Cinemark Holdings Inc (CNK) 2010 Q1 法說會逐字稿

Good morning, my name is Celeste and I will be your conference operator today. At this time I would like to welcome everyone to the Cinemark 2010 first-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). I would now like to turn today's call over to Mr. Rob Rinderman, Cinemark investor relations. Please go ahead, sir.

Good morning, everyone. Welcome to Cinemark's first quarter 2010 results conference 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, 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 performances indicated or implied by such statements. Such risk factors are set forth in the Company's SEC filings.

Today, CEO Alan Stock and CFO Robert Copple will summarize the Company's first quarter operating results, provide an industry overview as well as an update on recent developments at Cinemark. I will now turn the call over to Alan.

We appreciate everyone joining us this morning. I will begin with an overview of Cinemark's 2010 first-quarter results, followed by a discussion of how the overall industry box office performed during the period. I will also preview the upcoming film slate and update you on Cinemark's digital cinema, 3-D and XD Extreme Digital initiatives. Following my comments Robert will cover additional financial details of our Q1 results and capital structure. At that point we will be happy to address any questions that you may have.

2010 is off to an excellent start with another strong quarter led by robust growth in attendance, revenues and adjusted EBITDA across our entire theater circuit. During the first quarter of 2010 we again outperformed industry benchmarks. Our revenues increased 21.3%, resulting in a record-setting first quarter. This highlights the strength of both our industry and Cinemark and underscores the benefits of our worldwide and geographically diverse theater footprint.

Our US admission revenues grew 15%, significantly outperforming industry growth of approximately 9% for the period. Our US admissions revenues benefited from an attendance increase of 6.2% for the quarter.

In our International segment, admissions revenue grew 53.9% with an attendance increase of 12.5%. During the first quarter Cinemark's total worldwide revenues grew 21.3% to $516.6 million as we benefited from a 13.3% increase in average ticket prices and a 9.2% rise in concession revenues per patron. Cinemark's worldwide revenues per average screen increased 18.9% for the period. Adjusted EBITDA rose 24.3% to $121.8 million, and we maintained our industry-leading adjusted EBITDA margin, which was 23.6% in the first quarter.

The first quarter of 2010 was, once again, a record-setting period for the domestic movie industry. Box office revenues continue to gain momentum as the US economy is recovering. While many industries are still struggling, including many forms of entertainment, we have benefited from a shift in consumer spending habits as they select moviegoing as a preferred value for their discretionary income.

The box office leader during Q1 of 2010 was a movie that was actually released during the fourth quarter of 2009. The record-setting film Avatar generated approximately 38% of its total box office gross last year and 62% or $458 million during the first quarter of 2010. Other titles that generated strong results for the 2010 first-quarter box office included Alice in Wonderland, Shutter Island, Valentine's Day, Sherlock Holmes and the Book of Eli.

The conversion to digital by the industry is having a very positive impact on box office performance. Movies exhibited in 3-D helped drive a record-setting first quarter. The industry has released three 3-D films so far in 2010 and currently 20 3-D movies are set slated for wide release during 2010, up more than 40% compared to the total number released in 2009. Already 22 3-D films have been announced for release during 2011 and 12 for 2012.

The introduction of 3-D in our premier XD Extreme Digital format to our theaters enables us to offer variable price points to our patrons in order to attract as broad an audience as possible. This pricing matrix, in combination with an expanding base of 3-D auditoriums and 3-D film production, provide significant potential in terms of incremental revenues.

Our approach to price increases on these premier offerings follows our overall philosophy of modest price increases in order to provide affordable yet premium alternatives to our customers. In the 2010 first quarter approximately 23% of our US box office receipts were attributable to our premium formats in XD Extreme Digital, RealD 3-D presentations and our six domestic IMAX screens. The introduction of this premium of moviegoing alternatives has increased attendance and box office and has had no negative impact to our concession revenues.

Similar to our approach of maintaining multiple price points for the box office, we also provide multiple alternatives for concessions, including special combo pricing.

We are now a little more than a month into the second quarter with strong performances from titles such as How to Train Your Dragon and Clash of the Titans, both of which were offered in 3-D. We are optimistic about the many notable movies that are in the pipeline for the remainder of the second quarter. One of the most widely anticipated movies of the year, Iron Man 2 starting Robert Downey Jr., opened this past weekend internationally to just over 100 million and opens tonight here in the US. Robin Hood, with Russell Crowe, opens the following week. High-profile 3-D releases coming up this quarter include two from very successful franchises, Shrek Forever After from DreamWorks and Pixar's Toy Story 3. Memorial Day weekend shows great promise with the release of Disney's the Prince of Persia -- the Sands of Time, and the highly anticipated Sex in the City 2.

Also being released in Q2 are familiar titles such as the A-Team, the Karate Kid, produced by Will Smith and starring his son, Jaden, and on the last day of the quarter the widely anticipated Twilight saga, Eclipse. Early in Q3 we have M. Night Shyamalan's the Last Airbender, based on the popular Nickelodeon series which we released in 3-D; the science-fiction movie, Inception; the Sorcerer's Apprentice, starring Nicholas Cage; and then, coming later in the year we have many additional titles to look forward to, such as the initial installment of the two-part Harry Potter finale, which will be released in 3-D in November, and Tron -- Legacy, debuting during the 2010 Christmas holiday season, also in 3-D.

Other promising 3-D titles include Despicable Me; Legend of the Guardians, The Owls of Ga'Hoole; Mega Mind; Tangled, based on the Rapunzel fairytale, and Yogi Bear. We had 300 3-D screens in the US and a total of 403 worldwide at March 31, 2010. With the completion of the DCIP joint venture financing in March, our supply chain for the full digital rollout has started production and we are now beginning the installation of our Barco 4K digital projectors. Cinemark's 2010 digital rollout is focusing initially on digital projector installations, to which we will add RealD 3-D technologies to enable the projectors to show 2-D or 3-D presentations.

We estimate that we will install an additional 150 to 200 digital projectors by the end of Q2 and we will have a total of 1100 to 1300 worldwide 3-D-enabled digital projectors in operation by year end. Once our 3-D footprint is in place in approximately 30% of our entire circuit, we will commence a full digital conversion of our remaining auditoriums as well as further supplementing the initial 3-D rollout with additional 3-D-enabled projectors as demand warrants.

We also continue to expand our large-screen format, Cinemark's XD Extreme Digital concept, which has been very successful since its launch last year. We opened an additional nine XD auditoriums during the first quarter of 2010, bringing our XD auditorium count as of the end of March to 25, including 23 throughout the US, one in Mexico and one in Brazil. Another three XD screens are set to open this spring in Lakewood, Colorado; Sparks, Nevada; and Cypress, Texas.

In the 2010 first quarter our domestic XD auditoriums, representing 0.6% of our total screen count, generated 2.6% of total admission revenues, up from 1.3% during the fourth quarter of 2009. Our XD auditoriums feature a unique, state of the art cinema experience for all patrons. Screens stretch from wall to wall and floor to ceiling with plush, ultra-comfortable stadium seating. The customized JBL sound system features over 30 digital speakers which produce cutting-edge, crisp and clear surround sound. XD affords us the key advantage of flexibility, allowing us to show the newest or top-performing 2-D or 3-D movie or alternative content each week. We are able to open an XD auditorium in any of our domestic or international markets and are including an XD auditorium in most of our new-build theaters.

Cinemark also retains the upside associated with the attendance lift, ticket price premiums and concession revenues, and we pay the usual film rental percentage to the studios. Our typical admission price for the XD experience reflects an upcharge of $3 to $5 with a 3-D presentation in XD at the top end of that range. We intend to add an additional 20 to 30 XD auditoriums throughout our US and international circuits during the remainder of 2010. Approximately two-thirds of our new XDs in 2010 will be retrofits in existing theaters with the balance located in newly built theaters.

Our strategy is to continue organically expanding Cinemark's worldwide circuit. We currently have commitments to open 13 new theaters worldwide with 121 screens for the remainder of 2010, including five theaters with 60 screens in the US and eight theaters with 61 screens internationally.

2009 was an excellent year for Cinemark and a record-setting period at the box office with our Company outperforming the overall industry throughout all four quarters. We are clearly off to another great start in 2010, and with DCIP funding now in place we are rapidly expanding our circuit with digital projectors and 3-D-capable screens.

The upcoming slate of movies is promising, and with an expanded digital footprint for us and other exhibitors, the potential for an increasing array of alternative content from live opera, which has been particularly successful for us, to a variety of concerts, sports and other live and prerecorded events continues to grow. Although still early, we expect alternative content to play an increasingly important role for Cinemark and our peers, with numerous content providers, including many of our studio partners through their vertically integrated entertainment production and broadcasting divisions able to deploy more advertising and marketing dollars down the road.

At this point Robert will highlight our first quarter financial results and update you on Cinemark's capital position.

Thanks, Alan. Once again, Cinemark's domestic circuit outperformed the overall US industry for the quarter and our international growth exceeded our domestic growth, resulting in a strong worldwide performance for the period. Q1 domestic admission revenues increased 15% to $259.3 million. Concession revenues rose 11.8% to $118.5 million. The average US ticket price throughout our circuit increased 8.3% during the period to $6.55, primarily as a result of 3-D and XD pricing premiums.

Domestic concession revenue per patron increased 5.3% to $2.99 due to overall product mix and price increases. Cinemark's total domestic revenues in Q1 rose 13.7% to $387.3 million.

As Alan mentioned, our International segment turned in another very strong performance. Admissions revenues increased to $83.7 million as a result of a 36.7% increase in average ticket prices and increased attendance. Concession revenues advanced 44.2% to $34.6 million, driven by average concession per patron growth of 28% and attendance increases.

The Company's total international revenues rose 51.8% during Q1 to $129.3 million. Cinemark's consolidated worldwide adjusted EBITDA for Q1 2010 increased 24.3% to $121.8 million versus $98 million in Q1 of 2009. Our adjusted EBITDA margin improved 60 basis points to 23.6% for the quarter. Income before income taxes was $56.5 million, and net income attributable to Cinemark Holdings Inc. was $35.1 million or $0.31 per diluted share. Our effective income tax rate for the quarter was 35.1%.

Consolidated film rentals and advertising costs were 55% of admissions revenues compared to 52.6% in Q1 of 2009. This 240 basis point rise was primarily due to a heavier weighting this quarter of 10 full films compared to last year. The quarter included two films with lifetime box office grosses of more than $300 million comprising approximately 29% of the domestic industry box office for the quarter compared to no films that grossed more than $150 million during the first quarter of 2009.

The top five films represented 41% of US industry box office during the first quarter of 2010 compared to 26% during the first quarter of 2009. Over the last few years we have not had as many higher profile films released during the early part of the year.

Concession supply costs improved approximately 60 basis points at 14.6% of concession revenues in Q1 of 2010 versus 15.2% in Q1 of 2009. Salaries and wages as a percent of revenues for the quarter improved to 10.2% or $52.5 million compared to 10.4% or $44.4 million a year ago. The absolute increase in salaries and wages was primarily a result of new theater openings, an increase in staffing to support higher attendance, the strengthening of certain foreign currencies and the July 2009 increase in federal minimum wage rates.

G&A expenditures were $25.5 million or 4.9% of Q1 revenues compared to $21.8 million or 5.1% of Q1 of 2009 revenues. Higher G&A reflected an increase due to exchange rates, professional fees, service charges due to increased credit card activity and incentive compensation. During the first quarter of 2010 we received distributions from National CineMedia resulting in dividend income of approximately $9.9 million, which included our annual tax receivable payment of $3.1 million. In 2009 this annual tax payment occurred during our second quarter.

Additionally, on March 31, 2010, our investment in National CineMedia increased to 16.3% from 15% as a result of the founding member annual common unit adjustment provisions resulting from the addition of new theaters. Our common unit ownership now consists of approximately 16.9 million units, an increase of approximately 1.8 million units from 2009.

During the 2010 first quarter we recorded a non-cash loss on sale of assets and other of $3.2 million compared to $0.2 million in Q1 of 2009. The 2010 loss was primarily the result of an approximate $1.7 million charge related to our digital projection equipment contributed to DCIP.

Depreciation expense was $33.9 million compared to $36.1 million during 2009. The decline is primarily due to the burn-off of depreciation of certain assets that we acquired when we purchased the Century Theatre circuit in 2006. This was partially offset by accelerated depreciation expense on our 35 millimeter projectors. The acceleration of depreciation on our 35 millimeter projectors was $0.8 million for the first quarter and will increase to $2.3 million in future quarters with additional depreciation ending in the first quarter of 2012.

Interest expense for the quarter rose slightly to $26 million compared to $25.5 million in the year-earlier quarter, reflecting an overall higher interest rate as a result of our amendment to our credit facility term debt during Q1.

Cinemark's balance sheet remains one of the strongest in the industry. As a reminder, we successfully refinanced our former 9.75% holdco notes during Q2 of 2009 into a new 10-year 8.625% senior debt facility. We also amended our senior secured credit facility in Q1 and extended $924.4 million or 85% of our term loans under our credit facility to 2016 and extended approximately one-half of our $150 million revolving credit facility to 2015.

The term on the non-extended portion of the term loan remains the same and is due in 2013. The entire $150 million revolver remains fully available to us, as we have not used or borrowed under the revolving credit facility. At quarter end our cash position was $433.2 million, resulting in a net debt position of $1.1 billion and a net leverage ratio of approximately 2.4 times adjusted EBITDA.

Last quarter we discussed the DCIP funding transaction and the resulting financial impact to Cinemark. On an abbreviated basis the $660 million funding DCIP received included a combined equity contribution of $80 million from the three consortium members. Cinemark's commitment was approximately $17 million, which was primarily funded through our contribution of 264 digital projectors. For both the contributed projectors and each new projector installed, we will pay an annual cash rent of $1000 per projector to DCIP. This will be accounted for as an operating lease.

Assuming we roll out approximately 1000 screens during 2010 coupled with our contribution of existing screens, we estimate that our cash rent to DCIP will be $750,000 to $1 million in 2010, escalating to an annual cash rent of approximately $3.5 million at the point in the future when our entire domestic circuit is digitized. At March 31, 2010 Cinemark's total domestic screen count was 3817, including 12 screens at one theater in Canada. During Q1 we closed two theaters with 13 screens in our domestic circuit. We currently have signed commitments to open five new theaters and 60 screens domestically during 2010 and four theaters with 60 screens in 2011 and 2012. Cinemark's total international screen count at quarter end was 1067. We opened two theaters with eight screens and closed one theater with seven screens in our international circuit.

We currently have signed commitments to open eight theaters with 61 screens internationally in 2010 and three theaters with 18 screens during 2011. During Q1 we invested $19.5 million in capital expenditures, including $5.2 million on new construction and theater additions and $14.3 million in CapEx maintenance. As a reminder, our estimated total CapEx including new builds and maintenance before disposition proceeds for 2010 is estimated to be approximately $160 million to $170 million. 2010 maintenance CapEx includes costs related to XD, selected theater upgrades including conversion of some of our concession stands to a self-service model plus digital cinema conversion expenditures in total of approximately $30 million.

To summarize, we have followed a great 2009 with a very strong first quarter in which we once again outperformed the industry. Looking ahead, we remain optimistic about the future, given our digital rollout schedule, which will provide us between 1100 and 1300 digital and 3-D-compatible screens by year end. We will continue with conversions in 2011 and 2012 as we digitize our entire worldwide circuit. Our XD Extreme digital format continues to perform very well and plans are on target to further expand Cinemark's XD worldwide footprints by 20 to 30 additional auditoriums this year, adding to our 25 total at quarter end.

We believe we can continue to achieve strong operating growth and adjusted EBITDA results across our domestic and international circuits, capitalizing on Cinemark's high-quality, well run and geographically diverse theater network. There are many attractive 2-D and 3-D films yet to come this year, beginning with opening of Iron Man [2] tonight at midnight.

Operator, that concludes our prepared remarks. Please open the lines for questions.

(Operator instructions) Alexia Quadrani, JP Morgan.

Could you give us a little bit more color, if you have it, on what you think really drove the gap between your great performance and the general box office? Was it your premium formats, where you are located? I guess, any color you can give us on that front.

And then, also, are you tracking ahead of the box office in Q2 so far?

Thanks, Alexia, for the question, and I think the great answer here -- as we mentioned, we had outperformed I think in every single quarter last year. I don't know that, again, that the answer to that -- there's any one specific thing that we can tell you other than just the quality of our circuit, the way it's run, our pricing formats -- all those many combinations of things have really resulted in the results that we've gotten this year. International, of course, has done very well. That would have -- as you saw, they had a great first quarter. So the international division and throughout our international circuit continues to perform, and the films continue to do well. 3-D does very well down there, as it does here.

So overall, I don't know that there is anything specific that we can tell you as to why we outperformed.

Of course, your second question there -- I can't -- we haven't divulged anything for Q2 yet or don't report that way, so I can't tell you. But of course, the box office in general, as you have seen, continues to do very well.

And then, on your international performance, could you break out I guess what the FX impact was in the first quarter and if you have any comments on how you see that tracking, given the move in the dollar in the second quarter?

Also then also, the strength in Latin America -- was it mostly the big blockbusters, or were there some local films that also helped or were behind that?

I'll address the FX side. Similar to Q4, FX benefited us probably a little over 20%. I think Q4 was slightly lower than that. Q1, when you take the overall mix, it probably benefited our revenue line for international around 22%-23%.

Ticket price itself was probably in the neighborhood of about 21% benefit, and concession was around 20% -- 19% to 20%. But again, the overall mix on the international revenue side was probably 22%-23% I think, as you look forward, look at fluctuations in the market. But really just more so I think the quickest way to get a picture of where -- or how FX will roll forward for us, if you look at where April, May, June's FX rates were for Brazil and Mexico, since those make up the majority of our circuit, you can compare where those are to where our current rate is running today. I think what you'll find is that if you were kind of projecting that forward, you would probably come up with where we've been running 17% to 20% in Q4 and Q1. I would think that would drop probably more in the 10% range in Q2, and then, as we said previously, it really starts to burn out in Q3 and Q4, assuming everything else stays equal in rates because, clearly, last year in 2009, the first quarter was still fighting the geographical economic crisis. By Q2 it had started to rebound, and FX rates started tightening up. And then by Q3 they were definitely approaching where they are today.

The second part of your question, Alexia, most of the film and the production out of our international circuit was driven by US product. As always, there are local films that play. They weren't necessarily off the charts. They are pretty normal type results. Avatar performed very well throughout the world. And, remember, the release in international is sometimes different, so actually movies like Alvin and the Chipmunks, which was more Christmas-related here in the US, did very well internationally in the first part of the quarter.

It's kind of interesting to note, Alice in Wonderland did not even open in the first quarter in Brazil because, again, these things vary on when they are released. But in general, most of the results were driven by US type product.

Tony Wible, Janney Montgomery Scott.

I was hoping you could talk a little bit about XD. Now that AMC and Regal have followed in having these proprietary large-screen formats, do you foresee trying to pick theaters around territories that don't happen to overlap?

And then, also, how any XD theaters, screens, do you actually see in your circuit? Do you want to get to a point where there's an XD in each theater, or are you looking at having multiple XDs in a theater longer-term?

The first part of your question, Tony, I think first of all, we've said we really put XD more as an amenity in each of our theaters that we deem necessary to put them in. I guess the answer to that is they're not really driven by competitors or whether there's IMAX or Regal or somebody else has a particular format in there. The intent was really to take our theaters, evaluate where appropriate and just be able to put a premium offering in them.

Having said that, that means, to the second part of your question, potentially could it go in every single theater? Certainly, it could. I don't know that we're looking at it that way right now. I think we've given people numbers that over the next couple of years we'll get ourselves up into that 80- to 100-screen count range, is where we are looking at it over the next few years.

I will point out that every single new theater we obviously evaluate putting XD in it. And for the most part, all of our new theaters will always get an XD. Some of the ones that will open up here very shortly of if they're in very small markets would not deserve it. And that's kind of the key here is, you certainly want to be in a market that can justify the price premium and that they want to pay for it and the costs are going to make it beneficial to put it in.

So for now we say we can easily see that our circuit gets up to that 80- to 100-screen count for it. And then we will continue to evaluate. If there are reasons or there's ways to put it in beyond, then we certainly would do that.

Thanks and congratulations on a phenomenal quarter.

Eric Handler, MKM Partners.

If I'm doing the math correctly, the average attendance per screen in the US increased a little over 4% versus Regal did a little over 1%, the industry was probably a little bit higher. Was there something specific going on in your markets where it allowed you to over-index by such a significant amount?

You know, Eric, [it's good to have your call]. I'm not sure that there was anything specific. We distributed, as Alan said before, just like we did last year. We think our pricing policies, the pricing matrix, the introduction of XD to our markets is making a difference. Again, XD doesn't only benefit that XD Auditorium, but it in general is providing lift to the overall theaters that we put them in. I think all those things are providing a net benefit to us.

Barton Crockett, Lazard Capital Markets.

Robert, maybe I missed it, but if you could give us some detail on some of the constituent parts of the ticket price increase, like for standard 2-D and then 3-D tickets. And you gave us, I think, some stuff on XD. If you could break that down sequentially, first-quarter over fourth quarter and then year-over-year what you did there?

Sure. On the overall ticket prices, and I'm going to focus more on domestic just again because international is so different in terms of -- because of the FX and just the price increases we've seen. Domestically, as I said, we're up about 8.3%. In the 2-D area, that was in the -- we were up about 2%. XD actually also increased our premium by a very similar amount. We just basically took our overall pricing strategy, applied it to both 2-D and 3-D and said that those premiums, the relative margin on them stayed about the same. So both of those were in the 2% range. Clearly, there's a heavier weighting towards 3-D and XD this quarter so that it accounted for that extra 6% increase in the total price.

XD really, from a price point of view -- I guess I'd say, to the extent it went up, and keep in mind we only had one XD open last year in March, the one next door, so that we really don't have a relative price increase on there. If you looked at last year, again, the general approach we took is we looked at our 2-D pricing and we increased that, and then that just automatically would have moved, generally, our 3-D and XD pricing with it. So definitely, with the weighting of 3-D film and XD that drove us to 80%.

Just to be clear, when you said about 2% before, I think you said that XD but you might have misspoken. You were talking about 3-D; right?

Yes, I'm sorry. Yes. XD really would have had -- it's hard to say I had a similar price increase because I just didn't have them last year. But again, when we looked at it, we took our base price increase and everything just went up -- not everything, but most everything went up similarly.

You gave us a percent of box office [in one of] the premium formats this quarter and the fourth quarter. Can you give us the same for the year-ago quarter?

I think I have that. I'll grab it for you.

Just stepping back here, how many 3-D movies, meaningful 3-D movies, do you think we can have in theaters? As we look forward to '011 and '012, there are more than 20 movies right now, maybe 100 movies in any year that matter, and a lot of them I would imagine you would never want to see in 3-D. A lot of them you would love to see in 3-D.

So what's your take? Is it 20, 30, 50? How many movies do you think can come out that matter in 3-D?

That's obviously kind of a difficult question to answer. I think, as you think about 3-D a little bit, and we've kind of told people before that 3-D obviously will settle down to a place where there will be good 3-D movies and not as good as 3-D movies, as you are indicating. I think, percentage wise you're hearing about everybody talk about right now that we're going to convert -- 30% of our screens will be 3-D. That number could go higher as we approach over the next two years. And we are actually, within our circuit, saying to ourselves, should that number be 40% or even upwards of 50% of capability to run those 3-D screens? I don't know what ultimately that number gets down to, and a lot of that will depend on, as you state, the quality and what Hollywood makes of those movies and just the style and what they are. And I think there will be certain genres and certain things that the people will say, no, I don't really care about a drama or something done in 3-D. And so maybe you slow down on that.

At the end of the day you are asking, where does it all settle down? I would tell you just a range of somewhere in that 30% to 50% range is probably where it settles down on 3-D film, is just a guess.

I guess one of the things we've tried to make sure people think about, as Alan said, there's going to be great 3-D movies and there's going to be nominal 3-D movies, just like there's 2-D movies. And probably on those 3-D movies that just, by the nature of the movie just aren't as good of a movie, you'll have lower box office; I don't know that that means the world changes for 3-D. I think it just means that some films maybe are going to be -- 20% of the audience will see 3-D and want to pay the premium, and movies might burn off quicker -- not quicker than they do today, but the 3-D is -- not every 3-D can be a blockbuster. I think it's really just a different format, and the price points just might probably influence how many people are willing to go see that movie in 3-D.

But it's still incremental. We see it as the positive of -- if, instead of 60% to 70% weighted for a 3-D movie you see today, if some movies end up being 40% weighted, that's still 40% times that premium. So we don't foresee it as suddenly people go, gosh, it's not as good a movie, I'm not going to see it in 3-D anymore.

To answer your other question, as Alan said, I think 23%, about 23% of our box was related to premium pricing this quarter. If I looked at Q1 of 2009; it was about 7.5%.

I think I should leave it there. Thanks a lot.

James Marsh, Piper Jaffray.

Hi, guys, excellent quarter. Two quick questions on the International market. The first one relates to pricing there relative to the US. I'm just trying to get a sense for how much of that improvement in pricing in International is related to the fact that you've got a smaller base ticket price there and you are largely, I think, charging the same 3-D premium? So, obviously, $3 on top of a $5 base is a 60% increase versus, hypothetically, $3 on top of a $7.50 base. I wonder if you could extrapolate a little bit on that?

Definitely, you're correct. We look at the price increase that we saw internationally. And again, if you take the overall price we told you less FX, you're in the 15% range for average ticket price, 9% for concession. So one thing to realize, at the concession level, that obviously has no up-charge capability or anything, so 9% was a real increase.

On average ticket price, though, getting to 15%, absolutely influenced by 3-D and XD pricing. As you said, as a relative proportion it's much higher, and that helped drive the number. If we were to fall back to 2-D, clearly that number would come down. I think the benefit is that, as we all know, there's a number of 3-D movies this year. We're adding more XD product internationally. So we felt that there's a fair chance we'll be able to hold in the ballpark of that ticket price range. But it isn't driven, as you are saying, only by pure price increases. It's relative weight mix.

And then I had a question about the World Cup. I'm just trying to figure out what kind of impact that might have on your results in the international markets. I guess, first of all, you have some impact in the disruption of flow of key releases during that period of time. Obviously the local -- whatever, citizens have competition for other types of entertainment during the World Cup. Are those big drivers, or is it simple as it depends on whether Mexico or Brazil does well, and if it does, then you are going to have a lot more competition for consumers' attention?

I guess Mexico, Brazil, Argentina and Chile are all in the quarterfinals, and then two of them hit the finals, it gets a little more interesting. But, I mean it -- Alan, you can --

Certainly, it does have a lot to do with it. As you state, the studios do move product around. They anticipate this coming. There's different ways, and not that it can't have some effect. But as things change and move, as you see right now, the international market continues to perform very well in the box office. So we anticipate that we'll be able to work around and we'll just have to see how it all flows and goes. We actually are working on two. We're actually going to show the World Cup, and we're working on this as an alternative type content in our theaters. So we're actually working around positive ways to spin it and make it even drive attendance to our theaters.

It's a lot like the Olympics in that, whenever you have a major sports venue, be it the Summer Olympics, Winter Olympics, people move film around, and especially in those -- wherever it's being held. But just generally around the world, they'll move it. And we don't necessarily see that patronage go way. We could see a timing issue associated with it, but the movie is still going to play. And if they are big movies, they'll still do very well.

Eric Wold, Merriman Curhan Ford.

Just one quick bullet point question first. On the mix of the 1100 to 1300 3-D screens by the end of the year, what will be the mix between domestic and international?

It's pretty much the same kind of percentages, around 30% of the circuit. So that's going to tell you that 200 to 250, 300 range in the international circuit and the rest of those -- or international, and the rest of those would be here in the US.

On the XD that that you've opened to date, have there been any that have performed significantly worse -- or maybe not significantly, but worse or better than you went in thinking they would? And any reasons why that may be the case -- local market or mix of screens in that theater, etc.?

Yes. It's obviously a little bit hard at the moment because we are early in the game. Many of these have just opened up because Avatar has been the movie that drove most of them. So to the extent that Avatar performed well everywhere, like it did, than they did perform well. So I don't know there's an easy way to break that out. Just from listening to consumers, listening to our managers and understanding the feedback from them, every single one of them gets very positive feedback from the customer base. And, again, the numbers seem to work very much in line with the returns that we've always talked about. So at this point I can't tell you that there is anything that we're disappointed in.

Trying to think about the entire premium product, so 3-D and XD and all that, looking -- and IMAX as well -- looking at the types of movies that have come out over the past six to 12 months in 3-D, have you seen any significant variance between what movies do well, which movies consumers are willing to pay up for and the ones kind of maybe skip the 3-D and goes to 2-D -- is it animated, non-animated, adult, children?

Not necessarily. We do know that horror type films seem to slant on a much higher percentage. Event films -- of course, the Avatars of the world slant on that higher percentage. Some of the animated films, but that's been mostly what there has been is animated film. So at the end of the day, those can perform all over the place, to be honest with you. Some are higher, some are a little bit lower. Most of those are in the -- again, we're doing, again, in the mid-60 range for the percent of 3-D.

The question was asked earlier. The beauty of all this in the premium offerings and 3-D and all these things we have, we feel, is beneficial just to give our customers choice given the ability to really choose whatever type and style and way they want to watch a movie. And that's really the neat part about it is you can go with whatever degree. And the answer to that question is we all view different movies in a different way, and some of us love one kind of genre or a particular film, and that's high on our radar screen, and so we want to go see it in 3-D. And others may not feel that way.

So that, at the end of the day, is where we really think this whole thing shakes out is the ability, whether it's in XD or whether it's in 3-D or 2-D or a matinee pricing or a weekend -- you have all of these different choices. So you can find the thing that fits for you, and we think that's very beneficial.

Ben Mogil, Thomas Weisel Partners.

Good morning and great quarter, guys. I think a lot of my questions have been asked already, so just one more international -- I think you are basically in all the major international -- in all the major Latin American markets except for Venezuela. When you think about your expansion three, four, five years out, do you think there's enough to do in Latin America? Do you see other regions internationally that you would want to go into that have similar dynamics to what led you going into Latin America? I'm kind of curious on your larger thoughts international perspective.

Right now we would tell you that, of course, there's a lot of opportunity for us and we'll continue to grow and focus on our Latin American opportunities. We do have two theaters that are in Taiwan. We have a partner over there that's -- we continue to look at Asia and look at China and look at opportunities over there. I don't think the time is yet for China; there are still many issues that we have to work through, film related and how they deal with our industry. But at the end of the day, that's an area that we would continue to keep our eye on and watch to some degree. But right now Latin America is very hot. It continues to grow, you see the results. There continues to be a lot of opportunity down there for us. So for the next quite a few years that's where we will continue to focus.

On the questioning about the World Cup and the decision to show some of the events, I'm presuming you are showing the events for free, no admission, and then obviously you'll just make money on the concessions and advertising. Is that correct?

Yes. To be honest with you, we are still working out all the details, and I don't know that I can convey to you how the whole thing will come down yet because we're literally right in the middle of working through that.

But maybe just to clarify, we will charge for our auditoriums, whether we are charging a ticket price or we're selling it to a sponsor and we're taking the concession. But there will be an auditorium rental, at the very least, if there's not an individual ticket price.

And probably the concept there, you've got to understand, is more sponsorship oriented, or there's different ways to approach it down there. But the key is that we try to tie in what's going on with the World Cup and see if we can take some advantage of getting people excited and get them into our theaters.

It's like a local employer would book the theater for a couple hours in the afternoon to give employees an event out, something like that?

They might do that. Or you could just have an overall event sponsor come in -- Coca-Cola or whoever a sponsor might be, and just rent out the auditorium, literally for the whole World Cup. So we're looking at all those things.

In reply to one of Barton's questions you mentioned the 7.5% number. I only heard part of it. Can you rephrase what that was in context with?

He had asked with respect to the weighting of 3-D product, I'd say, of our premium priced product, what percentage did that represent of the box office for the quarter. And in Q1 of this year it was 23%. He had asked about what it was in Q1 of 2009, and it was about 7.5%.

Anthony Di Clemente, Barclays Capital.

I was just wondering on your film rental expense as a percentage of admissions, do you think the scarcity value of the 3-D properties is helping you in your conversations with the studios? And if you could just give us an outlook on how we should be modeling film rental? I understand that the tent poles in the quarter was what drove it higher in the quarter, but how should we think about that over the long period of time?

As you point out, Anthony, the driver for film rental is really the quality and size and how big is that movie. It's not 3-D related. And, of course, the first quarter had one of the biggest movies in history. It had Alice in Wonderland, some very big performing films.

We don't look at, as you look at over the long period and as you always need to look at our industry that way, we don't really see any significant changes in the way film rental is approached or how it's going to perform, either. It just so happens that this first quarter was driven the way that it was. So I don't know that we're looking at it. Now, of course, if every single quarter had multiple Avatars in it or big films and 3-D went so crazy, then yes, that's going to drive it up. But reality is, and we would be happy to pay it, if it did that. Reality, we know that's not going to happen that way, and there will be big films and not-so-big films. And that's how the industry really has performed. So we would look to the future to be not much different or much change.

Jeff Logsdon, BMO Capital.

Robert, perhaps you can give us some guidance on taxes for the year. Clearly, first-quarter was lower than typical.

Unfortunately, what I tell people is, I would presume 40% as an average for the year because if you take our overall, especially domestic, tax base, by the time you take federal and state you're in that 40% range. International is not necessarily as high, but by the time you do all the calculations and differentiation, that's just -- I think historically we've actually had 38% to 40%. I'd just personally be more careful and put it at 40%.

The nature of the way the taxes are calculated and what the relative weight of international might be in the quarter versus domestic, not to get too into detail, but you have things called permanent differences and all types of issues that happen. As you know, in looking at our history, we can be 35% one quarter and 44% or 45% the next quarter. And that's why we tell you, look, if you take a nice even run of it being somewhere in the 40% range -- we think, for the year, barring any unusual transactions, that will be a relative good estimate of where our numbers should end up.

Can you give us a little color on the litigation pathway with IMAX, not commenting on the litigation itself? But, are you in discovery, are you in negotiation, everybody filing motions against one another, where you are in that process?

It's obviously fairly early as far as those things go, so I think right now you're just in the beginning stages of the venues and trying to work out all the details of the lawsuit. So we haven't even got to some of the discovery phases yet or any of those type things. Understand, too, that, as we've told you before, this is a patent-related lawsuit. There's complexities and different things that are involved when you're looking at patents. So this is not going to be something that's going to happen in the short term. It just takes a while to work out how to proceed on that.

Are you guys spending millions of dollars, something we should think about in terms of G&A?

As the case progresses, we definitely will increase the amount of money we're spending on the case. Whether that's -- I can't really quantify it, per se, today. But it won't -- I would not assume, as Alan said, because this is a difficult case, we think it will take years to resolve, could take years to resolve. That being the case, I don't think you are suddenly going to see millions of dollars in a quarter or in a year, for that matter.

Will legal costs go up? Yes, they probably will. I don't think it's going to be so material that somebody will look at it and get real concerned about it. But legal costs will be higher than what they have been.

Just trying to understand their claim, why would what AMC is doing and Regal is now doing -- how would that be any different than what you guys have been doing?

That would be a great answer for you to ask the IMAX guys. I wish I could answer the question.

Well, I'm glad we can start (technical difficulty) measurements. There is a business there for somebody.

David Gober, Morgan Stanley.

Just one clarification for Robert, back on Barton's question. When you're talking about the way that you guys think about ticket price increases, I wasn't clear if you were saying that when you increase the base ticket prices that the 3-D prices go up just because of the base increase or if you were actually saying that you increase the premium on those tickets at about the same rate.

Well, good question, because it probably wasn't said very well on my part. Generally, what we would do is increase the base rate. If the premium is $3 the premium just stays on that increase. So you are right; it is a proportion. If that was 2% on a 2-D, technically it could be 1.5% or something like that on the net 3-D increase if you continue to just add $3 to that.

We do actually go in, and in some markets because 3-D is new or -- when you consider we are still rolling out 3-D across our circuit. As we roll it out, some of the prices are higher than what we started out at. So, as it turned out, between the incremental we put of just $3 on whatever our 2-D was, and then some new theaters out there and changing prices a quarter in some cases -- it ends up being where -- again, I'm rounding to 2, but we're around 2% on both. So it's not quite as clean as just adding it, but that is our starting point. Probably the bigger point being we feel like that our price point, as I think Alan said earlier, are -- it's just a very unique opportunity we think this industry has, to have basically one product. You're not talking -- many industries, the car industry has all types of car models. You have different clothes and things for retailers. In our case we basically have the exact same product, so we are able to offer different price points because we can do it for a matinee, we can do it for a weekend, we can do it in 3-D, which has a different visual on it but I'm still taking the base product. Then we can do it in XD, which is really a premium viewing experience. You have IMAX out there as well.

To me, it's phenomenal that you've been able to create significant price point differential. And so we're trying to take advantage of those price points and the natural movement to those as we are able to increase our digital footprint and 3-D footprint, rather than going to the public and say, gee, as I think someone mentioned earlier, when you've already got a 60% differential in the price of a product, raising it another dollar or something -- we just felt like the last thing we want to do is make our customers overly focused on that price differential. We want them to feel comfortable that they've already accepted our prices and look at more normal price increases.

That doesn't mean some day we won't look at bigger increases, but I still think you've got an economy where a lot of people are out of work, and we're just trying to make sure that we're maximizing what we can with the price points that are in place and keeping it at a relatively good value for the consumer. We think our numbers show that that's worked pretty well.

Having said that, I think particularly AMC and maybe Regal in some cases as well had to take a little bit of a different approach. It sounds like they've actually increased the premiums on certain of their premier products. Is there anything that you're seeing in competitive markets that would lead you to believe that you could or couldn't increase the pricing or if that's an attractive proposition?

I think, again, you're just talking increase the pricing on a premium offering?

Yes. Actually just increasing that differential, so let's say you are charging at a $3 premium now. I think in certain markets, on either IMAX or 3-D, Regal and AMC have increased that premium to something like $3.25 or $3.50.

Yes. I think, at the end of the day, what you're trying to do, of course, is look at all pricing in, obviously, every single market that you are in. So that differential -- most of the time -- there are times maybe you can go up a little bit on that differential or maybe you'll charge more on 3-D or XD or maybe 2-D. Really, the way we approach pricing is looking at all price categories and all price points in determining how to make that thing work together. And of course, what we are always after is we want to make sure that we are driving the maximum attendance that we can is our first driver and the first thing we are going to look at.

So every market is going to have nuances, and there's different reasons and things you can do and you look at. So that's how we've always approached it is look at every single category and then determine what's appropriate, market by market.

A quick question on capital allocation; you ended the quarter with a little bit over $430 million in cash. I know that in the past you guys have talked about being very comfortable with having cash on the balance sheet and wanting to continue to invest in the business and acquire assets when they become available. But I was just curious if there's anything in pending tax changes, particularly in 2011, that might make you consider or reconsider the dividend policy in the near-term.

The starting point obviously is going to be our board. We do have a board meeting next week where they'll just our dividend. I think, as normal, as you already mentioned, they will consider how to create long-term growth for our shareholders to look at what we can reinvest our cash in because we do feel like that's been very beneficial, and updating some of our circuits by just adding the cafeteria style concession that we don't have everywhere, some places adding XD, which was a program we've instituted and been very successful as well as really the digitization.

So it's hard for us to say -- at this point, we do have a strong balance sheet, as you've said and we've refinanced a lot of our debt. We have DCIP that now has taken care of itself. I'm sure our board will look at all the alternatives. Not sure which way it will go at this point.

Jim Goss, Barrington Research.

I think you alluded a little to what I'm thinking about in your last discussion, perhaps with the choice of options. But it occurs to me that, as you are tinkering around with pricing a lot, you want to make sure you -- even though the premium prices have not seemed to affect concession sales, at some point I would wonder if attendance could be affected and, certain, lower attendance rather than higher attendance would affect the high-margin concession revenues. I was just wondering how you approach pricing when it comes to that. Is it just by making sure there are choices that are not as high priced? Maybe just try to tackle that a little bit.

As I said in the early comments, you certainly want to, in both box office and concession, offer choices and offer the ability for people to buy into either one of those to get you into the door and then to buy at the concession stand. We have been successful introducing things -- this isn't new for us -- the combos or different price categories or value pricing at the concession stand. So most certainly you have multiple choices and multiple items and multiple offerings in the concession stand that mirror what you are trying to do in the box office so that you can attract all different people.

That's one of the beauties. And of course, the cafeteria style stand -- you actually can even offer all kinds of products, whether it's coffees or ice creams or there's many different things you can bring in there to bring the diversity and bring different choices for the consumer. And as you've stated, we have not seen any change in the concession buying habits of our consumer continue to be consistent to what they've been in the past.

But I'm thinking less of that than the impact on overall attendance levels relative to what they might be otherwise, with some of the ticker prices, such that maybe you wind up having fewer people to sell those concessions to, because I would think the overall ticket pricing policy would affect that end market.

Absolutely, and that's why you have heard from us many times Cinemark is conservative on the approach of ticket price premiums and how we raise our ticket prices because we always are concerned about driving attendance. Now, of course, you have seen last year and the first quarter of this year attendance has gone up some. The biggest driver, of course, always being the film. The film is the thing that's going to attract the consumer. You've got to make sure you have a quality product. So there is a balance between the quality of the film and then how do you price it. And you are going to always hear from us, because that's the nature of our Company is we are conservative on how we approach increasing our pricing.

I've noticed that Costco -- and perhaps there are other examples -- you and some of your peers have started to sell, effectively, discounted ticket prices and get cash in advance. Is that a program that will gain wider distribution?

In reality, that's not a new program. We have done that and all of us have done that for many, many years. That's a program to where you sell both tickets or the ability to move those throughout the community. So that, again, is another way that you can discount or attract a consumer base. Specifically, Costco has been selling our tickets, I think, for probably four or five-plus years. So it's not a new program by any stretch. But yes, we will definitely continue to do that and continue to offer our tickets in those type ways.

I know you've talked in the press release about the number of new theaters and screen additions, but your net number was down a little bit. I'm just wondering what your year-end screen count targets are for domestic and international, including, on a net basis with the closures.

As we said, I think originally we felt that we would have 150 to 200 new screens and then close by around 50, so you net somewhere between 100 and 150. I think that's still somewhat reasonable. As we've said, we have about 121 screens committed to right now that we have signed leases on. As you said, for the first quarter it was kind of a wash overall. The closures will be higher domestically than internationally. So if I'm waiting 50 to 60 closures of auditoriums, of screens, that's going to probably be primarily domestic versus international.

I feel, despite that we have 121 screens signed, we still might actually build more than that this year. There still are some projects we're looking at, although we are getting close to the point where just building a screen and opening it [by here] won't be possible. So, ballpark, you're probably in the -- I think it's going to turn around in the 60- to 80-screen international, and probably 40 to 60 domestic, somewhere in there. That's just about everything.

Brandon Taylor, Raymond James.

I don't want to flog this question about film rent, but just a couple more. One, do you have any insight at all into why your film rent was up so much relative to your publicly traded peers? Regal was up, I think, 270 and Carmike was up 230 BPS as a percentage of revenue.

The second question would be, in terms of the International segment, it looks like film rent actually went down from, I think, 49.8 to 48.1. Is there any reason Forex -- is that a Forex effect, or is there something else there?

There's really not anything, again, out of the ordinary. Everybody is going to approach film, negotiate. Remember, especially on the international side, there's timing differences of when film opened and what film is in that quarter. But it's all over the map as to how that occurs. As I mentioned to you, Alice in Wonderland didn't even play in Brazil or some markets in the first quarter. So there's always going to be variances on how that occurs, and we don't think what occurred for us in the first quarter and how the film rental is approached was any differently than it had been in the past for us, and nor will it be in the future.

We just kind of -- in the end, we do understand domestically everybody had different rates. Some of those can vary, based on where you were at last year. And for us, when we looked at it and we are trying to analyze it, and we looked again, why we mentioned it, last year there was three $300 million movies, I think, all year. This year you basically had two $300 million movies in Q1, which is a quarter normally full of $150 million movies.

So when you compare -- and so even the relative weight of those, when you look at the attendance and box office, the relative weight of those films in this quarter was very heavy. So when we looked at it and we compared it to Q2, three and four, which tend to have more tent pole films but actually not even necessarily as weighted as what you have in Q1, we didn't feel like it was that far off the mark domestically. We do understand that our competitors might have been in a different position. But if we take it down to the bottom line and we look at what was our margin, because I don't know where they put expenses -- and, again, you would think film would go proportionately for everybody.

But if I look where we come down to, knowing that some costs can move around, we still felt good about overall margin. Internationally, film rental is done a little differently, and that also is a reason that you see those different film rates, which, again, is a nice part of our worldwide circuit because we are able to balance those rates.

Barton Crockett, Lazard Capital Markets.

Actually, let's just take it off-line. I'm all set. Thank you.

I'll now turn the call back over to management for closing remarks.

We'd like to thank everyone for participating today and we look forward to talking to you again on our second-quarter. Thanks, everyone, and have a good day.

Ladies and gentlemen, this concludes today's Cinemark 2010 first-quarter earnings conference call. You may now disconnect.