Cinemark Holdings Inc (CNK) 2010 Q2 法說會逐字稿

Good morning. My name is Charette, and I will be your conference operator today. At this time, I would like to welcome everyone to the Cinemark 2010 second-quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks there will be a question-and-answer session. (Operator Instructions).

I would now like to turn the call over to over to Rob Rinderman, Cinemark Investor Relations. Sir, you may begin.

Thank you, Charette. Good morning, everyone. Welcome to Cinemark 2010 second-quarter results conference call.

Before we begin, I 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 than the performance indicated or implied by such statements. Such risk factors are set forth in the Company's SEC filings.

I will now turn the call over to CEO Alan Stock, who is joined today by CFO Robert Copple. Alan?

Thank you, Rob. We appreciate everyone joining us this morning. I will begin with a brief overview of Cinemark's 2010 second-quarter operating results, followed by a discussion of the overall industry box office performance during the period.

As we do each quarter, I will preview the upcoming film slate and update you on Cinemark's digital, 3D and XD Extreme Digital Cinema initiative. Following my comments, Robert will discuss additional financial details from our Q2 results, as well as highlights of our capital structure. After that, we will be happy to address any questions that you may have.

Cinemark's geographical diverse theater footprint continues to deliver results as the Company's total worldwide revenues grew 4.2% to $539.4 million. Our adjusted EBITDA grew 3.6% to $125.1 million, and our adjusted EBITDA margin was a robust 23.2%.

Worldwide revenues per average screen advanced 3.5% during the quarter. We benefited from a 5.8% increase in average ticket prices and a 5.4% rise in concession revenues per patron.

For the seventh straight quarter, our domestic box office outperformed the US exhibition industry average for the same period. Our US admissions revenues were $269.2 million, a slight decline of 2.5% compared to last year's record-setting second quarter. However, we overindexed by more than 20% compared with an estimated industry box office decline of 3.2%.

Cinemark's international segment again delivered exceptional performance in Q2, with our admissions revenues arriving 33.4%, paced by an 8.1% attendance increase. This represents the eighth consecutive quarter in which our international segment outperformed our domestic results on a constant dollar basis.

The exhibition industry's revolutionary transportation to a digital platform continues to positively impact box office performance. Movies featuring 3D presentations comprised four of the top five grossing films for the quarter domestically.

The period began very well, with the highest grossing April on record. The top movie during the quarter was "Iron Man 2," which grossed more than $300 million. Also, the highly anticipated follow-up to the Toy Story franchise brought in over $250 million in only 12 days following a June 18 debut, and is on its way to a total US box office receipt of approximately $400 million, making it the highest grossing Pixar film in history.

With the success of "Toy Story 3" in 3D, and the sensational release of the "Twilight Saga -- Eclipse," on June 30, the second quarter ended with very positive momentum. Many theaters also showed the first two "Twilight" movies prior to the midnight premiere of "Eclipse", and were able to take advantage of fully digitized theaters, where we devoted every screen at midnight to "Twilight."

The industry is off to a very solid start in Q3 which began with a carryover of the strong box office results provided by the late June releases of "Toy Story 3" and the "Twilight Saga -- Eclipse." We already have our calendars mark for November 18, 2011, the projected release date of "Twilight -- Breaking Dawn, Part One". Similar to the final Harry Potter, Summit Entertainment has chosen to divide "Breaking Dawn" into two parts based on the tremendous success of this franchise.

In July, the box office momentum continued with the very successful release of "Despicable Me" and "Inception" from "Dark Knight" director Christopher Nolan, which had a strong opening weekend of $63 million, and performed very well on our XD screens. "Salt," featuring Angelina Jolie, also had a solid late July opening.

Preliminary industry estimates indicate that July 2010 will set a record for the highest grossing month in US history, growing approximately 13% compared to July of 2009.

Other titles set for release for the remainder of the third quarter include "The Other Guys," a comedy starring Will Ferrell and Mark Wahlberg; "Eat, Pray, Love," featuring Julia Roberts; the hard-hitting action thriller, "The Expendables;" and Oliver Stone's "Wall Street -- Money Never Sleeps," featuring Shia LaBeouf and Michael Douglas reprising his infamous role as Gordon Gekko.

Movies featuring 3D opening later in the third quarter include tomorrow's release of "Step Up 3D," "Resident Evil -- Afterlife," "Alpha and Omega," and "Legends of the Guardian -- The Owls of Ga'Hoole." A number of additional high profile 3D titles will be released in Q4. The first installment of the two-part "Harry Potter" finale debuts just prior to the Thanksgiving holiday. "Tron -- Legacy" comes out during the Christmas season as well as "Gulliver's Travels" and "Chronicles of Narnia -- The Voyage of the Dawn Treader."

Other notable 3D titles set to release during the remainder of this year and include "Megamind," "Tangled," and "Yogi Bear." Obviously, we're optimistic about the second half of 2010.

Cinemark continues to be at the forefront of the cinema industry's conversion into a digital platform which is rapidly expanding the availability of premium and innovative offerings such as 3D and our own XD format. At June 30, Cinemark had 489 3D screens in the US, up from 300 at the end of Q1. Our worldwide 3D screen count at June 30, 2010 was 600 compared to 403 at March 31.

The vast majority of the new 3D installs for the quarter occurred throughout the month of June, and were thus not all available for some of the 3D releases such as "Shrek Forever After" that occurred earlier in the quarter.

The DCIP joint venture financing was completed in mid-March, and our digital rollout is now in full swing. On our prior quarter the call we indicated an expectation for approximately 30% total 3D penetration of Cinemark's global [circuit]. Based on how audiences are embracing 3D presentations and a growing 3D movie pipeline, we are now raising our 3D target level to 40 to 50% of our worldwide screen base. We expect to reach this level by mid-2011.

During the quarter, approximately 70% of our 3D enabled domestic theaters had only one 3D screen, and some of our theaters did not have a 3D projector deployed yet. As the number of 3D titles expanded this quarter resulting in overlapping release patterns, a supply and demand issue developed, with multiple 3D movies in release concurrently fighting for limited screen real estate. As a result, the 2D percentage of revenue for some movies is higher due to lack of available 3D screens.

It was very impressive how strong the opening weekend grossed for some 3D movies considering the limitation on the number of available 3D screens. Demand for 3D and our other premium offerings remains strong, and customers continue to value these experiences. Although only four movies played in 3D this quarter, 15.7% of our domestic admissions revenues were attributable to these titles in our premium formats, including our 24 domestic XD and six IMAX screens. Our average 3D premium was approximately $3.20.

Eight 3D releases are on the calendar for the third quarter, followed by 10 additional titles during the fourth quarter bringing the total to 23 in 2010, up more than 60% compared to 2009. 29 3D films have already been announced for release during 2011, and an additional 12 are slated for 2012.

Sometimes lost in the excitement surrounding the 3D revolution is how the deployment of a digital projector provides us many opportunities to enhance revenue streams beyond just 3D presentations. We have greater flexibility, including the ability to expand our available screen count to match real-time demand, especially during midnight shows such as "Twilight," as previously mentioned.

Digital also allows us to offer alternative content such as live opera, sporting events, concerts, and other live and prerecorded events. A recent event that was successfully tested in the US and Latin America was the World Cup.

Alternative entertainment is still in its infancy. Digital theaters represent a different distribution medium for all types of product that requires a broader market footprint that is generally available today. We feel as the digital conversion ramps up over the next 18 months, the footprint of digital projectors will be sufficient to provide a national platform that will stimulate the production and distribution of content.

Let's take a moment to update you on our large screen format -- Cinemark's XD Extreme Digital cinema. The XD auditoriums feature a unique, state-of-the-art digital experience for our customers. Screens stretch from floor to ceiling and wall to wall, with plush, ultra-comfortable stadium seating and a high-end JBL sound system providing cutting-edge crisp and clear surround sound.

During Q2, we opened three additional XD auditoriums, bringing the total to 26, including two in international locations. We recently added a third international XD at our new upscale theater in Panama, which opened in July.

Our domestic XD auditoriums representing 0.7% of Cinemark's total screen count generated 2.7% of our domestic admission revenues for the second quarter. The typical admission price premium for the XD experience remains at $3 to $5, with XD and 3D at the top of that range.

Our return on investment from this upcharge alone net of film cost has well exceeded our threshold of a 20% cash-on-cash return on investment, even before accounting for the significant additional revenue provided by the attendance lift we have seen in our theaters featuring XD auditoriums. We plan on adding 20 to 25 additional XD screens in the second half of the year, with about one half of these slated to debut internationally.

We will also continue our strategy of organically expanding Cinemark's worldwide theater circuit. We currently have commitments to open 10 new theaters worldwide with 97 screens for the remainder of 2010, including four theaters with 51 screens in the US, and six theaters with 46 screens internationally.

At this point, I'm going to turn the call over to Cinemark's CFO, Robert Copple, who will discuss our Q2 results in more detail and update you on our capital structure.

Good morning, everyone. As Alan mentioned, Cinemark's domestic circuit outperformed the overall US industry, and our international performance continued to post solid attendance growth, leading to strong financial results for the quarter.

Our worldwide box office grew 4.1%, with total revenues increasing 4.2%. This compares to our US industry box office decline of 3.2% for the period.

Q2 domestic emission revenues were $269.2 million, a decline of 2.5%. And concession revenues were $129.6 million, a slight reduction of 1.2% versus last year. Our total domestic revenue was $409.8 million, a 2.1% decline from Q2 of last year.

The average US ticket price increased 2.9% during the period to $6.47, primarily as a result of 3D and XD pricing premiums. While we continue to modestly increase prices in an uncertain economy, our average ticket price increase this past quarter was partially offset by a shift in mix towards kid- and family-friendly movies, which naturally have a lower average ticket price.

Domestic concession revenues per patron increased 4.3% to $3.12 due to price increases, as well as the favorable movie mix of family-friendly titles. It also is worth noting that the relative shift in attendance to premium tickets sold attributable to 3D and XD has not translated into a reduction in concession revenues.

Cinemark's international performance continues to reflect the strength of the Latin American economy, with Brazil leading the way. International admissions revenues increased 33.4% to $83.9 million due to a 23.2% increase in average ticket prices and higher attendance of 8.1%. Concession revenues advanced 28.5% to $35.6 million, driven by growth in average concession per patron of 18.6% and [are] higher attendance.

Total international revenues rose 30.9% in during the quarter to $129.6 million. Our worldwide adjusted EBITDA increased 3.6% to $125.1 million from $120.8 million last year. This increase was despite the impact of the shift in the $3.1 million tax sharing dividend from NCM being received during the first quarter 2010 compared to the second quarter of 2009.

As a result of the excellent job our theater managers performed in controlling costs at the theater level, domestic adjusted EBITDA before the NCM dividend was virtually flat compared to 2009, despite the reduction in box office revenues.

Income before income taxes increased 111% to $51 million, and net income attributable to Cinemark Holdings, Inc. was $39.7 million or $0.35 per diluted share. Our effective income tax rate for the quarter was 20%. The rate reflects a reduction in our reserves for uncertain tax positions, which is a period benefit.

Our average quarterly rates for the next few quarters should be approximately 35%. However, the 2010 annual rate will reflect a benefit of the first two quarters lower average rate.

Consolidated worldwide results also benefited from an improvement in film rentals and advertising costs of 150 basis points to 54.8% of admission revenues compared to 56.3% in Q2 of 2009. The 150 basis point reduction in film rental and advertising costs was primarily due to more favorable film rental rates on certain titles in the US.

Concession supplies costs improved approximately 30 basis points to 14.8% of concession revenues, compared to 15.1% in Q2 of 2009. The decrease in the concessions supplies rate was primarily due to favorable inventory procurement costs and the successful implementation of price increases.

Salaries and wages as a percent of revenues for the quarter were 10.4% or $56.3 million compared to 10% or $52 million a year ago. The increase is primarily a result of minimum wage increases throughout the US and internationally, an increase in staffing internationally to support the increased attendance level, and the impact of exchange rates in certain countries in which we operate.

G&A expenditures remain constant at 4.6% of revenues, and were $25 million compared to $23.7 million last year. The absolute dollar increase in G&A reflects an increase in salaries and incentive compensation expense, our professional fees and credit card transaction fees, in addition to exchange rate impacts in certain countries in which we operate.

Depreciation and amortization expense was $34.9 million compared to $37.9 million in the prior-year quarter. The decline is primarily due to the burn off of depreciation on certain assets we acquired from the Century theater acquisition in 2006, partially offset by accelerated depreciation expense on Cinemark's 35mm projectors, which are being replaced by state-of-the-art digital projectors.

We recorded asset impairment charges on asset sales and use of $4.6 million, consisting of $3.5 million of theater properties and $1.1 million of intangible assets.

Q2 interest expense was $28.6 million, compared to $25.6 million in the year-earlier quarter, reflecting a higher interest rate associated with our amended senior secured credit facility.

Our balance sheet remains one of the strongest in the industry. As a reminder, during Q1 2010, we amended our senior secured credit facility and extended $924.4 million or 85% of our term loans under the facility through 2016. We also extended approximately half of our $150 million revolving credit facility to 2015. Our entire $150 million revolver remained undrawn at quarter end.

At June 30, our cash position was $435.8 million, resulting in a net debt position of approximately $1.1 billion and a net leverage ratio of approximately 2.3 times adjusted EBITDA.

At quarter end, Cinemark's total domestic screen count was 3,838, including our 12 screens in Canada. During the second quarter, we added two US theaters and 21 screens. There were no closures during the quarter.

We have signed commitments to open additional four theaters and 51 screens domestically during 2010, and six theaters with 85 screens in subsequent years. We estimate that we will incur approximately $54 million in capital expenditures to develop the 136 additional domestic screens.

Our total international screen count at quarter end was 1,069. During the second quarter, we built one theater with 12 screens and closed one theater with 10 screens. We have signed commitments to open an additional six theaters with 46 screens internationally in 2010, and six additional new theaters with 41 screens subsequent to 2010. We estimate that we will incur approximately $55 million in capital expenditures to develop the 87 additional international screens.

During Q2, we invested $37.5 million in capital expenditures, including $13.4 million on new construction and theater additions, and $24.1 million in CapEx maintenance. We remain comfortable with our 2010 guidance given earlier this year of total CapEx, including new builds and maintenance before disposition proceeds, of between $160 million and $170 million.

As a reminder, 2010 maintenance CapEx included costs related to XD; select theater upgrades, including conversions of some concession stands to our self-service model; plus digital cinema conversion expenditures totaling $35 million. As we said last quarter, we expect CapEx to gravitate back to prior-year levels once our DCIP and XD rollouts are completed.

Our Board of Directors declared a quarterly dividend of $0.18 per common share to be paid on September 1, 2010 to shareholders of record as of August 17, 2010.

In summary, Cinemark's domestic results once again outperformed domestic box office and attendance results. And when you combine that with our strong international performance, we reported a solid quarter with an increase in adjusted EBITDA, the key metric by which we measure ourselves.

Cinemark's digital rollout is in full swing and picking up speed as teams of skilled technicians are installing barcode digital projectors with RealD's 3D systems throughout our US and international circuits. We remain comfortable with the previous guidance of digital and 3D compatible screens by year-end, and raised our target 3D footprint to approximately 40 to 50% of our worldwide screens.

In addition, we're continuing to open new auditoriums featuring Cinemark's own branded XD format based on its success. We remain focused on achieving strong operating growth and adjusted EBITDA results, both domestically and internationally, with Cinemark's high-quality, well-run and geographically diverse worldwide theater network.

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

(Operator Instructions) Eric Handler, MKM Partners

Good morning. Thanks for taking my question. Just a couple comments. First, on Latin American operations, your attendance actually grew year over year. Specifically, was it a mix issue? What happened in Latin America to see such strong numbers?

And then secondly, I don't know if you said this or not -- the number of 3D and/or digital screens that are rolling out per month now -- what's the run rate there?

Thanks, Eric. I think on your first question as previously, and as we have been following, of course Latin America has performed very well. I think reality is it's just [the film] product and their desire to go to movies.

We know movies like "Toy Story" and family-type films play very well internationally. And likewise, it did very well throughout all of our Latin American markets. 3D has continued to be very strong down there. So most of that again was just driven by the quality of sound, the mix, and people's attraction to it. (multiple speakers)

Was there anything in there with regard to the World Cup for the theaters that you were showing the World Cup for or anything like that?

Most of the World Cup showings that we did, especially here in the US and even somewhat internationally, were not a real wide basis. They were fairly limited.

There was some of that that was done, most of it throughout Brazil. But we did do some in other countries as well -- but not real huge. And the results would definitely not be driven by the World Cup attendance in our theaters. I mean, that -- certainly had some good, positive results for us, and a good sign for the future. But again, I think it was more just driven by the film and people's desire to go.

I think one of the things you are clearly saying and Latin America that we've seen over the last four quarters, if not longer, has been that as the economies are growing in Latin America, you are expanding the income levels of the people throughout the region, and especially in our strongest -- with our strong presence in Brazil -- is translating into more people going to the movie, and just continued attendance growth.

And I think one of the benefits we ended up having is everybody was a little unsure of, and maybe it just ended up being the teams that made it to the World Cup, but probably the lack of Brazil and Argentina in the finals somewhat might have benefited us, in that we did not see any significant changes in Latin America's performance because of the World Cup.

With respect to the rollout, we have the capability to run at 200 a month. I would say that despite that capability, it's going to vary probably between 100 and 200, depending on the particular month. July we won't roll out quite as many as what we would in September. You do these mostly at night, but you are just limited on your ability to convert because of trying not to take down screens, especially during busy times of the year.

And so I think overall, we're still probably aiming at that 1,100 to 1,300 range of screens by year-end, and actually, we might even see an increase in that -- depending again, if -- on those months that we might get a couple hundred versus a little bit less than that.

Thank you.

Alexia Quadrani, JPMorgan.

A couple of questions. First, could you give us a sense on your performance in July -- did your impressive rate outperforming the industry continue in the month of July? And the second question is more on the outlook. Any notable difference in the timing of releases outside of the United States and Latin America in the back half of big year?

Of course, we don't give guidance. So it's hard for us -- or we can't give you what has been going on with us in the month of July. We don't give forward-looking numbers like that.

Again, I can just tell you -- as stated, July was a good month, and you would naturally assume that Cinemark [played] like the industry did, or had good results from that.

As far as how movies have released, just to give you a little idea, we know the release pattern is always a little bit different in our Latin America markets and how movies are released. A good example is movies like -- trying to think here -- Shrek -- I don't think actually even played in the second quarter in some of these countries. It will actually be a third-quarter movie. So sometimes those movies definitely move around a little bit, and you don't always know where and how they're going to hit.

But that is not anything new. Movies do change, and they adjust and things are done differently quite often. So Alice in Wonderland, for instance, did not play in the first quarter in Brazil. It actually played in the second quarter. But again, if you go back from this year compared to last year or any year, that is going to be a pretty consistent pattern. So I don't think there's anything different in any of the mix or shift or the way they played or are going to play.

And something like the big releases, such as Harry Potter in the back half, that will also open internationally as well?

Yes. Most of the films -- and again, most of the time things are played pretty close to a day and date at the same time. And I think especially Harry Potter and some of the very large event films -- they play at the same time. What they do oftentimes is some of the kid films, and that's why we've seen some of the more animated stuff like Shrek, and they kind of move things around a little bit based on some of the holidays, and where kids in school, and how it best will play in those countries -- and again, it can vary country by country. But that is pretty much how it has always been, and I don't anticipate that changing much at all.

And then just one last question. One of your peers suggested that the sort of family-oriented or kids-oriented films tend to do better in the suburban markets rather than in bigger cities. I guess would you agree with that, and was it one of the reasons for your outperformance in the second quarter? And if so, would the reverse necessarily be true, I guess, in Q3?

Well, I mean, again, we're going to play -- we had a very pretty diverse footprint ourselves. We are based all over the country. We're in 39 states here in the US, and we're in larger markets and smaller ones. Every movie does play differently, and that comment is based on -- different states, cities, regions will play differently on every single film.

Oftentimes, the suburban-type markets do play well with the kids and the family-based films. And we have a lot of those, so we definitely play strong when it's a kids-, family-oriented film. But that's not to say that -- you know, all films can play and have differences on regional orientation more than anything.

So I don't know how to break out -- we haven't broke out. And as we've answered in the past, we don't report on a state-by-state or a region-by-region basis. And we are, again, a very diverse company. And we're able to get the results that we have based on the footprint of theaters that we've got. And remember, we've had those results now -- as I have stated, this is seven quarters that we have exceeded what has happened here. So when you have that long of a period of time, I guess you have to say that the averages and who and what we are is just a compilation of the quality of theaters that we have got, how we operate those theaters. And of course, international has been a huge benefit for us.

Michael Skilansky, Piper Jaffray.

Can you comment on the 3D trends or data points that you picked up during the quarter that led you to decide to increase 3D screen penetration to that 40% to 50% range? Do you think that penetration level will eliminate screen supply issues going forward? We're looking at that monster second-quarter slate next year, and wondering how all of those blockbusters are going to divvy up those screens.

And that's actually the exact reason why we feel like we need to head toward that 40% and 50% is to alleviate any kind of screen demand or making sure that we can play all of those 3D movies in the proper manner. That has definitely been, as we mentioned, a problem here this past couple of quarters, and not having enough screens to adequately play film.

We know there is demand. We know people will want to see it in 3D. So by having an adequate number of screens and enough 3D theaters out there, then we cannot have these problems and we can't adequately play the film.

So again, it's going to take a little bit of time. And as we mentioned, those continue to grow and we will hit that 1,100 to 1,300 screen count by the end of the year. And every month that goes on, we will continue to add more of them, so we can get -- no question we will be in much better shape when we hit 2011. As we roll throughout the year, we should have no problem being able to cover and play those films as they should be.

Okay, great. Can you update us on the international 3D premium and how 3D trends there compare to the US?

Actually, the trends are very similar. The performance internationally -- it might vary a little bit from the US. But actually, that could mean that it could be even higher or lower. But it has really trended very similarly overall.

The upcharges as a percentage are actually higher. The absolute amount is fairly similar. I think Alan mentioned that our average upcharge is about $3.20, which is about the same average overall internationally. But again, as a percentage of the base, because the base is lower internationally, it's a much higher percentage increase.

But doing extremely well internationally in 3D. Audience is again very receptive to the opportunity to see it there. If anything, I think as Alan gave the numbers, we have got 600 3D screens right now, of which I think 489 I think are in the US. So we're a little bit, if anything, underweighted internationally on 3D, although we're trying to keep up with the relative numbers. But we would like to rollout as quickly as we can there as well.

Thanks very much. Nice quarter.

Eric Wold, Merriman.

Good morning. Quick question -- on the -- I don't know if you said anything -- you kind of said you will still get to the 1,100 to 1,300 3D by year-end. So the 40 to 50% penetration -- is that by end of '11?

It should the middle of '11, I think. At our current rollout, because again, we'll be able to hit 200 a month in months prior to the slower months. So arguably, towards the end of the year and early part of next year, we'll be maximizing. We can actually go about 200. But we should catch up fairly quickly to being able to get to that 40%-plus number, we think, by the middle of the year next year.

And what are you seeing right now -- assuming, let's say, you decide to up that even further, what is typically the leadtime that you have to kind of talk with the silver screen operator or providers and RealD to get additional 3D screens installed?

We had been of course prepared for the numbers we quoted by the end of the year. We've had those installed for quite some time. And we have already some time ago actually began the process to put those screens in place for what we're anticipating that 40 or 50% number.

Right now, I guess you are probably typically four to six months out on how you would think about converting the screens over and putting that silver screen in play. We won't have any problem by meeting those guidelines. And in fact, I think a lot of those are being installed in anticipation of throughout this fall as we are getting ready for the 3D screen installs that will happen next year.

And again, to get to that number, would we go beyond that? Again, we will just have to see how it goes. We wouldn't need to go beyond that 40 or 50% throughout 2011. So we'll have plenty of time and plenty of leadtime, and we can think through how titles are coming at us without any problem.

Okay, and then last question -- when you have a theater that has both regular 3D screens, RealD 3D screens, and your XD theater, what kind of trend do you typically see from a consumer in terms of a movie being shown on both in terms of where they buy their tickets first and kind of what gets filled first?

And then secondly, for the XD, any differences in purchasing behavior between a 2D movie being shown in XD versus a 3D movie in terms of what consumers are choosing?

I don't think necessarily. I mean, in reality, most of our complexes right now have had typically one, sometimes two 3D screens. And remember, all of our 3D screens are RealD so that's the style of 3D that's in those auditoriums.

For the most part, 3D demand has been, and I think in order to achieve the numbers you have seen, it has been high; it's been where the consumer for the most part desires to go first. But most of the time, having said that, we'll only have one, and as I mentioned, sometimes two 3D screens, and you might have three or four 2D screens. So the difficulty comes in there's many more showtimes and availability for people to go to 2D than there is on the 3D front. So there is always some give and take as to people choosing which way to go.

But I think most people have been quoting, again, 3D numbers are in the 50% range, at least -- which, again, based on screen count and how you see it flow is indicating that there continues to be demand. Now again, most of that is more related to what is the film, what kind of style of a film is it, and -- there's many factors that go into how those people choose.

Kind of the same process in XD -- we're changing out those XD movies almost weekly. They might stay in longer than that, just based on what's coming behind it. But that gives people the opportunity to decide.

And I don't think there is a difference in whether that XD movie is a 3D one or a 2D. If it is a 3D film, it will always play in 3D in the XD. That's the way we show it in that format. So our performance in XD is driven by, again, people choosing to go to 3D in XD, because that is what is showing in those auditoriums.

Tony Wible, Janney Montgomery.

Good morning. Thank you for taking my question. One question I had was what is the sustainable organic growth trend in Latin America on a local currency basis?

It's hard to say what the sustainable is, because in the end, it's dependent upon the quality of the pictures out there. I think the opportunity that exists and that we're realizing is reflected in our numbers is that we are in a part of the world with our Latin American base that is greatly expanding the demographic and the financial opportunities for the people that live in those countries. And we're benefiting from it.

You know, I really have to point towards some more economic growth models that you probably need to look at of what people project for Latin America to occur, probably, and Brazil in particular. But I think when you look at those, it's incredibly positive at the moment.

And when I say at the moment, if you look at the long-term forecast, that again, you'll see that the feeling is this is a cycle that is really just starting, and has a lot of potential left to it. We would foresee ourselves benefiting as economies continue to grow, and again, as the income levels continue to rise in those countries. But, ultimately, it will be dependent upon the movie quality and a combination again of the economies down there.

It's term -- when we look at constant dollars, the interesting part, I think if you went back to [two thousand and, I guess, seven], and then when you get towards the end of -- the economies were doing similar to what they're doing now -- in '08, they were. And then you had the economic crisis that hit the world. You had devaluations that hit late '08, early '09. And now, towards the end of '09 and then going through '10, we've regained all of that. So we're really pretty comparable numbers now.

As we have told people over the last few quarters, we expect we will have about a 20% benefit in Q4 last year and into Q1 from FX. It dropped down to around a 10% level this quarter. And again, that hits both income and expense. And so when you really look at the net benefit, it's kind of 10% times the revenue, and then take our margin, which is in the 20% range, so we had about a $2.5 million to $3 million benefit from FX.

That really kind of washes out now as we go to Q3 and Q4, because if you look at comparable exchange rates, they are fairly flat in 2009 versus 2010 for Q3 and, we would presume, Q4. But again, the push really has not been the FX. It has just been pure growth in those countries.

Okay, thank you.

Karen Lamark, Federated Investors.

Good morning. Especially as you look to your CapEx peaking, I wondered under what circumstances or timing you would consider increasing the dividend to the payout ratio? Thanks.

Obviously, that is up to the board, and as we just announced, we have kept our dividend at the same rate. I think we want to continue to take advantage of the opportunities that are out there. And while the financial markets have improved, they definitely are still fluctuating. And what you might be able to borrow at some reasonable rate one quarter can quickly change the next quarter. So we like having the dry powder we have to try to take advantage of opportunities that are out there.

As time goes on, I'm sure our board will evaluate the dividend policy in light of what the opportunities are that we can pursue. But again at this time, they've chosen to keep it at the current rate.

Thank you.

Barton Crockett, Lazard Capital.

Thanks for taking the question. I wanted to ask a little bit about the effective ticket price rise in the US of 2.9%. That is below what [Beagle] reported at around 7% below what the [NATO] trade group was saying is an industry growth of 4.5%. And I was wondering if you had any thoughts about why your growth is less, and perhaps if that is a benefit for you, because your admissions revenue actually outperformed -- and is there also any potential kind of impact from maybe lower exposure to IMAX that factors into that?

You know, Bart, I think you kind of nailed it on the head -- it would be all of those things. We, as we have said in past quarters, have been very cognizant of the economy and careful with our price increases. We offer fairly broad matrix of pricing to take advantage of the demand weekends and charge the higher prices there, but have discount opportunities throughout the week. And I think those have worked well for us.

Some of that too is exactly what you said. Our XD is becoming a larger and larger percentage of the revenue we generate. But compared to some other circuits, the premium we offer -- or the number of theaters we offer with premium such as XD are probably less. And so that probably makes some difference in what the differential in pricing is as you move to 3D and IMAX and, in our case, XD [comps out].

And so over time, I would think that as we expand XD, that will present more opportunities for that net to grow. And Alan said on the call, most of our price increase was generated by 3D premiums and XD. I don't know how our 3D premium compares to everybody. But generally, I think again more of a market mix, not necessarily same prices should be higher or lower. And I think it's comparable in competitive markets. But we're probably at the 320 range, and I think some people are slightly higher than that. So all of that probably factors into where people ended up.

And also, as we said, family-friendly films, which we did obviously very well on, tend to be discounted. People go to matinees. You have kid pricing. And so our 2D price wallet increased on an absolute dollar basis -- because of film mix, it did virtually nothing for us this quarter, and again, resulted in our net average we did.

Okay. And then if I could ask one other question. You guys made interesting comments about the future of the industry with digital projectors and seeing that as eventually getting scale to help drive more content opportunities. And I was curious about how you view your opportunity there versus National CineMedia, because they -- you have a contractual arrangement with them where they basically provide what would seem to be the bulk of the alternative content for their founding partners. And so I'm wondering if that alternative content opportunity is more theirs or yours and how you think about that?

Well, again, remember, National CineMedia is the very guys who are going out there putting this alternative content together. But remember, we're -- it's a sharing basis for us. So to the extent that they book things on our screen, that's not all revenue to National CineMedia. That's where we both benefit from that process.

So our goal is to go out there and book the best, the most -- whatever we can on the screen, and National CineMedia is definitely a driver of all of the alternative content. They are out there aggressively working on and trying to find -- it was through them that we worked through the World Cup showings that we had. Of course, the opera -- many things that they delivered to us. But of course, those are also benefits to our company. So that is not exclusive to how and where they might show it.

But we also believe that that content can be sourced and many of our distribution partners -- those guys are also working on and have provided and will continue to provide that type of product as well. So we think that alternative content potentially comes from many sources. Again, National CineMedia, being one of those, and probably one of the larger suppliers of that. But there's many ways in which we can take advantage of that digital projector and through many sources of how we do it.

But you are correct, I mean, National CineMedia will participate in all of that that we're doing. And our point as much as anything is I think -- 3D took off. It's visible; it's exciting; it's going to continue to grow as we rollout digital. But we just felt like that something that has kind of been lost in the shuffle has been what else these projectors can do.

And alternative content, really, when you think about -- it is kind of like the theater has become a major network. And really, you can show anything from the World Cup like we did, live events, to premade items that may premiere on TV some day, something like that. I mean, just a lot of diversity, concerts, all that that you can do.

But to make it economical, you really need a network. And that is just dependent upon really rolling out enough digital projectors among all the exhibitors to take advantage of it. And NCM and us both will benefit extremely well, we think, in that. And again, keeping in mind we own a big interest in NCM. So will see our value book coming through the stock of NCM as well as our participation in the revenue stream.

Great, thank you very much.

Jim Goss, Barrington Research.

Thanks. I've got a couple of them. First, you reminded us that your international upcharge was the same amount in absolute terms and higher in percentage terms. I would think the percentage increase might be more noticeable to the customers. I wonder if you're getting any resistance from the upcharges on that basis, or is it helping you create an environment where you can increase your base sticker pricing on a more acceptable basis? That would be the first one.

We have not had any negative feedback on the pricing increase. It clearly is -- I mean, you're nearly doubling the price if you look at what our average price would be for a 2D ticket.

But it's really been extremely well received down there. The population is really weighted easily as much or more into 3D as what they have in the US. And we're ready as we have said in US -- well, we do the same internationally. We're very cognizant of our ticket prices and what the impact is on attendance, but really have seen no pushback on it.

As far as opening up the opportunity to increase 2D price -- yes, it probably does. But again, we really -- we look at 3D and our XD format as really separate experiences. We think it's an incredible opportunity to differentiate price points, and not necessarily abuse any of those in particular, but really create different types of premium experiences -- and then the base 2D experience, which is still an incredible experience. But that allows different demographics to see a movie depending on -- do they want to see it in 3D or not, and what ticket price are they willing to pay? And it's worked very well for the industry, and really been similar internationally to what it has been domestically -- again, just not really seeing a difference of how people enjoy or embrace the 3D or XD concept. But -- not really trying to use it as a new price point to change anything else.

Okay. Another thing -- the Wall Street Journal had an article last weekend about the notion of international markets impacting film greenlighting, especially with domestic comedies which don't tend to travel, that sort of idea. You're probably in the best position to have an opinion on that given your international exposure. I'm wondering what your thoughts are.

Again, I would tell you, I think from a studio perspective and how they play and what they generate from the international markets, you have seen the results and you've seen how we performed on our international markets, indicating very strong. So I think -- again, not all movies necessarily translate across to the international market, but some translate better. So that is always been the case.

And I don't know that I've ever heard of a studio tell me that there are some changes or differences in the international market that's having them think through how they're going to make film. I'm not sure -- we obviously don't get involved in those decision processes. But our numbers obviously reflect that the supply of film that we have had -- and as we have stated here for eight straight quarters, our international markets has exceeded what has happened here in domestic. Well, that's going to tell you that that film translates pretty well, that economies are doing pretty well, and just overall healthy nature of the international market hasn't necessarily been declining.

So maybe it makes them think through the style of film they play. I don't know. But when you again go back for that period of time and you get those kind of results, that's a pretty diverse mix of product that's going to play for that period of time. And we've actually been doing better than it has been here in the US. So that would indicate to me that the international market is very healthy and very robust, and very much a part of getting grosses for the studios on an overall basis.

The last thing I would ask about is you mentioned the World Cup in Latin America. One of the issues seemed to be concern that sporting events in a big auditorium don't match up so well, because people want to get excited about it, and they might feel less inclined to do that in a theater setting. And I'm wondering what that experience has taught you, and also when you bring up the notion of sort of a major network type relationship with alternative content, it also sort gets into something like TV stations might have had with -- in terms of pre-emption of primetime programming, and needing to watch when you take something off the screen that should have another use, and how you do it with some consistency.

I'm just wondering how that whole issue is evolving, and how fast we move into the alternative programming, given some of the considerations around it?

Well, certainly, at a sporting events, I think the latest example of course is the World Cup. It did play very well. Now, it was on a limited basis. We did not have a lot of theaters that had it. And of course, World Cup only happens once every four years.

But those who were in the auditorium who experienced what we had -- and the neatest draw, I think, was the 3D -- the 3D element on the large screen and the way it was shot. A lot of people very much enjoyed what they saw, and thought it was a great experience. And mind you, that is an experience that people could have stayed home and watch on their TV sets for free. And so they chose to come into the theaters and pay a price to go see it in 3D on the big screen.

You know, it is different than perhaps a stadium. But if you attended and watched them, part of the draw was that they are in there with people who are cheering both sides of the equation.

They came up dressed in their team's colors and their team, waving their flags, whatever it is -- and I think that's part of the excitement, and the ability I think to show it in 3D is part of the draw, because there still is not a way you can replicate this at home. And even though 3D may advance at home, when we're showing on a very large screen with a high-quality sound and you have it in that 3D environment, it is much different than you could ever achieve in your home.

So we're definitely excited. And what we have learned from especially sporting events is there are applications and there are lots of sporting events that will translate well into the theaters. As far as how we show that and the networkability -- remember, we have multiple screens in our theaters. And there is not very seldom a time when every single screen is being used on a very heavy basis for theatrical. So that is kind of the beauty for us is the ability to pick and choose what auditoriums, how talk about play that product. As those things continue to develop, it's really just a supply of product that comes to us, whether it is big movies from Hollywood or it's other content that shows.

And also, remember -- most of the alternative content does not show on every single day on a day-in and day-out basis. If it's a live sporting event or the opera or whatever it is, that's going to take a showtime or two on a particular date, on a particular week. So there is a huge amount of capacity to be able to show those type of things throughout a complex that has multiple screens, and the ability to move things around throughout that complex. So there is great potential for that, and I don't think there's really much limitation at all.

And was the upcharge the same as for a 3D movie? Or was it closer to what you might pay to go to the sporting event?

You know, we've -- there's been lots of different ways to test and do that. I think the World Cup was shown at our regular 3D pricing this time. I think that's the way most of them approached it. But it's pretty well -- you know, (inaudible) there may been some who did more than that. We have charged upwards of $20 to $25 for events. I think some of the boxing matches -- and I could even be wrong here on the way the 3D World Cup was shown.

But there is the ability. And again, remember, World Cup was very limited. I think we only had it in six theaters. So there's not a lot of them. And we're still experimenting with the price points and how to push it. So most of the alternative content of any kind at this point in time -- and the opera being the leader in that and the most successful is definitely done at the premium pricing and a much higher level.

David Gober, Morgan Stanley.

I was wondering if we could focus a little bit on the outperformance of your attendance trends over the last seven quarters or so relative to the rest of the domestic box office. I know you have talked in the past about your pricing strategies. And clearly, there are some geographical differences that may be helping in particular quarters. But just wondering -- in terms of the sustainability of that trend, do you really believe that it's pricing that has driven the improvement, or is there some other aspect of your execution within your markets?

And also, I guess looking within that, are you seeing marketshare shifts, or is there real elasticity in terms of the overall exhibition market, where it's possible that if other exhibitors change their pricing tactics, that potentially the overall market would grow? Is that something that you're seeing -- in those particular markets where you operate, do you see overall box office trends improve, or are you just taking a greater share of that pie?

It would be nice to go to give just a simple answer that would say I did pricing, and it has changed marketshare or something else. But really, as we have said, and I think -- this even came out on one of the other questions, where someone had asked about the kind of markets and urban versus suburban and smaller markets -- really, what has driven Cinemark has been multiple facets.

The pricing is some. But if you came to our theater next door, and you compare our price to our competitors in the market, or you go to San Francisco or Chicago or any of those that do the same thing, we're not underpricing our competitors. It is not I'm doing something that they are not, that somebody is driving marketshare to my theater because it's such a price differential.

Now, we probably have different structures in terms of opportunity to take discounts. But my competitors have discounts too; it's just -- maybe the way we approach it might be different. I'm not saying that makes us or them more successful.

So I think price is a factor. It's not -- people could look at our average ticket price and look at some of our competitors', and say, gosh, these guys really have a lower price. But that has a lot more to do with our markets.

And I would nearly say that's as big of a factor, is that when you look at our diversity across the country, we definitely are in some very large urban markets. And we're also in suburbs, and we're also in middle markets. And it's that diverse footprint, I think, coupled with some of the rollout we've been doing in XD, because again, keep in mind -- I have had six IMAXs for a pretty long time, but I really didn't have any other premium format. So while XD isn't driving all my differential, the introduction of a premium format definitely is helping us. I think (inaudible) we've done to our theaters of the last few years has made a difference.

So it's really a combination of a lot of events. And when you look at marketshare, in some markets we've gained marketshare; others, we haven't. I think (inaudible) some -- we've increased the attendance at our theater, where maybe -- it's not necessarily taking away from somebody else's.

So really, there's not one answer out there that has been what is really driven our outperformance. I think it's just a combination of our diverse footprint, coupled with all of our policies.

Are we located in parts of the country, or are we heavier weighted in parts of the country that have helped us? Yes, probably so but again that has been over a long period of time now. It's not just a one quarter event.

And we are in some -- we are very large in Texas. We're large in California. We're large in Ohio. We are kind of diverse throughout -- as far as our strength, it's pretty much throughout different parts of the country. And it's in markets that -- there has been variances in performance. But our consistency I think in that footprint is what's -- the way it's differentiated us.

Okay, that's very helpful. I just have a follow-up to the dividend question that was asked earlier. Just curious -- and obviously, this is a decision for the board. But how much will the tax environment play a part in your decisions there in terms of -- I guess there is a pretty substantial amount of flexibility on the balance sheet at this point, and is that something that to your knowledge that the board is considering actively?

I don't know if the board is considering anything actively that would be focused on the tax changes to drive a decision today. Again, the board could show up at the next meeting and tell me I am wrong. But I think generally, we've looked at this Company on a long-term basis whether there are opportunities to invest our money, what excess we might generate, and then what is a sustainable dividend. And I would presume as tax law changes that our board would -- not just consider tax law changes, but I think any tax law change could drive all companies' outlook, how public companies decide to allocate their capital, and the benefits to the shareholders depending on what the rates are.

I would assume that would enter into our board's thought process the same way as it would into others. There is that nothing in particular where we have had discussions that would say a particular event is driving a decision at the moment.

Ben Shapiro, Stifel Nicolaus.

Hi, guys. My questions have already been answered. Thanks anyways.

Joe Hovorka, Raymond James.

Thanks, guys. A couple of questions. One is you gave the 15.7% number for the 3D revenue for this year. Do you have the similar number for the second quarter last year, and do you also have the average ticket price for 3D and 2D in each of the two quarters?

Let's see -- last year, the percentage for 2D versus 3D -- I think it was -- someone's going to correct me here if I'm wrong, but I think it was about 9% versus our ballpark nearly 16% this year.

With respect to ticket prices, we've really a little bit tried to stay focused more on what the differential is at that 320 level. Again, when XD is kicking in, another [swing] $2 and $3 on top of that, depending on whether it's a 2D or a 3D movie. But we really haven't given out the individual numbers.

Okay. I think you said most of the gain though was on the 3D side. So are you implying that the 2D ticket was relatively flat year-over-year or no?

Well, it was from a weighting point of view. The 2D ticket price -- actually, everything being equal, it's all the same films this year as last year, and done the same way, we would have seen a 2D increase probably in the 2% range. However, the mix is going to make that vary, in that when you have -- at least on our circuit if you have heavier kid-friendly films, again, you're going to more people going to matinees and discounts.

So when we look at 2D isolated, all of those things drove that number down. But on a pure increase basis, if I looked at the weekend ticket price increase and [saw that] somebody wasn't paying a full price ticket, there would've been a net increase. The mix caused that to evaporate for the quarter. But next quarter it could easily show up.

So you're saying that the mix of tickets actually drove it to a negative growth rate, or are you just seeing below that 2-ish percent?

It just drove it below the 2%. There was still a little bit of 2D growth that is about half of what -- so it's closer to 1%.

Just to confirm that, the 16-ish percent of 3D revenue numbers, and 9% last year -- is that overall, or is that just US?

That is the US. (multiple speakers) International was somewhat similar, but it probably was a little bit higher, actually.

Okay. And then on your US film costs, I think you were down about 150 basis points, which was actually much better than what the publicly traded peers reported -- Regal and Carmike. And I know in the first quarter, it was the exact opposite, where your film costs were up much more than the other two companies. Is there anything that explains -- one, the difference again in this quarter versus the competitors, but also the change from the trend in the first quarter?

I don't know if there's anything specific in there. I think that, again, the easiest way to approach any of these aspects are on a 12-month basis. You really have to look at it over a period of time. Not sure again of the way each of us approach that and how we negotiate with the studios. We of course do that on a theater-by-theater, film-by-film basis. So there could be some nuances our variances on each of us of how we approach that.

But I think as we have said in the past, film rental has been pretty consistent if you look at it over a long period of time. There is going to be changes on every quarter based on the film and the way film plays in that quarter, the style of what that film is. But at the end of the day, it does seem to always balance itself out. So we have not seen anything different or significant changes or approaches or the way we're settling and doing film has remained consistent throughout all of these quarters. And we see it the same as we move into the future.

Great. Thank you, guys.

Marla Backer, Hudson Square.

A couple of questions. First of all, on the advertising front, I've noticed anecdotally here in the metropolitan New York area when I've gone to a national movie theater, it seems to be that there is better usage of the lobby -- you know, with plasma TVs and other signage to sort of moving towards the "lobby of the future" concept. Are those things that you're thinking about that you're discussing with National CineMedia? Do you think there's an opportunity to better leverage the lobby for incremental revenue?

Well, certainly. And mostly that is a National CineMedia question. But we as owner and participating with them -- the goal for that company and for all of us to make sure that we're capturing the minds and imagination of both advertisers, our consumer. We do that through many different means.

And National CineMedia has done a great job of getting -- putting those plasma screens in there and doing all sorts of things that advertisers today are getting creative of how they can showcase their products and things we can do to make it more fun for them.

So there is no question that as you evaluate and as you have just mentioned here, you look at the way our theater lobbies are used, as the auditoriums are used -- what the goal is, is to make it an entertaining and attractive place for our customers to be in.

So on all fronts, you want to make sure there is innovative ways and cool ways to do that. And National CineMedia has done a great job of forward thinking and thinking of ways in which they can do that. So most definitely we're all involved in that process to make it better for our customers.

Will that all be done through National CineMedia, or are there any opportunities for you that are away from National CineMedia -- the concession stand or in the lobby?

Well, they do have the rights to do advertising in those promotions that work now. Of course, having said that, our job is to promote movies and our concession stand and the products that we have. So those have always been the case. And we definitely want to put in [standees] and things the studios provide us and ways to promote and showcase, and definitely let our customers know of upcoming movies that are going to be there.

And likewise, any concession promotions that we have or things that are working in our stands along with Coca-Cola or other companies that we work with -- we kind of all work together to make those products and those things work. And NCM would be the one who would go out and do it on a third-party basis with people who are not part of our regular customer base.

Thank you. And with the World Cup -- from the way you described it, it sounded a little bit like -- it was certainly, as you said, attributable to the 3D viewing experience. But it sounded like it was also a little bit of the social experience as well. And I'm wondering whether that's something you've seen with not only the World Cup, but perhaps with certain alternatives events like concerts. And I'm wondering if there's a way to try to optimize that or try to leverage it through group sales, and if it's something you're thinking about?

Well, we know, certainly, that a theater experience is a social experience. People come to us because they want to go out with their friends. They want to be in there with a group of people. That translated, as I mentioned, very heavily into the sporting and into the alternative content world. You want to go participate in a concert or a sporting event, the opera -- those type things are very conducive to doing that in a social environment, where there's lots of people, where you can feel that emotion. That's what works with movies, and that's why we exist, to be honest with you, is to do that.

So certainly, as we approach more and more alternative content, you want to be able to do that on most definitely a group basis, whether corporations or big groups that come in there and buy out. We've seen that in the past. And definitely, that's a way to take advantage of it in the future.

So really, the point here is on alternative content. We just haven't had a lot of screens and the ability to show this on a mass basis and really promote it on those types of aspects until we have enough screens and a large enough footprint to do it effectively. So no question as we roll into the future and we have enough screens we have the ability to leverage on a large scale, then we can go after it on many different fronts, one of which would be groups and trying to attract that type of a basis for ticket sales.

Thank you.

And at this time there no further questions.

We would like to thank everyone for listening to our second-quarter results, and we look forward to talking to you again next quarter. Thanks, everyone.

Thank you for participating in today's conference call. You may now disconnect.