Regal Entertainment Group, Q1 2009 Earnings Call Transcript

Apr.30.09 | About: Regal Entertainment (RGC)

Regal Entertainment Group (NYSE:RGC)

Q1 2009 Earnings Call

April 30, 2009 9:30 am ET

Executives

Michael Campbell - Chairman and CEO

Amy Miles - EVP, CFO and Treasurer

Don De Laria - VP of IR

Analysts

Ben Mogil - Thomas Weisel Partners

James Marsh - Piper Jaffray

Tony Wible - Janney Montgomery Scott

George Hawkey - Barclays Capital

Mathew Harrigan - Wunderlich Securities

Jake Hindelong - Monness, Crespi, Hardt

Barton Crockett - Lazard Capital Markets

David Miller - Caris and Company

David Goldberg - Morgan Stanley

Eric Wold - Merriman Curhan Ford & Co.

Operator

Welcome to the Regal Entertainment Group First Quarter 2009 Earnings And Release Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce Mr. Don DeLaria, Vice President of Investor Relations for Regal Entertainment. Thank you Mr. DeLaria, you may now begin.

Don De Laria

Good morning. Before I begin today I would like to remind our listeners 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 10K dated February 26, 2008. All forward-looking statements are expressively qualified in their entirety by such factors.

Now I will turn the call over to Michael Campbell.

Michael Campbell

Thanks Don. Welcome and thank you for dialing in to our first quarter conference call. Today, I will provide an overview of the industry and Regal’s first quarter results, and a review of current trends in the exhibition industry, including some of our expectations regarding Box Office trends for the summer 2009 film slate.

Following my remarks, Amy Miles will provide a summary review of our financial results and as always we will conclude the call with a question-and-answer session.

Now turning to first quarter industry results, first and foremost we are happy to report that despite the difficult economic climate, industry Box Office result had not only remained resilient, but actually thrived during the first part of 2009.

On a calendar basis, industry Box Office showed growth in 10 of the first 13 weeks of 2009, and benefited from both high grossing films with five films grossing more than $100 million, compared to just two films last year and from depth in the films slate with 17 films grossing more than $50 million, compared to only 15 films in the first quarter of 2008.

Now, some industry highlights from the first quarter included, the industry's first ever billion dollar January, which was up 20.6% over the same calendar period last year led by the success of the Kevin James comedy Paul Blart: Mall Cop, which ultimately grossed $144 million.

February also generated record Box Office, finishing up 10.7% over the same calendar period in a prior year based on the success of the Taken, He's Just Not That Into You! and Tyler Perry's Madea Goes to Jail.

March proved again to be a good time to release movies with, Monsters vs. Aliens and Watchmen tallying the third and fourth highest grossing March opening weekend ever.

And also during the first quarter 3D and IMAX titles continue to resonate with consumers, with 70% of the opening weekend industry gross on, My Bloody Valentine, Coraline and Jonas Brothers coming from 3D screens.

Monsters vs. Aliens achieved an opening weekend gross of almost $60 million with over $30 million coming from 3D screens. Consumers also continued to select the IMAX experience, as over 10% of the opening weekend grosses for Watchman and Monsters vs. Aliens was generated on just 2% of the screens.

As a result of these factors, on a calendar basis, first quarter industry Box Office finished up 9.5% over the same calendar period in the prior year.

Now due to the shift in Regal's fiscal calendar in 2009, it is critically important to compare Regal’s fiscal quarterly periods with industry data that correspond to the same fiscal periods in the prior year.

For the period that corresponds to Regal's fiscal first quarter, industry sources reported an increase in aggregate Box Office revenues of approximately 2.5%. When taken together with reported 1.5% to maybe 1% increase in total industry screen count, industry Box Office per screen increased to approximately 1.5%. Amy will provide more detail with respect our results versus industry metrics in just a few minutes.

Now, turning briefly to Regal's first quarter results. We are pleased to report the following quarterly highlights; Record first quarter total revenues of $665.6 million beat the record Q1 revenue of $626.8 million a year ago.

During the quarter our average ticket price grew by 4.1% and our concession per cap grew by 5.5%. Our average ticket price benefited from both IMAX and 3D product during the quarter and we were obviously pleased with the strong growth in our concession per cap.

We are also pleased to report adjusted EBITDA of $130 million, which fell just short of a record achieved during the first quarter of 2008 that included several days during a high volume Christmas to New Year's week that were absent in the current period results.

And lastly, including the dividend announced today, we have return value to our shareholders with dividend payments totaling approximately $18.82 per share since our IPO in 2002.

More importantly, our first quarter senior credit facility amendment provided enhanced strategic and financial flexibility.

Turning briefly to our conversion to digital cinema, DCIP recently announced the completion of the Sony Studio's agreement, bringing the total number of studios that have signed with DCIP to six, including five of the major studios.

As we mentioned previously, we do not expect any remaining studio agreements to be a gating issue, as far as the timing of this roll out. The DCIP efforts continue to be focused on the financing process. DCIP is working on a rating agency review and expects the ratings process to be finished in the near-term.

DCIP is currently meeting with potential equity investors and upon successful completion of that process the next step for DCIP will be a shift in focus to the required debt financing.

The credit markets have continued to show improvement, but it is still unclear as to when they will ease enough, to allow this transaction to be funded. Obviously, this effort is a key focus for the founding members of DCIP and we continue to work diligently with DCIP to finalize the financing for the digital conversion.

With that being said, Regal continues to be ready to quickly move to a rollout of digital as soon as DCIP’s financing is secured.

Now, turning briefly to our outlook for the balance of the second quarter and the summer films slate; during the first three and half weeks of the second fiscal quarter of '09 the industry Box Office has increased to approximately 37% versus the comparable fiscal period in 2008.

We expect the ultimate success of the quarter will be driven obviously by the May and June films slate and we remain optimistic about the prospects for strong Box Office results in the coming months.

The summer blockbuster films slide begins this weekend with, X-Men Origins: Wolverine followed by Star Trek on May 8th. Then on May 15th we have Angels & Demons followed by Terminator Salvation on May 21st and Night at the Museum: Battle of the Smithsonian, on May 22nd.

Also Disney's UP!, which is in 3D debuts in theatres on May 29th followed by the next Transformers film, Transformers: Revenge of the Fallen on June 24th.

In July, we opened with Ice Age: Dawn of the Dinosaurs in 3D. On July 1st followed by the highly anticipated Harry Potter and the Half Blood Prince on July 17th, and another 3D film, G-Force on July 24th.

The timing of the film release calendar this summer appears to provide the opportunity for a number of films to generate solid Box Office results in Q2, as well as early Q3.

And while it's still too early to comment on the films slate for the back half of 2009, based on our internal review we are encouraged by the number of IMAX and 3D films included in the lineup and remain optimistic regarding the potential for Box Office success.

In summary, we are pleased with the fiscal year-to-date Box Office environment and look forward to continued Box Office success during 2009.

I would like to now turn over the presentation to Amy Miles, our CFO to discuss the company's financial performance.

Amy Miles

Thanks, Mike and good morning. Today I would like to provide additional detail on Regal's fiscal first quarter result and update with respect to our balance sheet and CapEx, as well as a discussion of the impact of the National CineMedia result for the quarter.

Regal Entertainment Group reported record total revenues of $665.6 million, consisting of $459.5 million from Box Office revenues, a $179.4 million from concessions, and $26.7 million of other operating revenues.

As Mike stated earlier, it is critically important for analysts and investors to utilize comparable periods when comparing Regal's results to those of the industry. When measured on a calendar basis and that's beginning on January 1st and ending on March 31st for both periods, industry box office increased 9.5%.

Because of the timing of our fiscal period, the industry box office during our comparable fiscal period increased 2.5% in the aggregate. Our admissions revenue this quarter increased approximately 6.4 and that’s primarily as a result of a 4% increase in our ticket price and a 2.2% increase in attendance.

Box Office per average screen was essentially flat with the first quarter of 2008 and slightly trailed the estimated industry increase and that’s due largely to screen growth variances. While screen growth for the entire industry approximated 1%, total screen count in our key markets increased at a higher rate.

Additionally based on our analysis of industry data which was provided by Rentrak, we noted that a significant portion of the quarterly Box Office growth was generated by a dozen or so regional targets that have continued to add screens primarily in tertiary market and also at a rate greater than 1%.

It is also important to note that when you are thinking about market share, it is also impacted by other factors, which are primarily film products and geographical differences.

During the quarter our Box Office results were benefited by incremental IMAX and 3D revenue. Revenue from IMAX films increased by approximately 100% in the aggregate and 6% on a per screen basis from the same fiscal period in the prior year and revenues from 3D films increased by over 185% in the aggregate and 31% on a per screen basis.

We were also pleased with our concession revenues this quarter. They increased 8% as a result of a 5.7 increase and concession per cap, and coupled with the previously mentioned increase in attendance. The majority of the increase was due to price increases and we did also benefit from a concession-friendly mix of film products during the quarter. And it's also important to note that when we analyze the impact of our pricing increase, it did not negatively impact our unit sales during the quarter.

Other operating revenues during the first fiscal quarter of '09 decreased 7.7% over the comparable period of '08, due primarily to the timing of revenue associated with the unredeemed gift certificates and discount tickets. Despite the first quarter shortfall, which relates solely to timing of gift cards and discount ticket sales, we expect total fiscal 2009 revenue from these products to meet or exceed the fiscal 2008 total.

Now, looking briefly at our expense line items for the fiscal period; Film and advertising expense, as a percent of Box Office for the current quarter, represented 50% of admissions revenue and was flat with the prior period.

We are pleased to report that concession margins increased 30 basis points over the comparable period of 2008. The 5.7% increase in our concession sales for patrons more than offset the impact of minor increases in concession cost and resulted in a concession margin of 86.7%.

Total rent expense increased $9.6 million or 11.5% due to the acquisition of Consolidated Theatres, new theatres and the normal inflationary increases. On a per screen basis rent expense increased approximately 4.9% and that is line with historical trends.

Other operating expenses increased approximately $17.3 million or 10.3% for the quarter and again that’s primarily due to result of the acquisition of Consolidated, coupled with increases in variable payroll costs associated with our increased attendance. On a per screen basis other operating expenses grew by approximately 3.9%

G&A and tax increased modestly to 15.5, and that’s inclusive of approximately 1.6 million of share-based compensation expense in the quarter. The first quarter produced solid adjusted EBITDA as Mike mentioned earlier, of a $130 million, and that crosses the $131.1 million for the same quarter last year and resulted in an adjusted EBITDA margin of 19.5%.

Both our record first quarter total revenue of $665.6 million and our $130 million of adjusted EBITDA exceeded analyst expectations for the quarter. We have also reported adjusted diluted earnings per share of $0.14 for the quarter, which was just short of the Wall Street consensus estimate.

Now turning briefly to our balance sheet and asset base, we ended the quarter with $170 million in cash and a total debt balance of just under $2 billion. As at the end of our quarter, our leverage ratio as defined by the credit agreement totaled just under three times.

During the quarter we also finalized our interest rate swap strategy and effectively extended $1 billion of interest rate swap agreements at lower fixed rates. As noted in our press release, we also adhered to a new accounting standard during the quarter, and it’s important to note that the combined impact of the adoption of this standard and the normal recurring amortization of our capital asset cost results in $3.3 million of non-cash interest charges included in our reported interest expense.

Now turning to the CapEx for the quarter, CapEx totaled $27.9 million and was offset by $0.4 million in asset sales. During the first fiscal quarter of 2009 we did not open any theaters or expand locations but closed three theaters with 28 screens bringing our total to 549 theaters, 6,773 screens.

Based on our development schedule for '09, we continue to expect full-year CapEx to be in the range of $85 million to $100 million, inclusive of $5 million of assets sales. For the remainder of '09, we expect to open three to five theatres with 50 to 75 screens and close seven to 12 theatres with 45 to 70 screens, which would result in an ending theatre count of approximately 545, and an ending screen count of fiscal 2009 of approximately 6,775 screens.

Now, with respect to our National CineMedia for the quarter; subsequent to the end of the fiscal quarter, National CineMedia concluded the annual common unit adjustments designed to adjust the founding member ownership percentages with changes in the respected number of screens in attendance. As a result of the common unit adjustments, Regal will [retain] approximately 522,000 additional common units for a total of approximately $25.4 million within our ownership now standing at 25%.

And as Mike previously stated, we are pleased with our first quarter results, were optimistic regarding the lineup of films scheduled for release during the remainder of 2009 fiscal year.

That concludes our remarks today and we now like to open up the line for any questions that you would like to ask.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Ben Mogil from Thomas Weisel Partners.

Ben Mogil - Thomas Weisel Partners

I wanted to actually talk to you about when your competitors like -- in general we see sort of the numbers coming out of the AMC which were relatively weak, they were down, I think about 6% on the box office for the same sort of fiscal quarter you guys were at.

Can you talk generally as you see sort of the market shaking out, are you gaining share from them? Are they losing share to a whole bunch of distributors? I wanted to get a sense of how you see the market sort of changing a little bit given that you guys performed a little bit weaker from last especially the overall box office, but clearly a lot better than they did.

Amy Miles

The only thing I could make comment there with respect to AMC is, really when you are looking at, I am assuming you are talking about the 8-K with some of the top-line numbers that we thought. You just have to be a little bit careful there. I think the way that I understood that was, their reported numbers included 14 weeks for the prior period and 13 weeks for this period and were slightly different from the calendar perspective.

And then as you are aware typically --you can have a slight difference in the calendar and its not going to make that much difference, but when you are talking about a difference in the calendar, for this first quarter where you might have a difference of holiday periods, it can make an impact.

So I don't have anything other specifically for AMC there. We did say that we are continuing to see some building blocks from other regional circuits at a higher rate than kind of an overall industry increase. But we are seeing increased activity from some of the regional circuits, which you would think was the real estate market, that's all temporary overtime, but I think that's a change -- that’s factor that we are seeing with respect to the overall industry.

Ben Mogil - Thomas Weisel Partners

Are these real estate builds that you are seeing from sort of similar regional circuits, are these sort of like '06 or more likely actually '07 real estate development that are now finally getting up to ground or are you guys still breaking or guys still sort of planning new stuff, even though financing market is still tough?

Amy Miles

Yeah, I think lot of times when you see openings in '09 and '08 over the past 18 months, that's defined dealers that opened up over the past 18 months. Yes, those would have been deals that were put together in that '06 or '07 time period.

So you would expect that as the real estate development slows, there is a little bit of time lag with respect to opening a theater associated with that.

Ben Mogil - Thomas Weisel Partners

Sure. Okay and I think this is last question before I get through, as obviously there are other people in the queue. In terms of sort of the concessions number that you saw, obviously very, very strong growth. As you head into summer, obviously the film slate is relatively similar in terms of percentage of films per [circuit], etcetera. Are you seeing any kind of commentary, either management level of the people sort of commenting on pricing, any kind of push back on pricing? Just want to get a sense of what we should be looking for a sale over the summer, which is meaningful in terms of concessions.

Amy Miles

No, we've not heard this comment back in the field and a another way that we try to monitor here is, just as we take on those price increases, we'll track the unit sales to make sure that any increase in price, even negatively impact the unit that we're moving.

So when we analyze that for the first quarter, we didn't see any fall off in the number -- the amount. So whenever we sell, the only thing I would say for the -- as we look forward through the year, we will start comping again some of this price increases with some in the second quarter, more in the third quarter.

So we would still expect this to be a great concession year, but we will start comping against some of this price increases, that even in the second quarter and greater percentage in the third quarter.

Ben Mogil - Thomas Weisel Partners

Okay and then lastly, then a hypothetic if the DCIP got funded today. How quickly do you think you could get the screens removed – different question the DCIP you said you got funded today based on sort of what you guys are seeing something of the capital that's going to be released.

What percentage of your screens do you think you will get -- you will convert to 3D based on what realistic capital they are going to be able to raise and how quickly could we anticipate that being done?

Michael Campbell

We can, as we have said before we can convert up to around 200 screens per month and our intention would be to frontload some of that deployment to 3D screens, but that would probably take if funding occurred today, would probably take 45 or 60 days for us to be able to gear up to begin a deployment and to equipment in the queue and on site and so on.

So from the time of funding was announced, I would allow 45 to 60 days for a start of deployment.

Ben Mogil - Thomas Weisel Partners

And is the funding that you guys are or that they are looking at is insufficient to sort of convert all of your screens to digital and a say a quarter or a third of them to 3D or is the funding that you guys are looking at not sufficient to do the entire circuit of the theatres.

Michael Campbell

I think the initial funding we are looking at we would do about 10,000 screens and the aggregate, which would obviously be provided pro rata among the three circuits and the intent would be to begin that portion of the rollout, which is going to take quite sometime to complete 10,000 screens and during that interim period, we will make a decision on how to move forward with the balance of the screens.

Operator

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

James Marsh - Piper Jaffray

Thanks. Just a follow-up on that last comment regarding the DCIP financing, I thought originally it was 14,000 or 15,000 screens we were talking about, now we're going to thinking of a slightly or materially smaller size deal, one.

And then Michael you were also mentioning equity investors in DCIP speaking and is that other common equity investors or is that just the mezz preferred financing equity investors that we had talked about before?

And then, you had a question on significant pricing, I was wondering if you had something available that stripped out the IMAX and 3D pricing from this, we call the 2D pricing?

Amy Miles

Let me start with your DCIP and then I will move to the pricing. Originally, already DCIP is to get the whole 14,000 to 15,000 screens for now. But I guess, and I can't even remember James when that was, let's say it's been over a year ago, when you could start to see some of the deterioration in the credit market, the deal was downsized to -- let's get the first 10,000 screens covered and we'll go after the subsequent financing during the process. So, obviously that 10,000 screens would cover about, let call it 70% to 75% of the founding member screens.

With respect to the equity, from a semantic perspective what we are talking about there is the mezzanine financing. And with respect to the impact, I don't have that number but I will target it round about, probably 0.5% to 1% of our increase this quarter was due to IMAX and 3D.

James Marsh - Piper Jaffray

Okay, that's helpful. And this is one last follow-up on that, new accounting standard related to interest expense, should we be run rating the annual $12 million or $13 million more in interest expense then?

Amy Miles

I mean part of that capitalization is debt cost that we had, existed prior to the amendment. The impact of the amendment on a quarterly basis is probably more $1 million to $1.5 million. Part of that amortization included in that non-cash $3.3 million already existed prior to the amendment. We were just trying to clarify what amounts of the interest expense was non-cash.

James Marsh - Piper Jaffray

Okay.

Amy Miles

If you think about this quarter and you think about interest expense because of this lot, it should trail down from this quarter to probably the end of the fiscal year to about $34 million by the fourth quarter and it is kind of stepped down flatly each quarter and that’s primarily due to the change in -- when new interest rates swaps were on and old interest rates swaps was to expire. But if you could think about it in that range and just to be clear that’s assuming modest rate in system.

James Marsh - Piper Jaffray

Okay. That’s helpful. Okay. Thanks very much. Appreciate it.

Operator

Our next question comes from the line of Tony Wible with Janney Montgomery Scott. Please proceed with your question, your mike is now live.

Tony Wible - Janney Montgomery Scott

Good morning guys. Did I hear correctly that the three premiums was a amount of percentage to a half a percentage point of the ticket price increase?

Amy Miles

That was our premiums. Everything that we did on our math and everything that we did on 3D.

Tony Wible - Janney Montgomery Scott

What are you guys thinking about what 3D could incrementally contribute, given the pipeline of 3D films for this quarter and the fourth quarter?

Michael Campbell

Well, clearly its increasing and when we include IMAX we're operating more than double the number of IMAX as we were last year. That incurs generally about a $5 premium, $5 to $6 now. Yeah, we do have more 3D films. I mentioned a few of those earlier in the presentation that we had last year coming up. So clearly its going to become a more significant number as those premiums are increasing as well.

The premium that we charged on the last 3D film, Monsters and Aliens was in that $3.50 to $4 range and most of our markets, which is from $2 - $2.50 last year. So its certainly an increasing number but we haven’t disclosed any potential impact but we're trying to let people work through that all around.

Tony Wible - Janney Montgomery Scott

And do you anticipate that 3D premium of 3.50 to $4 will be higher per film or incrementally moving faster than your typical rate increase. You have Avatar come later this year and there's been some discussion from DreamWorks that they feel like overtime consumers might be willing to pay more?

Michael Campbell

We agree with that analysis and we've been saying for the last couple of years, we think that in the near-term that premium can get to $4 to $5 and we're clearly on the lower end of that range already, but Avatar will be the first big budget live action film that will be released in 3D and we do agree that those premiums will continue to rise a bit and I think its worth noting as well that this despite of some what we've read in the press that this past increase that we saw on Monsters and Aliens, up to $3.50 to $4, we did not incur any push back in our markets on that. I think different companies chose to go with different premiums but I don’t think that that was held below the $4 to $5 because of consumer pushback.

Tony Wible - Janney Montgomery Scott

And the glasses, is there any incremental opportunity for the price of the glasses or still need to go lower?

Michael Campbell

Well we've always engaged in a model since the beginning where the studios pay for the cost of the glasses. So we are continuing to view that as a studio contribution to the equation. So I mean, there would be a benefit for somebody, but it will be neutral for us.

Tony Wible - Janney Montgomery Scott

Okay. Great. And the last question I had here is, just what are your thoughts on the pipeline of films for the second quarter particularly to the concession sale. Do you feel it’s pretty supportive of concession sales given the mix?

Amy Miles

I think when you look at it it’s always a -- you talk about a screen of just big blockbuster pictures, those are always the kind of concession films that we like to see. So I think today we would say, we feel comfortable with the film slate as it -- and how that would impact concession.

Operator

Thank you. Our next question comes from the line of George Hawkey from Barclays Capital. Please proceed with your question. Your mike is now live.

George Hawkey - Barclays Capital

Hi, thanks for taking my question. It’s a follow-up on 3D, I think there is a lot focus on that today, but I just wanted to understand what the incremental margin might be. So if you pull in a $3, $3.50 up charge, even split the ticket with the studio 50-50, you pay about $0.50 to Real D and then the remainder of that is share margin or is the cost I guess [ticked] for that?

Michael Campbell

Yeah, it’s margin. I mean, we haven’t disclosed exactly what our deal is with Real D, but you’re probably not too far off when you say $0.50. And some companies have different deals, I’m sure with the different providers. But yes, it’s incremental margin, we split that balance the same way with the studios as we do any other type of split that we’ve typically incurred on a film.

George Hawkey - Barclays Capital

Okay. And so using the run rate and the -- I guess, the percentage increase given for this quarter, should we think about that on a larger scale, moving into the second, third and fourth quarters, because of the increase in 3D content?

Michael Campbell

I think clearly, its enough of a trend overtime, both for the increased premium attached to it as well as greater number of films but it all goes down to how those films ultimately perform. But I think you would expect some continued improvement and enhancement as time goes on, yes.

Operator

Thank you. Our next question comes from the line of Mathew Harrigan from Wunderlich Securities. Please proceed with your question. Your mike is now live.

Mathew Harrigan - Wunderlich Securities

Hi, good morning. Thanks for taking my questions. Two questions, one that’s a pretty [profound] symmetry either to adjust for the size of the auditoriums on the 3D results, for IMAX versus RealD. Are getting a gradual rebalancing there or is it just more a matter of educating the consumer on RealD. I heard various opinions of the some people I see that think that some of that the quality on 3D, say RealD is better than IMAX but it doesn’t seem to have quite the marketing cash eggs?

And then the second question, after 9/11, you did see some brief effect on theater attendance that came back very quickly. Are you concerned that people are going to be a little bit turned away about this [stage one and N1] warning and if this could actually affect the next couple of weeks of attendance. I know it’s kind of a ridiculous question, but I still want to get your thoughts on it.

Michael Campbell

Okay, Matt. We might be working backwards, relating to the swine flu virus. I mean, we'd have pretty established plans and procedures in place to address the impact of these type of situations on our staff and customers. And these have all been implemented, we have issued directive throughout the management staff to ensure that the facilities are safe for both staff and guests. And we are also monitoring in following the directions and guidance of state and federal health officials to assure that our guests and staff are safe.

That being said, we'll continue to monitor this situation. I think as many things in the press happened to be that's overborne a little bit and we have been there before, not to trivialize it, but we have seen no impact so far on any attendants in any market in the theaters, but we'll continue to monitor that and be mindful of that.

As far as the RealD versus the IMAX experience, IMAX is a powerful brand and its not just a visuals and the size of the screen, let say, it's got the best sound system in the world according to most people.

So, we are seeing that when we run RealD versus 2D, the RealD screen show a multiple of two to three times the attendance that you are getting out of a 2D screen while the IMAX will run five to six times.

We view this actually as a very viable market going forward where IMAX remains at the top of the food chain. Its long, established as a powerful brand, attached is a higher premium. RealD, 3D is somewhere between IMAX and 2D, and we think it's gives the customer maximum flexibility in choosing.

Mathew Harrigan - Wunderlich Securities

I thought when the last [Academy] movie came out in the opening weekend; the 3D screens were about 28% of the screen. I project 56% or 58% of the gross, which would imply that the out-performance wasn’t quite as market as that. The defect of those numbers are in your instance, I mean how do you realize it was consistent like two to three actual RealD over the life of the run, but you are pretty confident of that with respect to Monsters vs. Aliens?

Michael Campbell

Yes, we still see things in that range on average. We said earlier some films and just as an example this film, My Bloody Valentine, which was we're very successful, low budget 3D film. There was a much higher attendance on a 3D screen versus some of the others. I think this was high as seven times the 2D screens. But I think that was more of a gimmicky film, but I think in most of these main stream films, you can expect that two to three times and that's been consistent with our experience.

Mathew Harrigan - Wunderlich Securities

Great. Thank you.

Operator

Thank you. Our next question comes from the line of Jake Hindelong from Monness, Crespi, Hardt. Just proceed with your question, your mike is now live.

Jake Hindelong - Monness, Crespi, Hardt

Just want to looks on the concessions and other theater lines, you addressed it earlier in the call but after two consecutive quarters of very strong concessions, when you do about last year's pricing increases, seeing as you haven't got push back, do you think that in the second half, you could again increase prices on concessions?

And then beyond that is there a product mix that you could be adding, which would also continue to drive higher concessions per cap?

Amy Miles

I think what we said to the product mix like, take for example, about 18 months ago we did roll out a pizza strategy and again that would hard, as do you figure out how to move your per cap by providing incremental products that fits in that. You are not constantly raising your concession per cap or price increases that you trying to find other to supplement that and that was part of our pizza strategy.

So some of that we've done and we continue to look for opportunities. We've invested in those pizza strategy and what else can we use on a similar strategy. And then I think with respect to pricing, we'll just have to kind of monitor that each quarter, but didn't need to do that if the film product mix looks good, for as we look out over the next several months from that perspective and I think we are just going to -- it is hard to say today where we have continued to get those increases as soon after you took them in the third quarter of '08, I believe was our last kind of large scale increase, but it definitely something that we constantly monitor.

Jake Hindelong - Monness, Crespi, Hardt

Great I think and I just want to go back to the comment that you made during the prepared remarks on other theatre revenues, is that on a per cap or an aggregate basis that see in fact were up for the year?

Amy Miles

Aggregate.

Operator

Thank you. Our next question comes from the line of Barton Crockett with Lazard Capital Markets. Please proceed with your question. Your mike is now live.

Barton Crockett - Lazard Capital Markets

Okay great. Thanks a lot for taking the question. I wanted to ask you a bit more on the cost the 3D glasses. Fox said and the process they recorded that so they wanted theatres to cover the cost of glasses for Ice Age 3? Have they backed off that or is there still some thing that needs to be resolved there?

Michael Campbell

Our understanding is that they will provide glasses as all other studios have provided glasses up until this point. Regarding the cost, I think the cost of glasses will continue to come down. At one point in time they were a dollar a pair, I think the latest numbers I have seen are $0.65 to $0.75 a pair, but we have been assured by Fox that it is business as usual.

Barton Crockett - Lazard Capital Markets

Okay, that's interesting and the other thing I wanted to ask you about was AMC has announced a deal to install 4K projectors I think from Sony. My understanding is that with 4K projectors more expensive that a 2K projector. Wouldn't that incremental cost would be covered by DCIP. I was wondering if that does impact the rate then or if there is any incremental spend you guys might have to do about DCIP financing on projectors to kind of match what AMC is doing?

Michael Campbell

We're still analyzing our circuit, I mean we've tested all types of equipment including 4K and it is true that there is an outside today if I slide incremental cost over 2K, that gap has been narrowed substantially over the last couple of years. But we haven't announced any specific manufacturer that we're going with the deal but we have a clear reason -- I mean we've analyzed the 4K as well as the 2K, and should we go with 4K, clearly there will be a bit of incremental cost there, but it's not nearly as dramatic as most people would think based on where we were a couple of years ago.

Barton Crockett - Lazard Capital Markets

Okay. And then could you update us on -- DreamWorks has said that the number of 3D screens in the industry compute about 3,000 versus 2,000 when they open Monsters. Have you guys added 3D screens that is coming due or no?

Michael Campbell

We're up to about 240 screens currently and we would expect to have a few more screens as the year progresses. I mean certainly, there would be substantially more if and when DCIP gets funded by the end of the year, hopefully for Avatar. But clearly, even without DCIP due to further testing and certain things that we're doing, we'll have a few additional screens.

Michael Campbell

Thank you.

Operator

Thank you. Our next question comes from the line of David Miller with Caris and Company. Please proceed with your question, your mike is now live.

David Miller - Caris and Company

Hi, good morning, just one question. You guys mentioned in your prepared remarks that the DCIP consortium is working on a ratings agency review, what exactly would be the timing of that? And what kind of ratings would have to come out of that in order to see this thing through at the terms in which you envisioned, so that this thing ramps up fairly quickly? I'm just wondering if you could flush that out a little bit?. Thanks.

Amy Miles

We'd like to see an investment grade rating here and I think with respect to timing, we said in the near term the process has been going on for several weeks. So hopefully it will conclude over the next, hopefully there is not more than a couple of weeks left with respect to the rating agencies.

David Miller - Caris and Company

Thank you.

Operator

Thank you. Our next question comes from the line of David Goldberg with Morgan Stanley. Please proceed with your question. Your mike is now live.

David Goldberg - Morgan Stanley

Good morning and thanks for taking the question. John asked you 3D screen growth and so on there. You guys sound very bullish on IMAX, just curious how fast did you grow the screens and how many screens you are at currently and where you expect it to be by the end of the year. And then also not to delay but the point on concessions, but just curious how the mix is going on the pizza of strategy and whether or not you have seen behavior really shift in terms of consumers for going the down part of dinner movie that kind of migrate more towards movie and your pizza option.

Michael Campbell

Okay it maybe walking backwards, with the pizza of option, I mean we introduced this mid year last year and we’ve actually sold a coupe of million pizzas since introduction which exceeded our expectations. I don’t know that we are changing the majority of people's habits but I think it is an alternative for people who are on the run, who want to say look even I can at least get a fast food type dinner in this particular picture theater as well as other concession products. We haven’t seen any cannibalization on existing sales, which is always something to be vigilant on clearly pizzas don’t carry the margin that hold, cold and soft drinks do. So anything we introduce we want to be sure its incremental and not cannibalistic.

IMAX screens we have been showing a new business model with IMAX and we announced that we would be up to around 50 IMAX screens by the end of this year. We are still on target to be there. We are around 40 IMAX screens in operation currently and bear in mind that IMAX is somewhat of the -- it’s a territorial model and not every theatre is going to have an IMAX because of the way IMAX protects territories to a certain extent. So I think we'll have pretty good coverage in conjunction with some of our competitors by the end of this year as it relates to the IMAX format.

David Goldberg - Morgan Stanley

Okay and just a one follow-up on rental expense. I think you guys have said in the past that your rents are mostly fixed for long period of time but just curious to see any benefit there maybe in 2010, 2011 as current leases roll off and you feel you should maybe benefit or is there any ability to renegotiate prices?.

Michael Campbell

Well I think certainly as leases roll off there is always an opportunity to renegotiate there because it needs a special purpose buildings. And to the extent we want to stay in a location there's a goof opportunity for renegotiation. I think that is somewhat enhanced by the current economic climate but I wouldn’t factor that, I mean I wouldn’t factor that as a major driver of any of our results during that period of time. We will be opportunistic and take advantage of those situations wherever we can.

Operator

Thank you. Our next and final question comes from the line of Eric Wold with Merriman Curhan Ford. Please proceed with your question, your mike is now live.

Eric Wold - Merriman Curhan Ford & Co.

Thank you. Good morning. Amy, do you mind kind of walking through I guess on a pro forma basis if you can with the newer -- kind of a lower interest rates you got on the swaps that have taken place, what that savings should be on a quarterly basis on interest expense?

Amy Miles

Yeah, I think if you look at our interest expense and you think about the swap, in the second quarter of ’09, we’ll have approximately $950 million of our debt will be swaps and the fixed rate there we expect it to be about 7.6. In the third quarter of ’09, we will have $1.2 million of debt swaps, and the rate goes down a 100 bps to 6.6. And then for Q4 period, we would expect the rate to get down to 5.82 with respect to the swaps.

Now again, there’s still a variable rate portion of the debt which you can resolve that. On the senior credit facility above that amount would obviously be variable, and as long as LIBOR stays consistent then you wouldn’t expect much movement with respect to interest expense there. And so you can see that the rate move from, you know, 5 to 7.6 down to 5.8 over the course of the year with respect to the swaps.

Operator

Ladies and gentlemen, there are no further questions at this time. I’d like to turn the floor back over to management for any closing comments you may have.

Michael Campbell

Certainly I appreciate everyone dialing in today. And just one final note, we’re going to be hosting -- Regal’s going to be hosting an Investor Day on May the 12th, at our Regal E-Walk Stadium 13 in Manhattan. So we hope to see you all there. Thank you very much.

Operator

Ladies and gentlemen, this does conclude today's conference. You may disconnect your lines at this time. And we thank you for your participation. Have a wonderful day.

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