AMC 電影院 (AMC) 2003 Q2 法說會逐字稿

Good morning, my name is Melissa, and I will be your conference facilitator today.

At this time I would like to welcome everyone to the AMC Entertainment Incorporated fiscal year 2003 second quarter conference call, hosted by Peter Brown, chairman and chief executive officer of AMC Entertainment Incorporated.

Any forward-looking statements contained in this call, which reflect management's best judgment based on factors currently known, involve risk and uncertainties.

Actual results could differ materially from those anticipated in the forward-looking statements included herein, as a result of a number of factors, including, among others: the company's ability to enter into various financing programs; the performance of films licensed by the company; competition; construction delays; the ability to open or close theaters and screens as currently planned; domestic and international political, social and economic conditions; demographic changes; increases in demand for real estate; changes in real estate zoning or tax laws; unforeseen changes in operating requirements; the company's ability to identify suitable acquisition candidates and to successfully integrate acquisitions into its operations; and results of significant litigation.

All lines have been placed on mute to avoid any background noise.

After the speaker's remarks, there will be a question-and-answer period.

Analysts who would like to ask a question during this time, simply press "*" then the number "1" on your telephone key pad, 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, Melissa.

And good morning, and welcome everyone to the fiscal 2003 second quarter earnings conference call for AMC Entertainment, Inc.

Again, as Melissa just said, I'm Peter Brown, chairman and chief executive officer of AMC.

And joining me on the phone today are Craig Ramsey, our CFO;

Phil Singleton, our COO; and Dick Walsh, chairman of our film group.

Now, as is our custom, I'll lead the presentation today with a brief discussion of the quarter's highlights.

Craig Ramsey will then take us through the financial results for both quarters and the year-to-date period.

And Dick Walsh will then wrap up the formal part of the presentation with some thoughts on the upcoming holiday film product.

We will then take questions from our analysts group and I will close with a few comments.

So on that note, let's begin.

As was noted in the press release that went out this morning, which I hope by now everyone has had a chance to review, our total revenues in the adjusted EBITDA were both fiscal second quarter records.

Our results in the second quarter also exceeded analyst average estimates for both total revenues and adjusted EBITDA.

Now, on a year-over-year quarterly basis, our quarterly results were impacted by an unusually weak August and the fact that we were comping against the period one year ago in which we had a full allocation of a film that did a substantial amount of business in the quarter.

Now, Craig will be speaking more to that in just a moment.

But as we've always said, this is a business that should be tracked over a longer period of time than just a quarter.

Even the film product can have such a significant impact on any one quarter's result.

Looking at our fiscal year-to-date performance through the end of September, results are strong.

Total revenues are up six percent; adjusted EBITDA 8 percent.

And, again, Craig will be speaking more to this in just a couple of minutes.

The quarter saw a continuation of the positive free cash flow trend that we started to see developing in our fiscal 2002 year.

And our balance sheet remains conservative and flexible at the end of the quarter.

In fact, we had almost $600 million of liquidity as represented by both our cash on hand and the availability on our $425 million revolving credit facility.

Now last, but not least, in terms of the quarter's highlights is something I want to draw attention to.

In our long-standing tradition of industry innovation, and just in time for the upcoming holiday season, we've introduced a product that many leading retail companies and other industries have long offered their customers, and that product is a stored-value card.

And I will speak more about that in the AMC Industry firsts in just a minute.

But first I want to update you on the quality of the AMC theater circuit.

At the end of September, our worldwide theater circuit stood at 242 theaters, with 3,500 screens, with an average screen per theater count of 14.5.

Our screen portfolio quality remains among the highest in the industry today.

And those of you who have followed the company over the past few years know that this owes in large part to the simultaneous execution of a successful new build and disposition program.

Since fiscal 1996, the year that we launched the megaplex concept in the United States, we have added over 2,100 screens to our portfolio, while at the same time taken off line over 1,000 screens.

Now, we segment the AMC screen portfolio into three types of units: megaplexes, something we call continuing multiplexes and disposition multiplexes.

A megaplex is defined as a theater with 14 or more screens, and predominantly stadium style seating.

A continuing multiplex is a sloped floor theater that has a real estate profile that competitively protects it and makes it a long-term viable unit.

A disposition multiplex is a theater that we proactively targeted for disposition sometime over the course of the next three years.

Now, as you can see on the slide before you, megaplexes, which are shown in green, and continuing multiplexes, which are shown in blue, account for 91 percent of our circuit screen portfolio at the end of September.

Now the next sliver on the pie chart represents our disposition multiplexes.

And, as you can see, at the end of September we had approximately 300 screens or approximately 9 percent of our overall portfolio disposition multiplexes.

Now, we manage this group aggressively to keep the negative cash flow impact to a minimum.

And as we dispose of these units, the overall portfolio quality continues to improve.

Now though AMC's size is large, our philosophy has always been quality, not quantity.

When you look at quality, one of the best indicators is very simply whose theaters are doing the most business in the marketplace at the unit level; that is, at the store level.

Week in, week out, box office revenues for all North American theaters are tracked by a data service called EDI, which is a division of A.C. Nielsen.

We and everyone in our industry are able to see through EDI the level of business that just about every theater in the market is doing, as measured by the box office revenues that that theater produces.

We watch the EDI's data on an LTM, last 12 months, basis, and we generate a list of the top 50 theaters in the market.

This slide shows the five theater circuits with the most top performing theaters in the market through the end of September.

And, as you can see, with 26 of the top 50 theaters in North America, AMC dominates this list.

AMC's franchise is second to none, and is characterized by high volume, high-performance theaters that are well located in the top markets across North America.

Now, with the overall quality of the theaters that we now have in our portfolio, we are in the fortunate position of not having to spend large amounts of capital expenditure dollars just to keep our circuit modern and industry-leading.

Now this factor, combined with an intense focus we've had on managing the business to achieve a free cash flow positive profile has produced the trend that you see on the slide before you.

We were free cash flow positive in fiscal '02, $14 million to be exact.

And on an LTM basis, at the end of September, our free cash flow was $46 million.

We expect this trend to continue, and this should benefit shareholder value in a couple of ways: one, a continued improvement of our balance sheet, the leveraging of our balance sheet as our cash builds, our net debt effectively declines; and, two, by providing us with the flexibility to move quickly on opportunities as we continue to improve our portfolio through selective new building and strategic acquisition activity.

We think this flexibility will be key, particularly if the industry has another down cycle like we saw a couple of years ago.

Now, before I turn the program over to Craig, I wanted to give you just a little more detail about the product I alluded to in my highlight remarks that we introduced this quarter that represents another AMC industry first, the stored-value card.

We are calling this product the AMC Entertainment Card, and it's basically a debit card that is preloaded with three denominations of value: $15, $25 or $50.

Now, this card will replace our paper-based gift certificate program, and it will be able to be used at both the box office and the concession stand, which makes it an extremely flexible product, and we think more attractive than the old-style gift certificate.

The card is being distributed right now through all AMC theaters in the United States.

But in mid-November, distribution will expand on an exclusive category basis through selected Safeway stores throughout the U.S., as well as Dominick Stores in Chicago, Vons and Pavilion stores in Southern California, Randall's and Tom Thumb in Texas, and Genuardi in Philadelphia.

And we expect to announce additional retail partners in the coming months, expanding our distribution even further of this card.

Innovation has long been a tradition at AMC.

Since 1920, we've introduced many ideas that have literally changed the way people see movies.

And we're constantly pursuing new and better ways to enhance the moviegoing experience, and differentiate the AMC brand experience in the marketplace.

We think the introduction of the AMC Entertainment Card accomplishes this, and we look forward to updating you on its progress in future calls.

So, on that note I'll turn the program over to Craig Ramsey, our CFO, who will take us through the numbers.

Thanks, thanks Peter.

Before we discuss AMC's financial results for the second quarter and the year-to-date period, let's first take a look at some industry statistics that will serve as a backdrop.

As we track the box office in North America, admissions revenues were up just over 1 percent from $2.228 billion in the second quarter of last year, to $2.319 billion this year.

We estimate attendance of 396 million this year, versus about 403 million last year, or a decrease of about 2 percent.

Average ticket prices, which we estimate increased from $5.68 last year to about $5.86 this year, or a 3 percent increase, were really the primary cause of the box office increase during the quarter.

And as you see on the slide, the performance of films grossing over $100 million contributed to the second quarter box office results.

As you can see, six films that were released during the second quarter of this year are expected to exceed $100 million in box office, and contribute just over $1 billion in total box office revenue, versus five films during the same quarter last year that contributed $840 million, or a 20 percent increase from those large films.

With that, let's look at the second quarter results.

First, I would want to note that in our press release and in our slide presentation we are comparing current quarter results with prior year pro-forma results, which treat the recent acquisitions of the General Cinema Theaters and the Gulf State Theaters as if they occurred at the beginning of last year.

Now, in the quarter total revenues decreased about $19 million, or 4 percent, compared to the same quarter last year from $470 million on a pro-forma basis to $451 million.

As we will see in a moment, total revenues per head increased 3 percent, reflecting increases in both average ticket and concession-per-head spending.

However, attendance was down approximately 7 percent, and that being the primary factor in the total revenue decline.

Adjusted EBITDA was down $9 million, or about 16 percent from the same quarter last year, to $61 million, mostly due to the lower revenue performance.

Our ATCF, our after-tax cash flow, was down consistent with the adjusted EBITDA results, however, capex was at $9 million for the quarter, compared to 25 in the same quarter of last year, and in combination with our after-tax cash flow produced pre-cash flow of $21 million for the quarter.

Now, while it's not on the slide, I would like to take a moment to discuss the income tax provisions for the quarter since it does not bear a normal tax rate relationship to the earnings before tax number for the quarter.

So bear with me, I'll try to explain why that is.

First, it's important to remember that our interim or quarterly tax provisions are the result of what we believe the effective rate will be for the full fiscal year.

And for our fiscal 2000 year we expect to generate a nominal amount of pre-tax income, or a fairly small number of pre-tax income.

However, we do have a large book-tax difference that could cause our tax liability to actually exceed our book pre-tax income.

Or, said another way, we could actually on the full fiscal year basis, because of the low pre-tax income, we could have an effective rate that could even exceed 200 percent, depending upon the amount of pre-tax income.

So while the numbers are small, the percentages on a full fiscal year basis could be large in terms of the effective rate.

In essence, we are in a position where a small dollar change to our fiscal 2003 pre-tax income could produce large changes in the effective rate.

So now we need to apply that full-year effective rate to the quarter.

And what we've done is taken a very conservative approach in the quarterly tax provision and booked it at the high end of what we think the effective rate could be for the full fiscal year.

Now, in summary, as we think about the quarter, it did not live up to our expectation.

And there are four factors that contributed to our overall box office results for the quarter.

First, as Peter alluded to in his comments, weaker than expected or anticipated film performance in the box office during the key month of August was a big contributing factor that also carried into the first couple of weeks of September.

And, second, in the prior year during the quarter, the prior year quarter, we benefited from an unusually strong allocation of "Rush Hour 2," which as you may recall went on to gross over $220 million and was actually the leading picture of the summer season.

We really did not experience any unusual product allocation factors in the current quarter.

The third factor is that we experienced some competitive building in a couple of markets.

However, in those markets we have some additional units coming on line that will enable us to remain competitively strong and maintain our market share.

And, finally, we did experience some box office -- expected box office erosion in our General Cinema disposition portfolio.

Having said that, however, the overall results of our GC theaters are in line with the financial plan that we had established for them for fiscal 2003.

Now, we have continually advised people to watch this business over a longer period of time, and in that spirit I'd like to now review the results of the fiscal year-to-date period.

As we see on the slide, total revenues increased $54 million, or 6 percent over the same period last year, increasing from $859 million on a pro-forma basis to $913 million.

Total revenue performance was driven by increases in attendance, reflecting a strong box office during the six-month period of time; and, again, by increases in total revenues per head that reflected average ticket price and concession spending increases.

Adjusted EBITDA increased $10 million, or 9 percent, over the same period last year to $123 million.

And a combination of both strong revenue performance, while at the same time controlling our costs contributed to our adjusted EBITDA performance.

In the six-month period, our net capex was $30 million, compared to about $39 million for the same period last year.

And this, in combination with our after-tax cash flow performance, produced a $7 million improvement in pre-cash flow for the current year-to-date period compared to last year.

Let's now look at some noteworthy points concerning key drivers for the quarter and year-to-date periods, again focusing on the year-to-date numbers that cover the longer period of time.

Now, there were no screen additions during the quarter, and the year-to-date additions reflect the acquisition of General Cinema Theaters, as well as the opening of one new megaplex.

During the quarter, we closed 58 screens in 9 theaters, which resulted in a theater closure expense of about $1.5 million.

This is in line with our plan to take off approximately 100 screens during fiscal 2003.

Now, as we noted earlier, attendance during the quarter was down.

However, attendance per screen shows a nice increase for the year-to-date period.

You'll also note that theater revenues per head increased both during the quarter and the year-to-date periods, reflecting the average ticket price and concession per head increases.

Now let's turn and take a look at liquidity and capital resources.

The balance sheet at the end of the quarter shows a very strong cash position, with over $184 million of cash at quarter end.

Note that at quarter end we also had CIP capex, or construction in process capex, of $77 million.

This really represents a cash equivalent.

It's construction in process spending on theaters that haven't opened yet, and we'll use it in a moment as we look at our leverage.

Total debt was $723 million.

That's down just a bit from what it was at the end of last quarter, $726 million.

And our quarter end debt was comprised of senior subordinated debt and capitalized lease obligations.

There were no amounts borrowed on a revolving credit facility.

Now, net debt in the amount of $539 million is up slightly from the end of the prior quarter, and that's due primarily to seasonal working capital changes.

But it's still lower than the pro-forma net debt number at the end of our fiscal 2002 year.

At quarter end, our covenant leverage was a very comfortable 2.5 times, and it's further reduced if we adjust it for the CIP capex to 2.1 times.

And we maintain very ample availability of almost $600 million, and that includes amounts available to borrow on a revolving credit facility and cash on our balance sheet at the end of the quarter.

Now, before turning it over to Dick Walsh to give us a perspective on future films, I'd like to just take a moment and note that as many of you are probably aware, late yesterday Form 13(g) was filed by the [Onyx] Corporation, indicating their ownership of 2,336,900 shares of our common stock, which represents about 7.2 percent of that class.

A representative of [Onyx] did call us prior to this to advise us of the investment just prior to the filing.

But we really have no additional information about this investment other than what is included in the Form 13(g) filing.

Although the filing does not indicate the purpose of the investment, I believe it's noteworthy that a Form 13(g) may be used as a short form statement, provided that the person that's making the investment has not acquired the securities with any purpose or with the effect of changing or influencing the control of the issuer.

So, with that, I'd like to turn it over to Dick Walsh for his perspective on films.

Thank you, Craig.

We characterize the key upcoming holiday period in three different ways.

We see several key tent-pole pictures entering the marketplace.

We will see 46 titles versus 41 titles released in this quarter.

More importantly, there will be 25 pictures released after November 1, versus 23 pictures one year ago.

We think these two key factors will lead to a very solid Thanksgiving and holiday period.

The period kicks off on November 1 with "I Spy" with Eddie Murphy and Owen Wilson.

This is loosely based on the TV show that we're all familiar with.

On 11/15, "Harry Potter and the Chamber of Secrets," the second installment of the Harry Potter series, enters the marketplace, and considering the last one did over $300 million, we're very high on this picture.

On November 22nd, "Die Another Day," which is the 20th installment of the Bond franchise, with Pierce Brosnan and Halle Berry comes into the marketplace.

Madonna sings the title song in this one.

On November 29th, "Treasure Planet," Disney's annual Thanksgiving animation, which is based on the book by Robert Louis Stevenson.

On December 20th, "Two Towers," which is the sequel to "Lord of the Rings," will be released.

And, again, this comes on the heels of the first one doing also over $300 million.

Also on December 20th, "Two Weeks Notice," which stars Sandra Bullock and Hugh Grant, which is the high profile romantic comedy of the season.

On December 25th, "Catch Me If You Can" opens with Leonardo DiCaprio, Tom Hanks.

This picture, directed by Steven Spielberg, is based on a true story about a master of deception who worked as a doctor, lawyer and co-pilot all before he was 18.

At 17 he became the most successful bank robber in United States history.

The period will be rounded out by other key titles, such as: "Santa Clause 2" with Tim Allen; "The Emperor's Club" with Kevin Kline; "Solaris" with George Clooney; "Analyze That" with Robert DeNiro and Billy Crystal; "Star Trek Nemesis," which is the 10th installment of this franchise; "Antwone Fisher," which is the directorial debut of Denzel Washington; and "Gangs of New York," directed by Martin Scorcese with Leonardo DiCaprio and Daniel Day-Lewis.

We think with this line-up that there is enough depth and quality to yield a very solid holiday period and third quarter results for those in the industry.

With that I will turn it over to Peter Brown.

Okay, Melissa, I think we are ready for the q-and-a portion of the program.

At this time I would like to remind the analysts in order to ask a question, please press "*" then the number "1" on your telephone key pad.

We will pause for just a moment to compile the q-and-a roster.

Your first question comes from Jill [Cruitik] of Salomon Smith Barney.

Thank you very much.

Good morning.

Peter, I was hoping you could maybe elaborate on the competitive building in certain key markets that might have been affecting your performance.

Perhaps you could provide a little bit more detail related to that.

Secondly, could you perhaps comment on the acquisition of GC and Gulf States and how the integration is progressing, and whether you're on track to realize the 12 million in synergies.

And, finally, if you could just update us on your capex plans for this year and next.

Thank you.

Thank you.

Jill, I will try again on the competitive build-out that we're seeing to give you a little more detail.

It really focuses in two markets, Los Angeles and San Francisco, where over the last 12 months we've seen competitors open five new theaters in the LA market, and four in San Francisco.

These are markets that we have a pretty substantial presence in.

Also, the thing I'd observe about the new build in these cases is that it is capturing attendance that's fringe to our theaters.

This is not building that is taking place across the street or on top of our theaters, but it is at a distance that does capture some attendance that we previously enjoyed, given that we were the first entrants in those markets.

So that's really where we are seeing the biggest impact.

And how are you countering that?

And perhaps you could tell us how large those are relative to your overall circuit.

Well, countering we actually have some additional new-build theaters coming on line in each of those markets that we think will, as I said in my comments, will enable us to regain market share and maintain our position in both markets.

Yeah, and I would just embellish that by saying that those are deals, Jill, that are in the queue that we'll have an opportunity to talk more about, you know, in the future once those locations get open.

But they're solid deals that we've executed leases on, and in some cases they're in construction.

Most cases they are in construction.

So, we're not stopping, if you will, as I always said, our selective new build program, and we're staged well in that regard.

As far as the other couple of questions go, on the GC really it's both acquisitions, Gulf States and General Cinema.

Those acquisitions -- I made a comment last quarter about the percentage of EBITDA that they delivered through the quarter.

Basically they are ahead of plan and have delivered on a year-to-date basis through the end of September about 56 percent of the whole year's planned adjusted EBITDA for those two acquisitions.

And typically when we look back at quarters we look at the percentage distribution in the -- in our first June quarter and in our second September quarter we find that the year will generate about 52 percent of the EBITDA for the full year.

So those are on track relative to plan, and also a little ahead of delivery for the full fiscal year on the adjusted EBITDA.

And the last point question was on the capex, which really segues from the new-build question you asked.

And that's --

Yes, Jill, the fiscal year '03 projection for net capex is $58 million, and actually that's a fairly indicative number for both the '04 and '05 fiscal years also.

Great.

Thank you very much.

You're welcome, Jill.

Your next question comes from Tim Wallace of Bank of America.

Thank you.

We're coming up to a quarter where you are going to be tracking against a tough quarter last year, a reasonably strong box office quarter last year.

Could you comment on the track record of sequels, and what your expectations are for "Lord of the Rings" and "Harry Potter" as it relates to that?

And then, separately, given the valuation of your stock, which is quite low at this point, and the fact that you have a strong balance sheet, has there been any consideration given to a stock repurchase plan?

Thanks.

In terms of the sequels and their strength, we would be a little aggressive if we said the sequel was going to outperform the first one.

We don't think that's going to happen.

We would love it to happen, but we don't project certainly that that will happen.

We do think, however, that the quality of these two films following up on their first performance is such that you know to say that it is going to be somewhere around 90 percent of the original is probably a good estimate.

And you know that would put it somewhere around the 275 range for both pictures.

And we feel confident on those particular two titles, and think that they will clearly be the dominant pictures this quarter, and that they will clearly do the job we need them to do.

Just a follow up on that.

The James Bond film -- have you heard any early buzz, and how do you think it will perform relative to the last Bond film?

This one may be equal to or greater.

And the reason we feel this way is that Halle Berry joins the cast, and obviously she's Academy Award nominated, and is a perfect female lead for this type of vehicle.

And the fact that Madonna sings the title song, and the sound track will be out and in the marketplace well ahead of the release of the picture, we think there's enough hype and enough buzz on this one that it will certainly deliver to expected Bond levels.

And this one may exceed for the reasons I've just given.

Thank you.

The second question, Tim, was on the - on our balance sheet, which I would really say is a broader question which is our philosophy and perspective right now on really the industry and how we sit within it.

And I think I alluded to this in my formal remarks by saying that, you know, we have a very flexible and conservative capital structure at this point in time.

And our view is that flexibility is an important thing.

You know, we've been in this business really since 1920 as a company, but this management team really has been together for the last 10 years, and we've seen a lot of different - we've seen two very distinct cycles, an up cycle and a down cycle.

The down cycle, as you all know, was pretty bad in terms of the ultimate havoc that it wreaked on the industry in terms of the bankruptcy picture.

And our view is at this point that patience is a virtue with respect to our balance sheet strength.

We have a feeling that given some of the trends that we are seeing in the marketplace with respect to really I'll call it macro overall industry screen change trends, that flexibility in terms of being able to pursue some opportunities if business was to turn down again is really a good thing to have at this point in time.

Having said that, we are always in constant -- a constant thought process about the question you raise, which is really the best way to put our excess cash to work, and we're always considering the full range of options in that regard.

But I would say in summary at this point in time we don't have anything to announce in that regard, and we really do feel that having the capital resources available that we do have will serve us well in this -- as we look ahead at this industry environment and position ourselves to take advantage of opportunities that we think are going to be there.

Just to follow up on that, the only -- and thank you for the elaborate answer.

The valuation on your stock, would that put -- would that constrain your ability to make acquisitions, unless you are willing to do dilutive acquisitions.

Maybe you could comment on that point of view.

Yeah.

Well, valuation is an interesting thing.

Again, we've been at this for the last 10 years, and we have seen our multiple as low as two times and as high as 14 times.

So we have a long view in terms of various cycles and various things that happen in the marketplace that affect our valuation.

And I believe that that valuation is a temporary phenomenon.

So again based on just the experience of having been at this really through many cycles for a number of years.

Having said that, we will, and have said in the past, that we will be disappointed with respect to our acquisitions, and we are not looking to do dilutive acquisitions.

So the answer is that will constrain us.

But I guess what I am really saying is my point of view is that -- our multiple again given our experience and our history, seeing ups and downs in this business, it is that multiple is a temporary phenomenon.

Okay, thank you.

You're welcome.

Your next question comes from [Bishop Sheen] of Wachovia Securities.

Good morning, Peter and Craig.

Hi, Bishop.

A couple of things.

One, just a little housekeeping.

On the balance sheet, included in the -- well, I think you broke out the capital - capital and lease-- those are at net capital lease obligations?

You mean in the net debt, Bishop?

In the net debt?

Yeah.

I mean, those are net of -- I mean that's the present value of the full forward capital lease obligations?

That's right.

And then on the capital expenditures, is that now net for any failed lease backs still pending?

Yes.

The number I gave you, $58 million, is net of a $47 million sale lease back, and those have been completed now.

Okay, so there is no other sale lease back that is waiting to close?

At this point, no.

All right.

And then, I'm sorry I missed it.

My phone got a little static.

You were making a point about 52 percent of your EBITDA [falled] and then I missed what you said after that, Peter.

Okay, well that had to do, Bishop, with the question on the performance of the acquisitions, the Gulf States acquisitions and General Cinema.

What I said is when you look at our year and you look at the percentage of the year that the various quarters generate in terms of the overall EBITDA percentage, our June quarter and our September quarter historically has generated about 52 percent in total of that EBITDA.

With the GC and the Gulf States acquisitions combined, we have seen those two generate about 56 percent on the year-to-date basis, so indicating that we're on track to deliver at least what we estimated at the beginning of the year to deliver in terms of adjusted EBITDA that those acquisitions would do for us.

Right.

And then, not to hold your feet to the coal, but let's hold your feet to hot coals.

Do you have specific guidance for your third quarter going in on your revenue or EBITDA or either in rough ranges?

Not for the quarter.

No, not for the quarter.

We've given guidance prior, at the end of the last quarter, for the full fiscal year, and we are not changing the guidance that we gave at that point.

Right.

Okay, so you feel it's your plan pro-forma with Gulf and GC is still on target for your prior guidance?

Yes, for the full fiscal year.

I will say, Bishop, that we're looking at the -- from an industry perspective we're looking at the fourth quarter box office revenues, and this is a conservative estimate being up about 5 percent.

You think -- boy, it's against a tough hurdle. 'Cause there was no slouchy part of the first -- I mean, that time period, January through March, which is your fourth fiscal.

Yeah.

I'm talking about the December quarter now.

Okay.

The December quarter.

So for the December quarter, which is your third quarter?

Right.

Okay, so you're saying that you think it will be up 5 percent.

For the industry, that's correct.

For the industry.

The industry.

Okay.

And then, last, for those of us who have followed AMC through the ups and downs through the years, it seems that your valuations always seem to improve directly with the organic internal growth, which, I mean, a lot of that depends on the industry and depends on some technicals with AMC.

And it would seem that your valuations in this year are going to depend more on that than on magic bullet acquisitions.

I mean, the two you did were -- seemed to be creative, but I don't think they're -- they grow on trees.

So you correct me if I am wrong.

Well, I think you make an interesting point, Bishop, I mean, and it kind of goes back to what I had said when I was answering the question that Tim Wallace had asked.

And, you know, this is all a matter of I guess historical record, but to your point we saw really our highest share price performance in the fiscal 1997 year, actually in June 1996.

And in terms of a, I guess I would say, post-megaplex era, multiple perspective, that's really when we did see some of the higher multiples in the tennish kind of a range.

And if you think back on what was going on at that period of time, we were building this new product type, the megaplex product type, which, you know, was just coming out of the chute, and I think the marketplace was very excited about.

Yeah, I think the marketplace was absolutely sensitive and appreciative of growth prospects going forward, which the building and the expansion recommended.

But, I mean, I don't know, it just seems to me with AMC in general that all roads lead back to growth, and anything else is -- gets second billing off of regular internal generated growth.

But that's just an impression.

Yeah.

And I wouldn't disagree with that.

And, to that point, we will continue, as I've said over these calls really, I suppose those of you who have been listening for the last 10 years have probably heard for a much longer time than these calls, but, we'll continue a selective new building program.

As we look out this fiscal year about 100 screens added.

But, again, one of the things that has helped us navigate at least the choppy waters in the last couple of years is it is not just the new building.

It's also taking the old theaters off line as well.

So from a net standpoint our screen additions may not be positive -- they actually may be negative.

But in terms of the new build program we have got about 100 screens in the queue over the next couple of years which we feel very comfortable with in terms of the right pace to hit the optimal blend or balance between basically building the new product and also maintaining a conservative flexible balance sheet.

And how many screens will you totally take off line this year and next year in your goal?

Well, we have got 110 this year and about 65 to 70 next year.

And of the ones -- last question -- that come off, are there any extraordinary costs involved with taking them off line?

Can you quantify what it would cost you to either buy out leases or any other expenses involved with taking them off line?

We -- this year we got a model of about 4 million, and then it drops to about a million dollars in each of the next three fiscal years.

Okay.

So, again, most of these are coming to the end of their lease term and --

So it's pretty de minimus in the big picture?

Yeah.

We actually have a line, a separate line item - the theater closure expense -- that we run that expense through.

Right.

Okay, thank you, gentlemen.

You're welcome, Bishop.

Thank you.

Your next question comes from Christopher Dixon of UBS Warburg.

Thank you very much.

Three questions, if I may.

Number one, your, as I calculate it, your margin before GNA was running about 15.6 percent, down a little bit from last quarter, and well below the 20 percent numbers you showed in the September quarter back in '99.

What do you think you can do with that margin?

What is the opportunity to move it back to those levels?

The second question really goes to what was the dollar tax impact of the loan forgiveness?

I think that appears to be where the tax hit is coming from.

And finally, can you give us some visibility as you look into the March quarter, particularly as it relates to upcoming films?

It looks to be pretty tough comp.

Okay.

The visibility on the March quarter -- why don't we take that question first.

Okay sure.

Sure.

Yeah, it will be a tough calm.

But fortunately for us there are some very solid pictures going into the marketplace.

Fox is stepping out and releasing on 2/14 a picture called "Dare Devil," which is based on the comic book superhero known as the Man without Fear, with Ben Affleck starring in that.

The buzz on that is very solid.

We have actually seen "Old School," which is a comedy that is coming out on 2/7 that's being released by DreamWorks starring Luke Wilson, Vince Vaughn and Will Farrell.

And this is of the tradition of "Animal House," which as many of you know may be the quintessential comedy of all time. "Shanghai Knights" will be released during the quarter. "Chicago," which is based on the Broadway musical, starring Renee Zellweger, Catherine Zeta-Jones and Richard Gere. "The Recruit," which we have seen, is a very solid picture, on January 31st, with Al Pacino, Colin Farrell - it's a CIA thriller. "Jungle Book 2," "The Hunted," "Terms of the Sun," "This Man's Domain," and we also expect some very strong carryover, as happened last year, from the final week of the year releases, the "Catch Me if You Can," if you will, "The Two Towers" coming into the marketplace, that will carry over through the first quarter, similar to what pictures did a year ago.

So you know we think on a comparable basis you are absolutely right, it will be a tough quarter.

But we think we have a very solid chance to be equal to or slightly better than that quarter one year ago.

Yeah, and I think that the question you were asking, Chris, I lost track on what your --

The question is margins.

I mean, obviously how hard can we take the margins if you are going in a difficult time.

You have now integrated both the two acquisitions.

And what's your kind of target, theater cash flow margin before GNA.

Well, that would be an EBITDA plus GNA margin.

I suppose that's what you are talking about, operating cash flow margins.

I think a way that I would address it is if you look at business on an enterprise basis, and this really goes to my point about watching the business -- and this is literally the way we watch the business and manage the business.

Look at it on an LTM basis at the end of the week 26 period, the adjusted EBITDA margin was about 12.4 percent, and our after EBITDAR margin, which is of course after GNA for example was 30.4 percent.

Now, that's 12.4 percent compared to our plan, and our plan is really the more relevant point here because of the pro-forma comparison year over year.

You can't really go back on an LTM basis and develop a pro-forma.

We are actually running up -- it's about 70 basis points over our plan in terms of our adjusted EBITDA margin.

Our EBITDAR margin, we are about exactly in line with our plan, about 30.4 percent.

So I don't know if you --

Yeah, the only other point is that we have continued to do some sale lease-backs, not just to kind of stay in the market, and that has -- we have put some [RIT], the [RIT] cost that does affect margins.

On the tax question, Chris, I think the impact is that there is a $19 million expense that is not deductible for tax purposes.

And that goes to my comment that I made during the discussion that we had a book tax difference of about 12 -- obviously the 19 is the biggest -- the cash portion is like 8.7 million.

But it does go back to -- tie back to the book tax difference that I discussed when I was explaining the tax provisions for the quarter.

Thank you very much.

Your next question comes from John Maxwell of B&P [--]

Good morning.

Craig, I was wondering if you could talk - you know, I know you gave the four points as to why the attendance was down, but I'm still trying to figure out why your attendance was that much off from what the industry was.

You know, you mentioned the "Rush Hour 2" -- you got a strong allocation last year.

Did you make a bet on a film this past summer, for example, that you had a lot - you know, a strong allocation but the film didn't work out?

Or can you try to quantify some of those points a little more?

No.

The "Rush Hour" impact was we were able to book the film and it performed a little stronger in certain markets for us because one of our competitors did not play the picture or did not book it as aggressively as, you know, their other pictures, let's say.

So there was revenue that we captured last year because of this film anomaly that we didn't capture this year.

Okay?

Okay.

Now, the other points, I did -- as I explained to Jill, we did see some competitive new-build activity in some markets.

And I noted Los Angeles and the San Francisco market -- five new theaters in LA and four in San Francisco that had an impact.

But the important point there is that we do have some additional theaters that are in the development queue, AMC theaters, that will help us regain some of that market share.

And then the last point was that expected box office erosion from the GC circuit.

When we acquired that circuit we had about 150 screens that we knew would come under competitive pressure, and we actually included that in our modeling as we were pricing and negotiating that deal.

So those are theaters that are classified in our disposition theaters.

We expected the erosion, and they're targeted for closure.

Okay.

Now, lastly, the pricing environment.

Do you see yourself taking, you know, prices up a little bit, or do you think that there's resistance given the state of the economy at this point?

Well, we have actually taken some price increases over the -- actually at the end of August that we think could have a fairly significant impact on our per heads.

Going forward we have seen a nice lift since that August increase with really very nominal, if any, impact on attendance.

So we did -- it wasn't just raising prices.

We also tweaked some of the discounts that we're offering during very high level attendance periods.

So kind of a combination.

And at least in this last move we have not noted a big negative reaction or a negative impact on attendance.

And as we go forward, yeah, we think there's more, more opportunity to raise prices, and we'll do so at the appropriate time.

Okay, alright, thank you.

Your next question comes from [Ray Slinekoffer] of Thomas Weisel and Partners.

Yes, I just wanted to go back to the "Rush Hour 2" situation from this quarter on the comp.

Is there anything as you look into third quarter or maybe fourth where you might have had a particularly strong allocation of a big film during those quarters that we should be thinking about?

And maybe if you could just give us a little bit of general color on how that process of getting a larger or smaller general allocation of any particular film works.

That'd be great, thanks.

We don't see anything on the horizon.

Basically, if a competitor of ours does not fully book a picture we as a nationally-based circuit have the opportunity to in some markets have a competitive advantage when they don't book that picture.

It happens two ways.

If we have a competing theater with that exhibitor, obviously we are awarded the theater.

If we have a free zone where we play everything, then we also get a benefit if the next contiguous zone is a competitor's theater that did not book the theater.

Our drawing range in many cases will double.

If we have a 5 to 7 mile drive, if the competitor is not playing the picture in the next zone over, our draw could go out to 7 to 12 miles, for example, and thus our gross would be artificially spiked by the fact that there's some dislocation in the marketplace through a competitor not playing the picture.

As I said, those are infrequent, and when they do happen, such as the case of "Rush Hour," it will affect our numbers, and that's just a, you know, a general way of the industry.

But we don't see anything like that on the horizon for certainly the third quarter that we can see right now.

And in those situations where you would have that spike or potentially a dip, because a competitor did or didn't play a particular film, does that change at all or give you any leverage on splits when you're running that film?

Or do the film splits generally stay where they're at?

There's no direct correlation between the number of runs you play and the -- when you say "splits," I am assuming you are saying the film deal that is struck?

The film rentals, yes.

Right.

There's no direct correlation between the two.

Okay, thanks, guys.

At this time there are no further questions.

Okay, Melissa, thank you.

I'd like to thank everyone for joining us this morning.

And, as always, if there are further questions or comments, we welcome those telephonically after the call.

As you can tell, we are excited about the upcoming holiday film season.

We think the product slate as described by Dick Walsh today looks strong.

And with our high quality theater portfolio we feel we are well positioned to satisfy marketplace demands.

So with that I wish everyone a great holiday season -- hopefully you'll all see a lot of movies at your nearest AMC theater.

And we look very forward to updating you after the end of the December quarter sometime in January.

Thank you.

Thank you for participating in today's AMC Entertainment Incorporated conference call.

This call will be available for replay beginning at one o'clock P.M.

Eastern Time today through 11:59 P.M.

Eastern Time on Tuesday, November the 5th, through the website, www.amctheaters.com.