluate that.

Secondly, of your top 10 grossing theaters in the US, what's your level of digital and 3D penetration at this point in time?

Well, again, as we stated, when you break down those, the 373 that we have on a worldwide basis, those are going to be -- not every single theater we have has a 3D projector in it so we would have obviously concentrated our 3D roll-out into our higher growth theaters -- higher business model theaters.

I don't think any of them -- some of them -- there might be a handful of them that have two projectors in them and maybe even a couple of them have three, just based on testing and that kind of stuff. But there's some exceptions to that, depending on where we're going. But for the most part, I would tell you, if you're asking specifically on the top 10, then probably the top 10 theaters have at least two in them, some maybe a few more than that, and then they kind of disburse as you go down the theater chains to try to get the best impact we can with those 3D screens.

Great. Thank you.

There's no further questions. Do you have any closing remarks?

Well, we would just like to thank everyone for participation today and we look forward to talking with you again next quarter. Thank you.

Ladies and gentlemen, thank you for your participation. This does conclude today's conference. You may now disconnect.