索尼 (SONY) 2003 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Metro-Goldwyn-Mayer second quarter 2003 earnings conference call.

During the presentation, all participants will be in a listen-only mode.

Afterwards, we will conduct a question and answer session.

At that time, if you have a question, please press the one followed by the four on your telephone.

As a reminder, this conference is being recorded Tuesday, July 22nd, 2003.

I would now like to turn the conference over to Joe Fitzgerald, Executive Vice President of Investor Relations and Corporate Communications.

Please go ahead.

Hello everyone.

I have Alex Yemenidjian, Christopher McGurk and Daniel Taylor with me.

Today they will each make some brief comments before we go to Q&A.

I just wanted to make two quick announcements, one a reference to the safe harbor language in our press release regarding forward-looking statements that applies to comments on this call.

Secondly, the call is being webcast at both MGM.com and streetevents.com.

With that, we'll get going.

Alex?

Yes, good morning, everyone.

This is our second quarter of reporting cash flow, which under generally accepted accounting principles is called net proceeds provided by operating activities.

So every time that we refer to the term cash flow on this call, we are referring to the GAAP term, as required by the SEC.

As you undoubtedly saw in our earnings release this morning, we remain ahead of schedule in generating cash flow.

For the first two quarters of this year, our cumulative cash flow is $159 million, which is more than the upper end of our guidance for the entire calendar year 2003.

As I did on the last earnings call, I would encourage you again to look at cash flow on an annual basis, since any period shorter than 12 months could be misleading due to timing differences between calendar quarters.

Because we are so far ahead of schedule in generating cash flow so far this year, we expect the third quarter cash flow to be negative and we also expect to return to positive cash flow in the fourth quarter.

During the quarter, we used $13.7 million of our cash flow for our stock buyback program, and our balance, our cash balance increased to just under $1 billion.

As always, Dan will give you more texture on cash flow and earnings.

During the second quarter of this year, the MGM Networks International Channel business continued to make strong progress.

Major highlights of the quarter included the launch of our German language channel in Germany and Austria on April 1, which we discussed on our last earnings call.

As of May, 2003, and I don't have the June numbers yet, our German language channel was reaching approximately 1.8 million subscribers.

We also have taken advantage of a key opportunity in the U.S. in the growing Hispanic television market.

In June, we announced that MGM Networks Latin America had entered into a carriage agreement with DirectTV to offer its Spanish language Casa Club channel for the first time to U.S. subscribers.

Casa Club is now being received by approximately 300,000 U.S. subscribers in addition to the several million subscribers it reaches across Latin America.

Before turning it over to Chris for his update on operations, I want to briefly discuss two other subjects of interest, the sale of the Rainbow Networks and Vivendi Universal Entertainment.

The sale of the Rainbow Networks was announced on June 30th, and the transaction closed four days ago, on July 18th, when we received the first of two of installments of $250 million.

Our objective was to acquire 100% of these networks.

After several attempts to do so over a two-year period, when it became clear the required price would test our financial discipline, we decided to sell our interest instead, because at that point, it was no longer strategic and because we believed that we have found better alternatives for the allocation of that capital.

These strategic decision to become debt free, which opens up a lot of options and opportunities for us, was more important to us than the sale price.

Cash on cash, we suffered a loss of $35 million, which is insignificant when compared to the opportunities that are facilitated by our current liquidity.

This is a great time to be debt free, and to be generating a lot of cash flow.

The last item I want to discuss is our ongoing dialogue with Vivendi Universal Entertainment.

There's a lot of talk on this bidding process, and most of it is very confusing.

As is typical in high profile transactions, there are more rumors than facts.

As you can appreciate, we are limited in what we can say about VUE.

However, as I have said repeatedly in the past, we are not prepared to overpay for VUE or for any other asset, for that matter.

If we are unsuccessful in acquiring VUE, or if we are successful in acquiring VUE, it would only be in the context of a transaction is very accretive and creates a lot of wealth for our shareholders.

Conversely, if we are not successful in acquiring VUE, then I will immediately recommend to our board of directors that we reward our shareholders by sharing some of our company's wealth with them.

So either way, whether we are successful in acquiring VUE or not, we expect our shareholders to be handsomely rewarded.

For obvious reasons we will not be taking any questions on VUE today.

Chris?

Thank you Alex.

Let me start by listing five recent operating highlights.

First, in June, "Die Another Day" became by far the biggest Home Entertainment release in MGM history, more than doubling the performance of the last Bond title.

Our Home Entertainment U.S.

DVD library market share has continued its steady climb in year, increasing two share points to 19%.

We are now only one share point away from the industry lead, and eight points ahead of our next nearest competitor.

Third, we have generated extraordinary results from our new international Home Entertainment self-distribution operations, increasing our library volume by almost 80% in three key territories.

Fourth, we launched a critically acclaimed TV series on Showtime called "Dead Like Me."

That has generated the highest ratings on the network every day it has aired in both new and repeat airings.

Fifth, "Legally Blonde 2" has generated over $76 million at the domestic box office after 20 days of release, and will be one of our most profitable films ever.

These highlights from across all of our core businesses underscore why Alex and I are so confident about the company's continued operating momentum and strong outlook for the rest of this year and beyond.

I'd like to expand on this by briefly describing our progress in each of our core businesses during the quarter.

I'll start with Home Entertainment.

MGM shipped over 37.8 million worldwide DVD and VHS units in the second quarter, an 80% increase from the second quarter of 2003.

Shipments of worldwide DVD units alone surged 107%, due in part to the unprecedented global success of "Die Another Day."

Shipping over 16 million DVD and VHS units by the end of this year, “Die Another Day” is now MGM's best selling title of all time.

We've also shipped almost 16 million units of the Bond library since last October.

Other strong performers in the quarter included the repackaged Collectors’ Edition of "Dances With Wolves," “Stargate SG 1,” “Road House,” “The Terminator” and “Care Bears.” These diverse titles helped drive MGM's U.S.

DVD library market share up another point from last quarter to 19%, as I just mentioned.

And, in a move that will help ensure a strong continued growth from our library, we announced in May we will assume full control of all international Home Entertainment operations including complete direct distribution in the United Kingdom, France, Germany and Australia, where Fox was previously providing back office or full distribution functions for us.

Combined with Canada, where we started full distribution at the start of this year, this initiative gives MGM direct control of more than 90% of worldwide Home Entertainment volume and will enable us to completely apply all of the learning and success from our self-distribution operations in the U.S.

Already we've begun to see significantly enhanced performance in the territories where we have assumed greater control.

Combining Canada with France and Germany, where we took over sales and marketing control earlier in the year, our library revenues were up 79% in the second quarter in these territories, significantly ahead of plan.

Obviously, this self-distribution expansion will be a key growth driver for MGM, since DVD player penetration overseas remains at roughly one-half of the U.S. level, where player penetration will only have reached about 50% by the end of this year.

So there should be many years of substantial growth to come.

At another move that demonstrates the continued execution of our library management strategy, we concluded a significant new TV library license agreement with Rainbow Media.

This deal also retains great flexibility for any future licensing or strategic activities.

In television production, our goal of broadening our programming base while maintaining a disciplined risk reward profile continues to generate success.

As I mentioned previously, we premiered our critically-acclaimed and highly-rated new Showtime series "Dead Like Me," on June 27th, the start of a 12-episode order.

Season seven of “Stargate SG-1” premiered on the Sci-Fi Channel on June 6th to record rating for the network.

Season eight of this very profitable MGM franchise will begin production next February, bringing our total episodes to 174.

We are also in final negotiations with Sci-Fi to launch a spin-off series, “Stargate Atlantis.” Also on Showtime, season two of “Jeremiah” has completed production and will premiere in September. “The L word,” a Showtime series we distribute internationally is currently in production, and will premiere January, 2004. “She Spies,” last year's highest rated new first-run syndicated hour, began production on season two on July 12th and premieres this September.

The show has been cleared in 97% of the country.

And on the broadcast networks, tomorrow we will complete a 12 episode run on NBC of "Fame," a reality show based on our film library classic.

Other successful MGM movie titles we are currently developing for network series are “Legally Blonde,” ”Barbershop,” and ”The Thomas Crown Affair,” which is currently being written for NBC.

In film entertainment, our franchise development strategy came into full focus July 2nd with the release of "Legally Blonde II."

As I mentioned, the film has now grossed over $76 million domestically, 19% ahead of the original at the same point in release.

With a DVD release for “Legally Blonde II” scheduled in the fourth quarter, we are very confident that this modestly budgeted film, carefully targeted at its audience in the middle of much more expensive summer releases, will become one of MGM's most profitable films ever.

We have five other releases from MGM and United Artists between now and the end of this year, all of which clearly have the advantage risk reward profile that has become the hallmark of our release schedule.

The three MGM releases on this schedule have an average net investment of less than $25 million, while the two United Artists releases on the schedule have an average investment of less than $5 million.

From MGM, our next release is "Uptown Girls" a comedy featuring Brittany Murphy and Dakota Fanning, which comes out on August 15th.

After that, we have "Out of Time,” the thriller starring Denzel Washington on October 3rd, and then "Good Boy," a family comedy produced by the Jim Henson Company, on October 10th.

From United Artists, we have "Jeepers Creepers II" set to premiere on August 29th, and then the Sundance sensation “Pieces of April” on October 17th.

And as Alex detailed, our fourth core business, MGM Networks, continues to evolve around the globe.

So to conclude, we are in excellent operating shape.

All of our core businesses are delivering strong results, and are on target to hit the cash flow objectives we set for this year and beyond.

Dan?

Thank you, Chris.

Good morning, everyone.

At the outset, I want to reiterate how pleased we are that net cash provided by operating activities in the second quarter increased by $73.8 million over last year's second quarter.

I'd like to discuss our second quarter operating performance and cash flow, and then update our guidance for the full year.

With respect to operating performance, our second quarter revenues rose 45% to $488 million, with a significant contribution from our Home Entertainment Group.

In the second quarter of 2003, worldwide Home Entertainment revenues increased 72%.

We also had better performance from our film slate compared to our 2002 slate.

This combination of higher DVD sales and better film performance are the major factors that reduced our second quarter operating loss by $89 million.

Please note that our second quarter results include a nonrecurring charge of 3 cents per share related to our transition to self-distribution in the international Home Entertainment market.

Regarding the reported corporate overhead increase in the quarter, it is important to note that the change was not due to higher than expected expenses this year.

Anticipating the likely question, the move to our new building did not result in a material change to our overhead costs.

Rather, this year-to-year change was due to credits that reduced last year's second quarter corporate expenses, primarily related to mark-to–market accounting for our deferred compensation plans.

After excluding the one time charge related to the sale of our interest in Rainbow, our net loss per share was 17 cents.

On cash flow, our strong second quarter cash flow was due primarily to increased receipts across all of our divisions, coupled with marginally lower production spending.

Film and television amortization costs were. $145.9 million in the quarter, offset by approximately $100 million in production expenditures.

With respect to guidance, looking to the full year 2003, we are still forecasting positive net cash flow of $100 million to $150 million, consistent with our prior guidance.

As Alex mentioned, we're currently way ahead of schedule.

However, we'll experience negative third quarter cash flow primarily because of the concentration of releasing costs for five wide theatrical releases, starting with the very successful "Legally Blonde II," and as Alex already commented, we will return to positive cash flow in the fourth quarter.

Clearly, we're off to a very strong start towards achieving our previously announced four-year goal of $600 million to $900 million in cash flow from 2003 through 2006.

As you know, we don't normally give quarterly guidance, but in reviewing the first call estimates, we thought more clarity on the remainder of the year would be helpful.

We now expect to report a third quarter per share loss in the range of 14 to 17 cents.

For the fourth quarter, we expect to report positive earnings per share in the range of 18 to 21 cents.

I want to point out our original per share guidance for the year included a profit contribution from our interest in the Rainbow Channels.

Even without the contribution from these channels, which we had previously estimated to be 9 cents, we will still expect to report an earnings per share loss in our original range of 28 to 38 cents that we disclosed in February.

So we are on track to finish ahead of our business plan for the year.

Operator, you can now open the call up for questions, please.

Thank you.

Ladies and gentlemen, if you'd like to register a question, please press the one followed by the four on your telephone.

You will hear a three-tone prompt to acknowledge your request.

If your question has been answered and you'd like to withdraw your registration, please press the one followed by the three.

If you're using a speakerphone, please lift your handset before entering your request.

One moment, please, for the first question.

The first question will come from the line of Robert Routh with Natexis Bleichroeder.

Please proceed with your question.

Good morning.

A few quick questions.

First, with respect to the 400 title licensing deal you signed with AMC, IFC and WE, I'm wondering whether or not that was part of the sale of your 20% interest to Cablevision and if so, if in reality the price that you received for that 20% interest is really a little higher than it looks like on paper because of that deal, because it would seem as although those two would go together although they could be mutually exclusive.

Second, regarding Alex's comment, that in the event you're unsuccessful in the VUE bid you're looking to find a way to reward your shareholders.

I’m wondering if you can at least comment that internally you do have a plan in place that you are ready to act on as opposed to just sitting down and trying to figure something else out that could increase the value of the equity in the public markets.

And third and finally, regarding the full year guidance, I'm wondering, Dan, whether your EPS estimate, does that include the one-time charges or that does not include the one-times?

Let me take the last question first, since it's a very short answer.

The full-year guidance includes all of our activities except for the loss that we recorded on the sale of Rainbow.

So yes, any other charges are included in that estimate.

Great.

In terms of your first question, this is Chris.

On the Rainbow deal, no, it was not connected to the sale of our interest in Rainbow.

We actually started negotiating it a long -- at least a year ago.

We can't give you any specifics on the deal because it's subject to an NDA.

I will say we're happy with it, it’s a large licensing deal, but as I said in my remarks, it gives us great flexibility in the terms of the way we structure the deal to pursue other licensing arrangements or channel opportunities if they present themselves.

And Robert, regarding your question regarding returning wealth to our shareholders, I haven't really decided exactly what I will recommend.

We're sort of focused on other things at the moment, as you can imagine.

In the past, I have twice before recommended in another company that I was at, tenders at a premium, at a significant premium, and that has usually been my preferred method of, or vehicle, if you will, of returning wealth to our shareholders, but in this particular context, I really haven't decided what I would recommend, and just leave it at that.

Great.

Thank you very much.

The next question will come from the line of Jeff Logsdon with Harris Nesbitt Gerard.

Please proceed with your question.

Thank you.

Dan, could you go through just a quick P&L on the Rainbow investment?

I think you put you paid about $825 million in.

You got about $250 million for Bravo.

You're pulling out another $500 million.

There were some dividends or profits on the way, and can you kind of do a quick P&L on Rainbow for us?

Sure.

I think you covered most of it.

We put in $825 million when we made the original investment.

We received $250 million in proceeds from Bravo.

We also received $40 million in cash distribution from operations, and then $500 million on the sale of the other three channels, which means we got cash out of $790 million, which is, gives us the small $35 million cash on cash difference.

Great, thanks.

Next question will come from the line of David Miller with Sanders Morris Harris.

Please proceed with your question.

Yeah, hey, guys, congratulations on a solid quarter.

Dan, I take it that even though your balance sheet is of net debt zero status, you still won't pare down your debt balance at this time for fear of penalty.

Just want to confirm that.

Alex, the 19% figure on DVD library market share in your press release, does that now surpass Warner Brothers or are you still second behind Warners in that record regard?

With respect to the debt, there is no penalty for prepayment under our debt.

We will obviously consider debt repayment as one of our options, particularly since there's some negative arbitrage associated with keeping that cash in the bank.

David, this is Chris.

In regard to your second question, the 19%, we're one point behind Warner Brothers.

They're at 20% right now.

So, we’re number 2, one point behind, and eight points ahead of our next nearest competitor.

Wonderful, thank you.

The next question will come from the line of Jessica Reif-Cohen with Merrill Lynch.

Please proceed with your question.

Thank you.

In getting back to your international distribution rates for home video, did you have to pay Fox cash?

Dan mentioned it was a three cent aftertax charge.

And secondly, Alex, if you don't get Universal, could you address the landscape for acquisitions?

It sounds like you're going to return some money to shareholders one way or another, but what would your appetite be and what things might you be looking at.

Let me take your second question first.

As we have stated before, Jessica, our focus will be on allocating our excess capital to the acquisition of distribution assets, so that we can become more vertically integrated and we can further diversify our revenue streams.

Obviously we can't discuss specific opportunities but our focus hasn't changed and we have the ability to do that and to return some wealth to our shareholders, so those are both mutually exclusive opportunities.

With respect to international distribution, yes, the charge I was talking about was the accrual of the payment that we'll owe Fox in the first quarter next year.

They're finalizing the settlement with Fox as well as working on having Fox continue to distribute in some of the territories for us and provide other services.

I just want to point out though, the payback on the change of self-distribution is very quick.

We actually will be ahead of schedule, I mean ahead of the costs associated with the transition by the third quarter next year.

So very quick payback.

Thank you.

Your next question will come from the line of Jill Krutick with Salomon Smith Barney.

Please proceed with your question.

Thank you very much.

Good morning.

I'm curious about MGM's thoughts on the disposable DVD, what you think that may, whether that would be successful and how that might affect the market.

Secondly, you mentioned one key DVD release coming in the fourth quarter.

Can you perhaps tell us whether other key releases are coming in the next couple quarters and Alex, I'm curious if you could share with us some of your thoughts on why Vivendi would be interesting to you.

I know you don't want to address it maybe directly, but maybe indirectly would even be helpful.

Thank you.

This is Chris.

The disposable DVD test is obviously an interesting initiative.

We're going to watch it and be ready to seize the day, as is warranted.

In terms of our DVD releases over the balance of the year, again, we've got a robust release schedule out of our catalogue between now and the end of the year.

The two key new titles that we have going out are “Agent Cody Banks” in the third quarter, which we have high expectations for, and "Legally Blonde II" in the fourth quarter.

And obviously, we also have “Bowling for Columbine,” the smaller release that we think is going to do quite well on DVD.

Thank you.

Jill, regarding your question on VUE, obviously I'm eager to answer your question, but we've been advised by counsel not to discuss that subject, so I'm sure you understand.

Okay, thank you very much.

Your next question will come from the line of Anthony Noto with Goldman Sachs.

Please proceed with your question.

Thank you very much.

The TV production line obviously saw very strong growth and performance, and given the focus that you have on developing shows behind franchises like “Legally Blonde,” ”Barbershop,” and “Thomas Crown,” could you comment on the growth potential of the TV production line, given these three initiatives as well as potential additional benefits from "Fame" and "Dead Like Me"?

And then also in that context, if you're developing television production for “Legally Blonde,” does that eliminate the potential another sequel under that franchise?

And then second question is under free cash flow, I know that you're obviously ahead of your full year estimates and you've given some context on free cash flow for the third quarter being negative and fourth quarter being positive.

Is the implication that you believe the fourth quarter will be more negative than the third quarter positive and you're still in the range of being conservative in your estimate for the full year free cash flow and not being above the high end of the range?

Thanks.

We’re being accused of sandbagging! (Laughter.)

In regards to the first part of your question on TV, obviously we're very pleased where our TV division is right now in terms of the number of shows that we have both on the air and in development.

And as we've said repeatedly, we've structured that business in a way that we've kind of eliminated the huge deficit financing that a lot our competitors have had as they've approached the business.

We expect a slow and steady increase in operating profit contribution and cash flow contribution from our television division as these shows continue to be successful and build episodes.

In regard to "Legally Blonde," we are pursuing our television series opportunity right now with ABC.

We set that up well over a year ago.

We're going to address that now.

It doesn't preclude the possibility of doing another sequel in the future.

We don't have anything specific set up for the third “Legally Blonde” right now but we’re not ruling out the possibility if the stars line up for it.

And the final question you had regarding free cash flow, yes, we are forecasting, as I mentioned, that we're still in the range of $100 million to $150 million for the year.

We have -- and the reason why in part is because we have more production cost in the second half of the year than we had originally planned.

We're actually ahead of cash flow because of the strong receipts from our various businesses, including our library cash flow.

So if anything, I would say Alex says we're sandbagging.

I say we're being appropriately careful, and the bias would be up on cash flow if there were any changes.

Great, and if I could ask one other question about Movielink.

I know it's still early, but how has the progress been there in developing a viable alternative to piracy down the road, and can you talk about challenges you've noticed early on and early response to consumer appeal?

Thanks.

You know, on piracy, we've had the four-pronged program we've worked with the entire industry on, you know, which is legislation, education of the consumers, developing an appropriate commercial alternative, and you know, obviously just enforcing the laws.

And you know, piracy is always out there.

It's not affecting our business today.

It's different than what the music industry suffered just because its consumers have to make an affirmative choice to do something.

As you know, we're in our partnership with four other studios in Movielink to make sure we develop the internet-based delivery system that will be a viable commercial alternative to piracy.

So again, piracy will continue to be out there, but we're comfortable that we're addressing the issues appropriately.

Okay, thank you.

Your next question will come from the line of Mike Gallant with CIBC World Markets.

Please proceed with your question.

Yeah, I was actually going to go down the sandbagging path but since that question's been asked, I was wondering if you could talk a little bit, you know, now that you continue to kind of buy in some of your international distribution, could you talk a little bit about how we should think about the cash operating expenses going forward, particularly with you spending a little bit less money on making new films this year compared to last year, and maybe even a little bit less next year.

Could you give us a handle on how that that's going to play out?

Cash operating expenses associated with distribution will be down because the increased overhead required for an internal organization is clearly much less than the third party fees we pay, and you couple that, of course, with the higher receipts that we get just by controlling the whole distribution chain.

In terms of production expenses, we're not planning on being down next year over this year.

We've got a consistent plan for production expenses going forward, and as always, production can vary, based on having the right material at the right time, and then making the appropriate decisions, you know, when Chris and Alex look at our opportunities to produce movies.

Okay, great.

Thanks.

Your next question will come from the line of Raymond Katz with Bear Stearns.

Please proceed with your question.

Yes, thank you.

Good morning.

Alex, can you expound a little bit on VOD, where you are with it now conceptually?

You've talked about it in the past.

Are there any changes in your mind as to day and date release or the way the market is or is not developing?

Ray, I don't say many changes since we last talked about this subject.

I think that all of us are making VOD rights available in the pay–per-view window right now and I think that that's the right thing to do.

As you know, the home video window between rental and sell-through is about a $23 billion business.

And I think that this windowing that we have right now works very effectively.

I think that VOD, and you have seen it as well, is beginning to take root, based on many content providers such as ourselves, making deals with cable operators, and I think consumer behavior is beginning to start changing in that direction.

I think it's an evolution, it’s a process that's going to evolve over a period of time, and I think it's going to be a very meaningful revenue stream, again in the pay-per-view window, and I think all of us are being very smart to stick to that window, even though we get a better split between us and the cable operator if we agree to accelerate it to the home video window.

So, nothing has changed, except very clear progress in terms of the consumer, in terms of the content providers and in terms of the cable operators.

Thank you.

Your next question will come from the line of Spencer Wang with JP Morgan.

Please proceed with your question.

Hi, good morning.

I was just wondering if you could give us a sense, year-to-date for your DVD revenues, what percent is sell-through versus rental?

And as DVD penetration has broadened out, has there been any sort of major shift in terms of how people consume DVD, i.e. sell-through versus rental?

And lastly, can you give us a sense of where you think sell-through pricing on DVD is headed for this year and next year?

Thanks.

Spencer, I don't have the sell-through versus rental numbers handy.

I'll get back to you later on that.

With respect to DVD price points we are finding that price points are the same period over period.

We're seeing a continuation of the stable and consistent DVD pricing trend.

Retailer discounts don't affect our wholesale pricing to retailer, and I think you've seen certain retailers, depending on their other businesses, use DVDs as strong draws to consumers, as well as taking advantage, you know, other retailers of the impulse purchase trend that has begun in that marketplace.

Have the discounts changed much, Dan, do you know?

Sorry?

Have the discounts changed much on a year over year basis?

I don't know if you know that.

No, they have not.

That's my point.

Our price structure has remained consistent, so we're very pleased that we're continuing to benefit from a very strong market and a market that, for the foreseeable future will benefit from more hardware units being sold into consumers, increasing that audience for the product.

Thanks.

Next question will come from the line of Michael Kupinski with AG Edwards.

Please proceed with your question.

Thank you.

Recognizing that "Legally Blonde" is very successful from a profit standpoint, it seems that the film was a little hopeful to be a little stronger in order to drive that franchise for the television series.

I know that you still mentioned "Legally Blonde" as a possibility, but has ABC backed off a little bit from the series?

It seems like they might be stumbling a bit.

And then, finally, can you talk about share repurchases.

Are there any restrictions at this point?

Do you plan to continue to buy back stock in this quarter and into the balance of the year?

Let me take your second question first, Mike.

This is Alex.

We are restricted, as you know, we have been restricted for awhile from share repurchases, and on account of some other activities that are going on in the company, which I'm sure you read about from time to time, we are restricted from acquiring stock in the open market at this point.

I don't exactly know how long that restriction is going to go on, but we haven't bought stock in the open market for quite some time now because of those restrictions.

We still have -- hold on, I'll tell you.

We still have about 2.5 million shares remaining in the original 10 million share authorization for our stock buyback program.

In regard to your first question on "Legally Blonde," again, as I said, we're extra ordinarily pleased with the performance of “Legally Blonde.” From a profitability standpoint, it's a home run.

I think one of the things you have to remember is that “Legally Blonde’s” appeal is very targeted.

It's a very, very targeted movie against the female demographic and against the young female demographic.

Both movies were a grand slam home run in terms of that demographic and their appealing to that demographic and that's something that ABC obviously is looking at as we develop the series.

So we'll see.

Obviously, the series isn't going to go forward unless both we and ABC are 100% pleased with the creative quality of it, both the written material and also the casting, but I don't think their fervor is diminished one bit and ours certainly hasn't.

Okay, thanks.

As a reminder, ladies and gentlemen, to register a question, please press the one followed by the four on your telephone.

The next question will come from the line of Bill Drewry, with Credit Suisse First Boston.

Please proceed with your question.

Hi, just a quick question on next year, given we're now into the second half.

Do you have any visibility on the slate as far as potential projects and/or just numbers that you're using for planning purposes?

Well, I'll run through the projects and maybe Dan can give you a sense of the spend year over year if that's what you're asking?

That would be perfect.

I think the two key titles we're going to have on the slate next year that you’ve heard about already are “Barbershop II,” the sequel, which just started shooting in Chicago and should be released in the first quarter, which will feature the original cast plus Queen Latifah in a small role.

And then at the end of the year, we're very hopeful that we'll have a spin-off, “Beauty Shop,” starring Queen Latifah.

So, hopefully that will be ready for Thanksgiving or Christmas.

Those are at both ends of the release slate next year.

We've also got “Walking Tall,” an action film staring The Rock.

We've got the sequel to “Cody Banks,” staring Frankie Munez, which should be available in the second quarter, and we’ve got a number of other films in the slate as well.

But I think those are the key titles we've identified so far.

With respect to production costs, 2004, you know, again subject to the opportunities for material that comes in front of Chris and Alex, you know, we're looking at spending approximately the same in terms of MGM's net investment.

Great, thank you.

The last question will come from the line of Robert Routh with Natexis Bleichroeder.

Please proceed with your follow-up.

One quick follow-up.

Could you give us an update as to what your current library valuation is and tell us what movies or television productions are not included in that number, and also, if you could give us a sense as to, if you have it, any appraised values to what your international networks are worth or at least internally what you think they're worth, considering the public market's probably give you no value for them, as they didn't for the Cablevision networks.

Well, Rob, this is Alex.

I don't think that we do actually value our international networks separately.

As we mentioned before, they're doing very well, and the strategy there is two-pronged.

One is to launch the channels for the positive EBITDA and cash flow that they can generate as they become more mature in their particular territories, but secondly, every time we launch an MGM branded channel internationally, we create a new customer for the MGM library, and therefore, we generate a whole bunch of cash flow and growth in library cash flow.

So because of that, because there is a two-pronged strategy there, we don't bother to value the channels separately, because they generate value to the library cash flow, as well as separate value in terms of their own standalone existence.

With respect to library valuation, as you know, we do get an appraisal of our library assets for purposes of our credit agreement.

Our credit capacity is $1.75 billion and we're required to have a library cash flow equal to at least twice that.

As you can imagine, we negotiated that covenant making sure we'd have a tremendous amount of cushion.

But however, the valuation itself is subject to an NDA, so I can’t really go into detail there.

It's the library value that has to be twice that, not library cash flow.

I’m sorry, did I say library cash flow?

Library valuation has to be more than twice our debt capacity.

(inaudible) half million dollar valuation and we have a very significant cushion above that number.

And could you give us a sense as to what titles are not in your most recent valuation?

Any title not released after 1/1/03 would not be in there, as well as any of our, you know, sequel rights and all of that sort of stuff, so the Bond franchised potential new movies and stuff like that.

Uncommitted television as of the beginning of the year is not included in that valuation.

So for instance, season eight of “Stargate,” the unproduced episodes on "Dead Like Me," and ”She Spies,” all of that stuff would not be included either.

Great.

Thank you very much.

That does conclude our question and answer session.

Gentlemen, I will now turn the conference back over to you.

Thank you, one and all.

We'll speak to you very shortly.

Ladies and gentlemen, that does conclude your conference call for today.

We thank you for your participation and ask that you disconnect your lines.