AMC 電影院 (AMC) 2004 Q3 法說會逐字稿

Good morning, ladies and gentlemen, my name is Paul.

I will be your conference facilitator today.

At this time I would like to welcome everyone to the AMC Entertainment Inc. fiscal year 2004 third-quarter conference call, hosted by Peter Brown -- Chairman and Chief Executive Officer of AMC Entertainment Inc.

Any forward-looking statements contained in this call which reflect management's best judgment based on factors currently known involve risks 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 and tax laws, unforeseen changes in operating requirements, the Company's ability to identify suitable acquisition candidates and to successfully integrate acquisitions into operations and results of significant litigations.

During the call, references will be made to certain non-GAAP financial measures as defined by Regulation G of the Securities and Exchange Commission.

Discussion of management's use of these measures and reconciliations to the most directly comparable -- excuse me, GAAP measures is contained in the Company's third-quarter earnings release and is posted on the Company's web site at www.AMCtheaters.com.

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

After the speakers' remarks there will be a question-and-answer period.

[Operator Instructions] Thank you.

Mr. Brown, you may begin your conference.

Good morning, everyone, and again welcome to to the fiscal 2004 third-quarter earnings conference call for AMC Entertainment.

As Paul said, I am Peter Brown -- Chairman and Chief Executive Officer, and joining me on the phone call today are Craig Ramsey, our Chief Financial Officer, Phil Singleton, our Chief Operating Officer, and Dick Walsh, Chairman of our film group.

Now as we typically do, I will lead off the presentation with a few quick overview remarks about the quarter's highlights.

Craig Ramsey will then take us through the financials and Dick Walsh will wrap up the formal part of the presentation with some comments on the film product.

All of us along with Phil Singleton will be available to participate in the Q&A.

So on that, let's begin.

Now I hope by now you've all had a chance to review the press release that went out over the wire earlier this morning.

As was noted in the release, the quarter was a record, both in terms of revenues and adjusted EBITDA.

I would also like to note that the quarter was our second-highest revenue quarter ever second only to the June quarter of this fiscal year.

Our adjusted EBITDA was not only the highest ever posted in the third-quarter it was also our highest quarterly adjusted EBITDA ever -- any quarter.

The quarter also saw some very positive margin trends.

One of the key aspects is those of you know our strategic plans to maximize our operating efficiencies and in so doing improve our margins and returns on invested capital.

Our adjusted EBITDA margin in the quarter was 15.9 percent.

That represented a 300 basis point increase over last year's third-quarter and it was the highest quarterly adjusted EBITDA margin that we've seen in a little over four years.

On an LTM (ph) basis our adjusted EBITDA margin was the highest it's been in almost 6 years.

Now those of you who follow us regularly know that we watch our business on LTM basis to get the purest picture of how we're doing. (indiscernible) only twelve-month to look at the business tends to give a clear picture of how we're doing because it tends to adjust for the seasonal film product variations and the timing of big holidays that can skew any one particular quarter's results.

I think most of you know theatrical exhibition is a business of cash -- cash business.

Both our after-tax cash flow which is our earnings adjusted for non-cash charges in our free cash flow which is our after-tax cash flow less our net capital expenditures continue to be positive and strong in the quarter.

We generated $15 million of quarterly free cash flow and on an LTM basis our free cash flow is approximately $60 million.

This continues the free cash flow positive trend that we've seen over the last few years.

Now free cash flow continues to improve our credit statistics and liquidity position.

Craig will be talking a little bit more about this in a moment.

But we ended the quarter with $311 -- $311 million of cash and our leverage ratio was 1.6 times.

Our asset quality continued to improve in the quarter as a result of both our continued portfolio optimization strategies, that is -- our simultaneous new build and exposition activity as well as a solid tuck in acquisition we completed on Dec. 18 and I'll be taking a moment to talk about in a few slides forward.

But now I want to talk a little bit more about these Slides.

One of the distinguishing characteristics of the AMC Theaters circuit is quality.

To help us keep this quality high, we segment our screen portfolio into three types of theatres -- Megaplex theatres, something we call continuing multiplex theatres, and Disposition bidders.

Now Megaplex is a theater that we define as generally having 14 or more screens with predominantly stadium style seating.

A multiplex theatre is a slow (indiscernible) theater that has characteristics such as a protected real estate profile that makes it a viable unit at least through the remainder of its lease life.

And a disposition multiplex is a theater that we've targeted for disposition but, generally, over the next three years.

Now Megaplex screens which are shown in green on the piechart of this slide accounted for 72 percent of our total circuit screen portfolio at the end of the last quarter.

That's a one percentage point increase from the quarter before.

Continuing multiplex is shown in blue on the pie chart of the slide with 23 percent of our portfolio at the end of the quarter.

The disposition multiplex is shown in red with just 5 percent of our total circuit screen count.

As I said just a moment ago disposition multiplex is our theatres we've targeted to take offline over the next three years.

As we close or dispose of these older units, while simultaneously adding new units, our overall portfolio quality will continue to improve and we will see that on the next slide.

Now we added 110 new screens in the quarter -- these additions consisted of 62 new billed screens at four locations and 48 acquisition screens at three locations.

Now I'm going to talk a little bit more about the acquisitions in a separate slide to follow.

While we're adding screens we also disposed of 38 screens in the quarter.

Our fiscal year to date basis this brings our total screen additions to 144 and our dispositions to 97.

Now for the full fiscal of 2004 year we're projecting that we should end up the year having added around 162 new screens and having disposed of around 134 screens.

In other words, our net screen additions will be slightly positive for the full fiscal year.

Important point to note here is that through the simultaneous addition and disposition activity we continue to improve our quality of our overall screen portfolio, which is measured by the metric of screens per theatre, which you can see is shown on the top of the slide.

We ended our last fiscal year with the screen per theatre count at 14.7.

Now this has improved steadily throughout every quarter of the current fiscal year and we're projecting a fiscal 2004 year in screen per theatre count of 15.3.

We continue to have the highest screen per theatre count of any of the major theatrical exhibition companies in the business today.

Now in addition to our new build screen growth we added to our circuit size and very importantly qualities in the quarter through an acquisition we closed on December the 18th.

We acquired a three theater 48 screen circuit called Megastar.

Now this was a nice tuck in acquisition for us and very representative of our three pronged acquisition criteria, which is quite simply acquiring high-quality assets in top markets on an accretive basis.

Two of the theatres with 32 screens were in Minneapolis.

Now Minneapolis is the 13th largest market in the United States of America and the acquisition strengthened our current No. 1 position in that market.

The third theatre in the Megastar circuit was in Atlanta, Georgia, which is the 9th largest market in United States in a market where AMC brand is exceptionally strong.

We have eight of the top 15 theatres in the Atlanta market and a number one share of the box office revenues.

The three theaters that generate about $18 million of revenues and around $3.4 million of adjusted EBITDA.

Our acquisition multiple was under 4.5 times which is between the range of a prior two acquisitions -- General Cinema and Gloss 8s -- and importantly, very solidly accretive.

So on that note, I'll turn the presentation over to Craig Ramsey who will take us through a more detailed look at the numbers.

Thanks Peter.

As noted in our press release AMC's record-setting quarterly results were positively impacted by a number of factors, including strong film product and a calendar change that resulted in a quarter end date of January 1st this year vs.

December 22nd or December 26th last year which enabled our third-quarter this year to benefit from both the Christmas and New Year's holiday business vs. only the Christmas holiday in the same quarter last year.

You may recall that during our second-quarter conference call we estimated that this calendar impact could affect the overall box office in North America by as much as 10 percent.

If we use AMC's fiscal quarter reporting periods for both years we estimate that the box office in North America increased from 2,131,000,000 during third-quarter last year to 2,362,000,000 this year or an 11 percent increase.

This increase was fueled by as we estimate -- a five percent increase in average ticket prices and a 5.5 percent increase in attendance.

Now as you can see on the slide AMC's total revenues during the third fiscal quarter increased $41 million or 10 percent over the same quarter last year -- increasing from 431 million to 472 million.

Now this change was primarily the result of an 8 percent increase in our attendance per screen.

In addition, our revenue results benefited from a 3 percent increase in total patrons spending per head which was comprised of a 3 percent increase in average ticket and a 2 percent increase in concession spending per head.

Screen growth did not contribute to revenue performance as a total average screens operated during the quarter declined about a percent year-over-year.

Adjusted EBITDA as you can see increased $20 million or 36 percent from the same quarter last year to $75 million.

This increase is the result of a strong revenue performance that we just discussed as well as a reduction in our film exhibition costs, concession costs and theatre operating expenses.

In addition to the absolute dollar improvement adjusted EBITDA margin has a percent of total revenues increase from 13 percent last year to 15.9 percent this year -- about a 300 basis point increase.

Now the next three data points on the slide relate to our stated objective of free cash flow positive results.

And you can see that we delivered on that important initiative.

Now we define our after-tax cash flow as net earnings plus depreciation and amortization and any other non-cash items and we believe that it presents the best picture of our operating performance from a cash-generation perspective.

Our after-tax cash flow increased over last year by 33 percent driven by an improvement in net earnings.

Net CapEx while up over the prior year is in line with our expectations and indicative of our overall reduced level of new build activity.

The prior year net CapEx was reduced by sale leasebacks of $22 million.

Now free cash flow is positive and reflects the substantial improvement in this metric over the last several years.

Now AMC's third-quarter results as shown in the press release also include a discontinued operations expense related to the disposition of our theater in Sweden.

As we've previously stated, we're currently not committed to make additional new build CapEx commitments in our international circuit, but rather we're focused on improving financial results through operating improvements and other restructurings.

Now in this case we successfully exited our only theater in Sweden and one that has produced negative operating cash flow in adjusted EBITDA results since opening.

The theatre was sold to the leading exhibitor in Sweden and we were able to exit our remaining lease obligation with a lump sum payment in a very tax efficient minor.

Our international circuit contributed positive adjusted EBITDA to third-quarter results which is an indication of the success of our strategic initiatives in this area.

Now, as for the 39 week period, total revenues increased three percent from 1,341,000,000 during the 39 week period last year to 1,380,000,000 in the same period this year.

Total revenue reflects a reduction in attendance, offset by an increase in total revenue per head including increases in average ticket concession per head spending.

Revenue performance was also impacted by a one percent reduction in average [indiscernible] operated between the two periods.

Adjusted EBITDA increased 24 million or 13 percent over the same period last year to 203 million.

Now given the 3 percent total revenue improvement this increase in adjusted EBITDA for the 39 week period was driven largely by reductions in our operating expenses both in absolute dollars and as a percent of total revenues.

We will discuss those here in a little more detail.

After-tax cash flow for the 39 week period benefited from the improvement in operating results and set a record for the LTM period of $149 million.

Net CapEx was 73 million for the year-to-date period compared to 37 million for the same period last year.

The prior year CapEx was reduced by sale leasebacks to 44 million.

Now for the 39 week period we delivered 48 million of free cash flow and on an LTM basis are free cash flow was $60 million.

We will now look at some noteworthy points concerning key drivers and analytics for the quarter and year-to-date periods.

During the quarter, we opened four theaters with 62 screens bringing total year-to-date additions to 96.

This is not only comparable to the prior year but it's also very much in accordance with our overall plan to open 114 screens during fiscal 2004.

As Peter noted, we successfully -- also successfully acquired three theaters with 48 screens, indicative of our strategy to aggressively pursue acquisitions.

These newly acquired theatres complement our strong market position in Minneapolis and Atlanta and we're acquired at a very accretive multiple of their expected cash flows.

During the quarter we closed 4 theaters -- a reported 46 screens -- bringing our year-to-date closures to 105.

Screen openings and closings resulted in year-over-year reduction in average screens operated during the quarter and year-to-date periods.

As we discussed earlier, year-over-year calendar changes positively affected attendance during the quarter, leading to an increase in our attendance per screen.

Our average ticket price for the quarter and year-to-date periods experienced year-over-year increases which contributed to total theater revenue per head increase of 3 percent.

In addition we experienced a 2 percent increase in concession sales per head for the quarter and a 3 percent increase for the year-to-date period.

Both resulted from an increase in units sold, a reflection of our initiatives to improve concession operating efficiencies.

The increase was not the result of concession price increases.

Our film exhibition costs decreased from 54.3 percent in the quarter of last year to 53.1 percent this year.

That's comparable with 110 basis point reduction for the year-to-date 39 week period.

Now as we've talked about before, our focus is not only on just percentages but also on absolute dollars of contributions.

And in this case we look at annualized amounts of admission revenues, retained after paying film cost or what we call film retention per screen which you can see increased by 14 percent for the quarter and 7 percent for the year-to-date period.

Now a significant contributing factor to our operating results was a successful management of our operating expenses both in times of both increasing and decreasing attendance and as you can see operating expenses as a percent of theatre revenues was reduced by 260 basis points in the quarter.

And by 150 basis points for the year-to-date 39 week period reflecting our targeted cost savings initiative.

Our recurring general administrative expenses increased as a percent of total revenues for the quarter and for the year-to-date period and this increase is due to increases in insurance cost -- both in our casualty and health insurance lines -- and also increases in our pension expenses.

In addition to these recurring components of G&A expense, total G&A as shown on our earnings release reflects the third-quarter write off of costs that we incurred in our investigation of the potential merger that was recently terminated.

Let's now turn and look and discuss our capitalization on liquidity.

We continue to improve the credit profile of our balance sheet and maintain financial flexibility to act on opportunities that are accretive.

Balance sheet shows a strong cash position.

Total debt was 731 million unchanged from the end of the last quarter.

Quarter end debt was comprised of our senior subordinated debt and our capitalized lease obligations and financing lease obligations.

There were no amounts borrowed on our our credit facility and our net debt in the amount of 420 million is down from the prior quarters due primarily to seasonal working capital changes.

At quarter end, our leverage ratio was a very comparable 1.6 times.

So with that I will turn the program over to Dick Walsh, who will provide some commentary on the film product outlook.

Thank you, Craig.

We see three trends occurring in our fourth-quarter within the industry.

As Craig indicated unlike most fourth-quarter our start of this fourth quarter occurred on January 2nd and did not include any of the New Year's Eve, New Year's Day business.

They usually get us off to a fast start.

January has been slow with few opening titles catching on with the public.

So we're off to somewhat of a sluggish start in calendar '04.

The Academy Awards have moved up one month this year from the last weekend in March to the last weekend in February.

The nominations were made public on this past Tuesday as opposed to traditionally being done so in mid-February.

The net effect of this change is that moviegoers will have only four weeks to make sure they see a nominated picture or acting performance prior to the Award telecast as opposed to six weeks in the past.

It will be interesting to see if the films nominated for best picture or those with performances from the key acting categories will benefit from the earlier nominations were or will the shorter window to see these films post the nomination prove to be a negative factor in how well the picture did post nomination.

As we look at the quarter, comedies will dominate the box office during this period.

One of the few January releases that releases that has caught on so far has been Along Came Polly -- which has dominated the January box office and is well on its way to becoming the first $100 million releases of calendar year '04.

We also have high expectations for Barbershop 2 -- the sequel to the surprise comedy hit of Barbershop from 2002. 50 First Dates with Adam Sandler and Drew Barrymore as well as Starsky and Hutch with Ben Stiller and Owen Wilson should also perform very well in the quarter.

Other key titles in this quarter should include Miracle which opens on Feb. 6 starring Kurt Russell.

It's a feel good movie that retells the stunning upset pulled off by the U.S. hockey team during the 1980 Winter Olympics.

Hidalgo which opens March 5th starring Viggo Mortensen, fresh off his starring role in the Lord of the Rings trilogy in a story set in 1890 about a Pony Express courier who competes with his horse, Hidalgo, in a Saudi Arabian horse race that takes place around the world.

And, finally, we will conclude the quarter with Scooby Doo 2, the sequel to the family film Scooby Doo which went on to gross $153 million in 2002.

All in all we feel that while each of these titles will find success in the marketplace, the difference in the 14th week fourth-quarter last year versus 13 this year combined with the lack of the jump start from the New Year's Eve New Year's Day period will create an environment that will be challenging to comp with when we look at potential quarter versus quarter results during the January and March period.

That being said, the industry had a very strong October to December period.

And if you take our third and fourth-quarter combined perspective, the industry should have favorable comps when compared to last year.

More importantly the April through June period coming up looks very solid with titles such as The Alamo, Laws of Attraction, Van Helsing, Troy, Shrek, 13 going on 30, The Day After Tomorrow, Harry Potter and the Prisoner of Askeban, Terminal and Garfield just to name a few.

The January to March period becomes book ended by two very strong quarters -- demonstrating yet again that the industry continues to perform a a steady pace.

And with that, I will turn it back to Peter.

That's great.

I think Paul, we are open for Q&A at this point.

[Operator Instructions].

Bishop Sheen (ph) with Wachovia Securities.

Pretty nice numbers.

So I don't have a lot of questions about it, other than what you probably ask yourself is "gee, whiz, how do we do this again?"

But going to the CapEx just so I get the numbers right, your net CapEx is what and your gross CapEx is what for the quarter and for the nine months?

Craig.

Just a second, Bishop.

For the quarter, the gross CapEx is 29 million, actually, I think we rounded it to 30 and for the 39 week period, it's 72 million.

And that's the gross CapEx?

(MULTIPLE SPEAKERS) And is no [indiscernible] 73 million is what we actually have on the slide, (indiscernible) 73.

No sale leaseback.

(Multiple Speakers)

Okay that's simple enough.

And the Megastore acquisition, the split of the economics between Minneapolis and Atlanta is roughly what?

I would say two-thirds and one-third.

Of that 18 million that was on the slide.

Right and on the pension only because there's been so much focus lately and I suspect there's going to be more.

Where are you in terms of [indiscernible] overfunding or underfunding your pension obligations?

Bishop as we look at the last several years we believe our pensions in a very good state of funding and as a general comment and I say that because as we go through our numbers and valuations, the last three years, we've not had to make a contribution because it's well funded.

So we expect that to be the case again next year that we will not be required to make a cash contribution as planned.

The expense is a different matter as you may know.

I talk about increased pension expense and that gets into changes in interest rate assumptions so on a funding basis and in very good condition, we are seen the expense year-over-year because of some assumption changes we're seeing at [indiscernible].

Last question.

We've seen some of your competitors tout the growth rate of on-screen advertisement and even the downtime theatre use.

Have you say in any change, overall, in those revenue streams?

Well I would say, Bishop, we continue ourselves to have as part -- we got three big stools if you will legs to our strategic stools.

And we continue to move forward with respect to the preshow space and really bringing that space to life and it's part of that -- viewing the advertising if you will we've taught over the years we've seen -- go back to fiscal '99 and you look at basically our other theatre revenues plus, the EBITDA that we generate out of our [indiscernible] advertise excuse me more than slides now, advertising business the compound growth rates have been almost 20 percent.

So we're still seeing those possibilities and I think the more important thing is, we are moving very definedly forward in the space but also very thoughtfully and what I say by thoughtful is that to us, what we -- our challenge is we need to make that preshow space entertaining.

And so we have some ideas that we are percolating on that and they also tie with the emphasis on some of our brands and in particular Movie Watcher.

So watch for us to be doing more in that space but it's a very interesting area and I know that some of our competitors have really talked quite aggressively about the area -- our perspective is that we've got our core business which is really the business that we focus on first and foremost which is selling tickets to movies and also food and beverage items at our concession stand.

This third part is an interesting part but over time I don't see it becoming percentagewise ever so big that it's going to outtake if you will or overtake the money that we make from selling movie tickets and tickets to movies or other programming and through beverage items.

Lee Westerfield with Jeffries.

I have three questions.

First would be for Craig and, Craig, I wonder if you could break out in some detail the CapEx program very specifically?

I am interested in how much you're projecting, initially, here for fiscal 2005 broken down by new construction and separately for any digital ad projection equipment I guess segueing off the point about prescreen or pre showing advertising?

And then I have a second question which is the sale leaseback in the quarter here in the previous quarter.

What would be the leaseback rate that you guys determined at the end and then, finally, the discontinued [indiscernible] theaters you're closing in Los Angeles?

Are those being treated, obviously, as discontinued operations and if so what the site would be as far as NOLs are concerned or any other accounting treatments you want to elaborate on?

Okay, I think those are mostly mine.

The '05 projection on our total CapEx this is, again, total CapEx about 104 million of which new screen constructions -- about 28 of that and we have about 20 million programmed in to complete our digital buildout on our screens.

The question about sale leaseback -- maybe I was not clear.

The current year quarter and 39 week results on CapEx do not include any sale leasebacks.

The sale leasebacks were in the quarter and 39 week period of the prior year.

So there are none in the -- again in the quarter this year or the 39 week period last year and then on the -- again, on the discontinued operations.

That relates solely to the exiting of our theater -- of the closure of our theater in Sweden.

It is reported in the current year as a discontinued segment because it is the only theater in that market and in that country and the accounting literature would say if you're not going to migrate the cash flows to another operation, another theater then it is a discontinued -- should be reported as a discontinued segment.

Contrast with the closure of theaters in the U.S. where you will typically see those cash flows migrate in which case they're treated as theatre closures and not discontinued operations.

I'll have to admit that we worked this pretty hard.

It didn't initially seem like closing one theater would be a discontinued segment but after consultation with our accountants and thoroughly reviewing the literature we concluded that the exiting of a theater and the one theater in Sweden did qualify for that accounting treatment.

That helpful?

Guess that sort of gets to it, maybe specific details I'll [indiscernible] (MULTIPLE SPEAKERS)

On the amounts involved in that, how did -- what are the numbers -- what's the numbers comprised of?

That is okay, Craig if I could follow-up with Peter on a question which is Cinemark, wonder if your perspective is as far as any of the assets of interest to you within the Cinemark portfolio?

Well I think as most of you know what Lee is alluding to is within the Wall Street Journal.

There was an article I think last week about I think was called Merger Mania in our industry and it talked about one of the companies called Cinemark being in a process right now.

We didn't bid on Cinemark, so that's probably the simplest most direct answer I can give you and -- but it sounds to me, again, based on what I read in the Wall Street Journal like everybody else that it's a very robust process which -- from my perspective -- in terms of valuation is a good thing.

Matt Harrigan with Janco Partners.

This is Mike Servis for Matt.

First with respect to your international operations, you spoke of a strong contribution to EBITDA.

Can you comment further on what you're expecting internationally going forward?

Then, secondly, you must have been disappointed with the termination of the merger talks with Lowe's especially with respect to the Canadian assets.

Can you comment a little further regarding Lowe's in that merger?

Speaker: Yes I think, Mike, the simple and correct answer on Lowe's discussions was that we just couldn't come to terms.

That often happens when you're working on deals, big or small.

I think that when that happens, you take a step back and you look at where you're at.

And I will just say to you that we feel very good about the business we have.

The market positions we have, the assets quality we have, management strength that we have.

We have this kind of segue [indiscernible] international question.

We have been making really every quarter slow and steady trimline upward improvements in our international businesses and our Canadian business.

Our Canadian business right now is about cash flow break even.

It wasn't that way a couple of years ago.

So we've been able to improve ultimately our valuation by getting that business to a cash flow break even business.

The assets are in great shape in Canada.

Speaking specifically about Canada it is a duopoly situation up there.

I don't know if that will be the situation long-term or not but we've got great assets, there's cash flow break even.

And we will continue to work them to improve that situation -- particularly on the film side which we will keep the pressure on that there.

As it relates to the international side of the story we've really been and, again, going back to our strategic plan, maximizing our operating efficiencies just a nuts and bolts grind it out and prove the cash flows and prove the margins and in some cases like our Sweden deal if that involves in essence disposing of the theater -- we're going to do that.

And the net result of all that is I look at it, over an LTM basis we've had about $10-$11 million EBITDA swing between negative EBITDAs for our total international business on LTM basis to positive -- positive in the quarter.

Yeah your question about contribution was about 1.5 million total positive contribution from international during the third quarter and about 2 million on a year-to-date basis.

Which were essentially were negative by those amounts in the prior year.

So considerable improvement.

One thing about our international franchise and I -- we don't talk a lot about it and part of the reason is because it's not really a big part of the Company and the bulk of the Company -- 95 percent of it -- is really here in the United States of America but we shouldn't overlook the fact that we really have the AMC brand flag flying in many of these international markets for many, many years.

And my sense is that that may bring us some opportunity one of these days in some of those markets where folks may like the way we've operated those theatres and may want to approach us on doing more.

I think the key there is from our perspective, making sure that our returns on capital are appropriately risk adjusted so to speak if we were to do anything in any of those international markets and I think there's possibilities there where you can do things without really putting up any capital and continue to build a brand.

So it's an -- it's an interesting platform.

Again we're pretty conservative -- we don't hype things and talk about big parts of the business that really are at the end of the day not as significant as things like the U.S. assets and the core business of the theatre operation.

Ray Flinkoffer (ph) with Sturdevent (ph) and COmpany.

Couple of questions.

On the G&A that was one time in this quarter that related to Lowe's doing some back of the envelope math -- that was just 4.7 million.

Probably a little high, closer to 4.

And if we could talk a little bit about ticket price increases now that we've kind of fully lapped off all the impact of the increases that you put in place last year.

How much more room do you feel that you have and I know a lot of that you were just eliminating some deep discounting is we're kind of looking forward into the next couple of quarters, what type of increased range do you think we can look at?

You know we as we look forward we program in about 2 to 3 percent for price increase.

We think they're may be some upside to that but I think on the conservative side 2 to 3 percent for our circuit?

And any update on the stored value of cards and any impact you're seeing there?

Well the new store value card continues to be good.

As we track total sales through the 39th week, they were up about 17 percent over the prior year.

That per head that we're generating when we look at -- in essence, what we've done with store values card is roll gift certificate program forward [indiscernible] gift certificates into the card so we track the per head because a lot of the sales would have to do with the attendance space but per heads actually have 21 percent.

The average transaction which is to say the amount they buy per card of 28 percent and what's really interesting to me about this is we've created a lot of third party distribution avenues -- deal with Safeway deal with Walgreens, got some things percolating and the third party sales represent 15 percent of the total.

That's great exposure for the AMC brand, aside from the fact that it is another point of retail distribution to sell the cards.

So I'd say the net summary of all that is that the entertainment card has been a fantastic success and again in AMC industry leading innovation I think as most of you know were the first major exhibitor to step up and roll this card out on a national basis and it's been a fabulous success.

Thank you for asking.

Jessica Bruer with CSFB.

First question relates to the Americans Disability Act judgment that you received.

Wonder if you could give us a little more color on the timing of the payments and exactly what kind of improvements you need to make and what you think any kind of further exposure might be going forward in that regard?

And then also is that spending going to show up in your CapEx numbers?

That's the first part.

Let me take that part.

This agreement that we reached and negotiated with the government was related to the non (indiscernible) side issues and that's all of the different regulations on heights and spacing and size of platforms, ramps, slopes, and things of that sort and based upon the sample that was really studied as part of this negotiation the sample of theaters we project the total fix to be about $20 million which will take place over the next five years.

So if you want to put 4 to 5 million each year going forward in CapEx, that would cover the best settlement.

It is the numbers I gave you earlier on CapEx for next year included in those numbers.

So it is going to be an improvement of the facilities and thus qualify for capitalization.

Okay and then the 104 No. you gave for next year that's a growth number which we would expect about [indiscernible] $40 to $50 million [indiscernible]

Yes.

I think we've actually got about 39 in our projection for next year.

So --

So, my last question is on capitalization.

Looks like there's good rates out there to be had for debt any [indiscernible] news about new credit facility and or refinancing some of the issues you have there.

Absolutely -- we continue to look at those opportunities.

We have some bonds that are currently callable and another issue that becomes callable here at the beginning of February, so we're looking very closely at those options to improve overall interest cost.

You think was a buildup of cash that you have right now about 300 million -- is it time to maybe put some of that to deleveraging or want to keep that [indiscernible] ?

We're looking at a number of different options including deleveraging.

Stuart Halpern with RBC Capital Market.

Three things -- couple for clarification first.

Free cash flow numbers that you're quoting there for the period -- is it accurate to assume that does not include the acquisition costs for Megastar?

That's correct.

And then your reference to fiscal '05 CapEx plan?

I think you referred to the digital cinemas as completing the role out there. [indiscernible] what percentage of your markets or theatres would have digital preshow capability?

80 percent, Stuart.

80 percent of the market.

Yes.

The final thing, just the improvement in film cost you guys have been showing.

Any way you can elaborate on that in terms of how much of that money is product driven vs. mix of business by studio driven vs. a broader kind of evolution in the types of deals you're tending to do?

This is Dick Walsh.

I think it's a combination of all those thing you said.

We did experience a summer and a particularly stronger third quarter that pictures actually played out longer which always helps the exhibit or in terms of the terms for negotiation and I also think you saw a lot of the B&C titles perform better than had been expected and while the blockbusters always carried a heavy ticket for film rent, you saw some of the lesser pictures in the year come through for us.

So and also it is just a good good negotiating by the film group here at AMC itself.

And it's a combination of the three things you said.

Just to follow up on that -- is some part of that is maybe more of a negotiated deal as opposed to the old traditional model?

Does that suggest that going forward there may be continuing opportunities to have at least a little bit better film cost [indiscernible] ?

I don't know what that portends for the future.

I think the studios will continue to look at their business models and what they believe is the best return they can get for their pictures.

I would say this.

I think there is a better spirit of cooperation out there between distribution and exhibition than we've seen perhaps in the recent past and which is a good thing and so, I don't see -- I would not declare the third quarter that just happened as a trend for the future per se.

We will have to see how it plays out over time.

Alexis Gold with CIBC.

[indiscernible] I have a couple of repeats.

I've been having technical difficulty so I am happy to speak with you guys off line.

But just in terms of the extra week in the quarter, is there any way to quantify that and maybe you did that already in terms of revenue and EBITDA associated with [indiscernible]

Yes we did recast the results and kind of asked ourselves the question of what would the numbers have looked like year-over-year had we lined up both quarter endings on December 26th last year and actually would've been December 25th this year.

Revenues would've been essentially flat and our adjusted EBITDA would've been up a percent over last year.

And the margin, we would have still shown some margin improvement over last year.

I know you talked a little bit about the Cinemark announcement and just looking at (indiscernible) definitely a lot of articles on mergers in the sector you know have you seen the same just drawn discussions obviously favorable multiple Megastar but just for the most part are you seeing higher multiples and is it making it more difficult [indiscernible] acquisition?

I would say this, Alexis, I've said this before -- we we're not in a kind of a shotgun mode to get out there and just buy for buying's sake.

We have been very focused and I would say our track record is and we've done three acquisitions now and successfully integrated them, but also acquired them in this four and a half-ish five times ish range.

So just speaking from our track record there I would say that's where we have been able to and expect to be able to be able to doing future acquisitions and get things done -- having said that we're disciplined and remember the three prongs of our acquisition criteria asset equality market fit and it's got to be a valuation accretive deal.

So we're not going to be doing acquisitions that are not evaluation accretive but, again, at the risk of repeating myself they've got to fit those other two criteria.

So we're not just a financial buyer looking to just buy assets and look at the cash flows, we've got to have good strategic bit, on the asset equality market.

And [indiscernible] just finally [indiscernible] agency side [indiscernible] opportunities in yhour capital structure capital structure [indiscernible] out there with their new high yield and they've been upgraded -- have you continued conversations with the rating agencies sort of -- I know they've been slow on the uptake but any update you can give us there?

Just continued to keep them apprised of developments are developments and we will continue to try to get a rating that we think is reflective of our balance sheet and the history of our Company.

Congratulations on the quarter.

Ladies and gentlemen, we've reached the allotted time for our Q&A.

I would like to turn the call back over to management for closing or further remarks.

Thank you, Paul, and I want to thank everyone for joining us this morning.

We're obviously pleased to be able to report such strong quarter now.

As Craig noted as well as did Dick, we did have the benefit of the timing of certain holiday days that fell on this year's third fiscal quarter versus last year's fourth fiscal quarter.

Because of this, we expect comparisons to be difficult in the quarter we're in right now.

As Dick pointed out we're off to a sluggish start but the important thing is that as I said at the onset that I say this from experience -- a base of experience we watch our business on a (indiscernible) 12 month basis, and when we look back at the full fiscal year at the end of the fiscal year we will continue to see the sign of strong cash flow and improved results that we saw in the quarter for the full fiscal year.

So on that note, I just want to say thank you for participating, thank you for your support and we look forward to speaking with you again in early summer.

Thank you again, ladies and gentlemen, for participating in today's AMC Entertainment Inc. conference call.

This call will be available for replay beginning at 1 PM Eastern time today till 11:59 pm Eastern time on Wednesday, February 11th, 2004 through the web site www.AMCtheatres.com.

Thanks again.

At this time you may now disconnect.