Cinemark Q3 2007 Earnings Call Transcript

Cinemark Holdings, Inc. (CNK)

Q3 2007 Earnings Call

November 12, 2007 5:00 pm ET

Executives

Nikki Sacks - Investor Relations

Alan W. Stock - Chief Executive Officer

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

Analysts

Eric Handler - Lehman Brothers

Barton Crockett – JP Morgan

Michael Savner - Banc of America Securities

Hunter DuBose - Morgan Stanley

Presentation

Operator

Good afternoon. My name is Jeremy and I will be your conference operator today. At this time, I would like to welcome everyone to the Cinemark fiscal third quarter 2007 earnings conference call. (Operator Instructions) Ms. Sacks, you may begin the conference.

Nikki Sacks

Thank you and welcome to Cinemark's fiscal third quarter 2007 earnings call. Before we begin, let me remind you that in accordance with the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995, the company knows that certain matters to be discussed by members of management during this call may constitute forward-looking statements. Such statements are subject to risk, uncertainties, and other factors that may cause the actual performance of Cinemark to be materially different from the performance indicated or implied by such statements. Such risk factors are set forth in the company’s SEC filings.

Today, Cinemark's CEO, Alan W. Stock, and CFO, Robert Copple, will be discussing the third quarter results. I will now turn the call over to Alan.

Alan W. Stock

Thank you, Nikki. On today’s call, I will comment on the industry and Cinemark's third quarter results, the outlook for the upcoming film slate, and provide an overview of Cinemark's strategy.

During the third quarter, Cinemark's revenues increased 63.7% quarter over quarter and adjusted EBITDA grew 87.8%. Our solid performance was driven by a strong slate of films, the performance of our international theaters and the integration of the century circuit.

The revenue increase was primarily related to a 33.5% increase in attendance, a 29.7% increase in average ticket prices, and a 20% increase in concession revenues per patron, all of which were favorably impacted by the acquisition of Century Theaters that occurred on October 5, 2006.

According to industry sources, domestic box office revenues were up approximately 15% from the quarter over last year, due to a strong and diverse slate of films with solid box office results from films such as Transformers, Harry Potter and the Order of the Phoenix, Ratatouille, The Bourne Ultimatum, The Simpsons Movie and Superbad.

The third quarter results differed from the second quarter in that the second quarter was dominated by a few blockbusters, whereas in the third quarter, there were strong contributions from a variety of mid-tier films.

For the fourth quarter, the industry box office has started slower compared to last year. The industry box office was down approximately 13% for October but is up almost 3% for November through November 11th.

Films and attendance for the fourth quarter are typically weighted towards the second half of the quarter. Some of the anticipated film product for the fall and holiday season include Beowulf, our next 3D film, New Line’s Golden Compass, I Am Legend with Will Smith, and another installment of National Treasure, the Book of Secrets.

We have started to hear the lineup for 2008 and the early read is optimistic with films such as Disney’s Pixar film WALL•E, a Batman installment called The Dark Knight, a fourth Indiana Jones film with Harrison Ford, and the second installment of Chronicles of Narnia: Prince of Caspian.

We continue to progress on our organic growth strategy as we believe there is an opportunity to continue to realize strong returns on our invested capital by continuing to expand both on our existing markets and into new ones. Year-to-date, we have opened nine theaters with 139 screens in our domestic markets and five theaters with 35 screens internationally.

We have sold 34 screens and closed 32 screens. We anticipate opening an additional 83 screens in six theaters by year-end.

In our international markets, quarter over quarter revenues grew 20.7% and adjusted EBITDA was up 32.3%. The strong performance was driven by product and new theater openings.

Turning to our digital strategy, DCIP, the joint venture between Cinemark, AMC, and Regal, which was formed to implement digital cinema and establish agreements with the studios for financing is progressing. They are still in negotiations to determine the financing structure and the terms of the virtual [print fee] contracts.

We are excited about the prospects that digital cinema offers and we are actively testing and preparing so that our deployment and implementation of digital cinema is optimized and as smooth as possible from a technological and operational perspective once the DCIP agreements are finalized.

We are also optimistic about the long-term prospects of 3D, a key opportunity of digital.

We are currently using our fully digital theater in Chicago, as well as other local theaters to test multiple 3D technologies that are available. As previously discussed, we have a very deliberate digital rollout strategy, as we believe we will get the most benefit by making sure the negotiations are complete and the technology is established prior to our implementation.

Since digital is a prerequisite to 3D, our 3D rollout will follow our digital rollout strategy. We currently have 39 3D screens. We intend to begin installations in 2008 with our entire circuit converted in approximately three to four years.

In summary, I am pleased with our performance during the third quarter as we continue to deliver strong and competitive operating results. We are optimistic about the upcoming holiday releases and by remaining focused on our profitability, developing our new theater pipeline, and preparing for digital deployment, I am confident that we will continue to drive cash flow and deliver attractive returns over the long-term.

With that, I will turn the call over to Robert to discuss the quarter in more detail.

Robert Copple

Thanks, Alan. I will review our third quarter financial performance in more detail and discuss our balance sheet. Before I address the details of our third quarter results, as a reminder, we acquired Century Theaters in October of 2006. Century added 1,017 screens in 77 theaters to our existing domestic theater base. Century had a higher average ticket price and higher average concession per cap than Cinemark as a result of a mix of markets in which the Century theaters are located.

During the third quarter, we increased our admissions revenues to 73.3% to $308 million and our concession revenues 59.8% to $144.3 million. As a result, our total revenues increased $183.5 million to $471.5 million, a 63.7% increase. This increase was driven by attendance growth of 33.5% in 2007 over 2006, an increase in average ticket price to $5.11 in 2007, from $3.94 in 2006, and an increase in concession revenues per patron to $2.40 in 2007 from $2.00 in 2006.

On a segment basis for the quarter, our U.S. operations generated revenues of $377.6 million, a 79.6% increase over 2006. This increase is after the impact of the changes in our other income attributable to advertising revenues received from NCM as a result of the modification of our exhibitor service agreement.

Our international operations increased revenues 20.7% to $93.9 million.

Film rentals and advertising cost were $166.8 million for the third quarter of 2007. While our domestic film rental and advertising cost as a percentage of box office revenues decreased 40 basis points, our worldwide film rental and advertising costs increased 30 basis points to 54.2%, due to the increased relative weight of our domestic business to our overall businesses compared to the prior year.

Concession supplies costs were $22.5 million for the third quarter of 2007, compared to $15 million for the third quarter of 2006. Our concession supply costs as a percentage of concession revenues decreased 100 basis points to 15.6%, primarily due to the increased relative weight of our domestic business to our overall business as compared to the prior year.

For the quarter, salaries and wages increased as a percentage of revenues to 9.7% from 9.5% in 2006. This increased was primarily attributable to the increase in federal and state minimum wages.

As a result of the increase in revenues, the company’s adjusted EBITDA for the third quarter of 2007 increased to $116 million from $61.8 million for the third quarter of 2006. As a result of our strong revenue performance and operating leverage, we were able to increase our EBITDA margin 320 basis points to a 24.6% margin for the quarter, from a 21.4% margin in 2006.

Our domestic adjusted EBITDA increased approximately 107% during the third quarter to $94.7 million. This was after the impact of the reduced revenues and adjusted EBITDA that resulted from the changes to the exhibitor service agreement with National Cinemedia.

International adjusted EBITDA increased 32.3% to $21.3 million. We recorded a $3.6 million loss on early retirement of debt, including premiums paid in the write-off of unamortized debt issue cost related to the repurchase of $47 million of our senior discount notes during the quarter.

Net income before taxes for the quarter was $36.7 million. As I discussed in our second quarter earnings call, during which we reported an income tax benefit, the benefit began to reverse and Q3 results being an abnormally high effective rate for the current period.

This interim tax fluctuation is primarily caused by a combination of our first quarter good will impairment charge related to the change in NCM exhibitor service agreement coupled with a first quarter gain recognized upon NCM’s IPO.

For the nine months ended 9/30/07, our effective tax rate is 32.8%. We anticipate an abnormally high effective rate in Q3 as well to bring the effective rate to a higher percentage for the full year.

Accordingly, income tax expense was $60.1 million, resulting in an effective tax rate for the quarter of 163.8% of pretax income. Cinemark's cash pay rate is approximately 40%, including state taxes.

As a result of the large tax allocation to this period, we recognized a net loss of $23.4 million, or a negative $0.22 per diluted share. To compare it to analysts earnings per share estimates, you would generally need to normalize our effective tax rate and adjust for the loss under early retirement of debt.

Looking briefly at our balance sheet, our cash position was $333.1 million at the end of Q3, and total long-term debt was $1.53 billion, resulting in net debt at quarter end of approximately $1.2 billion. Coupled with our strong EBITDA, this level of net debt results in a relatively low leverage ratio.

At September 30, 2007, our total domestic screen count was 3,606 screens, 12 of which are in Canada. During the quarter, we opened two theaters with 32 screens and closed two theaters with 19 screens. As of September 30, 2007, the company had signed commitments to open four new theaters with 62 screens in domestic markets during the remainder of 2007, and opened 12 new theaters with 168 screens in domestic markets subsequent to 2007.

Our total international screen count at September 30, 2007, was 990 screens. During the quarter, we opened two theaters with 14 screens. As of September 30, 2007, the company had signed commitments to open two new theaters with 21 screens in international markets during the remainder of 2007, and to open two new theaters with 15 screens in international markets subsequent to 2007.

Year-to-date, we have invested approximately $110 million in capital expenditures, with $82.9 million on new construction and $27.1 million in CapEx maintenance. Included in the CapEx maintenance was $2.8 million related to the rollout of NCM’s digital distribution technology to the Century Theaters and approximately $2.5 million related to the deployment of our new point-of-sale system. The POS system is designed to expand the information we gather from our theaters and included networking for our digital rollout.

Additionally, we have received approximately $14 million in gross proceeds from the sale of two theaters and other land [partials], resulting in net CapEx to date of $96 million.

We expect our gross total CapEx before disposition proceeds for the full year to be between $150 million to $160 million, which includes approximately $35 million to $40 million for CapEx maintenance.

We paid a partial dividend of $0.13 during the third quarter and we declared our first full quarterly dividend this morning of $0.18 per common share.

The dividend will be paid on December 18, 2007, to stockholders of record on December 3, 2007. The quarterly dividend is consistent with the disclosures in our final prospectus in which we disclose our intention to pay a quarterly dividend of $0.18 per share of common stock, subject to the discretion of our Board of Directors.

Finally, I would like to update you on the use of the proceeds of our IPO. As I mentioned, during the quarter we repurchased $47 million aggregate principal amount at maturity of our 9.75 senior discount notes. Additionally, subsequent to quarter end, we purchased an additional $22.2 million aggregate principal amount at maturity of our 9.75 senior discount notes.

While we intend to continue to use the proceeds to pay down our long-term debt, given the current state of the debt markets, we are proceeding at a slower pace than originally anticipated. We intend to opportunistically utilize the funds to reduce our debt while still optimizing our debt structure.

In closing, I would like to say that we look forward to the continued strength of the industry box office which, combined with Cinemark's operational quality, to continue to produce attractive returns and drive cash flow.

We will now be glad to answer your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Eric Handler.

Eric Handler - Lehman Brothers

Thanks. A couple of quick questions for you guys; first, if you take away Century, what would your core attendance growth have been for the quarter? Secondly, when you look at the current state of the currency markets, is that changing your thinking at all regarding Latin America in terms of being more opportunistic?

And then last, with the writers’ strike going on and all the late night television shows going dark, do you think that’s having an impact a little bit on attendance as they don’t have that venue now to use for promotions? And if so, are you seeing studios trying to do anything else to try to drive some incremental attendance?

Robert Copple

Let me take a shot at the first couple and Alan can catch the strike. I’m not sure if I can properly answer your question. If I understand right on the first one, you were trying to get some comparability on attendance on our core group and maybe focusing on Cinemark. Because we don’t separate Cinemark now from the Century assets, and then obviously in prior quarters last year, we did not have the Century assets, it’s not easy to do.

What I can tell you overall is that we did perform attendance domestically in line with what we’ve seen industry statistics to be. We feel like our first run theaters did increase attendance year over year, looking at overall circuit that made sense with respect to what we’ve seen in the industry.

Starting next quarter, obviously I won’t have to phrase things that way anymore. We’ll have pure comparability from now on. I apologize if we’ve gone through that -- you know, left it until this quarter, but that’s about as detailed as I can get there.

On Latin America, we are clearly benefiting from the weakness of the dollar in terms of exchange rates. We still see great opportunities in Latin America. We don’t see economies going down at all. If anything, we see them continue to strengthen, especially in the Brazilian corridor.

We think trade is going very well. We think that currency will hold if not continue to strengthen, so we think our international assets are one, performing extremely well on their own and will continue to do so and will continue to have good expansion opportunities, and we’ll pursue those opportunities just like we have in the past.

We’ve always looked at them in terms of when opportunities present themselves, mostly in malls and if those developers develop the mall, and we’ll pursue those and then, to the extent that currency can continue to help us, that’s one benefit in our circuit with having the international presence.

Alan W. Stock

I think your last question, Eric, on the writers’ strike, I mean, you pose an interesting thought here, as it is the quality of what’s happening in the TV and the television market, does that drive customers to the theater. Although it’s a little early to tell whether that really is the case, that certainly could be a positive benefit that is gained, although we certainly don’t advocate a strike or -- you know, hopefully it will get resolved in a short manner, as it typically has in the past.

Really the key for us, and always will be, is the quality of film that we’ve got in our theaters. We know that as a result of the anticipation of the strike, a lot of the studios have already stockpiled a lot of film, so we know there is for us a lot of product that is slated to come out through this next year, year-and-a-half. So we feel like we are in pretty good shape and hopefully I think can get resolved in a timely manner.

Eric Handler - Citigroup

Just as a quick refresher, when did the Century acquisition close?

Alan W. Stock

Early October.

Robert Copple

October 5th.

Eric Handler - Citigroup

October, so you are pretty much right on. The impact is de minimus on a year-over-year basis?

Alan W. Stock

That's correct.

Operator

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

Barton Crockett - JP Morgan

I wanted to just follow up a little bit on the pro forma question that Eric had. I understand that you are not really going to give us a whole lot more than the attendance pro forma domestically. I was wondering internationally, excluding currency impacts, can you give us some sense of what the change was in box office and concession revenue overall? Then also on a per screen and per attendee basis, if you can give us that.

Additionally, just in terms of trying to parse this out a little bit tonight so that we can deal with people tomorrow, if you can give us a little bit of the breakdown, domestic and international on concession and admissions?

Alan W. Stock

Barton, I appreciate your call, and I'll address it the best I can. As we've said, we do have some limited information we can give on pro forma, so I will give what I do have. I'm not sure I'm answering it quite in the order you asked; I think one of your questions was generally on FX.

FX did benefit us; we still did very well on the international side. We break out attendance separately. Attendance was up, without rounding if you do the real math it was up about 5% and when you round it, it's 4.2% or so. But if you take the exact numbers that are printed in our Q which will be available first thing in the morning, it's actually in the Q to go out right now, but since the SEC is closed, it will happen in the morning.

You will find that is up 4.2%, maybe a little less than what some people have reported domestically. That has more to do with the timing of film releases in international markets. If you look at our overall international to-date, it's up attendance-wise about 3% for the trailing nine months or for the last nine months, which we think you will find is ahead of what most people have reported their attendance numbers being for the last nine months. So that's a little bit of a timing issue.

On a pure operating basis, taking out FX, I think box was generally up domestically about 15%. We are just about on top of that; internationally maybe just slightly less, only because of the timing of the way the attendance hit, but within a few percent.

With respect to growth, we do in our Q reflect revenue per screen; not necessarily box per screen, but revenue per screen. For the quarter, international was up 15.1%, domestic was up 23%. Hopefully that gives you some idea there.

When you get the international detail it will all be in the Q because we do segment. When you look at domestic, just trying to give comparability, I can give you the growth with respect to the ticket price and concession price on a relative pro forma basis. Ticket price was up 9.2% domestically, and concession price was up 7.4%.

Barton Crockett - JP Morgan

With the Q out tomorrow morning, I'm sorry that I had to --

Alan W. Stock

With the close of day, we would have had that out with it but we were trying to get this call done so that will give you more information.

Barton Crockett - JP Morgan

But then switching gears a little bit on the screen builds going into next year, you gave us some of the contracted totals. I was wondering, can you give us a sense of how many screen closures you might have next year?

Just overall, should the net screen growth next year be less than this year, which seemed like that was my impression coming into this report, I was wondering if that's still a valid assumption.

Alan W. Stock

Generally we've told people that we would increase screen count 200 to 250 screens a year and then we close probably 30 to 50 screens a year, so you are somewhere in that 200 to 220 range. That would still be what we’d perceive. When we started out the year maybe early on, we tried to look forward into 2008. We felt like it might be a little slower in terms opportunities. We definitely are seeing enough to fill the slate that should be in line with the numbers I just gave you.

Barton Crockett - JP Morgan

Switching gears here a little bit on the comments about the debt and the buy back or the focus on the capital structure, if the credit markets are weak, that would seem to make it maybe a little bit cheaper to buy back your debt. Is there a new issuance that's maybe a complicating factor there? I was wondering if you could elaborate on what is the constraint on that at this point?

Alan W. Stock

What we are trying to do is take advantage just of what you said, opportunistically going into the market when we see weakness and buy our bonds. If you look at how our bonds have traded since our last quarterly call, they actually popped up and stayed up and in the last probably two weeks they have come back down; two to three weeks, as the market weakened a little bit.

We looked out there, we looked at opportunities to buy, we actually pursued some bonds and yet if we can just get the price right and when the bonds did come back we bought them. So to your point, there is a market that gives us opportunity, but we are trying to make sure we are making it as economical on us as possible.

The other side of it though is clearly the debt markets are more difficult to enter into. If we were to use all of our current cash to pay down our debt and then went and borrowed the money, that could increase our cost of capital. We are trying to balance our availability of cash with opportunities we think might be out there in the acquisition market over the next year, as well as opportunistically buying down our debt.

Barton Crockett - JP Morgan

One final thing and I will step aside. In terms of the 3D, you guys said you are looking at the different technologies in Chicago, I guess. There's been some discussion about the rate that Real D might be charging for their system which seems to be the most widely adopted at this early point. Do you have any thoughts about the appeal of let's say a Real D system over the others, and the ability to get that at a price that makes sense for the theater companies? Any early thoughts on that at this point?

Robert Copple

I'm not sure, Barton. There's a whole lot of change from what we earlier talked about. Certainly what we are doing today and as I described is we're evaluating those systems and trying to determine, are there indeed any differences or advantages or cost? It is still too early at this point in time because some of them are still under production phases. We actually haven't even really seen a whole lot of material yet on the Dolby system. We need to let those folks get their technology a little further down the path and understand where they are going and where those prices are going. So it's a little early to tell yet where that is going.

Obviously, the reason Real D is talked about is they have the head start. They have the most systems that are out there today, but we feel ourselves that we certainly have to do justice to all of them and evaluate them. I think that's what will happen, again, as we are doing that today and as we continue over the next several months to continue that evaluation process.

Operator

Your next question comes from the line of Michael Savner – Banc of America Securities.

Michael Savner - Banc of America Securities

I will just follow up with the same as Eric and Barton on that first question. I understand you don't want to get into pro forma numbers, but maybe qualitatively. My question specifically is, if we just do the very quick and basic math off of your attendance and screen numbers it looks like, call it 2.8% growth of attendance per screen, maybe a little bit higher when you factor in the closings, but in that range.

So qualitatively, can you tell us what the offsetting factors were that would bring your attendance per screen number down because it would seem like Century, if anything, would give you an artificial boost since you've already told us that those were better performing screens relative to the core. That should have been additive to that number.

You mentioned something, I think it was Alan or maybe it was Robert, about the first run screens. Is there something going on at the second run screens that's depressing your attendance per screen during the quarter, or was there extremely robust, well above industry average ticket pricing increases that might have factored in? Again, just qualitatively how we think about that.

Alan W. Stock

When you're looking at it, I don't know if you are looking at domestic versus international.

Michael Savner - Banc of America Securities

Just domestic.

Alan W. Stock

When you look at our domestic, again a bigger picture and reiterating what you just mentioned, on a first run basis we feel like our attendance is up where it should be, in line with what we've seen our peer group and what the industry has published.

As you know, we do have some second run theaters, and while it's not a very big piece of our portfolio in terms of bottom line, those do put a lot of attendance through and I think as some of the other theaters companies have said, with the product from Q2 hitting Q3 and just overall the economy the way it had been working, the second run theaters are down some.

Clearly, it didn't hit us on bottom line. We leveraged our first run theaters very well. We operated them extremely well, and that's why you saw our EBITDA go up as well as it did. You saw the margins move up. By far the vast majority of our income comes from first run. The second run theaters are probably something less than 3% of really the bottom line, so it's not a meaningful number. But on attendance, it is a bigger number so it distorts what it looks like our attendance change is when you get down as you're comparing it on a theatre-by-theatre basis, because they are a bigger piece of our overall theaters and it's a bigger piece of our attendance.

Does that help?

Michael Savner - Banc of America Securities

Yes, that does help. Clearly you were referencing Carmike last week, it appeared their second run theaters brought down their apples-to-apples numbers as well. So I guess two questions: is that a business you are rethinking about in the current environment? Is it less attractive to you today than it was a few years ago?

If it is and if the answer is no, it's still attractive and still additive to what you are doing from a larger perspective, do you think it's something that you might want to consider breaking out separately as you report quarters just so you don't get penalized for the wrong reason, or so we can get some more granularity?

I guess that's more of a comment than a question, but the first one was a question.

Alan W. Stock

Michael, because it's not a significant – significant is even too strong of a word – as I said, it's less than 3% of our bottom line, TLCF, so it's not meaningful to break out separately. It does, as you said, might distort the top of minor numbers. Obviously, this quarter is throwing off a little bit, we think that is a bit of an abnormality. We don't think you're going to continuously see that on a long-term basis.

If discounts settle at some level, they will settle; they really won't throw the numbers off that much any more. If anything, the opportunity could be if we do see a recession in the U.S. historically when things slow down in the U.S. that's when the discounts really take a life of their own and that's a great niche to be in.

Our discounts are profitable. We like that business. It's not one that we've really grown, but it is an alternative use to some of our theaters and again, it's been profitable for many years. We've been good at it and if it continues to bring in good revenue we'll do it.

I mean, it is generally theaters that will go offline over time. They tend to be the older theaters that lease life will be coming up and so as we look at those if we can renew them profitably we'll do it, and if not they will slowly move off of our portfolio.

Operator

Your next question comes from the line of Hunter DuBose – Morgan Stanley.

Hunter DuBose - Morgan Stanley

Given the film mix for the fourth quarter, what guidance can you give us regarding a sequential movement in average ticket prices, concessions per cap and film costs, both domestically and internationally?

Alan W. Stock

I don't know if it has so much to do with film product in our case as just the timing of when we increased our prices. Our prices last year were up -- our pricing this whole year --have been up beyond what historic standards have been. I think normally in our industry box office tends to be up in the 2% to 3% range and as we reported quarter-over-quarter, we definitely exceeded that significantly. Our price increases generally at a box level and for that matter the concession review happens twice a year. It generally happens in the November/December timeframe and then will also occur in the May timeframe. Our price changes are based on what we are seeing in the market both from our competitors and what the market itself is doing. We have seen the gas prices go up and other pushes on people's use of the dollar we will obviously consider how that might impact what our prices might be able to increase.

So, timing wise, I'd say based on history we will have a little bit of hit in Q4 from where our prices have been because that's when some of our prices went up last year. We did increase them again in May of this year so that will carry through the fourth quarter. So you might see a slight decrease, I would say, from what you are seeing this quarter. I don't think it will be as substantial.

We look at international really the same way. We increase it this time of year and then we'll review it again in May.

Hunter DuBose - Morgan Stanley

And on film costs?

Robert Copple

Again, I don't think film costs or any of our basic structures would significantly change. You always have to look at that stuff over a longer period of time. You can't isolate any particular movie or anything because those are all up and down. I don't know that we see any significant changes one way or the other in film costs going forward.

Hunter DuBose - Morgan Stanley

Now in your earlier remarks you mentioned that you are planning to let your 3D roll-out follow the D Cinema roll-out. Can I infer correctly from that that the 39 screens you currently have are likely to remain pretty much constant for the foreseeable future until the December ramp starts to happen?

Alan W. Stock

That is correct. We do not anticipate adding any more at this time until we get that digital cinema thing rolling.

Hunter DuBose - Morgan Stanley

You also mentioned earlier remaining open to M&A opportunities. Can you give us an update on what the M&A landscape looks like? Are there attractive smaller circuits actively marketing themselves right now, and what would be some of the barriers to actually keeping a transaction from happening at this point?

Robert Copple

Well, as we've always stated, there are certainly people that are out there that are interested in selling their companies, primarily smaller, regional-type circuits. There is nothing at this point in time that we have anything far enough along or definitive on that we can announce at this point in time. But our criteria as it has always been is to compare the quality of the theater circuit and really what they're asking for it and what we're going to pay for it.

Our job right now as we continue to evaluate those is just to determine whether we can buy them at a price that's attractive enough to make that acquisition justifiable. So at this point in time, and as we always have done, we continue to evaluate and look at and determine if there are things that are out there.

There certainly could be. I don't know again that there's anything to the size and scale and nature of what have we've found with the Century circuit, but there potentially could be some smaller acquisitions that are intriguing for us; again, based on the right price.

Hunter DuBose - Morgan Stanley

My final question is, separate from your current opportunistic redemption of your debt, what is a longer-term target leverage ratio we should be thinking about?

Alan W. Stock

Hunter, I would generally say it's probably ranging somewhere between -- comparing it to EBITDA would be three to four times; the midpoint of three-and-a-half. It will obviously fluctuate as we build up cash; I don’t believe it will go down. If we are investing that cash well, it should stay somewhere in that range. As long as we have the opportunities to continue to expand with new builds we will use the excess cash and build the theaters with the idea that that's kind of our sweet point between the three and four.

Operator

I would now like to turn the call back over to Alan Stock.

Alan W. Stock

So no further questions?

Operator

No, sir.

Alan W. Stock

We would like to thank everyone for your participation today, and we'll look forward to talking with you next quarter. Thank you very much.

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