迪士尼 (DIS) 2004 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Pixar Animation Studios' third quarter 2004 earnings conference.

At this time all lines are in a listen-only mode.

Later, there will be an opportunity for questions.

Instructions will be given at that time. [Caller Instructions] And as a reminder, this conference is being recorded.

I would now like to turn the conference over to Simon Bax, Executive Vice President and CFO-Pixar.

Please go ahead, sir.

Thank you.

Good afternoon and welcome to Pixar's conference call for the third quarter of fiscal year 2004.

In just a moment, I will begin our formal discussion, but first I need to remind you that some of the statements made throughout the course of this presentation are forward-looking and it is possible that actual results will differ materially.

Among the factors that could cause these results to differ are the timing and amount of worldwide revenues and distribution costs related to our films and the timing, accuracy, and amount of information received from Disney to determine revenues and associated gross profits.

These forward-looking statements should not be relied upon as representing our views as of any subsequent date and we undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date they were made.

Additional information concerning these and other factors that could cause results to differ is contained in our 2003 Form 10-K, second quarter 2004 Form 10Q, and our other filings with the Securities and Exchange Commission.

Having said that, I will now begin a discussion of our third quarter 2004 results.

I am thrilled to announce that revenues for the third quarter were 44.5 million, net income was 22.4 million, and diluted earnings per share were 38 cents.

These results compare to revenues of 30.2 million, net income of 13.2 million, and diluted earnings per share of 23 cents reported in the third quarter of 2003.

For the nine months ended October 2, 2004, revenues were 164.6 million, earnings were 86.5 million, and earnings per share -- per fully diluted share were $1.46.

This compares to revenues of 97.7 million, earnings of 40.9 million, and earnings per fully diluted share of 72 cents for the equivalent period in 2003.

This two-fold increase in earnings over the prior year period was due largely to the home video performance of Finding Nemo.

Our film revenues for the third quarter were 40.4 million, 86% of which was generated from Finding Nemo and Monsters Inc.

These two films contributed 22.8 million and 12.1 million, respectively, primarily from home video revenues.

In line with our previous projections for the quarter, we reduced our foreign home video reserves estimates for both films, which resulted in revenues of 7.4 million for Finding Nemo, and 9.5 million for Monsters Inc.

As of the end of the third quarter, we had recognized worldwide home video sales of approximately 35 million net units for Monsters Inc., of which 53% were DVDs; and 44.3 million net units for Finding Nemo, of which 75% were DVDs.

Starting in the fourth quarter of 2004, we will classifies Monsters Inc. as part of our library titles in accordance with SOP 002.

Our remaining film revenues were from consumer product licensing, international television and worldwide home video sales of our library titles.

In addition to film, RenderMan software licensing sales contributed 4 million to our net revenues this quarter.

Operating expenses for the third quarter were 8.8 million versus 6.8 million in the corresponding period last year.

The increase in operating expenses over the year-ago period reflects the continuing growth of the studio.

Other income for the third quarter of 2004 was 3.1 million compared to 2.7 million recognized in the third quarter of 2003.

The increase over the prior year can be attributed to higher investment balances offset by slightly lower interest rates.

Cash, cash equivalents and investments were approximately 833 million at the end of the third quarter, having increased 311 million since January 3, 2004.

This increase was mainly attributable to cash received from Disney for our share of film revenues, as well as proceeds from stock option exercises; offset by taxes and film production costs.

Capitalized film costs were 131.5 million versus 107.7 million at the end of 2003, reflecting production spending on our current film projects offset by film amortization.

Our balance sheet remains debt-free and our shareholders' equity as of the end of the third quarter was in excess of 1.1 billion.

During our second quarter 2004 earnings call, I mentioned that we were comfortable with the analyst's mean earnings estimate for the third quarter of 20 cents per fully diluted share.

There were a number of factors that contributed to the outperformance this quarter relative to our earlier projections.

Eight cents was due to the better than anticipated performance of our library films, particularly from consumer product licensing of Finding Nemo and Toy Story 2.

Six cents resulted from a reduction in the domestic home video expenses for Finding Nemo.

This was due to changes that Disney made to how it estimates certain home video marketing expenses.

Two cents was from higher than anticipated RenderMan software sales.

And, lastly, two cents was due to a reduction to our effective tax rate.

This rate of 35% reflects the impact of utilizing the estimated tax benefit related to the international income exclusion for the year 2004.

The availability of this tax benefit for 2004 was previously uncertain and, therefore, an estimate of the benefit was not factored into our tax rate until the current quarter.

I would now like to begin a discussion of the upcoming events that will be reflected in our earnings -- sorry, in our results for the remainder of 2004.

Our earnings for the fourth quarter are going to be driven by the performance of The Incredibles which, as you know, was released in the U.S. on November 5th.

The Incredibles is scheduled for release in all of the major international markets before the end of the year.

We would therefore expect to recognize the majority of revenue related to the worldwide theatrical release in the fourth quarter.

These revenues will be offset against the marketing and release costs associated with the film's worldwide theatrical release as well as some upfront marketing and release costs in anticipation of its U.S. release in the spring of 2005.

Our preliminary projections for fiscal year 2004 earnings range from $2.10 to $2.20 per fully diluted share.

Our results will depend largely on the timing and amount of worldwide box office receipts from The Incredibles and assumes that most of the films' domestic box office and roughly 75% of its international box office will be recognized by the end of the fourth quarter.

This earnings range for 2004 also assumes that we may be in a position to revise our Finding Nemo home video reserve estimates following our review of its sales during the holiday season.

By year-end, worldwide sales of the Finding Nemo home video could reach approximately 46 million net units.

Our assumptions for the full year also include revenues from consumer product licensing of The Incredibles; the U.S. network television debut of Monsters Inc.; and continued worldwide home video, television and consumer product licensing from Finding Nemo and -- and our other films.

For more on the Incredibles and other developments of Pixar, I would now like to turn the discussion over to Steve Jobs.

Thanks, Simon.

We are thrilled that our Studio 6 feature film, The Incredibles opened as the number 1 movie in America this past weekend with a box office of 70.4 million, surpassing Finding Nemo's 70.2 million opening weekend, to set a new record for our studio and to become the third biggest November opening of any film in history.

Please recall that Finding Nemo opened in late May with over 30% of all kids being out of school on its first Friday while The Incredibles first Friday last week enjoyed no such benefit.

With this tremendous opening weekend, I think we can safely say that Pixar is now six for six.

A unique achievement in the history of the movie business.

The Incredibles is also one of the most positively reviewed movies of the year.

You might want to visit rottentomatoes.com, the most popular website that aggregates movie reviews from all over the U.S.

Their tomato meter rates The Incredibles at an amazing 97% positive reviews.

The opening weekend audience for The Incredibles was split 50/50 between men and women with 30% being non-family viewers.

The exit poll research was very positive for every type of audience member: parents, children under 12, and teens and non-family; 91% or more members surveyed in each of these groups rated The Incredibles either excellent or very good.

And 82% or more in each group said they would definitely recommend it to others.

These survey results are even higher than those from Finding Nemo's opening weekend.

So the research says that audiences love this movie and will definitely recommend it to others.

As you know, Pixar is driven by the story-telling, not the technology.

But as you also know, Pixar invented the entire medium of 3-D computer animation and holds a firm lead in the underlying technology to create the amazing worlds and characters for our films.

Simply put, we are able to create images on the screen that no one else can come close to matching.

You've seen this in all of our films, the fur in Monsters Inc. and the ocean in Finding Nemo.

The Incredibles takes our technology to new heights, with Pixar's first computer-animated humans as main characters and the most complicated sets we've ever created.

We think Bob, Helen, Violet, Dash, and Edna are the first computer animated humans that work in a movie; and audiences seem to agree.

We think that no other studio can come close to matching the amazing visual quality in The Incredibles which, combined with our story-telling, is a winning combination.

So what's next for The Incredibles?

Well, we have new competition from Warner Brothers, The Polar Express which opened yesterday with a box office of 2.6 million.

Fortunately, The Incredibles derailed The Polar Express with a box office of 4.5 million, 73% higher than the Polar Express.

We hope to repeat this performance throughout the weekend and remain the number 1 movie in America.

Within a few weeks, the Incredibles will open in most major territories worldwide.

On November 24th it opens in France;

November 26th, in the U.K., Spain, and Italy;

December 4th, in Japan;

December 9th, in Germany;

December 17th, in Mexico and December 26th in Australia.

Uh, let me relay a fun anecdote.

We sneak previewed The Incredibles in Taiwan last weekend and outgrossed Nemo's formal opening weekend by almost 15%, and Shrek 2's opening weekend by 16% to become the biggest animated opening of all time in Taiwan; and we haven't even officially opened there yet.

Given the fantastic opening weekend, the strong weekend coming up, the strong reviews that the film has and what we think will be strong openings in the key international territories in the coming weeks, The Incredibles is on its way to becoming one of the highest grossing animated films of all time.

Now let me take a moment to talk about Cars, Pixar's seventh feature film and the fourth feature directed by John Lasseter, which is currently scheduled for release during holiday 2005.

Cars stars the voice talents of Owen Wilson, Paul Newman and Bonnie Hunt and it is looking like it's going to be a truly remarkable film.

The story is complete and we are very far along in production.

Some of the scenes that are fully lit, shaded and rendered are just jaw-dropping.

Cars is going to be one of the most visually stunning films we've ever created while at the same time being one of the most heart-felt.

We think it's going to be a big winner.

The first trailer for Cars was released with The Incredibles this past weekend and audiences loved it.

Disney's research showed audiences had extremely high interest and reaction to the Cars trailer and this was certainly born out by my personal experience in theatres this past week.

Now, I'd like to take a few minutes and let you in on a conversation that we are having inside our studio.

Something that we're giving a great deal of thought to.

It's about whether to shift our entire release schedule six months and release our movies in the summer instead of the holiday season.

When you look at the box-office performance of two of our movies, Monsters Inc., released during the holiday season and Finding Nemo, released during the summer season, it's really fascinating.

Let me give you some of the highlights.

Both movies had spectacular opening weekends.

Monsters at 62.6 million, and Nemo at 70.2 million; but with an opening weekend that was only $8 million higher than Monsters, Nemo went on to gross $83 million more.

Of course, audience reception was a key factor, but does that explain all of the $83 million difference?

One theory was that Nemo played for longer in the theatres adding to its box office because it was a summer movie.

Well, Nemo did play for slightly longer than Monsters, but closer examination showed that both films generated 95% of their total box office during their first nine weeks.

So Nemo's slightly longer run wasn't material in generating that extra $83 million.

It turns out that the primary reason for Nemo's higher box office was its higher performance during the midweek, Monday through Thursday, as a result of kids being out of school.

Approximately 33% of Nemo's box office was generated midweek, versus only 23% of Monsters.

A similar pattern was seen with Shrek 2, also a summer release, which generated 35% of its box office midweek.

The stronger midweek numbers accounted for over 65% of the total difference in box office between Nemo and Monsters, two thirds of the difference; that's $54 million.

But there's more.

As you know, the majority of our profits are generated by the home video sales of our films.

In today's competitive marketplace, videos are usually released within six months after the theatrical release, the days of waiting a year to release the video are long over.

So holiday films have spring video releases and summer films have holiday video releases, the best time to release our films on home video is clearly the holiday season.

The Finding Nemo video, for example, released in November has sold around 44 million units to date and is the largest-selling DVD of all time.

So to summarize, both Monsters and Nemo generated around 95% of their box office during the first nine weeks of release, but Nemo enjoyed significantly higher midweek performance due to kids being out of school.

And this superior midweek performance accounted for 65%, or $54 million, of the total difference in box office between the two films.

In addition, Nemo has sold almost 10 million more videos than Monsters, generating 10s of millions of dollars of additional profits due in part to Nemo's more favorable holiday season video release date, which was made possible by its summer theatrical release date.

This comparison suggests that Pixar can maximize the return on its films by releasing them theatrically during the summer and on home video during the holiday season which is six months out of phase with our current schedules.

And that by doing so, Pixar might realize millions of dollars of additional profits per film.

To achieve this, we'd have to slip our release schedules by six months, but the long-term value for our shareholders in doing so may dwarf any short-term delay in earnings caused by such a slip.

We haven't made any decisions yet, for one thing we're waiting to see how The Incredibles does.

Who knows, it may become the most successful animated film in history and totally disprove this theory.

In any event, I wanted to bring you in on this important conversation that we're having at our studio and we'll keep you posted as our thinking progress progresses.

Pixar is entering its 10th year as a public company.

It's hard to believe.

This is our studio's 35th consecutive profitable quarter.

With six for six, we have the best track record in the industry, animation or otherwise.

We have grown our library from the release of Toy Story in 1995 to what is now a library of six of the most successful and beloved films in animation history.

We have grown and expanded our talent and now have a deep bench of creative visionaries and story-tellers including six directors.

While taking aggressive creative risks, we have conservatively managed our company's business and we have a large and growing cash position of over $830 million, with no debt.

We can now finance 100% of the production costs of our films going forward.

We are on track to release a film a year going forward.

And we will own 100% -- 100% of our films post Cars with a dramatically improved business model.

So as you can guess, we've never been more excited about Pixar.

And now Simon and I would like to open it up for any questions you may have.

Thank you. [Caller Instructions] Lowell Singer, SG Cowen.

A couple questions.

First, um, Steve, I think that measures T & U passed in Emeryville last week, which I think gives you some flexibility to expand your facility.

I'm wondering what your plans are about timing and what the costs might be of that?

And, second, regarding your comment about timing of films, I do think there's some evidence that suggests the holiday window might be more attractive internationally and I'm wondering how you think about that as you think about the best worldwide release timing?

Is this something you are looking at for Cars, or for your first film post Cars?

Thanks.

Sure.

Uh, the measures did pass in Emeryville.

We're not sure when we're going to break ground on a second facility.

Uh, it will most likely be during 2005 and the cost of the building will probably be in the 50 to $60 million range.

We've got people now scattered in lots of buildings around us that we're renting and we'd love to get them consolidated back onto our campus.

Um, secondly, uh, there -- there's all sorts of data on holiday releases internationally.

Uh, it's -- it doesn't quite -- it doesn't look definitive.

As an example, in Europe, uh, there's some -- you know, the holiday's a great release window.

In Japan, uh, you know, --

In July or Christmas.

Right, exactly.

So there's -- there's good release windows pretty much in every territory in the summer and in the holiday.

Uh, but it looks like the summer release windows are better in most places.

Remember that the summer release window buys you a holiday DVD release window, which is better in all territories.

And, uh, because of piracy, you cannot anymore release videos in some territories and not others shortly thereafter.

So if you, you know, focusing on the DVD release window, clearly holidays is best around the world.

And we haven't made any decisions about changing our release windows.

We're in the middle of discussing it and I wanted to share it with you today and if you have -- have any, you know, strong thoughts on this I'm sure you'll let us know in the coming, uh, weeks and months.

But we are looking at it and trying to analyze it with the best data that we can get.

Have you discussed it with Disney regarding Cars?

Uh, well, Disney has a lot of data, so we -- you know, we've -- we try to get as much data as we can from Disney, but I'm not going to go into any more detail about when we might specifically do something or not.

We might never do anything.

And, uh, we're still thinking it.

Jessica Reif Cohen, Merrill Lynch.

A couple questions.

First, on Incredibles, could you comment on your what your expectations might be in regard to this split between U.S. and international, do you think it will be much different than prior films?

Um, let me -- let me take that one.

I think we are looking at a closer relationship that -- to Nemo rather than Monsters in terms of the ratio of international to domestic.

All right.

Um, and Simon, could you tell us the -- kind of rough numbers what do you think the contribution from Monsters Inc. on -- from the broadcast on ABC will be- fourth quarter.

We don't give out the specifics on the broadcasts, Jessica, I'm afraid.

Okay.

And then, um, Steve you know you're not going to get off of this call without a question about your next deal.

So, um, just -- could you talk a little bit about what you think the timeframe will be?

I think we've all kind of been waiting and waiting and waiting.

You did make a comment that you will own 100% of the movies after Cars.

So, um, how much preparation time would a new partner need?

Um, we think that we need to have a deal in place, uh , you know, certainly next year.

And, uh, at this point in time, there's no conversations taking place with Disney about a new deal.

Uh, we're getting to know some of the other studios.

Uh, but we're not in negotiations with any of them at this time.

We're taking our time.

But we're fully confident that we'll conclude a favorable distribution agreement with one of the major studios by the time that we need to.

I don't think there's any --

Can we just tighten the range a bit- next year, that's 2005, like when next year?

Uh, I really can't say more about it at this time.

And then one last question for me and I'll stop.

But, um, there's clearly a lot of interest in doing sequels to more than just Toy Story, um, Finding Nemo, Monsters, Inc. have there been any discussions with Disney in that regard?

We've had some discussions with Disney on that and we continue to have some ongoing discussions with them.

Doug Mitchelson, Deutsche Bank.

Your comment Simon on Disney's change in accounting for home video marketing, I guess I'm wondering what the old rules were and the new rules so we can track that better.

And then for Steve, I mean, you're obviously in an enviable position here-you've got a great track record, great balance sheet, you now have four proven writer/directors.

I'm just wondering how are you thinking about the best way to maximize shareholder value going forward.

Is it to deploy your excess capital in share repurchases or deploy it in increased output.

Do you want me to get that?

They didn't change the -- the accounting method.

What it was is they've been estimating, uh, home video co-op marketing expenses as they would for all titles.

And, uh, we've been -- the estimate has been -- was too high so we've revised the estimate down.

I see.

And then for Steve?

Um, well, I don't think we have excess cash.

Uh, remember, that we're going to be moving into really a -- you know, our third decade as a studio and a new phase in which we're funding 100% of the production costs of our movies.

And, uh, in our negotiations with other studios and in the flexibility, uh, that we'd like to see, it really helps us to have the financial strength to be able to -- to fund our films.

So, um, at this point in time, I think we're using our financial strength to -- to look forward to a -- a new agreement where we will keep a substantially higher percentage of the profits.

And I guess just as a follow-up, any thought on your ability to increase output -- output now that you have four guys who are probably chomping at the bit to get out there with movies?

Well, you know, since these movies take four years to make, you need at least four directors working in parallel if you're going to be at a film a year.

Got you.

Kathy Styponias, Prudential Equities.

I apologize in advance if you've already answered this question, but Steve if you do move, um, your movies to, um, an opening in the summer and I would imagine that, you know, the first movie you'd be contemplating that is with the movie after Cars, would that suggest you would push it into the following year, that is, that 2007 would have no film, or you'd pull it forward so that it would be released in the summer '07 instead of holiday -- I'm sorry, summer '06 instead of holiday '06.

And related to that I know you're still in the midst of figuring out who you're going to be working with.

Um, is it -- are you going to have enough lead time if you do it in summer 2006 to line up your licensing deals?

Maybe you can update us and tell us where you are so far, have you had any discussions with licensees, um?

Sure.

Um, if we decided to adjust to a summer theatrical release and a holiday home video release schedule, we would -- we would be slipping the schedule six months.

And, um, however, that does not mean that we would not finish the films on their current schedules and, uh, and hold them for six months before releasing them.

In other words, it does not mean that the production budgets would grow.

It means that, uh, the release schedules would change.

And, uh, if that made sense, uh, it would only make sense because delaying those -- delaying that income for six months was -- was dwarfed by what we thought would be the incremental income from a more favorable release schedule.

Um, in terms of the merchandising, we've already announced one deal, which is our deal with THQ, that we're thrilled with, for video games, which is one of the largest categories of -- of merchandise for our films.

And as you know, under our current deal with them, which we did with Disney, they're producing games for The Incredibles and for Cars and we're thrilled with the The Incredibles games.

They did a great job on Finding Nemo as well.

So we've already announced that one and we're in discussions with other partners now.

Just a quick follow-up.

Um, so if -- what more data are you looking for in order to make your decision and how long do you think it will take before you -- you make the decision?

Uh, you know, I -- I -- this is one of those things where it's -- it's not -- it's not as -- as crisp as you might like it.

We just -- we're thinking about this, we're discussing it.

I don't have answers for you today on those -- those questions.

David Miller, Sanders Morris Harris.

Steve, I just want to make sure I understand this correctly.

I've been using May of 2005 as this sort of hypothetical bogie at which you have to announce a new output deal if you choose to go that way.

Uh, if you do choose to slip the schedule six months as you're suggesting on this call, does that May '05 deadline therefore revert to December of this year?

And I know you can't answer that directly I just want to make sure I'm thinking about it the right way.

And then secondly, as you may know in the press, uh, there have been reports that Rupert Murdoch could, uh, be buying in the equity stake of Fox-- or the free-floating stake of Fox that he doesn't already own.

Does that affect possible negotiations with personnel at Fox if you choose to use Fox as a potential distribution partner?

Uh, okay.

Well, it -- first question, if we decided to move to a, uh, summer release schedule, uh, and we decided to do it, uh, you know, in a time frame that would affect our film after Cars, then it would give us more time to sign up a distribution partner, not less.

Okay.

And, secondly, I -- I don't think the Fox news would affect how we would view Fox as a distribution partner.

Michael Savner, Banc of America Securities.

I have two questions, one is another follow-up on a new distribution deal.

I guess, based on what you just said, that you have not had any conversations with Disney, and you're not actively having talked with another, uh, potential suitor.

I guess the logical question might be, you know, why?

What are you waiting for if you're not, um, you know, what -- what has to happen that will get you more, um, active in discussions because I would assume that it would only be in your favor to have more lead time than less?

So that's my first question.

Second, and you've always been very consistent with your answers about, um, having no plans to move to more than one film in a 12-month cycle, but could you maybe give us a little, um, clarity in terms of what would have to happen technically if you were just hypothetically to move to more than one film, um, every 12 months?

Uh, sure.

The first question, uh, you know, as observers, uh, it looks like Disney's seeking a new CEO could have several outcomes; one of which is musical chairs amongst the studios.

Some of the other senior people at the other studios have been mentioned as candidates and, uh, so who knows where people are gonna end up.

And, uh, one of the -- you know, one of the things you think about in responsible decision making is to try to make your decision at the last-possible moment so you have the most-possible information and the most up-to-date information before you make decisions like that.

So, you know, this seems to be a time where there could be some -- you know, some musical chairs going on, some change going on and, uh, we might like to see how some of that turns out before making a final decision.

In the meantime, we're getting to know people and, uh, we're learning quite a bit about, uh, the workings of each of these studios and how they work with partners, um, and we're not -- we're not doing nothing.

Okay.

And the second one?

The second part, uh, you know, obviously to turn out over -- to turn out more than one film a year, uh, takes a larger reservoir of creative talent, uh, and a larger reservoir of technical talent and a larger reservoir of production talent.

And, uh, these things are difficult to come by.

We found at our studio that we have to grow, uh, this talent.

Uh, and, uh, very rarely can we go out and hire people that possess it.

So, um, the biggest ingredient is time.

Now, one can always sacrifice quality, but we would rather turn out a film that will be as successful as The Incredibles once a year than something that will be, uh, far less successful twice a year.

William Drewry, Credit Suisse First Boston.

Hi, it's actually Debra Schwartz on for Bill.

I just have one other question about a new distribution deal.

Can you just talk about what your priorities are in evaluating a new -- what your priorities are in evaluating a new -- a new distribution deal in terms of, uh, you know, comparing the different studios?

You know, I'd rather not get into that right now.

Um , we -- believe me, we have our lists and we have our things we look at but I -- I'd really rather not get into that because it's a slippery slope.

Robert Routh, Jefferies.

Just a few quick questions.

Uh, first, I was wondering if you could comment a little bit on the current moratorium on the Toy Story franchise on the DVD side whether or not you expect that to be lifted given that it is the 10th anniversary next year, uh, and I would assume that would be a great time to -- for that to happen.

Uh, second, I'm wondering if you could comment a little bit on management's intentions or lack thereof about potentially splitting the stock.

I know that, uh, you like to keep it at Bircher Hathaway-type levels but it seems as though there are a lot of investors that would love to be investors in the name but at the current price point it makes it very difficult for them and I'm wondering whether management has considered that.

And, finally, I'm wondering whether the Company is considering going into animated television series in the future or whether it's still going to stay to the existing model of one movie per year and that's kind of -- for the foreseeable future where we're going to be?

Great.

Simon, you want to take the Toy Story 2.

Yeah.

Toy Story went to moratorium on April 30, 2003.

So we will start -- we will be starting to talk to Disney about -- about it but I think at the earliest it would be at the end of 2005, possibly 2006.

But, um, we haven't got into any detailed discussions with them yet about that.

Um, we'll check on that and get back to you because the ten-year anniversary does seem like a pretty good idea, doesn't it.

Uh, the other question.

The stock split.

Oh, the stock split.

You know, we kick it around from time to time.

Uh, but we don't really think our stock price is keeping any investors from owning our stock.

Um, most of our investors look to acquire a position measured in dollars anyway.

And, uh, so I -- we don't see any downside to it.

I think the current thinking among, uh -- among the market -- you know, in the market is that -- that, uh, splitting your stock to have a stock price in the 20s or 30s, you know, may be something that's not material anymore.

I mean, look at Google.

They seem to be doing pretty well at a $200 stock.

So we got a long way to go at $80.

And the third part on the TV animation, we haven't got any plans to get into TV animation.

Dennis McAlpine, McAlpine Associates.

I just wanted to clarify the discussion on timing.

Uh, if I'm right, what you're saying is that Cars would still be released next holiday season and movie A would slip by six months.

If that's the case -- or is that the case, and if it is what happens to -- to the plans for starting movie B?

Uh, we haven't really made any decisions on changing our release window.

We're not announcing anything today.

So, unfortunately, you know, we can't really give you any guidance on that because at this point we haven't made any decisions to change anything.

Okay.

Is it fair to say that A -- that Cars could not be moved up till next summer?

We haven't made any decisions on anything and we're not announcing anything today.

Okay.

And then on -- Disney has announced that it is going to start a sequel for Toy Story, whatever we want to call it, Toy Story 3.

To what extent do they -- do they discuss, uh, the sequel with you and what sort of involvement will you have since you're not going to be financially tied into it.

Well, contractually we would get a passive royalty if we do not produce the film and we have had had some discussions with Disney about that and we continue to have discussions with Disney about that.

But you would not be involved in doing any of the stories or -- or anything else?

At this time, we are not.

Spencer Wang, JP Morgan.

Um, Simon, can you just give us a sense of what the final negative cost was for The Incredibles?

And, uh, in terms of the full-year guidance for 2004, what type of, um, you know, drop-off in the second weekend box office would that -- is baked in your assumption?

Spencer, I can't give you an answer to either of those questions.

You know, we don't comment on what the negative costs are of the films and, uh, you know, you'd have to figure on your own models in terms of what you expect the box office to drop over this weekend.

Anthony DiClemente, Lehman Brothers.

Just two quick questions.

How does the 2006 competitive release play into your decision about shifting schedule?

And then second of all, just with respect to capital allocation, you have $833 million of cash on the balance sheet.

Um, presumably if the schedule's flipped a little bit that -- you know, that might actually -- you look at the time period where the cash would be sitting on your balance sheet.

Have you made any sort of headway and decisions?

Is a special dividend, something that you're considering, um, or not?

Uh, the competitive schedule in 2006 I'm sure will be pretty similar to that in 2007 and 2008 and 2009.

So we live in a competitive, you know, marketplace and I think, uh, we're just assuming whenever we release our films it's going to be pretty dog gone competitive.

So I -- 2006 competitive slate is not a material factor.

Um, secondly, uh, we have no -- you know, we have no plans at this time for any special dividend.

Uh, we think having the cash that we do in the bank, uh, is -- is gonna be, uh -- is gonna enable us to finance our future and we think that that's in the best interests of our shareholders, to give us that -- give us those resources so that we can really grow this -- continue to grow the studio.

Gordon Hodge, Thomas Weisel Partners.

In your comments about the fourth-quarter for the -- or 2004 guidance comments, I gather-- you referenced possibly selling 46 million units home video for Finding Nemo.

So that would imply about a couple million in the holiday period, is that what you're assuming in the guidance, or is that something you're hoping happens and could be upside?

No, I'm assuming that's in the guidance.

And then, um, curious, you know, you mentioned the -- on the distribution -- the distribution deal, uh, the notion of musical chairs in the media business, which seems to be a recurring theme.

I'm just wondering, is it something you'd entertain at all the idea of, uh, just doing your own distribution so you're not at the mercy of some of these personnel changes, or would that just be too cost prohibitive?

Thanks.

With a film a year, uh, or -- it -- it doesn't make sense to own the cow when you can -- when you can buy the milk.

Peter Mirsky, Oppenheimer.

I don't want to put words in your mouth but you mentioned midweek box office as it relates to the timing decision on when to do releases, and I know it's still early, but are you disappointed with what The Incredibles has done so far this week?

I know yesterday was quite a bit better than Monday and Tuesday but they are something of a far cry from what Nemo did.

Actually, we're pretty pleased with the midweek box offices.

Midweek has been very -- I -- right what we would expect.

Pretty comparable or maybe a little better than what Monsters Inc. did, right.

Correct.

Oh, yeah we're --I mean, we're quite happy with the performance of The Incredibles so far.

Steve Lidberg, Pacific Crest Securities.

First I was wondering if you could provide any type of progress report with the 2006 movie?

And then, secondly, as you look at, um, some of the new opportunities that are opening up with new distribution channels, i.e., mobile, what kind of opportunities are you seeing there?

Let me get the second one first and then we'll take the first one.

Uh, we are trying to take advantage of some of the mobile opportunities as an example, uh, in our deal with THQ; together with them, uh, we are planning to take advantage of some of those opportunities.

And in our current deal with Disney, Disney is leveraging some of our -- our films into the mobile space.

So we think that is a good market and we want to make sure that we're participating in it.

And right now that's through partners like Disney and THQ.

Um --

2006 film.

Oh, the 2006 film.

We're making great progress on the 2006 film.

And, uh, I think it's going to be terrific.

Uh, at some point, we would like to announce not just our 2006 film but a film or two beyond that and I would expect that -- that that would happen in the next year.

So, uh we'll have some great stuff to talk about when that day comes.

Katie Manglis, Bear Stearns.

I have two questions.

The first one is whether you're seeing any downward pricing pressure on home video pricing in the U.S. market?

And I know you've had actually sort of the opposite impact or you were in the -- in the international market.

So I'd just like a little bit more color on that.

And in terms -- going back to the question on competition, um, can you talk a little bit about what it means, um, not just in terms of release dates, because I think next year we can count probably around seven or eight CG movies -- CG animated movies coming out; but also in terms of competition for creative and technical talent?

Okay.

Let me -- let me take the video pricing.

In the U.S. we're not seeing any pressure on our pricing, Disney and ourselves are not seeing any pressure on the pricing of our movies.

And actually, contrary to what you said, Kathy, I think internationally there are some markets where the pricing is coming down and we're benefiting from seeing much higher volumes.

And I can, you know, specifically give you the -- the example of France.

So, you know, there are places where you want to see the prices come down and that's gonna start driving volume.

As far as competition for talent, um, Pixar enjoys being the mecca for -- for people with talents in animation and in the technical areas.

And we're very lucky to be approached by literally thousands of people a year that want to work at the studio.

We also very proactively recruit out of -- out of the major art schools and also the major technology schools.

So we're able to hire really outstanding people at the studio.

And our turnover is extremely low.

So we -- we don't see, um -- we don't see any real concerns there.

And you're not thinking at all about outsourcing any of the -- the technical or creative business.

It's impossible--

Right.

--to even think about that because, uh, you know, we're -- we've invented this whole medium of 3-D computer animation and we continue to pioneer it.

As I said before, I -- I don't think you can really point to anyone who can come close to putting things on the screen that we can.

And that's because of our -- of our creative talent that -- that thinks -- that dreams it up and our technical talent that makes it come to life on the screen.

So -- yeah.

It's impossible to farm it out, uh, and -- so we've never thought of that.

Ralph Shacker (ph), William Blair.

It sounds like the sneak preview in Taiwan tested a little bit better than you anticipated.

Do you think that the superhero theme has perhaps broader appeal internationally than you originally anticipated?

We anticipated that it would have a pretty strong appeal internationally, and I think that's going to be borne out.

I think the international results from The Incredibles are going to be very strong.

And please go ahead with your closing remarks.

I think -- thank you all for joining us and we look forward to talking to you again next year.

And we hope you've all seen The Incredibles at least three times by now and are planning to go again this weekend.

Thank you very much.

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