Cinemark Holdings Inc (CNK) 2011 Q3 法說會逐字稿

Good morning. My name is April, and I will be your conference operator today. At this time I would like to welcome everyone to the Cinemark Holdings 2011 third quarter results conference call. (Operator Instructions). Thank you. I will now turn the call over to Rob Rinderman, Cinemark Investor Relations. Sir, you may begin.

Thank you, April. Good morning, everyone. In accordance with the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995, certain matters that are discussed by members of management during this call may constitute forward-looking statements. Such statements are subject to risks, uncertainties, and other factors that may cause Cinemark's actual performance to be materially different from the performance indicated or implied by such statements. Such risk factors are set forth in the Company's SEC filings.

I would now like to turn the call over to Cinemark CEO Alan Stock, who is joined this morning by CFO Robert Copple. Alan.

Thank you, Rob, and good morning, everyone. We appreciate you joining us today.

Following a brief overview of Cinemark's all time record performance for the three month period ended September 30, I will recap the domestic industry box office results for the recent quarter and provide a preview of what's on the slate for the remainder of the year. Additionally, I will update you on the status of our digital conversion and the Company's premium 3D, XD and IMAX initiatives.

Robert will provide additional color on our financials and capital structure as well as the latest on our domestic and Latin America expansion plans, including some specifics on our recent Hoyts acquisition in Argentina, which was completed in late August. As always, we will conclude with a Q&A session.

We are proud to have again extended Cinemark's box office outperformance streak in domestic and international markets. This produced our best ever quarterly worldwide revenue, attendance and adjusted EBITDA. Our US admission revenues increased 9.4% during the quarter, over-indexing estimated industry growth of 5.5% in North America by approximately 390 basis points. Cinemark's US quarterly box office has now exceeded the North American industry box office for the last twelve consecutive quarters.

To provide perspective on that outperformance, our cumulative US box office growth for the last three Q3s, using a base year of 2008, is 22% versus a comparative cumulative industry growth of 10.6%, or more than double the industry. Q3 attendance in our US operations reached 44.4 million, representing growth of 5.2% over 2010, and we set an all time record for our quarterly attendance.

Cinemark's international segment admissions revenue growth of 23.6% marks the 13th consecutive quarter, adjusted for foreign currency fluctuations, that we have outpaced North American growth. On a cumulative basis that equates to Q3 growth of 77.8% since 2008, versus 10.6% North American industry growth for the same period. As with our US operations, our international circuit also set an all time record for quarterly attendance, growing 6.4% over 2010 and reaching the 25 million level.

The top performing titles in Q3 included a variety of movies that appeal to a wide array of audiences and tastes. "Transformers Dark of the Moon," which debuted at the end of Q2, and "Harry Potter and the Deathly Hallows Part 2" each grossed in excess of $350 million domestically. "Captain America, the First Avenger," "Rise of the Planet of the Apes," "The Help," "The Smurfs," and "Horrible Bosses" each generated in excess of $100 million in box office receipts during the period.

The patron appeal of this diverse lineup propelled the 2011 third quarter to the highest grossing North American box office period in industry history. And it marks the second quarter in a row that the industry has set this record. In Q3 2011 our domestic admission revenues from premium format ticket sales, including 3D and our premium large format XD and IMAX auditoriums, increased by more than 50% versus a year ago third quarter period, contributing approximately 25% of the Company's domestic admission revenues.

Q3 was a record quarter for 3D attendance, as 12 films were released in this format, including the top three grossing films for the quarter. The 3D film release pipeline remains robust, as nine films are set for release in Q4 and 37 during 2012.

This quarter we also saw the various successful rerelease of Disney's "The Lion King" in mid-September, which grossed almost $100 million, greatly exceeding expectations. "Lion King" reflects the incremental opportunity available to the theatrical industry that may be achieved by rereleasing film libraries in 3D. Following the success of "The Lion King," Disney has announced it will receive four additional previously released titles in 3D format. "Beauty and the Beast" and "Finding Nemo" are now on slate are next year, with "Monsters Inc." and "The Little Mermaid" set for 2013.

Other studios are taking advantage of the recent technological transformation of the cinema industry and are planning to convert and rerelease titles such as "Titanic" and the Star Wars series in the 3D format.

Looking forward to the fourth quarter, one of the most highly anticipated movies is the first installment of the Twilight saga, "Breaking Dawn," which debuts November 18. Other notable titles opening during late October and in November include "Happy Feet 2," "The Muppets," and Martin Scorsese's "Hugo." We're excited about the many promising holiday releases as well, including "Sherlock Holmes, a Game of Shadows," "Alvin and the Chipmunks, Chipwrecked," "Mission Impossible, Ghosts Protocol," "The Girl with the Dragon Tattoo," and Steven Spielberg's 3D directorial debut, "The Adventures of Tintin." Disney's "War Horse," also a Spielberg production, closes out the 2011 slate.

These films provide the potential for a strong Q4 performance, and many of the year end hits should carry over into 2012. We expect many of these movies to perform well in our international markets. In last year's Q4 we had a very successful Brazilian film, "Tropa de Elite 2," which was the highest grossing film of all time in Brazil and was a significant factor in our international segments Q4 over-performance. Although we will exhibit local product in Q4, we do not anticipate that local film will match this performance level. As you may recall, total revenue increased approximately 22% in Q4 of 2010 in Latin America primarily driven by Brazil's performance, whilethe total revenue in the US was down approximately 9%.

During Q3 we continued the expansion of our global Real D 3D technology and barcode digital projector footprint. At quarter end we had 2,258 3D-enabled projectors worldwide, representing 44% of our circuit, up from 2,056 at June 30. 1,828 of these projectors are based throughout our US circuit, and the remaining 430 projectors are in screens throughout Latin America. At September 30 we had 1,316 non-3D enabled digital projectors installed worldwide, up from 761 a at the end of Q2. We remain on track to complete our plan to be 100% digital in all US first run Cinemark theaters by year end, and are simultaneously expanding our Latin America digital footprint.

Cinemark's XD Extreme Digital cinema screens accounted for 3.2% of our total US admission revenues during the recent period on only 1.2% of our total domestic screens. Our XD admission premium remains in the $3 to $5 range compared to the costs of the typical 2D ticket, both domestically and internationally. At quarter end we had 65 XD auditoriums worldwide and expect to open an additional 10 to 15 XD screens by year end.

As mentioned on previous calls, our expanding worldwide XD footprint and proven performance have been noted and valued by our studio partners, and they are featuring XD in various promotional movie advertising campaigns, including social media. Our XD screens and our IMAX screens will be participating in a unique, exclusive showing of "Mission Impossible 4" in the US.

Finally, I want to congratulate our worldwide theater team for another fantastic quarter and on their ongoing focus to improve our revenue base while maintaining and expanding the highest margins among our peer group.

At this point I am going to turn it over to Robert for an indepth look at our financials.

Good morning and thank you for joining us. As Alan said, Q3 was an all time record reporting period for Cinemark, as we achieved several note worthy milestones, including our highest ever quarterly worldwide attendance, revenue, and adjusted EBITDA.

Cinemark's worldwide admission revenues rose 13.5% to $417.1 million, approximately 800 basis points, or nearly 2.5 times higher than the estimated North American industry box office increase for the period. Total revenue increased 14.2% to $640 million.

The Company's adjusted EBITDA rose 23.3% to $154.3 million at an industry leading margin of 24.1%, 180 basis points above our 22.3% margin in the year ago quarter.

In the US Cinemark's attendance rose 5.2%, helping drive a 9.4% increase in domestic admission revenues. Total domestic revenues rose 10% to $438.4 million or 9.5% per screen. Our average US ticket price increased 4% to $6.47, up from $6.22 in the prior year, primarily reflecting the increased mix of 3D and premium large format XD and IMAX ticket sales. Concession revenues per patron rose 5.7% from Q3 to $3.13.

Adjusted EBITDA for the US segment increased $22.5 million or 25.6% to $110.3 million. The domestic adjusted EBITDA margin grew to 25.2%, a 320 basis points increase over last year.

Cinemark again achieved very strong operating results throughout Latin America, with all key metrics rising. Admissions revenues increased 23.6%. attendance rose 6.4%, and average ticket prices advanced 16.3%, boosted by base ticket price increases, 3D pricing and FX.

As a reminder our Latin America business is primarily conducted in local currency, including costs such as film rentals and advertising. When calculating the quarterly impact of FX on Cinemark's foreign operations, we use an average of the daily exchange rates to calculate conversion rate for the applicable month.

Concession revenues for Q3 grew 23.5% versus the year ago period,due to higher attendance and a 16.1% rise in average concession revenues per patron resulting from price increases and FX.

Total international revenues rose to $201.6 million and adjusted EBITDA increased 17.9% to approximately $44 million.

Consolidated worldwide film rentals and advertising costs decreased 50 basis points to 54% of admissions revenues, down from 54.5% in the prior year.

Concession supplies costs were 16.5% of concession revenues, compared to 15.6% in the year ago period. The increase was primarily due to higher inventory procurement costs, and also an increased weighting of Cinemark's international segment, which has higher supply costs than our domestic business.

G&A expenditures were $32.7 million, compared to $28.1 million in the year ago period. The increase was primarily due to higher salaries and incentive compensation, share based awards, compensation expense, traveling related expenses, credit card service charges, and FX.

Depreciation and amortization expense increased 15.9% to $40.5 million, partially due to new theater additions and FX.

Q3 interest expense increased 11.4% to $32.2 million, reflecting our issuance of $200 million aggregate principle amount of 7.375% senior subordinated notes in June, which mature in June 2021.

Total income before income taxes increased 54.7% to $77 million. Net income attributable to Cinemark Holdings Inc. was $46.9 million or $0.41 per diluted share. Our effective Q3 income tax rate was 38.1%.

We exceeded revenue and adjusted EBITDA consensus, and our EPS was in line with consensus. I think last quarter some of the amounts impacting EPS were skewed as a result of our refinancing in June, and it may have made it more challenging to determine some of our run rates. This is a more normalized quarter for depreciation, interest and taxes and should help for future modeling purposes.

Cinemark's balance sheet continues to be amongst the strongest and least leveraged in our industry. Our September 30 cash position was $511.4 million, resulting in net debt of approximately $1.1 billion and a net leverage ratio of two times adjusted EBITDA.

Our US circuit at quarter end was comprised of 3,864 screens and 296 theaters in 39 states. During the three month period we built one new theater with 14 screens. We have signed commitments to open two additional new theaters and 27 screens for the remainder of the year, and 11 theaters with 157 screens subsequent to 2011. Cinemark expects to incur approximately $87 million in CapEx to develop these additional 184 screens.

Our total Latin American circuit at September 30 included 1,232 screens and 152 theaters. During Q3 we built one new theater with four screens and acquired ten theaters in Argentina with 95 screens through our acquisition of Hoyts Argentina. We presently have signed commitments to open five additional theaters with 33 screens this year, and nine new theaters with 63 screens subsequent to 2011. Our estimate for CapEx to develop these 96 additional international screens is approximately $86 million.

The Hoyts acquisition solidifies our leading market position in the southern cone of South America. With this acquisition we are now the leading exhibitor in Argentina as well as in Brazil and Chile.

Initially the Hoyts circuit will remain in a separate subsidiary and will be operated independently the Cinemark Argentina circuit in accordance with local government regulations. However, we own 100% of each company, and the results for Hoyts, beginning on August 25, are reflected in our consolidated financial statements. We anticipate approval to merge the two operations will take approximately nine months to one year from the acquisition date, after which we expect to begin realizing operational synergies.

Our purchase price was approximately $67 million in cash and the assumption of $6 million in peso-based bank debt. The Hoyts circuit represents very high quality theater assets, with theater revenue per screen and margins similar to our international operations.

During Q3 we invested $40.9 million on capital expenditures, including $14.5 million on new construction and theater additions and the $26.4 million balance on maintenance CapEx. 2011 full year CapEx is projected to be in the $185 million to $195 million range. Maintenance CapEx levels should revert back to normalized amounts late next year and into 2013 as we complete our digital and XD conversions.

Since January 2008 we reinvested $617 million in our theater circuit net of asset sales and have grown our adjusted EBITDA by 41% or $150 million. As a result, for the last year we have been the number one ranked worldwide theater circuit in the key metrics of total attendance, adjusted EBITDA, and adjusted EBITDA margins.

During the same period, January 2008 through September 2011, we returned $313 million in dividends to our shareholders. Our Board of Directors recently declared a quarterly dividend of $0.21 per common share to be paid on December 7, 2011, to shareholders of record as of November 18, 2011.

In summary, Cinemark had another record breaking reporting period in Q3, posting record worldwide attendance revenues and adjusted EBITDA. We again outperformed the US cinema industry, extending the streak to every quarter for the last three years. The Company remains focused on managing controllable operating costs. During the quarter we increased our US adjusted EBITDA margin 320 basis points.

Our Latin America business continues to post robust growth. We extended our international outperformance streak to 13 quarters, and we believe the runway remains robust for growth in the region. During the quarter we further strengthened our position in the southern cone through the Hoyts acquisition in Argentina.

The Hollywood movie slate was strong in Q3, and we're optimistic about the film lineup in Q4, with late breaking films carrying over into 2012. We continue to make significant progress with Cinemark's premium and digital expansion initiatives, and we have already met our 3D footprint target range and are finishing up the digitalization of our US circuit and increasing our Latin America an digital presentation. We plan to continue building new theaters and will consider accretive transactions that meet Cinemark's financial returns and quality standards.

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

(Operator Instructions). Your first question comes from the James Marsh with Piper Jaffray.

Good morning. Two quick questions, and bothkind of relate to your worldwide footprint and I guess your unique perspective. First of all, I was hoping you could comment on your views of the Sony news they wanted to stop subsidizing glasses in the US. Obviously with your international operation you guys may -- I think you have a different model down there. Could you compare and contrast those for us and how that might work going forward?

And secondly related to that topic, can you discuss if there is any difference between your licensing deals with Real D abroad and domestically?

Good morning, James. Thanks for the questions. Certainly as we approach the Sony's request on the glasses or a change or a different way to deal with 3D glasses, I mean we certainly -- what it is going to open up is a conversation with them, and we certainly -- from our perspective we would push back, and we think the way the glasses model works here in the US is a great way to work it. And all I can tell you right now is that we'll open up dialog and a conversation with them of how to deal with glasses.

It is not a whole lot different how we do glasses between here and internationally, other than the fact that internationally we actually kind of handle the glasses situation, meaning we bring them in and -- order them and bring them in and kind of handle the mechanics of it, but it is the same general concept in that the studios themselves contribute toward the cost of the glasses, and then we actually pay the technology charge, meaning the Real D side of the equation.

So we'll just have to -- it is early in the game right now, and we'll have to continue to negotiate with them and work through that process of how we deal with it on a go-forward basis.

I think your second question, our contract with Real D is the same throughout the world, so we have a worldwide contract with them, and take the same approach, both here in the US and internationally.

Okay. So just to be clear on the glasses side, internationally you get the same studios subsidization for glasses. Do you know if your competitors are doing that, or are they selling them directly and buying them from the 3D manufacturer?

Well, again, having said that, it's not exactly the same from a -- it is the same from the concept that the studios provide -- or the big picture is that the studios provide the capital or they pay for those glasses as they're put into the theaters. Again, it is handled a little differently on an international front, because we order them, webring them in, wemanage the inventory, werecycle them. We physically do all the work, where here in the US Real D is more involved in that process.

As far as competitors go, I am not sure how they do it to be honest with you. There is a lot of different technologies that are out there. Some are using Real D and some are not, and so there is different approaches to it on the international front. It is how they deal with those glasses.

Okay. Thanks very much.

Your next question is from Barton Crockett with Lazard Capital Markets.

Great. Thank you for taking the question. I wanted to drill down a little bit on the international kind of trends, which overall have been great. But I was wondering if you would be able to quantify the impact on -- roughly at least the impact on your Latin American box office from the "Tropa de Elite 2," movie. I know you said it was a meaningful percentage of Brazil, but overall of your admission revenues how many percentage points do you think are assigned to that movie, would be a first question?

Sure. I won't break out the movie by itself, but I will tell you that in 2010 this movie, which played in Q4 was, the biggest movie actually ever in Brazil. It exceeded "Avatar." When you consider how large "Avatar" was in the US, you can turn around and look at Latin American as a percentage of quarter, think of that hitting all in one quarter. So it was very significant to our Brazilian revenues in Q4.

A little perspective, and this is just out of from our segment reporting and the Qs and Ks. If you went back last year and looked at Q4,Brazil was up 30 -- as Alan said [one], US and general was about down about 9%. That was our US operations. International as a whole was up 22%, and Brazil by itself was up 38%. This is all total revenue, so arguably total revenue is reasonably reflective of relative box. If you looked at international without Brazil, it was up a little over 2%, so it is not that Latin America underperformed. Brazil didn't carry all of Latin America's performance in Q4 of last year, but it was very meaningful in moving it, basically moved it from being up 2% to being up 22%.

And again, that movie was very significant. So -- we're -- definitely is a hurdle to get over. It is not reflective of any significant issue or anything like that in Latin America. It is just a comp and it's a big comp.

Okay. All right. The other thing that I noticed in the quarter, while your international box office per screen was better than the industry, the attendance in the US, the attendance per screen dipped a little bit, about 3 percentage points it would seem versus growth in the US. And what was behind that? Is that simply just a mix issue, or is there something tied to the acquisition of Hoyts which maybe skewed the averaging?

It was primarily a mix issue. If you went back and -- to your point, I mean, the attendance per screen was off just slightly. It was how the movies played out internationally. It was a combination of that as well as a little bit of local product. And so again we have looked back through trends and everything else and see if there was anything unusual with the film product, how did film generally play in the US and historically, and again it was just basically somewhat a mix.

And there were last year a couple of relatively good -- nothing like this fourth quarter type stuff, but there was some good local product, and there was good local product this year as well. Didn't quite perform as well, but to that first point it is just an overall mix of the product playing out.

Okay. And then just a final housekeeping thing. Can you give us the currency impact on operations?

Sure. As [usual, I kind of do that to pricing, so if you looked at our average ticket price in Latin America up 16.3% for the quarter. If you adjusted that for FX, it would have been up 10.7%. Concession was up 16.1% for the quarter. It would have only been up 11.5% without FX. So arguably, if you kind of look at that, it is probably around 5%, a little over 5%.

Okay. That's great. Thank you very much.

Sure.

Your next question is from Eric Handler with MKM partners.

Thanks for taking my question. Doing back of the envelope math on the Argentina acquisition, using around $550,000 per screen average and 22% margin, I get to around $52 million of revenue and about $11 million, $12 million of EBITDA. Is that in the ballpark?

And then secondly, you have an under-leveraged balance sheet. Last year when you announced your third quarter numbers you increased your dividend. You chose not to do that this year. Any reason why we wouldn't see a higher dividend in the future?

First with respect to the numbers in Argentina, we think the approach you took is reasonable to estimate what the impact would be. Again, while Argentina didn't have -- it was only Brazil had the movie we're talking about. If you look at Q4 in general, last year, and I think you will see the same thing this year, is a number of the movies for the holiday season, while it plays very well in Latin America, their real holidays are in January and February. So many the movies kind of really push to open then versus late December. So even on the Hoyt's acquisition you will start seeing a bigger impact next year versus really per se in Q4.

With respect to dividends, that's a Board decision to make. The Company is -- we buy Hoyt's. We're still looking at other opportunities. The Board did not make any decision to increase the dividend, and we did not discuss that that's on the slate in the near term, so I don't want to give people an impression that we'll be raising our dividend in the near term.

Okay. And then so as a follow-up, are you seeing a lot more M&A opportunities?

Yes, it is not that they're running in the door, but I do think as the conversion to digital is occurring, you'reseeing more companies have to make decisions about investing their capital, and that is probably opening up opportunities. I think as we have gone through this year, and it has been a very good year, but despite that they're still looking at what the tax law change in the future, and again what might the capital requirements be. And that seems to be shaking a few loose to at least have discussions that are more reasonable discussions than we have seen in the past. Again, it doesn't to close anything, but we do think there is actually some activity starting to happen.

Great. Thank you.

Your next question is from Tony Wible with J&E.

I guess I want to start off by figuring out if you guys are contemplating any changes on your philosophy with currency hedges? And then also wanted to talk a little bit about the Sony issue again. Are you guys willing to take a near term hit in attendance to protect the long-term margin structure and make a point on the Sony issue?

Tony, I will address FX. We have always taking a position that our diversity in Latin America, we use that as our, [if you want to[ argue, somewhat of a natural hedge because it seems that at least historically we had countries moving in different directions. Hedging is a great concept. It is fairly expensive insurance. We found when we looked at the minor hedges we put in place that really had to do with specific asset acquisitions that you win and lose about as much, and unless there is a major move in the currency, you tend to lose. And so our general philosophy is we do not hedge because everything is in local currency.

If we see that some countries appear that they might be under pressure because of a, let's say, an upcoming election or some other event, in most of these countries you can find ways to put any reserves they have into US cash, so again you're dealing with future operations. And because those are all in local currency, wehave chosen not to hedge and don't really see changing that philosophy.

Tony, on the Sony issue again, I guess I just reiterate that our job is to obviously negotiate and work through. Sony is a partner of ours. We would want to work this out with them. Having said that, you have certainly seen in our past and our history we're going to work through the economics of this, and if we can achieve something that we think is reasonable and that works for us, then we'll take the necessary steps, whatever those might be, to battle that issue.

This is a little ways off. This announcement from Sony didn't start until next summer. [Is to] their approach, their goal anyway, to approach it in a different manner. So we'll just to work through that over the upcoming months. And I am pretty confident we can work out a solution that will satisfy both of us, but to the extent that we can't, or it becomes an issue, then we'll definitely have to head in a different direction.

So far to date have you -- you haven't changed any of the Sony trailers?

No, no. We're just barely beginning a process here to negotiate with them, and the goal is to work out a long-term solution. They would like to approach it differently, and so we'll have to work through that concept with them and see if we can reach a compromise here that works. And again, as always with studios and with any of our business relationships, you have to work through the process, and I am confident we can come up with a long-term solution at the end of the day.

Sure. On the early VOD window I guess we heard promising things about studios backing off on that. Can you give us your official take on that? And then is there anything different you're putting into your contracts to give you a head's up on what films may go into an early VOD window or any concessions you may get for that?

Right now the whole video on demand, as you are stating here, I think the studios have seen some recent successes in the home market. I think I read here recently where their Blu-ray and some of the sales figures were actually up recently. I know they're working on different concepts. We're not aware that they're really pushing any kind of further VOD experimentation things right now. At the end of the day we're always mindful of what they're doing and try to have conversation and open dialog with them. They have been very open as to how they're playing the titles.

And again, I think their process right now, they will tell you, they don't -- as they open movies up in the theater, you don't always know what that movie is going to do. They don't necessarily set or are aware of -- sometimes there is exceptions to that rule, but for the most part they want open, get it marketed, play it into the theater spectrum, and then they kind of figure out how to play it downstream into the rest of the market. So right now business has been good, and we have not heard of or are aware of anything else or any experiments they're working on.

Great. Thank you.

Your next question comes from Jim Goss with Barrington Research.

Thanks for taking the questions. I was thinking with Ultraviolet, this development, is there any way you think the theatrical exhibitors could be involved, say, for example, give -- pay a couple of dollars plus your ticket to get a discount on an early release in a cloud based environment when people are excited about seeing the movie if they just came out? Is that a way to work with studios, get on the same page and maybe benefit from this new development?

Certainly, Jim, as you're intimating here, the goal for all of us is work out a win win. We certainly want to have the studios be successful in the home market, and to the extent that there is methods in which we can help or participate or make the whole overall thing work, then certainly we would be interested in that.

I would suspect from the studio standpoint, they're fully aware the theaters are their marketing engine. We're the ones that drive the value. We drive the awareness. We get people excited about their movies, so that's a pretty powerful tool to be able to begin the process and be able to make the whole thing work for them and for us.

We certainly are always open to, and it is a long ways out to figure out what that would mean, but to the extent there is ways we can market, we can help, we can push, we can promote, and then we can participate in what's happening on the home market, and we can both benefit from that, then absolutely we would think that's an interesting solution for us.

Okay. With regard to the acquisition issue, in the US in particular, you have tended to not really acquire very much historically. You seem to have more exacting physical plant specifications. Will that be a stumbling block or make it harder to find ones you would actually be interested in acquiring? Or do you think there is a way you can play this as, as we discussed, more become available because of the digital transition process?

Certainly from our perspective -- I mean, I think we have to cover basically three areas here. We first of all have to make sure it is a quality asset, so it is something we truly want to buy. Part two then we have to make sure that if it is something we want to buy, that the price is right. And so part three of that would be that it is accretive or there is a reason to do so or a long-term strategy in that.

So we have never really altered from that philosophy. That's how we approached everything we do here at Cinemark to make sure it is something in the long-term, and it is a quality asset for us to buy. So as we look at those things that become available, we'll kind of apply that metric and make sure it is of, number one, the right quality, and number two, that we're going to pay a decent price for it. And if it fits that model, then obviously we're happy to go continue on down the path.

Okay. Lastly, and we have talked about this before a little bit, but interms of the up-charge, I think you tended to say that $3 for a 3D movie or something versus say lower up-charge or smaller up-charge hasn't really made a significant difference in terms of resistance to attending such movies. Are you still holding to that idea, or do you think there is any reason to start thinking about different variabilities as you evolve the 3D process?

No, wethink that the structure as it is in place right now we think is a good one. Consumers do accept that. We actually believe the best way to approach the whole 3D model is to have a high quality, good 3D experience for them, but if they choose not to pay for that or they think the up-charge is too much, then we certainly want to offer those same movies in a 2D environment. So really that continues to be the best way to attract a customer, let them choose how they want to watch it.

We think as technology continues to get better and grows over time here, that 3D experience will continue to get better and better. The things that the distributors are working on, the producers, directors are coming up with pretty exciting product. So we certainly don't want to take that experience and devalue it at all. We think what we're charging today and the approach that we have taken is a good one, and we'll continue to move on in the future with that.

Thank you.

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

Hey, guys, congratulations on the stellar results. A couple questions. Rob, just a housekeeping item. What was the free cash flow number in the quarter, because I just don't see it on the press release. I apologize.

And then, Alan, I am wondering if you can kind of characterize the state of the Latin American film output industry from an overall supply standpoint? How many films do you show per year from the region, or from Portugal that are imported from Portugal? And do you ever find that you can't show every film because you would rather show the American tent pole, so as to maximize revenues? And is there a certain kind of quarter or certain season that you want to show the local films just to get out of the way of the US studio system product? Thanks very much.

I guess, David, I would answer it this way. As far as film goes and as we look at the output of film, I mean, certainly our goal is to play as much product as we can. I don't know of the top of my head the exact quantity or output or what those numbers are, but most film, as you think about it, almost every single thing that plays here in the US probably is available through that Latin America market. Now, not all of it translates as well. Obviously some plays better, someplays worse. But we have never run into a situation where we have too much US film or not enough screens or the ability not to play it.

More times than not which what you are really trying to do is that local production, whether it is coming from Brazil or Argentina or Mexico or Portugal as you describe, wherever it is coming from, it varies obviously in quality a lot. And so you try to work through that process to play everything you can as much as you can, so there is never necessarily been a constraint on screen count or that we have ever had to slow down or -- again, remember the cycles are different, their holidays, their -- all their periods are different than here in the US.

So movies do move around, and they move around sometimes based on lots of different factors, and film could be one of those factors, meaning the same reason that all of the studios here in the US they play -- they work with each other on trying to figure out when and where and how to release their product throughout the year. Well they have that same process that's going to occur in every single one of these countries. So they look at what's there locally, they look at what's coming in from the US, and you really kind of work out a system here. So there is never really been a time where we're screen constrained or we have an issue not playing any of those films.

And obviously as we have been talking about here, sometimes the films can do tremendous. They're great films, they do a ton of volume, and other times they don't do so well. You just try to work through the process. I think to be fair here, too, I think a lot of the local film communities, I think a lot of these countries are getting better and better as they understand and get aware of the potential that's in making these movies. So we're excited that as the future goes on. And I think their film product cycle just ebbs and flows very much like it does here in the US.

The free cash flow number? Sorry?

Yes, I am sorry. The ballpark is probably, after I take out CapEx, and this would be before dividends and without our acquisition, was ballpark $70 million. And that's just taking basically operating free cash flow for the period less our CapEx.

Thank you.

You bet.

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

Hi. Thanks a lot. Just wanted to try to get behind the international numbers just a little bit. First off, Robert, can you talk about attendance per screen from the perspective of, did the contribution from the Hoyt's acquisition in Argentina, did that have any impact on attendance per screen?

Not really significantly for the quarter. I mean, it definitely came through. And again, you're just looking at September numbers really.

Right.

Around the bases I don't know that it changed much. And as mentioned earlier, attendance per screen was down some. That was primarily due to the way product played out, both where we had local product last year that played maybe a little better than local product this year, as well as just a mix of films and how they played.

Okay.

So nothing endemic that we're seeing changes in what's going on down there. It is just natural film play out.

How about anything from a macroeconomic perspective in either Brazil or Argentina? I know that the pace of your new builds in Brazil tends to be dependent upon the real estate markets to a certain degree; new malls, et cetera. I am just wondering what you guys are seeing there? Stability? Is there any slowdown in the pace real estate build? Just curious.

Not really. I mean, whenever there is hiccups worldwide, you might get a cough down there, I would think, when things up here or in Europe are causing our economies to become more questionable. I think you see -- I won't tell you a slowdown. I think you see a pause down there -- probably the best way to look at it -- where everybody makes sure that they're comfortable.

But as it is turned out, really throughout Latin America we have continued to see building going on, Brazil definitely is on pace with what we have seen in the past. When we look at what our commitments are, by far the majority of those are in Brazil, just opportunities there, but they are spread out. We have them all over in Latin America, but Brazil is still by far leading the pace on this.

All right. Hopefully not hiccups and a cough at the same time. That sounds tough. Thanks a lot.

Seems like other parts of the world keep doing that. Fortunately Latin America seems relatively immune.

Your next question is from Ben Swinburne with Morgan Stanley.

Thank you. Alan, just following up on the VOD question earlier, was there anything that came out of the Universal "Tower Heist" discussions beyond the fact they pulled the decision to move forward with that, that you would want to comment on?

No. I think at the end of the day they, Universal, was after that test that we obviously didn't agree with, and I think they thought they had something that the exhibitors would comply with. But I think at the end of the day they were also very -- we had a very open dialog, a very good dialog with them, and I think the goal from Universal's standpoint, and again, from all of our standpoints is just to continue to think through some type of model that can help them in their home business and make that business work.

So there was not any -- there hasn't been or really wasn't any further discussions about that particular test or anything else that they're working on.

Okay. And then just for Robert on the quarter, [I just want to] comment -- and if you said this in the prepared remarks, I apologize -- but concession per patron was up quite a bit in the quarter. I think it was the highest growth rate in domestic I am talking about in a long time. Is that something that was just mix driven, or strategic decisions on your part that should carry forward into the next couple of quarters?

Yes. Again, Ben, I would answer that and just say it is mix driven. As we talked about in the past, concession sales have more to do with and almost always follow what the movie is, the style of the movie, what our audience is in there, and just obviously had a great quarter from that standpoint.

Our goal, as always, is to continue to push the concessions out of the equation. What products, what things can we do to attract new customers? What can we do to make sure that our sales are as good as they can be? So we'll always focus on that piece of the equation. But the product mix and the movie mix is tremendously important to that, and you're going to see probably ebbs and flows as you always have in the past, but we'll continue to work on our doing our job and selling as much as we can.

Got it. I don't know if you had any guidance just on book tax rate for the next quarter or next year --

What we -- our rate was up a little bit, and one of the reasons that we're tight maybe on some of the consensus out there that we're up at 38%, a little over 38% versus what we had done last quarter at 36%. We still think probably a reasonable run rate is around 36%. I mean, obviously if you want to be safe, push it up to 38%. That's kind of the -- we think where we climb to on a max basis, but at least from everything we're looking at we feel like 36% is reasonable.

Okay. And then last question, I promise. Just on your balance sheet comfort level, if the acquisition environment really opens up for -- there is a lot of opportunities, potential opportunities that you guys have talked about already on this call. What kind of cash balance do you want to carry at any given time, and is there something -- should we be thinking about your consolidated cash as two buckets, one in some of the local international markets that is tougher get access to versus cash at the Hold Co or US parent? And same question around debt leverage? Kind of where would you be comfortable going to if some really good opportunities presented themselves?

I mean, I don't know we've stepped back looked at where are we willing to go on relative leverage, but we have clearly operated before in the 4 to 5 range, and done so when we're in an environment that we felt like the acquisitions that were involved to push to that range, or the new build environment, if I go back a number of years ago, was such that we knew we could take that leverage and move it down rather quickly. So I think if are you doing some kind of transaction to move your leverage up significantly, with the knowledge that you would be able to pay that down and get back to some reasonable levels, that prior in the 2 to 3 range in today's world, especially if you are going to be paying a dividend, which we plan to, that while we might be willing to go up there again, we have to look and make sure the deal made sense there.

I think moving leverage up slightly, which is probably the more likely scenario on any deal you would be doing, and we have as you mentioned significant cash, and my first general approach will be using my cash and then selectively borrowing or if the rates are good, or if it's in Latin America, as we did here, we assumed some debt and might look at leveraging that transaction even a little more ultimately. Not a lot, but slightly if we can do it in pesos, because then we're matching up some of our purchase price in local currency rather than arguably having to use dollars.

So we always considered doing that. With respect to where would the cash balance be, I mean, love having a lot of cash. It means just in this type of transaction, when we went down in Latin America and we're negotiating this deal, they knew we can close. We don't have to worry about contingencies of financing or anything else, and that usually helps put us at the front of the list in terms of who is interested in it us.

So I want to keep a pretty reasonable cash balance that people know I can execute a sizable transaction, but having said that, if I need that cash to pull off the transaction, we're not hesitant to use it.

Thank you very much.

Your next question is from Ben MogiI with Stifel.

Good morning, and thanks for taking the question. I want to follow up on Anthony a question about the Hoyts transaction. Can you give us a sense of the Hoyts circuit you bought? Is it on par in terms of revenue per screen or attendance per screen with your overall circuit, or is it higher or lower?

Our general guidance has been on that -- I would compare it to our general circuit. It is fairly similar to our assets throughout Latin America and Argentina. So if you use the general international box per screen, revenue per screen margin, I think that's a -- will produce a fair estimate of what those assets produce. They're very strong assets. They're incredible assets in Argentina, very comparable to the quality that we have throughout the world, so we're very excited about the acquisition and what it does for us and feel good about its ability to produce long-term benefits for us. But I think for modeling purposes using the average is fairly reasonable.

And I want to make sure I heard you right. It was $73 million was the all-in cost to purchase it?

Yes, itis kind of the balance sheet costs if you will. In reality the [form lists] are very different, and we probably looked at it at a $70 million purchase, just when you look at current assets and long-term liabilities, because when you get into the true GAAP accounting and pickup some of the long-term type liabilities, those just aren't what are negotiated in a deal like this. But when we look at bank debt and cash, you're right, when you add it up it's about $73 million. We did assume some cash from them, so again from, so again, from our perspective of the way we looked at this deal, it was more in the $70 range.

What kind of synergies would you expect on the deal once you have --

The hard part is because we -- I mean, we do expect some. In the scheme of life it is not a really large transaction. We do think you will see those. It is probably a little early on this, because again we're having to operate these separately. We do think we'll see some buying synergies, and that's primarily what we assume will happen. We'll see some G&A synergies. Obviously we can't recognize any of those until we can merge the companies.

And those will probably, we think, happen in the 2013 timeframe as a practical side, maybe a little towards the end of 2012, but primarily in 2013. And it is not going to be huge. Again, it was a very efficient company we bought, so I tend to say G&A is probably as big as anything in it, and in the scheme of life that's not millions and millions of dollars. Probably on the low side of that number.

Okay. That's great. That's all for me. Thanks, guys.

Your next question is from Marla Backer with Hudson Square.

Thank you. I have a couple questions on the content side, and then one to follow up on Hoyts. First of all, you probably saw that "Tintin" opened very well in some European markets last weekend, but I am wondering whether you think there is any content on the fourth quarter slate that might not play as well in some of your Latin American markets? I don't know how well known "Tintin," for example, is. Are there any titles you are thinking are less well known down there?

Well, Marla, as you look at the slate of films coming up, obviously it's always -- as it always has been in the past, they play very well with animated films, so you know right off the bat that some of these animated films coming up, the "Happy Feet," the "Alvin," those movies.

Remember, too, some of the film or a lot of the bigger film coming out in the fourth quarter is towards the back end of the fourth quarter, which some of that can move into the first quarter of next year. So there is always a movement of how that film plays and what's going to happen in the fourth quarter, specifically in Latin America, versus how it is going to play in the first quarter. So I always caution you that a lot of this film right now, and I think in particular some of the bigger ones are actually not this year. They're going to flow into next year.

But the titles in general, "Mission Impossible" -- and I don't know in particular how "Tintin" will play, again being that it is kind of more of an animated kids orient -- or family oriented film. On the surface it should play very well, but don't 100% now how it all translates. Movies like "Smurfs" and "Puss in Boots" and those films play phenomenal in the Latin America market, so there is no reason to think the upcoming product won't play similarly.

Thank you. And then just follow-up on the Hoyts, and you may have said this. If you did, I apologize. You said -- and it is consistent with what we have been thinking -- that about as circuits begin to have to make a decision about whether or not to upgrade to digital, it will probably create some M&A opportunities. Was Hoyts a circuit that installed some 3D screens but then had not really digitalized the entire circuit? Is that the state that you're finding it in now when you take over management?

Yes. I mean, primarily throughout Latin America, and Hoyts was certainly in that camp, thatthey had installed some 3D projectors. By no means was it throughout the whole circuit. And that digitization process will fold into what we're doing throughout Latin America, and we will begin adding and getting more of that footprint throughout that chain as well as the rest of our screen.

So you will be able to roll them into your digital plan?

Yes. And remember, from a Latin America perspective, that's not part of the DCIP. We're going through that process on our own. We're beginning that -- the rest of the digitization process. We are continuing to roll out 3D screens. So we have added them into our mix and will certainly add them into the same process that we do with the rest of our theaters down there.

Thank you.

You have a follow-up question from Jim Goss with Barrington Research.

Hi. Marla's question and your response got me thinking about the softness that has been experienced with animation and 3D and IMAX type showings in the US. I am wondering if you've had a different experience in that regard as well in your international markets?

At the end of the day, as you think about how 3D plays and how it -- what kind of percentages you get, as they have happened here in the US, I think -- it plays differently of course internationally. 3D films here, we have been all over the map. As you are fully aware, "Lion King" was up in the 90 percentile range of what it did. Some of the more recent ones, I think "Dolphin Tale" was a little over 50%. 51%, 52%. They vary obviously what they're doing. I think "Puss in Boots" was -- again off the top of my head -- I think in the 50s. I can't remember here recently.

But the bottom line is the one advantage we do have internationally is that kids -- again, kids and family film plays very well, so those films do very well in 3D as well. I don't know that we have any -- that anyone is producing any industry stats specific to Latin America and how 3D films are playing, but generally I am going to tell you it is better than it has been here in the US.

All right. Thanks.

There are no further questions at this time.

All right. We would like to thank everyone for participating in our call, and we look forward to talking with you again next quarter.

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