Cinemark Holdings Inc (CNK) 2010 Q3 法說會逐字稿

Good morning, my name is Shiret and I will be your conference operator today. At this time I would like to welcome everyone to the Cinemark third quarter earnings conference call. All calls will be placed on mute to prevent any background noise. (Operator Instructions). I will now turn the conference over to Mr. Rinderman. Sir, you may begin

Yes. Thank you. Good morning everyone. Welcome to Cinemark's 2010 third quarter results conference call and webcast. Before we begin I remind you that in accordance with the Safe Harbor provisions 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, which statements are subject to risks and uncertainties and other factors that may cause Cinemark's actual performance to be materially different than the performance indicated or implied by such statement. Such risk factors are set forth in the company's SEC filings. I will now turn the call over to Cinemark's CEO Alan Stock who is joined today by CFO Robert Copple. Alan?

Thank you Rob we appreciate everyone joining us this morning. I'll begin with a brief discussion of Cinemark's third quarter results followed by Q3 industry box office overview update of Q4 industry performance to date and a preview of the 2011 film slate. I will also provide an update on our digital, 3D and XD Extreme Digital cinema initiatives. Robert will then highlight Cinemark's Q3 financials and update you on our capital structure. Following that, we will both be happy to answer your questions. During the quarter, Cinemark's worldwide revenues grew 12.8% to $560.2 million, adjusted EBITDA increased 19.4% to $125.1 million, and our industry leading adjusted EBITDA margin expanded 120 basis points to 22.3%.

Worldwide revenues per average screen rose 12.3%. For the eighth straight quarter, Cinemark's domestic box office results outperformed the U.S. exhibition industry. Our U.S. admissions and revenues increased 6.3% as we over indexed by 140 basis points compared to the estimated industry box office increase of 4.9%. Cinemark's domestic attendance rose 2.9% during the three-month period. Our international segment again delivered an outstanding performance with Q3 admissions, revenues rising 38.3%, paced by a 21.1% attendance increase.

This marks the 9th consecutive quarter which Cinemark's international segment outperformed our industry leading domestic results. International revenues continue to benefit from strong attendance at family oriented and intentful films. During the third quarter, Toy Story 3 and Shrek 4 both featured in 3rd became the third and fourth highest grossing films of all time in Latin America. And the Twilight saga Eclipse, and Despicable Me also played well. The third quarter got off to a very strong start in the U.S. with a double dividend box office increase in July which finished as the highest grossing month of all time. The top title during the quarter was Christopher Noelen's Inception, bringing in more than $280 million in domestic receipts followed by Despicable Me, an animated 3D and the Twilight saga Eclipse which debuted on the last day of Q2.

Other top three performers included Toy Story 3 in 3D, another holdover from Q2 to gross an additional $160 million in receipts during the period as this title exhibited excellent box office staying power. The Last Air Bender, the Other guys, salt, Grownups, The Expendables, and Eat, Pray, Love rounded out the top ten. Q4 began with a solid start as industry box office matched last year's record breaking October with strong showings from Jackass 3D, The Social Network, Paranormal Activity 2, and Red. The year-end holiday season kicks off today with release of Megamind in 3D from Dream Works and due Date staring Robert Downey, Jr., and Zach Galifianakis from the director of the hangover.

Other highly anticipated Q4 titles include Hairy Potter and the Deathly Hallows Part One, Chronicles of Narnia can't, The Voyage of the Dawn Treader, Tron, Legacy, Little Fawkers, and Gulliver's travels. In addition to our strong attendance, revenue and financial performance, we made significant progress during the third quarter in further expanding Cinemark's worldwide 3D screen footprint. As September 30th, we had 1,076 3D screens worldwide, compared to 600 at June 30th, putting us well on our way to achieving the high end of our stated target of 1100 to 1300 3D screens worldwide by year end. We had 936 3D screens at quarter end in the U.S., up from 489 at June 30th. Again, Cinemark's 3D target level is 40% to 50% of our worldwide screen base, and we remain on track to reach this goal by mid-2011. Demands for 3D and Cinemark's other premium offerings remain strong and customers highly value the immersive entertainment experience offered through these advanced technologies.

Three of the top five grossing movies played in 3D during Q3, 15.6% of our domestic admission revenues were attributable to premium formats, including our 27 domestic XD and six I max screen. Cinemark's average premium for these forms were approximately $3.35 during the quarter. 28 3D titles are planned for wide release in 2011, including numerous high profile see quells such as Cars 2 from Pixar, Pirates of the Caribbean on Stranger Tides, Kung Fu Panda 2 he Ka Boom of Doom, Alvin and the Chipmunks 3D, transformers, Transforms the Dark Moon, and the final installment of the Hairy Potter franchise. A couple of super hero movies from Marvel will be making their big screen 3D debut, Thor and Captain America and Stephen SpielBerg makes his 3D directorial debut next year with the adventures of Tintin. Although not in 3D, the anxiously awaited Hangover 2 will be in 2011. Cinemark's XD extreme digital cinema footprint continues to grow and flourish.

Our XD large format -- deliver a cutting edge digital experience for our patrons with floor to ceiling and wall to wall screens. Ultra comfortable stadium seating and state of state-of-the-art JBL surround sound system. As of September 30th, our XD footprint today consists of 32 auditoriums including five in international locations, and we subsequently added seven XD screens bringing our current count to 39. During Q3, domestic XD auditoriums representing 0.7% of Cinemark's total screens generated 2.5% of our domestic admissions revenues. Our average XD admission price premium continues to come in at $3 to $5 both domestically and internationally with XD and 3D at the top of that range. We intend to open ten additional XD auditoriums worldwide during the remainder of 2010, and our targeting 30 to 40 openings in 2011. Cinemark remains focused on organic expansion of our worldwide theatrical circuit. Prior to year-end, we have commitments to open seven new theaters with 62 screens worldwide, including three theaters with 34 screens in the U.S. and the remainder set to open internationally. I'm now going to turn it over to Robert for a summary of our quarter results and current capital structure.

Thanks, Alan. We are pleased at Cinemark's worldwide admission revenues grew very robust 13.8% during the quarter. Led by an attendance growth of 2.9%, domestic box office grew 6.3% outperforming domestic industry comps by 2%. Internationally we posted at 38.3% box office increase on 21.1% higher attendance. Domestic total revenues expanded by 5.8% to $398.7 million. Admission revenues grew to $262.5 million. Our average U.S. ticket price improved 3.3% during the period to $6.22 on the strength of 3D and XD pricing premiums.

The up trend in Q3 ticket pricing was partially offset by a shift away from R rated movies which generally have higher average prices. We continue to modestly increase prices reflecting the still challenging economy and our desire to maintain value for Cinemark's customers. Domestic and Concession revenues grew by 4.3%to $125 million this is by the increase in attendance as well as 1.4% expansion in concession revenues per patron to $2.96 primarily due to price increases. A shift toward fewer family friendly titles during the quarter somewhat muted overall per patron increases. As we noted last quarter the relative shift in attendance premium tickets has not negatively impacted our concession revenues. Cinemark's strong international performance continues to reflect growth throughout the Latin American economies, particularly in Brazil where we have more than 400 screens.

International admissions revenues increased 38.3% bolstered by 21.1% attendance rise and a 14% increase in average ticket prices due to price increases and an increase in the mix of 3D tickets sold. Concession revenues advance 36.1% driven by 12.3% growth an average ticket -- excuse me average concessions per patron and a significant attendance increase. Total international revenues rose 34.8%.

As Alan mentioned, Cinemark's worldwide adjusted EBITDA increased 19.4% to $125.1 million from $104.8 million a-year ago. Our adjusted EBITDA margin improved 120 basis points year over year.

During the quarter we wrote off an intangible asset associated with the screen advertising contract that covered our Mexican circuit. The write off was required as a result of terminating the old contract, and entering into a new agreement with a different vendor. Although we did not incur any termination costs in the transition to the new vendor had little impact on screen advertising revenue stream because of the change of vendors we recorded $5.8 million pretax one time no cash charge, which appears on the income statement under loss assets and other.

Our Q3 were also negatively impacted by the recording of a proximate $4.5 million non cash equity loss relating to our DCIP investment primarily attributable to the recognition of loss on an interest rate swap agreement during the period. Income before income taxes increased 45.6% to $49.8 million, a net income attributable to Cinemark Holdings, Inc. was $38.3 million or $0.29 per diluted share. Inclusive of $10.3 million of pretax non cash charges noted earlier. Effective income tax rate for the quarter was 31.9%. Consolidated worldwide advertising costs were flat year over year at 54.5% of admissions revenues.

Concession supply costs increased approximately 20 basis points to 15.6% of concession revenues. The modest increase in the concession supplies rate was primarily due to the increased waiting of our international business which has a higher concession supplies cost rate. International concessions supply costs is a percentage of concession revenues actually decreased 160 basis points during the third quarter compared to 2009. Salaries and wages is a percent of revenues for the quarter declined approximately 50 basis points to 10.1% or $56.8 million. Improvement was primarily result of efficient theater staffing and period of increasing attendance. G&A expenditures rose 20 basis points to 5% of revenues and $28.1 million compared to $23.5 million or 4.8% of revenue in the year ago period. The rise was primarily due to higher salaries, incentive compensation, non cash share based award compensation, professional fees and credit card service fees.

Depreciation and amortization fell 9.1% to $35 million with a decline primarily resulting from the burnoff of depreciation and certain assets related to our 2006 century theater acquisition. Partially offset by accelerated depreciation expense on Cinemark's legacy 35-millimeter projectors which are being replaced by Barco digital projectors. We recorded (inaudiable) charges on assets out in use, of 1 million primarily consisting of one U.S. and one Mexican theater. Q3 interest expense rose to $28.9 million compared to $25.9 million in the year earlier quarter reflecting a higher interest rate associated with our amended senior secured facility. Cinemark's balance sheet remains one of the strongest and least leveraged across the industry.

Early in 2010 we amended our senior secured credit facility and extended $924.4 million or 85% of our term loans in the facility to 2016. We also extended approximately half of our 150 million revolving credit facility to 2015. The entire $150 million revolved remained undrawn in the quarter end. During October and November we entered into two new interest rate swap agreements both effective December 2010 and with terms of five years. The new swap agreements are designed to have additional $350 million in the aggregate of our senior secured credit facility term loan. Under the agreements we will pay fixed rate of approximately 1.4% plus a margin determined under our credit agreement and receive interest at the variable one month liable rate. New swaps together with our existing swap bring total hedge position for term loan to $650 million. At September 30th our cash position was $430.5 million, resulting in net debt of approximately $1.1 billion and a net leverage ratio of only 2.2 times adjusted EBITDA.

At quarter end Cinemark's total domestic screen count 3,854, including 12 Canadian screens. During the third quarter we opened one U.S. theater and 16 screens. There were no closures during the quarter. We have signed commitments to open additional three theaters and 34 screens domestically during 2010 and eight theaters and 108 screens in subsequent years. We estimate that we will incur approximately $54 million in capital expenditures to develop these 142 additional domestic screens.

Our total international screen count at quarter end was 1,084. During Q3 we opened two theaters with 17 screens and closed two screens. We have signed commitments to open an additional four theaters with 28 screens internationally during the remainder of this year and nine additional new theaters with 62 screens subsequent to 2010. We estimate that we will incur approximately $56 million in capital expenditures to develop the 90 additional international screens. During Q3, we invested $31 million in capital expenditures including $12 million on our new construction and theater additions and $19 million in CapEx maintenance. With less than two months ago we would have been comfortable with our 2010 guidance of total CapEx including new builds and maintenance before disposition proceeds of $150 to $160 million. Slightly below our prior target range of $160 to $170 million.

As a reminder, 2010 maintenance CapEx includes costs related to our Extreme Digital XD slight theater upgrades including conversion some concession stands to self-service and digital cinema conversion expenditures of approximately $38 million. We expect CapEx to revert back to prior year levels once the company's digital 3D and XD rollouts are completed. Our board of directors has approved a new dividend policy. The company has increased its annual dividend by 16.7% to $0.84 per share from $0.72 per share of common stock per share of common stock. The new policy boosts -- boost our quarterly cash dividend to $0.21 per share to $0.18 per share of common stock. This quarter's day will be paid on December 7, 2010 to shareholders of record as of November 22nd, 2010.

The increase reflects the board's confidence in Cinemark's consistent track record and ability to deliver strong cash flow and operating results. We are pleased to share our ongoing success with our company's shareholders. To recap, Cinemark's domestic results, once again outperformed overall U.S. box office and attendance metrics. When you combine that with the company's strong international performance we posted another solid quarter of adjusted EBITDA growth and margins. Cinemark's digital roll out continues at a very brisk place with installation of Barco Projectors featuring real D, 3D systems throughout our US and international circuits, and we remain comfortable with meeting our targeted 3D penetration of approximately 40 to 50% of worldwide screens. In addition, we are also opening new XD auditoriums both domestically and inland America and we are very pleased our patrons are enjoying this enhanced experience. We remain focused on achieving strong organic growth and will continue building and opening new theaters to further expand our high quality well run global circuit. Operator that concludes our prepared remarks, please open the lines up for questions.

(Operator Instructions). Your first question comes from Eric Handler with MKM Partners

Hi good morning, thanks for taking my questions. When I'm looking at Latin America business and fundamentals seem quite strong for the last several quarters. Any thoughts about maybe accelerating your roll out strategy there and taking advantage of the market and just increasing the expansion there?

Sure Eric, we certainly as we evaluate where we can build and as you're aware you look at our numbers this year, you know, a substantial amount in fact the last couple of years about half of our growth, at least half of it, has been coming from the international market. So the key driver always when you expand in those international markets is you need to go into a shopping center, a mall, you always want to be where there's high traffic retail areas. So as these countries are growing and expanding and as retail's developing and as those economies continue to grow, that opportunity continues to present itself. So certainly to the extent that we have those opportunities and continue to find good locations and we definitely -- continue to add that we're definitely able to expand our international circuit quicker than we are here in the U.S. at present and we would continue to go on that pace.

Okay. Thank you very much. Appreciate it

Your next question comes from James Marsh with Piper Jaffray

Hi. I didn't get a sex change it's James Marsh. Let me follow up on Eric's question there and maybe take more of a contrarians view. I guess as the positive trends in international become more obvious, do you fear that a lot of capital starts to flow into that business and returns start to decline as other competitors starts to do the same thing and capture some of that growth. Maybe you can kind of remind us what your competitive edge is in that market and why you think you can continue to grow it.

Well, again, obviously the key for anyone is they approach the business is finding a good location in a spot to which they can build. We've been at the Latin American market for since 1993, so a tremendous amount of time and have a good presence, a good number of theaters. You take particularly like the country of Brazil, we've been the guys that have substantially developed and introduced the modern stadium theaters to the market today so our relationship with mall developers and shopping centers and the guys that are out there, we're kind of the name brand go to guys as we expand and throughout the country of Brazil. Same thing applies to many of the countries. So certainly not that other people can't find and we don't certainly want to tell you that we're going to build every single theater throughout the entire Latin American market, but we feel like our ability to spend our capital to get our returns, to continue on the path that we're on, you know, is -- we should not have any trouble and are very excited about over the next couple of years and feel like there continues to be good opportunity for us to do that.

Okay. And then just to follow up on some of the comments you made about XD, could you discuss how you're branding it and what efforts you're taking outside your own theaters to increase awareness of the XD brand. And for that matter, do consumers you think really care about the brand, are they willing to just simply pay more for a bigger screen, better sound and more comfortable seats

Well, the way we market XD it is certainly done at a more local level because where it becomes important is that particular theater where we put the XD in a market -- a market by market basis. So the goal there is to make sure that people are always aware that we have a premium screen, we have the ability for them to watch it, in that first class environment. So as we expand them throughout the U.S., you know, we will continue on a market by market on a location by location basis to promote that. We don't necessarily go after, you know, any kind of a worldwide awareness because it really doesn't do us a lot of good for that right now. There's really not enough of them that, you know, brings that in. But where we're finding great results is in every location that we put it, you know, people become aware in those communities and those people who attend the theaters that they have this amenity. And once they go there once and they experience, we're getting very good results of their desire to watch movies in those XD auditoriums

And James you talk about it's just a big auditorium, in reality it is a different experience. It's both in sound and in the screen and the quality of the seats. It's an overall experience that we've tried to put together. And I do think that's a branding different. I think people feeling like if probably we're doing a big screen, we have screens that are very large, we've had them for a long time in many of our theaters but this is really different that is why we did brand it as a special feature of our theaters. And as we continue to expand out and increase the number of XDs that are out there, it will give us the capability to enhance the name recognition outside of just those individual theaters and those wherever we have a market that has XD especially as we're getting into some of the larger markets and we're getting four or five or six XDs in the market so that you can really do a strong promotion both nationally and in some of these cities

Great. Thanks guys I appreciate the update.

Your next question is David Miller Caris & Company

Yeah hi. Congratulations on the Stellar Print you guys continue to prove on the street you're at least in my opinion the highest quality space in the states. Rob, I actually have just a house keeping item, the $7.54 million loss on sail, my audio failed out I apologize can you go over that again for me?

Yeah. I think it's $5.8 million loss and what it really is the write-off of an intangible asset. Not to kill people with the accounting terms there, but in 2004 when Madison bought us and then when we also acquired the century circuit we had to go through purchase accounting

Right

So we had to value all of our contracts not only for the term of the existing contract but we had to look at renewal periods and try to estimate what the long-term value could be of that conceptual contract as it might be renewed. And we've always had advertising. However at that time we had and continue to have advertising in Mexico so we valued the contract we had at that time and assumed that we likely would renew with that particular vendor so it had a long term value to it. We changed vendors it was really something as simple as that. There was a different vendor we moved to in Mexico to do our screen advertising. When we did that because the regular contract had assumed we kept renewing with the same vendor the way the accounting rules work you have to write off that contract. It was a non cash amount that was a purchasing adjustment create ago intangible asset. But we still have screen advertising. We just have it with a different vendor now.

Okay. Understood. Thank you.

You bet.

Your next question is from Alexia Quadrani with JPMorgan.

Thank you first a question on Latin America and the great performance you had down there. Any way you can gauge how you're doing versus the overall box like Brazil down there. Secondly staying on Latin America can you give us a sense of what the 3D 2D film splits are most of the people seeing 3D movies in 3D down there.

You know with respect to the box, the information gathered is perfect compared to our competitors it's not quite as developed as it is here. But definitely overall markets are growing I think. But what we're benefiting from when you look at Latin America, it's very robust economy. You know, a number of these companies especially Brazil but when you look at Columbia and Peru, there's a lot of building going on, there's new job creation. You have the formation of a stronger middle class. And all those kind of things are driving our attendance. If you actually look at our screen growth, we did grow some screens and Latin America, it wasn't as nearly as substantial compared to what our attendance was so you have a lot of same store attendance growth. So you know I think all of that is really what has been the main drive. And then on your second question, 2D versus 3D split, when we look at Latin America, it's actually been incredibly strong. We've had actually -- wherever we put in 3D, we've get the same type of premium on average as what we're receiving in the U.S. So as a percentage it's actually even higher obviously than the average ticket price. And the percentage of people going to 3D, I have to admit we haven't measured it in South America versus say the U.S. in terms of are you getting 60% of opening box or 80% of opening box. However, I'd say that our expanse with Latin America is people are actually more driven to 3D screens that are there than we've even seen in the U.S.

And what did you say the growth in Latin America in the -- Hollywood films or local films gaining share over there.

It would have been a combination of both. As we stated, they had some tremendous success with some of the animated film that played down there. Again, primarily 90% plus of the film that place internationally is a U.S.-based product. But they've had some decent films that have played down there locally and so they -- kind of a been a pretty good mix throughout the year so far.

And just lastly, I know this isn't an easy question to answer, but any color you can give us on your consistent and impressive outperformance in the U.S? Is it regional, is it urban versus suburban, any color you can give there.

As we said in the past, we haven't really broken down our results on a you know, state by state or region by region basis. We're just pleased that where we are located here in the U.S., I think it's attributable to the style, the quality, how we run those theaters, and just overall just who Cinemark is. I mean we certainly have a different kind of results on region by region and state by state on films. I mean they can play differently in every part of the U.S. But at the end of the day, Cinemark has enough presence throughout the U.S. that we're able to get the results that we have. And we just continue to stay focused on driving attendance. That has always been our driver in our company. We want to make sure we price it correctly and make sure our customers view value as they attend our cinemas. We're comfortable with who and where we are and think that the quality of our circuit speaks for itself.

Well, thank you very much.

Your next question comes from and Anthony Di Clemente with Barclays Capital.

Hi thanks, congrats on the quarter. My questions are taken on international growth so I have a different question with digital networking of your screens. I think you said in the past that you plan to go to 40% or 50% penetration of your screens digital. So it's the opportunity for other uses of the space such as live sporting events or national live events is increasing. So I'm just wondering if you can update us on that opportunity, how intensively you're thinking about that. And maybe Robert if you see that as being a driver for numbers any time soon. Thanks.

Let me make sure I'm clear on one thing, too, Anthony. The gulf or 40 to 50% is 3D penetration. So ultimately we will be a 100% for digital which again kind of goes into that question that you have of how do we address alternative content, what other things can we do with it. And we certainly agree there's a great potential to show many different kinds of things in our theater because of the digital projector. We know we've had, as we mentioned in the past, great success from things like the world cup, the sporting events, the opera, there's many things we think will be attributable to work well in the digital screens. The key is really getting that penetration throughout our circuit and throughout some of our fellow exhibitors so that we can truly get huge and broad footprints when these products come out. It's been a little bit -- it's kind of early in the game right now. There's not quite enough projectors and enough penetration to make it on a worldwide basis or here on a U.S. basis. So the goal is to continue expanding that footprint and then hopefully as we round out 2011 in the expansion continues to roll, that becomes a more and more meaningful part of the product that we play and can be a contributor to our bottom line.

Great. Thanks for clarifying that. Thank you.

Your next question comes from Eric Wold with Merriman Capital

Hi, Good morning. As you expand the number of XD screens this year and more next year, have you seen any discernable trends between the demand for XD premium -- between 2D performance and 3D performance in terms of what kind of shift you see in those theaters auditorium?

You know, I mean it's kind of hard to answer with an exact. But our XD auditoriums are absolutely outperforming our -- the normal auditorium. I mean when you -- obviously that's a lot of factors, the increased ticket price pushes the box office significantly for that. But if I look at the relative number of screens compared to what those screens generate, you know, it's more than hitting any of our estimates that we had expected. And I think as that occurs a little bit to your point, it helps --I won't say overweight 3D performance because we actually show 2D and 3D both in our XD formats but it does help drive that opening weekend.

When you look at our XDs because it is just a premium format, people like to see it especially on the breaks of movies when we have a big 3D movie occur, you know that's when those auditoriums fill up, that's when we get, you know, instead of auditoriums being relative weight that's when we get three times plus for those auditoriums in producing the boxes that an auditorium can. So they have really provided a boost not only to the chain and that theater but it's a great way to premiere an event, actually. And I think has helped us overall with that -- again, opening performance for when a movie breaks.

Let me ask it another way as well. When you look at next year and the slate of movies, I know you kind of determine which movie you're going to show on the XD screen on a weekly basis. Can you see a situation if you had a very strong 2D and 3D movie opening the same weekend would your preference shift to automatically putting the 3D in there or would that not necessarily be the case?

I mean I think Eric what would you have to do is obviously evaluate what those two movies are. XD certainly plays very strong into event-type films and the Avatars of the World and Harry Potters, those kind of things. People love to get in there on those big screens. I think you really -- all those, the 3D aspect of it comes to play in your thought process. What you're trying to do is maximize that screen and the audience that's going to go there. I think when that occurs and there's certainly times in the summer when you have two or even three or a slate of very strong film in there and you just have to determine what's best. Now, there's even been times where maybe you change it up a little bit and you actually split that screen.

Maybe it's an animated 3D that you can play during the day and a more adult or a different kind of product that you can play at night. And that's part of the beauty of that XD screen is complete flexibility in letting us figure out what's going to play the best and play in there. Naturally, the 3D product is oftentimes been the bigger film product anyway, and so that's -- the XD screens are going to always have for the most part that large 3D product is going to play in there that will help play into those numbers.

Perfect. Last question, and there's a lot of back and forth this year on the demand for 3D and how it's performed and whatnot. If you look at the 3D movies that have played in your circuit over the past couple quarters, do you see a genre of 3D movie that's come in above or below the expectations you had before, and how does that kind of relate to the slate of type of 3D movies you have coming out next year.

Certainly, I think it's always been the case as you look at the horror-type films, that genre, you know, whatever you describe jackass as 3D to be, that was huge in 3D. Those -- the horror genre, without question, has been slanted very much towards the 80% to 90% even want to see it that way. I think reality is the success of 3D is more driven by the quality of that movie and certainly genres can have something to do with it. You know, sometimes the kids' films can be up and down that spectrum as to how they relate. But we've even seen again very strong performance for many of the family kid films.

So I think when we -- as we look at the slate next year and the success of 3D, I think the success of it in the future is more driven just from the consumer standpoint as they think about what that film is, how they want to watch that film and the quality of that film. And I think as we move on, as the producers and the creative community itself figures out better in more creative ways and they continue to figure out how they want to use that 3D medium to tell their stories, I think we'll get better and better product and it will capture people's imagination. But that doesn't mean every 3D title will do a ton of business. There certainly could be those that aren't as successful or people don't want to see it that way.

Perfect. Thanks, guys.

Your next question comes from Barton Crockett with Lazard Capital.

Hi this is Victor Anthony in for Barton Crockett. I have a few questions. The first one is the contribution of XD screens versus the I-max screens, I wanted to get a sense of the relative performance between the two

Yeah. We haven't really broken out information that reflects how I-max -- how our I-max screens have performed versus how XD have performed. They're both premium-type formats and have done extremely well with the different product that occurs on them. And they've helped push our average ticket prices and attendance where those are located. But as far as (inaudible) that's not information we've disclosed yet.

Is there any update on the litigation with I-max?

No. Not at this point. I mean it is a continuing ongoing litigation, so we'll continue to strive and see if there's ways to -- whether we can resolve it with them or we continue to head down the path of litigation. But at this point in time, we're just still in the middle of that process.

Okay. As you look at your slate -- your film slate in the fourth quarter as well as into 2011 relative to the prior year, what do you see as an impact on the film margin as well as the concessions?

Yeah. The film overall for next year we're pretty excited about. But the -- I don't know that the mix is one that when we've looked at it we would feel like substantially changes are historical averages that the mix and these slants to a different level that is either, you know, concession friendly or not substantially. I feel like that generally what you're going to see as we've told me our increases for next year will still be moderate. We'll -- in the 1%, 2% range of what we increase concession, what we increase ticket. And we feel like those, you know, we'll be able to achieve those increases in our different theaters.

But I don't know that we've seen anything in film yet that makes us on an annual basis, at least, feel like that we would see some major difference. I mean clearly as we mentioned, quarters can change. We mentioned that in this quarter where our average ticket price came off a little bit compared -- or the increase came down a little bit compared to what it had been in the prior quarters. And that will be affected by film mix. But, you know, for the year, we tend to feel like that the average will achieve our goals.

I just one housekeeping question and I apologize if I missed this. Currency impact on revenue on prices for international.

Yeah. The way we approach, that I can give you that data. Is if you looked at our average ticket price internationally, it was $4.47 was the actual for international, concession was $1.92. If we adjusted that for a cost of dollar basis, the average ticket price would have been $4.24, and the concession per count would have been $1.83 so putting that percentages average ticket price was up 14% using our actual numbers. If you would have used the constant dollar would have been up 8.2%. The concession per cap was up 12.3% using actual it would have been up 7% using constant dollars.

Okay. Thank you.

Sure.

Your next question comes from Tony Wible with Janney.

I was hoping you guys could comment on international on any carry over affect from the world cup that might have spilled over with the amount of films that might have come into the third quarter instead of the second quarter and if there's any element of that and whether or not that bottleneck will kind of start to ease as we go forward. And then I also had a question on some of the stats that you provided. You gave us the percentage contribution for U.S. admissions at 15.6% for this quarter. I was wondering if we could get that for what it was last quarter as well as one year ago.

On the first part, Tony, as we think about how the film and world cup, I'm not sure that there was a lot of big changes. There was, perhaps, some shift. But understand that the film release patterns internationally are always different. And even movies like Shrek and some of those that played earlier in the quarter and the second quarter for here in the U.S., those things kind of move around a little bit. But that wasn't because of world cup. That's just the way they always do. Some movies will open on a worldwide basis day and date, and then many of them, they play more into what's going on with holidays and schools, you know, summers and the different patterns that they need to kind of play into. So I don't think there was necessarily any big driver or shift or any changes that were significant. Again, there could have been some, but I don't know that there was anything large that caused the third quarter results.

With respect to the 3D and results, it was, as we said, 15.6% this year. If we looked at last year, Q3 was 11.1%. And I'll have to pull up real quick what it was last quarter. Off the top of my head, I don't actually have that in front of me. I'm looking through my papers real quick but didn't see it.

Alan real quick on XD, do you have a target penetration rate that you'd like to get to. As you mentioned with 3D kind of 40% to 50%. Should we think of XD being kind of one per theater absent the I-max overlap or kind of what's your target?

Well, I think we have in the past -- I don't know if we've gone over a penetration rate. I think we said we'll probably end up around a hundred or so XD screens over the next couple of years. And, you know, you kind of reach a level where you got to make sure from a cost standpoint and what you're spending on these and the size of the market and where it could go that it makes sense. Now, having said that, that's probably more on a conversion kind of standpoint. I guess there's some new builds in there. But all of our new build projects where we can do it we definitely put the XD as an component of that both here in the U.S. and internationally. So I think probably what we tell you right now is to think more in terms of around a hundred and then that growing through new builds over the next two or three years.

Great. Thank you

Your next question is from David Gober with Morgan Stanley

Thank you for taking the question, just one clarification and apologies if I missed it. But on CapEx, it looks like CapEx is running roughly in line with where it was last year, but guidance obviously is a bit higher. Any -- anything in terms of timing there. Obviously there are a few theaters coming on line in the fourth quarter but just curious if there's any change to guidance for CapEx.

No. As you said, if you look at last year and this year, they're pretty much on top of each other. Our general guidance for the rest of this year is that we would be as a total of $150 million to $160 million. Clearly, as you just mentioned, that can change. A few projects roll over into next year. But with a couple of months left, that's where we feel we'll hit. So yeah, I think still in line with generally what we had said before.

Okay. And I don't think we've touched too much on capital allocation despite obviously the very positive increase in the regular dividend today. Just curious if you could kind of expand on how the board is thinking about capital allocation. Obviously, the regular increase, regular dividend has increased. But anything else that might be on tap in terms of special distributions or potential buy backs?

You know, our board obviously these meeting reviews, the capital structure and the needs for the company and opportunities that we have and evaluate our dividend policy and as you said repurchase policy, all those things. We still look at and try to find ways to utilize our cash balances and the cash flow that we generate to expand the company, look for the kind of returns that we've created in the past with both acquisitions, as well as new builds. I won't say there's anything particular the board increase the dividend, I think that was the focus of the meeting that they had with respect to our capture structure and where they intend to go forward on it.

Clearly, they always can review and look at other opportunities but where we're at the moment is this nice increase in the dividend of over 16%. And that pulls us up to 4.7%. It is in line with very well what we told people when we went public. We evaluate our dividend, look at our free cash flow and continue to monitor as we grow that really where our dividend should be relative to our cash flow growth. And we took a while to do this primarily as a result of the term loan, financial markets, the markets have gotten to a point where they stabilized and to a degree that we're comfortable with. And as a result, you know the board elected to make this move.

Okay. And just one for Alan. There's obviously been a lot of discussion about changing BOD windows and potentially shortening those. We've heard some different things from content makers and exhibitors over the last couple of weeks. Just curious if you had any in depth discussions with the studios of late. And obviously, I think both sides are interested in preserving the robust theatrical window. But just curious if you could talk about your priorities in terms of anything that is particularly important to Cinemark in those discussions.

Well, certainly, as you stated here, you know, the studios and all involved in this are very tuned in making sure theatrical -- it obviously is a driver for all downstream revenues. So at this point in time we have not had any further discussions and having the studios themselves or trying to figure out the best way to approach this. And we're confident that they certainly would sit down with the directors and the producers the creative community with the exhibitors to figure out the best way to make this work for everybody with that goal in mind that we want to improve the business. And as we know, theatrical is the one piece of the business right now that is growing, that is coming on strong. And they're very excited about the results they get out of the theatrical business. So I think the distribution community just has to sit down and think through how to approach it, what is best for, you know, the overall business for them, and the theater plays a tremendous role in that. And we certainly as exhibitors exhibit that ability.

We have great marketing tools, we have trailers and grate power to help through this process. And I know that they're not trying to change or upset what we and how we approach it. So I think at the end of the day, we're confident that we are an at home experience. People love going to our theaters and that's especially one of the reasons why we think 3D, the XD product, all of the ways that people can watch movies just gets better and better in the theater these days and that experience is what you know differentiates us and makes us a social out of home experience and we're comfortable with who we are and where we're going in the knew it your with it.

Great. Thanks, guys.

Your next question is from Marla Becker with Hudson Square.

Thank you one housekeeping and then a couple of others. You talked before about the XD screens and the benefits are the flexibility you have of potentially splitting the screen showing an adult targeted family late at night and more kids oriented content earlier in the day. Do you need to get permission from the distributor before you go ahead and implement that strategy?

Well, at the end of the day, you know, our relationship with the studios are of course those movies are playing and what you're really trying to do is maximize the movie to the auditorium, to the seat count, to make sure it place well. So certainly to the extent if you had a kids movie stronger in the day or required a bigger auditorium or different format or even XD and then in the evening those things slow down what you're really doing for all studios is maximizing their product for any time of day in any auditorium. So that is left up to us and our flexibility. Our requirement, you know with them or our contract with them obviously is that, that movie play. So what we're always trying to do is make sure it's played in the right spot.

And then I have a couple questions on content, domestic versus your international operations. First of all, from everything I've read it seems comedies generally don't travel as well internationally as -- action or adventures titles, are there any upcoming that you feel may under index in your international markets like meet the fawkers or maybe even due date?

I think on a whole not. There could be again some of those that don't translate as well. But also, what happens is and we describe movies like shrek that played even better internationally. So most of the time and if you just look historically, that stuff kind of evens out. There might be movies again that play on the lower end of the scale and those on the higher. Theirs sometimes they're surprised. Some of the comedies could be softer but then there are certain kind of comedies that can play stronger. So I don't know if there's really any real easy way to figure that out either just a little bit like it is here. It's just really how the market perceives it and how it plays and some movies, you know, will do better and some less.

Okay. And then last question. For the converse of what I just asked. Given that your -- as you continue to drive digital penetration throughout your domestic circuit and given the flexibility of digital, are there any local content titles, how to -- or would you think about bringing in some local content titles that have done well in the international markets and showing them as, you know, limited run alternative content in your domestic markets?

Well, there's certainly opportunities to do that. There's actually some -- there's a film -- some film companies right now that are oriented in thinking about different, you know, style of films and whether they can go after the Latin culture, you know, different kinds of films that they can attack in the U.S. I think what you're really after and certainly when you bring up the digital cinema allows the ability to bring in all kinds of products. I think to the extent you can find perhaps there is a strong Brazilian film maybe you bring it to a spot in the U.S. that has a Brazilian community people would like to see it you definitely have that opportunity and there's a benefit with digital cinema to do that so that is kind of the beauty of the alternative convert concept, is that you really want to find product on any local level that you can that can enhance your attendance.

Thank you.

Your next question comes from Ben Mogil, Stifel Nicolaus.

I think most of my questions have been answered so thank you.

Thanks, Ben. Boy you make that one easy

I do my best.

Your next question comes from Karen Laymar with Federated Investors.

Good morning, I just want to go back to the dividend I understand it's a board decision but particularly in light of peaking CapEx in the next year or so can we expect a pattern of annual increases in the dividend or do you have a target payout ratio. Thanks.

Yeah. Historically we've looked at dividends as a percentage of our cash flow. And while we have some generally a targeted ratio of in the 60% range we don't automatically adjust to that. So again, if we look at where we were historically and where we've moved today, there are a number of factors that influence that, influence the timing of it, the economy clearly did. Our potential growth opportunities in terms of where we had capital. And what we tried to find the balance of right now is moving to a dividend rate that reflects the strength of the company but still provides us the opportunity to go out and take advantage of acquisitions that might come up, as well as our international market growth that's valuable to us.

And the domestic expansion is still available to us. It's not reflective of an annual change in the rate. That's something that the board will look at and obviously if they decide the company's changed, they could look at increasing again whether that's annually or long term is really just up to where the company's at that time. But I would say target probably has a lot more to do with where our cash flow is.

Thank you.

Your next question comes from Jim Goss with Barrington Research.

Thank you I have a couple of questions I'll start out with one about M and A. Typically, domestically, you haven't really done alot of acquisitions but I wonder if that's greater interest to acquire a theater change given the slower pace of the real estate market or are your scale needs -- not of key interest.

Well, our approach always on an acquisition is to, first of all, make sure the price and the quality of the asset that you're after is going to meet our goals. Historically, that's where it's been a little more difficult. We certainly had some acquisitions here or there. But on the -- on the whole we've not been able to every single year on a consistent basis find things that we can buy at the right price and it's the right style of assets. So as we look at the future and we look at what's out there, we always have that interest level. We certainly have the cash and the ability and desire to do so. But again, to the extent that it's got to be priced right and it's got to be the right kind of asset or there's no reason for us to do it. so we're always been focused, always have been a company that's grown primarily through organic growth, we know what that is, we can control it we understand where to put it and we've been very successful with it. so we'll continue to evaluate what's out there for acquisitions and think there could be some things that could work for us but again we'll just have to see where it plays out.

Fair enough. Robert, I think you mentioned that there was a DCIP related loss and interest rate I believe you said $5.6 million. Could you talk about that a little bit more in terms of, first, is that in the, that other line, I assume, and your statement, or is it in the interest expense area. And what are your expectations with regard to DCIP's impact on your financial statements over time?

Yeah. And I -- the only reason I mention actually the loss and really the derivation of it is, one, it's something that our investment in DCIP is new. We had -- I said we had the formation of it last year, it's the operation of it really started this year. And it's more just because I think -- because I looked at people's models, a number of people, I hadn't really thought through DCIP. It actually -- its an equity investment so it actually comes through equity loss and affiliates on our income statement. It's a below the line, below the operating income level. So it does -- it's not reflected in any of the data that we would have from operations.

The reason I mentioned the interest is I sure didn't want to suggest to anybody that, you know, where DCIP's operations would go and what -- whether it's generating income or loss. It's just this particular quarter, it was a fairly different amount than what we would have had in a comparable quarter in the past. So again, I just want to make people aware that was there. The actual interest bar again that's only on their books. That doesn't flow to mine in terms of interest expense or anything like that. It just comes through a net equity line. And that's just a hedge on the debt that they had out there. And in their case, they account for it through their income statement. We do not. When we have our hedges, they actually do not affect our interest income -- excuse me -- interest expense in terms of valued changes in that hedge. In their case, the valued changes of the hedge does affect their income and loss. And again, we're just picking up our equity share of that.

Okay. And thank you. And related to the -- some of the theater metrics, the attendance was very strong. Pricing was pretty good but concessions per patron weren't up by -- to the same degrees that they have been some other quarters. Was there anything aberrational in this quarter or any --

Yeah. When we look back at our performance and we were trying to obviously measure whenever any metric is down we're trying to make sure we understand when caused that. And our feeling was that it was -- it was a bit of a title mix this quarter from at least our theater group. The type of movies that were played were on a whole not as family friendly as what they were in a comparable quarter last year. And so that drove that down. When we did look at weeks where we thought they had comparable titles, our percentages increases were in line with what the run rate had been.

But we definitely had some weeks that, you know, just the concessions weren't selling the same. But it appeared related to the movie titles and again, you know, when you get titles that are more teenager oriented which sometimes could be horror movies or things like that, you unfortunately teenagers don't quite tend to spend as much out of pocket. If you get alot of family friendly films where people are bringing their young kids, those tend to do extremely well. And when you get, you know, 20, 30-year-olds coming in especially 30-year-olds they'll tend to buy. But that teenager holds on to their pocketbook a little more on the concession. And the mix was a little different this time.

And the last thing, do you have a comparison of 2D, 3D, and the XD I-Max pricing for this quarter versus a year ago quarter

If we look at what those were up at and if we looked at the 2D percentage up, it would be about 1%. The 3D XD I-Max all of that inclusive is probably in the 7% range. And when you take the overall mix the it averages to our 3.3% increase

Okay. Thank you very much.

Your next question comes from Joe Hovorka with Raymond James

Thanks, guys.

Thanks guys, I'll try to make it quick here. Your XD, your 40 to 50 that you're going to be doing between this year and the end of next year, how many of those are refreshes and how many are new, like the split roughly.

I would probably say in the 30, 40 range probably 75% are refurbishments and probably 25% would be new theaters would be my gut feel but it would be in that range.

Okay. And the -- I know you didn't give out CapEx yet for 2011, but would we assume it would be materially different from 2010

Not right now. We're in the process of going through our budgeting. But again, we'll still be in the process of -- digital roll out and still be doing XD. So kind of less -- it started this year we suggested this year, next year we both see a heavier CapEx.

And the last question the other two public companies in their earnings reports talked about their film rents coming down because of spending less on print advertising. Have you done that, have you seen a benefit there or is that something that may be coming in the future.

I think everybody's taken a look at how to deal with print advertising. We know we're in a world today where people are getting show times and getting information differently than print advertising so most definitely we're all taking a look at how we approach that in different ways. And you almost have to look at that on a market by market basis to understand that community and what's the best thing for it. But certainly, there has been a decline in our advertising dollars in the print world.

I'm going to assume the difference -- I think your domestic film rents were up 10 basis points in the quarter where as the other two public companies were down 40 to 60. It's just kind of a timing issue, film issue.

Yeah. Unfortunately, with film you always have to look at it on the year -- it's hard to compare everybody on a quarter by quarter basis. There are other things that go into it, just as you mentioned, such as promotion and advertising and we're probably all a little different how we've approached that as well as when we're recognizing some of the benefit of it.

Okay. Thanks, guys.

Sure.

Your next question comes from Jeff Logsdon with BMO capital markets.

Thank you. You all have built a nice investment portfolio between MCMI and now the realD shares. Any color around your decision not to sell some MCMI stock along with the other founders this past quarter and how you look at the value of those assets now on your balance sheet?

You know, on NCMI, it's a great asset. We've always felt like that company provides not just a great service for our theaters and our patrons, but is really in a market that offers some, a lot of opportunity as advertisers become more and more familiar with the strength of utilizing the big screen to push their message through. In our particular case with $430 million in the bank and $150 million line of credit available, I just didn't have a great use of cash and again, we feel good about investment.

We think that it's a great asset to own. And so there's really no compelling reason for us to sell some of the stock. I do think there's a benefit to MCM and putting more float out there and some -- that did occur and hopefully that helps our stock even trade better. I know as our stock -- market we obtained more flow that was very beneficial to us. In realD, it's an investment that we haven't realized all the value yet from in terms of receiving all the shares that we'll receive. We still have a little less than 4 million that are out there, you know, that we can earn. Ultimately when we've earned all of it we'll be around -- I got that number, 400,000, not 4 million, we'll be around 1.2 million in shares. I'd like to say 4 million but I need to be fair.

I'm sure you would

400,000, sorry about that hopefully everybody noted that. But when we're fully vested and everything we'll have about 1.2 million shares and we'll have to evaluate that we think realD is a great company well and very beneficial to our circuit

Relative to MCMI, it seems their cash dividend is a great cash investment. You know, for getting the ups and downs of the stock in any particular quarter.

Yeah. No, I'm sorry, go ahead.

Well, that, I'm sorry. That was more of a statement. 4.5% yield or a little better with raising the dividend, seems like paying down bank debt with the dollars don't seem to make a lot of sense.

No. Absolutely and again we like to invest itself. And as you said, I received a quarterly distribution so that's fairly valuable to us and you're right. If you just look at the relative economics, you know, it doesn't make a lot of sense unless we just had a cash need and as I mentioned, we felt very good and from that point of view on our balance sheet.

One final question, just around concessions, it would seem that as ticket pricing has moved up meaningfully because of 3D up charges, where as there might have been a historically correlation between ticket sales ticket price increases and concession price increases it seems like you will find more of a variance between those two numbers because people won't proportionally spend more on concessions just because they pay a higher dollar number for their tickets.

Sure. I mean that, to the extent you say get a heavier and heavier weight from 3D and our XD formats and I-max, your average ticket price definitely could acceleration of that could exceed what the concession per cap is. I think to your point, it's not that the patron is not buying any less, he's still buying just as much on an occurrence rate but the relative increase in the pricing just gets a boost out of our higher margin differentiation we have by -- premiums on 3D and XD and all those.

Let me reiterate too we do not see when there is 3D or XD or any premium product that's out there, we're definitely not getting any less concession sales out of that. They definitely -- concessions continues to track more on the style and what that movie is, and the premium has not driven or changed how they approach and how they buy concession product.

Thanks for that comment. Hopefully we won't get that press story.

There you go.

Thanks.

And at this time there are no further questions.

All right. We would like to thank everyone for participating with us this morning and we look forward to talking with you again next quarter.

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