Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Cinemark Holdings Inc. (NYSE:CNK)

Q4 2008 Earnings Call

February 26, 2009; 8:00 am ET

Executives

Alan Stock - Chief Executive Officer

Robert Copple - Chief Financial Officer, Executive Vice President, Treasurer

Nikki Sacks - Investor Relations

Analysts

James Marsh - Piper Jaffray

Ben Mogil - Thomas Weisel Partners

David Miller - Caris & Company

Tony Wible - Janney Montgomery Scott

Jake Hindelong - Monness, Crespi, Hardt

Barton Crockett - Lazard Capital Markets

Marla Backer - Research Associates

David Goldberg - UBS

Operator

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

Thank you Ms. Sacks. You may begin your conference.

Nikki Sacks

Thank you and welcome to Cinemark’s fiscal fourth 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 Cinemark’s actual performance to be materially different from the performance indicated or implied by such statements. Such risk factors are set forth in the company’s SEC filings. Today, Cinemark’s CEO Alan Stock and CFO Robert Copple will be discussing the fourth quarter and full year results.

I’ll now turn the call over to Alan.

Alan Stock

Thank you. On today’s call I will comment on the industries and Cinemark’s full calendar 2008 results and the fourth quarter 2008 results, the outlook for the upcoming film slate and discuss Cinemark’s digital cinema and 3D strategy.

In 2008 the motion picture exhibition industry experienced one of the best performances in its history. In a challenging worldwide economic environment which is causing many industries to experience significant revenue declines, the exhibition industry recorded its second best year in its history, almost equally in the industry, record breaking 2007 box office based on industry sources.

In addition to the strong performance of sequent films from existing franchises such as The Dark Knight and Indiana Jones, 2008 also saw the emergence of solid new film franchises, such as Iron Man, Kung Fu Panda, Sex and the City and Twilight. Our performance during recent periods has reinforced, while we have experienced historically during difficult economic periods.

Our industry is relatively recession resistant, as going to the movies continues to be one of the most convenient and affordable forms of out of home entertainment and allows an escape from everyday issues for many people. Industry wide box office revenues have increased in four of the last six recessions.

Turning briefly to Cinemark’s performance in the fourth quarter of 2008, Cinemark’s total revenues for the quarter increased to $407.8 million, primarily due to a 5.9% increase in attendance. The growth in attendance was driven by a strong movie slate, both domestically and internationally and the addition of new theaters. We experienced increases in both our domestic and international average ticket prices and concession revenues per patron, before the impact of unfavorable changes in foreign exchange rates.

Our domestic box office was up 4.4% in the fourth quarter, compared to a US industry box office increase of 2% to 3% for the calendar quarter according to industry sources. Our domestic attendance was up 2.3% on the strength and diversity of films such as Twilight, James Bond, Quantum of Solace, Four Christmases, High School Musical 3, Beverly Hills Chihuahua, Madagascar 2 and Marley and Me. The fourth quarter also featured at Disney 3D movie titled Bolt, which performed well, grossing more than $100 million domestically.

We continue to see that when there are movies that are appealing to consumers that continue to go to the theater and purchase concession items, even during economic downturns; our domestic concession revenues per patron increased by approximately 2.8% for the quarter.

Cinemark’s international operations continue to be a strong differentiating factor that helps diversify our operations. While we have faced some volatility due to recent currency fluctuations, our Latin American theaters out performed our domestic operations in 2008, in both attendance and price increases for the quarter and year.

Our international operations, we experience a 15.7% growth in attendance in the fourth quarter, almost four times the rate of our domestic growth. International average ticket prices and concession revenue per patron also increased in local currencies. Increases in pricing were offset by the decline in the Brazilian Real and Mexican Peso, relative to the dollar during late 2008.

International revenues were still up for the quarter despite the foreign exchange rate impact. Since our international operations are conducted in local currency and the majority of the cash generated remains in the respective country, currency fluctuations whether favorable or unfavorable do not impact our local currency cash flows.

Looking ahead to 2009, the resiliency of the theater industry continues, as the U.S. industry Box Office is up a robust 12% to 13% through mid February on the strength of outperforming and long running films including, Gran Torino, (Inaudible), Taken, The Curious Case of Benjamin Button and Marley and Me.

We are optimistic about the lineup for the remainder of 2009. There are a number of highly anticipated films scheduled for release this spring and summer, including several sequels of franchise films, such as X-Men Origins: Wolverine, the follow-up to the Da Vinci Code, Angels & Demons, Night at the Museum 2: Escape from the Smithsonian, The second Transformers: Revenge of the Fallen, another follow-up to Ice Age: Dawn of the Dinosaurs, which will be also be in 3D and the next Harry Potter: Harry Potter and the Half-Blood Prince. In addition the new Star Trek series will be introduced as a prequel to the franchise.

In 2009 we’re seeing a meaningful ramp up in the number of 3D releases, unlike some of the previous year’s movies that were originally produced in a 2D format and then converted to 3D. This year’s movies were created with the intent to utilize the depth and presentation attributes unique to 3D presentations.

This weekend the Jonas Brothers 3D Concert Movie is opening and DreamWorks Animation’s Monsters vs. Aliens is scheduled to open during the last weekend in March, followed-up by two Disney films this summers, the G-Force and Pixar’s Up, Robert Zemeckis’ A Christmas Carol and the much anticipated Avatar is expected to open towards the end of the year.

We began redeploying digital projectors from our fully digital theaters late in the fourth quarter and as a result we will have approximately 180 3D screens by the time Monsters vs. Aliens is released, compared to approximately 40 screens at this time last year. Once the digital cinema agreements with DCIP are finalized and deployment begins, we expect to have up to 1500 RealD 3D screens in our worldwide circuit.

Regarding DCIP, credit markets continue to be challenging; however, we feel the studios and exhibitors are aligned and prepared to approach the market. DCIP is continuing to pursue financing alternatives that will provide as member of broad digital deployment.

Finally we expect to continue our organic screen growth, both domestically and internationally. In 2008 we added 156 screens and 12 theaters in the U.S. and 47 screens in seven theaters internationally. Due to broader macroeconomic factors, we expect new development to slow slightly in the U.S. compared to last year. We had signed commitments to open five new domestic theaters, with 62 screens in 2009 and five new domestic theaters with 78 screens during 2010 and 2011.

We have signed commitments to open one new international theater with seven screens during 2009. We are also working on negotiations for another eight international theaters, with 50 screens to open in 2009. We will continue to seek high quality locations for organic builds and evaluate acquisition opportunities that meet our return metrics in both the international and domestic markets, as we believe there are still opportunities for organic growth.

We are well positioned with respect to liquidity. We have approximately $350 million of cash and no significant payments due on our long term loan until December of 2012. We also have a revolving credit line under our senior facility that remains un-drawn at which we have approximately $121.4 million available for borrowing, assuming Lehman Brothers would not fund its commitment under the revolving credit line.

The theater industry continues to display resiliency in the challenging economy. It is an exciting time to be a theater operator with the roll out of the next generation technology and escalation of 3D on the horizon. We also believe there are incremental opportunities with alternative content which is just in the early stages of the development.

That being said, we know we are not immune to the economic challenges and we are watching our cost structure and planning conservatively. We will continue to invest in areas that meet our investment return criteria. We remain focused on our long term organic growth strategy and on enhancing our industry leading position.

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

Robert Copple

Thanks Alan. I’ll review our fourth quarter and full year 2008 financial performance in more detail and discuss our balance sheet. During the fourth quarter our total revenues increased 3.7% to $407.8 million, primarily due to a 5.9% increase in attendance. The growth in attendance was driven by a strong movie slide, both domestically and internationally in addition of new theaters.

Admissions revenues increased 3.7% to $261.7 million and concession revenues increased 5.5% to $125.1 million. We experienced increases in both our domestic and international average ticket prices and concession revenues per patron, before the impact of changes in foreign exchange rates.

Adjusted EBITDA for the fourth quarter of 2008 was $84.2 million compared to $83.8 million for the fourth quarter of 2007. Our adjusted EBITDA margin was 20.6% for the fourth quarter of 2008. On a segment basis for the quarter, our U.S. operations experienced a 2.3% increase in attendance, a 2% increase in averages ticket price and a 2.8% increase in concession revenues per patron. U.S. admissions revenues were $216.6 million, representing a 4.4% increase over 2007, slightly above the estimated calendar quarter industry box office results.

Concession revenues increased 5% to $103 million. Our total domestic revenues increased 4.4% to $331.5 million and adjusted EBITDA increased to $72.6 million. Within our international segment for the quarter, attendance was up 15.7%. Average ticket prices and concession revenues per patron increased in local currencies, but were offset by unfavorable changes in foreign exchange rates.

Admissions revenues increased slightly to $45.1 million and concession revenues increased to $22.1 million. Our total international revenues increased 0.8% due to the increase in attendance. Adjusted EBITDA for our international segment was $11.5 million, which was relatively flat with 2007, despite unfavorable changes in foreign exchange rates in 2008.

We are pleased with the increase in attendance and pricing that led to the strong box office performance of our international theaters during the quarter. Films such as Madagascar 2, High School Musical 3 and James Bond’s: Quantum of Solace performed well in our international markets during the fourth quarter. We also benefited from the performance of local films, particularly in Mexico, including Rudy Kersey [Ph], which was one of the best grossing local films from Mexico during 2008.

Our consolidated film rentals and advertising costs for the fourth quarter of 2008, were $141 million or 53.1% of admissions revenues, compared to $135.5 million or 53.7% of the admission revenues for 2007. Concession supply costs were $20.2 million or 16.1% of concession revenues for the fourth quarter of 2008, compared to $18.4 million or 15.5% of concession revenues for the fourth quarter of 2007.

For the fourth quarter of 2008, salaries and wages were $45.7 million, compared to $42 million for the fourth quarter of 2007, primarily driven by increased attendance, minimum wage increases and new theater openings. General and administrative expenses increased to $23 million or 5.6% of revenues, up slightly from 5.5% of revenues in the fourth quarter 2007. G&A expenses include non-cash share based award compensation expense of $1.8 million for 2008 versus $0.9 million for 2007.

During the fourth quarter we recorded asset impairment charges of $105.4 million, compared to $26.2 million in the fourth quarter of 2007. Although our theaters performed very similar in 2008 compared to 2007, impairment assets were also driven by market value multiples.

The decline in our stock price, our competitors stock prices and overall perceived decline in market values resulted in an impairment charge, primarily of goodwill, when applying Generally Accepted Accounting Principals. As a reminder, these impairments are non-cash charges to earnings and did not affect the company’s liquidity or cash flows from operating activities.

The pretax loss for the quarter was $94.3 million, compared to $11.6 million in the fourth quarter of 2007. Net loss for the quarter was $89.5 million, a loss of $0.83 per share, compared to a net loss of $53.8 million or a loss of $0.50 per share in the fourth quarter of 2007. Our affective tax rate was 5.1% for the fourth quarter of 2008. Our 30% excluding goodwill impairment charges were $78.6 million, which are not deductible for tax purposes.

Moving to our results for the full year, we increased our admission revenues 3.6% to $1.13 billion, and increased our concession revenues 3.5%, to $534.8 million. As a result, our total revenues increased 3.5% to $1.74 billion. These increases were primarily driven by increases in average ticket prices and concession revenues per patron, up 4.3% and 4.1% respectively, partially offset by a 8.7% decline in attendance.

Adjusted EBITDA for the year ended December 31, 2008 was $370.3 million, compared to $376.9 million for the year ended December 31, 2007. Adjusted EBITDA margin was 21.3% for the year ended December 31, 2008. On a segment basis for the year, domestically, we increased our admission revenues to $889.1 million and our concession revenues to $426.5 million, leading to an increase in total revenues to $1.356 billion. Adjusted EBITDA increased by 5.9% to $291.5 million.

Our international operations performed well in 2008, as we increased our admissions revenues by 14.2% and our concession revenues by 17.6% driven by an increase in attendance of 3.9%. These increases resulted in an increase in total revenues of 15.6% to $385.8 million and then adjusted EBITDA increase of 17.4% to $78.8 million.

Net loss for the year ended December 31, 2008 was $48.3 million compared to net income of $88.9 million for the year ended December 31, 2007. Net income for the 2007 fiscal year benefited from a $129.6 million after tax gain on the National CinaMedia IPO. We reported impairment charges of approximately $113.5 million during 2008, which included goodwill impairment of $78.6 million compared to impairment charges of $86.6 million during 2007.

Now, on to our balance sheet; we believe that our cash positions, relative debt level, and the timing of the maturities of our long term debt, position us well to take advantage of opportunities that arise as a result of the current economic environment, including additional de-leveraging.

At December 31, 2008, our cash position was $349.6 million, an increase of $11.6 million compared to our cash levels at December 31, 2007. We have used our liquidity to reduce our outstanding debt during the quarter by repurchasing approximately $37 million, aggregate principal amount of maturity of our 9.75% notes that were approximately $33.3 million, bringing the total purchases for the year to $47 million, aggregate principal amount at maturity.

As a result our net debt at December 31, 2008 was $1.16 billion, down $26.8 million from December 31, 2007. This level of net debt resulted in a leverage ratio of approximately 3.1 times adjusted EBITDA. Our debt balances composed primarily of two facilities, our senior secured credit facility and our senior discount notes. As of December 31, 2008, we had $1.1 billion outstanding on the term loan under our senior secured facility.

Due to the insolvency of one of our lenders under the facility and then uncertainty of whether that lender would finish commitment, we have approximately $121.4 million available for borrowing under our revolving line of credit.

Currently, there are no borrowings outstanding under our revolver. We also have $419.4 million, aggregate principal amount at maturity of 9.75 discount notes outstanding, which are due in March 2014. As I previously mentioned, we repurchased approximately $47 million of these notes for approximately $42.2 million during 2008.

In terms of interest rates on our senior debt, approximately $800 million of our $1.1 billion term loan is floating rate debt and our weighted average rate is approximately 3.7% as of December 31, 2008. Approximately $300 million is fixed under interest rate swap agreements that are discussed in our SEC filings.

At December 31, 2008, our total domestic screen count was 3742 screens, 12 of which were in Canada. During the quarter, we opened seven new theaters with 80 screens in domestic markets bringing our net screen additions for 2008 to 88. As of December 31, 2008, we had signed commitments to open five theaters with 62 screens in domestic markets during 2009; more than five new theaters with 78 screens in domestic markets subsequent to 2009.

We opened three theaters with 20 screens in our international markets during the quarter, resulting in a total of 30 net screens added for the year. Our total international screen count at December 31, 2008 was 1041 screens. As of December 31, 2008, we had signed commitments to open one new theater with 7 screens in international markets during 2009. We are also negotiating commitments for another eight international theaters with 50 screens to open in 2009.

For the year ended December 31, 2008 we invested $106.1 million in capital expenditures, including $69.9 million on new construction, and $36.2 million in CapEx maintenance. This was slightly below our prior estimates of $120 million for the full year. The figures did not reflect proceeds received from the sale of theater properties and other assets. Currently we estimate that our gross total CapEx before disposition proceeds for fiscal 2009 could be approximately $115 million to $125 million, which includes CapEx maintenance.

The company declared its quarter dividend on February 26, 2009, an amount of $0.18 per share. The dividend will be paid on March 20, 2009 to stockholders of record on March 5, 2009 and represents an annual yield of approximately 9.4% based on yesterday’s closing price.

In summary, throughout 2008 we continue to grow our domestic and international footprint. We reduced our outstanding debt as well. We are in a very favorable position with respect to cash and long term debt levels, with no significant principal payments until December 2012.

Looking into 2009, while the economic environment remains challenging, consumers continue to value the cinema as an affordable source of entertainment, evidence by the 12% to 13% growth in the U.S. industry box office due mid February.

While we believe the remainder of the film slate for 2009 looks promising, we’re planning our business conservatively and we’ll stay focused on controlling our costs. With the diversity of the international footprint, organic growth, acquisition opportunities, and opportunities associated with digital and 3D technology, we remain optimistic about our long term growth prospects.

We will now be glad to answer your questions.

Question-and-Answer Session

Operator

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

James Marsh - Piper Jaffray

Hi, good morning guys. Two quick questions here; one, you mentioned 1500 3D screens overtime and I was wondering what’s the timeframe you’re thinking about and then if you could just differentiate between how you’ll pay for the US versus internationally, so the US is all through DCIP.

Then the second question relates to Latin American and South America. I was wondering if you could just discuss the help of consumer there and to kind of review your expectations on attendance and pricing in that market going forth. Thanks.

Alan Stock

Good morning James. I think in respect to the 1500 screens and timing of that rollout, it obviously has to do with how we move forward with the funding on DCIP. I think the timeframes have always been talked about and once you get started that it takes that two to three year period of time to rollout all of you digital screens and during that process once you get your digital footprint on its way, then you supplement and new add those 3D screens on top of that.

Now obviously we always have to determine as we’re rolling out that and in all of our digital screens we determine how to layer in our 3D screens and do you accelerate that based on products. I think there’s still some things that have to be answered before you can fully determine how long and what it takes and how we move forward on the digital rollout and the 3D footprint as well.

I think again from the Latin American side, the 1500 in the rollout initially is a domestic rollout and DCIP is the one focused on that. We’ll have to get into and I mean never really fully answered how we rollout the Latin American assets yet, because we have to finish what we do here in the US.

There have been many talks and a lot of desire from the distributors of course and Cinemark specially being a company that has a large footprint internationally, we are working on ways and ideas of how we would roll that out, but today and currently DCIP is a domestic concept and really affects our do domestic theaters.

Robert Copple

We do have lots of them rolling out 3D screens internationally and interesting enough there, while we are looking at trying to do something similar to what we’ve done in the U.S. by creating a, if you’ll call it, DCIP in Latin America and we’ve talked with other exhibitors down there and there’s much interest in it.

The other thing is much of our financing to-date of the digital projectors deployed in Latin America has been in a joint process with many of our developers. There is a strong desire to have 3D projectors in many of our markets and in doing so the local developers in many of our malls have also helped us pay for or totally paid for many of our projectors.

I think you asked the same question of just generally Latin American and what we’re seeing down there, the opportunity for pricing increases and just attendance. As we discussed in the call, the attendance in the fourth quarter was just due to roof. What we saw during last year is the attendance in Latin America would be up in quarter, down in quarter just like the U.S. would be, but it tended to be different quarters.

We weren’t expecting the fourth quarter to be nearly as strong as it was in attendance and we’re very excited by the fact that obviously people attended movies well and there are great movies that they wanted to see both locally made as well as U.S. product. Just like the U.S., we continue to see that into the first part of 2009.

The economies in Latin America are doing well. They are being affected by the worldwide changes that we’re seeing. We haven’t seen quite a slowdown in maybe construction that you’ve seen in the U.S., although I think that will happen overtime, not necessarily being a bad thing, but the consumer is the same. We’ve seen that throughout our history of this company in our experience in last 15 years in Latin America.

The economic environment in Latin America just like it is in the United States generally doesn’t keep the consumer from going to the movie theaters. If anything, it tends to encourage them to go, because it is a means of escape and then secondly many people stay home during these kind of times and take their vacations at home and that also appears to drive consumer demand.

James Marsh - Piper Jaffray

Okay, great. Thanks very much guys.

Operator

Your next question comes from the line of Ben Mogil with Thomas Weisel Partners.

Ben Mogil - Thomas Weisel Partners

Hi, guys good morning.

Robert Copple

Hi, Ben.

Alan Stock

Good morning.

Ben Mogil - Thomas Weisel Partners

So just a couple of questions, more of a longer term question. We’ve seen almost all the major U.S. studios be quite open if they’re going to start to produce less product over the next couple of years, as sort of third party financing, with all those slate deals kind of roll off and are likely not to get renewed.

Talk about maybe sort of instilling your international or your domestic markets, how you guys fill your position for this and sort of what your thoughts are, not just for you guys, but for the overall box office. If you start to see the major studios cutback by say a quarter to a third of the amount of sort of wide released product that they’re going to be introducing?

Alan Stock

Well Ben, I think I would initially answer and say, just because the number of products decreases, it doesn’t always necessarily relate to how it does in the box office and it’s kind of interesting as we looked at last fall. We saw a movie, Harry Potter move out of the slate and back at that period of time people were nervous about what does that mean and what’s going to happen to our fourth quarter numbers.

What often times happens when there is less products and it obviously depends on the quality of the product and like it happened when Harry Potter moved, it allowed another movie in this particular instance, Twilight to do incredibly well. I don’t know that Twilight would have done quite as well if it had been jammed up there next to Harry Potter and you had different choices.

So, sometimes and again I’ll always qualify it and it depends on the quality of the product and what’s out there, but with the studios claiming that they’re going to make less product and very well could be the case and as we’ve talked to many of them, I think the quality of what they’re making and as I looked at much of their line up, at least we’re become aware of for the future, it is very good product. So our jobs is obviously to take what’s there and try to do the best we can with in and sometimes when you have a few less films you can do a better job with what you got.

The second part we have to always make sure we realize too and there is opportunity with things like alternative content that is becoming popular and we don’t know where some of those pieces go.

So, at the end of the day I’ll always fall back and say, the business is consistent now right and it obviously is doing very well. It’s producing good results for all of the studios, so I’m a believer that they are going to figure out ways to fund and make good product and continue to help their bottom lines, because it is a very healthy business right now.

I think on an international level, again a vast majority of their product comes from here in the U.S., but on the same token and as we just stated in the call, there are times when local product can do very well. So, I think at the end of the day, there is the opportunity for local film to do well for again the films that are produced here domestically, to continue to do well.

So, I believe as our outlook for the future continues to be healthy and we’re not overly worried that the economy is going to affect the quality and the production, the amount of what happens in the next few years.

Robert Copple

Also keep in mind, as we had a start out that there’s a lot of movies made. Last year there are 700 plus movies that even like in our circuit, we showed over 600 different movies, but about 30% of those made 99% of the box office revenue.

So a number of the movies we think that would go by the way side are some of the smaller movies that while they are great and occasionally you get a real surprise, that’s very valuable, although many times those are independents that probably will produced anyway. A lot of the product that comes through just doesn’t generate that much revenue.

Ben Mogil - Thomas Weisel Partners

No, for sure. I guess I was focusing just on the fact of the studios, which are obviously focused on these sort of wide release and heavily supported P&A product that’s sort of being quite open about reducing their numbers. We’re sort of focused on that; a sort of top 50 to 75 kind of number if you will?

Maybe sort of onto the domestic side on the ticket pricing trends, I want to get a sense from you guys. I mean obviously you outperformed the box office domestically; can you give us a sense from a ticket pricing perspective. You were obviously in a good way, not particularly high on average ticket price, mid-average ticket price you obviously saw the attendance bump and the concession bump. What are you looking for in general for say 2009 on the domestic ticketing front and maybe you can talk at all if on a regional basis you’re seeing any kind of discrepancies?

Robert Copple

We’re not really giving projection per say. We do feel like just reflecting the economy we’ll see lower in creases in 2009 than what we’ve seen really over the last two years. 2007 was a great year increases. 2008 still did fairly well and as you say, we tended to out perform.

2009, we were approaching it cautiously. We think there is room for price increases. We’ve always done our increases on a market-by-market basis. Fortunately Cinemark in general has tended to be slightly under priced to some of its competitors in a number of markets and so it gives us a little more room, but being realistic about it, I mean we all know the economy is difficult. We are going to be very cautious in what we do increase and it is selected.

So you’ll see some increase; we don’t think nearly at the levels you’ve seen in the last few years and that will be both with concessions and ticket price I’d say. We’ll probably even be more cautious in concessions. I think everybody’s general feeling is that’s probably where the consumer will look first to pullback despite us not really having seen much of that.

I do think that the consumer is probably from what we’ve seen moving in general maybe to buying conservatively and then sometimes that means buying a large and splitting it, versus a couple of mediums or smalls, but it hasn’t had much impact so far on our numbers.

Looking geographically, we continue to watch that, it’s a little difficult. I’d say with the data we have to-date, we’re not seeing many changes geographically. We definitely have a strong presence in California, in many markets. We don’t see that that’s really under performing, there’s different theaters and different areas that perform differently quarter-to-quarter, but as far as a trend we have not seen that.

Obviously, we’ll continue to watch it and we have a very dominant presence for our chain, at least based on our presence in Texas and fortunately Texas continues to do fairly well through all this, but realistically I mean we’re seeing good numbers throughout our circuit.

Ben Mogil - Thomas Weisel Partners

Okay, sounds great. Thanks, guys.

Operator

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

David Miller - Caris & Company

Yes, hi good morning. Robert just a couple of housekeeping items for you. What portion of the long term debt is due in 2012? I apologize in advance if you said that in your prepared remarks and then also on the table in the press release where you talk about consolidated operations on a per cap basis, you’ve got average ticket price here down 2.1% in the quarter, concessions per patron basically flat in the quarter. Do you have what those numbers would have been excluding foreign exchange? Thanks.

Robert Copple

With respect to the debt, our senior debt becomes due in 2012 or starts to mature is a better way to say that and so we have four equal payments, the first one being December 2012. It’s just slightly above $260 million will be the first quarterly payment in that quarter and then again in the next three quarters the same thing.

Then we run in consolidating everything else, but I can give you a local currency, what we kind of call constant dollars, so if you would have taken that in our overall Latin American markets combining them. For the quarter we would have seen a 4.2% increase in average ticket price, a 10.5% increase in concessions per patron. For the year we would have seen a 6.4% increase in average ticket price and a 10.6% in concessions per patron.

David Miller - Caris & Company

Okay, and so that 10.5% increase in concessions per patron for the quarter, is that cumulatively or is that just in dollar translations just in Latin America?

Robert Copple

That was different, those are Latin American only. So, you can take those numbers if you want, kind of run those through, put obviously the U.S. numbers that wouldn’t change what they did and you’ll get what it would have been.

David Miller - Caris & Company

Perfect. Thank you.

Operator

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

Tony Wible - Janney Montgomery Scott

Good morning. I was hoping you can answer a couple of questions; one is DreamWorks is talking about a $5 ticket premium on Monsters vs. Alien and given that your domestic ticket I guess is underneath kind of the average in the industry for the U.S., would you anticipate getting a $5 premium on Monsters or do you anticipate it being a little bit less?

Alan Stock

Well, there’s certainly a possibility that we would do that. I think what we’re trying to valuate and we always price our theaters obviously on a theater-by-theater basis and the concept here it is as Mr. Katzenberg and as the DreamWorks guys are pushing the idea here, is trying to make sure you price according to the quality and the product that you got and what’s out there.

There’s certainly history; we have shown obviously last year with Hannah Montana had it much higher than a $5 ticket price increase for it. I mean this year Jonas Brothers is doing the same thing. So, I think there is opportunity to introduce, take a premium for 3D, for quality product.

So, we are certainly looking at that right now and again as you’ve heard Mr. Katzenberg and DreamWorks Animation guys and people pressing that concept, we are certainly taking a looking at that and there is a possibility that people can charge that and can get that for a movie like Monsters vs. Aliens.

Tony Wible - Janney Montgomery Scott

In your ramp of getting the 3D systems in place, you kind of alluded to year-over-year and in absence of DCIP in the U.S. are there any other partners that are helping you to make those transitions to get the screens ready?

Alan Stock

Well, again that screens that are getting ready today, that proximate 180 number that we stated is really us taking -- we had quite a few theaters that we deployed fully digital as we were testing and experimenting and rolling out the product and so what really did is took all of those projectors, left a few in each facility, but you took the projectors from those fully digital theaters and you just redeployed them.

So, the numbers that we are able to achieve today for Monsters vs. Aliens are just really the fact that we did that. We have done all that work internally. We were already prepared; Cinemark wise there’s a circuit with the screens that were required for this. We have put those in and then sometime ago in anticipation of 3D. So, that’s really how we got and why we are achieving the numbers that we are today.

Tony Wible - Janney Montgomery Scott

So, we should not expect to see an increase cost as you go lights on with some of the 3D stuff?

Alan Stock

Not significantly, no.

Tony Wible - Janney Montgomery Scott

And the last question is really dealing again with the local question in that the Latin American markets. While the vast majority of the films I mentioned are still going to be U.S. export films, are there any local films that you can comment on for the film fleet for 2009? For instance I think in Brazil, the best-selling title right now is a local film.

Alan Stock

That is correct and I’m not sure if we do have, I can’t give you real good visibility. Sometimes those local films pop up. I’m not sure we have a whole lot of length of time in visibility of what they are. I can tell you though, that the Brazilian market and even some in Mexico continues to develop some good film and you never know. As is occurring right now and as you just stated in Brazil right now, those films can pop up and sometime do very well. So, I’m not sure I can tell you specifically of what those titles are today.

The way that market flows and the way we get international product, that local product internationally out there hasn’t changed over the years. When there are successful films like to have been here recently I think it really sparks other guys’ interest and they get excited about it and the history says that we’ll continue to have that local product that is produced.

Tony Wible - Janney Montgomery Scott

Great, thank you.

Operator

Your next question comes from the line of Jake Hindelong - Monness, Crespi, Hardt.

Jake Hindelong - Monness, Crespi, Hardt

Good morning, a few questions. Just first you confirm, so in Latin America for the fourth quarter concessions per patron, local currency was up 10.5%.

Robert Copple

Yes.

Jake Hindelong - Monness, Crespi, Hardt

And how would you suggest we think about 2009 on that metric?

Robert Copple

Yes, not really trying to get into first quarter or as specific as that. I mean I think we’ll again experience the same thing in Latin America as we’re experiencing here. That’s off to a two increased prices.

I would tend to say not as strongly as what we saw in the past would be our inclination and that much of the increases in the past have really been a result of inflation and other factors in these countries which allowed us to increase at the levels we did. I think as those economies slowdown as well…

Jake Hindelong - Monness, Crespi, Hardt

I guess it might help then just to talk about how that 10.5% compared with the average of the first three quarters on a local currency basis.

Robert Copple

Yes I mean again, for the year I said that our total increase for the year was 10.6%, so it appeared pretty evenly. I tend to say that for going in to this year we’ll see an increase and could have reached those levels, but I would then say it’ll be less than those levels.

Jake Hindelong - Monness, Crespi, Hardt

Great, thanks and then first quarter to date just internationally on a average basis, how are your international theaters performing on same store; I guess attendance would be the best metric that would help.

Robert Copple

Again, we’re not providing projections of the numbers. Domestically the deposit domestic box office, not ours in particular, has been up 12% to 13% to-date. We would say that internationally films are performing similarly down there, performing well.

Jake Hindelong - Monness, Crespi, Hardt

Great, thanks and then one more, just internationally how many 3D screens do you have available right now?

Alan Stock

I think currently we have about 15 today. Now as Robert said earlier we do have and we are also working on some again minor amounts. We’ll probably get some more than that as we rollout to 2009.

Robert Copple

We’re actually ramping that up fairly quickly, again with a number of developers working with us. The 15 was actually I think at year end and we’ve added a few since then and we’re continuing to try to add more as we get to Monsters vs. Aliens.

Jake Hindelong - Monness, Crespi, Hardt

Thank you.

Operator

Your next question comes from the line of Barry Crockett with Laser Capital.

Barton Crockett - Lazard Capital Markets

Okay hi, it’s actually Barton Crockett with Lazard Capital Markets and thanks for taking the question. I was wondering if you could talk a little bit about how you give the dividend.

I mean obviously with the 9% yield to market, is pricing in some risk that you’re going the cut it, like legal cut and so many other companies have been cutting. You guys have a covenant like facility and maturities are always out there, but tell us how you kind of view the dividend in this environment and your ability to support it and what could potentially kind of haunt you to rethink that.

Robert Copple

In the end it’s a board decision. I mean as you said Barton we’ve designed our company financially when we went public; to be able to pay the dividend. We have generated excess cash flow and the dividend represented 60% to 65% of our free cash flow, so that we could absorb changes in the economy as well as changes in our building program.

So in the end it’s up to the board each quarter to make that decision. As we just announced, we’re paying our normal dividend for this quarter and the board still feels comfortable and the only direction they’ve given us is that’s their plan. So, I think it’s something the company can afford. With everybody we’re always looking at alternatives and what’s the best use of capital and if there’s better uses of it to create value for the shareholders, currently we still have that policy in place.

Barton Crockett - Lazard Capital Markets

Great and then just to clarify, the number of 3D screens that you said before for Monsters vs. Aliens, is that a domestic number or does that excluding the 15 or so have, 15 plus you have?

Alan Stock

Yes and in the domestic market well again we’ll have approximately 180 for Monsters vs. Aliens.

Barton Crockett - Lazard Capital Markets

Okay and also to be clear, is the ticket price for the Jonas Brothers basically the same as what you guys were charging for Hannah or a little bit less?

Alan Stock

I think for the most part it’s about the same as Hannah was being charged.

Barton Crockett - Lazard Capital Markets

Okay and I think that’s it. Thanks a lot.

Operator

Your next question comes from the line of Marla Backer with Research Associates.

Marla Backer - Research Associates

Thank you. I have a couple of questions; on the ‘09 slate, are there any potential blockbusters there that you think might not travel that well internationally and I’m specifically thinking about G.I. Joe as one? Are there any titles from there that you’re thinking may not have the same impact in your international markets?

Alan Stock

I don’t think there’s anything in the slate of films that we look at in 2009 that’s much different than years past. Obviously, things do translate a little differently as we look into the international market, but again many of the larger titles and the bigger things that are out there for next year look to be as healing on an international basis and they love things obviously like transformers and some of those type movies that are out there.

Probably, the movie that you’re referring to, I’m trying to think the G.I., are you talking about the Disney film that’s coming up, the G-Force? G-Force and that might be the one you’re references to. It very well could do well on an international basis, more kind of an action type film and you really just try to figure out at the end of the day how that film product and what is it going to do and again most of the larger titles that we’re looking at for 2009. I’m going to tell you, are going to translate fairly well. I’m not sure; you’re probably talking to G.I. Joe catalysts out there.

Marla Backer - Research Associates

Yes, that’s the one I’m talking about.

Alan Stock

Again, some of those movies may or may not translate very well on an international basis, but then often times there is other products that doesn’t do as well here. We have as many products that sometimes don’t do a lot in this market and then do better internationally. So, if there is always a give and take as you look through any film here and any amount of product that’s out there and we don’t necessarily see anything alarming in 2009.

Marla Backer - Research Associates

Okay and then just one little question in terms of the latest drama with the Screen Actors Guild. Are you hearing anything about that, are you thinking there may actually lead to a strike there and if so how would that impact probably the ‘09, but 2010 slate in your opinion...

Alan Stock

Well, obviously anything we would be tell you today would just be pure speculation. I’m a believer in today’s economy and the way things are rolling, it’s hard to imagine that much as really going to occur on that front. You near really know and I think there is a lot of talk going on back and forth, but we always fall back on history and say that this is not unique and it’s not something we haven’t dealt with before in the industry and I think hopefully Calmer Hayes [Ph] and they’ll go forward.

I think people are just scared in today’s world of how to approach when they talk about strikes and they talk about things that they’re going to do. How they’re just going to survive and we’re not overly worried about that and all I can tell you is we continue ourselves to have conversations with all of the studios to talk about their upcoming slate of film and what it looks like for them.

As I sat down, especially with all the major distributors that we have, they continue to show us product and assure us that what they have, they’re working on and things that are out there, be it any of the strikes or talks or anything that are going on, the business continues to perform well and they are excited about it and they continue to work on good projects for the upcoming years.

Again we feel pretty comfortable that as we look forward, into especially 2009 and into 2010, if there is good product out there and it will continue to flow to us.

Marla Backer - Research Associates

Okay, thanks. Two last questions, one on the concession. I think that everyone has remarked that the concessions metrics have held up incredibly well in this economy. Some of the other exhibitors are saying that they think maybe people are foregoing the dinner part, of dinner and a movie and that’s one factor behind the strength of concession. Are you adding any new concession items to benefit from that trend if in fact that is the trend when you compare to foods?

Alan Stock

Yes and I’d say, certainly our job as the theater operator is to make sure we offer concession products and items that are appealing and so we are constantly always working on new items and shifting around items and trying to figure out what appeals at any given time to any consumer and I would always tell you, I think the biggest benefit we’ve got is when people go to the movies and they have that experience as a customer group.

Let’s say they love just to go out and have that whole experience; buying concessions and having food and having that popcorn in your hand is part of the experience of going to movies, so I think that’s why they continue to do well and I don’t think people, they determine in their minds if they are going out and do this thing and they want to be entertained and get out, then they want the whole package.

We’ve talked to consumers about that and why they do what they do, but again we always want to make sure that we have in their hand and we put things that are appealing and things they desire. So, that is constantly a goal for us as a company and I’m sure many of our competitors the same as you want to appealed as best you can to that experience for them.

Marla Backer - Research Associates

Okay, thank you. Then my last question is the overall health of the industry. As you said, it’s been extremely resilient, because people still want that out of home entertainment, but do you think 3D will create a competitive disadvantage for some of the smaller circuits.

I mean I think your 3D footprint to pretty significant for Monsters and for the other 3D content coming up as are your DCIP partners; they have pretty big 3D footprints. Do you think that some of the smaller circuits may, get hurt in ‘09 by significantly smaller if any 3D footprints, and if so do you think that may create any kind of smaller M&A opportunities when we come out of this financial market volatility?

Alan Stock

I mean, it’s so hard to guess. I think at the end of the day, of course when movies perform very well on a 3D basis and everyone gets excited about getting that product. There are a number of smaller guys who can’t afford or have actually gone out and funded. So, it’s not unique actually to see some of the smaller guys percentage wise or numbers when you compare to the size of the little companies that actually have a fair number of 3D projectors that are out there.

So, it could actually go either way and then on the same token as you’re indicating, there could be some smaller guys that can’t afford it and we certainly have seen in this past year, some of the theater change that have come up for sale. Perhaps have done so because, they are a little reticent or they don’t know how to fund and they don’t know what to do with the whole of 3D digital environment. So, it does present an opportunity for us to look at that.

So I think at the end, whether it’s brought to surface because of that or what reasons are out there, certainly we want to look at all of the acquisition opportunities and see how they could or if they can benefit Cinemark and again just based on price and the quality of assets, but everybody does recognize and when movies like My Bloody Valentine and some of the pictures that have come out recently and have done very well in 3D format, then obviously have all have to be thinking about how do we take advantage of that in the future and those guys have to think through that themselves.

Marla Backer - Research Associates

Thank you.

Operator

Your next question comes from the line of David Goldberg.

David Goldberg - UBS

Good morning guys. Thanks for taking the question. Just want to talk a little bit about the credit facility and the mix between fixed and floating interest. Given where LIBOR has been, I mean would you guys consider entering into this more longer dated swaps on the floating portion, which at this point is pretty large?

Robert Copple

Yes, definitely we would. I mean, it’s something we continue to monitor. Obviously it’s everybody’s guess of when the interest rates move and how long that takes and I guess the market sketch is reflected by where one, two, three year, four year hedges are. We have been watching that and we’ve thought about locking in more. I think at some point we probably will just for safety sake, because even when you go forward, they are still fairly good rates at this point, but obviously we haven’t done that for the moment.

David Goldberg - UBS

And just kind of going back to the last question on acquisitions, are there any markets internationally either in LATAM or elsewhere that seem particularly attractive or have assets out there that maybe particularly interesting for you guys?

Robert Copple

The one thing I’d say there is maybe even in following up on Marla’s question that, I think there’ll be exhibitors that consider selling in this environment and I’m sure there’s some that might ultimately financially be in position where they need to, but I don’t think there’ll be a large group of those. At least kind of as we’ve looked at overtime seem to be in pretty good financial health; their debt position seems pretty good.

As we’ve been saying, I mean Box Office is the bright spot in the economy and that’s a worldwide basis and set box is still low everywhere. So, people’s cash flows are remaining high and they are able to continue to service their company well, as well as they probably have capabilities to look at 3D and digital.

When we look at acquisitions, I mean so far to-date we turned the focus where we’re concentrated. So we looked at the U.S. and we’ve looked at mostly Latin America. There are opportunities in both; there’s companies Latin America that occasionally come up and we know everybody really well and so we do watch those both looking at individual theaters, as well as some smaller companies. Don’t know if there’s quite a lot of large company’s down there.

Domestically kind of the same thing; we’re the largest company with Alan and knowing really all the different exhibitors out there, I mean something comes up, they give us a call. We are open to it, but we do look at our criteria; what’s the quality of the asset and what’s the best use of our capital and is there something that we can buy in manner that would be accretive and obviously with the debt markets what they are, there are definitely limits the size of what you’d be willing to do.

Alan Stock

And David just to clarify too, most of what we look at is focused here either domestically or in Latin America. You asked the question if we look outside of that. Not necessarily and we don’t know about the timing right now; purchasing anything outside of where our core business is and what we focus on; we are not spending much time around that at all.

David Goldberg - UBS

Okay and just one last question on the overall business, I was just wondering if you guys could talk a little bit about how the overall retail environment impacts you guy? Do you see any difference in the performance of individual theaters depending on where they are relative to retail locations? Does that have much of an impact? I mean I don’t think movie going is really that much of an impulse decision, but just trying to get a handle on whether or not that has any impact going forward?

Alan Stock

From a history standpoint here, I’d say it doesn’t really have a whole lot to do with it on what the retail location is and of course what it does have to do with which we mentioned is as the retail community has effects, what that does is slow down the development of malls and shopping centers and development opportunities.

So, potentially because of those retail centers doing not as well right now, then our ability to grow with those retail centers and put new facilities, then it slows down to some degree; but as you look at what we currently have and as retailers are suffering to some degree right now, it doesn’t necessarily relate to how it changes or affects our business.

Robert Copple

We are not really seeing differentiations in our standalone versus mall facilities or anything like that.

Alan Stock

What is interesting is you get out, and you go to these shopping centers and malls and I know the retailers are down and I think perhaps in large part obviously people aren’t buying, but as we go to our theaters that are sitting in the malls, you still find in the malls, I mean people are in them and they are walking and whether they are just going out to walk around and look at stuff I don’t know, but at the end of the day they still want to go to our theaters and get out and have that entertainment experience; and obviously most of the time those are always going to be located around popular retail type areas and so it just naturally draws people to those areas.

David Goldberg - UBS

Okay that’s very helpful, thanks guys.

Operator

I would now like to turn the conference over to Alan Stock for closing remarks.

Alan Stock

Well we’d like to thank everyone for participation in our call today and we look forward to talking with you next quarter. Thanks everyone.

Operator

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

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Cinemark Holdings Inc. Q4 2008 Earnings Call Transcript
This Transcript
All Transcripts