Cinemark Holdings Inc (CNK) 2010 Q4 法說會逐字稿

Good morning. My name is Jetta and I will be your conference operator today. At this time I would like to welcome everyone to the Cinemark 2010 Fourth Quarter Results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions). Thank you.

Mr. Rob Rinderman with Cinemark Investor Relations [sic], sir, you may begin

Thank you, Jetta. Welcome, everyone, to Cinemark's 2010 fourth quarter results conference call and webcast. 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 and uncertainties and other factors that may cause Cinemark's actual performance to be materially different from the performance indicated or implied by such statements. Such risk factors are set forth in the Company's SEC filings.

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 will begin with a discussion of our fourth quarter and full year 2010 results followed by a Q4 industry box office overview, an update on Q1 2010 to date, and a preview of the upcoming 2011 film slate. I will also discuss Cinemark's digital, 3D, and XD Extreme Digital cinema and IMAX initiatives, as well as our continued expansion plans. Robert will follow with more insights on Cinemark's Q4 financials and an update on our capital structure. After his prepared remarks, we will address any questions that you may have.

Cinemark's geographic diversity and operating discipline continue to allow us to outperform the overall industry for the full-year 2010 and for the fourth quarter. For our full-year 2010 calendar year, revenues reached a record $2.1 billion, an increase of 8.3% over the prior year. And our adjusted EBITDA expanded 9.1% to $485.9 million. Our fourth quarter worldwide revenues were $524.9 million, down 2.1% from the record $536.4 million set in 2009. Adjusted EBITDA for the fourth quarter was $113.9 million, resulting in an industry-leading 21.7% margin. We are happy to report that Cinemark's domestic box office results outperformed the US exhibition industry for the ninth consecutive quarter. Our US admission revenues were over index by 150 basis points compared to the estimated North American industry box office decline of approximately 10% during Q4.

Our Latin American business, one of Cinemark's key differentiators, again delivered exceptional results. Fourth quarter international total revenues rose 22.1%, benefiting from both higher attendance and price increases. This was the tenth consecutive quarter in which our international segment's foreign currency-corrected admission revenues outperformed our industry-leading domestic results.

As expected, our industry faced very tough box office comparisons to the record-breaking fourth quarter of 2009. While the quarter did not live up to 2009's performance, 2010's fourth quarter was the second-highest grossing fourth quarter in history. Harry Potter & the Deathly Hallows Part 1 led the North American industry for the quarter with all of the remaining top five titles having featured 3D presentations. Our international segment also performed well on Hollywood titles and was bolstered in part by the record-breaking Brazilian film Tropa de Elite 2.

The Dark Moon [sic], Cars 2, Pirates of the Caribbean: On Stranger Tides, Alvin and the Chipmunks: Chip-Wrecked, Kung Fu Panda 2: The Kaboom of Doom, and Happy Feet 2. New high profile 3D files for 2011 include Thor, Captain America: The First Avenger, and Steven Spielberg's The Adventures of Tintin. In addition, Twilight: Breaking Dawn, Hangover II, and Sherlock Holmes 2 are three widely-anticipated non-3d sequels that will be in Cinemark theaters later this year.

We achieved significant progress in further growing our worldwide 3D and digital screen count during the fourth quarter. By year-end, we had deployed 1,337 3D-enabled projectors worldwide, slightly exceeding the high end of our 1,100 to 1,300 target range. 1,136 of our 3D-enabled projects were based in the US and the remaining 201 in international theaters. We will continue to increase our 3D-capable screen count with a goal of 40% to 50% of Cinemark's worldwide screen base to be 3D-capable by the middle of 2011. At quarter-end, we also had 227 additional digital non-3d-enabled projectors installed in the US.

Demand for our premium XD, 3D, and IMAX offerings remained solid with customers continuing to value and opt for immersive choices. Although we did not yet have our full complement of anticipated 3D projectors in place, we were very pleased with the box office performance of the 12 3D films that were released or carried over into the fourth quarter. During Q4, our percentage of domestic admission revenues attributable to premium formats, including 3D and our 39 US-based XD and six IMAX auditoriums was Cinemark's highest quarterly percentage on record at approximate 27%. Cinemark's own XD Extreme Digital cinema footprint also continues to expand. At year-end we had 47 XD auditoriums worldwide, including eight in international locations. We are targeting 35 to 40 additional XD openings in 2011 throughout our worldwide operations. During Q4, domestic XD auditoriums represented 1% of Cinemark's total domestic screens and generated 3.1% of our domestic admissions revenues. The average admission price of our XD auditoriums is $3 to $5 above our average ticket price in our international and domestic XD auditoriums.

In addition to our XD expansion plan, we are acquiring two new digital IMAX systems to be deployed in existing theaters and are also upgrading all six of our current film-based IMAX systems to IMAX digital systems over the next few months in advance of the summer film slate. During the fourth quarter, Cinemark and IMAX reached a settlement regarding their outstanding litigation and we remain a very -- and maintain a very good working relationship with IMAX.

During 2011, we have formal commitments to open 12 new theaters with 102 screens worldwide. Four of these new complexes with 51 screens are based in the US and the remaining properties are located in Latin America.

With that, now Robert will discuss Cinemark's quarterly results and review our current capital structure.

Thanks, Alan. In the 2010 fourth quarter, Cinemark's worldwide admissions revenues were $341.7 million. That's a decline of only 2.8% compared to an estimated decline of 10% for the North America exhibition market. In the US, our domestic admissions revenues were $253.7 million, an outperformance of approximately 15% compared to North American industry box office estimates for the period.

Total domestic revenues were $381.1 million. Our average ticket price in the US expanded 3.9% to $6.71, reflecting the increased mix of attendance with 3D and XD pricing premiums and to a lesser extent a slight increase in our base 2D ticket prices. We continue to maintain a policy of modest price increases in our base pricing, reflecting our strategy of maintaining value for Cinemark's customers as we focus on driving theater attendance. Our domestic attendance was 11.9% lower during the fourth quarter, but substantially outperformed the estimated 14% attendance decline in the overall industry.

6Our domestic concession revenues per patron rose 1.7% to $3.04. It was the second-highest quarterly-per-patron amount for us despite a film lineup that was not as family-friendly during Q4 2010 versus 2009.

As a result of a strong focus on our operating costs, we were able to minimize the impact of the decline in revenues as reflected by our strong domestic adjusted EBITDA margin, which was 23.5% for Q4 2010 versus 24.2% last year.

Internationally we posted significant year-over-year increases. During the quarter, Cinemark's international admission revenues rose 18.6% and attendance increased 4.4%, setting new records for Q4.

Cinemark's strong international performance for the quarter was primarily driven by the strong performance of local product in Brazilian operations. In addition to playing US films, we benefit from local film production, which comprises generally 5% to 10% of our box office for any particular year. In Q4, a Brazilian film, Tropa de Elite 2, was released, which set new box office records in Brazil. This strong performance overcame the box office reduction we experienced from US film worldwide, reflecting the potential of local films to differentiate our performance from the US in addition to the growth fueled by Latin America's robust economies.

During Q4, our international admissions revenues increased 18.6%, bolstered by a 4.4% attendance increase and a 13.5% rise in average ticket price due to price increases and a rising mix of premium 3D admissions. Concession revenues grew 18.9%, driven by a 13.9% increase in average concessions per patron and a higher attendance. Total international revenues grew 22.1%.

As Alan mentioned, Cinemark's worldwide adjusted EBITDA was $113.9 million for the quarter, resulting in a 21.7% margin on revenue. Income before income taxes was $50.2 million and net income attributable to Cinemark Holding, Inc., was $38 million or $0.33 per diluted share. Our effective income tax rate for Q4 was 23.7%. Cinemark realized a benefit to the effective tax rate mainly due to settlements and closures of various tax years. During the quarter, we sold the only theater we operated in Canada and recorded a gain of $7 million, which was included in gain or loss on sale of assets and other on our income statement.

Consolidated worldwide film rentals and advertising costs were 60 basis points lower year over year at 54.7% of admissions revenues, primarily the result of fewer tentpole titles in Q4 2010, which typically command a higher film rental rate.

Concession supplies costs increased approximate 30 basis points to 15.6% of concession revenues. The modest increase was primarily due to the increased weighting of our international business, which has a higher concession supply cost rate than our US segment.

Salaries and wages increased 2.4% to $55.6 million primarily due to the new theaters and increases in minimum wage rates. But the rise was partially offset by reductions in labor costs due to lower attendance in the US.

G&A expenditures rose 70 basis points to 5.8% of revenues or $30.5 million compared to $27.5 million or 5.1% of revenue in the year-ago period. The increase was primarily due to higher noncash share-based award compensation, professional fees, and credit card service fees.

Depreciation and amortization expense increased 7.8% to $39.5 million primarily resulting from an increase in accelerated depreciation expense on Cinemark's legacy projectors, which are in the process of being upgraded to Barco digital projectors and also new-build theater depreciation. We recorded asset impairment charges on long-lived assets during the quarter of $6.5 million, primarily consisting of US and Mexican theater properties.

Q4 interest expense rose to $28.9 million versus $25.5 million in the year-earlier quarter, reflecting a higher interest rate associated with Cinemark's amended senior secured credit facility.

For calendar year 2010, Cinemark's worldwide admission revenues increased 8.7% to $1.4 billion, significantly outperforming North America industry box office for the same period, which was flat.

Our attendance was 1.9% higher than 2009 and our adjusted EBITDA increased $40.4 million or 9.1% to $485.9 million. For the year, our US segment experienced a 1.8% increase in admission revenue and our domestic adjusted EBITDA increased approximately 1%. Our international admission revenues were up 34.8% and our international adjusted EBITDA increased 46.2%.

Our balance sheet remains one of the strongest and least levered across the cinema industry. As a reminder, early last year, we amended our senior secured credit facility and extended $924.4 million or 85% of our term loans under the facility to 2016. We also extended approximately half of our $150 million revolving credit facility to 2015. The full $150 million revolver remained undrawn at December 31, 2010.

As discussed on our last call, during Q4 of 2010 we entered into two new five-year interest rate swap agreements, both effective in December of 2010. The new swaps together with our existing swaps bring the total hedged position of our term loan to $650 million.

At quarter-end, Cinemark's cash position stood at $465 million, up from $438 million at December 31, 2009, resulting in net debt of approximately $1.1 billion and a net leverage ratio of only 2.2 times adjusted EBITDA.

At December 31, Cinemark's total domestic screen count was 3,832, including theaters based in 39 US states. During the fourth quarter, we opened three theaters with 34 screens, closed four theaters with 44 screens, and sold our one theater in Canada with 12 screens. We presently have signed commitments to open an additional four theaters with 51 screens domestically during 2011 and four theaters with 60 screens in 2012. We estimate that we will incur approximately $48 million in capital expenditures to develop these 111 US-based screens.

Cinemark's total international screen count at quarter-end was 1,113. During Q4, we opened four new theaters with 29 screens. We have signed commitments to open an additional eight theaters with 51 screens internationally during 2011, as well as five additional theaters with 34 screens subsequent to 2011. The estimate for capital expenditures required to develop the 85 additional international screens is $63 million.

During the fourth quarter, we invested $67.8 million on capital expenditures, including $23.4 million on new construction and theater additions and $44.4 million for CapEx maintenance. In 2010, we spent a total of $156.1 million on CapEx. For 2011, we are increasing our new-build CapEx estimates from $54.5 million in 2010 to an estimated $80 million to $100 million in 2011. This level of new-build CapEx assumes that we build more projects than those that are currently signed.

As we discussed last year, our maintenance CapEx for 2011 will be greater than normal, primarily as a result of further XD conversions and our digital rollout. We will also incur costs in 2011 related to our digital conversion of existing IMAX screens and the acquisition of two additional IMAX systems.

Costs related to Cinemark's XD construction, select theater upgrades, and digital cinema conversions have added approximately $50 million of CapEx maintenance that are of a nonrecurring nature. These amounts should filter out of CapEx maintenance in 2012 and 2013 as we wind down our digital and XD conversions. Accordingly, we project our total CapEx for 2011 to be in the range of $170 million to $200 million. We continue to be focused on investments that improve the performance of our circuit and increase our cash flow.

Our Board of Directors declared a Q4 quarter dividend of $0.21 per common share, which will be paid on March 16, 2011 to shareholders of record as of March 4, 2011. Recall that our Board authorized a 16.7% increase over the prior-year quarterly dividend payment of $0.18 last November.

In summary, despite a challenging industry comparison to the record Q4 2009 industry box office results, Cinemark's 2010 fourth quarter results once again outperformed the industry, US box office admissions, and attendance figures. Bolstered by strong international box office and attendance results, we achieved a solid quarter of adjusted EBITDA while maintaining our industry-leading adjusted EBITDA margin.

As everyone had expected, first quarter industry box office to date has faced a challenging comp to last year. However, we remain upbeat and optimistic about the upcoming film slate and we believe our XD, 3D, and digital expansion plans, as well as Cinemark's geographic diversity, will allow us to capitalize on the robust film slate.

As mentioned earlier, Cinemark's aggressive digital rollout is continuing on schedule in 2011. We're installing Barco digital projectors with 40% to 50% featuring Real D 3D systems, both in the US and internationally. As we speak, DCIP is working on finalizing its next round of financing, which should finalize our financing for DCIP.

Our strategy focuses -- continues to focus on organic growth of Cinemark's worldwide theater base and we plan to continue building new state-of-the-art theaters, both domestically and internationally. We will also consider acquisitions as long as they meet our strict criteria, which include appropriate valuation and geographic fit with our existing theater assets.

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

Yes, sir. (Operator Instructions). Your first question comes from the line of Eric Handler with MKM Partners.

Hi, good morning. Thanks for taking my questions. A couple of things for you. Can you talk about the landscape for new build theaters in the US? Are you starting to see maybe a little bit more fluid market there? Also internationally, where are you seeing the biggest growth opportunities for expansion in terms of where malls are being built? And then one maintenance question -- what's a good tax rate to use for 2011?

Good morning, Eric. On your questions of new builds, it's mostly here in the US and especially this year, we're still in a slower period, as you can see from our lower opening this year. Definitely I think over the next couple of years you get the sense that that is beginning to change and developers are getting more financing and projects behind them. That takes some time to kind of ramp up and get going, so I'm not sure that we're going to see a lot of change in growth here in the US until we get into, you know, perhaps in to 2012 and 2013.

Internationally, especially for us, throughout Latin America, that growth is really coming all over the place. Of course, Brazil being the -- one of the largest countries, the most populated, there's a lot of opportunity for us there. But we do continue to have new-build projects in Peru and Colombia, Chile, I mean, throughout the entire region for us there continues to be opportunity to grow. So [we kind of answer] that throughout all of Latin America, which all of it is doing very well right now, you know, we'll continue to pursue that.

And then, Eric, on the tax rate, I think we've historically suggested 38% to 40%, mostly because of what we've just continued to see this year and lower than that effective rate in Latin America, I'd probably suggest using about 35%. I mean, it's going to vary unfortunately quarter to quarter, just, you know, we have unique things that happen throughout our enterprise and especially in Latin America. But overall I think 35% would be a fair estimate for modeling.

Great. Thank you very much.

Thank you, Eric.

Your next question comes from the line of Marla Backer with Hudson Square.

Thank you. I'm wondering if you could give us a little bit of color on what the consumer behavior is when they come into a theater. Is the consumer's first choice to go to one of the large 3D screens and if that's sold out to then, you know, trade down to a 2D smaller screen? Or is -- are you seeing that consumers are becoming more price-sensitive at this point?

No. I mean, I think I would answer, Marla, that we certainly as you see from the results and as we stated, we're getting great results from our premium product, both from 3D and our XD and our IMAX screens. And we think the key for all of this is the consumer to have that choice to be able to come in and choose how they want to watch a movie, when they want to watch a movie, the price they want to pay for it. And I think that answer really lies in just the individual film that's out and how people perceive it.

We certainly know that the big blockbuster films and certain type of genre they like to see in large format. And that's not to say that there is not even certain customers who watch all of their film in large format. They get -- they just like it that way. So I don't know that we're necessarily seeing any, you know, specific concerns or trends or downplays on any of the products that we have right now. We continue to get very good results from 3D, from XD, from IMAX, the 2D front, so I think just in general people's acceptance of all of those formats and having that choice is the critical piece for us.

And in terms of your own pricing strategy, are you going to be kind of conservative in the near term given that the economy is still somewhat uncertain? Are you going to be kind of conservative about an organic price increase and just sort of let the mixture of premium versus standard dictate what the average ticket price will be?

You know, Marla, we -- we're still being to your point somewhat conservative in price increases. In 2010 where generally our base prices were moving around 2%, the averages were up over that just because of the relative mix of ticket purchases, purchasing premium tickets. But this year will be the same. In 2011 I'd say in general we'd be looking at a general price increase of around 2% on our bases. You'll still potentially have a higher increase just simply due to more premium product availability in the mix.

And then the last question is have you looked at any of the other premium potential technologies? What I'm thinking specifically about the motion technology, the D-BOX? Is that something that you've explored at all?

We certainly have talked to them and looked at it to some degree. I mean, right now we continue to be focused on our XD and the IMAX and what we can deliver. But that's not to say there aren't other technologies or things that can be out there that we would entertain and look at. We're not actively installing or doing any of those at the present time, but we would continue to evaluate and see if there are things out there that we think are important to implement in our theater chain.

Okay, thank you.

Your next question comes from the line of David Miller with Caris & Company.

Yes, hey, guys, congratulations on the stellar results. Rob, what was the free cash flow number in the quarter? I just don't see that in the press release. And then also refresh my memory on DCIP. If I recall from a little over a over a year ago when there was that initial capital raise, it was kind of decided back then that that was sort of the iteration, that that would cover say call it 11,000 screens out of the 17,000 screens in the consortium and that there be some sort of second iteration in the total capital raise that would cover the last call it 5,500, 6,000 screens. Could you detail -- first of all, do I have that right? And could you detail when that second capital raise would be? Thank you.

Yes, let me hit DCIP first. So can't necessarily give a lot of information about it because it is a process we're trying to gear up and look at now. But there is an -- we feel like the capital that's required to be raised to fund the final tranche of the rollout is something that we could easily achieve. We would like to already have it in place now. It's a strong debt market and we're -- the biggest point we're making is that that is a process that will be initiated very quickly or is being initiated and we would foresee that hopefully being completed this -- with any luck this quarter or early next quarter.

Right, I think as we originally said, the current tranche -- the current financing allows us to roll out about 85% our digital screen conversions. And so what we're really looking at is that amount to get to the last push. And so when you think about it on a relative basis, that help you kind of look at the amount that we'd be looking for.

With respect to --

Free cash flow.

-- okay, I'll take it a simple way. If you looked at cash flow and you look at what our cash balance was at Q3 and look at our cash balance at Q4, I think we increased our cash about $34 million. So that'd be my quick way of answering that one.

Great, thank you.

Sure.

Your next question comes from the line of Barton Crockett with Lazard Capital.

Okay, great. Thank you for taking the question. First just on a number and I apologize if you gave this, but can you tell me what the currency impact was on international?

Yes, Barton, the way we generally approach that is what the currency was or the price increases were with and without, so I can give you that. Our average ticket price increase internationally is I think I might've mentioned it was about 13.5%. Our adjusted for FX was 10%. Concession per cap was 13.9% and adjusted for FX was 10.6%, so you're looking at about, you know, out of the 13.5% about 3.3% or so of that, 3.5% was due to currency.

Okay, thanks. That's great. And getting away from the numbers a bit, on the premium VOD question, I was wondering if you could update us on where you are with the studios. Regal on their earnings call a couple of weeks ago said that when studios ask for them to play a movie that Regal asks that the studios submit home video plans and that no studio had yet submitted a movie with a plan for a premium VOD. Have you guys seen any premium VOD plans from the studios? And are you in a position where you're able to negotiate for some offsets on film rental to mitigate the risk to the box office from that?

Well, we certainly to this date as Regal responded, I mean, there's been no set things in the marketplace. And let me just kind of throw out to you, I mean, certainly the concept of windows, and as we think about windows in the marketplace, the studios are very much supportive of that. And, of course, the most important window and they'll repeatedly tell you is theatrical. It is the one window that continues to work very successfully for them right now. That's how they sell everything, so it's very important that they continue to maintain a window policy.

So as they're thinking about this whole VOD, we of course know that they're working on how to make up for some of the losses at home and how to change through the technological world of things that are going on right now. And it's interesting. As you approach this, every single studio has a different feeling about it. Some studios don't like it at all and aren't approaching it. Others -- and they all have an opinion as to how they will approach this and what they're going to do to answer some of these VOD questions.

We haven't been given anything specific. As you've heard about in the press and the things we've read about, most of the things that are talked about right now we don't feel are that impactful to the theatrical side of the equation, but certainly as you bring up, Barton, to the extent that VOD is introduced to the marketplace, it is something that we think is impactful or there could be effects to our industry, then we certainly have as an industry and we as Cinemark as a company have many levers that we can use. I mean, some of those as you describe, we can determine where and if and how we play the film. We can determine the terms that we play that film. We market movies for them. We play advertising. We put all of the materials out there. Do we play those for them still? Do we charge for those things?

So there's a whole lot of things we have in our arsenal to continue to negotiate and work with the studios on making sure that as they approach video on demand that it's done so in a way that's not impactful to us and it's beneficial for the entire industry. That's really the whole goal is that we all win in this game and that the consumer wins as well. But it, you know, continually is brought to us that the theatrical space is very critical to the process and they'll continue to make sure that they do everything they can to bolster up and continue to produce good product for us. So as of this day, there still isn't any definitive things on it. But we'll continue to work through that process with them.

Okay. And then one final thing that has been discussed in the media. There was an LA Times report that Regal and AMC had joined to fund low-budget movies to really offset some of the pare-back in low-budget production from the studios. They haven't commented on that, but it was reported. But I was wondering if Cinemark would have any interest in doing something like that and if you could comment generally on whether you think that's an idea that makes sense.

I guess I'd answer, Barton, that we -- that's a joint venture apparently between AMC and Regal and obviously not something that we're involved in. We continue to think right now that our best plan of attack is to stay focused with what we know best, and that's operating and running movie theaters and continuing to build and expanding what we've got.

That's not to say that any of those things aren't interesting and we can certainly look at them in the future, but right now that's not something that we're focused on at the moment. And you'd have to get further comment from them as to how they feel or reasons behind it because I'm not sure what their process is.

Okay. I'll leave it there. Thanks a lot.

Your next question comes from the line of Eric Wold with Merriman Capital.

Hi, good morning. Given the situation with DCIP, I know a lot of it's going to depend on when that funding comes in, but assume it comes in a reasonable time frame, when would you expect to be 100% digital across your network, both in the US and obviously with DCIP, and then internationally, what are your thoughts there in terms of how that will be financed?

Well, as far as the US, I mean, as we have mentioned here, I think our DCIP rollout, we would be fundamentally toward the end of -- by the middle of this year to the third quarter of this year. So that would presume, again, if the financing can come into place here relatively quickly and we can continue on with our -- the process that we've got right now, sometime in 2012 I would anticipate that we would be fully digital here in the US.

Of course, the international side is not part of DCIP. We're working on -- that funding is coming from us and we're working on similar, you know, kind of concepts to DCIP for the international rollout, so I don't know that we have a full answer as to how we would or when we would fully roll out the international side of the equation. What we're focused on there right now and what we continue to roll out there is to make sure we're equipped with the 3D product, you know, that we can play 3D internationally onto the same levels and percentages that we do here in the US. So we'll have to continue as we finish the DCIP here, we'll continue to work on that strategy and how we would finish up or continue to roll out things internationally.

Okay. And then if you get to fully digital sometime in 2012, let's just take the middle of the year just to -- for argument's sake. When should we start seeing any operational benefit, either operating costs coming down, maybe better scheduling in terms of that digital network? Is that a 2012 event or more 2013?

Just from a practical standpoint, I'd say you probably begin to see some of that in 2012, but probably the bigger impact would certainly come in 2012 when you have a -- kind of a full year, a full cycle behind you. The key to get the things that you're describing there is to make sure you are 100% digital. You need to have that efficiency and all of those screens and be able to run it in that manner. So logically saying I think the biggest impact would happen the following year.

Okay. And then lastly with the accelerated depreciation we're seeing right now with the film-age projectors as you go to digital, so on that same time -- on that same path domestically, should it start to lessen in early 2012? Or is that something that's going to stay pretty -- at these elevated levels until you get fully digital? Or will we see that kind of lessen before then?

Eric, I'd say with our current estimates, we'll amortize or depreciate most of that off by probably the third quarter or maybe the fourth quarter of this year. As Al said, we're still rolling out over a period of time, but we've kind of weighted the depreciation based on the estimated rollout schedule. And we're -- our excess depreciation is about $3.5 million per quarter, so you'd be looking at $10.5 million this year that should hit us. And most of that will be done by Q3.

Perfect. Thank you guys.

Your next question comes from the line of Alexia Quadrani with JP Morgan.

Thank you. Just first following up on that last question, in terms of the 3D demand outside of the United States, in Latin America, do you find that the demand, I mean, I guess putting financing issues aside, do you see the demand just as strong in Latin America, and therefore financing issues aside, would you ultimately see your percentage of sort of screens, 3D screens, being similar in those markets as they would be in the US?

Yes, we definitely see the demand in international for 3D as strong, if not even stronger. It's -- they very much love the animated-type film product throughout Latin America, of which we know a lot of that is done in 3D. And they love to watch it in 3D. So we've certainly received good results from it. And definitely our goal is to achieve the same kind of percentages for 3D penetration in international as we do here in the US. And that's the direction we're headed in, so.

And then on the -- you highlighted a local film being particularly strong in the fourth quarter. I guess any color on where that film fell in terms of when it was released and will it bleed also in to benefit the first quarter? And then any comments you can generally give us on the local film slate, do you see anything else, sort of an outlier like that, in the near-term film slate in Latin America?

I think the movie we described, the Tropa de Elite 2, occurred in the earlier part of the fourth quarter, so I don't know that it's going to carry much into the first quarter for us at all. And in the short term, again, those films kind of come and go. And like it is here in the US, you don't always know what's going to hit or do well. I don't know that there's anything in the short term that we see on the horizon, but certainly as each of these countries and each individual country, by the way, can develop product. That happened to be one that was in Brazil.

But we see from time to time good films that pop up across the region, so we certainly would tell you that, you know, and part of the point here was that the local product can play an important part to us and it certainly did in the fourth quarter of last year and it certainly could in the future, just not knowing exactly when right now and nothing in the imminent, you know, right now that's occurring, but certainly are excited about our ability to show that product and love it when they make good films like they have in the past.

And just any color or commentary about how the box office is trending in Latin America so far in the first quarter?

It really hasn't been that different than the US. Unfortunately it's, you know, the films that are playing in the US are what's playing down there. There's a little bit of differentiation because this is their summer, so a few of the year-end movies were pushed to get -- pushed to January. But in general the performance I'd say would be similar to the US. There are -- there is local films, nothing nearly as strong as what the one film was last year, though.

And do I -- if I remember correctly, I think Alice was released later last year into the second quarter, so that -- should that make a more difficult comp going into Q2?

I don't know that we'd feel like it's a more difficult comp for Latin America because we always have that there. Just as we're having some film that was played year-end here and is being released in Q1, that happened last year, too, so, I mean, you always have some variation on release timing. We feel generally good about where Latin America will end up that obviously we hope there's another film like we just saw this Brazilian film, but we -- those always -- a lot of times those -- I won't say they come out of nowhere, but the level of performance can vary greatly. We had no expectations that this film would do as well as it ended up performing when we were going into the year, so, yes, those things can be surprises to us. But in general, we kind of see the Latin American market performing the same way we'd expect the US to perform.

Thank you very much.

Your next question comes from the line of Anthony Di Clemente with Barclays Capital.

Hi. Thank you very much. Just getting back to the domestic outperformance, I think you guys said that it was the ninth straight quarter of domestic outperformance and that in the quarter it was about 150 BPS of outperformance. So I just -- if you could just kind of go back to the drivers of that recently and then looking forward is that something that you feel very strongly will be sustainable and just remind us the reasons behind the outperformance. That would be great.

You know, Anthony, it -- we've tried to look internally and say here's the exact item and, you know, it's really unfortunately not that easy. I mean, we've been very -- I think with the geographic diversity we have, with our operating policies that we follow, and we really always come back to the quality of the circuit we have. We think there's a lot of great theater chains out there, and maybe we're just in the right places with the right product. But we are very obviously proud of the product we have and the way we approach those and the way we tier our pricing. Our XD product we think has been a strong performer for us.

And if we look at what's happened over the, you know, really the past three years, I mean, since 2008, our EBITDA has increased about $115 million, so we know that the investments we've been making with our free cash flow have been paying off for us an we've been differentiating ourselves. Unfortunately it's really hard to say can I keep doing that against the industry, because it's really just our circuit and the quality of the assets we have. And there's always going to be a day where everything equals out again. And so we -- when -- the question before when someone was asking about Latin America, Latin America has outperformed greatly, but despite that, it does have the same US product. And so we will face similar film issues in Latin America as we even face up here. We feel like the Latin American market is a much more robust economy. It has better room for growth for us. But overall in just net-net performance, it's hard to pinpoint something, especially in the US, and say well, I can continue to outperform everybody. Obviously we'll try to. We've been very successful for over two years. So we're going to keep trying to run that down road.

Okay, good stuff. Thanks a lot.

Your next question comes from the line of David Gober with Morgan Stanley.

Good morning, guys. Thanks for taking my questions. You talked a little bit about the really robust balance sheet that you guys have and you continue to kind of build up cash year after year now, and you've got about $465 million on the balance sheet. You talked a little bit about potential uses there in terms of investments and M&A. I'm just wondering if you could kind of talk through where the priorities there are geographically? I mean, is that more likely to go international? And what does the M&A pipeline look like? Are there a lot of -- are there kind of small or medium or even larger chains that are potential targets in particular regions within Latin America?

David, I appreciate the question. The focus will stay on organic growth, and where we feel like as time goes on and we're even saying it this year that we're putting more money in Latin America, that's not per se just by design. It's not that we're trying to focus there. It's just where the opportunities are. And we're more than happy to expand our presence throughout that market. Where used to that probably represented about 25% of our investment, it's moving up into the 50% range just because as Alan mentioned earlier, you're not seeing as much development in the US and we're seeing more development down there. That could grow even beyond that and we're very open to allowing that. Those countries generate easily sufficient cash flow to provide funding for the growth that's down there.

We do look -- continue to look for acquisition opportunities in the United States, as well as Latin America. The key there is finding assets that are similar to the quality of assets that we build and that are priced at a reasonable value that can create incremental value for our shareholders. And we had thought we'd see more opportunities to date than what we have. We still keep, you know, looking and, again, around the world for those, you know, to find something that fits right and will do so in the future. Hard to say if that really comes up.

And as I mentioned earlier, we are spending more money this year. And we, you know, refurbishing, doing conversions, really enhancing our theaters, we think of our free, you know, our net free cash flow after all CapEx and maintenance CapEx and everything else, has, you know, it might be a little bit lower than some of our peers. We think that the fact we've -- it is so because we're reinvesting it in our company and we're making that commitment this year to even do it at a slightly higher level. And we think that's clearly paid off in our EBITDA growth that is long term and sustainable EBITDA. And then as we pare down as we mentioned in future years that that will just push it to the bottom line in extra cash. We do hope to find a good use for it.

And we're -- right now our Board has allowed us to still be conservative with our cash growth and continue to look for opportunities. But if none present themselves, then I'm sure at some point in time our Board will reconsider the best use of that cash.

And I guess one longer-term question, there were some MPAA and [NADO] data that came out this morning in terms of the 2010 box office and Bob Pisano from the MPAA made a comment about admissions per capita and the fact that the potential kind of aging of the US population is having a negative effect on kind of tickets sold per person.

And I was just wondering if there was anything that you guys could do to attack the older population in terms of the experience of going to the movies? And I'm sure that some of that dynamic has to do with the content that Hollywood produces, which is naturally geared towards a younger audience. But I'm sure part of it is also just the experience of going to a crowded theater and your -- kind of what cinema has been for so long. And I'm just curious how you guys think about kind of alternative concepts in terms of, you know, in-theater dining and things like that and how that kind of plays into the longer-term strategy and potential areas for reinvestment into the business.

Well, and I would certainly answer, David, of course we're always focused on our customer base and we want to make sure both A, pricing-wise, the amenities that we offer them, the style of theater that we present to them is attractive. And that's going to go all up and down age groups. And of course the biggest piece of that puzzle is is what is the film? Is it attractive to that person and to those certain genre or age group or how are they wanting to go to the cinema? And we do put in place, I mean, all kinds of programs, which we have to make sure that we're attracting and we're bringing all of the people that we have, you know, into the theater and make them happy.

I mean, we have lots of different pieces of the equation. We have art houses that we kind of specialize in to work on the more independent fare, which probably attracts some of the age group which you're talking about. Some of the older people definitely gravitate toward those. We have a pretty good base of theaters that show that film.

Of course, we're Cinemark. A huge differentiator is our international business and what's going on there. And we continue to get tremendous results from that base of product. So we're always wanting to look at new ways and attractive ways to bring in customers into our theater base.

As you can see from the results, I mean, Cinemark has been very successful at implementing the strategies, which we have, our premium formats, whatever it might be. We don't have a lot of the dine-in-type facilities. We do have a few of those. And I think under the -- correct circumstances and locations, there's an application for those. And we would certainly look at them.

But at the end of the day, we understand that our -- what our core business is, we understand how to price it, how to operate them, and want to make sure that we do so correctly. And we're firm believers that if we're doing that properly, then, you know, and then our consumer base is going to continue to visit us. And, again, the key there being that there's good product and something for them to come and watch. But being on that cutting edge to making sure that we're staying on top of all trends is something Cinemark has always done very good at and I think you can see that in our results.

Definitely. Thanks a lot, Alan.

You bet.

Your next question comes from the line of Martin Pyykkonen with Wedge Partners.

Yes, thanks, good morning. A couple of things around the premium format. I guess one thing I'm wondering where you're friends again with IMAX, when you look at kind of the incremental rollout beyond what you've already committed to, the 35 to 40 XD next year and the eight IMAX, how do you view the opportunity from a pricing standpoint and where you might favor one more than the other if that is the case, both domestically and internationally?

Well, I think right now we have -- we've had six existing IMAX theaters in play for a number of years. And as we stated, we do have two more IMAX locations coming online this year. And our goal as we continue to think about the format, I mean, not that we're opposed to doing IMAX, but right now we continue to be focused on our XD format as we roll out this year, you know, both here domestically and internationally. We receive good results.

And I want to make sure you understand it's really not competitive or do I try to compete with each other. That's really not the intent of it. They each bring different pieces to the equation. IMAX is a very good product. It has a very good name brand. And it's a different approach for us as compared to XD. As we've mentioned in previous calls, we like the flexibility we get with XD and some of the attributes of it and feel like it's a good way for us to continue to grow that concept in our circuit. But I always want to make sure that as you stated, we are good partners with IMAX and certainly we'll continue to evaluate all of our locations. And if there's spots that become available or we think are attributable to that format, then we would certainly entertain it.

And then XD specifically just to make I've got the number right the way you said it, the 1% of tickets driving 3.1% of revenue, that's even better than it's been if I've been tracking that right. And is that true globally and in international, you know, have you looked at it? I know you don't have as many screens obviously, but is it even, you know, a little bit higher, the yield, because of the appetite for kind of the premium format, particularly in Brazil?

Yes, I don't know that I would tell you the yield's higher. I mean, we are just beginning the rollout internationally. And as stated, I think it was eight locations that we have internationally right now. And that format will continue to roll out in our international markets. So it's a little further behind the curve than it is here in the US. But I think we get -- we continue to get similar results, both domestically and internationally. The acceptance of watching the product and looking at it that way, it kind of works across the borders. So we're able to continue to find locations. The key for it always is and XD is a component of you've got to have the right location, meaning that your screens, everything needs to work, to make sense to put in that investment. So as you stated, the -- really what I stated there was when you look at screen count, XD represents 1% of our screen count, but generated a little over 3% of the box. So, again, good results from that. And we're definitely happy with how the XD product is performing.

And then just lastly on 3D, you had mentioned again the 40%, maybe plus a little bit. Does that -- is it right in thinking that that would give you the ability to play three to four 3D films simultaneously in most locations? And if that's correct, would it take kind of a step function output in terms of the studios putting out more 3D over the next few years before you'd really kind of materially go above that 40% range? So I can kind of calibrate that.

Yes, and I think the reason we get to those numbers is probably more than anything we have some understanding of what 3D product is coming out and we kind of look at that product and kind of determine how we want to play it, so certainly it gives us the ability to play multiple 3D films at the same time.

Really the key word here is is that I want to be efficient with it. I want to make sure that I'm utilizing that 3D product to the best of my ability and I'm maximizing its potential and I'm being efficient with it. So we've said in the past that originally when we started the whole 3D game some years ago, we anticipated a lower number than 40% to 50%. We've raised those goals just because we see the amount of product and the way the public is reacting to it and we want that flexibility and we want that efficiency. And by the way, to the extent that we think there needs to be more or there's more demand and there's more product or there's more need for it, that's kind of the beauty of the digital world is we can add the 3D component to our digital projectors fairly easily, fairly quickly, and we want to maximize how we work through this whole 3D world.

Okay, thanks very much.

You bet. Thanks, Martin.

Operator. Your next question comes from the line of James Marsh with Piper Jaffray.

Good morning. Kind of running out of questions here, but listening in on the IMAX call this morning, one of the things they talked about was an early IMAX release window. And they've had some success with this in markets like France and Russia and have been exploring it in the US recently. Just kind of wanted to get your opinion on it. I guess on the one hand, it expands that theatrical window. But then if you're relatively under-penetrated with IMAX screens, then it's less of an ideal thing for you. But it looked like it was a big opportunity internationally where it seems like IMAX is under-penetrated in Latin America and South America and where this would more likely happen than say in the US, but just kind of wanted to get your opinion on it and see if there's an opportunity there from your perspective.

Yes, I think we would continue as I mentioned earlier to evaluate where the best spot is to put IMAX and how we'd approach it. And as you mentioned, we haven't really had anything like that, an early release window, don't necessarily anticipate it here in the US. I mean, the hard part's going to be especially for specifically IMAX throughout Latin America, especially the markets we're in, they don't have much penetration there at all.

So to the extent as you're describing an early release for some premium format, I mean, we have, you know, we just have to look at that on a market-by-market basis and determine is there a need, is there ability, why would you do that, I mean, how would it be perceived and how would you go about it.

We continue to value the large format product as an important piece of the puzzle. And there's certainly a lot of people that want to watch film that way. They prefer to watch it that way. And they're more than happy to pay the premium to do so. And so as mentioned previously, we'll continue to work through our goals in that regard, whether it be XD or whether it be IMAX or which one fits best in which location and how does it economically work for us. But presumably those kind of concepts could also work for XD. I mean, I don't know that they'd be exclusive to IMAX or we just have to work through that idea.

Okay. And then just one final follow-up for Robert -- the Barco 4K DLP projectors that you guys announced you're going to be deploying, could you just talk about that, the cost of the deployment for those relative to 2K projectors and just what portion of that would be covered by your DCIP agreement?

Yes, actually, James, that would be fully covered. It's part of our agreement with Barco was [as TI] developed the 4K technology that that would be incorporated into our projectors. And we obviously didn't want to wait until the 4K was ready, so we went ahead and rolled out our projection systems, but all of our new projectors will -- as stated in the release -- will now be the 4K systems. And then we'll actually go back and, again, fairly quickly converting our 2K to be 4K-capable, so it's actually just a change in some -- a set of chips. And while I won't say it's the easiest thing, it was incorporated into our original agreement, so there really is not a cost to us to do this.

Okay. Great. Thanks very much.

Your next question comes from the line of Ben Mogil with Stifel Nicolaus.

Hi, good morning, and thanks for taking the question. So very quickly are you ruling out XD in any screens where you have IMAX or vice-versa? Are you adding IMAX to any screens where you -- any venues where you've got XD already?

No. I mean, currently where we've got an IMAX theater or our screen located, we do not have XD or vice-versa. And at present we don't have plans to intermix them in the same complex.

So, I mean, do you view them at least right now as sort of there's, you know, most of your complexes, there's X amount of demand for premium format and one or the other hits it, both would be kind of overkill. Should we be looking at it that way?

I mean, to some degree. I mean, at the end of the day, what you're really after is that premium product. You want to make sure you are presenting it in those facilities the ability for someone to watch it in that premium format. So we're not really trying to make a competition here of multiple things, but we are experimenting. We do have one location where we have actually introduced two XD screens in the same complex just to see how that demand and how that plays out. And we'll have to further answer the question of whether that really is viable or not, so could there be times in the future where they intermix and perhaps exist in the same complex. I mean, I guess it's certainly possible. Right now we're more focused on getting them into as many complexes as we can. And then we'll kind of roll back into whether there's the opportunity to put multiple in the same complex.

Okay, great. And then last question, should I take the sale of the Canadian theater personally? Thanks. Thanks for taking my questions, guys.

You bet. Take care, Ben.

Your next question comes from the line of Tony Wible with Janney.

Hi. A couple of questions. One is can you comment on why the eliminations was a little bit higher this quarter than what we've seen in the past? And then I also wanted to revisit the commentary on the early VOD window. I kind of get that it's a fluid process, but based on everything that you guys know, is it something that you expect will happen this year? Are you counting on it happening this year? Or do you think this is a 2012/2013?

And I'll answer that to start with. I think, of course, there's been a lot of -- as we discussed earlier and as I said, there's been a lot of dialogue around the whole VOD issue. The studios we definitely know are working on the concept. And as I've stated, they're all working on different ideas and how they want to approach it. My guess is that it's very possibly something that does happen this year. And as I stated earlier, to the extent that we understand right now, and, again, we've been given no definitive nature on it, you know, most of the approach they're taking on the price points and the time frames and the way they're looking at it is certainly not something we think is overly impactful to us.

But I'll just reiterate again that we'll just have to continue to monitor this and it very well could be something that happens this year or could be something in the next quarter or two. We don't know. But the bottom line is we want to make sure that what is presented is agreeable and works well with us and is not that impactful nature. And, again, to the extent that it becomes something that is impactful or something that we view as a threat, then we would certainly push back and use the levers that I talked about on making sure that we negotiate with them and work through this process just so that it's beneficial for all of us.

All right. And with respect to the eliminations, Tony, the eliminations are between our international and domestic segments and relate to intercompany charges. In late 2010, we reevaluated a number of our intercompany kind of management agreements, royalty-type agreements, and those increased, so we would actually expect it, the intercompany to be similar to what you're seeing in Q4 versus maybe prior periods. In the end it's not a significant -- it is elimination of a intercompany transfer effectively, so it's an expense on one and say income on the other, so it doesn't really change anything, but that it relates to really again our intercompany management-type fees.

Perfect. Thank you.

Your next question comes from the line of Matt Coppola with Williams Capital.

Yes, hi. Thanks for taking my call. One thing I've been keeping an eye on is Brazil. And I was just wondering if you could provide your fourth quarter revenues that were generated in Brazil and how they compared on a year-over-year basis?

Yes, with respect to Brazil, and I don't if we ended up putting that in the press release, so that will -- our K will be coming out probably Monday, which will break down, you know, we do show in the K the revenue changes for our larger countries, which is Brazil and Mexico. And I apologize, but if you don't mind waiting till then, it will reflect it in the K.

Yes, no, that's fine. The other thing was do you happen to have a final tally for the total 2010 box office sales for Brazil? I don't know if that's been calculated in or not?

Yes, I don't know we've actually -- I apologize. I don't know if we've seen that, though, even in any of the data we receive. We'll try to watch for it. If you want to send me an email, if I find something like that, I'll be glad to send it to you.

Okay, great. Thanks a lot.

Sure.

Your final question comes from the line of Andrew Shapiro with Lawndale Capital.

Yes, hi. These are just follow-up questions to a few that had been asked. So one of them is what is your up-charge on XD versus your up-charge on IMAX screens? Or is it about the same? And is your preference an IMAX screen and use it only -- and you use only in XD when you're geographically excluded? Or is it to the other way around since probably your margins are higher on an XD versus an IMAX?

Well, the -- and so the first question, the pricing is similar. We price them about the same for IMAX and for XD. And that, again, on average is between a $3 and $5 depending on whether it's 2D or 3D or how you approach it. And certainly as we have indicated in the past, our preference or how we've approached the whole premium format is to go about the XD format. We've always felt that the returns and how we look at it, our flexibility, the way we can approach XD is more appealing to us. And we -- we've just headed down that path. So right now that'll continue that way. We haven't really looked at it. I mean, IMAX is going to be something more on a location-by-location basis that we'll have to evaluate. But we would definitely, you know, the expansion and growth right now is definitely slanted toward the XD format.

Okay. And the other follow-up question to a previous analyst question is regarding the premium we'll call it small capacity format with in-theater dining. You mentioned you're open to it. You might have tested it. Carmikes rolled it out as a brand, Ovation Club. Reading International has it certainly throughout Australia, the Gold Lounge. What is your brand called if you've already branded it? And actually how many screens have you tested it in already?

We do not have necessarily a brand. We haven't branded it or gone forward with it in that manner. We had some locations that we operate. There's probably just two or three that I can think of off the top off my head that had a premium-type experience like that that we have experimented with and tried and are using. I mean, we're actually operating them and working with them.

We do internationally. We've been having some success in, again, very limited or very specific locations of a similar concept. It's a VIP. We really just call it a VIP concept where they have the same type of opportunity to have an exclusive auditorium, you know, to bring the food, all of the amenities that we can attract to them there. So the key to that is quite honestly as I said originally is it's the right location and all of the right pieces to make that happen.

We continue to get very good results, you know, to reiterate again on our philosophies moving forward and as we continue to focus on operating the way we know how to operate. So we certainly will look at those things, but I don't think for Cinemark that's necessarily a big direction that we're headed in and a huge focus on where we're going to try to turn the company or focus on that type of concept right now. We continue to be focused on as I described the XD concept and making sure that we're operating the theaters the best that we can. So in the short term that's how we look at it right now.

Is there an attendance up-charge, a ticket up-charge on that VIP screen? Or is it just in the dining concession?

Well, I think that the concept on all of those that, you know, in the component if you're going into a real high-end component, there is an up-charge to go into that component that it brings along with it the dining piece of the equation. So most of the time, yes, those all kind of work together.

Great. And the upcoming conferences, I saw you guys are listed as attending the Gabelli conference. What else is on the calendar or plate for you in these industry conferences?

Andrew, you caught me off-guard here. I don't know if I can tell you right off the top of my head. I know Gabelli. I mean, we're -- we'll have to look for you. If you'll, in fact, talk with Rob Rinderman, he can kind of update you or keep you posted as to where we're set to go and --

Actually at a couple of conferences in a few weeks.

Yes, I think a week from Monday there's two conferences in Florida that I'll be attending, so I'll be down there on I think it's Monday and Tuesday of that week, so, but we're certainly welcome to invite any -- invite you if you're here in the Dallas area, if you'd like to sit down and take a look at some of the product that we have and our theaters and we always -- also always invite you to do that.

Yes, I get a lot of your theaters here out in California with your merger with Century.

Well, great. I hope you buy a large popcorn every time you go.

In fact my son does every time he walks by the theater.

Good.

Thanks.

You bet.

And there are no further questions.

All right, well, we'd like to thank everyone for participating today and we look forward to next quarter's call.

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