AMC 電影院 (AMC) 2002 Q4 法說會逐字稿

Good morning. My name is Crystal and I will be your conference facilitator today. At this time, I would like to welcome everyone to the AMC Entertainment, Inc. FY 2002 fourth quarter earnings conference call hosted by Peter Brown, Chairman and Chief Executive Officer of AMC Entertainment, Inc. Any forward-looking statements contained in this call, which reflects management's best judgment are based on factors currently known and involve risks and uncertainties. Actual results could differ materially from those anticipated in the forward-looking statements included herein as the result of a number of factors. Including among others the Company's ability to enter into various financing programs, the performance of film licensed by the Company, competition, construction delays, the ability to open or close theaters and screens as currently planned. Political, social and economical changes, demographic changes, increases in demand for real estate, changes in real estate, zoning and tax laws and unforeseen changes in the operating department. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer Analysts who would like to ask a question during this time should press star then the number 1 on your telephone keypad and questions will be taken in the order they are received. To withdraw your question, press the pound key. Thank you, Mr. Brown, you may begin your conference.

Okay, thank you, Crystal, very much. And thank all of you for joining us today. As Crystal said, this is the fourth quarter fiscal 2002, the quarter ended March 28, 2002, earnings conference call for AMC Entertainment. I'm Peter Brown, Chairman and Chief Executive Officer. On the phone with me today is Philip Singleton, our President and Chief Operating Officer for our largest subsidiary company, American Multi-Cinema; Craig Ramsey, our Chief Financial Officer. Also joining us on the phone today in his debuting role on these calls is Dick Walsh, who is Chairman of our Film Group, he's relocating to Kansas City from our film department. Dick is also an Executive Vice President with AMC Entertainment, and Dick will be handling the film portion of the presentation. Now, as is typically our custom, I will do a few minutes of highlights on the quarter. Then Phil will update us on our asset quality. Phil will also update us on the status with respect to integrating a couple of acquisitions we basically consummated this last fiscal year and beginning of this fiscal year. And Craig Ramsey will walk us through some highlights on the numbers, and as I said just a moment ago, Dick Walsh will finish up with a presentation on the film product, then we'll have a Q&A. So, as we look at the fiscal year, I have to say it was just a super year for the company, both in terms of our financial performance and importantly the strategic accomplishments on the corporate development front. I hope all of you have a copy of the press release. But as you saw in the press release, we did report record revenues and adjusted EBITDA for our full fiscal year. As we've said in prior conference calls, we like to watch the business on a 12-month rolling 12-month basis, and it's convenient to do that at the end of a fiscal year. But as you saw, revenues at $1.3 billion were up 10% over the prior fiscal year. Adjusted EBITDA 161 million up 20% over the prior fiscal year. Now some other things I want to highlight: Adjusted EBITDA margin improved. We've had an intense focus on improving our adjusted EBITDA margin. And as you saw in the, on an LTM basis, adjusted EBITDA margin was up 110 basis points over the prior fiscal year '02 -- '01, period. Now that margin has improved, shown improvement for six consecutive quarters. In addition, at the end of the fiscal year, on an as-reported basis, our net debt to adjusted EBITDA ratio was 2.7 times, down from 3.3 times where we were on an LTM basis at the end of our December quarter. Now, Craig will speak more to this in just a moment. And we'll talk a little bit about some of the pro forma numbers that we spoke with you on the road about when we did our equity offering and how that ratio would compare when you look at the pro forma numbers. In addition, we ended the quarter with a very substantial liquidity position over $600 million of availability. And to refresh your memory, that was $383 million at the end of our December quarter. This was fueled by three successful financings that we completed in fiscal '02. Starting in April of '01, we privately placed $250 million of convertible preferred with Apollo Management out of New York. In January, we led our industry back into the public debt market, with a $175 million bond offering. And in March, we led our industry back into the public equity markets and indeed saw a lot of you I'm sure that are on this conference call this morning with approximately $100 million common stock offering. All total, in our fiscal '02 year, we raised over $500 million of capital. Now we also had, those of you that followed the company, an objective with respect to our free cash flow. And I'm pleased to report that we have indeed achieved the objective of becoming free cash flow positive. We measure our free cash flow by taking what we call an "after-tax cash flow," which is really our net income plus depreciation and amortization cash earnings, if you will, and subtracting from that our net capital expenditures. And on that basis, you would see that our free cash flow was $14 million to the positive column. So, we're very pleased about having achieved that objective that we've had in intense focus on. Last but not least on the strategic front, we substantially completed two acquisitions, representing almost 700 screens. Now I say "substantially completed" because, technically, one of those acquisitions, General Cinemas, closed in the first day of our fiscal year '03. But we view that that acquisition was 99.9% done, if will you, in our fiscal '02 year. So we look at that as fiscal '02 year's work. To refresh your memory, those two acquisitions were General Cinemas, as I just talked about, General Cinemas was the ninth largest theater circuit in the United States, 66 theaters, 621 screens. We bought bought company out of bankruptcy, at a very attractive multiple less than four times. That acquisition will add around $300 million of revenues, $46 million of adjusted EBITDA on a one-way basis, and as I just said a moment ago, it closed technically on the first day of our fiscal '03 year, but we substantially completed in our fiscal '02 year. The other acquisition that we completed was a circuit in New Orleans called Gulf States, five theaters, 68 screens. This was a circuit that was the New Orleans market share leader. That acquisition we expect to add $40 million of revenues, $8 million adjusted EBITDA, and that closed in our fiscal '02 year on March 15, 2002. So with that, I'm now going to turn the program over to Phil Singleton, who will update us on asset quality, as well as the integration acquisition integration status report.

Thanks, Peter. When you look at AMC the first thing that you'll see is we have a leading high-quality asset base that is second to no one else in the market. LTM for the period ending 3/28 of this year, calendar '02, we counted fiscal year-end we counted 3520 screens and 247 locations. The slide you're looking at shows the AMC screen portfolio segmented into three types of theaters: mega-plexes, something we call "continuing multi-plexes," and disposition multi-plexes. The definition of a mega-plex is generally a stadium-seated theater -- stadium seating in a theatre that's built since 1995. It's usually 14 or more screens, and but stadium seating is really the discriminator or defining factor. A continuing multi-plex in our definition is a slope floor theatre that has a protected real estate situation that makes it a viable economic unit for several years to come. At least three to five, if not more. A disposition multi-plexed are theaters that we've targeted for disposition or the next three years. An example of a continuing multi-plex would be our Century City in Los Angeles, in the heart of Century City our Phipps Plaza in the Phipps Plaza Shopping Center in the heart of Buckhead in Atlanta, our Kabuki in Japan Town in San Francisco, or Marco in Philadelphia. As you can see on the slide, the mega-plexes in green and the continuing multi-plexes in blue account for 92% of our overall screen count. And in that group is what I call "keepers," they're going to be high-performance theaters that will continue to be very viable and high-quality for years to come. Disposition multi-plexes represent only 8% of our remaining surface screen count, and it's important to note that even as a group 5.2 million, they are all cash-flow positive. AMC's high-quality asset base shows up in the market place as well, as you can see on this slide. Based on the individual theater box office results for the LTM period through March of '02 this year, calendar '02, as tracked by Entertainment Data, Inc., the AMC circuit had 52% of the top 50 theaters in North America, and as you can see, no other competitor, either regionally or nationally, comes anyway near having the high number of the industry's top performing theaters. Lowe's Cineplex even with their New York locations only had 6 on this chart. In fact, Edwards is now part of the Regal Group and Century National Amusement and Movie Call are regional players that have done a little better job in situating their locations within the regions they're located. I think this is probably my favorite slide. And I know my partner Dick Walsh who has joined us this time loves this slide also. It's a very high number of battleships in the AMC armada and he wants a lot more. I think the bottom line summary of this slide and the previous slide is that more high-quality assets in your portfolio means more high-volume, high-performance theaters in the marketplace as well, and right now AMC's asset quality is the best in the business. Now I'd like to report on integration status of the Gulf States and General Cinema acquisitions. We took possession of Gulf States on 3/15 of this calendar year, '02, and General Cinema on 3/29/02. The integration timeline for Gulf States was planned to be about two weeks, and for General Cinema for about four. Our strategy target of having all acquisition theaters totally assimilated and fully contributing to our '03 business plan by the release of the first summer anchor film "Spiderman" on May 3rd. And it was a fairly ambitious time line, it was practical in our estimation. As it pro logged, to cut over, I should tell you that we were fortunate to have very cooperative home office teams in the acquisitions circuits both in Boston and New Orleans who nicely facilitated the acquisitions. And at this point, all but roughly about 15 to 20 people in General Cinemas Boston have been released with attractive yet fair holdover bonus and severance payment. By the end of June, that count should be down to about half dozen personnel, and by the end of September, we anticipate everyone will be gone and also should be out of the office leased to them by then. The home office staff disposition at Gulf States was handled by the owner, was not an issue for us. Good planning preparation and hundreds of hours of our transition teams invested in the effort resulted really in a seamless cutover of both circuits on schedule and on budget. Internally, that included areas such as our point of sales system, which we were fortunate in General Cinema's case they had the same Radiant System, the same point-of-sale system computers that we had. Accounting our marketing group including our frequency program, Movie Watcher, our Internet ticketing piece , payroll, MIS, virtually all the other corporate systems, it was a pretty smooth cutover due to the planning and time involved in figuring it out. Externally, the guests noticed virtually nothing by the end of the second weekend. Our film suppliers also complimented us on how smooth and coordinated the cutover was, and in fact our co-op agreements, which were to our advantage, actually began on the first week of the cutover, which was a good deal for us. And there were virtually no vendors and -- glitches and switching to the vendors and suppliers in both, in all the markets that the acquisition theaters are located. Likewise, our re-branding is on schedule. The newspaper advertising along with the cutover of General Cinema's Credits, which is their frequency program, to our frequency program, which is the AMC Movie Watcher program, was accomplished actually by the end of the first week. Conversion of General Cinema theaters to the AMC admission and concession price model, which included changing all internal and box office concession signs, was completed by 5 -- by May 3. And I might add with the neutral or positive impact on both average ticket price and concession per head in every location. Staff and management changed over our uniform suppliers actually to keep up with us was essentially completed by the end of April. Exterior resigning for Gulf States will be completed actually by tomorrow, on May 17. And General Cinema should be done by the middle of June, 6/15. And changeable internal collateral signing has basically been resigned in both circuits and fixed internal signings should be done by the end of July. Lastly, and probably most importantly, the AMC cultural integration is proceeding nicely. We launched transition teams into virtually every acquisition market. In fact, we inserted one key AMC management person in every Gulf States and every General Cinema theatre for the first three weeks of possession. An assembly of all the managing directors of all AMC locations and acquisition theaters followed the fourth week in April in Kansas City, and it was a high-level meeting that combined the role with the new AMC mission statement and operating fundamentals with a focused orientation program for our newly acquired theater teams. That meeting in the North America [INAUDIBLE] as we called it was very well received by all of our former Gulf States and General Cinema managers, and it moved the meter dramatically in my estimation in terms of rapidly integrating these folks into the AMC family. The second transition team is actually hitting the ground this week for a two week tour in all the acquisition markets to backstop any build-up of operating pressure due to the opening of "Star Wars, Episode Two" which actually opens officially today. Actually, last night, midnight shows were launched. Finally, we have an AMC Basic Training Road Show underway, and it began last week and will run through the end of June that reinforces to our new management team again, our new mission statement, operating fundamentals and guest service policy. So to report to you in summary, our acquisition integration status, I'm pleased to report, is on schedule. It's under budget in terms of projected transitional costs, and with essentially -- within five weeks of taking possession, we have all former Gulf States and General Cinema acquisition theaters fully assimilated and contributing to our opening business plan as we launch into one of the most attractive film product Summer seasons in recent years. With that summary, I'll turn it over to Craig for review of the industry background.

Thanks, Phil. Before we discuss AMC's financial results for the fourth quarter and full fiscal year, I'd like to provide some industry statistics for the fourth quarter that I think will serve as a good backdrop to our next discussion. As you see on the slide, as we track the box office in North America, admissions revenues were up 16% over the fourth quarter of last year. Of that 16%, we estimate that the attendance increase accounted for 11%. Increasing from about 337 million last year to approximately 374 million this year. The balance of the box office increase would then have been accounted for by increases in average ticket prices, which we estimate were up from about $5.56 last year to $5.79 this year, or 5%. As we look at the performance of the large pictures or those that are grossing or expected to gross over $100 million, you see again it was up in comparison to the same quarter last year. Three films released during the current quarter of this year expected to exceed $100 million in box office and contributed a total of $457 million, compared to three last year that contributed about $415 million, and just by reference, the current fiscal year films would be "Ice Age", "A Beautiful Mind", and "Blackhawk Down". It's interesting to note that while the over $100 million films did produce more box office compared to the same quarter last year, really the strength of the quarter's box office performance came from a very full release slate of pictures. 37 films were wide released during the fourth quarter of this year, versus 31 films last year. So let's now look at AMC's results for the fourth quarter and as we do, I'd like to reference back to those highlights that Peter gave you. First of all, record revenues and adjusted EBITDA up 41% in the quarter. Also an improvement in adjusted EBITDA margin. Keep in mind that as we look at these numbers, our acquisition of General Cinema was finalized on March 29th, and that would be the first day of our new fiscal year. So the numbers on the slide are not pro forma for the acquisition, but they are the numbers that we will report in our annual report on our SEC filing. Total revenues, as you can see, are up $49 million, or up 17% over the same quarter last year. Total revenue performance was driven primarily by increases in attendance, which was up 12% from 36.3 million last year to about 40.5 million for the current quarter. Our 17% comp on revenues and 12% comp on attendance both out performed the industry comps of 16% on revenues and 11% on attendance, respectively. Adjusted ebitda increased $11 million, or 41% over the same quarter last year. The momentum of the box office certainly played a role in these results. While not shown on the slide, as we noted earlier, our margin percentage increased pretty substantially over the prior year, 9.3% in the fourth quarter of last year to 11.2% in the fourth quarter of the current year. Theater closure activity has slowed, with only 24 screens coming offline during the quarter. And most of these screens came offline at their lease expirations, so there was no theater closure cost incurred during the quarter. You see net cap of $30 million, that reflects the slightly higher increase in our number of screens that were added during the quarter, compared to last year. Average screens operated were also up slightly, reflecting these new openings. As we turn to the fourth quarter results, again, taking you back -- or excuse me, to the full fiscal year results, again, taking you back to those key highlights, record revenue and adjusted EBITDA for the full fiscal year, and again on a full fiscal-year basis and improvement in our adjusted EBITDA margin. Total revenues increased $126 million or 10% over the same quarter -- or over the full year last year, excuse me. Total revenue performance again was driven by increases in attendance, reflecting the strong box office, and by increases in total revenue per head, which really reflects the pricing initiatives. Attendance increased from 151 million in fiscal '01 to 159 million in fiscal '02, an increase of 5%. Adjusted EBITDA up 20% for the full fiscal year. Adjusted EBITDA margin, again, of about 100 bases points to 12% for the current fiscal year. Our aggressive closure program over the prior years has really left us with a very manageable theater disposition program. Consequently, screens are coming off at lease expiration. And you can see here that we disposed of 86 screens during the current fiscal year versus about 250 last year. Net cap-x was $77 million for the full fiscal year, very much in line with our expectations for the year and down pretty substantially from last year, which was $101 million for the full year last year. In line with our plan for the year, we added about 214 -- we added 214 screens, versus 115 in the prior year. Average screens operated were down for the full fiscal year, indicating that our total revenue and adjusted EBITDA results were not driven by additional screens operated during the year. As we noted earlier, but it's not shown on this slide, we did produce free cash-flow positive results. And if you've listened to our conference calls over the last several quarters, you'll remember this has one of our stated objectives. Fiscal '02 results will show free cash flow of $14 million, which is a substantial improvement over the prior year. Turn now to look at our capitalization and liquidity. And again, think back to those highlights that we gave you at the beginning of the program. Lower leverage and increased liquidity are really the key points here. Our acquisition of General Cinema was closed in the first ever fiscal year. However, we are showing both the actual capitalization and pro forma capitalization on this slide, so it's the pro forma numbers include the impacts of the GC acquisition. As a result of the financing transactions that we conducted in fiscal '02, where we raised a total of $533 million of capital, both debt and equity, our balance sheet has substantially strengthened. Those financings, combined with our improved operating results, have also improved our overall credit profile. At fiscal year-end, our balance sheet reflects strong liquidity with $219 million of cash, and this combined with the full availability of our $425 million revolving credit facility, gives us ample flexibility to continue to execute our business plan, including additional acquisition and consolidation. At quarter end, we had CIP cap-x of $37 million. Now, those are dollars that are invested in theaters that have not yet opened, really represent the cash equivalent and we'll use that number here in a minute as we look at leverage. Total debt was $653 million, comprised of our senior sub-debt since there were no borrowings on our revolving credit facility. Net debt of $434 million, is down from about $496 million at the end of the last quarter. And that reflects the strong cash flows for the quarter. At quarter end, our leverage was 2.7 times, compared to the requirement under our credit agreement of 5.5 times. The ratio is further reduced if we adjust for the CIP cap-x. As I noted earlier, the leverage ratio drops to 2.5 times. On a pro forma basis, our total debt increases to $726 million, from the cash and additional subdebt that we used in the GC acquisition. However, because of the low multiple that we paid on this transaction and our use of equity to fund part of the acquisition price, our leverage is further reduced on a pro forma basis to 2.4 times. At this point, I'd like to provide some guidance on our fiscal '03 year, which will include the full year impact of the General Cinema and Gulf States acquisitions. First of all, the first three statistics on this slide relate to the industry that is the North American Box Office. And as you can see, we believe that the Box Office has potential to achieve between 6 and 8% growth over our next fiscal year. I do want you to keep in mind that we are looking at the period from April 2002 to March of 2003, much has been written and talked about the "calendar '02" Box Office, which of course our fiscal year would include nine months of "calendar '02." But very little is known about the pictures that will be released in our fourth fiscal quarter, that is, the period of January '03 through March of '03. Having said that, however, we still do believe that the box office will be in that 6 to 8% range. Of the 6 to 8%, we can break that down into both pricing and attendance, and we believe average ticket prices for the industry as a whole will average about a 5% increase over last year. And there could be attendance growth, real growth, between 1 and 3%. After considering these estimates for the overall Box Office, we believe that AMC adjusted EBITDA will range between 210 to 225 million over the next fiscal year. And we also show we're currently planning net cap-x of $44 million, which is net of a $44 million plan sale lease-back transaction. So, with that I'd like to turn the program over to Dick Walsh, who will preview the upcoming film product.

Thank you, Craig. There are three characteristics that describe this year's slate of Summer product. Because of what is already in the marketplace, the industry is experienced a solid and early start to Summer. There are strong anchor films, or sequels, if you will, that have a built-in audience and as important there is an attractive slate of other key films that will have huge want-to-see due to the popularity of the actors in those films. This year, Summer started early on April 19th with the release of Universal's "Scorpion King". This is an example of a growing trend by the studios to release high-profile product throughout the year, and not just in Summer or the November-December period. "Scorpion King"'s $36 million dollar opening was the biggest ever in April. That was followed up two weeks later, on May 3rd, with "Spiderman"'s opening, weekend gross of $114 million. By far the biggest ever. It's also the fastest to get to $200 million cumulative gross, taking only nine days. Having dropped only 37% from its record-breaking opening weekend, there's no telling where this picture could end up. About nine or 10 hours ago, depending on what time zone you're in, "Star Wars Two" opened to sellout crowds at 12. We have 116 units reporting in with a gross of $1.2 million for those midnight shows. An average of just over $10,000 per location. Obviously, that picture is off to a terrific start. The rest of the Summer looks very solid. With a slate of sequels and other high-profile product entering the marketplace. On 5/31, "Sum of All Fears", starring Ben Affleck as Jack Ryan based on the Tom Clancy novel. On 6/7, "Bad Company" with Anthony Hopkins and Chris Rock, produced by Jerry Bruckheimer. On 6/7 "Divine Secrets of the Yaya Sisterhood", starring Sandra Bullock and Ashley Judd, based on the best selling book by Rebecca Wells. On 6/14, "Scooby Doo", live action based on the animated TV show. On 6/21, "Leo and Stitch", which is Disney's Summer animated movie. Also on 6/21, "Minority Report", starring Tom Cruise and directed by Steven Spielberg. Then as we head into the July 4th weekend, the traditional start of the back half of the summer, on 6/28, "Mr. D", starring Adam Sandler and Winona Ryder. On 7/3, "Men in Black 2" opens. In 1999, the original grossed $250 million. On 7/12, "Road to Perdition", Tom Hanks and Paul Newman directed by Academy Award winning Sam Mende. 7/14, "Stuart Little Two", two years ago the first one grossed $140 million. On 7/19, "K-19: The Widowmaker," starring Harrison Ford, a true story of a Russian nuclear sub during the height of the cold war. On 7/26, "Austin Powers 3". The last one grossed $205 million in 1999. "Signs" opens on August 2nd, starring Mel Gibson, written and directed by M. Night Shamalan. On 8/7, "Spy Kids 2". Last Spring, this was a surprise picture for everybody in the industry, and it went on to gross $112 million -- the original. And then in on 8/9, "Triple X," last year's big breakout action star, Vin Diesel, stars in this picture. This time he's an extreme sports athlete turned secret agent. With these highly commercial titles flooding the lucrative Summer marketplace, combined with the fast start the industry is already off to, there is a high likelihood that this could be the highest grossing Summer of all time for the industry. With that, I'll turn it back to Peter.

Okay. I think, Crystal, we're ready for the Q&A portion of the program.

At this time, I would like to remind everyone in order to ask a question, please press star and then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster.

Your first question comes from Tim Wallace from Bank of America. Mr. Wallace, your line is open.

You can hear me?

Yes, we can hear you, Tim.

I'm sorry guys, hey it's John [Jenetis] calling in for Tim. A couple of quick questions for you. On the closing expense side, I know you mentioned that you're seeing slow in closing for you guys. How about the industry? Is that moving in line or is that a slowdown as well in terms of theater closings? Has -- is it more or less in line with your expectations, I should say?

Probably a little less.

Probably a little less. I think one of the things you see when the box office is as strong as it is, that some of the underperforming assets in the industry will hang on a little bit longer. So it's -- you know, there has been net reduction in screens to date this year. Probably not as many as we would like to see.

Okay. Great.

Are you guys going to have proformas for GC on a quarterly basis in your filings?

Yeah. We will provide that, certainly as we go through our quarters in fiscal '03, to make the discussions more relevant and the comparisons more relevant, we'll provide pro forma FO 2 numbers by quarter, going forward.

Great. Thank you.

You're welcome.

Your next question comes from Jill Cursick from Salomon Smith Barney.

Thank you very much. Good morning. Could you give us a sense of what your free cash target is for fiscal '03, and secondly, if you could perhaps walk through some of the terms on the "Star Wars 2" movie. Are concession revenues involved in payments to Lucas? And then finally, I know you mentioned briefly that some of the smaller theaters are not coming off line as quickly as you thought. Have you revised expectations of theater disposals over the course of the year given the breakout success of the box office? I wonder if that might not happen as quickly as you anticipate. Thank you very much.

I'll try the first one on the FO 3 free cash flow estimate. If you take the range of -- guidance we gave on adjusted EBITDA and then the net cap-x of $44 million, the missing component would be interest, and we believe that we'll probably see net interest in the 70 to 73 million range next year. Which would give you about $85 million of free cash flow in fiscal '03.

Great.

Jill, in the screen -- industry screen question, I guess the -- one of things that we've done is, if you look at the calendar year through the end of March, you have about 175 screens coming off line. If you annualize that number, which represents a year-end screen count of about 34,200, that's a little higher than at one point in time we were looking at that year-end screen count being around mid-33,000 range, something like that. So, I think the relevant thing there is that if you go ahead and if you track on our attendance assumption that we're making for the calendar year and divide that into that screen count, you find that the attendance per screen on even that, if you will provide higher year-end estimated screen count, which show another year of attendance per screen increases on a macro basis for the industry. To refresh everyone's memory, we saw this reversal in attendance per screen in the 2001 calendar year. Where we saw that that attendance per screen grew about 7% over the prior calendar year. And that was as I said a reversal of basically seven straight years of declines in attendance for screens. So, that's a metric we watch in terms of the health of the industry, and we think that it's going to be another healthy year for that metric.

What are your projections, Peter, going forward over the next couple years? For industry screen count.

You're pushing me, Jill!

Sorry.

It's hard enough to go out one year. I'd say -- we don't have at this point a fiscal or calendar '04. We just have to get back to you on that. But calendar '02, we are thinking around 34,000ish at the end of year, seems to be reasonable at this point in time.

Okay. Great. And on the terms for "Star Wars"?

In terms for "Star Wars,"without getting specific, they're high. The idea that George Lucas is getting some of the concession revenues is misleading. That is not happening with that. And we believe the picture will be a strong performer in the marketplace, and you know we're always watching our film costs. But we're ultimately focused on retention, and in general these high performance, high cost films generate far greater retention dollars than the lesser films in the marketplace. So, we certainly will enjoy a fruitful run on "Star Wars," and everyone will be happy with how this all worked out.

Great. Thank you very much.

You're welcome. Thank you for the call.

Your next question comes from Mark Renar from Morgan Stanley.

Yes. Good morning, gentleman. Congratulations on a strong quarter and fiscal year. I just have a couple of questions. One is, do you have a target for your theatre lease expense for the next fiscal year?

Theatre closure expense?

No, the rental -- Lease expense.

Yes. Yeah, it looks like around -- again, this would be with, on a pro forma basis, about $300 million.

Okay.

That would include General Cinema and the Gulf States acquisition.

Okay. And then a follow-up question: Given the availability and your stated intent to acquire more theaters, could you give more guidance on what theaters you might be targeting and at what point do you start diluting your asset base? Given you have the highest screen count per theaters. What type of acquisitions are you going after?

Well, we -- our target list is very short at this point, but very focused. And I would say that it probably wouldn't be a good idea to be naming specific circuits, but one of the things that we talked about when we were on our equity road show was really the characteristics of the acquisitions, and this kind of goes back to who we are. We're a major DMA player, top 50 DMA player, so it would stand to reason that we'll look at acquisitions that really enhance our footprint and top DMAs major markets. And in addition to that, the other criteria that we look at is really the underlying quality, the asset, and that's really on a micro basis. The types of theaters that the circuit would have. And when you look at those two criteria, you will find that there are a couple of real big major circuits out there that would fit that criteria. But -- and then in addition to that, there would be some smaller, local/regional circuits that fit that criteria. So, you know, we've got our eye on several of them, and the thing about acquisitions is you can never quite plan on when they're going to happen. You just have to work 'em, work 'em work 'em, work 'em. But we're certainly working them.

Okay. Great. Thank you.

Your next question comes from John Maxwell from E and T [INAUDIBLE].

Good morning, gentlemen. Peter, kind of follow-up to the last question, I guess you already talked about terms of -- you know, it seems you got a pretty good war chest of liquidity. Absent -- you know, closing on an acquisition, do you just keep the free cash flow building, or would you then kind of -- you know, if the acquisition targets aren't there, then start refocusing on maybe a more aggressive development program?

Oh, I wouldn't say aggressive development program. One of the things that we have talked about it terms of our strategic plan to refresh everyone really three components: Focus on the fundamentals, which is really driving operating efficiencies, optimizing our theatre portfolio, and then really enhancing our business and brand through growing ancillary revenues, and it's really the second component that we're talking about. What we've said is that there will be, as you look at optimizing our theater portfolio, really three components of that, selective strategic new building, continued disposition and acquisitions. So, on the new bill front, you would expect for us to be in the vicinity of a hundredish screens a year, the next few years, in which we consider to be a sustaining growth rate in terms of new-build activity. And our focus on new builds is very as it has historically been very high-quality, real estate projects, really the triple-A real estate projects, with the high-quality theater unit at the high-quality real estate project. So, I wouldn't see us stepping on the accelerator just because we have a little more money in our pockets. We would be more -- we are going to be very disciplined in terms of how we grow and not go out and do bad deals, if you will, for the sake of putting that money to work.

Okay. And also, just kind of a follow-up on the acquisition front. Is it your sense that there -- it would be more expensive now just based on the state of the industry, or really isn't a factor, it's more of a question just finding the right fit?

I think it's the latter. I think it's really finding the right fit at this point. Because, you know, the thing -- the kind of circuits that we're interested in we generally have a higher quality characteristic about them anyway, and really for us what we're paying attention to is to make sure that we bring cash flows into the equation in a way that create value. And that's how we're approaching it.

Okay. Thank you very much.

Your next question comes from [INAUDIBLE]

Hello?

Mr. [INAUDIBLE], your line is open.

I'm sorry. Kind of got muddled. I'm sorry about that. Hi, gentlemen. My question pertains to film rental expense. In addition to "Star Wars", this is number of sequels and prequels, can you talk a little about in the June quarter and also in the September quarter, thoughts about film rental expense as a percentage of admission revenues?

It's our belief that we're probably going to track 100, maybe possibly 200 basis points higher than last year. During this period. We have -- we've already experienced some of this. While I applaud "Scorpion King" coming into the marketplace, that was a rather expensive picture, and of course you can imagine that "Spiderman" is expensive and I'm looking at first six weeks of our fiscal year here, and while our film rent expense is up about 1.8%, percentage points, which is 2%, and this is on a same-store basis, our retention dollars are up $4.7 million dollars. Or 15% higher than a year ago. So this concept that yes, we are indeed paying more for the product, we are also grossing much more with that product, and at the end of the day the company is healthy because of that. Now, that is not to say that we're going to take our eye off the ball and just willy-nilly pay film rent for whatever needs to be to get the job done. We do focus on that. We do watch it very closely. But again, at the end of the day, it appears to us that the retention dollars that we're able to take to the bank are the most key component of that whole dynamic.

I'd like to echo what Dick has said and just make certain that everybody understands this retention concept. It really is a gross margin concept, and while we do look at percentages that a film -- or we're paying on a film, we also keep our eye very closely on retention, and that would be the admissions revenue less the film cost or for net gross margin dollars, because at the end of the day, you know, it's dollars that you take to the bank.

Great. Thank you very much. And I absolutely agree with that strategy.

Thank you, Stewart.

At this time, there are no further questions.

Okay, great. Well, then with that, we'll close the call. I want to thank everybody for joining us today. As you can tell, we're very excited about the Summer product. Looks very strong. We've kicked off with "Spiderman" and then last night, "Star Wars." but I would say that as excited and as great as the strong product is, what excites us more is really the strength of your company. And with our quality asset base, the statistics still walks through and will continue to walk through, that is, our circuit of high-volume, high-performance theaters that is really unsurpassed in our industry. Our proven management team and our unsurpassed financial resources, we look very forward to continuing to successfully execute our strategic plan, and continue to build AMC as we do that at the single -- a single theatre brand in the marketplace. So with that, we'll see you next quarter. But hopefully, before that we'll see you at the movies.

Thank you for participating in today's AMC Entertainment, Inc. conference call. This call will be be available for replay beginning at 1 P.M. Eastern time today through 11P.M. Eastern Time on Thursday, May 30th. The website is www.amctheatres.com. You may now disconnect.