Cinemark Holdings Inc (CNK) 2011 Q4 法說會逐字稿

Good morning. My name is Daketria[sic] and I will be your conference operator today. At this time, I would like to welcome everyone to the Cinemark fourth quarter year-end earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. (Operator Instructions). Thank you, Mr. Rinderman. You may begin your conference.

Thank you, Daketria. Welcome everyone to Cinemark's 2011 fourth quarter and full year results conference call and webcast.

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. We would now like to turn the call over to Alan Stock. Alan joined this morning by Tim Warner and Robert Copple.

Thanks, Rob.

We appreciate everyone joining us today. It is my pleasure to introduce my long-time colleague, and Cinemark's new Chief Executive Officer, Tim Warner. Some of you may have met Tim at Cinemark Investor Day a few years ago. But if you haven't had the opportunity to meet him in person yet, there will be many occasions to get to know him much better, starting with today's call. As was announced last week, after over 26 years of helping this great company grow into the number one global theatrical exhibitor, I decided to retire as CEO. I will continue to serve in a transitional role through May 1st, and in an advisory consulting role for two years thereafter to help ensure a seamless transition.

Tim has been with Cinemark for 16 years. He spent his first 11 years developing our Latin American business as president of Cinemark international. For the last five years, he has run our domestic business as President and Chief Operating Officer. Clearly, Tim's experience and strong relationships with our worldwide management team and business partners will make this an easy transition. Tim can tell you more about himself later, but I will mention that having had the opportunity to work closely with him for all these years, I have great confidence that he is the right person to lead our company and continue to build on our success and strategic initiatives. His experience, combined with our seasoned management team, is one of the primary reasons I felt comfortable retiring at this time. Tim, congratulations.

Alan, thank you. And on behalf of the entire team at Cinemark, I want to thank Alan not only for his service as CEO but also for his 26 years building Cinemark into the company it is today. We look forward to your continued involvement with the Company in the years to come.

Although the CEO title is new, I'm certainly not new to Cinemark or our industry. As Alan mentioned, after serving various industry leadership positions, I joined Cinemark 16 years ago to head up our international development initiative. After successfully establishing our international operations, and putting in place our talented and experienced international management team, I moved over to the domestic operations. In 2007, with the acquisition of Century Theaters and our IPO, I became president and COO of our domestic company. By combining the talents of both companies, we put together one of the best management teams in our industry.

I'm excited about my new role at Cinemark and look forward to meeting investors and analysts. Robert and I will be attending several investor conferences in late February and early March, so I'll soon have the opportunity to meet many of you in person.

I will now briefly summarize Cinemark's fourth quarter and 2011 full-year results,review industry box office performance for the same period, and provide an update on Q1 2012 to date and a preview of the remaining 2012 slate. Robert will then cover our financials and capital structure, as well as the latest on our domestic and Latin American expansion plans. As we -- after his prepared remarks, we will conclude with our customary Q&A session.

Cinemark's worldwide admission revenues in Q4 again outperformed the North American industry box office. We also outperformed the industry for our full year, posting a 4.7% increase in admission revenues and 800 basis points outperformance compared to estimated industry results for the year. Cinemark set a new record in 2011, growing total revenues 6.5% to $2.3 billion. For the third straight year in a row, also set a new record for adjusted EBITDA, growing 6.9% to $519.5 million. Cinemark continues to be the worldwide leader in attendance as well as adjusted EBITDA and adjusted EBITDA margins.

The company's quarterly admissions revenue outperformance rate now stretches uninterrupted for more than three years for our US circuit and 14 consecutive quarters pore our international theaters on a currency adjusted basis. Cumulatively, Cinemark's fourth quarter admission revenue growth, using 2008 as a base year, was a notable 11.5% in our US theaters, more than five times the North American industry growth at 2%. Our international circuit has more than doubled admission revenues during this period, achieving an impressive 111.5% increase.

In 2011, Cinemark continued to expand its digital footprint. In early December, we celebrated the completion of our domestic digital cinema conversion. We successfully transitioned our circuit to 100% digital footprint, installing more than 3400 state-of-the-art Barco projectors in Cinemark's first-run domestic theaters. Our domestic RealD 3-D footprint today is more than 50% of Cinemark's total US first-run screen count. We will continue to focus on expanding our international digital footprint, where we currently have converted approximately 35% of our circuit to digital, primarily with the RealD 3-D enabled Barco projectors. At year-end we 2,321 RealD 3-D enabled projectors worldwide, representing 45% of our global circuit.

Cinemark XD extreme digital cinema screens contributed solid quarterly results again in Q4. Our domestic XD screens, which are 1.4% of our total domestic screens, generated 4.3% of total US admission revenues for the period. We showed all the top grossing films of the quarter on our XD screens, including the number 1 performer Twilight saga Breaking Dawn Part 1, Paranormal Activity 3, and Mission Impossible Ghost Protocol, reflecting our ability to maximize efficiency on these screens.

The value and importance of our XD brand is increasingly being recognized by our distribution partners, as reflected by the inclusion of our XD offerings in their national advertising campaigns, including Paramount's Mission Impossible Goes Protocol, as well as Summit's Twilight Saga Breaking Dawn Part one. We intend to open an additional 20 to 30 XD screens worldwide in 2012, bringing our worldwide XD count to over 100.

Q4 faced a challenging comp, as the 2010 fourth quarter was the second highest grossing fourth quarter box office in North American history,a period when most of the top performing films featured 3D. During the 2011 fourth quarter, we saw the successful release of many films such as Twilight Breaking Dawn Part 1, Sherlock Holmes A Game of Shadows, Mission Impossible Ghost Protocol and Alvin and the Chipmunks Chipwrecked.

Unfortunately we also experienced an overlap of films of the same genre into some of the most productive periods. Four family films were released during Thanksgiving holidays, resulting in some cannibalization of each title, and reducing the breadth of other movie genres to attract broader audience during this peak time period. Additionally, our two big action films during the quarter, Mission Impossible and Sherlock Holmes, were released at the same time.

Despite this release pattern, the industry still experienced a solid increase in attendance during the week between Christmas and New Year's and Q1 2012 is off to a strong start. North American box office is up approximately 18% to last weekend, with The Lorax on March 2, and highly anticipated Hunger Games on March 23 still to come.

During Q4, our international circuit again meaningfully outperformed North American box office results. Total revenues increased 12.2%,and adjusted EBITDA grew 25.7%. Our attendance in admission revenue increases in our Latin American segment more than offset the very challenging Q4 2010 comps in Brazil.

Cinemark's domestic admission revenues from the premium format ticket sales in Q4, including 3D and our own large format XD and IMAX auditoriums, contributed approximately 19% of the company's domestic admission revenues, compared to 27% a year ago,A solid showing considering in the top grossing tentpole films were released in 2D only and there were fewer 3D films in Q4 2011 than in 2010. The 2012 release calendar is promising with many tentpoles appealing to a wide audience, including the final Batman film, The Dark Eye Rises, and the final Twilight film, Twilight Breaking Dawn 2. The 2012 3-D release top line is also looking strong with many eagerly anticipated titles, including The Avengers, The Amazing Spiderman, Pixar's Brave, Ice Age Continental Drift, and Men In Black III, included among the approximately 35 3-D titles scheduled for release, similar to the number released in 2011.

Peter Jackson's The Hobbit - An Unexpected Journey in 3D is slated for a December release, and will be the first movie introducing the next step in digital technology,Doubling the frame rate of the presentation from 24 to 48 frames per second. The higher frame rate will result in a more vivid and robust presentation, making it increasingly immersive and further differentiating the out of home theatrical experience from the in-home or small screen.

We are also seeing a ramp up of films utilizing digital and 3-D technologies to reintroduce their film libraries to new audiences. Most of these re-releases releases are hitting the big screen during typically quieter periods, further enhancing their box office potential and helping the theaters improve capacity utilization. 3-D re-releases scheduled for later this year include James Cameron's Titanic in early April and Disney's family favorite Finding Nemo. The success of other re-releases such as The Lion King, Beauty and the Beast, and Star Wars is also demonstrating the consumer's continued appetite for the 3-D format as box office percentage of 3-D receipts as a percentage of total box office for these reissued titles has tracked well into the 90% range. These re-releases essentially become new movies with these three re-releases alone approaching an impressive $175 million in domestic box office receipts.

I will now turn it over to Robert Copple.

Thank you, Tim. Good morning.

In the fourth quarter, Cinemark's worldwide total revenues increased 2.1% to $535.9 million. Adjusted revenues were $336.9 million, a slight decrease of 1.4%, compared to the estimated 5% to 5.5% North American industry decrease. The company's adjusted EBITDA was $112.7 million resulting in a 21% margin.

Cinemark's US segment total revenues were $374.5 million in Q4. Our domestic attendance decrease of only 2.6% compared favorablyto the estimated 3.5%to 4% attendance decline in overall industry. Cinemark's average Q4 US ticket price was $6.57, down from $6.71 in the prior year,primarily reflecting the lower mix of 3-D product and a higher weighting of family films, which sell proportionately more child and discounted matinee tickets. We continue to maintain a policy of modest base price increases, reflecting our strategy of maintaining value for Cinemark's customers as we focus on driving theater attendance.

In the US, concession revenues grew 4.3% in Q4 to $119.7 million and concessions per patron rose 7.2%, to $3.26, reflecting increases in sales volume and the positive affect to more family and concession friendly titles during the quarter. This is the highest quarterly concession per patron revenue in our history.

Our US segment adjusted EBITDA was $82.1 million and adjusted EBITDA margin was 21.9%.

Cinemark again achieved very strong Q4 operating results in Latin America, despite an FX headwind in Brazil's difficult comp from Q4 of 2010. Admission revenues increased 8.4% and attendance rose 12.1%. Our average ticket prices decreased 3.2%, due primarily to FX. Q4 international concession revenues grew 18.7% versus the year ago period,reflecting higher attendance and a 5.9% rise in average concession revenues per patron resulting from price increases net of FX impact.

Total international revenues rose to $161.4 million,and adjusted EBITDA increased 25.7% to approximately $30.6 million.

In Q4, consolidated worldwide film rentals and advertising costs increased 30 basis points to 55% of admission revenues. Concession supply costs were 16.3% of concession revenues, compared with 15.6% in the year ago period. The increase was primarily due to higher inventory procurement costs as well as an increased weighting of Cinemark's international segment, which typically has higher supply costs than our domestic business.

G&A expenditures were $34.8 million compared to $30.5 million in the year ago period. The increase was primarily due to higher salaries and incentive compensation, share-based awards compensation expense, professional fees and credit card service charges. Q4 interest expense was $31.8 million,reflecting our issuance of 200 million aggregate principal amount of 7.375% senior subordinated notes this past June which mature in 2021.

Total income before income taxes decreased to $30 million from $50.2 million last year. Included in this year's income was pretax charge of $12.6 million related to our investment in realty. Additionally last year's net income included a pretax gain of $12.3 million from the sale of assets. The two of these items created a $25 million swing in pretax income for the quarter.

Our effective Q4 income tax rate was 38%. Net income attributable to Cinemark Holdings was $18.3 million. Our EPS was $0.16 per diluted share. This amount includes the loss I mentioned that we recorded in our investment in RealD. The after tax impact of the charge on our investment was approximately $0.07 per diluted share, which was not reflected in analysts' estimates. Accordingly, if the $0.07 is added back to our $0.16 reported EPS, our EPS for the quarter substantially exceeded estimates.

For calendar year 2011 Cinemark's worldwide admission revenues increased 4.7% to $1.5 billion, significantly outperforming North American industry box office by over 800 basis points. Our growth was driven by attendance increase of 2.6%, which when combined with our focus on operating efficiencies, allowed us to generate a 6.9% increase in our adjusted EBITDA to $519.5 million. For the year, our US segment achieved a 2.2% increase in adjusted EBITDA, with our dearer personnel's increased efficiencies, our US adjusted EBITDA margin increased 40 basis points. Our international adjusted EBITDA increased 21%.

Cinemark's balance sheet continues to be among the strongest and least leveraged of our peer group. The company's December 31 cash position was $521 million, resulting in a 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 3,878 screens at 297 theaters in 39 states. During the three month period we expanded by three theaters were 28 screens and closed two theaters with 14 screens. We have signed commitments to open and acquire five additional new theaters and 74 screens during 2012, andeight theaters with 107 screens subsequent to 2012. We expect to incur additional $110 million in CapEx and acquisition costs for these additional 181 screens.

Our total Latin American circuit of 2,000 -- excuse me December 31 included 1,274 auditoriums and 159 theaters. During Q4, we built six new theaters were 36 screens, and acquired one theater were six screens. We presently have signed commitments to open six new theaters with 43 screens in 2012, and three new theaters were 22 screens subsequent to this year. Our estimated CapEx to develop these 65 additional international screens is approximately $72 million.

During Q4, we invested $58.6 million on capital expenditures, including $29.8 million on new construction and theater additions. We spent an additional $28.8 million on maintenance CapEx. These expenditures brought our total CapEx for the year to $184.8 million,which included CapEx maintenance of $111.3 million.

2012 full year CapEx is projected to be in the $250 million to $300 million range. The increase in CapEx is due to a ramp up in our new built screen count to an estimated 150 to 175 new screens, primarily in Latin America and our continued rollout of our XD could not settlement. We also anticipate an acceleration of our international digital projector roll out once BPF agreements are signed with studios.

Since the beginning of 2008, we have reinvested $674 million in our theater circuit net of asset sales, and have grown adjusted EBITDA by more than 40% or $149 million. As a result, for the last year we have been the number one ranked theater circuit in the key metrics of adjusted EBITDA, adjusted EBITDA margins, and attendance. At the same time, we have also returned $337 million in dividends to our shareholders during the period from January 2008 through 2011 year-end. Our board of directors also recently declared a quarterly dividend of $0.21 per common share to be paid on March 16, 2012, to shareholders of record at March 2, 2012.

In summary, Cinemark's Q4 results were ahead of the North American industry, making our 13th successive period ever domestic box office outperformance. Our international circuit also achieved another solid quarter of growth and outperformance. Many of you tuned in for our international business focus call several weeks ago, when we highlighted our Latin American circuit. We believe the runway remains robust for further expansion and success in that region. We are optimistic about 2012 film lineup, and the first quarter of 2012 is experiencing positive momentum.

As discussed, we completed the digitization of our entire US first run footprint during Q4, and are now focused on our Latin American circuit's digital conversion. We are continuing to expand our XD, 3D, and digital cinema presence with 81 screens at year-end, which boasted another quarter of strong results.

Our strategic focus remains on organic growth both domestically and internationally. We will also continue to pursue accretive transactions that meet our financial return and asset quality standards, such as our purchase of the Argentina-based Hoyts Theatres last year.

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

(Operator Instructions).

Your first question comes from the line of Barton Crockett of Lazard Capital Management.

Okay, great. Thank you very much for taking the question.

I would ask about your CapEx outlook. So you see the increase to $250 million or so in 2012 from $185 million or so at 2011. You know, I know that part of that is new builds, part of that is the digital projector installations in Latin America. How should we think about that going forward after 2012? Is this kind of an unusual step up? Or is this going to be the new normal for a couple of years as you continue to kind of pursue the Latin American opportunity and finish the international CapEx rollout?

Good question, Barton.

I think as you look at 2013, it will be fairly similar, maybe slightly less. To your point, we foresee a great runway in Latin America, so building that, we feel there is the potential to go to that 150 plus screen count a year.

Clearly that is going to vary. Over the last few years we've given numbers, and maybe been a little more excited about the potential ability to build, both domestically and internationally than happens. We know that that screens potential is there but clearly it depends on when a mall opens.

Having said that we feel it's safer to go ahead and ramp up the numbers some because we definitely are seeing more opportunities in Latin America than what we have seen over the last few years and we can achieve the 150 to 175 screen count. And that represents about half of the additional CapEx we're talking about. On top of that, the other part is rolling out digital, primarily in Latin America so that, you know, that's increasing the difference. We think that will also roll into 2013.

So I think ballpark we'll be similar next year. We will slow down our XD rollout in 2013 as I think most of the conversions will be done by that point. That will save money, as well as some of the other maintenance, major maintenance projects that we actually started a few years ago where we're really having, doing some major changes to a few theaters I think that that will slow down next year.

I would tend to say that in 2013 it will be slightly less. I don't have a great number, but if I was guessing I would say $20 million to $30 million less but I think it will still be high. When you get to 2014, then I think it will drop off substantially because the digital and all that will be done.

Okay. Great. And if I could switch gears just a little bit.

On the Latin American business, I know that there's been talk or reports of changes and some legislation in Brazil concerning expatriation of dividends and ownership of property. Does anything in the regulatory environment there affect your ability to use your cash flows or -- I think it's less in Brazil and more in Argentina -- is there any change that affects your ability to monetize your recent investment there or reap the cash flows from Latin America,any regulatory change that affects you?

We don't see that. Fortunately on at least currently we're reinvesting most of our money in Latin America that we generate. With the acquisition last year, that was -- we set up some structures to be able to move money around both throughout our international circuit, as well as moving it back to the US. So really with the changes you mentioned, Argentina, we don't foresee that causing problems.

Most countries kind of hesitate to put those in place because they want the foreign investment coming in. Again, having said that, most all of our countries we try to finance in a way, structure in a way we haven't run into any problems into pulling money out. Again, most of it is being reinvested currently. But longer term, as we start pulling money back to the US, we don't -- other than just normal things to run into, we don't see a problem.

And the final thing, can you give us the FX impact in the quarter?

Yes. If we were to take our ticket prices probably the quickest way and it's pretty much reflective of what's been talked about. Our ticket price for international, if you looked at it for the quarter, was down 3.2%. If it were not for FX,it would have been up about 2.2%, so you're looking at about a 5.5% swing. Concession prices were up 5.9%. They would have been up 11.7% without FX, so that's about 6%. Generally you look at our numbers with that 5.5%to 6% it's negative impact, is pretty much what happened.

Okay. Great. Thank you very much.

Sure.

And your next question comes from the line of Eric Handler with MKM Partners.

Thanks for taking my questions. A couple things.

First, you threw a bunch of numbers out there for your expected openings for the theater screens for the year. Can you just give us an expectation where you think you might end 2012 with your screen count for both the US and international screens?

Secondly, your concession spending per cap growth was very strong again, particularly in the US I'm just curious if there was anything in the product mix that helped that out.

And then last, Alan, to put you on the spot, even though you've been with the country for 25 years, it's not too often you see a 50-year-old decide to retire. Just wondered if you could give a little more insight into your decision.

I'll save that Alan for last so I can think of it and kind of gloat over it as we sit here. With respect to the screen count, we've foresee, like I said, probably 150 to 175 screens. I would say about a third of those will be in the US, new build. In the U.S. we would foresee closing probably somewhere in the 30 to 40 screens. So net in the US actually I would guess somewhere in the 15 to 25 screen count range.

Internationally, we would foresee opening I guess 100 to 125 screens. Don't know really any closures there, so that ought to be pretty pure. So I think if you kind of net all of those to where we are, we will be close to 3900 US screens and would be around 1375, 1380 international screens at the end of next year, if it goes the way we planned.

With respect to concessions, I don't know there was anything unusual that we did. A lot of it was concession -- was just the nature of the film product that was being shown was very concession friendly. We have a fairly extensive program of product mix that's out there where we also provide special deals by mixing kids specials and putting drinks and combo specials together. We've been focused on that for really the last few years. Our head of concessions have done a great job of finding the combos that fit well. We have special promotion programs, and I think those programs combined with really the type of films that we had have driven the number.

Again, to be fair to it, if you look at last year, Q1 was, you know, lower concession per cap. I think Q2 is a little higher, Q3 was little lower, Q4 was a little higher. It's going to vary clearly what the type of film that's out there. I think the overall number probably goes up from where we were last year. We tend to suggest to people that both our concession and our box office increases would be in that ballpark 2% range domestically and then clearly the film will drive it up or down from that. Again, I think some of the combos and everything we're doing also will push the number as well.

So, Eric, I guess I get to answer your question.

I will tell you for me personally, this is obviously not an easy decision. It's never easy when you've been with a company as long as I have been. But at the end of the day, after 26 years, it was really I guess in my mind for me to achieve some of my personal goals and some directions I wanted to head in. It was just time for me to make this change.

Having said that, it was incredibly important for me to make sure that, number 1, that the company was doing very very well. I would never want to leave when the company was down or having any kind of issues, and as you certainly heard from our numbers, we continue to perform incredibly well, be the leading exhibitor in the whole space. So for me, it was a good time to do that.

And then especially on top of it, we have just a fantastic management team. They all understand our goals, our objectives. They've been with the company a long time. You know, we work very well as a team.

And on top of that, I mean as you've heard, Tim is very well qualified to step into my shoes to make sure he continues to lead the company. And all those pieces of the puzzle were good timing for me. I think it's good timing for the company and, especially I'll be around for a couple years to make sure I'm available for any questions or help or anything I can really do to ensure the company continued to be successful. So I mean the bottom line for me was it was just a great time for me.

Great. Thanks. Alan,best of luck to you.

Great. Thank you.

Your next question comes from the line of Bo Tang.

Great. Thank you for taking the question. You talked about the FX impact in the quarter, which was helpful. But I guess that given the recent moves in rates, did you ever think through the FX impact for the coming quarter and also for the full year?

Yes. If I look at where we were last year at this time, and again Brazil is a big piece of it, Q1 it looks like FX was averaging somewhere around BRL1.67. Fortunately, after year-end, FX has come back down some, or strengthened, if you will, in Brazil. So I think we're running around BRL1.71, BRL1.72 right now if I recall. So if it can hold in that area, you know, again, you're looking at maybe 4% to 5% impact so not that bad. We're obviously much more concerned at the end of last year as we saw it really rise to the high BRL1.70s and actually into the BRL1.80s because that would have been a pretty significant change from where we were last year. But if it can hold somewhere in this range, that would be my ballpark estimate.

If I look at the other countries, Mexico and Argentina, some of those, it probably isn't that different. Maybe a little bigger move in some of those countries. But my gut is -- let's say that I don't know, ballpark 5%, could be up to 8%.

I think that's not that different for the year. Because as you look at a lot of countries, you had a strengthening in the Q2 and Q3 of currencies. So if I assume that does not happen and we just kind of hold somewhere close to where we are, I think that will be ballpark for the year as well.

Okay. Great. And then on pricing, would you be able to give us a breakdown of your 2D, 3D, and IMAX ticket price growth for the quarter?

Yes. I don't know if we've really detailed that, I would say -- to be honest with you for the most part for the quarter, most of our ticket prices remained relatively flat. They didn't necessarily have much growth year over year and while we had raised prices, some of that just had to do with the way ticket sales went.

XD in particular is a bit unusual in that when we look at the ticket price there, we do show 2D and 3D, so really our average XD price can vary significantly, depending on the mix of films going through it. So for instance this quarter on XD, we were actually down versus last year. But it was just because we showed many more 2D films than we showed 3D. However, if you look at the throughput on XD, it's been climbing. So that flexibility we have is very beneficial.

Maybe if I looked at it kind of a different way and looked -- looked over all at our up charges, our up charge, our average up charge for premium, which includes 3D and XD and IMAX was a little over $3 so it stayed relatively the same amount, domestically. Internationally, it historically had been closer to $3. It's kind of moved down a little bit. That's both a combination of the FX impact as well as as we roll XD and 3D out to broader markets throughout international, we do expect and we won't hold $3. It will probably be more in the $2.25 to $2.50 range. That's primarily because you get into smaller markets that you can't really charge the same average up charge.

Overall, it doesn't mean that our up charge went down in the original markets. Those are still holding in the $3 range, it'sjust that average comes down a little bit.

But all in all, it was flat. Maybe even slightly down on prices. But that had a lot more to do with mix. And again, our estimation for 2011 would be domestic prices would be up 1% to 2%, again, outside of mix of film and then internationally, I would probably say more in the 5% to 7% range is what we would probably shoot for our increase.

All right. Perfect. Thank you so much.

Sure.

Your next question comes from the line of Townsend Buckles with JPMorgan.

Thanks, and congratulations to Alan and Tim.

Just a few questions. First, on film rent in the US actually coming up a bit despite the down box office quarter. Rob, I think you touched on it. Is there anything structural there that should result in higher rent going forward, all else equal?

No. I wouldn't say that. Rent really ends up varying a lot by quarter and by the movies played. And it's hard to even look at comparatives among theater companies because we all have a number of different items that go into that film rental line. But there's nothing structurally that would change it. We think the averages still remain pretty consistent. And, you know, that quarter's not indicative of any long term changes or anything.

Going to Latin America, can you touch on box office trends you're seeing this quarter? The public data we've seen has been a bit spotty lately. Just how it's comparing to what you are seeing in the US.

Yes. One of the big things clearly to keep in mind is that when you look at last year in Q1, domestic I think box office was if I recall down in the 20% range, while our international box office was actually up about 17%. So you had just a huge variance between domestic and international last year. And again, that had to do with our how product played out, timing of films that went through and as well as Q1 tends to be really more of their holiday period compared to what the US is.

That being said, just that huge variance would suggest that I've got a pretty high hurdle to match last year's, much less to outperform the way the US is outperforming because the US is starting down 20% anyway.

If you look at box office mojo, I think right now -- and again I'm not suggesting that it's indicative of the numbers --I think it's more reflective directionally of numbers. I think people can look at that. I just wouldn't use it for exacts. But if you look at Brazil, Argentina, and Mexico, I think all of those you know are reflective of being down 5%, 10% versus last year.

It's too early for us to know where it ends up, but I do think it is a bit of a higher hurdle than clearly what the US had. And so projections of the US is up 18%, I would not say that you would see international doing the same thing.

Okay. Just lastly, an update on the use of cash.

It looks like you've got about five years of dividends on the balance sheet now and you're clearly stepping up CapEx quite a bit. Does that prevent you from wanting to do something with the dividend and how do M&A plans factor into that?

No it doesn't. If you look at our cash flow, we can absorb the increase in CapEx, new build CapEx as well as the rollout of digital. We're very comfortable with that.

I think acquisitions easily have room to handle pretty much any size acquisition both with our cash balance as well as our borrowing capacity. So we said we're at 2X net EBITDA, the debt, and so our debt to EBITDA. So I think we have plenty of capacity should we really want to do something extraordinary, not -- not that we're heading there. So the $500 million we have ought to cover all the little things we've been doing over the last few years.

Also, again, when you putting it all in perspective, I don't think it prevents any changes in our outlook on dividends. Again, we've said that our focus will remain on acquisitions and enhancing the circuit, creating value through increasing our EBITDA while maintaining a strong dividend. I think over time, I wouldn't see our cash balance going down outside of a major acquisition. I think over time then we can address the dividend, but again that will be a little further down the road.

Okay. Thanks a lot.

Sure.

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

Good morning and congratulations to both Alan and to Tim.

I wanted to ask you guys two quick questions.

So first question would be sort of following on Townsend's question about leverage ratios, sorry about capital structure -- given that you've got $500 million of CapEx ahead of you, and that you're currently leveraged 2X, do you have a sense of what your current optimal leverage structure is over the next couple years just given the CapEx build?

Again, I would see that really coming from our cash flow. I mean we might eat a little bit into our cash but again, if we, assuming these are good years and we think they will be, I think we can absorb most of this through just our operating cash flow. So we don't foresee leveraging unless there was a great reason to do it, with some acquisition that made sense to put some leverage on. If we do eat into our cash balances, I just don't feel like it's going to be that significant.

So my gut is we'll maintain our leverage ratios pretty close to where we are. Even if we did an acquisition again, that honestly increases our EBITDA. So I don't know if the leverage ratio changes much.

Are you seeing in the domestic market some of the sort of potential sellers now coming into the market more thoughtfully and through the pricing and are you seeing the new build activity sort of continue to remain domestically relatively benign?

I can see that some of the smaller exhibitors are going to have financial barriers as they try to transition to digital. And then there's also some operating barriers as to how you service digital for the smaller exhibitors. Now, from Cinemark's perspective, our focus has always been on the quality of the screens and are they going to enhance our overall company. We've done a major acquisition when we acquired Century and then here a couple years ago, we acquired the four Muvico theaters. Both of those acquisitions really enhanced our place in the marketplace and had really high quality screens.

We have the same policy in Latin America. When you look at what we've done in Latin America, the Hoyts screens in Argentina were really high quality screens. It enhanced our place in the marketplace. And then we did a couple minor transactions in Brazil the last couple of years. But our standards are that they have to be really high quality screens and are going to enhance our position in the marketplace.

Okay. And thank you. And sort of last question.

So given the recent verbalizations in China that clearly favor both 3D and IMAX in particular, on the margins, do you think that spurs the studios to do more product in both of these formats? And given that you're on the way to IMAX, some thoughts around the change in character or if you see any change in what the film makers will be doing given that China's obviously a large and materially growing market.

Yes. Well, first off, in China, we're -- obviously we have looked at China. In my past, I spent probably three or four or five years going to China three or four times a year. And we set up our operations in, you know, Taiwan so we would have a small participation there so we would understand the Chinese markets, you know, for when it opened. But there are substantial barriers for going into China and the big barrier is that a company like ours can't own 51% of the company, and so you can't control the company. And I think without that factor changing, we'll always have a limited opportunity in China to expand into China.

Then on the 3D and IMAX, I mean I think the big development in 3D is -- and they demonstrated it had last year at the CinemaCon is the going to the 48 frames per second, I think that that's going to really enhance the technology. And I'm going to presume that the upcoming films from James Cameron, the new Avatars and that are probably going into 48 frames per second. So I think that will be the new emphasis as the expansion of 3D.

And I think the other thing that's happening is you're starting to get some of your top filmmakers start to make movies in 3D. Like this past year, you've seen both Spielberg and Scorsese do films in 3D, and I think the creative community in general is getting a lot more comfortable with the 3D format.

As it relates to our footprint of XD and IMAX, we see XD having tremendous flexibility in the marketplace that we can play all films. We don't need any special adaptation. We can just take whatever they give us and play it on our XD screen. We also got eight successful IMAX screens. But we think our strategy of going forward on the XD is the right strategy.

And ...

I was going to say and you're starting to see some of the rest of the people in the industry -- we really developed the large XD format, and what we call XD but you also see some of our competitors trying to adapt that technology and that format.

That's great. Very helpful. Thanks and congratulations on the promotion.

Thanks very much.

Your next question comes from the line of Eric Wold with B. Riley.

Good morning. Two questions, I guess one with the current situation down in Latin America with hopefully moving more towards the BPS structure, are you seeing more opportunities down there to build screens, open screens on your own versus M&A or would you still characterize the M&A opportunities here and abroad as fairly robust.

No. I mean I think our, you know, the vast growth our vast growth in Latin America has been organic growth, not M&A activities. Recently we had a major M&A activity in Argentina, but -- and then some minor M&A activities. But I mean the vast majority of our screens are organic grown and you know for the foreseeable future, I see that as how we're going to grow our company.

And a quick follow-up question on XD, to go over some of the other questions that have been asked. One, you focused a lot on the flexibility of the slate and how that benefits you on those screens. Can you give us a sense of maybe what that delta was in the quarter in terms of how the slate benefited your XD screens versus IMAX screens? Was it more of a constrained slate? And two, anything you learned in 2011 with your slate of XD screens that would kind of change your internal model in terms of the CapEx build or the P&L from the screens as to where you want to place it versus where you may or may into the have wanted think about it year before?

Eric, I think we haven't really run down our provided data comparing IMAX and XD. IMAX continues to be a very premium format that does very very well. When we look at our XD screens and we're playing the same product, we think they perform extremely well and it's a theater by theater really comparison. We have some theaters that will outperform some of our IMAXes and IMAXes outperform some of the XDs depending on the film. But again, that's -- IMAX just has a great product, great background and marketing and so we very much like our IMAX screens.

The reason we're emphasizing flexibility is it really is something we can control. If we look at what happens especially say this quarter and I can take the cumulative results on a XD versus IMAX screen we think it reflects the benefit of the concept we put together because we are able to just push -- we select the films that we push through there and we're able to rotate them fairly quickly and that really maximize utilization at that higher end screen.

As far as what have we learned, I mean we are still, interestingly enough, experimenting. We have some theaters we actually put two XDs into and we're seeing how that works. We're looking at different markets that we're putting them in as we're finishing out our largest markets and trying to determine as we go to smaller markets how well they perform in those markets. So there's still some things that we have to learn as far as what we can do.

But I think that the key to it is we found that just the up charge itself that we do on those and the attendance just using straight attendance gets the returns that we've been after and we also feel that realistically it enhances the theater experience at that theater and is actually drawing more people overall into the theater. So we know it's been a great return.

But we also want to keep a certain -- if I want to call it quality standard in terms of size and presentation. And that itself we think will ultimately limit, put some limit out there of how many of these we put in theaters and again, we think by the end of this year we'll usually be over 100. We'll continue to put them into all of our new builds and probably slow down a little bit of our conversions -- but considering our new build slate, that number will continue to grow. We also think it's great advantage in Latin America because we are the most pre-eminent brand down there. By having this concept, this particular concept, it really makes us that much stronger.

Perfect. Thank you.

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

Hi. A few questions. Rob, what was the free cash flow number in the quarter? I just don't see that on the press release. And just as a follow-up, your average screens per theater's around 11.4. Regal actually used to be more like 12.4 but now 12.6, 12.7. Just in terms of capacity utilization, are you comfortable with that kind of 11.4 ratio, do you see that going into the 12s or does Latin America just prohibit that and then I have a follow-up. Thanks.

On that one, we try to build the right theater for the market place. And both Regal and ourselves have a different profile. And so our focus is always on, as we evaluate marketplaces, what size of theater we should build there and we focus on getting the right size in the marketplace rather than focusing on just building the standard format theater. You know, like AMC several years ago was going out with 24, 30-plexes and you know their model. We've always modeled our theaters based on the marketplace.

And then with respect to our free cash flow, if you look at our net cash flow provided by operations, everything kind of bottom lined from GAAP and took out our CapEx, I think you would get around $40 million range of net free cash flow.

And then just as a follow-up, I noticed that the Warner Brothers release of The Hobbit is, I think it's December 15. I could have the date wrong. It's that I think the seconds Friday in December, December 14, 15, something like that. Would that make The Hobbit a Q1 of 2013 release in Latin America? Or do you guys know, is it a day and date release globally?Thanks.

I don't know if they sent their release patterns on a global basis yet orif that has been determined. But in the US, you're correct, it's in that time period.

Okay. Thank you.

Sure. Thanks, David.

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

Hi guys. Congratulations, Tim, and best wishes to Alan.

I was hoping we could start off by digging into Brazil. Could you give us on a local currency basis what you guys were up year over year in Brazil versus the industry?And I guess where I'm kind of going with this is -- I'm trying to figure out how much market share are you gang and is that a function of building out new streams in the market or is there a bigger secular shift, or are you just organically gaining share?

Tony I apologize. We don't generally give us specifics on countries from a segment point of view. I will say, though, if you want to look overall at Brazil, we -- the total revenues will be broken out when we send out the K, I think that's in our segment part of it. It will show, you know, what the change is year over year. The total -- when you see that, the total revenues for Brazil aren't going to change that much because, again, it has that pretty big wall to climb with Tropa de Elite from last year. I mean that was such a big film in Q4 of the prior year. It is going to -- revenues are going to be up, though, some. And so, well, they'll be up for the year.

For the quarter, if I recall, they were slightly down. And again, that doesn't have to do with performance in Brazil. Of our new screens. It just literally has to do with overcoming that hurdle.

As far as compared to the industry, you know, I don't have that in front of me. But I think you would find that that was pretty similar. Whether we looked at the industry in the past, how it's doing compared to us, we generally outperformed it. Some of that is we're building more than other people in general that we're saying that we are ahead of that curve on our market share and the quality of the asset we have as well as the recognition of the asset that we have down there.

I guess when we look at Brazil being a negative number and your total international up 12%, is the delta there a function of you guys doing much better outside of Brazil, Argentina and Mexico?

Sure. Absolutely. If you look at what happened out -- in the growth in Q4, that wasn't Brazil. I mean again, we had to overcome actually a slight negative in Brazil and the rest of our international did extremely well. Now, also keep in mind and it didn't carry the load by any chance, but it helped. We did have the Hoyts acquisition that that was the first full quarter of recognizing some benefits from Hoyts. But all of our international without Hoyts did extremely well and really made the difference, made up that difference for Brazil this quarter.

Is there any kind of generic commentary you can give about share gain?I know in the US you talked about exceeding the benchmark by 1% to 2%. In Latin America since you can't break out each individual country can you generically say what you think you're gaining per share either a percentage versus the industry box office?

I wish I had a number. I'll tell you what. I'll look at that for the next call and try to have some stats on that. The difficulty obviously it varies so much by country polling the data itself. When we did have our international call, you know, a few weeks ago I guess about a month ago, we did talk a little bit about some of that. And I think it varies a lot by country but I don't know that it will be that different again, we're probably up, I don't know, 1% to 5% versus what the country generally does would be my gut. And again, so that is not only do we maintain share in building but we're probably a little more robust builder so we're going to just gain market share as expanding occurs.

Great. Thank you.

Sure.

Your next question comes from the line of Joe Hovorka with Raymond James.

Thanks guys. I'm sorry if I missed this. But did you give what percentage of your screens international are digital?

Yes. 35%.

It's 35 percent?

Yes.

And what of that is 3D?

All of it.

About 35%.

Okay. Then the CapEx plans over the next couple years it anticipates picking up 35 to 100?

Yes, it does.

Okay. And what is the cost differential of a new builds in digital versus if you would have done it in 35-millimeter?

It's not substantially different. You know, it's one that over the years we've been able to -- the cost of digital has changed some and so there is some incremental costs. But when I look at it compared to the total new build costs, it's not material.

And you said what part of the increase in CapEx is going towards could converting the I guess 65%

Yes. Actually for CapEx, that's probably in the $60 million to $70 million range.

Each year?

It will probably have that -- again, some of it depends on when BPF agreements are signed. That definitely can vary this year. We're assuming those get done fairly soon, which will allow us to really start ramping up quickly. If we're able to do that, again -- it has to happen pretty quickly because we're getting close to the end of the first quarter. But assuming that occurs, we probably would be in that $60 million to $70 million range this year. Probably next year it's probably more in the $40 million to $50 million range and then that ought to get close to doing it.

Great. That's all I had.

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

Thanks good morning. Nice quarter and congratulations to everybody there.

A couple things -- trying to get a sense for in terms of the all digital conversion where you're at in terms of pulling labor costs out and really apply domestically where it will change from film all digital. In Latin America it's all new footprint -- I'm trying to get a sense of going forward I know you won't give a guidance comment financially but where the EBITDA margin could have gone from here as a result of that, how much more run rate is there on that.

And then secondly, I came up with another question, but on M&A, do you see meaningful consolidation here domestically in terms of operators in any kinds of number framework you put on that if that is the case -- in other words, those that are wanting to bail out and you could go with an all digital footprint at an attractive locations. I'm trying to get a sense of scale for how much of that might be out there in your mind.

Well, on the first part of your question, I think that George Lucas sort of stated it best last year at CinemaCon where he says getting to digital was just the first step to open up all the advances in technology that we can take advantage of. And I think that the 48 frames per second, it's a huge advancement as to how films will be presented. Also you'll see the studios bring back the classic in 3D and you know that's been a big benefit to the industry. Also we've been doing some minor expectations because the studios are converting their libraries to digital. So we've been experimenting with bringing back some classic 2D things and the early experiments on that like on Ben-Hur and that have been very, very promising. So I think it might open up those libraries.

The other thing with digital is that we're working on setting up a satellite footprint to where one of the barriers to exhibition has always been access to our screens. And this new system will create one porthole where there will be tremendous access to all content providers that can reach thousands and thousands of screens and combine it into one portal.

I think we're in the initial stages of digital transformation and what it's going to do to our industry. We have seen some cost savings from an operational standpoint. But I think there's still some upside to digital as to how it's going to transform our overall industry.

Now, regarding the M&A activity, I don't know if we see significant M&A activity from any of the circuits. I think there might be some minor M&A activity like there usually is. But, you know, when we look at the big picture, I don't see significant M&A activity.

And then I guess on the first part, I was really meaning more in terms of your operations and the projection booth in particular. It sounds like maybe you don't want to quantify it but you get more marginal leverage in the sense that in a year or two out from now there will be less labor up in that booth than there is today just kind of across your whole network. Is that a fair assumption?

Yes. There is an opportunity there. We already started realizing some of that because we have fully digitized in the US. And you start seeing that as a theater is completely digitized and throughout 2011, we were -- we hit all of our theaters but clearly each quarter we were ramping that up. So I think we started realizing some of that.

I don't know you're going to see a material change from it and when you get down to EBITDA margin I think it helps. It's not one that will really move that greatly. I think as Tim said, where we see really the greater opportunity that really might move that margin, I think is from the incremental revenues that might be realized as digital really takes hold among all the circuits so that a producer or alternative entertainment whatever might be out there can really utilize the whole platform, and that just hasn't been available yet.

That was actually my other question, last one just on alternative content -- when you look sort of a few years now as opposed to a near term. It seems that [inaudible] has done really well, sports issues and rights costs a lot of different things but obviously being all digital will enable that better. As you see alternative content of a meaningful number, could it be a high single digit, 10% of revenue several years out or will it always be very small relative to the traditional box.

It's hard to forecast where it ultimately ends up. But because we have been doing some experimentation with doing 3D sports and an alternative content, but it's just been on an experimental basis as they try to film them like Wimbledon. And the actual result from Wimbledon from an experience standpoint was very very good, and of course we tried tomorrow football, basketball, different things in 3D. And I think that's still an emerging as to how you film it in 3D and then also how you disburse it. But I think there's upside to alternative content but I don't know if we can quantify it at this time.

Okay. Thanks.

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

I have two questions, one is you talked a little bit about the flexibility you have programming your XD screens. I'm wondering if you can provide a little bit more color. Is your general strategy to switch out the film every one to two weeks a new big film comes in or do you let it play until it appears that the film has legs -- and to what extent, if any, are you contractually obligated to studios to maintain a film on that screen?

Well, on the XD screen, you know, the model that we've established is we just -- we decide which we think is the biggest film for our XD film that week and we only make a one week commitment,based on performance. Then we make a decision whether we want to hold it or we want to go with the next big film. And, you know, that's the beauty of our XD screen and the studios are, you know, they might want to stay on the screen but they also realize it's a great model for them and it's a great model for us to always be presenting what we think is the number one seller in the market for XD on XD. And that is the flexibility that really drives, you know, capacity issues and a lot of other drivers on our XD screens.

And the studios have pretty much accepted that format. Now, each week there is a lot of requests and you know trying to get onto that XD screen because it drives a lot of box office. But the model's been very well accepted in the marketplace.

Okay. Thank you. And then I have a housekeeping question on the faster speed rates. Frame rates you talked about the 48 frames per second.

Yes.

Well, it was my understanding that Barco, Barco technology is compliant with the 48 frames per second and shouldn't have any problems with it, but that some of the other technologies out there might not be able to accommodate those higher frames, frames per second. Is that your understanding, as well?

Well, I mean I'll only speak on behalf of Barco and that is the technology that we're using. And it is compliant and we will have the ability to show it on the 48 frames per second. I haven't -- obviously since our focus is on Barco, I haven't focused as much on the other technologies

Okay. Thank you.

Thanks, Marla.

Your next question comes from the line of Bishop Cheen with Wells Fargo

Hi, everyone, thank you for the detailed summary and update. A couple housekeeping questions, capital leases tend to run about $140 million, $141 million. Do you have the number there for 2011?

Yes. I think at the end of 2011 it was about -- as you just said, it's about $141 million.

Okay, and also, can you restate the -- since it's US theaters and screens you're in for 2011.

The screen count that we had at year-end, sure, let me just grab that. We -- we had on a U.S. basis 3,878 US screens. We had 1,000 -- that was 297 theaters.

Okay.

And then international -- sorry.

That's helpful.

And then last question, are you making any progress in the age-old challenge of trying to increase the yields from your off peak use of your facilities, your theaters? Is there anything new and exciting that you discovered in that?

Well, I mean I think that one thing we highlighted in our report that with the studios starting to do some re-releases of more classic films like Lion King and Beauty and the Beast and now you're going to have Titanic, when they realize on those re-releases they need to bring them into the slower periods in the marketplaces, so the -- so I think that could -- improve and, you know, spread out the releases throughout -- throughout the year. And those re-releases are getting great results.

The other thing that I think is encouraging from a film standpoint is I referred to earlier that we are experimenting with bringing back classic 2D films and the initial results that we've gotten have -- received on them have been very encouraging and we're working with all the studios to try to expand that program. So I think having the digital format of having the studios have the films in digital and us having a digital footprint will allow us to do a lot of experimentation and expansion to get better screen utilization.

That's right in the core skill set. What about those nontraditional uses, you know, with the junior colleges or political rallies or what have you, civic events? Is there anything different that you've seen Latin American or domestic in the nontraditional use of your facilities?

It's -- I mean it's always been a very minor part of our business. You know, and I think that the future utilization of the screens will be more around the film and alternative content. But, you know, meeting spaces and this, I think it will always be a segment of our business, but not a -- you know, a meaningful segment for growth.

Last question. The second run chain Cinemark at one time had been by a magnitude leader in the discount theater second run, however people like to call it

Yes. Discount theaters, yes.

Discount theaters. As you look ahead, is that still -- it used to be like 20% of your business, probably significantly less now. Is that still something that -- that is viable going forward?

We still have some chains if you want to call them discount that have -- definitely service a part of the market. It's not a significant part of our chain anymore. We don't break it out as a segment.

Is it viable? Sure, it still works. It's not a focus of the company. We maintained some of the theaters that we've had in the past. We're not opening any under that brand or anything like that. Or as a discount. But it is, you know, it maintains itself. It's a nice piece of our business. But again, not a significant piece.

Tim, congratulations.

Thank you.

And nice summary on the call. Appreciate it.

Thank you very much.

Your next question comes from the line of Jeff Logsdon with Bank of Montreal.

Thank you.

Really, for anyone, I guess maybe Tim's the best to look at this, but how's the situation with Open Road Films? Are you indexing similar to other films? Is there some film zone limitations or issues or play dates similar to your screen count nationally? If you could give some background or dynamics on that.

One, we think it's great for the industry because and it's also great for Cinemark because the more companies out there that are bringing product to the marketplace, you know, it's a great answer for us. And to your specific questions both on the [inaudible] and also on the gray, we performed pretty much on average to our national share of box office and [inaudible]. The gray because of the type that this year was, I think we might have overperformed slightly. We know the management team at Open Road. They're great film people and we wish them all the success in the world and look forward to playing their product.

So should weigh take it from that that simply because Open Road is a partnership owned by competitors for the most part, that that hasn't been a variable in your getting access to the films?

Yes. No. It's not an issue, and they see, I'm sure, they segmented that company as a film company and have every belief that they're just going to move forward as a film company. And, you know, access to their product or cooperation with us is very similar to any other studio.

Which is always fun, right?

Yes, absolutely. Maybe they might have --

Keep the regulators out. Anyway, congratulations, Tim. Best of luck.

Thanks. Thank you.

And there are no further questions at this time.

Well, we appreciate everybody's participation today. And look forward to as we said, we'll be at conferences in the next few weeks and look forward to seeing people. Have a good day.

This concludes today's conference call. You may now disconnect.