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Regal Entertainment Group (NYSE:RGC)

F4Q12 Earnings Call

February 7, 2013 4:30 pm ET

Executives

Amy E. Miles – Chief Executive Officer

David H. Ownby – Executive Vice President, Chief Financial Officer and Treasurer

Analysts

Benjamin E. Mogil – Stifel, Nicolaus & Co., Inc.

Bo Y. Tang – Barclays Capital, Inc.

Barton Crockett – Lazard Capital Markets

Townsend Buckles – JPMorgan Securities

James M. Marsh – Piper Jaffray, Inc.

Chad Beynon – Macquarie Capital Markets

Ryan Fiftal – Morgan Stanley

Tuna N. Amobi – Standard & Poor’s Investment Advisory Services LLC

Tony Wible – Janney Montgomery Scott LLC

Robert Fishman – Nomura Securities Co. Ltd.

Matthew J. Harrigan – Wunderlich Securities Inc.

James C. Goss – Barrington Research Associates, Inc.

Operator

Good afternoon. My name is Robin, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Regal Entertainment Group Fiscal Fourth Quarter and Full Year 2012 Earnings Release Conference Call, with our hosts Amy Miles, Chief Executive Officer of Regal Entertainment Group; and David Ownby, Chief Financial Officer of Regal Entertainment Group. All lines have been placed on mute to prevent any background noise. After management’s remarks, there will be a question-and-answer period. (Operator Instructions)

I would like to remind our listeners that this conference call contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.

All statements, other than statements of historical fact communicated during this conference call may constitute forward-looking statements. These forward-looking statements involve risks and uncertainties. Important factors that can cause actual results to differ materially from the Company’s expectations are disclosed in the Risk Factors contained in the Company’s Annual Report on Form 10-K dated February 27, 2012. All forward-looking statements are expressly qualified in their entirety by such factors.

Now, I will turn the call over to Amy Miles.

Amy E. Miles

Good afternoon and thank you for dialing into our fourth quarter conference call. For the next few minutes, I’ll provide an overview of the fourth quarter and full year results for both Regal and the industry, a recap of our 2012’s operational and strategic highlights and a look at the 2013 film slate. Following my remarks, David will highlight our financial results and as always, we will conclude the call today with the question-and-answer session.

First and foremost, we are extremely pleased to end 2012 on a high note with significant growth in revenue and adjusted EBITDA for both the fourth quarter and full year. A record industry box office that exceeded $10 billion for the fourth consecutive year and our continued focus on operational execution helped us generate almost $580 million of adjusted EBITDA on 2012. That’s the highest total in our history.

Fiscal 2012 ended in the same way as it started with significant quarterly box office growth. The industry box office receipts for our fiscal fourth quarter increased by approximately 15% versus the same period last year and totaled over $2.6 billion. The second highest fourth quarter total on record.

As expected, Skyfall, the conclusion of the Twilight franchise and Peter Jackson’s The Hobbit led the box office rankings, that the quarter also benefited from a diverse and well spaced slate of films. In total, 12 films released in the fourth quarter went on to gross over $100 million compared to only seven films in the same period last year.

From our perspective, a key takeaway from both the fourth quarter and full year box office performance is the underlying growth in industry attendance. Based on our review of industry sources, we estimate that the industry experienced mid single-digit attendance growth in 2012, and reached its second highest attendance level in the past five years. Increased attendance clearly enables us to further leverage the fixed portion of our cost structure and has a positive impact on our adjusted EBITDA margins.

We are particularly pleased with the industry attendance growth in the fourth quarter and 2012. From an operational perspective, our field personnel’s ability to provide a great customer experience while keeping a close watch on our cost structures was again a key part of our success in both the fourth quarter and all of 2012.

Their attention to detail combined with the healthy industry box office environment helped us achieve an adjusted EBITDA margin improvement of almost 500 basis points in the fourth quarter as well as our highest annual adjusted EBITDA margin in six years for the fiscal period ended 2012. David will provide more financial detail behind our operating results later, but I think it goes without saying; we are extremely pleased with our operational execution.

In addition to the financial success we experienced in 2012, we were also pleased with our progress on numerous, operational and strategic initiatives that should have a positive impact on our results for 2013 and beyond. Our conversion to digital cinema is essentially complete. In a little over 2.5 years, we have taken a giant technological leap forward with practically no disruption to the day-to-day operations of our business or the experience available to our customers.

The financing and subsequent installation of the new projectors was a significant undertaking for everyone involved and we are extremely pleased with the seamless execution of the hardware conversion, the revenue opportunities that have been afforded to us in a digital environment and the financial success and stability of DCIP.

We made significant progress in our efforts to offer a premium experience to a larger portion of our customer base, both inside the auditorium by adding an additional 27 premium screens during 2012, and outside the auditorium with enhanced customer amenities, including our expanded concession menu, the widespread availability as mobile ticketing and the introduction of the Regal Mobile app.

We are pleased with the incremental revenue and returns from our investment in the premium experience and expect to continue our efforts in 2013 by opening approximately 10 IMAX, 25 RPX auditoriums, introducing our expanded concession menu at another 100 locations, experimenting with luxury seating and actively engaging our core customers through our industry leading loyalty program, the Regal Crown Club.

Our film distribution joint-venture, Open Road Films released six films that collectively grow over $150 million in 2012. it’s for a full year of operation. We continue to be impressed with Open Road management team’s keen eye for content as well their discipline approach to the deal economics and we remain optimistic regarding their ability to create incremental value for our shareholders.

And finally, over the last several years, we have clearly and consistently communicated that using our cash in ways that best benefit our long-term shareholders by investing in the growth of our business and providing a meaningful return to shareholders is a key part of our strategy.

To that end, we’re extremely pleased that our late November acquisition of Great Escape theaters and the December payment of $1 per share special dividend clearly demonstrated our ongoing commitment to creating value for our shareholders.

We certainly expect each of these initiatives that have a positive impact on our operation as well as our free cash flow in 2013 and into the future. Now as we look to the 2013 film slate, fiscal 2013 is off to a great start at the box office despite a difficult comparison with a record first quarter last year, industry box office receipts for the first six weeks of 2013 increased approximately 6% versus the same period last year, and I think primarily the strong carryover from films released late in the fourth quarter.

While the comparisons to last year, we’ll remain difficult for the remainder of the first quarter, we are optimistic that high profile titles like next weekend’s fifth installment of the Die Hard franchise, Disney’s Oz The Great and Powerful, and DreamWorks The Croods will keep box office results on track in early 2013.

Looking ahead to the remainder of 2013, we are encouraged by a lot of peers to be a promising line up of high tent-pole films that are evenly spaced throughout the release calendars. Super hero fans will again have plenty of choices at the box office with Iron Man in early May, Man of Steel in mid-June and Hugh Jackman as the Wolverine in late July.

Science fiction fans won’t be disappointed either with Star Trek Into Darkness, World War Z, and Pacific Rim are scheduled for release this summer. A number of key films from other genres including the Lone Ranger, the next installment of both the Fast and Furious and Hang Over franchises and Pixar’s Monsters University round out what appears to be a promising summer schedule. And the holiday release schedule is equally exciting with Marvel’s Thor in early November, the second Hunger Games film on Thanksgiving weekend, and the second installment of Peter Jackson’s The Hobbit in late December. With these factors in mind, we are optimistic regarding the potential for box office in 2013.

In summary, we are again extremely pleased with both the healthy box office environment, our operational execution and furthermore that we were able to clearly demonstrate our commitment to creating shareholder value during 2012. We look forward to a similar success in 2013.

I will now turn the presentation over to David for a discussion of the financial results.

David H. Ownby

Thanks, Amy and good afternoon everyone. Today, I’ll provide some additional analysis of our fourth quarter results, some key information regarding our acquisition of Great Escape theaters and an update with respect to our balance sheet and asset base. For our fiscal fourth quarter, we’ve generated total revenues of $723.1 million including $485.3 million of box office revenue, $188.5 million of concession sales and $49.3 million of other operating revenue.

On a per screen basis, our admissions revenue grew by approximately 15.8% as compared to the same period last year. The increase in our admissions revenue was driven by 13.4% increase in our per screen attendance, and a 2.1% increase in our average ticket price.

Routine price adjustments boosted our 2D average ticket price by 3.3%, by heading more modest impact on our overall average ticket price due to an offsetting decline in premium ticket sales. Premium ticket sales overall, accounted for approximately 14% of our box office revenue during the quarter as compared to 17% in the same period last year.

Our concession revenue increased by 18.3% in the aggregate, and by 3% on a per attendee basis, as was the case throughout 2012, the improvement in our concession per cap was largely driven by improvements in beverage and popcorn volume, but also benefitted from the expanded food menu currently available at over 50 locations.

Other operating revenues increased $8.7 million as compared to the same period last year due primarily to increases in advanced ticking revenue, contractual revenues from National Cinemedia, vendor marketing revenues, and revenues from our gift card and discount ticket programs.

While we are always pleased to see top line growth, it is imperative that our management team and field personnel make sure increased revenue translates into increased adjusted EBITDA and free cash flow. And we were extremely pleased with our fourth quarter operational execution.

Our film and advertising expense of $250.8 million represented 51.7% of admissions revenue, an increase of 80 basis points as compared to the same period last year. The overall increase in industry box office revenue and a film slate that relied on a few high grossing films were the primary drivers of the increase.

Despite the increase as compared to the same period last year, our fourth quarter film and advertising costs as a percentage of admissions revenue was in line with our historical fourth quarter average. our 86.3% concession margin remained flat with the same period last year, as minor increases in raw material and packaged good costs were offset by increases in our concession per caps and the amount of vendor marketing revenue recorded as a reduction of cost of concession.

Total rent expense of $99.1 million increased 3.8% in the aggregate, due primarily to the additional rent associated with the 177 new screens we opened in the back half of 2012 and the Great Escape screens acquired in late November. On a per screen basis, our rent expense increased approximately 2.4% compared with the same period last year.

And as Amy mentioned earlier, our field personnel’s focus on cost control continued to have a positive impact on our operating results. Total other operating expenses of $189.9 million, increased by 3.5% in the aggregate and 2.1% on a per screen basis as compared to the fourth quarter of last year due primarily to increases in theater level payroll and other attendance-driven costs.

Once again, our field personnel’s ability to control variable costs while still delivering a great customer experience and a meaningful increase in our concession per caps was a key driver of our success in both the fourth quarter and all of 2012.

We are extremely pleased with the healthy box office environment, the increase in our average ticket price and concession per cap and our operational execution help generate total revenue, adjusted EBITDA and adjusted earnings per share that were well ahead of consensus Wall Street estimates.

As Amy mentioned earlier, we were extremely pleased to complete the acquisition of Great Escape theaters for $91 million in cash in late November. The acquired portfolio includes 301 high-quality, well maintained screens located primarily in small and midsize markets in Kentucky, Indiana, Pennsylvania and surrounding states. 93% of the screens feature stadium seating and 77% came already equipped with digital projectors, the integration of the Great Escape screens into our management and procurement program is complete and we have already begun realizing the operating synergies associated with the transaction.

We have a long history of creating shareholder value through acquisition and fully expect this transaction to be immediately accretive to both our earnings and cash flow. As for our asset base in our balance sheet, capital expenditures net of asset sales for the quarter totaled $21.4 million, bringing our total for 2012 to $83.4 million. We continue to actively manage our asset base during the quarter in addition to the Great Escape acquisition; we opened two theaters with 30 screens and closed 11 theaters with 72 screens to end the quarter with 540 theaters and 6,880 screens.

Based on our development schedule, an outlook for 2013, we expect full year capital expenditures to between $100 million and $115 million. We expect to open six to eight theaters with 70 to 100 screens and close five to seven theaters with 40 to 60 screens. This would result in ending counts of approximately 541 theaters and 6,915 screens for 2013.

With respect to the balance sheet, we ended the quarter with just under $110 million in cash and a total debt balance of just under $2 billion. The significant growth in our adjusted EBITDA in 2012 has had a positive impact on our average and debt covenant calculations. And as of the end of the quarter, our overall leverage ratio was 3.3 times and our leverage ratio as defined by our senior credit facility totaled approximately 2.2 times, well below the covenant limit of four times.

In early January, we took advantage of historically low rates in the high yield market and issued $250 million of 5.75% Regal Entertainment Group’s senior notes due in 2025. We believe that we have multiple potential uses of proceeds for these funds and fully expect to apply them to accretive acquisitions and/or retirement of our existing higher interest rate notes in the near-term. With our current capital structure and interest rate swap portfolio, we expect our interest expense to be approximately $146 million in 2013, $36 million in the first and second quarters and $37 million in the third and fourth quarters.

In closing, we are extremely pleased that the box office environment combined with our operational execution resulted in a record adjusted EBITDA for 2012, and we remain optimistic regarding the potential for box office success in the coming year.

This concludes our prepared remarks. And we will now open the lines for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Ben Mogil with Stifel Nicolaus. Please proceed with your question.

Benjamin E. Mogil – Stifel, Nicolaus & Co., Inc.

Hi, good evening, and thanks for taking my question. When I look at the box office, so you guys were around a 17% or so box office growth. I think Cineplex this morning said Canada was around a 16.7% and the Box Office Mojo on North America numbers around a 15%. Do you have a sense of what the U.S. benchmark is for your weeks?

David H. Ownby

According to the numbers in rent track, that number it looks like it’s about the same as the Box Office Mojo number. So I think Box Office Mojo has 15.1% and rent track has just in the low 15%, but I don’t remember the exact number, but it’s in the low 15%.

Benjamin E. Mogil – Stifel, Nicolaus & Co., Inc.

And that’s the U.S. only?

David H. Ownby

That’s the only U.S. only, yeah.

Benjamin E. Mogil – Stifel, Nicolaus & Co., Inc.

Okay. So, looks like you outperformed that by around 200 basis points, is that what you’re thinking as well?

David H. Ownby

Yeah. There’s a lot of math yet to do there Ben, because of the Great Escape acquisition, there’s a couple of different ways to do that, if you take a weighted average screen count for us, I think you get to about 15.8% or 15.9% for screen growth for us. The more precise way to do that calculation is just to backout the Great Escapes box office and the screen count, and look at our existing footprint, pre-Great Escape, and if you do it that way, I think we were up about 16.6% per screen. So we outperformed about 150 basis points.

Benjamin E. Mogil – Stifel, Nicolaus & Co., Inc.

Okay, that’s great, thank you. And then sort of second question, when I look at the – so, you did a bit better attendance that obviously flows through. The other line was a lot stronger than expected. Is there anything in there tied to Great Escapes like did you sort of – I know when you’ve done acquisitions in the past, sort of you look at what their accounting is around breakage and have it adhere to yours and sometimes, we see a one-time revenue blip there. Was there anything in other that you think you want to call out as being one-timish, if you will?

David H. Ownby

Nothing one-time, Ben, the impact of Great Escapes on that line is pretty minor. what you really see in this quarter is several small things, you’ve got some things that are attendance-driven like our NCM contractual revenue and our vendor marketing revenue, a lot of that is obviously based on attendance or on the amount of concessions that we sell during the period. We did have a little bit more revenue from our gift card and discount ticket programs that relates to higher sales in the previous year, and then just a couple of other small things, we did have given the three big tent-pole films during the quarter, we had advanced ticketing revenue that’s online ticketing surcharges, so just a lot of little things that added up to a big number there.

Benjamin E. Mogil – Stifel, Nicolaus & Co., Inc.

And on online ticketing, I mean can you talk a little bit about what you’re seeing in the landscape? I mean AMC’s now moved over to Fandango. Are you seeing that help the larger ecosystem? Anything you can talk about in terms of online ticketing?

Amy E. Miles

I think what you’re seeing there Ben, is a lot of, from an industry perspective and primarily at Regal, a lot of companies focusing not only how do we get to our customers from an online perspective, but how do we attract more customers from a mobile perspective. So I think you are seeing a lot of improvements from our customer experience perspective and all of us trying to figure out how do we moderate some of that online experience to a mobile experience for our customers?

Benjamin E. Mogil – Stifel, Nicolaus & Co., Inc.

Okay, that’s good. And then lastly, David, I think I just missed it, I apologize. I know you said the per screen rent was 2.4% on growth. What was the, I guess, probably the other theater operating costs?

David H. Ownby

The other theater operating costs on a per screen basis were up about 2.1%.

Benjamin E. Mogil – Stifel, Nicolaus & Co., Inc.

Okay, that’s great. And Amy and David, thank you for answering my questions.

David H. Ownby

Thanks, Ben.

Operator

Our next question comes from the line of Anthony DiClemente with Barclays. Please proceed with your question.

Bo Y. Tang – Barclays Capital, Inc.

Hi, this is Bo Tang in for Anthony. I have one for Amy and one for David. Amy, some of the movie studios say that they’ve been testing the release of the digital copy of certain movies a few weeks before the physical DVD release date. Do you feel like this window, is it far out enough from the actual release date? It seems like the industry has drawn a line in the sand at around eight weeks after theatrical. So, have there been any changes to that thinking?

Amy E. Miles

No, I didn’t think, you’re right or accurate in pointing out that we have seen some acceleration of the electronic sell-through window ahead of the DVD release. But at this date, we’ve not seen any kind of material impact on our business or really a material change as it relates to the studios release patterns. one thing I can’t say there is, as you’re continuing to see the growth in the electronic sell-through and we saw some stabilization and the home entertainment revenues for this year; I do think it’s good for the ecosystem. So whatever our studio partners can do there that provides additional incremental revenues on the home side. but again, with a focus on the theatrical window, we think it’s good for us as well as them.

Bo Y. Tang – Barclays Capital, Inc.

Okay, that’s helpful. And David, last year, you talked about how there was this favorable backdrop for M&A and how you were seeing more sellers coming off the sidelines. We saw some deals get done late last year, but is the M&A environment, is it still fairly active right now?

David H. Ownby

There are still some assets out there for sale, Bo, nothing I can promise specifically on, but as is always the case, it seems like in our industry anytime you have some activity in the M&A market that tends to breed more activity and certainly, the strong box office in 2012 won’t hurt that activity either.

Bo Y. Tang – Barclays Capital, Inc.

Got it, great. thank you, guys.

Operator

Our next question comes from the line of Barton Crockett with Lazard Capital Markets. Please proceed with your question.

Barton Crockett – Lazard Capital Markets

Okay, great. Thanks for taking the question. I wanted to follow-up on the acquisition question there, because you raised it in your script, you said that the proceeds from your offer could be used near-term for acquisitions and/or retirement of high cost debt. That would suggest to me that you do see a pretty active acquisition environment right now. Am I misreading that or did you mean something different than that?

David H. Ownby

I think as we’ve said before Barton, there are some opportunities out there and to the extent, they make sense for us and certainly, and we can get them at a price that makes sense for us that we’d look to execute those, but I think the great thing about that where we are at now as we have lots of good uses for those funds and that’s how we feel like it made sense to go ahead and draw down the funds in early January.

Barton Crockett – Lazard Capital Markets

Okay. and then you talked about how you’ve gotten Great Escapes on to your kind of systems. Can you talk about the level of margin lift; you’re seeing from synergies, should we see a percentage point or two kind of lift to Great Escapes, now they’re definitely on your platform?

David H. Ownby

Yeah. I think when you look at Great Escapes and you think about what our normal synergies are, I think you’re familiar with those, Barton. but we get two types of synergies, obviously we get to the operating synergies were because of our size and scale we can buy the things that we need somewhat more cheaply and then there’s also the synergy that we gave from our relationship of National Cinemedia and we’ve talked about before that those historically have amounted to about a half to a full time each, and certainly, I think we’ll be within that range in terms of synergies on this transaction as well.

Barton Crockett – Lazard Capital Markets

Okay, great. And then just a couple of bookkeeping things. These per screen metrics that you’re quoting, can you just tell us what the average screen count is, the weighted average screen count is that you’re using when you provide us that?

David H. Ownby

I use Barton and again, there’s couple different ways to calculate that I guess, but I am using a weighted average screen count about 6,800 screens.

Barton Crockett – Lazard Capital Markets

6,800, okay. and can you give us the break…

David H. Ownby

And I just basically took out the Great Escape screens from the ending screen count for the quarter, and then took the average of just the Regal screens and that would get to you 6,700 and there were 300 Great Escape screens that we had for one-third of the quarter, so I added 100 for that.

Barton Crockett – Lazard Capital Markets

Okay, all right that makes sense. And then could you give us the components of the ticket price change year-to-year?

David H. Ownby

Our ticket price, our 2D ticket price was up 3.3%, and the decline in premium ticket sales for the quarter went the other way about 1.2%. so our overall average ticket price increase was 2.1%.

Barton Crockett – Lazard Capital Markets

Okay, great. Thank you.

David H. Ownby

Thanks, Barton.

Operator

Our next question comes from the line of Townsend Buckles of JPMorgan. Please proceed with your question.

Townsend Buckles – JPMorgan Securities

Thanks. on your industry box office outperformance in the quarter, it sounds like the strongest in at least a few years, would you attribute it to the film slate maybe being more adult playing better in urban markets? Or were there other factors like certain geographies that over indexed for you?

David H. Ownby

Not, I didn’t see things specifically from a geography standpoint that really jumped out and looked like it was a big driver, I think if you look at the film slate this year versus the film slate last year in the fourth quarter, what you would see is that last year about 27 or so percent of the box office, and we’ll not do that, to be fair, we analyzed the top 50 films of the quarter, 11 of those films last year, what we’ve considered family type films, and they account for about 27% of the box office. This year, the family films, there were only seven in the top 50 and they only accounted for about 18% of the box office. So certainly that the film slate probably shifted in our favor.

On the flip side, we had last year, nine action films accounted for about 22% of the box office. this year, 11 action films accounted for 32% of the box office. So that, again, that dynamic probably helped us a little bit. The other thing I’ll point out is that despite the overall decline in premium ticket sales, the IMAX screens continue to perform very well and then those IMAX screens were up about 23% per screen.

Townsend Buckles – JPMorgan Securities

Okay, thanks. And then just another on the M&A environment. Can you talk a little bit more about Great Escape, the geographies and assets that you really found attractive there? And as you think about your next acquisitions, where are you most interested in terms of either being under penetrated or markets that are seeing better demographic or box office trends. Are smaller markets more of a focus for you?

David H. Ownby

I think we’ve talked a lot Townsend about the factor; we’re not really looking for geographies. We’re looking for quality assets in markets that we believe are either stable or growing, and even though, these Great Escapes markets are a little smaller than maybe our normal markets. what we’ve liked about them was we thought, there was very low risk of competition coming into most of those markets. And the theaters were well built and well maintained, and even though like I’ve talked about before, they are probably on the top line, they probably don’t gross on a per screen basis, quite as much as our existing footprint. They still have very strong cash flows and very strong margins. And I think that’s what we really liked about the assets.

Townsend Buckles – JPMorgan Securities

Okay, thanks.

Operator

Our next question comes from the line of James Marsh with Piper Jaffray. Please proceed with your question.

James M. Marsh – Piper Jaffray, Inc.

Great, thank you. A couple of questions here, first, did you mention that your premium as a percentage of total was about 14% in the most recent quarter? I felt in the past, you’ve talked about that being kind of plus or minus 20%. It seemed to be materially below that. Anything change in there in your mind or is it simply this slate?

David H. Ownby

That 20% number we’ve talked about plus or minus James, is really an annual number. we’ve talked a lot about the fact that it will move up and down quarter-to-quarter, but it’s been pretty stable over an annual period. It was just a little under 20, I think about 18% or so for fiscal 2012, but that’s within the margin that we would think about in terms of plus or minus. So we’ve seen some quarters that looked like this one in the past. but again, on an annual basis, it tends to even out to about that 20% number.

James M. Marsh – Piper Jaffray, Inc.

Okay. I was hoping you could discuss a little bit how Obamacare might impact your personnel cost going forward, and if you guys are thinking through any particular strategies to mitigate that?

Amy E. Miles

I guess James, we think about our employee base, we have a key group of full time individuals today, and those individuals already have a set of benefits that are available to them, and we also have a group of staff members that are already on a part time basis. So when you think about healthcare, I mean in fairness, we should see some increase in costs over time. but I think from an industry perspective some of that is a little bit offset by what you may hear from other companies, just by the general makeup of our existing employee base that already consists of a key group of part time employees that are working already less than this hourly requirement.

James M. Marsh – Piper Jaffray, Inc.

Okay. And then, just one last quick one, on that 48 frames per second format with Hobbit, what was your assessment kind of the long-term viability of that? Did you feel like it could go kind of mainstream and what kind of feedback did you guys get from your customers?

Amy E. Miles

Yeah. I mean I guess if you just look, I mean the ticket purchases and you judge that as a measure of feedback. what we did see is, as we first started selling out the tickets, a customer that would choose the 3D option, a higher percentage of those customers, purchased tickets in high frame rates.

So from that perspective, some of that being a positive sign as well as some feedback we were receiving from customers, it was positive. I think it’s premature to say what’s the long-term viability based on one film, I mean I guess we’ll have a second test of high frame rate with the next installment of the Hobbit at the end of next year. so I mean we do have a limited amount of data and I just shared that with you, but that was kind of the feedback we were receiving from some customers, and again, that was the buying pattern that we saw as we first started selling the tickets.

James M. Marsh – Piper Jaffray, Inc.

Okay, thanks very much.

David H. Ownby

Thanks, James.

Operator

Our next question comes from the line of Chad Beynon with Macquarie. Please proceed with your question.

Chad Beynon – Macquarie Capital Markets

Hi, good evening and congrats on a very strong year.

David H. Ownby

Thank you.

Amy E. Miles

Thank you.

Chad Beynon – Macquarie Capital Markets

And maybe, if I could start with one on the strength of the business particularly the attendance, do you have a sense of where this strength came from this year? Was it the frequent moviegoers in your loyalty program or maybe was it from kind of the infrequent retail side just coming because of good product and a new premium experience? Any color there would be helpful.

Amy E. Miles

I think always in a year that’s – or in a business that content driven; you’re going to have a lot of factors that can contribute to up and down years. I think one thing about when we thought about it, you look at this quarter is a great example, the fourth quarter. but I think it’s a less sort of what you saw for the rest of the year. There was a wide array of product during this year. so as always the box office is going to be led by key blockbusters. but there was also a lot of films for adults, there was a lot films for families that perform very well. We had, you could think about some of the weekends on the fourth quarter, if you wanted to go to a chick flick, there was something available or if you wanted to see an adult movie more like Lincoln or Argo, you had availability. There was Rise of the Guardians for the kids. so just, I think there was a wide end of our films like this year, and that helped generate some of the attendance growth. I think when we look at years where we see the outperformance for attendance is often tied to years where we have something for everyone at the box office.

Chad Beynon – Macquarie Capital Markets

Okay, thanks. And separately, David, maybe one for you, I wanted to ask about a potential REIT situation. We’ve seen a few companies over the past 12 months kind of shield their taxes and surprisingly, many of these don’t own the assets where they operate. And I know you guys own about 10% of your screens. So I kind of wanted to ask if this would even be a possibility or if you’ve considered it and kind of how you view this?

David H. Ownby

Chad, we have looked at it and obviously, we’ve seen a lot of companies that you’re talking about move in that direction and what we’ve determined and as we’ve done, as it’s just, partially because we’re in somewhat of content primarily a content-driven business. It’s tough to size the two different companies you have to split our company into in a way, and load the leverage, and load the rent on the companies in a way that protects you from those content shifts year-to-year, and a lot of the benefit that you would get by forming a REIT is mitigated by the fact that you’ve got a company less that has very low operating margins that in a content-driven business and therefore, it’s subject to some difficult years, and years from the content not very good.

Chad Beynon – Macquarie Capital Markets

Okay, thanks. And maybe a final one if I may on the acquisition side, when you brought Great Escapes under your wing and when you look at newer acquisitions, are we anywhere near antitrust issues, more on the pre-screen side on the National Cinemedia side that would actually preclude you from making any acquisitions in the market?

Amy E. Miles

With respect to the industry, the DoJ has always been very focused on a local market. And so from that perspective, we have to make sure that we are making appropriate and smart decisions as we do the acquisitions, but no, we do not think we are near any type of antitrust limits.

Chad Beynon – Macquarie Capital Markets

Okay. Thanks, again.

Amy E. Miles

Yeah, there are a lot of acquisition opportunities for us outside of our existing markets.

Chad Beynon – Macquarie Capital Markets

Great, thanks again.

Operator

Our next question comes from the line of Ben Swinburne with Morgan Stanley. Please proceed with your question.

Ryan Fiftal – Morgan Stanley

Hi, this is Ryan Fiftal on for Ben, just one follow-up on the premium side. I think the 3D slate is pretty significantly expanding this year. so I was wondering if we could get your sense on what the fundamental consumer demand is, what you see for more 3D or if there’s risk that kind of the incremental 3D films more crowd one another out and don’t drive a higher premium mix this year? Thanks.

David H. Ownby

I think Ryan as we’ve talked about before, we really view the 3D and the premium business as more, it’s kind of evolved into a very stable part of our business. We’re going to have quarters that fluctuate up and down just like we had this quarter, but if you really look at the map over the last three to four years, what you’ll see is that premium concepts together, I’m including IMAX and 3D and all the proprietary format together, they, generally speaking generated about 20% plus or minus of the box office every year. and I’m not sure we see anything in the near-term it’s going to move that significantly higher. But on the flip side, we don’t see thing that’s going to move is significantly lower either.

Ryan Fiftal – Morgan Stanley

Okay, thank you.

David H. Ownby

Thank you.

Operator

Our next question comes from the line of Tuna Amobi with S&P Capital. Please proceed with your question.

Tuna N. Amobi – Standard & Poor’s Investment Advisory Services LLC

Hi, thank you so much. So Amy, now that DCIP’s substantially completed with a digital rollout, I'm wondering what roadmap you see for the organization? And, how do you see them getting involved in the years ahead? I know you had some management changes there recently. If you can help us understand if it's probably going to be more on the financing or other roles that you see?

Amy E. Miles

Well, obviously we set up DCIP to serve as the financing vehicle for us, for digital conversions, now they have been successful over the past couple of years providing services to – I’m going to say founding members for lack of better term, services for non-founding members, and those are services, if you think about it around BPF reconciliation, and on more back-office type service, so in addition to the financing vehicle that as a role that DCIP has fulfilled, and whether or not they can do more of that in the future remains to be seen, but again you can think about their primary purpose was to facilitate the conversion of the founding members from 35 mm to digital.

Tuna N. Amobi – Standard & Poor's Investment Advisory Services LLC

So I’m not sure, if I should interpret that do you see them disappearing then sooner rather than later, or you sound like you expect them to kind of hang around a bit.

Amy E. Miles

There is several years where the debt that was put in place needs to be repaid, there is several years left, where BPF will still be collected from the studio. So from a timing perspective, they will exist to fulfill that responsibility and to the extend that there are other opportunities they may find over that timeline that will dictate the overall life cycle timeline of DCIP.

Tuna N. Amobi – Standard & Poor's Investment Advisory Services LLC

Got you, that's very helpful. A question for you, David, so as I think about Great Escape and the pre-synergy multiple, it almost sounds to me given the advanced date of the buildout of the digital, and the seating, et cetera, that you almost got it at a very attractive multiple. And arguably lower than some of the targets that you've done in the past for deals that have much less digital and volume facilities. So, I'm just wondering if there was anything about that deal that made the valuation so in a relatively compelling. Is it the small nature of the markets and do you expect that that could be the template that you would use for some of the deals that you might do in the future for such facilities that might be in a similar state of a digital deployment?

David H. Ownby

Yeah, I think this is really the first possible deal that we’ve done in the post digital world, yes, I’m not sure not how lot of other things have to really comparing to in terms, how I think about the value, I think in this particular case to be fair these are a little bit smaller markets, so I don’t know if that cause a lack of powers, or whatever it maybe, but from our perspective, we felt like we got, so it’s really good asset in smaller and mid-sized markets that really are we feel like overall are not particularly susceptible to a lot of competitions coming into these smaller towns, or smaller markets, and so we are very pleased to get it the cost that we did, it’s certainly there are more transactions out there to do with those multiples and that’s something we look to do.

Tuna N. Amobi – Standard & Poor's Investment Advisory Services LLC

Can you remind us then what your overall criteria, how that might evolve for digital world it’d be helpful, in terms of multiples.

David H. Ownby

Again I think we’re always going to look for those high quality assets and every deal is going to be little bit different obviously in terms of what cash flow and what margins in particular circuit generates, but at the end of the day, we’re going to look for high quality assets in good markets that we think are stable or growing, and I think you know our history we have been able to buy assets historically somewhere between I guess 5 and 7 times. And then as we apply our operating synergies to that that’s typically takes that number down on another full turn at least, and those are transactions that we will look to continue to do.

Tuna N. Amobi – Standard & Poor's Investment Advisory Services LLC

Great, thanks a lot.

Operator

Our next question comes from the line of Tony Wible with Janney. Please proceed with your question.

Tony Wible – Janney Montgomery Scott LLC

I was hoping you guys could touch on what kind of premiums you’re seeing in the theaters where you're pushing the expanded menus relative to kind of a theatre that has the regular concession set up?

David H. Ownby

Are you referring Tony, to what’s been the left on the concession spend per patron.

Tony Wible – Janney Montgomery Scott LLC

Yes.

David H. Ownby

We haven’t really talked specifically about individual theaters, but you can kind of just back in for the math, we have the expanded menu now just over 50 locations about give or take a tenth of our theater base, and it’s added about $0.005 to $0.01 to the per cap in 2012, so if you just assume all theater created equal, you would kind of get to a place where that’s about $0.10 of lift per theater, I’m not saying that’s number but that’s around that way to think about it, and obviously now we’ve gone to theaters early on, but we thought it would work the best, so it remains to be seen that, how that plays out as we role into another 100 locations, so certainly we lacked the results so far and we are optimistic about what we think it could do for us in more locations.

Tony Wible – Janney Montgomery Scott LLC

Got you. And, what are you guys seeing on the luxury theaters? And, what are you necessarily looking for there if you were to make a bigger commitment?

Amy E. Miles

Well, we operate a base of theaters today and it depends on I mean there is a lot of definitions for luxury, I guess as we speak, but we do have our Cinebarre concept, so we do have six theaters today, where we are offering full dine-in, and we are looking at different amenities, we can offer at our existing theater base, and that includes the expanded concession menu to try to bring on higher quality or more amenities to our customers, as far as luxury is concerned there might be certain locations where we think a high-end theater makes sense, and if we can strike the right economic deal that would be something that we could pursue, but we have a lot of premium concepts today that are in place.

Tony Wible – Janney Montgomery Scott LLC

Got you and, one last question here the propensity for you guys to go and do deals, I guess do you have any interest in expanding overseas, or I guess outside of the U.S.?

Amy E. Miles

We think there is enough opportunity today domestically for us to pre-queue or provide accretive returns and gross for our shareholders.

Tony Wible – Janney Montgomery Scott LLC

Fantastic quarter.

David H. Ownby

Thanks Tony.

Amy E. Miles

Thank you.

Operator

Our next question comes from the line of Robert Fishman with Nomura Securities. Please proceed with your question.

Robert Fishman – Nomura Securities Co. Ltd.

Hi guys, thank you. I've got one for Amy and then one for either Amy or David. Amy, so Cineplex in Canada announced last month an agreement to join UltraViolet. Can you just help us update us on your thoughts on whether Regal would also like to join that consortium and what benefits or holdups might be?

Amy E. Miles

Yes, sure I mean we are always looking at and you can see overtime where we have participated in various joint ventures where we are try to capitalize on our existing asset base, where I use as an example they are National Cinemedia, Open Road, we don’t want to divert too much from our core, but anything that we can do from an ancillary perspective that we believe have opportunities we would be open. As far as participating in the downstream revenues, we’ll just have to continue to evaluate the opportunities that makes sense for us here in the United States, but the competitive landscape is a little bit different in Canada.

So again we’re always open for finding ancillary opportunities, but as it relates to the downstream, we are just going to have to some further evaluation to see if we can find an opportunity that makes sense for us.

Robert Fishman – Nomura Securities Co. Ltd.

Okay, great, and just a ticket pricing question for you. So, based on your own internal analysis, if you guys lowered the 3D and premium pricing would that drive higher volumes, or does the premium attendance really just come down to the quality of the movies and the premium experience?

David H. Ownby

As you might have imagine given the number of theaters that we have, we’ve experimented with different crossing policies in different places, and what we’ve learned from that to-date is that lowering the premium doesn’t necessarily drove attendance to the 3D or an IMAX or RPX presentation, as you mention the number one factor there is the content and how does the premium format play into the content.

Robert Fishman – Nomura Securities Co. Ltd.

Okay, maybe if I can squeeze on last one for you David, in the past I think you provided the $40 million number from cost savings initiatives in 2011, now that 2012 has completed, is it possible to get any sort of sense of how much cost savings was in the full year, and may be the best way to think about additional cost savings initiative from your core business, if you excluded Great Escape?

David H. Ownby

Yeah, I think what we’ve said before when we took that $40 million out we kind of just reset the bar in terms of our particularly in terms of our other operating expenses, now we were able to given that attendance was up this year, our other operating expenses were actually down just a little bit for the full year 2012, so we were able to find a few small things there, but by and large I would say that we cannot just reset the bar for dealer level payroll at some of the other expenses, and from this point forward, and they just kind of move with the attendance.

Robert Fishman – Nomura Securities Co. Ltd.

Great. Thank you guys.

David H. Ownby

Thank you.

Amy E. Miles

Thank you.

Operator

Our next question comes from line of Matthew Harrigan with Wunderlich Securities. Please proceed with your question.

Matthew J. Harrigan – Wunderlich Securities Inc.

Thank you. I came on late and I apologize if someone else asked this, but with digital distribution on satellite now, are you looking much more avidly at alternative programming, even sports, to the extent you can address any rights issues?

Amy E. Miles

Yeah, we are moving down the path as it relates to completing a deal for satellite transmission, which will be the last piece of digital cinema, and hopefully when we get to the point where we have a greater footprint, as our greater footprint as our asset base that can have digital delivery that hopefully does increase the alternative content, but first, we are going to have to get the network in place, which should take us the next, I would say, 2.5 years, but it is going to be a much better platform for alternative content.

Matthew J. Harrigan – Wunderlich Securities Inc.

And then lastly on the concession side, we talk about the upscale aspect what about Michael Bloomberg as dietitian, do you have any further thoughts on that.

Amy E. Miles

I have a lot of thoughts on that, but as it relates to the status of that initiative as you pointed out we still are in a legislative process that should conclude, I would say over the next give or take end of this month, and to the extend that the opposition has a favorable outcome with a legislative process, and we’ll have to worry about it. That being said, let’s assume the outcome for us is unfavorable then we have spend some time thinking about different pricing, and I’m going to say combo and other strategies to mitigate some of that, some of the impacts.

Matthew J. Harrigan – Wunderlich Securities Inc.

And, is there anything you see that you could really be a bit of a surprise, even I think the expectations, the novel expectations on Beautiful Creatures are pretty light, but if you look at the demographic it plays to – obviously it was engineered toward the Twilight crowd, to say the least. Is there anything out there that you think is just really high variance to the upside, might not work but if it does it could really take off?

Amy E. Miles

It’s always hard, every year you’re going to have pictures that out perform or against the expectations, but today it would be I would not be very good at predicting.

Matthew J. Harrigan – Wunderlich Securities Inc.

Great quarter, thanks.

Amy E. Miles

Thank you.

Operator

Our next question comes from the line of Jim Goss with Barrington Research. Please proceed with your quarter.

James C. Goss – Barrington Research Associates, Inc.

Okay, thanks. Well, this will be somewhat of a predictive question too, then, but in discussing the attendance improvement, not just revenues, but actually physical numbers of people, do you think that this was any sort of turning point, or was it more of an aberration? Is there any way to gauge whether that sort of trend would be likely to continue looking at the slate you have coming this year, Amy?

Amy E. Miles

Yeah, I think if you look about attendance over a longer term time period, you see that, let’s call it up slightly but to get to that up slightly over a longer-term time period you’ve had periods of increases and periods of decreases in attendance. So I would expect the future looks a lot accept the past, you’re just going to have periods, where again you’re going to have content where you have a broad appeal, and that’s probably the years where you’re going to see some uptick, and the opposite of that in years when you see the downtick, but I would not say that we are at any kind of turning point this year, but I wouldn’t have said we were at some kind of turning point last year, when attendance was down either.

James C. Goss – Barrington Research Associates, Inc.

Okay. Open Road, is there an expanded slate in 2013? I was trying to recall exactly, I remember there was a bit of an acquisition that was going to move it to a bigger slate?

David H. Ownby

Jim, I believe we have six or seven films currently on the slate that’s between now and the first quarter of 2014, obviously there is likely will be more deals come to the pipeline I think we’ve stated that our goal for Open Road is to release 8 to 10 films per year, and that’s certainly what we will look to do.

James C. Goss – Barrington Research Associates, Inc.

Okay, and lastly, one of the studios I cover, Lions Gate, has played a role in trying to open up some of the shoulder periods, if you will to larger impact movies. And I was wondering about your thoughts on that and whether you think there is going to be any sense of others following suit? And maybe not just using playoff from the Christmas season in the early part of the year, but maybe actually have early part and late part of the year original merchandise of some consequence?

Amy E. Miles

Yeah. I do believe, as an industry, we’re always going to have that key summer period as well as the key holiday period. but the good news for us and the industry is that I do believe that and you’ve used Lions Gate as an example, the studios are broadening the definition, as when summer can start over that time period and you are seeing more releases in the shoulder reasons that maybe let’s say five or six years ago would not have happened. So from that perspective, I think that’s good for the industry and whenever – if you have a good movie that’s out there, we always believe that customers are going to find it and they’re going to go to it. That’s true in January, just as it’s true in July.

James C. Goss – Barrington Research Associates, Inc.

Okay, well thanks very much.

David H. Ownby

Thanks, Jim.

Operator

There are no further questions at this time. I would like to turn the floor back over to management for closing comments.

Amy E. Miles

Thank you for joining into the call today. And we look forward to speaking with you shortly with respect to our first quarter results. Thank you.

Operator

This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.

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