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Regal Entertainment Group (NYSE:RGC)

Q4 2009 Earnings Call

February 16, 2010 4:30 pm ET

Executives

Amy Miles - Chief Executive Officer

David Ownby - Executive Vice President, Chief Financial Officer and Treasurer

Don De Laria - Vice President of Investor Relations

Analysts

Alexia Quadrani - JP Morgan Chase

George Hawkey - Barclays Capital

James Marsh - Piper Jaffray

Barton Crockett - Lazard Capital Markets

Aaron Watts - Deutsche Bank Securities

David Miller - Caris and Co.

Eric Handler - MKM Partners

Tony Wible - Janney Montgomery Scott

Ben Mogil - Thomas Weisel Partners

Matthew Harrigan - Wunderlich Securities

Joe Hovorka - Raymond James

Operator

Greetings, ladies and gentlemen, my name is Jenn and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Regal Entertainment Group fourth quarter 2009 earnings release conference call. All lines have been placed on mute to prevent any background noise. After managements’ remarks, there will be question-and-answer period. (Operator Instructions)

I would now like to turn the call over to Don De Laria, Vice President of Investor Relations; please go ahead, sir.

Don De Laria

Good afternoon. Before we begin today, I’d like to remind our listeners that this conference call contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended. All statements other than statements of historical facts communicated during this conference call may constitute forward-looking statements.

These forward-looking statements involve risks and uncertainties. Important factors that can cause actual results to differ materially from the company’s expectations are disclosed in the risk factors contained in the company’s Annual Report on Form 10-K dated March 2, 2009. All forward-looking statements are expressively qualified in their entirety by such factors.

Now I’ll turn the call over to Amy Miles.

Amy Miles

Thanks Don. Welcome and thank you for dialing into our fourth quarter conference call. Today, I will provide an overview of the industry and Regal’s fourth quarter results, and update regarding the status of DCIP and finally a brief recap of the 2009 fiscal year and a look ahead at the film slate for the remainder of the first quarter and the rest of 2010. Following my remarks, David Ownby will provide a summary review of our financial results and as always, we will complete the call with a question-and-answer session.

Now turning to the industry results, first and foremost, we’re happy to report that the box office success of Avatar and other films in the fourth quarter pushed industry box office for 2009 over the $10 billion mark for the first time in history. The total 2009 industry box office take at $10.6 billion represented a 10% increase over the prior year and benefited from both the wider availability of premium, movie-going experiences and from an estimated 5% to 6% growth in industry attendance.

The industry results were driven by both high grossing tent pole titles and by the depth for the film slate. Seven films released in 2009 reached $250 million in domestic box office revenue and that compares favorably to only three films in 2008 and a total of 32 films grossed at least $100 million domestically.

A significant portion of the industry growth for the year was generated during the fourth quarter as box office revenue increased by over 19% as compared to the same period last year. Industry highlights for the fourth quarter included a record November box office, which included two key films, the Twilight: New Moon that ultimately grossed just under $300 million and The Blind Side that ultimately grossed just under $250 million.

During the fourth quarter, the movie-going publics continued preference for the premium experience was again evident, as more than 70% of the opening weekend grossed for both A Christmas Carol and Avatar was generated by 3D and IMAX strengths. Finally, the quarter ended with the phenomenal success of Avatar, which grossed over $275 million in 2009 and just earlier this month passed Titanic to the kind of the highest-grossing film of all times and that’s both domestically and internationally.

We are obviously very pleased with the industry box office results for both the fourth quarter and the full year and believe they clearly demonstrate both the continued consumer demand for out-of-home entertainment and the resiliency of the moving-going experience in a difficult economic environment.

Now turning to Regal’s result, Regal also benefited from the strong industry box office and achieved growth and admissions revenue, total revenue and adjusted EBITDA for the fourth fiscal quarter and for the fiscal 2009 year. It is important to note that we achieved these results, despite the negative impact of the shift in our fiscal calendar. As a reminder, both our fourth quarter and full year contained one last week in 2009 than they did in 2008. David will provide additional details with respect to the impact of the calendar shift in just a few movements.

Looking specifically at the fourth quarter, our admissions revenue increased by over 10% versus the prior year and exceeded last year’s record fourth quarter by almost $50 million. The increase was driven by an 8% increase in our average ticket price, combined with a 2% increase in attendance.

Our results continue to benefit from the popularity of premium content and from our decision to install additional digital screens ahead of the completion of the DCIP financing and 14% of our admissions revenue were generated by our RealD, 3D, and IMAX screens. Additionally, I’m very pleased to report, that our fourth quarter box office increase was in line with the industry increase reported by Box Office Mojo for the periods that corresponds our fiscal calendar.

Some highlights for our 2009 year include the following. We generated record admissions revenue of just under $2 billion and record total revenues of almost $2.9 billion for the year. Our healthy increases in both box office and concession revenue combined with our focus on managing both variable and fixed cost, helped us achieve our highest ever annual adjusted EBITDA of approximately $560 million.

We’re also pleased to report that our customer loyalty program, the Regal Crown Club, continued to exceed our expectations and currently includes $6 million active members. This program is by far the largest loyalty program in the industry. During the past year , we also continued to focus on our premium experience strategy.

We more than doubled our IMAX-equipped auditoriums and ended the year with a total of 42 IMAX screens in operation. We continue to believe that the quality of the presentation in these auditoriums, combined with the brand recognition associated with the IMAX name allows us to charge our highest premium, which is $5 in most locations , this is in addition to generating incremental attendance at these locations.

We also expect our IMAX screen count to continue to grow in the coming year and reach approximately 50 by the end of 2010. We also continue to expand our digital 3D screen count during 2009, and we ended the year with 427 3D screens in 308 theatres across the country. The completion of the DCIP financing will drive further expansion of our 3D footprint and we expect to have 527 3D screens by the end of the first quarter and 1,100 to 1,200 3D capable screens in operation by the end of 2010.

We are excited about the potential box office growth created by the combination of an increase in the number of 3D screens coupled with the studios continued commitment to releasing 3D films.

Now turning to an update on DCIP, we are pleased to report this afternoon that all material business points related to the DCIP financing have been fully negotiated and we expect that the transaction will close in the next couple of weeks. The basic terms of the financing are as follows: a five year delayed draw term facility of $445 million, junior capital of a $135 million, and a combined equity contribution of $80 million from these three exhibitors.

The initial funding is expected to finance the conversion of a majority of our circuit. Our rollout effort will ramp up quickly over the next 60 days and will focus initially on maximizing our 3D footprint throughout the country. Once the rollout is in full swing, we expect to install approximately 150 to 200 screens per month. David will provide additional detail regarding the impact of the DCIP financing on our financials later in the call.

Obviously, we are very happy to be moving forward with our digital rollout after numerous delays and believe the completion of the financing can create an opportunity for us to further capitalize on 3D technology and the premium movie-going experience.

Now looking forward to fiscal 2010, as we have previously stated, the industry continues to generate solid box office revenues and we remain optimistic regarding box office potential for 2010. Through the most recent weekend in February, the industry box office is up approximately 4% versus the prior period, benefiting from strong follow on performances from Avatar and other holiday films, as well as strong business generated by The Book of Eli, Dear John, and most recently Valentine’s Day.

For the remainder of the quarter, we are particularly excited about Tim Burton’s adaptation of Alice in Wonderland, featuring Johnny Depp in 3D and IMAX 3D, and the DreamWorks film, How to Train Your Dragon, also in 3D and IMAX 3D. As we look past the first quarter, we are optimistic about films scheduled for release for the balance of 2010. The slate is filled with both exciting new titles and a significant number of proven franchise films.

The summer season will begin on May 7 with Robert Downey Junior in Iron Man 2, and continue the following weeks with Shrek Forever After, and Disney’s Prince of Persia, Sex and the City 2, as well as Toy Story 3. The July 4 holiday weekend will feature the third chapter of the Twilight franchise, Eclipse, followed by the animated 3D film, Despicable Me, and Inception from the Dark Knight Director, Christopher Nolan.

Finally, the fourth quarter film slate is still taking shape. The key titles already on the calendar include DreamWorks Megamind, Harry Potter and the Deathly Hallows, Part 1, the third chapter of the Chronicles of Narnia series, Tron Legacy, the Green Hornet, and Gulliver’s Travels.

We continue to be encouraged by the studios commitment to releasing premium content. There are currently 19 3D films and nine IMAX films scheduled for release in 2010, including many of the titles I just mentioned. We’re optimistic about the potential growth for box office created by continued increases in the availability of premium content, and by the mix of new and proven titles included in the 2010 film slate.

In summary, we are definitely proud of the company’s 2009 accomplishments and we were pleased with the record setting box office year. As we move to 2010, we will diligently focus on the rollout of digital and 3D technology. We remain committed to maximizing the revenue and cash flow associated with our premium content opportunities, and to providing a quality theatre experience to our patrons.

I would now like to turn the presentation to David Ownby, our CFO, to discuss the company’s financial performance.

David Ownby

Thanks, Amy, and good afternoon, everyone. For the next few minutes, I’ll provide a brief discussion of our fourth quarter and annual results, some additional detail regarding the DCIP financing and its effect on our financial statements, an update with respect to our balance and capital expenditures, and finally a summary of our capital allocation strategy for 2010.

As we review our fourth quarter and annual results, I want to again reiterate the importance of understanding our fiscal calendar. In particular, please note that the comparability of our results for both the fourth quarter and the full year to the prior periods were negatively impacted by a shift in our fiscal calendar.

Specifically, the calendar shift resulted in a 13 week period for the fourth quarter of 2009 as compared to a 14 week period for the fourth quarter of 2008, and a 52 week period for fiscal 2009, and a 53 week period for fiscal 2008. I will discuss the specific impact of the calendar shift a bit later in the call.

For our fiscal fourth quarter, we generated total revenues of $765.6 million consisting of $527 million from box office revenues, $198.7 million from concessions, and $39.9 million of other operating revenues. Our admissions revenue this quarter increased 10.1% as a result of a 1.9% increase in attendance, combined with an 8% increase in our average admission revenue per patron.

As Amy mentioned earlier, our fourth quarter box office per screen increase of 10.4% was in line with the broader industry results. As in previous quarters this year, our box office results continued to benefit from the strong performance of premium content. During the fourth quarter, our combined revenue from IMAX and 3D films represented 13.9% of our admissions revenue and accounted for just over half of the 8% increase in our average ticket price.

Concession revenues this quarter increased 2.7% as a result of the previously discussed attendance gain and an increase in our concession per caps of just under 1%. The increase in our concession per caps was driven primarily by selective price increases, and was somewhat offset by a film slate that was less concession friendly than that in the prior year.

Now looking briefly at our expense line items for the period, film and advertising expense as a percent of box office for the current quarter represented 52.9% of admissions revenue. Film rental and advertising expenses increased by 160 basis points over the prior quarter, primarily due to the success of Avatar and other high-grossing films.

For this quarter, the top three films generated approximately 29% of our box office revenue as compared to only 21% for the top three films in last year’s fourth quarter. Our concession margins increased 50 basis points over the comparable period in 2008, resulting in a margin of 86% for the quarter. A small increase in the amount of vendor marketing revenue reported as a reduction of concession cost combined with the impact of selective price increases were the primary drivers of the margin improvement.

Total rent expense increased $0.7 million, or 0.7% due to the impact of 78 screens added in last 12 months, partially offset by the closure of 11 theatres during that same time period and by our ability to renegotiate leases on slightly more favorably terms at a handful of locations .

Other operating expenses increased approximately $9 million, or 4.6% for the quarter due primarily to an increase in the license fee costs associated with increased RealD and IMAX revenue, normal inflationary increases in non-rent occupancy costs and increases in commissions paid to third party sellers of our gift cards.

The fourth quarter produced adjusted EBITDA of $156.8 million versus $145.8 million for the same quarter last year and resulted in an adjusted EBITDA margin of 20.5%. Both our adjusted EBITDA and our adjusted earnings per share of $0.27 came in ahead of consensus Wall Street estimates.

As I mentioned previously, the shift in our fiscal calendar has had a significant impact on the comparability of both our quarterly and annual results for 2009, that impact is best illustrated by comparing our actual fiscal 2009 results to our 2008 results adjusted to exclude the 53rd week.

We have estimated that if fiscal 2008 had included only 52 weeks of operations as opposed to the reported 53, we would have reported just under $2.7 billion of total revenue and approximately $507 million of adjusted EBITDA. When compared on an apples-to-apple basis, our fiscal 2009 total revenue grew by just under 8% and our adjusted EBITDA grew by 10.4%.

We realized the shift in our fiscal calendar resulted in a bit of noise in our reported information during the past year and we appreciate investors’ willingness to take the few extra minutes necessary to understand our fiscal calendar when analyzing our results. Before we move on to the balance sheet, I’d like to spend just a minute discussing the impact of the DCIP transaction on our financial segments.

As Amy indicated earlier, the terms of the financing called for a contribution of $80 million from the three exhibitors. Our share of that initial contribution will include a combination of our existing digital equipment and cash. In addition to our initial capital contribution, we also expect to make additional contributions during the rollout period to cover any costs in excess of the amount funded by DCIP.

We expect these initial contributions to total approximately $5 million to $8 million per year during the three year rollout period. Both our initial contributions and our ongoing contributions will be presented on our balance sheet as an investment in DCIP and accounted for using the equity method.

While the vast majority of the cost of converting to digital cinema will be funded through virtual print fees collected from the studios, our agreement with DCIP also contains a provision that requires the exhibitors to pay a nominal lease payment of $1,000 per screen per year for the term of the agreement. This expense will be reflected in our other operating expense line as we begin the expanded rollout.

Finally, the closing of the transaction and the beginning of the rollout will cause us to accelerate the depreciation of the remaining book value of our legacy 35 millimeter projectors. Based on our installation schedule, we expect to record incremental depreciation expense of just under $19 million in 2010.

Now looking briefly at our balance sheet and asset base, we ended the quarter with approximately $328 million in cash and a total debt balance of just under $2 billion. As of the end of the quarter, our leverage ratio, as defined by our senior credit facility, was approximately 2.7 times.

With our current capital structure and interest rate swap portfolio, we expect our 2010 quarterly interest expense to be approximately $38 million, including approximately $3.4 million of non-cash interest. Capital expenditures during the fourth quarter totaled $22.5 million and were offset by $0.4 million of asset sales.

During the fourth fiscal quarter of 2009, we opened two theatres with 21 screens, and closed two theatres with 28 screens, bringing our totals at year end to 548 theatres and 6,768 screens. Also, as we have previously stated, we believe that the turmoil in the credit markets over the last 18 months will continue to have an impact on real estate development in the near term.

As a result, we think our building program will continue to be slower than normal, and expect our 2010 capital expenditures to be between $75 million and $90 million. For 2010, we expect to open one to two theatres with 15 to 30 screens, and close 6 to 10 theatres with 50 to 80 screens, which would result in an ending theatre count of approximately 541 and an ending screen count for fiscal 2010 of approximately 6,725.

Finally, I’ll provide a few comments on our capital allocation strategy for the upcoming year. As has always been the case, we will strive to allocate our capital resources in ways that we believe provide the best long term benefit to our shareholders. We will continue to carefully evaluate the alternatives available to us, including growing the company through acquisition or new build activities; improving the company’s balance sheet; and returning value to shareholders.

As we look ahead to our capital allocation priorities for 2010, we believe that our primary objectives must be to verify that our expectations for the digital and 3D rollout are achieved, and that we execute our plan for dealing with our near and mid-term debt maturities. In summary, as Amy previously stated, we remain optimistic regarding the 2010 film slate, and are pleased with our results for both the fourth quarter and the full year.

This concludes our remarks and we will now open the line for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Alexia Quadrani - JP Morgan Chase.

Alexia Quadrani - JP Morgan Chase

A couple of questions, first on your pricing expectations for 2010, do you expect to price 3D more aggressively this year, working toward that $5 premium target?

Amy Miles

Yes, I think what we have said historically is that as you continue to see bigger budget films be offered in a 3D format, that you would expect over time that we would continue to increase our premiums. If you look right now at Regal, we lead the industry in a lot of places with respect to 3D pricing. Right now, our premium, when you include IMAX, ranges from $3.50 to $5, based on the marketplace and we’ll continue to look for opportunities to increase that premium as we move forward.

Alexia Quadrani - JP Morgan Chase

Then also on a different topic, the shrinking of the release window has gotten a lot more press lately , with comments from Disney’s CEO and their plan to put out Alice in Wonderland and possibly other future releases that come to DVD sooner than usual. Can you update us on any conversations you’ve had with Disney or other studio heads regarding that release window?

Amy Miles

I think the way that you first kind of presented your question was more with respect to how this is presented in the press and there obviously has been a lot of press over this issue over the past couple of days and I think it’s important that investors keep in mind that the actual discussions between exhibitors and distributors will often vary from these press reports.

That being said, we have, at Regal, proactively met with all major studios just recently to discuss how we can work together with the studios to be partners in an environment, where they are clearly facing a change in the business model. Obviously, our recent discussions would have included the topic of theatrical windows and we clearly here believe that a theatrical window benefits both the studio and exhibitors and I think a key takeaway is we heard that same opinion from all our studio partners.

So, to clarify, each one of these discussions with the studio, none of them would have indicated that any studio has any type of plans for a wholesale change in the windows model. And so from our perspective, a studio’s commitment to a window, as well as to a release schedule that’s going to provide a release of key films throughout a fiscal year.

If you couple that with a slightly shorter in home window for a couple of pictures a year, that will obviously work for our side of the business and really, in fairness, that’s not that different from what’s been occurring in the marketplace over the past couple of years anyway.

Lastly, I think you also have to remember that the theatrical side of the distribution chain has been clearly outperforming and the theatres currently represent the only mass audience 3D venue today and for the foreseeable future. All of those are going to work to our favor in any kind of windows discussion.

Alexia Quadrani - JP Morgan Chase

Any impact do you think on your theatres from the big snowstorms we’ve seen in the East Coast recently?

David Ownby

Nothing significant. I mean, obviously, we have a large national footprint, so any of those regional variations can have a small impact but nothing significant.

Operator

Your next question comes from George Hawkey - Barclays Capital.

George Hawkey - Barclays Capital

I had two questions related to 3D. The first is, relative to the article in the Wall Street Journal today talking about, I guess, the windows of release being compressed by the 3D films being stepping on one another’s grosses, especially, for example, Clash of the Titans and Alice in Wonderland, and How to Train Your Dragon or the Disney Tangled film and Megamind, how do you think those grosses will be impacted if at all? How do you think that will roll through for Regal?

Amy Miles

Let me try to take your questions separately here. First, as it relates to the spring, obviously, from a 3D perspective, you have the first picture in early March being Alice, and you have essentially three to four weeks there before How to Train Your Dragon comes out; and then the next week, obviously, you have The Clash of the Titans. So, we have, as we said, continued to increase, just here at Regal, our 3D screen count.

We are at 427 at the beginning of the year and expect to be at 527 by the time at least the latter part of March, some of those will be in place as early as Alice, and what we have done, is we have what I’m going to refer to as redundant systems. So, in a lot of our large megaplexes, we have installed two or three screens. So at least from the short term, that is how we will have to deal with multiple releases over a short time period, but we are in a better position because of the redundant systems where we can better serve the 3D screens -- the more crowded 3D release schedule over that time period. And then as you move into the holiday period of next year, it gets a lot better. A lot of this, you have to remember, is just a short term timing issue. It’s unfortunate for these pictures, but as we move throughout the year, we expect in the year with a 1,100 to 1,200. So by that time, we have pretty much filled out our 3D rollout, and we’ll be in a position to better satisfy the demand for 3D pictures.

George Hawkey - Barclays Capital

Final question is, where exactly can we expect to see the roll through of the 3D rollout? Like, the projectors are purchased through DCIP, but then the contracts with RealD are going to be seen through CapEx, or through operating expense line?

Amy Miles

Remember that our investment in RealD from a capital perspective was primarily the silver screen and I believe that we already have approximately 1,200 of those silver screens installed and paid for and those were put in place primarily in the end of 2008 and the 2009 fiscal year.

David Ownby

George, we just absorbed that into our normal maintenance CapEx program.

Amy Miles

Then with respect to further payment to RealD, remember those were all on a per-ticket basis, so you won’t see that running through the CapEx, it runs through the operating statement.

David Ownby

It does show up on our other operating expense line, George.

Operator

Your next question comes from James Marsh - Piper Jaffray.

James Marsh - Piper Jaffray

Two quick questions; first, David, on DCIP, is all the senior debt going to be the delayed draw facility, or is there going to be a revolver related to that as well?

David Ownby

There is a revolver as well.

James Marsh - Piper Jaffray

I know there was talk of an incremental facility being planned with that. Is that still going forward?

David Ownby

I’m not exactly sure. Do you mean an incremental facility for DCIP?

James Marsh - Piper Jaffray

Yes, I thought there was like a $200 million incremental facility?

David Ownby

No, that is not going to happen.

James Marsh - Piper Jaffray

When this DCIP financing is done, what percentage of your digital deployment do you think will be complete?

David Ownby

In this first round of financing, some of this depends, James, on how the model performs going forward; but probably in the neighborhood of 70% of our screens will get converted in this first wave of financing.

James Marsh - Piper Jaffray

Amy, just wanted to follow-up on your comments related to the premium content, and then you mentioned IMAX with a $5 premium plus the incremental attendance. It seems to be going extremely well. I just wondered, do you think the market is bigger for IMAX than you previously thought? If so, would you explore putting in more IMAX screens? If you did, would you look at JVs versus buying them outright? I mean, what’s the thinking there on the IMAX strategy long term?

Amy Miles

Yes, I mean, what we stated previously there, James, is we have 42 IMAXs, and to finish our commitment to IMAX, we’ll have 52 IMAXs at that point in time. But we do see, when we look across the U.S. and we look at the performance of IMAX across various markets, that there would be incremental opportunities for additional IMAX screens.

Now with respect to how we would model those, I mean, I think that just remains to be seen. We obviously have a joint venture deal for the remaining 10 and then we just have to do an economic analysis to see what makes sense for any that we would do above our commitment of 52.

Operator

Your next question comes from Barton Crockett - Lazard Capital Markets.

Barton Crockett - Lazard Capital Markets

I was wondering if you can talk a little bit about the impact on other operating expense of all these changes, I mean, you’ve got $1,000 of rent per screen, which will kind of roll out, it’d be like $6.7 million or so in there. You’re spending more on RealD and IMAX tickets, and you are announcing 19 of those movies.

On the other hand, though, I would expect that there would be some opportunities for expense savings as you roll out digital and perhaps get to essentially manage operations to a greater degree in your theatres. So I was wondering if you could give us a little bit better sense of, first, assuming kind of a flat audience environment next year as just a base scenario, what would you expect other operating expense to do? What would you expect the impact of digital to be on your expense line?

David Ownby

Yes, I think, Barton, the way we should think about that is, let’s put aside the DCIP and the RealD and IMAX costs for just a second. The base of those costs in that line item, we’ve talked about this before, is about 40% to 45% of that number is payroll; 40% to 45% of that number is non-rent occupancy cost; and then there’s kind of, I’ll call it 10% to 15% of other stuff.

Obviously, payroll to some extent is going to fluctuate with attendance, but assuming that attendance is flat, then we would assume that payroll kind of stays in a pretty tight band; and then the other costs there are more subject to kind of normal inflationary increases, and payroll, to some extent, as well.

So, if you exclude the DCIP, the IMAX and then the RealD cost, historically, if you look at that line, I think we’re up about 2.5% to 3% and we would expect that to be the same going forward. And then you can model in your assumptions for how much RealD and IMAX business we do, and in addition to the DCIP lease payment on top of that.

Barton Crockett - Lazard Capital Markets

As we’re in a situation right now where the studios are competing for screen space for the screen slate of movies, is there any opportunity for you to get some breaks on what you’re paying for film rent? In that same context, is there any opportunity to get some brakes on film rent, as the studios experiment with windows as kind of an offset for that?

Amy Miles

I think with respect to a film slate, remember that most of our studio deals are based on the performance of that film in the box office and most of our deals that we’ve already negotiated are actually tied to how much that picture generates. So I would not expect that to change based on the scheduling over the spring.

I think at this point, again, as we’ve talked about windows and we’ve talked about kind of working in partnership with the studios, it would be pre-mature to speculate and even inappropriate at this time to talk about any type of change in our relationship with the studio, when we’ve indicated that, with respect to these windows, we don’t see a business model change here. So I think it’s just not appropriate at this time to speculate on any of that.

Barton Crockett - Lazard Capital Markets

Then my final question here and I appreciate your patience. In terms of on the revenue side, the box office per screen, after underperforming for too many quarters, that’s ended now. I was wondering if you could give us some color on what happened to end the streak of underperformance, if there’s anything else to say about that.

Amy Miles

Only if you say one more time that has ended.

David Ownby

Sure, Barton. When we dug into it a little bit, what we found was really three things. We’ve talked in the past about the underperformance versus the national average of California and although California still trails the national average a little bit, the gap was much smaller than it had been in prior quarters.

Second, some of our other top markets, and I’ll just start in particular, Florida, Virginia, and Washington, all performed at or ahead of the national average. So that helped to offset some of the shortage in California. And then, third, we saw market share gains in the markets where we have significant IMAX and 3D presence. So we believe that those premium formats are driving market shares in those areas.

Operator

Your next question comes from Aaron Watts - Deutsche Bank Securities.

Aaron Watts - Deutsche Bank Securities

You’ve covered most of the ground on my questions. I really just had probably something for David to follow-up on your fourth quarter numbers. You provided the full year apples-to-apples statistics for revenue and EBITDA. Could you maybe enlighten us on what that was for just the fourth quarter?

David Ownby

Sure. For the quarter, Aaron, if you chop off the extra week at the beginning of the fourth quarter last year, in our apples-to-apples, our total revenue would be up 13.8% and our adjusted EBITDA would be up 17%.

Aaron Watts - Deutsche Bank Securities

Do you happen to have your admissions number too?

David Ownby

Are you talking about box office revenue or attendance?

Aaron Watts - Deutsche Bank Securities

Attendance, yes.

David Ownby

Attendance would have been up just under 8%.

Aaron Watts - Deutsche Bank Securities

The one other clarifier I had was on your CapEx, $75 million to $90 million that you talked about, is that comparable to the $109 million number you did in ‘09?

David Ownby

Yes.

Operator

Your next question comes from David Miller - Caris and Co.

David Miller - Caris and Co.

I had two questions for David, and David, I apologize if I’m repetitive here just because I think your audio faded out a little bit as I was listening to your prepared remarks, but I’ll just ask anyway. First of all, just an outstanding year in free cash flow. You did over $300 million in free cash flow. I think that’s double what you did in fiscal 2008.

You’re only using roughly $111 million of that to fund the dividend. Why not increase the dividend, even though the dividend yield is above 5%? It just seems like you guys can afford it, just given that there’s really no maturities issue here and your public debt is, at least a portion of it is significantly below market.

Then also, on DCIP, how will it work with regard to getting reimbursed by DCIP for the screens and the projectors that you’ve already converted? Where will that be recorded on the statement of cash flows? I assume you’re going to record that on the statement of cash flows. Where is that going to be recorded and what is the timing of that?

David Ownby

Sure, David. First, on the dividend , we did speak to this on the call a little bit. As always, we’ll evaluate our use of our capital resources in the way that we best believe will serve the long term benefit of our shareholders. Whether that means adding to our circuit via acquisition or new build, or delevering our balance sheet, or by returning value to shareholders, we constantly make those decisions and 2010 will be no different.

We do believe that as we move into 2010, our first priorities from a capital allocation standpoint have to be making sure that our 3D and digital rollout happens according to plan, and that we execute our plan to deal with our near and mid term debt maturities and remember, that includes we have $200 million of converts due in 2011, another $50 million or so in 2012, and then our credit facility becomes due in 2013. So, as we move through those processes, again, based on how those processes go, we’ll continue to evaluate the dividend.

Then as for the DCIP, how that flows through the financial statements, the projectors that we have already purchased, we will contribute those into DCIP. Again, that will be part of our share of the $80 million. And as far as the cash flow statement goes, that will kind of be a non-cash transaction because we’ve already paid for that equipment and showed it as capital expenditures in 2009. Again, the remaining cash that we’ll be contributing to DCIP will show up on the cash flow statement as cash outflows for investing activity.

Operator

Your next question comes from Eric Handler - MKM Partners.

Eric Handler - MKM Partners

Two things for you, first, we’ve seen a couple M&A transactions happening in the industry in the last couple months. Wonder if you’re starting to see more deals coming into the market? Then, secondly, Warner Brothers has decided to move forward with re-formatting two of its films into 3D in Clash of the Titans and Harry Potter. Wonder if you expect to see more of those being added in this year and next year?

Amy Miles

Yes, I think with respect to the M&A market, I think what will be interesting to see there is what happens over the next couple of months. We’ll have DCIP behind us and I think that has been kind of a gating item there from the perspective that you wanted to make sure that you had DCIP finalized.

As we move past that, we’ll continue to be obviously an active participant in M&A activity. I’m not saying that there’s a deal there, but we’ll obviously be out there and looking, and it’s hard to forecast that timing. You do have a group of smaller exhibitors that may choose not to really move forward because of the digital environment, and that may create some opportunities, but as always, we’ll be out there looking.

We do believe with respect to the second part of your question as it relates to 3D content, that you will see an increase, we’ve already seen it in 2010. I mean, Clash of the Titans was announced, obviously, recently. Harry Potter was announced recently, and that’s one of the biggest benefits that we believe would happen once Avatar performed so successfully, is if you have any type of action picture that today, you’ve got to be thinking that, “Hey, how much more could we do, if we would do this in 3D?”

So, in addition to that, being the greatest, the highest-grossing picture of all time, I think it did highlight the future success that you can do with respect to 3D. So yes, I would expect, it’s hard to predict how many, but I would think you would see more announcements with respect to conversions to 3D.

Eric Handler - MKM Partners

Just one follow-up, if I can. Let’s say you acquire another circuit. How does their digital transaction work via DCIP? Would those additional screens be covered under the DCIP agreement?

David Ownby

Well, remember that this first round of financing doesn’t cover all of our existing screens, so at some point in the future, we would expect hopefully, that there will be another round of financing to build out to convert the rest of our circuit, and any screens that we acquire between now and then would be covered by that second round of financing.

Operator

Your next question comes from Tony Wible - Janney Montgomery Scott.

Tony Wible - Janney Montgomery Scott

I have two sets of questions. First is, I was hoping you could give us the 3D ticket price and IMAX ticket price for both this quarter and then the year ago quarter?

David Ownby

Sure, Tony. For the fourth quarter of this year, our IMAX ticket price was $14.02 and our 3D ticket price was $11.51.

Tony Wible - Janney Montgomery Scott

How does that compare versus last year?

David Ownby

Last year in the fourth quarter, IMAX was $12.26 and RealD was $9.79.

Tony Wible - Janney Montgomery Scott

Now you said that $11.51 in the fourth quarter, is that down from $13.74 last quarter with IMAX?

David Ownby

No, IMAX was $14.02, this quarter, sorry. I got that backwards, I apologize.

Tony Wible - Janney Montgomery Scott

A second set of questions here is really on the lease portfolio. Can you give us a sense for how much of that lease portfolio may be up for renewal this year, and whether or not you would expect to continue to see some savings on any renewals?

David Ownby

Yes, Tony. I don’t have the specific number of theatres here in front of me that are coming due in the next year or two, but I will say that I did mention on the call that we had a small amount of savings from some renegotiated leases. Those situations are unfortunately, I guess, few and far between.

We’ve been able to take advantage of the ones that we have, but typically those are situations where a renegotiation of our lease payment is part of a larger negotiation related to that theatre. So I would not certainly not call that a trend. We’ll continue to take advantage of those opportunities when we have them, but I wouldn’t call it a trend today.

Tony Wible - Janney Montgomery Scott

You mentioned on the call, 13.9% of admission revenue came from IMAX and 3D. Do you know what that was in the fourth quarter of ‘08?

David Ownby

In the fourth quarter of ‘08, that was 2.8% of revenue was RealD and IMAX.

Tony Wible - Janney Montgomery Scott

Of admission revenue?

David Ownby

Yes.

Operator

Your next question comes from Ben Mogil - Thomas Weisel Partners.

Ben Mogil - Thomas Weisel Partners

So I think a lot of my stuff has been asked, so I think I’ll sort of keep it pretty short. David, in terms of the $19 million for additional depreciation for the purchase of the accelerated projector schedule, is that a full year rate? Or is that sort of a partial year rate for ‘10, sort of assuming DCIP starts in April, I am trying to get a sense of whether or not we use $19 million sort of every year going forward, or that’s a partial year rate?

David Ownby

Yes, that’s pretty much a full year rate, Ben, and really, the way that we’ll account for that is we’ll start that acceleration as of beginning of the year, because that’s kind of when it became imminent that DCIP would be finished. So you can think about that the remaining book value of our 35 millimeter projectors is just under $40 million. So over the next two and half year, we would expect to depreciate all that off.

Ben Mogil - Thomas Weisel Partners

Are you assuming sort of in terms of, say, the lease payments, like from a modeling perspective, should we all start to sort of put these additional lease payments in the occupancy costs or the operating expense line, sort of starting with the second quarter basically? Is that a good timeline to use?

David Ownby

Remember, that will ramp up over time , so when we put our first, call it, 400 or so screens in here, as we contribute our equipment, then we’ll start making a lease payment on those immediately. And then as we rollout more screens, that number will start to ramp up, but yes, you can start that in the second quarter.

Ben Mogil - Thomas Weisel Partners

It will be $1,000 a screen in general, and by the end, you’ll be at, say, call it, something I’m guessing sort of the magnitude of around 4,000, 4,500 screens, is that fair to say?

David Ownby

Yes, roughly 70% of our existing circuit is what this first financing covers. So yes, that’s right.

Ben Mogil - Thomas Weisel Partners

In terms of the financing facility, I am not sure I heard you right, it’s 454, 135 and 80?

Amy Miles

445.

David Ownby

445.

Ben Mogil - Thomas Weisel Partners

So that’s a little bit below the 725 number that was bandied around. Is the gap sort of what you’re contributing effectively?

Amy Miles

Yes, some of that gap really relates to, Ben, is when we were going the – I am sorry, we being DCIP, the bank negotiations, 445 was a number where you could keep the pricing where you wanted, and you could get sufficient amount of your screens in this first rollout without having to put any pressure on that pricing of the 445. So it was more a decision around how to size that facility and to achieve the best pricing for that facility.

So, again, there was always going to be the need to go back and get a second round of financing to finish the balance of your screens and you just want to make sure that you price the first round of financing in a manner that’s going to work, one, for the model and, two, to be prudent for that second round of financing.

Ben Mogil - Thomas Weisel Partners

I think last question, and I’ll let someone else get on the queue. In terms of where you see things going from an overall perspective, what do you think made California perform better? Is it a comp issue? Is it a film product issue? Is it a pricing issue?

I’m kind of curious on what you saw. And then on the same length of that, concessions per patron was a little bit lower; it was sort of one of the lowest growth rates in a while now. Are you seeing any pressure in terms of what 3D pricing is doing at all on the concession front?

David Ownby

Yes, I’ll take the first question about California, Ben. What we said historically is that these things move quarter-to-quarter. Nothing in particular stood out to us in California be it weather, be it film product, anything else. Certainly, it seems that we’re coming up against some easier comps there, but again lots of things affect those geographic box office differences, and trying to pinpoint the exact reason for those is very difficult sometimes. And then as far as the concession, you’re right.

For this particular quarter, it was a little bit lower growth rate for us. We tend not to look at that on a quarterly basis, but more on a long-term basis and I think for the year, our concession per patron was up 2.3%.

So particularly, when you look at the film mix for the fourth quarter last year, I think Madagascar 2 was the second-highest grossing picture of the quarter, which the kid pictures tend to lend themselves to higher concession sales and you didn’t really have the kid picture at the top of the list this quarter. So that could have contributed to some of that smaller growth rate in the fourth quarter.

Ben Mogil - Thomas Weisel Partners

Do you see the growth rate sort of in the first quarter of 2010 picking up, just because you’ve got sort of a similar adult-related slate that you did the year before?

David Ownby

Well, again, lots of things affect those. Certainly, the film slate today on paper looks like it’s kid and concession friendly, but again lots of things affect those numbers and so we’ll just have to wait and see how it goes for the first quarter.

Operator

Your next question comes from Matthew Harrigan - Wunderlich Securities.

Matthew Harrigan - Wunderlich Securities

Reaching a bit for questions now, but a great quarter, I think that the Consumer Electronics Association was talking about 2 million 3D sets or 3D capable sets being sold this year. Samsung and Sony were talking about 40%, other sales going in that direction by 2015.

I can’t imagine that’s ever really going to affect you on the movie side because the same factors will come into play as the business has been historically, in terms of maximizing the revenues per eyeball and the marketing and all that. But when you look at the live action opportunity and the experiment with the NFL game and all that, do you think that that’s something that could work to your advantage in the near-term as people become more fixated with 3D?

Then secondly, I think this was just touched on a little bit earlier, but even apart from your numbers, if you look at the industry, the out performance on the IMAX screens relative to RealD is pretty surprising. Do you think you’ll have some sort of step function possible re-evaluation of that over time ? Are there any complexities with contracts, with RealD or anything, that would inhibit retrofitting more of the auditoriums for the more scaled size IMAX product?

Amy Miles

I’m going to start from the beginning and let me know if I missed any of your questions, Matthew. I think, particularly as you’re looking first for the 3D in-home experience, no, I do not believe that’s going to negatively impact our side of the business. As you’re talking about these numbers, remember roughly 200 million TVs move a year. That’s about the number of units sold, and I assume that’s worldwide.

So when you start talking about the size of the market here and the percentage of that that will be 3D, we’re obviously going to have a significant advantage for a long time. And also, from my perspective, if you can get a 3D in home alternative for the studios, that’s not going to be bad for us long term. But clearly, for the foreseeable future, 3D is in the theatre or the theatres are going to be the only venue where you can have a mass audience number with respect to people choosing that premium content.

As far as alternative content is concerned, yes, I do believe that it’s going to be, as we move forward, we have more screens that we can offer with respect to 3D that’s going to help us on the alternative content side. Could some of that be sports, yes, I think it could, I think there’s rights issues. You’ve got to be able to film it in 3D, but once all those issues get worked out, I do believe that there’s going to be 3D opportunities in the theatre and that’s outside of film. And then I think your last question was related to how we think about RealD and IMAX.

Remember, RealD is very scalable, right. I mean, it’s essentially all you need is a silver screen, and so, from that perspective, there’s no issues. I mean, if we decide a year from now that, hey, wait a minute, there’s a lot more 3D product than initially expected, we don’t need 1,500 screens, we need 3,000 screens, then that model is very scalable.

With respect to IMAX, sometimes that’s a little bit more difficult, only because those contracts have exclusivity. So you would have to be able to continue to increase your footprint, but at the same time work within the existing IMAX model, which does have exclusivities with exhibitors.

Matthew Harrigan - Wunderlich Securities

Is there any chance they would do a wholesale reassessment of the way the IMAX zones -- I mean, it seems like there’s sort of an artificial cap on everything right now that’s a bit of an artifact. I wouldn’t think that they -- if the numbers continue to pace the way they’re pacing, I would think that you guys would be more inclined to band together and modify some of the exclusivity limits?

Amy Miles

Again, that’s really probably a better question for IMAX, but also with respect to that, remember, some of that, it’s not a unilateral IMAX decision. Each exhibitor would have to answer the question about whether or not they would individually be willing to give up the exclusivity of their contracts.

So it’s not something that IMAX can tackle independently. Obviously, they would have to be able to negotiate that with each exhibitor and I couldn’t answer what other exhibitors would be willing to do there.

Operator

Your final question comes from Joe Hovorka - Raymond James.

Joe Hovorka - Raymond James

How will you rollout digital? That is, will you do it 100% of the screens in every theatre you go to, or will it be converting mostly for 3D and then non-3D digital conversion will be at a different time?

David Ownby

What we said is that we’ll frontload our rollout to make sure we maximize our 3D footprint and then we’ll essentially go back and fill out those auditoriums or those theatres that we started with 3D.

Joe Hovorka - Raymond James

Where is your digital screen count now, where would it be at the end of 2010?

David Ownby

Our 3D screen count today at the end of the year was about 425, and what Amy said earlier, by the end of the year, we’d expect our 3D count to be 1,100 to 1,200.

Joe Hovorka - Raymond James

Is that the same though as digital screens?

David Ownby

Digital screen count is probably a little bit higher but for the most part, the first part of the rollout is very 3D focused.

Joe Hovorka - Raymond James

I was just -- and you’re expecting 527 by the end of 1Q ‘10, right?

David Ownby

Right.

Joe Hovorka - Raymond James

So, for the last nine months, you’re converting something like 600 screens, which you also gave a number of 150 to 200 per month. So I guess what I’m asking is it sounds a little low, the 1,100 to 1,200 by the end of ‘10?

David Ownby

That 150 to 200 is really once we’re up and fully running, it will take us, call it 60 days even after we sign to do that and even in those first couple of months, we may not get to that 150 to 200. That’s kind of a run rate number.

Joe Hovorka - Raymond James

But if I’m assuming two weeks into February, that 60 days gets us March, April, that leaves us, was that seven months?

David Ownby

We’ll certainly, like I said, that 1,100 to 1,200 numbers is 3D screens, and there’ll be some incremental digital non-3D screens on top of that, so…

Joe Hovorka - Raymond James

I guess just backing in your number, you’re still about $70,000 for the conversion costs, right?

David Ownby

Yes.

Operator

Thank you. Ladies and gentlemen, in the interest of time, we have gone through the allotted time for question-and-answer. I would now like to turn the conference back to management for any closing comments.

Amy Miles

Thank you for dialing in this afternoon, and we look forward to speaking with you shortly for our first quarter results. Thank you. Bye, bye.

Operator

Thank you. Ladies and gentlemen, this concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.

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