REGAL ENTERTAINMENT GROUP. Moderator: Don DeLaria October 26, :30 a.m. CT

Transcription

1 Page 1 REGAL ENTERTAINMENT GROUP October 26, :30 a.m. CT Operator: Good day everyone, and welcome to the Regal Entertainment Group third quarter 2004 earnings conference call. This call is being recorded. With us today is Mr. Mike Campbell, Chief Executive Officer, Theater Group and Co-CEO of Regal Entertainment Group; Mr. Kurt C. Hall, President and Chief Executive Officer of Regal CineMedia and Co-CEO of Regal Entertainment Group; and Amy Miles, Chief Financial Officer. At this time, I would like to turn the call over to Mr. Don DeLaria, Vice President of Investor Relations. Please go ahead. Don DeLaria: Hi and good morning. Before we begin today, I'd like to remind our listeners that this conference call contains forward-looking statements within the meaning of section 27A of the Securities Act of 1933 as amended and section 21E of the Securities Exchange Act of 1934 as amended. All statements other than statements of historical facts communicated during this conference call may constitute forward-looking statements. These forward-looking statements involve risks and uncertainties. Important factors that can cause actual results to differ materially from the company's expectations are disclosed in the risk

2 Page 2 factors contained in the company's annual report on Form 10-K dated March 16 th, All forward-looking statements are expressly quantified in their entirety by such factors. Now I'll turn the call over to Mike Campbell. Mike Campbell: Thanks, Don. And welcome and thank you for dialing into our third-quarter conference call. Today I will provide an overview of the industry's a Regal's third-quarter results, an update regarding Regal's recent acquisition of Signature Theaters, and our expectations for the fourth quarter of Following my remarks, Kurt Hall will provide an update on our Regal CineMedia business, and Amy Miles will provide a summary review of our financial results. As always, we will conclude the call with a question and answer session. Now turning to industry results. Industry box office in July increased 10.7 percent from July Benefiting from a successful opening and solid performance of "Spiderman 2," which outperformed the top grossing July 2003 film "The Pirates of The Caribbean." In Regal's fiscal August period, industry box office declined 9.2 percent from August Solid performance of films released in August 2003 coupled with the strong carry-over from key July 2003 films, such as "Pirates of The Caribbean" and "Seabiscuit," resulted in a year-over-year decrease in gross domestic box office results in August In addition, the Summer Olympics likely had some impact as well. In fiscal September, the box office continued to decline and the industry box office was down approximately 9.9 percent for the fiscal September period. For the period that corresponds to Regal's fiscal third quarter, which was impacted unfavorably by a calendar shift, EDI reported a U.S. domestic box office decrease of approximately 2.6 percent. As a reminder, our fiscal

3 Page 3 calendar cut-off resulted in the majority of the July 4 th week being in our second quarter of 2004 versus our current third quarter of Other industry sources for the period that correspond with Regal's recently third quarter showed declines in domestic box office ranging from 1.8 percent to 3.9 percent. During the third fiscal quarter, Regal's box office revenue declined 3.6 percent. For the fiscal nine months ended September 30 th, 2004, the U.S. domestic box is flat with last year's first fiscal nine-month period. Now looked at Regal's third-quarter results. Attendance patterns during the quarter clearly affected Regal's fiscal third-quarter results. In addition to the declines in industry attendance, we were negatively impacted by the calendar shift and the series of hurricanes in Florida where approximately 11 percent of out total screens are located. Despite attendance declines, however, Regal continued to generate free cash flow during the quarter. In order to exclude the impact of the calendar cut-off between second and third quarters, combining Regal's fiscal second and third-quarter results more accurately reflects the company's results over the summer and demonstrates our commitment to managing our business successfully in both up and down attendance periods. Regal's film and advertising cost as a percent of admission revenue for the combined second and third fiscal quarters represented 120-basis point improvement over the fiscal second and third quarters of General and administrative expense for the combined fiscal second and third quarter of 2004 totaled 2.5 percent of total revenue, the same percentage of total revenue as the prior comparable period. And although attendance per ending screen for the combined fiscal second and third quarters of 2004 declined 1.1 percent compared to the comparable period of 2003, adjusted EBITDA per ending screen for the combined fiscal second and third quarters of 2004 averaged $46,285, a

4 Page percent increase from the $44,960 per screen for the comparable period of 2003 and reflects a 20-basis point improvement in the company's adjusted EBITDA margin to 21.5 percent this year versus 21.3 percent last year. The ability to generate incremental adjusted EBITDA margin in a period of attendance decline demonstrates the company's continued focus on efficient theater operations and continued success in Regal's CineMedia. During the same comparable two-quarter periods, the average ticket price increased 2.2 percent and the average concession per patron increased 2.9 percent. Now turning briefly to acquisitions, we were pleased to recently announce the successful completion of our acquisition of Signature Theaters. Signature adds 30 theaters and 309 screens, over 80 percent of which are stadium theaters, to our circuit, including two sites with 30 screens that are currently under construction. In total, the Regal Entertainment Group's circuit now includes a total of 560 theaters and 6,242 screens with an average of 11.1 screens per theater location. We remain optimistic regarding the acquisition environment and will continue to evaluate and pursue accretive acquisition opportunities as a means of growing our cash flow. Now looking at a box office update for the fourth quarter of While we were encouraged by the strong performance early in October from "Shark Tale," "Friday Night Lights," and "Ladder 49," we still expect the October industry box office results to be flat to slightly down when compared to the October 2003 box office results. November continues to look good with the same or better depth in the film slate as the same period last year. Titles that we expect to perform well in November include "The Incredibles," "Polar Express," "Alexander," and "Sponge Bob Square Pants."

5 Page 5 At this point, December will be largely dependent upon the commercial success of a number of strong titles, including "Oceans 12," "Meet The Fockers," and "(Liminisnickets)." While we were encouraged by the December film slate, December still remains a difficult comp due to the strong success last year of "Lord of The Rings." On a positive note, we do expect our concession per caps will benefit from the solid slate of both animated and family films during the fourth quarter of In summary and in addition to these results that we've just discussed, we also declared a 50- percent increase in our quarterly dividend from 20 cents per share to 30 cents per share, which translates into a current dividend yield of appropriately 6.24 percent based on yesterday's closing price of (19.24). We continue to believe our dividends are an efficient means of distributing value to our shareholders while still maintaining our ability to do all of the following. Number one, capitalize on prudent industry consolidation opportunities. Number two, provide sufficient capital to maintain, enhance, and grow our theater circuit through selective new building and expansions to existing facilities and lastly, to pursue high-margin opportunities within our Regal CineMedia business. Since the company's IPO, Regal has returned $11.36 per share to shareholders. If you had bought stock at the IPO price and reinvested the dividends received in additional Regal shares, your total return on Regal stock would be 79 percent, or 27 percent on an annual basis. I would like to now turn the call over to Kurt Hall for a progress report on Regal CineMedia. Kurt. Kurt Hall: Thanks, Mike. Hello, everyone, and thanks for joining us this morning. CineMedia provided another strong quarter for the Regal Group. Higher revenue growth and EBITDA margins of over 50 percent continued to provide incremental EBITDA growth for the company. For the last 12 months, CineMedia has added approximately 130 basis points to the Regal EBITDA margins.

6 Page 6 The CineMedia Q financial highlights, excluding our group sales ticket sales businesses and other inter-company allocations, include the following. Total CineMedia Q revenue of 27 million represented a 4.4 percent of Regal's total revenue versus 3.7 percent for Q3 '03, while the 2004 CineMedia nine-month revenue of $70 million represented 3.8 percent of Regal's total revenue versus 2.8 percent during the 2003 period. While the majority of CineMedia's revenue continues to be included in Regal's other revenue, as CineMedia's private screenings and meetings and movie products have expanded, CineMedia has begun to record a more meaningful level of ticket sales that recorded in Regal's admissions revenue. For the current nine-month period, 3.9 million was included in admissions revenue. Excluding the group ticket sales business in inter-company allocations, the CineMedia Q3 '04 EBITDA was 16.3 million and was 39.2 million for the nine-month period. The Q3 EBITDA margin of 60.3 percent was significantly ahead of CineMedia's internal target of 50 percent. For the ninemonth EBITDA for the nine-month period, EBITDA margin of 56.1 percent compares to a percent margin in the 2003 nine-month period. I'd now like to provide you with a little more detail on certain of CineMedia's operations. The DCN is now substantially completed with 428 theaters with 5,186 screens and 1,286 plasma screens in the lobbies. We continue to add smaller markets with higher attended theaters and newly constructed theaters and have begun the deployment of 22 Signature Theaters with 243 screens. By the end of Q1 '05, we anticipate that the DCN will approximately 450 locations, 5,450 theater screens, and 1,350 lobby plasma screens and will cover approximately 90 percent of Regal dependence base in over 80 markets. With the success of our live music events, we continue to expand the DCN's technical capabilities.

7 Page 7 During the remainder of the year, we will expand the number of theaters that can be can receive an encrypted live high-definition signal. By the end of Q1 2005, we'll have the ability to broadcast live high-definition content to nearly 100,000 seats in 63 markets. During the quarter, we also announced our first agreement to add non-regal theaters to the DCN as network affiliates. This network affiliate agreement with Georgia (theaters) will expand the reach of the DCN to over 200 additional screens in the Atlanta and other Georgia markets. Georgia (theaters) will gain access to national advertising contracts through a customized version of the (20) and will have the option to pick up music and other events broadcasted across the DCN. We are discussing a similar network affiliate relationship with other theater operators that will allow us to better leverage the fixed costs associated with our sales force, network operating center, and the DCN. Our advertising business continues to perform well. Sales growth for our on-screen 20 pre-shows slowed a bit in Q3 as we approached sell-out levels and due to the differential of some revenue into the fourth quarter due to lower Q3 theater attendance levels. We have now booked 100 percent of our annual advertising budget with both our national advertising and regional advertising sales groups tracking ahead of our internal plans for the year. Total Q3 advertising revenue of 24.5 million was up 10.5 percent from Q3 '03 with a nine-month revenue of 56.7 million, increasing 25.2 percent over the 2003 nine-month period. The Q3 onscreen inventory sell-through was slightly over 100 percent for both 2004 and 2003, while the 20 CPMs increased five percent in Q3 '04. For the current nine-month period, on-screen inventory sell-through was 87 percent versus 81 percent for the 2003 period while the 20 CPMs increased nine percent over the 2003 nine-month period.

8 Page 8 We are currently sold out of on-screen inventory for Q4 and will finish the year with utilization of approximately 88 percent with a sell-through rate of approximately 75 percent for Q1 and two and 100 percent during Q3 and Q4. We are focusing on improving our Q1 and Q2 sell-through and on increasing our overall CPMs. In addition, as the quality of the 20 improves, we will begin to test audience reaction to various strategies designed to increase the amount of salable inventory. You should note that each 30- second ad unit (in 20) is worth approximately 8.5 million of incremental EBITDA. We are also working on several strategies to expand the sources revenue from our lobbies where inventory levels are much less restricted. During Q3 we signed a new multi-year advertising agreement with youth market company (Alloy), and an (intercept research) agreement with Nielsen. Revenue from these new initiatives will begin late this year or early next year. During Q3, we also renewed our strategic programming and marketing agreements with NBC, Turner, and Universal for another two years. These renewals are significant as they confirm the value of the 20 as a powerful marketing platform. With the addition of Sony earlier this year, we now have a unique and powerful combination of entertainment companies to work with as we continue to improve the quality of the 20 for our theater patrons and our advertising clients. During Q3, revenue for our CineMeetings division of 1.3 million was 17.5 percent ahead of last year, reflecting a 12.4-percent increase in the number of meetings and a 4.6-percent increase in the average rental rate per meeting. For the nine-month period, revenue of 10.9 million was 119 percent higher than the same nine-month period in You should note that the current nine-month period was positively impacted by hundreds of Q1 private screenings and meetings associated with the film "The Passion of The Christ." We

9 Page 9 continue to grow the multi-site network business with larger companies as they increase their corporate communications, product launches, and training with the improving economy. We have booked revenue for all of 2004 that is 134 percent of our internal budgets and 173 percent of revenue for all of Excluding meetings associated with "The Passion of The Christ," we have already booked 95 percent of our internal budgets and 116 percent of '03. We continue to make progress developing various unique digital content distribution channels to expand the entertainment programming available to our theaters during slow movie-going time periods. Progress has been made in both the music event and interactive educational areas. During '04 we have sold over 130,000 music event tickets for 18 live and pre-recorded events with seat utilizations averaging over 50 percent at average ticket prices ranging from $10.50 to $20. As the majority of these events are during the Monday through Thursday time period when auditoriums would normally be empty, significant incremental revenue is being created. During Q3 we held most of our successful during Q3 we held our most successful event to date for the band Phish. Saturday and the Saturday and Sunday event was nearly sold out at $20 per ticket in 43 markets on 86 screens during the two days. The Sunday show represented the highest revenue per screen of all of the Regal (theaters), and while the concession revenue is not recorded as part of the CineMedia revenue, the concession sales during the Phish concert were very strong. During Q3 we also started to expand our interactive education channel with an event for the film "The Village," where director M. Night Shyamalan interacted with audiences in 33 markets. We also broadcasted a live presentation of the quarter finals of the Drum Corps International Marching Band Competition to nearly 18,000 fans in 40 markets. During Q4 we are working on

10 Page 10 several events, including three live interactive events related to the films "Polar Express" and "National Treasure" and a History Channel event about Benjamin Franklin. While the distribution of non-film-related digital content is still in start-up mode, it has provided incremental growth for CineMedia and incremental concession sales for the theater group. Ticket revenue for these various music and educational events for the nine-month period was approximately 2.3 million versus 100,000 for the first nine months of '03. The sale of advanced tickets and gift certificates to corporations and other groups continues to grow as we cross-sell, bundle, cross-market these volume ticket products with other products and services sold by CineMedia. During Q3 '04, the sale of these advanced ticket products increased 20 percent over Q3 '03 and for the current nine-month period increased 17 percent. In summary, while CineMedia's year-over-year growth slowed a bit as annual inventory sellthrough through the 20 approached percent, the expansion of other CineMedia businesses continued to provide solid incremental growth in a slow quarter for theater operation division. The Q3 '04 revenue increased over 15 percent over 2003 while the 2004 nine-month revenue increased nearly 39 percent over '03. EBITDA before inter-company allocations increased approximately nine percent over Q3 '03, while the 2004 nine-month period increased 48 percent over '03. For the last nine months while CineMedia only represented four percent of Regal's total revenue, it represented 67 percent of the overall year-over-year EBITDA growth for the group. In addition, as capital expenditures related to the DCN have declined dramatically, CineMedia provided pretax EBITDA after capital expenditures of 27 million for the nine-month period.

11 Page 11 I'd now like to turn over the presentation to Amy, our CFO, to discuss the overall Q3 financial performance. Amy Miles: Good morning and thanks, Kurt. Today I'd like to provide some additional details with respect to our fiscal third-quarter results, a brief discussion regarding the company's balance sheet and update on our capital expenditures, and provide some additional detail to help the investment community evaluate the implications of both the calendar considerations for the fourth quarter as it relates to our fiscal period and the impact from the addition of the theater the Signature Theater circuit. Looking to the third quarter, Regal Entertainment Group reported total revenue of million, consisting of million from box office revenues, million from concessions, and 46.3 million of other operating revenue. Our total revenues decreased this quarter approximately three percent over the prior comparable period, primarily as a result of the timing of our fiscal period as it results to the July 4 th summer holiday, attendance trends caused by the commercial success of the movie slate, and to a lesser extent the series of hurricanes which disproportionate affected Regal due to our high percentage of assets in Florida. Our admissions revenues this quarter decreased approximately 3.6 percent. The decrease in box office revenues was primarily due to an attendance decline of 6.1 percent that was offset by an increase in average ticket prices of approximately 2.8 percent. Attendance per screen during the quarter decreased approximately 4.6 percent. And on a per-screen basis, admissions revenue decreased just under two percent.

12 Page 12 Concession revenues this quarter decreased 3.9 percent and we ended the quarter million of revenues. On a per-screen basis, concession revenues decreased 2.3, and on a per cap basis, concession increased 2.5 percent. Other revenues during the fiscal third quarter of 2004 increased just under seven percent over the comparable quarter of 2003 to 45.3 million. The increase in other revenues is related to the significant increases in CineMedia's revenues that were and these were slightly offset by declines in vendor marketing program revenues, which are negatively impacted by declines in attendance. As Mike indicated previously, the beginning and ending dates of our fiscal third quarter period caused Regal to trade a relatively high-volume week on the front end of the quarter for a relatively low-volume week on the back end of the quarter. To remove the impact of the fiscal timing, we would like to make several comparisons which combine the fiscal third and second quarters of 2004 as compared to the combined third and second quarters of While admissions per screen declined 1.1 percent for the combined second and third quarters compared to the comparable period of '03, box office per screen increased 1.1 percent as a result of the 2.2 percent increase in average ticket prices. Additionally, concessions per screen increased 1.7 percent, and adjusted EBITDA per screen expanded by three percent, resulting in a combined second and third-quarter EBITDA margin of 21.5 percent. And that is a 20 basis-point improvement over the comparable period of Looking briefly at the expense line items for the third quarter. Film and advertising expense as a percent of box office for the current quarter represented 53.2 percent of box office revenue. This was a 20 basis-point increase over the same period in the prior year and was primarily the result of the mix of film products as the company has continued to focus on managing advertising costs.

13 Page 13 However, as we have stated previously, quarterly fluctuations in film rental are primarily related to product and are not indicative of longer term trends. Before our vendor marketing programs, our concession produced a gross margin of 84.6 percent this quarter, and that represents a 90 basispoint decrease over the comparable quarter of '03. Approximately a million dollars, or 60 basis points, related to the costs associated with a third quarter combo promotion with our candy supplier. As the candy supplier received additional marketing exposure during the quarter, the related vendor marketing revenue vendor marketing program revenues were increased. Excluding this promotion, the concession of margin 85.2 percent was consistent with the previous fiscal 2004 quarters. The other operating expenses increased approximately 3.6 percent for the quarter. And this increase relates primarily to increases in fixed occupancy cost, while controllable cost reflected lower year-over-year increases. We were pleased to report adjusted EBITDA of million for the current quarter. Our adjusted EBITDA margin totaled 19.6 percent compared to 21.7 percent during the third quarter of '03. And, again, the decline in margin is due to the decline in revenues for the quarter related primarily to the calendar shift, and we stated previously, the company's margin increased approximately 20 basis points during the combined quarter two and quarter three periods. Fully diluted earnings per share, excluding certain non-recurring expenses, totaled 19 cents for the quarter. Turning briefly to the balance sheet and the agree base. We ended the quarter with approximately million in cash. And our total debt balance at the quarter end is approximately two billion. This results in a net debt to adjusted EBITDA ratio of 3.25 times, and that's pro forma for the Signature acquisition.

14 Page 14 Cap ex during the third quarter totaled 34.8 million. Of this total, 30.7 million was related to the theater op and 4.1 million for Regal CineMedia. During the company during the quarter, the company also recorded proceeds from asset sales of approximately 12.2 million. On a year-to-date basis, cap ex has totaled 80.8 million, 68.6 million of which is related to the theater operations and 12.2 million is related to Regal CineMedia. Asset sales on a year-to-date basis are totaled approximately $46.3 million. Looking forward to the 2004 fiscal year. We expect total cap ex to be in the range of 130 to 135 million, which is lower than the original guidance of 145 to 150 million. This reduction is primarily related to 2004 projects moving to the 2005 fiscal year. The 135 to 130 million is a gross cap ex number and does not include the 46 million of year-to-date proceeds from asset sales. And those have funded a lot of the fiscal year capital expenditures. During the third quarter of 2004 we closed a total of 12 theaters with 91 screens and acquired 30 theaters with 309 screens, and two of those theaters that represent 30 screens remain under construction. In addition to the one screen that we added during expansion to an existing facility, this brings our totals to 560 theaters with 6,242 screens. Turning briefly to the fourth-quarter impact from timing and the Signature acquisition. In addition, to reviewing our reported results for the quarter, we also wanted to provide additional information that may be helpful in Operator: Ladies and gentlemen, please stay connected. You have not disconnected from the call. Ladies and gentlemen, please do not disconnect. You are still connected to the conference. Ladies and gentlemen, again, for Regal Entertainment, please do not disconnect.

15 Page 15 You are still connected to the call. Please stand by. Ladies and gentlemen, again, you are on line for the Regal Entertainment Group. Please do not disconnect. We will reconvene in just a moment. Ladies and gentlemen, you may continue. Amy Miles: We apologize for the technical difficulty. Again, where we stopped with looking at the fourth quarter impact from timing as well as the Signature acquisition. So with respect to the fourth quarter of 2003, our fiscal period included an extra 14 th week. This extra week occurred between Christmas and New Year's and included approximately 10.2 million attendees that generated approximately 96 million of revenue and approximately 40 million of EBITDA. The fourth quarter of 2004 will consist of a standard 13-week period. The period begins five days later than last year and ends two days earlier than last year. As a result, the current quarter excludes five medium volume days on the front end and two very high volume days on the back end with compared to the fourth fiscal quarter of Turning briefly to the Signature acquisition. The Signature circuit produced approximately 20 million of box office revenues and seven million of concession revenue during the fourth quarter of Rent for that period totaled approximately 3.4 million. And based on the fourth quarter of 2003, we would expect other operating expenses related to Signature to range between nine and 10 million for the fourth quarter of And as a reminder, our current quarter ended screen count respond in our press release includes the acquired Signature assets. Although the theaters were acquired on the last day of the fiscal third quarter, they did not start contributing to operations until the first day of the fourth quarter. So those screens that represent 28 theaters and 279 screens would need to be excluded from any type of per-screen analysis for this quarter.

16 Page 16 In closing, we remain committed to providing value to our shareholders and we were pleased to a report a 50-percent increase in our quarterly dividend for the quarter and announced the (closure of) accretive acquisition, and, very importantly, report solid free cash flow, just over 338 million for the LTM period ended September 30 th, That concludes the company's remarks, and we'd like to open the line for any questions you guys may have. Operator: Thank you. Ladies and gentlemen, to ask a question at this time, press star one on your touch-tone telephone. Again, star one for your questions or comments at this time. We'll go first to Michael Savner with Banc of America Securities. Michael Savner: Hi. Good morning. Thanks. Amy, just I want to get a clarification to make sure I understood that screen count. So the Signature screens are included in the third quarter. So even though they weren't contributing. I understood that part. So for the fourth quarter, should we are there additional acquired screens that are going to that are going to show up from previously announced acquisitions in the fourth quarter, or is the fourth quarter now going to be strictly organic growth of screen? Amy Miles: OK. With respect to the screen count, we had 28 operating theaters for Signature and 279 screens. We expect one of the additional theaters under construction to open in the fourth quarter. So that will be one additional screen I mean, I'm sorry, one additional theater with 16 screens.

17 Page 17 And just for the balance of the fourth quarter, the company from an organic perspective will open two theaters and have an increase of 42 screen. That is 32 screens for the new build and the 10 is for expansions of existing theaters. Michael Savner: And any closures? Amy Miles: And any closures? We would ball-park that probably around 20 to 25 screen, three to four theaters. Michael Savner: So roughly net 20-something net organic screens. Amy Miles: That's correct. Michael Savner: OK. And, Amy, was there any in the last couple weeks of the quarter, it doesn't look like you repurchased any of the shares as part of that authorization that was in late September. What is your thinking going forward in terms of what how much flexibility you have? You know, could you increase it given that you don't have a ton float as it is? I'll kind of leave it there. Amy Miles: Yes, we will we will continue to evaluate a share repurchase as we do a dividend for a potential use of cash. And we'll, you know, remain committed to being opportunistic with respect to opportunities in the stock. So we would look at that share repurchase, Michael, as with do the dividend. It's a way of returning that value to shareholders. But we will be sensitive with respect to the float. Michael Savner: Thanks and just one question for Kurt. Kurt, in your talks with media buyers, can you talk a little bit about the increase in spending that you're seeing from media buyers. Is that a function more of the overall wallet increasing or are you seeing allocation of money being taken

18 Page 18 from other areas like television? And where do where's the sense you get media buyers are willing take their budget for on-screen digital advertising? Kurt Hall: I think predominantly we're seeing a shifting of budgets away from television. I think you're seeing it, you know, throughout the various medias. I think you're seeing broadcast money move to cable, I think you're seeing the overall television budgets looking for other ways to get to consumers. I think cinema's clearly been a beneficiary of that. I think the Internet's also been a beneficiary of it. Michael Savner: OK. Thank you very much. Operator: We'll take our next question from Anthony Diclemente, of Lehman Brothers. Anthony Diclemente: Hi, Amy. Hi, Kurt. Two questions. Amy, can you just go through that plan for 2005 in a similar fashion with respect to cap ex, organic builds, and closures that you have planned for next year? And then, secondly, Kurt, when you look at the Georgia (theater) agreement, I kind of look at it in terms of what it says for the potential for similar deals with larger circuits, larger circuits currently with less robust advertising platforms. So could you just give us a little more color around the economics of such a contract? Is it is it a gross participation deal, is a profit participation? Maybe you could just give us a little more texture around the economics of those types of contracts. Thanks. Kurt Hall: Amy, you want to go first? Amy Miles: Sure. With respect to looking forward cap ex, right now it is we would plan to open somewhere between 125 to 130 screens. With an that's on new builds.

19 Page 19 Anthony Diclemente: OK. Amy Miles: And with an incremental 20 screens on retro-fit and expansions to get an overall increase in screens next year between 145 to 150-ish. And then I would expect we would have closures in the ball park of 100 to 125 screens. Cap ex for next year, you know, some of this still is in the will be impacted by fourth-quarter timing. Probably a good run-rate being in that 145 to 150 million. And, Kurt Kurt Hall: Yes. The Georgia (theater) affiliate deal is very much a revenue share and capital share deal. I'm not going to, obviously, get into the details of the transaction itself. But you can assume that what we're really trying to do here is better utilize all of our fixed costs. We have a tremendous amount of fixed costs, as you know, associated with the you know, the network itself, and we've also got a sales force in place. Both of those things have bandwidth, if you will, capacity to sell more screens and to handle more screens. So we can add people to our network with very little incremental cost. And so that's really the approach we're taking. The structure of the deal is very much like the relationship that a network affiliate would have, a non-owned and operating network affiliate with have a national broadcaster. So, you know, our agreement is pretty much to send programming, whether it's a customized version of the 20 or a concert or other types of programming that we're putting across the network. And the obligation of the of the other exhibitor is to show that programming. Anthony Diclemente: Thanks. Kurt Hall: Yes. Operator: We'll go next to Gordon Hodge of Thomas Weisel Partners.

20 Page 20 Gordon Hodge: Good morning. Amy Miles: Hi, Gordon. Gordon Hodge: I have a couple questions. One, I was just wondering, your dividend payout is now about running about 100 percent relative to, at least my estimates, for earnings next year. And I'm just wondering if you could just philosophically talk about that. Obviously you've got some free cash flow maybe that's alternate bit higher than earnings. But just a (couple there.) And then also, Kurt, if you could just size for us what you think the cinema advertising market could be. I know it's quite sizeable overseas. I'm just wondering what the potential you think it is here once you get these affiliate programs going. Thanks. Amy Miles: With respect to the dividend payout ratio as a percentage of earnings, obviously, Gordon, we look at a lot of factors when we are trying to size the dividend. Percent of free cash flow is one of the metrics or one of the financial ratios that we will evaluate in making that decision. There's not any one target that we are trying to hit. It's a multitude of targets with respect to the analysis. And it also considers opportunities or other opportunities such as acquisitions that we would like to maintain the financial flexibility to pursue. So obviously we're very comfortable with maintaining the dividend level that we set and hoping to have the free cash flow in the future to continue to valuate upside opportunities with respect to that dividend. Gordon Hodge: OK, thanks. Kurt?

21 Page 21 Kurt Hall: Yes. The size of the advertising market. Clearly the overseas markets, the ones that we look at are Australia and England and Europe. Clearly, they're doing a better job of selling advertising there because the business has been there a lot longer, it's a much more mature business. A couple of metrics that I sort of look at. I think, you know, if you look at CPM, we're right now give or take about two times the television CPM in the United States. If you go to Australia, it's as much as four times. And, you know, Europe and England, three and a half or so times the CPM of television. So I think clearly there's some upside on the CPM. I think it's going to take a lot of education over here, I think it's going to take some very aggressive, you know, selling outreach. We did over 2,500 sales calls last year with advertising agencies and clients. And, you know, that's what it's going to take. You've just got to, you know, sell the medium, get people comfortable with the medium. And, you know, I think given the environment in the United States and some of the things that are going on with television and, you know, technology like TiVo. And so on, I think people are I think it's very fertile ground right now for us to get out there and sell against television and start to move some of those dollars. You know, could we get to those CPM levels? You know, possibly over time. I think, you know, clearly we've got a lot of work to do, but I think we can get there. I think the overall budget movement, I think right now you're sort of at a business that's somewhere in the neighborhood of $300 to $400 million, depending on who you listen to and what you include in that. And, you know, you compare that size of the market, if you will, to television, you don't have to slice a lot of the television expenditure to create a very robust market and very robust growth going forward for us.

22 Page 22 So, you know, that's really the game for us, is to try to, you know, broaden the number of people that are advertising in cinema, which we're doing. We're bringing a lot of new categories in. And I think the other key is to make the content better that's going up on the screen. Clearly, the more the better job we can do in making the show better, the more tolerant the audiences are going to be and the more we can start to expand our inventory. As I mentioned during my comments, you know, every 30-second ad that we add for an annual period to the 20 is $8.5 million of cash flow, give or take. So, you know, our job right now is to get the audience tolerance up, be able to expand the inventory. Clear, in England, you know, they sell as much as 30 minutes worth of advertising before the show. We're not even we're not there yet, obviously. And, you know, we hope to get there. I think if you watch our show during November, this coming month, you'll see that there's a couple ads up there that are actually 60-second advertisements that actually look better than the content, as far as I'm concerned. There's one for Chanel and there's one for Ford, both of which are sort of made-for-cinema advertisements. Gordon Hodge: OK. Thanks. Kurt Hall: Yes. Operator: We'll go next to Arun Daniel, of ING Investments. Arun Daniel: What opportunity do you see for acquisitions when you look out the next two years, '05-'06 timeframe, given the market that you currently have?

23 Page 23 Mike Campbell: Well, I believe there still exist acquisition opportunities out there. Clearly, there was an ownership change earlier this year at (CineMark) and Lowes, and currently that's happening at AMC. So I would assume that those opportunities may be off the table, at least for a period of time. But we're concentrating on more of the regional acquisitions, you know, the Signature type acquisitions. And we do believe that there are continued opportunities out there for the circuits that might range anywhere from 100 screens up to 300 to 400 screens. Arun Daniel: Thank you. Operator: We'll go next to Ray Schleinkofer, of Sturdivant & Company. Ray Schleinkofer: Yes, two questions. First, I just want to get make sure that I understand the combo promotion and sort of how that impacted the margins. You said if the million was stripped out that the margins are the same. Where does that impact? Is it up on the revenue side? And then, secondly, if you could talk a little bit about the film product slate for 2005, sort of what you're hearing in terms of number of films, and if you're hearing are they going to re-run "Passion of The Christ" for first quarter as well. Amy Miles: OK, I'll take the first question with respect to the combo promotion. Ray, you're exactly right. I mean, with respect to the cost of the combo, that would obviously be included in the concession cost line. But part of that combo is providing additional advertising opportunities for our candy supplier, because that has a fair-market value. Associated with the service, the advertising obligation I'm sorry that is required to be classified in our other revenues. Ray Schleinkofer: OK.

24 Page 24 Amy Miles: So the offset to that cost is included in other revenues. Ray Schleinkofer: OK. Amy Miles: As all our vendor marketing programs are. Ray Schleinkofer: OK, thanks. Mike Campbell: Yes, relating to the film schedule in 2005, you know, production levels still remain high. I think with the added boost that the studios are getting from DVD downstream that that's going to continue to fuel film production. So, you know, as far out as we can see, 2005, 2006, there appears to be plenty of titles and plenty of commercial titles. Next year, you know, some of the pictures, you'll have another "Star Wars," you'll have another "Harry Potter" and, you know, a number of other original programming titles. As far as "Passion" in the first quarter, you know, we haven't heard anything definitively about rerunning "The Passion" in the first quarter. But clearly that was a big boost to last year's first quarter. And I'm not sure that we see anything during the first quarter, at least any single film, that would duplicate "Passion" last year. Ray Schleinkofer: Thanks so much, guys. Operator: We'll go next to (Jim) Krutick with Smith Barney.

25 Page 25 Jill Krutick: Hi. It's Jill Krutick. I was curious. We've seen more and more screens continue to be added to the industry. Where do we stand in terms of the overall industry screen-count, and what do you expect in terms of overall screen additions for the industry over the next year and few years out. And, Amy, when you think about the balance sheet, how much incremental debt do you think Regal can hold while maintaining a comfortable capital structure? Thanks. Mike Campbell: Regarding the screen-count, you know, the screen-count peaked two and a half, three years ago at something north of 38,000 and dropped to approximately 35,000. You know, during the past year we've seen some increase in screen-count, probably in that two-to-three-percent range, which is, you know, roughly in synch with the historical screen-count growth, you know, over a period of time. However, there have been at the latter part of the year, this year, you know, third and now going into fourth quarter and subsequent to the summer season, the closings of older theaters have accelerated again. So I think that that net increase, you know, may be two to three percent once the year-end numbers are done. We believe that that's kind of a sustainable number. It's been, you know, part of the organic growth in the industry for years. And one thing that I would just point out, too, is that it's not always clear when you look at screen-count as to what the seating capacity is in the industry. But we know that the continued closure of older theaters that have a higher average seat-count per auditorium coming off-line and the new theaters that are being replaced in general don't add as many screens to the or, excuse me, as many seats to the industry as the screen-count would indicate. Jill Krutick: Great. Thank you very much.

26 Page 26 Amy Miles: Yes, with respect to leverage and capital structure... Jill Krutick: Yes. Amy Miles:... as indicated, pro forma for Signature, we ended the quarter about 3.25 times leverage. And this is typically a third quarter from a cash perspective is your lowest cash position for the year, and that is a net debt number. So we're typically in that de-leveraging as free cash flow or, I'm sorry, as the EBITDA grows. Typically each quarter our free cash flow grows. So going forward, three to three and a half is definitely a comfort zone. And I think that for an opportunity would we exceed that three and a half, yes, I believe we would, as long as we believe that we could bring that leverage back to three to three and a half in a relatively short time. So three to three and a half is probably a comfort, but we would be flexible with respect to an opportunity if we felt like the increase in leverage was short-term. Jill Krutick: OK, great. Thank you. Operator: We'll go now to Matthew Harrigan of Janco Partners. Matthew Harrigan: Most of my questions were answered. But can you comment on the stored value card initiatives and any changes that you see in consumer behavior, I mean, given the prevalence of DVD penetration. You know, obviously that subsidizes the production, it helps you indirectly (near) the window that establishes value. But just, you know, anecdotally or maybe more empirically off some of your membership clubs, are you seeing very much in the way of changes of patterns of attendance or demographics or whatever.

27 Page 27 Mike Campbell: I think, clearly, you know, films are continuing to play off quicker than they did years ago, and I think that's in large part due to the marketing and all the downstream opportunities that are available to the studios. But, you know, we don't see any evidence that the, you know, the increased popularity of DVDs is any way impacting our business. We still believe it's more of a product-driven business and you're going to have the, you know, the ups and downs related to the product. You know, as far as stored value cards, Kurt, do you want to talk about that? Kurt Hall: Yes, sure. There are a number of things going on I think on the technology side that could have a positive impact on, you know, attendance and other parts of our business. Clearly, the stored value card I think is a good way to speed up transactions. It has a lot of implications for us both in our gift certificate and group sales ticket businesses, and we're going to be pursuing those next year very aggressively as we roll out our new POS systems. I think the other thing that's going on is Internet ticketing. As you know, we have an interest along with several other exhibitors in (Fandango). And, you know, (Fandango's) business continues to improve as the adoption rate goes up. And I think the big technology breakthrough I think will be in home ticketing. I think when you can print a ticket at home, one that can be scanned at the theaters just the way it is at major event locations today, I think that will speed up the transaction time, I think it'll create new conveniences for the customer, and hopefully, you know, will start to drive, you know, incremental attendance. I think today we suffer from a lot of excuses that people can make up on a Wednesday or Thursday on why they don't want to go to the movies. And that stops a lot of people. And if we

28 Page 28 can eliminate that and make the whole experience more convenient, I think we could see, you know, hopefully a change in behavior that benefits us. Matthew Harrigan: Thank you. Operator: And ladies and gentlemen, we have reached our allotted time for today's question and answer session. At this time, I'd like to turn the call back over to Mr. Mike Campbell for any closing comments. Mike Campbell: Well, with appreciate everybody dialing in again. And we'll do this again and announce fourth quarter results early next year. Thank you very much. Kurt Hall: Thanks, everyone. Operator: And once again, ladies and gentlemen, that concludes today's call. Thank you for your participation. You may disconnect at this time. END