Regal Entertainment F2Q08 (Qtr End 6/26/08) Earnings Call Transcript

Jul.24.08 | About: Regal Entertainment (RGC)

Regal Entertainment Group (NYSE:RGC)

F2Q08 Earnings Call

July 24, 2008 9:30 am ET

Executives

Don De Laria - Vice President of Investor Relations

Michael L. Campbell - Chairman of the Board, Chief Executive Officer

Amy E. Miles - Chief Financial Officer, Executive Vice President, Treasurer

Analysts

Eric Handler - Lehman Brothers

Lloyd Walmsley - Thomas Weisel Partners

Jeffrey B. Logsdon - Bank of Montreal

Barton Crockett - J.P. Morgan

Drew E. Crum - Stifel Nicolaus

Hunter R. DuBose - Morgan Stanley

David Miller - Caris & Company

Jake Hindelong - Monness Crespi Hardt & Co.

Operator

Good morning. My name is Latonya and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Regal Entertainment Group second quarter 2008 earnings release conference call with our hosts, Mike Campbell, Chief Executive Officer or Regal Entertainment Group, and Amy Miles, Chief Financial Officer of Regal Entertainment Group. (Operator Instructions) I would now like to turn the call over Don De Laria, Vice President of Investor Relations. Please go ahead, sir.

Don De Laria

Good morning. Before we begin today, I would like to remind our listeners that this conference call contains forward-looking statements within the meaning of Section 27-A of the Securities Exchange Act of 1933 as amended and sections 21-E 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 February 26, 2008. All forward-looking statements are expressly qualified in their entirety by such factors.

Now I would like to turn the call over to Michael Campbell.

Michael L. Campbell

Thanks, Don and welcome and thank all of you for dialing into our second quarter conference call. Today I will provide an overview of the industry and Regal's second quarter results and a review of current trends in the exhibition industry, including some of our expectations regarding box office trends for the late summer of this year and holiday season as well.

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 second quarter industry results, we were very pleased at second quarter industry box office, driven primarily by the strong performances of Iron Man, Indiana Jones and the Kingdom of the Crystal Skull, which was the fourth installment of the Indiana Jones franchise, and the big screen version of Sex in the City, box office declined only slightly despite very difficult comps generated by last year’s release of Spider-man 3, Shrek the Third, and Pirates of the Caribbean: At World’s End.

As a note, all of these films last year grossed over $300 million at the domestic box office and accounted for three of the four top-grossing films of 2007.

For the period that corresponds to Regal's fiscal second quarter, industry sources report a decrease in aggregate box office revenues of approximately 2% to 2.5%. When taken together with an estimated 1% increase in the total number of screens, industry box office per screen decreased approximately 3% to 3.5%.

The acquisition of Consolidated Theaters during the second quarter clearly benefited our reported box office revenues as we were essentially flat with last year during a period of declining box office revenues.

On a per screen basis, our box office revenues were down approximately 4.5%, primarily as a results of our outperformance on the top films and premium priced films of last year’s comparable period, which created a more difficult comparison for Regal in the current period and a somewhat easier comparison for some of our peers.

As we have indicated in the past, Regal tends to outperform the industry on proven franchise films that offer something for all age groups, from teens to kids to adults. We also tend to generate greater market share on premium priced IMAX and 3D pictures and benefited from that outperformance in the second quarter of last year.

Now, turning to our second quarter highlights, I would like to address a few key second quarter highlights the demonstrate our commitment to pursuing accretive acquisition opportunities and our focus on efficient theater operations.

We are pleased to report the closing of the 400-screen Consolidated Theater acquisition ahead of the key summer box office season. Our extensive acquisition experience resulted in a seamless integration of the newly acquired theaters and we are on track to produce the expected synergies.

In a quarter of declining industry box office revenues, we focused on cost control and we are pleased with the following quarterly comparisons. Our concession margin increased by 60 basis points despite a modest decline in average concessions per patron and a challenging macroeconomic environment. Other operating expenses declined slightly on a per screen basis as well, and lastly film and advertising expense as a percentage of admissions revenue decreased 90 basis points during the quarter.

Thanks to our cost control efforts, we were able to generate $43 million of free cash flow and ended the quarter with approximately $224 million of cash on our balance sheet.

Turning briefly to our outlook for the balance of the third quarter and the holiday film slate, we were obviously extremely pleased with this past weekend’s record opening of The Dark Knight, which according to the final numbers generated approximately $158.4 million over the weekend.

In addition to The Dark Knight exceeding the single picture three-day weekend record, the industry reported over $260 million of total box office for the three-day period, which exceeded the prior all-time record weekend by almost 20%, and expanded the weekend box office beyond the ceiling that many industry observers believed possible. It’s also important to note that the successful box office results for the past weekend took place on a non-holiday weekend and were generated during a period of macroeconomic concerns. I believe this past weekend further emphasizes that film product and the timing of its release remains the primary driver of our business. The success of The Dark Knight will clearly benefit the industry and the company’s third quarter performance.

We continue to be optimistic that Hollywood has produced a solid film slate for the remainder of the third quarter, but would like to remind investors that we are comparing against a third fiscal quarter in 2007 that increased almost 15% over 2006 levels on the success of films such as Transformers, Harry Potter and the Order of the Phoenix, and The Bourne Ultimatum.

Before highlighting the remainder of the year, I’d like to highlight the importance of premium presentation opportunities presented by 3D and IMAX. We were extremely encouraged this quarter by the performance of Journey to the Center of the Earth. 3D screens on this picture generated four times the per screen revenue of 2D screens on opening weekend and the picture only experience a 41% drop in week two despite the record opening of Batman: The Dark Knight. The 3D ticket price premium continues to be strong, averaging about $2.50 compared to approximately $2 for the average premium of the last three films shown in both formats.

In addition, this quarter we’re benefiting from the playing of The Dark Knight in a total of 18 IMAX locations. The Regal IMAX screens clearly outperformed the industry average and achieved a weekend box office per screen average of over 92,000, which is 4.5 times the average of our non-IMAX screens. The Regal grosses on the IMAX screens benefited from a ticket price premium of $3.50 above our normal evening ticket price.

Now, as for the balance of the third quarter, on Friday we open the Sony Pictures comedy Step Brothers starring Will Ferrell and John C. Reilly. And then on August 1st, we open Universal Pictures’ latest installment of The Mummy franchise, Mummy: Tomb of the Dragon Emperor, starring Brendan Fraser. On August 6th, we open the next Seth Rogen film, Pineapple Express, followed by the 3D animated film, Fly Me to the Moon on August 8th, and then on August 13th, we open the Dreamworks picture, Tropic Thunder, starring Ben Stiller, Robert Downey Jr., and Jack Black.

Now, looking forward to the holiday film slate the fiscal fourth quarter comparison is considerably easier than the third quarter comparison. We’re particularly excited after the October 24th Disney release, High School Musical 3: Senior Year, and by the November 7th releases of the next James Bond film from MGM, titled Quantum of Solace, and the Dreamworks Animation film, Madagascar: Escape to Africa. Then on November 21st, we get to enjoy the next installment of the successful Harry Potter franchise from Warner Brothers in both 35-millimeter and IMAX, titled Harry Potter and the Half-Blood Prince.

Disney also opens their animated film, Bolt, in 3D on November 26th, and then we finished the holiday season with Fox’s The Day the Earth Stood Still, starting Keanu Reeves, and also Warner Brothers’ Yes-Man, starring Jim Carrey.

Now briefly turning to the digital cinema initiative, a DCIP update, last quarter we indicated that digital cinema implementation partners, or DCIP, the joint venture between Regal, AMC, and Cinemark, was finalized in agreements with the various studios to provide for the upgrade to digital cinema. I’m pleased to report that last week we achieved definitive progress toward this goal as DCIP signed the first digital deployment agreement with a major studio. We believe that this first signing is a major milestone and we are optimistic that DCIP will sign additional studios in the near-term.

As we indicated last quarter, J.P. Morgan and the anticipated financing sources continue to be involved in the process and we expect to begin the financing process once we have finalized the agreements with the majority of the studios. At this time, we would expect the digital conversion still to commence during the latter half of the fourth quarter.

In summary, we are pleased with the fiscal year-to-date box office in an otherwise challenging macroeconomic environment. The theater business continues to be product driven and we are encouraged by the relatively solid performance of the box office trends to date. We will continue to focus on efficiently operating the core business while looking forward to continued box office success during the holiday season.

Now I’d like to turn over the presentation to Amy Miles, our CFO, to discuss the company’s financial performance.

Amy E. Miles

Thanks, Mike and good morning. Today I’d like to provide additional detail on Regal's fiscal second quarter results, an update with respect to our balance sheet and CapEx, as well as a discussion of the impact of national Cinemedia results for our quarter.

The company reported total revenues of $675.8 million, consisting of $455.7 million from box office revenues, $188.9 million from concession revenues, and $31.2 million of other operating revenues. Our admissions revenue this quarter decreased approximately 0.5%, primarily as a result of a 3.3% decline in agenda, which was partially offset by a 2.9% increase in our average admission revenue per patron. The incremental screens acquired from Consolidated Theaters in April also benefited our second quarter admissions revenue.

Concession revenue this quarter decreased 4.3% as a result of a 1.1% decline in concession per cap and the previously mentioned decline in attendance. With respect to the decline in our concession per cap, we do believe that the film product was less concession friendly during the second quarter of 2008, as compared to the second quarter of 2007. We were also comping against an all-time company concession per cap record, a $3.20 reported in the second quarter of 2007. The $3.20 per cap was up approximately $0.36, or just under 13% from the same quarter in the prior year. With that in mind, it’s important to note that this quarter’s concession per cap of $3.16 is the second-highest concession per cap for the company and is only down modestly from last year’s record quarter.

In addition to the impact of film products and the difficult comparisons with the prior year, we do recognize that concession expenditures are more discretionary and as such, are more likely to be impacted by the macroeconomic environment.

Turning to other revenues, during the second fiscal quarter of 2008, other revenues increased $3.1 million, or approximately 11% over the comparable quarter of 2007.

Looking briefly at our expense line items for the fiscal period, film and advertising expense as a percentage of box office for the current quarter represented 54.2% of admissions revenue. Film rental and advertising expense decreased by 90 basis points over the prior comparable quarter, primarily as a result of a decline in advertising expense, as well as the mix of film product during the quarter. The top 10 pictures represented 63.7% of our box office revenues versus 67.7% in the Q2 2007 period.

We are also pleased to report that concession margins increased 60 basis points over the comparable period of 2007, resulting in a margin of 86.5%. The increase in the concession margin includes a benefit from our new beverage agreement which offset slightly higher food costs.

Total rent expense increased $6.7 million, or 8%, due primarily to the acquisition of Consolidated Theaters. Other operating expenses increased approximately $4.3 million, or 2.4% for the quarter, but it’s important to note that they were down just over $500 per average screen, and this is due primarily through a reduction in our controllable labor cost for the quarter.

Please note that our G&A expense includes approximately $1.5 million of share-based compensation expense in the second quarter of 2008. Excluding the share-based compensation, all other G&A expenses were down $1.1 million from the second quarter of 2007.

The second quarter produced adjusted EBITDA of $124.4 million versus $130.4 million for the same quarter last year, and resulted in an adjusted EBITDA margin of 18.4%. The $124.4 million of adjusted EBITDA was slightly ahead of consensus street estimates for the quarter. Both the adjusted EBITDA and the adjusted EBITDA margin reflect our continued focus on cost control and we were pleased with the quarterly results.

Turning briefly to our balance sheet and asset base, we ended the quarter with approximately $224 million in cash and a total debt balance of just over $2 billion. During the quarter, we retired the remaining $33.7 million of the three-and-three-fourths converts, with proceeds from the issuance of the six-and-a-quarter converts, those were issued during our first quarter, and that resulted in the $11.1 million after-tax loss on debt extinguishment that’s reflected in our quarterly results.

Our pro forma leverage remains conservative as compared to our peers, provides us financial flexibility, and supports our focus on free cash flow and returning value to shareholders.

Looking briefly at our CapEx for the quarter, capital expenditures during the second quarter totaled $45.8 million and were partially offset by $3.3 million of asset sales. During the second fiscal quarter of 2008, we opened two theaters with 33 screens, acquired 28 theaters with 400 screens, and closed four theaters with 42 screens, bringing our totals to 551 theaters, 6,767 screens.

Based on our development schedule for 2008, we continue to expect full-year CapEx to be in the range of $115 million to $130 million, and this is inclusive of approximately $5 million to $10 million of asset sales.

For the remainder of ’08, we expect to open three to four theaters with 45 to 60 screens, close six to eight theaters with 75 to 90 screens, ending the year with approximately 548 theaters and 6,746 screens.

Now briefly with respect to the impact of National Cinemedia for the quarter, the net revenues related to NCM reported in our other revenue line totaled $3.6 million in this quarter versus $2.1 million for the same quarter in 2007. Also, National Cinemedia contributed approximately $9.5 million to our adjusted EBITDA in the current quarter versus 4.3 in the prior quarter.

In addition to our quarterly distribution that we receive from National Cinemedia, our adjusted EBITDA also includes our initial payment under our tax receivable agreement with National Cinemedia, and that benefited our quarter by approximately $4.2 million.

Also, during our second fiscal quarter, National Cinemedia completed a common unit adjustment designed to adjust our ownership percentage for the acquisition and contribution of Consolidated Theaters. As a result of the common unit adjustment, Regal received approximately 2.9 additional shares and that brings our total ownership to just over 25%.

Looking forward to the balance of the 2008 fiscal year, as Mike previously stated we are optimistic regarding the lineup of films for the 2008 year. We’re pleased with our second quarter results and look forward to continued success in 2008.

This concludes our remarks and now we’d like to open the lines for any questions you guys have.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Eric Handler with Lehman Brothers.

Eric Handler - Lehman Brothers

Thanks. Hopefully, three quick questions; one, can you just refresh our memory as far as Consolidated? How does their ticket prices and per cap concession spending compare to Regal? Is that a little bit of a drag or is that roughly in line?

Secondly, the benefit that you got from your new beverage agreement, is that a one-time item or is that a permanent benefit to your concession margin?

And then last, the screen count that you just provided, a year-end expectation of 6,746, I think that’s a little bit lower from what you were discussing last quarter, of something close to 6,800. Anything going on there?

Amy E. Miles

With respect to the ticket price and the per cap, really they are slightly under on a ticket price. It didn’t really affect the company’s overall, just because of their percentage of their screens to our total screen count. Their concession per caps are actually a little higher to in line, but again when you look at our overall numbers, Consolidated didn’t impact either one of those reported numbers, and again that’s just due to the proportion of their revenues to Regal.

With respect to the beverage agreement, as long as that -- that’s a contractual arrangement that goes out for the next seven years, so I would categorize that as a permanent benefit over that time period. And the one thing that we have included that probably brings our screen count down just a little bit here, things might have moved a little bit from timing but we have also assumed that we would have the screens that we need to divest with respect to the Consolidated acquisition completed by the end of the year.

Eric Handler - Lehman Brothers

Great. Thank you.

Operator

Our next question comes from Lloyd Walmsley with Thomas Weisel Partners.

Lloyd Walmsley - Thomas Weisel Partners

I was wondering if you could provide us with some color on how fast you think you could get 3D screens out in particular. I know you’ve given us color in the past on 2D screens but -- I’m sorry, on digital only screens, but on 3D specifically, I would love to know how many per month you think you could do. And then would just love to know what you guys are thinking as far as the SAG negotiations and how that would impact the film slate.

Michael L. Campbell

Lloyd, regarding the 3D screens, we’ve indicated before that due to some of the delays involved in rolling out the overall digital projectors that we would work on methods to accelerate the deployment of 3D screens and that would still be the plan. I think initially, we would roll those 3D screens out in sync with an overall 3D rollout, but now we’re thinking that we may go into markets and accelerate just the 3D rollout and come back and do some fill-in later. Obviously this would have to be within the confines of any agreements that we sign with the various parties but there will be some acceleration.

Regarding SAG, we’re sort of on the outside looking in but based on most people’s opinion in the industry, it’s been a very contentious negotiation but I think most observers believe there will not be a strike. We’re not sure they have enough votes within their membership to get strike authorization and we don’t see that, at least at this point in time, of affecting in any significant way the film slate going forward.

You’ve heard of a couple of delays on certain films but bearing in mind there’s a very extensive film slate each and every year, so I think sometimes these one or two or three delays that you hear about get blown out of proportion.

Lloyd Walmsley - Thomas Weisel Partners

Thank you.

Operator

Our next question comes from Jeff Logsdon with Bank of Montreal.

Jeffrey B. Logsdon - Bank of Montreal

Thank you. A couple of things; number one, Mike, can you tell us which studio has signed the DCIP agreement? And then secondly, maybe more for Amy, anything on the energy cost side that you may begin to feel any influence from? And then thirdly, just last quarter you guys provided some guidance for the year and maybe I missed it on your comments but are you still comfortable with the guidance level you provided last quarter?

Michael L. Campbell

Dealing with the DCIP question first, actually at this point in time we can’t disclose which studio. We’ve agreed not to do that because there’s some very advanced and sensitive negotiations ongoing with obviously some of the remaining studios but we do consider it to be a major milestone. As I’ve said many times in the past, the difficulty in these type of negotiations is actually getting somebody willing to be first, and I think that’s -- probably the first signer of the agreement is the most important signer because that gets everything else started.

Amy E. Miles

You know, I guess as we think about -- you know, we roll most of our cost into our utilities line that you’re asking for with respect to energy, and if I look at that on a year-to-date basis, we’re actually flat. So we’re flat on a quarterly basis and we’re flat on a year-to-date basis. So a lot of what we’ve done in the past there is hire third-party firms to monitor and help us control that cost, so I think that we have been able to offset any type of inflationary or increases that some may expect in there by better monitoring our sites and utilizing the third-party to help us negotiate with the utility. So from that perspective on a year-to-date and a quarterly basis, we’re flat.

And I think with respect to guidance, at this point in time, clearly what happens for the balance of the year is going to dictate where we are but at this point in time, we wouldn’t have any changes.

Jeffrey B. Logsdon - Bank of Montreal

Great. Thank you.

Operator

Our next question comes from Barton Crockett with J.P. Morgan.

Barton Crockett - J.P. Morgan

Thanks a lot. Let me see -- I wanted to ask a question first on just the timing of the 3D rollout to make sure I understand this a little bit more clearly. You’re saying you hoped to ramp up digital in the fourth quarter. I’m just wondering if that’s truly feasible if you look at like the November and December film being kind of a busy period. How much you could do then and if this is all settled, how many digital screens, 3D screens do you think you could have by the next kind of big 3D release from Dreamworks in March?

Michael L. Campbell

Well, I think clearly obviously the exact time that we start is going to have some bearing on that but we have plans in place -- you know, if we’re able to get started in the fourth quarter, to begin rolling out screens with minimal disruption to existing operations. You’re correct it’s a very busy time but we always have downtimes during each and every day that we can have people working, having people work at night.

I can just kind of give you guidance on how many screens that we believe that we can install digitally on a monthly basis and how we divide that between 3D and non-3D is a different issue, but we believe that we can install approximately 200 screens per month with the resources that we have available to us overall. So it remains to be seen how many of those we would target to just the 3D screens, but I think that could be a fairly rapid rollout because in the past, as we’ve added these 3D screens, we have rolled out as many as 35 or 40 new 3D screens in a period of a couple of weeks. So it could be very quickly once we get started.

Barton Crockett - J.P. Morgan

Okay, great. And then I was hoping you could talk a little bit about -- give us a number in terms of where you stand now on your leverage and where that stands relative to your most restrictive covenant, and how comfortable or how tight you feel in terms of your ability to hit the leverage after the acquisition, you know, some performance there that might be helpful to know.

Amy E. Miles

If you look at our total debt balance and you think about how it works with respect to our bank calculation, the $200 million of converts would be outside of that calculation. That’s at a parent company level. The debt is at the operating company level with respect to the covenant. The covenant today is 3.7 to 5 times, and we would be under 3 times levered.

Barton Crockett - J.P. Morgan

Okay.

Amy E. Miles

And that’s all pro forma and post the Consolidated acquisition.

Barton Crockett - J.P. Morgan

So would that include the Consolidated EBITDAs if you had owned it in the 12 months?

Amy E. Miles

It does, but in the ranges, if you didn’t include it for the 12 months or if you did include it for the -- you know, pro forma or non-pro forma, you are probably talking about 2.91 versus 2.98.

Barton Crockett - J.P. Morgan

Okay. All right, that’s great. And then the final question here, what were you guys using for the average screen count in your calculation of the average admission revenue per screen?

Amy E. Miles

Let’s see, I think it was -- hold on just a second. Let me get that -- 6645, I believe. We weighted -- which is just using our typical quarterly average with respect to the Regal screens but when we did our calculation for the Consolidated, we didn’t do just a simple quarter average and include 200 screens. We included closer to about 270 or so screens because we weighted that based on the revenue generation by those screens.

Barton Crockett - J.P. Morgan

Okay, great. Thanks a lot.

Operator

Our next question comes from Drew Crum with Stifel Nicolaus.

Drew E. Crum - Stifel Nicolaus

Good morning, everyone. I wonder if you could start by talking about how you perceive prices impacting concessions, given the volatility in commodities and with corn being an important input for you guys. That’s question one.

Question two is the cash receivable from NCMI came in at $4.2 million. Is there any additional flow in the balance of ’08? And then finally, you mentioned that Journey to the Center of the Earth did four times per screen that of a normal 2D film. How does that compare to previous 3D content? Thanks.

Michael L. Campbell

Starting with the last question first on Journey 3D, that was actually a greater differential than what we’ve experienced in the past. We said in the past that’s normally been 2.5 to 3 times. This particular film it was actually in excess of 4 times, and I think the hold-up we referenced earlier that the second weekend was only down 41%, despite the opening of Batman, which probably has a similar demographic. And one of the reasons that it was only down 41% was the strength of the 3D screens that remained in the market generating those type of numbers.

Amy E. Miles

With respect to the cash receivable agreement, we would expect -- there may be -- the payment that we received in the second quarter is obviously an estimate. I mean, you finalize when you file your tax return in the September filing. I wouldn’t expect that it would be materially different though from the $4 million that we’ve received to date. I’m sure there may be some true-up there but I wouldn’t expect that that would be material. Of course, that’s their calculation but from our perspective, we’re not counting on anything real material from an adjustment.

I think when you are -- the thing you have to remember too when you are thinking about increases in concession costs, what we’ve been able to do with particularly our beverage agreement, and remember these are such high margin goods that even when you see increases in those line items, they are such high margin items for the company that it doesn’t really affect your overall EBITDA that much when you are seeing some increases. But again, we’ve been able to -- you know, over the past two quarters, that margin has stayed at about, or those cost of goods has stayed at about 13.6% or so, and we’ve been able to offset a lot of that with the benefit of -- you know, like we said, our beverage agreement and part of that includes reimbursement for inflation in the respective line items.

Drew E. Crum - Stifel Nicolaus

Okay, that’s very helpful. Thanks.

Operator

Our next question comes from Hunter DuBose from Morgan Stanley.

Hunter R. DuBose - Morgan Stanley

Thanks for taking my questions. The first one is I believe that you previously disclosed that your supplier agreements on concessions provide you a degree of hedging against spikes in food costs. Can you comment or provide a little bit more color on how that’s insulating you in the current environment? How long do these agreements typically run for and if it’s the case that your suppliers are taking the squeeze right now, at what point do their margins start to actually go zero, at which point you need to sort of reevaluate those agreements?

Amy E. Miles

Let me clarify just a little bit what we’ll do a lot of times because of the volume of say popcorn that we buy on an annual basis. We can go with the growers and negotiate what we will pay on a -- maybe the longest period might be two years, but it’s typically an annual agreement that we’ll have with the growers to what we will pay for that corn for that fiscal year.

And some of the things too that we’ve also done in that area where maybe our suppliers aren’t taking as much of a squeeze is we have consolidated the volume of goods that, for example, you will not only deliver to our theaters the popcorn but we will also give you the janitorial supplies business. So by consolidating business with various suppliers, they can offset some of that increase in food cost with increased volumes that they are providing for Regal.

So we’ve done a lot of other things in that area where I wouldn’t necessarily just say it’s squeezing that supplier.

Hunter R. DuBose - Morgan Stanley

Okay, and when do these annual agreements or two-year agreements typically roll off? And is there some point in the future when we can expect your food costs to go up on the concession side?

Amy E. Miles

Well, you are always going to have -- you know, every year as these roll off, you are going to have to renegotiate from that perspective and historically, if you go back and look at the company over time, you’ve seen pretty much consistency in that concession margin over time, so a lot of time you’ll pass those costs along to the customers. You’ll look at either packaging or opportunities that you have, so I would say over time when that has occurred, you haven’t seen material changes in concession margin. And over time, prices have increased.

Michael L. Campbell

One thing you might consider too, and it’s -- I mean, you can kind of pick the number but in an extreme case, let’s say the price of popcorn doubled from $4 a bag to $8 a bag -- well, that 50-pound bag of popcorn might produce several hundred dollars worth of retail sales, so even a doubling in the cost of an item like that at such a high margin has a very minimal impact on margins, particularly when you can increase your prices 2% or 3% a year, which we’ve always been able to do.

Hunter R. DuBose - Morgan Stanley

Okay, that’s helpful. If I could just ask a couple more questions, the first one is I believe that you were commenting on the remaining expected screen openings and closings for the year. I think you may have said 75 to 80 closures for the rest of the year. Can you comment on whether that’s inclusive or exclusive of the 52 screens you’ll be divesting as part of the Consolidated acquisition?

Amy E. Miles

That’s inclusive.

Hunter R. DuBose - Morgan Stanley

That is inclusive, okay. And then my other question is Mike, you were commenting on the ability to install 200 digital screens per month when DCIP actually takes off. To what extent might that be limited by industry constraints -- you know, for example, the availability of the total number of projectors or the availability of qualified technicians for doing these installations? And if some of your competitors in your space are also being somewhat aggressive with their rollout, their ramp-up.

Michael L. Campbell

I think that’s a very good question but regarding the technicians involved, we’ll totally self-sufficient in that area. I mean, we’re basing that number on using only our internal resources, so we’re not having to go outside for technical help to do that. Hopefully that’s helpful.

Hunter R. DuBose - Morgan Stanley

And can you comment on the availability of projectors, for example? Or other supply constraints?

Michael L. Campbell

We’ve been assured that -- I mean, the projector companies that we are planning to use can to a certain extent ramp up to meet projection equipment needs that we may have. And in addition, we’ve been very proactive. One of the gating issues we believe, one of the primary gating issues on rolling out 3D would be the availability of silver screens. We have already begun buying and installing silver screens in anticipation of starting this rollout and we believe that would have been our major gating factor in doing a quick rollout.

Hunter R. DuBose - Morgan Stanley

Great. Thank you very much.

Operator

Our next question comes from David Miller with Caris & Company.

David Miller - Caris & Company

Good morning. Amy, I’m curious about a comment you made in your prepared remarks. You had mentioned in your prepared remarks that you did not think the mix of films in the second quarter was concession friendly. I’m curious why you think that. You had Iron Man, arguably the hit of the summer, the Hulk, you know, didn’t do as well but a pretty good popcorn movie, Kung Fu Panda, Indiana Jones, et cetera. You know, pretty good concession related films, though obviously not as strong as last year but still fairly strong and I’m just curious why you think that.

And related to that, do you think there’s truth to the notion that in this kind of an economy, maybe people are putting a scrimp a little bit on concession as opposed to the notion that this is just not a concession friendly mix of films? Thanks very much.

Amy E. Miles

Sure. I think we didn’t say it wasn’t a concession friendly mix of films -- we said it wasn’t as concession friendly as the prior quarter. Let me give you an example; we opened Sex and the City, per cap down 4.8%; we opened Kung Fu Panda, per caps were up 4.3%. So each week as a film comes out, you can see the difference there in your per cap and it’s pretty much related to the film costs. And a lot of the movies last year when we’re talking about Shrek, Pirates, and Spider-man, you have to remember how much business those did. So let’s call it a billion dollars of box office, so a higher percentage of your box office dollars were generated by those concession friendly films.

Iron Man, you do good concessions; Indiana Jones we had good concessions but again, they did not do the volume of business in the aggregate that the three pictures did last week. And you did have other pictures in the quarter, like Sex in the City, which was R-rated and I just told you what happened with respect to when that picture was out. And then Kung Fu Panda when it happen, per caps were up 4.3%.

But in the aggregate, last year in our opinion was more concession friendly, and I think it was -- you still see concession friendly films this quarter. That’s why the per cap was up $3.16. Now, it wasn’t as high as last year but if you go back and look at history, $3.16 is still a good concession per cap for the company.

David Miller - Caris & Company

Thank you.

Operator

(Operator Instructions) Our next question comes from Jake Hindelong with Monness Crespi Hardt.

Jake Hindelong - Monness Crespi Hardt & Co.

Good morning. Thanks for taking the call. First off, just the second half outlook is pretty strong here. Is there any potential and when would you think you could push through some pricing increases?

Michael L. Campbell

Well, we continue to review that on a -- actually, just on a month-by-month basis and it’s a constant process. As we said in the past, at least the past few quarters, we still believe there’s elasticity in regional situations for ticket prices. We’ve been a little bit more conservative on the concession side for the reasons that people have raised today, which is the overall macroeconomic environment. But we still believe there’s elasticity there.

Jake Hindelong - Monness Crespi Hardt & Co.

Thanks, and then separately, Mike, a comment you made regarding the digital deployment agreement. When would you expect we could hear of more studios signing on with DCIP?

Michael L. Campbell

We would expect, and here again this is hopefully, knock on wood, that we’re talking about a matter of just a few weeks, because we are -- we believe we are very, very close with some of the other studios. And as I said earlier, the struggle seems to have been getting the first guy to commit because the first guy to commit is always the one that’s subject to criticism by the remaining group. So if you get the first one to commit, I think it makes it easier to get other people to jump on board.

I mean, don’t underestimate the complexity of it but at the same time, I think this is a major milestone for us, is getting the first one.

Jake Hindelong - Monness Crespi Hardt & Co.

Great. Thank you very much.

Operator

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

Michael L. Campbell

We appreciate everybody dialing in and here again, we look forward to talking to you at the end of the third quarter. Thank you.

Operator

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

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