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Cinemark Holdings, Inc. (NYSE:CNK)

Q3 2008 Earnings Call

November 10, 2008 8:30 am ET

Executives

Nikki Sacks

Alan W. Stock – Chief Executive Officer

Robert Copple – Chief Financial Officer, Executive Vice President, Treasurer & Assistant Secretary

Analysts

Barton Crockett – J.P. Morgan

[Hunter Debois]

[James Morrish]

David Miller

Jake Hindelong – Monness, Crespi, Hardt & Co., Inc.

Operator

Good morning, my name is Tania and I will be your conference operator today. At this time I would like to welcome everyone to the Cinemark third quarter conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be question and answer session. (Operator Instructions) Ms. Sacks you may begin the conference.

Nikki Sacks

Welcome to Cinemark’s fiscal third quarter 2008 earnings call. Before we begin let me remind you that in accordance with the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995 the company knows that certain matters to be discussed by members of management during this call may constitute forward-looking statements. Such statements are subject to risks, uncertainties and other factors that may cause the actual performance of Cinemark 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. Today, Cinemark’s CEO Alan Stock and CFO Robert Copple will be discussing the third quarter results. I’d now like to turn the call over to Alan.

Alan W. Stock

On today’s call I will comment on the industry’s and Cinemark’s third quarter 2008 results, the outlook for the upcoming film slate and discuss Cinemark’s digital cinema and 3D strategy. During the third quarter Cinemark’s total revenue increased 1% year-over-year on a .2% increase in admission revenues and a 1.2% increase in concessions. This growth was driven by the strong performance of our international circuit, the addition of our new theaters and exchange rate benefits.

Our domestic results were in line with industry performance. During the third quarter of 2008 the Dark Knight set a new record for a one day opening and a three day opening weekend and helped lead the box office to its highest grossing seven day week ever and grossed nearly $525 million during the quarter. Our international operations produced 23.9% growth in admissions in the third quarter due to the success of Dark Knight, Kung Fu Panda, Hancock, The Mummy and Wall-E which performed stronger than the top five films during the third quarter last year.

We believe our broad geographic presence remains a competitive advantage for Cinemark as it provides us with a diverse revenue base. I’d like to briefly discuss our liquidity which Robert will cover in more detail later. As of September 30, 2008, our cash position was $371.3 million and total long term debt was $1.54 billion resulting in a net debt at quarter end of $1.17 billion. Our senior debt and our subordinated debt do not mature until 2013 and 2014.

As we head in to the fourth quarter we believe consumers will continue to seek low costs forms of entertainment to escape the deteriorating economic conditions as they have done in the past. The domestic box office was up approximately 17% for the month of October driven by solid openings of films such as High School Musical 3, Beverly Hills Chihuahua, [inaudible] then Max Payne.

We also believe that our concession sales continue to be driven more by the mix of films showing rather than any other factor. We experienced a 4% increase in concession revenues per patron in the US during the third quarter of 2008.

Looking at the remainder of the fourth quarter release schedule, Madagascar opened this weekend to approximately $63 million and the remaining lineup includes the next James Bond film called Quantum of Solace and some other promising films such as Twilight, a very popular new youth novel series, Seven Pounds with Will Smith, Disney’s Bedtime Stories with Adam Sandler, the animated 3D release of Bolt, Yes Man with Jim Carey and the Day the Year Stood Still with Keanu Reeves.

Moving on to the subject of digital and 3D, we have been pleased with the substantial progress on our digital cinema initiative of DCIP, the joint venture between our company, AMC and Regal. Five studios have signed the digital deployment agreement including four of the major ones. Given the extreme volatility in the credit markets and the lack of liquidity and visibility, we cannot predict when financing will be obtained by DCIP but we remain optimistic that when credit markets begin to stabilize DCIP will progress and we’ll be able to begin our digital and 3D roll out.

We have been focused on testing the digital and 3D conversions in some of our theaters and making sure our team is ready for an efficient deployment when the financing is secured. We believe that digital cinema and 3D will continue to provide significant opportunities for our company given both the historical attendance and ticket price growth that has come with 3D releases and the increasing number of 3D films planned by major studios.

Although we will roll out many more 3D screens in the future, existing industry screens have been sufficient to generate significant box office revenue in 2008. In only two weeks Hannah Montana generated box office revenues of approximately $63 million and Journey to the Center of the Earth released in July of 2008 generated approximately $100 million in revenues. The fourth quarter also features a new Disney 3D movie called Bolt.

Within the next few years over 30 3D films are scheduled to be released including DreamWorks’ film Monster Versus Aliens, How to Train Your Dragon and the fourth Shrek movie, Fox’s Ice Age 3, James Cameron’s Avatar, Robert Zemeckis’ a Christmas Carol with Jim Carey, Pixar’s next release up in 2009 and the Toy Story films. Our plan is to still convert our entire circuit of digital and approximately three to four years and will begin deploying 3D screens on a screen-by-screen basis once we start our digital conversion.

As we have previously stated, as part of our agreement with RealD we plan to add up to 1,500 RealD 3D screens to our circuit. We continue to move forward with our organic expansion strategy. Year-to-date we have opened five new theaters with 76 screens in the US and four theaters with 27 screens internationally. While tight lending conditions in the credit markets are delaying some new development projects in the US, we believe this could be partially offset by the expansion opportunities in our international markets and an increasing number of potential acquisition opportunities.

During the third quarter we acquired two theaters with 16 screens internationally which are included in the four theater total that I mentioned earlier. In terms of our future organic expansion plans, we will open 10 new theaters with 98 screens during the remainder of the year and have signed commitments to open 11 new theaters with 147 screens during 2009 and 2010. We will continue to see high quality locations for our organic builds and acquisition opportunities in both the international and domestic markets that meet our return metrics.

We are pleased to see the box office continue to perform despite weakening trends in the economy. Movie product is the most significant driver of attendance and the reason the fourth quarter is off to a good start. We believe this is both a function of quality product and the fact that we’re able to offer consumers one of the lowest costs forms of out of home entertainment. Having said this we acknowledge that the economy is difficult.

We will remain focused on operating our business as efficiently as possible in this environment and continue to improve our financial performance and pursue expansion opportunities that provide attractive returns. Our business continues to generate steady free cash flow and we have built a solid balance sheet. I believe that our industry has a strong long term growth profile and Cinemark is well positioned as one of the market leaders to continue to drive shareholder value over time.

With that, I will now turn the call over to Robert to discuss the quarter’s financial results in more detail.

Robert Copple

Before I review our third quarter 2008 financial performance, I would like to address our debt and liquidity position due to the current credit market conditions. We feel our strong cash position coupled with our low level of leverage and long term maturities positions us well to take advantage of opportunities that may arise as a result of the current economic environment.

At September 30th our cash position was a solid $371.3 million and total long term debt was $1.54 billion resulting in net long term debt at quarter end of approximately $1.17 billion. Taken with our adjusted EBITDA this level of net long term debt results in a leverage ratio of approximately 3.2 times adjusted EBITDA. Our debt balance is composed primarily of two facilities, our senior loan and our senior discount notes.

We have what is generally referred to in the debt community as a covenant light senior debt which means our agreement contains less financial covenants than a normal senior agreement. Under our senior facility we have a term loan and a revolver. Our primary financial covenant is a consolidated net senior secured leverage ratio. This ratio includes only our senior secured debt, it does not pick up the senior discount notes. This ratio is fixed at a maximum ratio for the term of our agreement.

So, in measuring our compliance we do not face steep future step downs that would tighten liquidity tests. Additionally, this covenant is only applicable if we have drawn on our revolver. It does not apply if there’s only term loan outstanding and there are no borrowings outstanding under our revolver. If you have any concerns regarding our covenants we encourage you to read our credit agreement. It is part of our public filings.

Additionally, our debt is discussed in our 10Ks and our 10Qs. The agreement contains the definitions of the terms used to calculate this covenant and other terms applicable to our debt. At the end of our third quarter we had $1.1 billion outstanding on the term loan under our senior secured facility. We are required to pay principal payments of $2.8 million each calendar quarter or $11.2 million on an annual basis through September of 2012.

The remainder is due in equal quarterly payments from December 2012 until it reaches maturity in October 2013 so essentially only a minor amount of principal is due for the next four years. We also have a $150 million revolving credit line under our senior facility that is undrawn other than a letter of credit for less than $100,000 that can be easily paid off if we desire. Due to Lehman’s participation in this credit line and the probability that they will be unable fund their portion we have approximately $121.5 million available for borrowing under this revolver.

I’d like to point out that we have not drawn on this revolver since its inception in 2006 other than the minor letter of credit. We also have $437 million of 9.34 senior discount notes outstanding which are due in March 2014. There are no regular principal payments due on this debt until its maturity almost 5.5 years from now. During October 2008 we repurchased approximately $30 million aggregate principal amount of maturity of these notes for approximately $27.3 million including accretive interest.

In terms of interest rates on our debt approximately $800 million of our $1.1 billion of term loan is floating rate debt at a weighted average rate at approximately 4.6% as of September 30, 2008. Approximately $300 million is fixed under interest rate swap agreements that are discussed in our 10Q. Now, focusing on our results for the quarter, during the third quarter we increased our admission revenues .2% to $308.5 million and grew our concession revenues 1.2% to $146.1 million.

As a result, our total revenues increased $4.7 million or 1% to $476.2 million. This performance was driven by a 4.5% increase in average ticket prices and a 5.4% increase in concession revenues per patron partially offset by a 4% decline in attendance. Adjusted EBITDA for the quarter was $102.1 million representing a 21.4% adjusted EBTIDA margin. On a segment basis for the quarter our US operations experienced a 3.1% increase in average ticket price and approximately 4% increase in concession revenues per patron.

These price increases partially offset lower attendance of 8.4%. US admission revenues were $235.4 million representing a 5.5% decrease over 2007 consistent with estimated industry results. Concession revenues decreased 4.7% to $112.5 million. Our total domestic revenues declined 5.2% to $357.8 million. We did experience some impact from Hurricane Ike which led to the temporary closure of 26 of our theaters due to water damage and power outages.

Repair costs were minimal at approximately $.5 million. These theaters are now back to full schedules. Our international operations generated admission revenues of $73.1 million which were 23.9% higher than 2007 driven by a 16.4% increase in average ticket prices and a 7% increase in attendance. Concession revenues for our international operations were $33.6 million, a 27.8% increase over 2007 including a 20.4% increase in concession revenues per patron.

Our total international revenues increased $24.5 million or 26.1% year-over-year primarily due to the 7% increase in attendance and price increases including the benefit of favorable exchange rates. Our international adjusted EBITDA increased 26.8% to $27 million. We are pleased with the strong box office performance of our international theaters during the quarter. Some of the quarter-to-quarter variability is due to the timing of product releases in our international locations versus the US.

There were some very successful films released that opened in the US in the second quarter but opened in the third quarter internationally including Wall-E, Wanted and You Don’t Mess with the Zohan. Additionally, films such as the Dark Knight performed well in our international markets during the third quarter. As we have said in the past, we would generally assume that product performed similar in domestic and international markets on an annual basis and there will be quarterly differences primarily due to timing of releases and different holiday seasons.

On a consolidated basis our film rentals and advertising costs were $169.3 million or 54.9% of admission revenues for the third quarter of 2008 compared to $166.8 million or 54.2% of admission revenues of 2007. The increase is primarily driven by the higher film rental on the record breaking film the Dark Knight. Concession supply costs were $24.5 million or 16.8% of concession revenues for 2008 compared to $22.5 million or 15.6% of concession revenues for 2007.

The increase was primarily due to the relative weight of our international concession revenues as a percent of the total concession revenues compared to last year and increases in product costs from some of our international concession suppliers. Some of these costs may improve with the global changes in commodity prices we are seeing. Domestically, we have only seen slight9 increases in product cost from our concession suppliers.

For the quarter, salary and wages were $47.4 million or 10% of total revenues which was up slightly from 9.7% of revenues in the third quarter of 2007 primarily driven by lower attendance levels in the US. General and administrative expenses increased to $22.7 million or 4.8% of revenues up from 4.4% of revenues in the third quarter of 2007. This increase was primarily the result of our incentive compensation program, the increases share based compensation expense due to awards granted to employees during 2008.

Additionally, we had increased professional fees and increased credit card service charges. Total adjusted EBITDA for the quarter was $102.1 million representing a $21.4 adjusted EBITDA margin. Domestic adjusted EBITDA decreased 20.7% to $75.2 million driven primarily by the decrease in admissions while our international adjusted EBITDA increased 26.8% to $27 million driven by the increased revenues which include beneficial exchange rates.

Pre-tax income was $30.8 million for the third quarter of 2008 compared to $36.7 million in the third quarter of 2007. Net income for the quarter was $20.4 million or $0.19 per diluted share compared to a loss of $23.4 million or -$0.22 per diluted share in the third quarter of 2007. Our effective tax rate was 33.6% for the third quarter of 2008. In the third quarter of 2007 we recorded income tax expense of $60.1 million resulting in an abnormally high effective tax rate that was due to the amendment to our National CinaMedia exhibitor service agreement coupled with the gain recognized up on NCM’s IPO in non-cash goodwill impairment charges.

We expect a normalized tax rate in the 38% to 40% range for the full year of 2008. At September 30, 2008 our total domestic screen count was 3,688 screens, 12 of which are in Canada. As of September 30, 2008 we had signed commitments to open seven new theaters with 80 screens in domestic markets during 2008 and open 10 theaters with 140 screens in domestic markets subsequent to 2008.

Our total international screen count at September 30, 2008 was 1,029 screens. During the third quarter we acquired two theaters with 16 screens. As of September 30, 2008 we had signed commitments to open three theaters with 18 screens in international markets during 2008 and opened one new theater with seven screens during 2009. On a year-to-date basis we have invested approximately $71.3 million in capital expenditures including $48.4 million for new construction and $22.9 million in cap ex maintenance.

We expect our gross total cap ex before disposition proceeds for fiscal 2008 to be approximately $120 million which includes cap ex maintenance. We expect cap ex net of proceeds from the sale of assets that primarily occurred in the first half of the year to be approximately $91 million. The company declared its quarterly dividend on November 6, 2008 in an amount of $0.18 per common share. The dividend will be paid on December 11, 2008 to shareholders of record on November 26, 2008 and represents and annualized yield of approximately 8.4% based on Friday’s closing price.

In accordance with our NCM operating agreement, we receive cash distributions of approximately $3.8 million from NCM during the third quarter of 2008 a portion of which was recorded against our investment compared to $4.4 million during the third quarter of 2007. In summary, we remain confident that even during these difficult times, consumers will continue to seek an affordable entertainment outlet and movies fit that criteria.

The film slate for the remainder of the year looks promising and the fourth quarter has had a solid start. With Cinemark’s international footprint diversifying our revenue stream, organic growth and acquisition opportunities along with the potential associated with digital and 3D we are optimistic about our ongoing ability to drive long term growth in revenue, EBTIDA and cash flow. We are also very comfortable with our cash levels, our ability to be in compliance with our debt covenants and the timing of our debt maturities.

We will now be glad to answer your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Barton Crockett – J.P. Morgan.

Barton Crockett – J.P. Morgan

I was wondering first Robert if there’s any way you can give us a better sense of how much foreign exchange lifted the international top line? What would the percentage of growth been without fx impact?

Robert Copple

With respect to admission revenues using a constant fx compared to last year they would have been up 13.2% so that’s admissions. Then, our concessions would have been up 17.8% so that would represent average sticker price being up 6.2% and per caps up 10.5%.

Barton Crockett – J.P. Morgan

Then would you say that the principal driver of the difference in the attendance growth international versus domestic was the difference in the timing of the releases or is there something else happening there that’s driving up performance?

Robert Copple

I’d generally say it had to do with the timing of film. I mean, it was a very good quarter and some films played better there but in general I’d say it’s the product. Again, we’d rather tell people to be a little cautious and look at both domestic and international similarly throughout the year. I think international’s clearly is probably going to outperform the US slightly but we would expect the over performance in Q3 to be the same in Q4.

Barton Crockett – J.P. Morgan

One other question here and then I’ll step aside, I mean everyone seems to be very worried about the recessionary impact in a whole bunch of industries and obviously I think that’s one of the things that’s affecting the movie theater stocks even though the history domestically suggests there’s not very much of a correlation between the recession and the box office, at least in modern history. But, I was wondering if you have any data about international box office recessions and whether there’s more of a correlation there or whether it’s kind of similar to what we’ve seen in the US?

Robert Copple

Bart, I don’t have any vertical data that we’ve come backed and looked at but I can tell you we’ve been in Latin America for about 15 years. We’ve gone through a number of different crisis in different countries and very similar to the US what we’ve always found is that no matter – and clearly in that time we’ve had all kinds of different turmoil that have happened, primarily financially oriented in different countries and just like the US we’ve always performed somewhere, if not actually better during those times because again, people see movies as an escape. We feel like there’s a very similar correlation to what we’ve seen in the US.

Operator

Your next question comes from [Hunter Debois].

[Hunter Debois]

When I back out the salary and wage expense you gave out on your prepared remarks from your overall other line, it looks as if the remaining part of the other expenses line grew about 11% year-over-year relative to 3Q ’07. Can you comment on what was the principal drivers of that increase in that expense?

Robert Copple

The other costs I mean there’s a couple of different items but I’d say the primary ones we did have some professional fees, we have some service fees, utilities were in there and repair and maintenance. As I said, we had a $.5 million in repair and maintenance related to the theaters that were damaged by the hurricanes so that flowed through there. Not necessarily all one-time costs, some of them were, utility costs were up over the quarter.

We feel like that would go down again, not necessarily permanently but in the future as you’ve seen gas and oil prices drop, generally utilities would go down with that.

[Hunter Debois]

I was going to ask more broadly, when we look at your adjusted EBITDA margin for the quarter it represents about 300 basis points of margin contraction relative to 3Q ’07 and a lot of which is probably attributable to the fact that you’ve got a pretty much constant revenue base but a larger expense base now that you’ve extended your screen count. In the context of an industry box office which has been declining over the last year, can you just sort of speak more broadly to how you think about your organic domestic expansion strategy in that kind of context?

Robert Copple

I mean I don’t think the fact that one quarter our margin was down, I think if you really put it in context you’ve got to go back to 2007 and look at how large Q3 was in 2007. I mean, that was probably if not the largest quarter ever, the largest quarter during the decade. It was a 15% growth rate plus over the 2006 quarter for Q3. So, I mean you’re coming off an incredible comp and in particular when you have that kind of performance in a quarter your margin is greatly expanded.

So, when we look at Q3 of 2008 compared to kind of a run rate of ’05, ’06, it actually has a fairly decent kicker on it and again, the margin would be consistent with really the performance in the quarter. As you pointed out, we did have some costs that went up. During Q3 you still had a number of commodity prices that drove different costs and different areas up such as utilities.

There’s one fortunate part to where the economy is heading, those costs are coming down so we think we’ll go back and benefit from some price changes. With respect to our organic strategy, we feel like we’ve been very successful in it. Again, we’re able to achieve as a company overall a slight increase in admission revenues without any acquisitions or anything like that so I mean I think it is staying on track with our desired performance.

[Hunter Debois]

Then my final question just picking up on what Barton was asking about, the data that we have ports towards industry attendance being relatively resilient to macroeconomic cycles but can you give us some insights in to the typical pattern for average ticket prices and average concessions per cap during recessionary periods?

Robert Copple

I mean I think the way I’d address that would be more of a logic answer of saying we’ll be very cautious. But, if you go back and look at box office charts I think over the years when we’ve had recessions generally we still increase price. I think everyone is very conscious of where the consumer is at today but I think also if you look at what the industry has already done and started to do for Q4, there have been some price increases but clearly more modest than what you saw in ’06 and ’07 was a little less than what I think ’06 was but my gut is you can raise prices but again not necessarily in line with historic averages.

Operator

Your next question comes from the line of [James Morrish].

[James Morrish]

I was wondering if you could discuss the currency impacts for fourth quarter and beyond, there’s a lot of volatility in currencies beginning in September so I was hoping you could quantify that and help us understand the best way to look at that. Then secondly, related to digital and treaty roll out, I was hoping you could give us some visibility on how fast you could roll out those digital screens per month deploying them? Then also talk about your prioritization of 3D screens?

Robert Copple

James, on fx one, we don’t give forecasts. The best way obviously I would say if somebody wanted to try to quantify or estimate that would just be to go back and look at the general fx rate for Brazil and Mexico during the fourth quarter of last year and then the difficulty obviously is guessing where will those be fourth quarter of this year and where do they settle down at.

But, that’d probably be the best guidance I can give you on that because we don’t want to predict where they will be at but clearly those are two biggest countries in Latin America so they’ll have the most influence. If you wanted to kind of look at a relative portion, in our Qs we do have some data regarding revenues with respect to our foreign countries that break out Mexico and Brazil.

Actually on that we have not released our Q yet, that ought to go out sometime between 10 and Noon Central time today so you’ll have all that data pretty quickly. I’ll let Alan address the 3D and the priorities.

Alan W. Stock

James, I think we have on previous calls when the question has been asked I think most people are thinking we could roll out somewhere around 200 screens a month is kind of where they anticipate that roll out schedule going. Again, a lot of that to be honest with you is just a function of how many teams and how you deploy it and how you want to go about that process because obviously you can deploy more people and a different way to go about it so that’s still something we have to kind of work through as we better understand exactly when the funding would come through and how you’d proceed with that.

That kind of applies again along with the 3D roll out. You can also ramp up or focus exclusively on 3D or put your resources in different areas just depending on what you’re trying to achieve. The hard part here to better answer that question you have to really define when the funding comes in and what your goals are to try to achieve and I guess my point is there’s a lot of flexibility behind that to leave us latitude to ramp those things up or ramp them in a direction that is most efficient and best for our company and best for our distribution partners and to make sure we’re capitalized on what lays before us.

[James Morrish]

So just circle back on the currencies, if you could just talk about what percentage of the total costs are in local currencies and are there any dollar denominated costs?

Robert Copple

Basically, and there’s always exceptions to this but by far the most significant amount of revenues and expenses are in local currency. So, for instance obviously we collect our admissions and concession revenues but we also pay our admissions just like you do in the US, you pay those as a percentage of revenues and that’s paid in local currency. Concessions, we buy our local goods in local currency. Again, salaries, rent all that is in local currency.

So, there are a few exceptions where there are some dollar amounts here and there in different companies but they are very minor to the total so the whole EBITDA in our international just flows up and down with the conversion of that currency in to dollars.

Operator

Your next question comes from the line of David Miller.

David Miller

A couple of just housekeeping questions and then kind of a [inaudible] question. For Bolt, how many screens on 3D do you think you’ll have in time for the release, I guess it’s in two weeks? And then on your screen count by the end of the year I have you guys modeled at having roughly 4,796 total screens by the end of the year, I’m wondering if you can confirm that?

Alan W. Stock

I think for the 3D screens we currently have 81 which would probably be a pretty accurate number obviously for the Bolt opening which happens in two weeks or so. Rob, I guess just confirm the number.

Robert Copple

I think screen count we had 4,717 so we’d be at about 4,763 net because there’s going to be closures. That’s going to be ballpark.

David Miller

Then [inaudible] I mean I just want to get you guys [inaudible] on this and hopefully you can just sort of level with me on DCIP and what’s really going on here. A $1.1 billion dollar deal, I’m sort of at a loss as to why JP Morgan thinks they need a consortium for this at all.

They’re the advisor to DCIP, they’re also the commercial bank on the deal, there’s a lot of mixed messages kind of flowing around here on maybe JP Morgan just blows off the consortium and just does this thing themselves. If that’s true then what’s to stop this deal from happening now? I just want to get your opinion on that.

Robert Copple

Clearly we’d love JP Morgan to step up and fund $1.1 billion. I think we’re just being realistic in this current market the cost of capital is extremely high assuming that even the capital is available. I still think while there have been some deals done lately there’s really been a very minimal amount of deals done with the need in both investment rated companies and non-investment the pull on capital is pretty high and so therefore the cost gets significant especially when you have an non-investment grade piece of paper.

So, while we’re exploring that and I think JP Morgan is being very helpful in the roll of advisor as well as participation in this I think everyone feels like the credit market just has to loosen up a little bit before anyone is going to be able to fund debt at the levels that we’re looking at. Obviously, we’re looking at all kinds of alternatives, whether there’s partial funding, other types of sources to fund this in the interim and so everyone is very active in it and JP Morgan is helping us do that. But, I wouldn’t foresee them stepping up to the plate with a full commitment like that.

Operator

Your next question comes from the line of Jake Hindelong – Monness, Crespi, Hardt & Co., Inc.

Jake Hindelong – Monness, Crespi, Hardt & Co., Inc.

A quick question on international just to follow up on the previous question, third quarter versus fourth quarter given the recent weakness in the Real and the Peso, is it reasonable to think in the fourth quarter there will be some real relative pressure here? It looks like in the third quarter you probably had a mid single boost and it might even be as high as a double digit pressure on international box office in the fourth quarter based on the change in the exchange rates.

Robert Copple

Clearly, with the exchange rates fluctuating at the levels they have, there will be pressure in the fourth quarter. Again, just looking at the conversion, I mean we’ll do extremely well, we’ll perform well on a local basis just as we think the US will do but when you convert that back to dollars there will be some pressure on it. I mean, it’s hard to say how much because it just depends on where everything settles right now.

Things go up and then they start to come down a little bit and getting where you feel more comfortable and then something else happens in the market and rates move around so it’s hard to say is it a single digit pressure, is it a double digit pressure but I mean obviously rates won’t be what they were last year.

Jake Hindelong – Monness, Crespi, Hardt & Co., Inc.

Then a similar question, fourth quarter to date box office internationally down about mid single digits, is that reasonable?

Robert Copple

Just fourth quarter to date box office itself?

Jake Hindelong – Monness, Crespi, Hardt & Co., Inc.

Not for Cinemark internationally but for the markets that you participate in internationally?

Robert Copple

You know what, I don’t know. I’d say they’re down at this point. Some of the releases are still hitting a few of the markets but the primary markets most of the films have been hitting. I mean I’d probably say if I looked at international box in general and again let’s look at Latin America for October, again I’m not going to speak with respect to Cinemark but I’d probably say that the Latin American markets are generally flat through October.

Jake Hindelong – Monness, Crespi, Hardt & Co., Inc.

Then just one quick question on 3D and the upcoming release of Bolt, is there any chance that significant outperformance of that film might spur the investment needed for the DCIP to move forward?

Alan W. Stock

No. Again, DCIP isn’t driven by one film and obviously we recognize there is a lot of 3D films coming up, Bolt and many movies and so we’re all motivated to get that thing to happen and as we discussed it’s really just a function at this point in time of figuring out when capital is available and how to roll that thing out.

Operator

Your next question comes from the line of Barton Crockett – J.P. Morgan.

Barton Crockett – J.P. Morgan

I just wanted to jump back in the queue, could you give us a sense of from your perspective what credit markets generally would have to look in order for the DCIP financing to move ahead? I know you guys talked to CDO deals a few weeks before the TARP thing happened and would it be reasonable to assume for instance that if credit markets look like they did let’s say a month before TARP that would be an environment where this could potentially move ahead?

Robert Copple

Barton, I would say that it would all be speculation but I think basically you’re just waiting for the markets to become more liquid and then once they do we’ll have to determine if all the pieces we have in our current structure work with what the cost of that capital will be and the availability of the capital and if not you try to work through your agreements.

So, it’s kind of a hard question to answer but maybe about that is if you looked at where everything was a month before, yes we were running down the road, we had a lot of interest in the deal we think from various banking groups that would allow us to form the syndicate we were after and we could have funded. So, if you assume the needle kind of moves back towards that level we would think yes, we could get this funded.

Barton Crockett – J.P. Morgan

Then on M&A the environment, could you talk a little bit about your interest in this market? Obviously there are some theater changes that probably wouldn’t want to sell given where valuations are right now but some may be forced to by their lenders and one thing that’s been in the presses is National Amusements. Could you talk about in particular with National Amusements whether that would be attractive to you in terms of the fit and generally whether you see much opportunity in M&A right now?

Alan W. Stock

I think we would answer as we have in the past, we of course have a strong balance sheet and ability to go out and try to make that work for us. It’s just really a function of, as you stated, what are these people willing to sell for, is it something we feel is attractive, that’s accretive to our shareholder base?

Fortunately for a lot of the theater chains and how they sit with us, National Amusement or any of those on the east coast sit very well with Cinemark so really it’s our job to sit down and just really based on price, based on the quality of the circuit that we’re looking at and what we feel we can do with that asset, then that’s why we say there potentially are acquisition opportunities out there and we’ll just have to weed through those as the time the present themselves.

Barton Crockett – J.P. Morgan

One final question here, your theaters a lot of them are in markets that generally would be seen as those pressured by housing downturns, perhaps more than the national average and maybe areas like California and Texas, are you seeing any difference in areas that are affected by housing markets in terms of the box office or concession stand? Is there any variance at all there that you’re seeing?

Alan W. Stock

We have not really. I mean, let’s be clear too when you say Texas, it’s actually been pretty strong in terms of the recession or anything else that’s been going on. But, as we look at our circuit throughout the US our circuit continues to perform as it has in the past and all those many aspects we describe on recessionary whether people are motivated to get out because it’s a great place to get away from their woes or whatever it is.

But, the State of California continues to perform good for us and have not necessarily seen any regional or any issues like that, that we can tell at this point.

Operator

At this time sir we have no further questions. I will now like to turn the conference back over to Mr. Alan Stock.

Alan W. Stock

I would like to thank everyone for participation in our third quarter call this morning and we will look forward to talking to you again next quarter. Thanks everyone.

Operator

That concludes today’s conference call. You may now disconnect.

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Source: Cinemark Holdings, Inc. Q3 2008 Earnings Call Transcript
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