Question-and-Answer Session
Operator
Thank you. Ladies and gentlemen, at this time, we will be conducting a question-and-answer session. (Operator Instructions) We'll take a moment to poll for questions.
Our first question comes from the line of Eric Handler with Lehman Brothers.
Eric Handler - Lehman Brothers
Thanks. Good morning. Amy, when you talked about half of your increase in concessions as a result of higher pricing, would you believe then that a per cap spending in excess of $3 per patron is sustainable, going forward?
And then, secondly, can you talk a little bit about your ticket pricing? It was the second consecutive quarter of 7% plus growth. Is this a function of your new theaters? Is it you're raising prices across the country? Is it regionalized? Just give some analysis on that, please.
Amy Miles
Yeah. I think there is a couple of things, and I'll start with the concession per cap. With respect to the third quarter and how the pricing increases would move forward to the third quarter, I think, it's sustainable for that period. A portion of the price increase that's benefited -- benefiting the company in the second quarter, we started the program in fourth quarter of 2006.
So from that perspective, that will be a little bit of a harder call as compared to the third quarter, where we start to cycle, again, some of the increases. And then, how it -- you know, how the per cap may move in the third or fourth quarter above our pricing is going to be, again, dependent upon the film product for that quarter.
With respect to our ticket pricing, I think, there has been -- we've had some beneficial film product in both the first quarter in the second quarter. Remember that the third -- the first quarter, the biggest picture was 300. So we had the benefit from an R-rated ticket price then.
And if you look at the second quarter of this year, we've had a similar benefit, where last quarter, 8.4% of our revenues were generated by G films, and only 4.2% of our revenues were generated by G-rated films in this quarter. And one of those was Meet the Robinsons, and that obviously had a higher ticket price because of the 3D runs.
And also with the success of Knocked Up for the second quarter, the R-rated films were 22% of our business versus just under 14% last year. So we've had, probably, a consistent -- you know, I'll call it 4% to 5% ticket price increase, and above that for both Q1 and Q2 has been the benefit of film product.
Eric Handler - Lehman Brothers
Great. Thanks, Amy.
Operator
Our next question comes from the line of Gordon Hodge with Thomas Weisel Partners.
Gordon Hodge - Thomas Weisel Partners
Yes. Good morning. Just a couple questions.
Mike Campbell
Good morning, Gordon.
Gordon Hodge - Thomas Weisel Partners
One is -- just curious -- with Beowulf coming out in 3D later, I guess, in November, I'm just curious if you have a sense of where you'll be in terms of 3D screens at that point?
And then, second question is, as far as DCIP goes, what -- are they negotiating with each studio individually or is it more of a group negotiation where there will be one final agreement on the virtual print fees at some point in the near future? And then, is DCIP affecting your -- are their expenses running through your income statement that we should be looking at separately? Thanks.
Mike Campbell
Okay. Regarding Beowulf, we have currently 109 units. And we've made it clear in the past that once we begin our own deployment of digital conversions through DCIP, we could rapidly accelerate the rollout of 3D screens.
That being said, during that interim period, we have made it clear to REAL D that we would continue to accept additional screens as long as they can provide the projectors that we need free of charge to us to roll out prior to our overall rollout. So, I guess, the answer is we would expect to probably have a few more 3D screens for Beowulf, but I can't give you a definitive answer on how many.
Gordon Hodge - Thomas Weisel Partners
Okay.
Mike Campbell
Regarding DCIP, I mean, the intent is this would be one master contract with the various studios. And they all have to individually agree to it, but it's one contract. And obviously, the way the model is built is that as long as we have the majority of the studios, we move forward that sign up for this.
And there would be a provision in the contract to accept product from what we would call nonparticipating studios. But there would be an additional charge, if you're not part of this program going in. So once we get the master contract agreed to by the major studios, everybody is on the same plan.
Amy Miles
And, Gordon, with respect to your last question, there was an initial funding by all partners of DCIP to capitalize DCIP.
Gordon Hodge - Thomas Weisel Partners
Okay.
Amy Miles
So that shows up as a balance sheet investment. So there are no P&L expenses. That's not an entity we consolidate. So there is no P&L expenses today associated with DCIP.
Gordon Hodge - Thomas Weisel Partners
And was it significant on the balance sheet in terms of the funding?
Amy Miles
No, it was not.
Gordon Hodge - Thomas Weisel Partners
Okay. Terrific. Thanks.
Amy Miles
Sure.
Operator
Our next question comes from the line of Hunter DuBose with Morgan Stanley.
Hunter DuBose - Morgan Stanley
Thanks. Good morning, guys. A few quick questions for you. First of all, could I ask you to quickly clarify what the tax treatment is for earnings recognized from NCM? And second of all, could you give us more clarity around how we should be thinking about the long-run cost to deploy the 3D systems -- the sort of 1,000 to 1,500 systems that you were talking about?
And as part of that, could you also give us your views on the relative merits of the REAL D system and the forthcoming Dolby 3D system in terms of the trade-off of disposable versus reusable glasses and the need for a silver screen or not? Thanks.
Amy Miles
I'll take the first question. With respect to the tax treatment, you can think about all of the receipts that we receive from National CineMedia, be it the theater access fee, the cash distribution, the tax receivable payment, all of those are taxable to us.
Mike Campbell
Yeah. Regarding the cost of 3D, going forward, I think, we've indicated before that these initial units we were investing about $25,000 in some of the early 3D servers. But we believe that going forward, certainly, under the scenario of a mass rollout that that deal would change significantly.
And I would tell you that I believe that we could have flexibility to do deals that range from zero investment on our part in favor of some small revenue-sharing arrangement with the provider up to us investing a 100% of the dollars for that technology, although I would expect the cost to come down over what we've experienced historically.
As for REAL D versus Dolby, I mean, you know, I think, both technologies work. But we have been favorably inclined and favorably impressed with REAL D. It does require a silver screen, but our opinion is that silver screens are perfectly fine for 2D and 3D presentations.
And we really like the idea of having disposable glasses, because we believe that long-term, anytime you have something that's not disposable, you have potentially more cost, as it involves more labor to distribute, collect and sanitize those devices as well as shrinkage on those devices is much more expensive rather than using a disposable item.
So, right now, we're firmly in the REAL D camp. If somebody can show us something that's comparable, we'd certainly take a look at that.
Don De Laria
I think we can go to the next question.
Operator
Our next question comes from the line of Michael Savner with Banc of America Securities.
Michael Savner - Banc of America Securities
Good morning. Thanks. Two questions. First, Mike and Amy, can you just update us on your -- on the M&A environment? What you're looking at or the timing by which you'd like to capitalize on an opportunity?
And if not, obviously, you have been efficient re-deployers of cash in the past, so is there some kind of timeframe we should think about where you'd put -- go back to your, kind of, more traditional leverage ratios if you can find a deal that's good for you?
Second question. Can you just give us a little bit more granularity, Mike, in terms of your expectations for 3D films coming to market next year? How many you're aware of and over what time period summer releases or holiday releases, and then where you'll be -- at least your preliminary expectation of where you'll be during those points in the year for 3D equipment? Thanks.
Mike Campbell
Yeah. On M&A activity, obviously, we're bound by confidentiality agreements in many cases when we're looking at an M&A opportunity. But I mean, I can say that as we have said earlier that there is more activity out there this year than there has been in the last year, year and a half. And I think you can safely assume that anything that is out there, we have an opportunity to look at. But there is nothing specific that we can give you today.
3D films -- I think what you're going to see in 2008, you would probably see four, five, six films, more like what you've seen in this past year and the current year. But I believe when you get to '09 and going forward, what we expect to see would be 10 or 12 films per year in the 3D format.
Some of those films have been announced. Some of those have not. But we've heard from various sources that there will be more films than have actually been announced. And here, again, I think, the real key is just how quickly the industry can deploy the 3D units. And as we said earlier, our overall rollout somewhat dictates how quickly we can roll out 3D screens.
But we believe that a good number for us to shoot for over the term of our digital deployment would be 1,000 to 1,500 screens within Regal, which we believe would give us representation to the tune of our market share today, which is about 20% of the box office.
Michael Savner - Banc of America Securities
Terrific. Thanks very much.
Operator
(Operator Instructions)
Our next question comes from the line of Hunter DuBose with Morgan Stanley.
Hunter DuBose - Morgan Stanley
Hi, guys. Just a follow-up question. Regarding the box office mix for the second quarter, indicating that there was a drop off in demand for the second-tier non-tent-pole films, what factors do you think contributed to that, and how should we be thinking about that trend going forward?
Mike Campbell
I think it's more a reflection of blockbuster films being out there. I mean you had three monsters out there, with Pirates and with Shrek and with Spider-Man. And I think a part of it was some fear, perhaps, on the studios' part of releasing what I would call the better second-tier product in the face of those blockbusters. And I think that really impacted you late May and probably into the middle of June.
But I think once people believe the schedules were cleared of the blockbuster, the ongoing impact of those blockbusters -- you saw the market open back up. And indeed, in late June and into July, you saw a market where you had blockbusters like Transformers performing well alongside more modest films like Die Hard and Ratatouille.
So I think it was somewhat of an anomaly based on what you saw in May. I don't see, unless we have periods again where you've got three huge blockbusters released over a three-week period, that you would see that again.
Hunter DuBose - Morgan Stanley
Okay. Thanks.
Operator
Our next question comes from the line of Scott Barry with Credit Suisse Group.
Scott Barry - Credit Suisse Group
Good morning. A couple questions. Amy, when we look at 2007, should we still look for a modest working capital pickup like we've seen historically?
Amy Miles
Scott, with the exception of -- if we segregate on National CineMedia -- and when you're looking at this quarter and you see a big swing in working capital. Last year, working capital contributed about $8.8 million -- and this is for the quarter, second quarter only --and this year, you see that working capital is a use of cash of about $137 million.
So what that roughly $145 million swing consists of is there is $131 million of that relates to tax payments being accelerated; $92 million of that is with respect to the National CineMedia taxes; and then the balance, which is about $39 million, is just the company's normal tax payments, which -- there is some slight impact of Fandango.
And then you also see, this quarter, a greater use of cash in the film payable area. Because of most of the blockbusters happening in May, we've paid a lot of those film costs by the time you get to the end of June.
So that's the dynamic of this quarter. But when you get to the end of the year and you exclude the benefit that National CineMedia will provide, yes, it should be -- the working capital should be more like a normal course working capital, which is a slight pickup.
Scott Barry - Credit Suisse
Okay. Great. And I may have missed this. But there hasn't been any resolution on the tax-sharing contribution from NCMI yet. Has there?
Amy Miles
There is resolution. But with respect to this, it's contractual. So I just want to be clear there. But they do have to go through calculations on an annual basis and, you know, to determine whether or not we could book that as a pickup ahead of the cash receipt of that. And to date, we don't have that information.
Scott Barry - Credit Suisse
So you haven't yet created a receivable, sort of?
Amy Miles
You got it.
Scott Barry - Credit Suisse
Okay. Great. And then --
Amy Miles
And there is nothing in our P&L with respect to the TRA.
Scott Barry - Credit Suisse
Okay. Great. And then just one last question. Maybe you could discuss, since you have a -- you're picking up a 53rd week next year, what that precedent looked like back in -- what the impact was back in 2003? That would be great. Thanks.
Amy Miles
Well, we would take it again for sure. But what it meant for us in 2003 -- because that's the biggest -- one of the biggest movie-going weeks -- you know, you have your July 4 week and your Christmas week as your two biggest weeks of the year, typically, that's represented about -- call it, 2 to 3% of our annual attendance occurs in that week. And the cash flow benefit in 2003 was $40 million.
Scott Barry - Credit Suisse
Okay. Great. Thanks very much.
Operator
And seeing that there are no further questions in the queue, I would like to turn the call back to management for any concluding remarks.
Mike Campbell
Well, we appreciate you calling in for the conference call today, and we'll join you again next quarter. Thank you very much.
Operator
Ladies and gentlemen, this concludes today's teleconference. Thank you for your participation.
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