An Exclusive Preview

Corporates www.fitchratings.com April 28, 2010 Media & Entertainment U.S. and Canada Special Report An Exclusive Preview Fitch’s Movie Exhibitor Analysis Executive Summary Operating performance for the movie exhibition industry has been solid throughout 2009 and into 2010. Box office revenue and attendance increased in 2009 by 10.7% and 5.4%, respectively (as of April 25, 2010, year to date [YTD] box office revenue was up 8.5% and attendance up 6.4%). In addition, average ticket prices increased in 2009 by 4.5% to $7.50, which was mostly fueled by the premium pricing on 3-D and IMAX movies. Looking forward into 2010, the industry faces tough comparisons with a record year in 2009, but the increase in major 3-D films (which benefit from the premium pricing), the solid film slate (including several sequels to successful series, such as “Iron Man,” “Shrek,” “Toy Story,” and the “Twilight” saga), and the success of recent films (such as “Alice in Wonderland,” “Clash of the Titans,” and “Avatar,” all 3-D films) should grow overall attendance in the low single digits for the year. Additionally, with the increasing pipeline of 3-D films, exhibitors should be able to drive increases in average ticket prices. With Digital Cinema Implementation Partners, LLC (DCIP) financing completed, the capacity of digital and 3-D capable screens should increase significantly over the next two years. This increased capacity, combined with a growing pipeline of 3-D films by the studios, should support box office revenues in 2010 and 2011. In Analysts Rolando Larrondo +1 212 908-9189 rolando.larrondo@fitchratings.com Kevin Lam +1 212 908-9147 kevin.lam@fitchratings.com Michael Paladino, CFA +1 212 908-9113 michael.paladino@fitchratings.com Mike Simonton, CFA +1 312 368-3138 mike.simonton@fitchratings.com Related Research Applicable Criteria • Recovery Ratings and Notching Criteria for Nonfinancial Corporate Issuers, Nov. 24, 2009 • Corporate Rating Methodology, Nov. 24, 2009 • Analysis of U.S. Corporate Pensions, Sept. 24, 2007 Other Research • Media & Entertainment Stats Quarterly ⎯ Fourth Quarter 2009, April 22, 2010 • Global Economic Outlook, April 6, 2010 • U.S. High Yield Default Outlook Much Improved Though Risks Linger, Dec. 9, 2009 • U.S. Corporate Capital Expenditure Study: Maximizing Free Cash Flow for Financial Flexibility, Dec. 1, 2009 Table of Contents Executive Summary............................. 1 Operational Trends and Considerations ..... 2 Attendance...................................... 2 Pricing ........................................... 3 Film Financing .................................. 3 Concessions ..................................... 4 Significant Fixed-Cost Structure ............. 4 Mature Industry ................................ 5 Digital Opportunities and Ancillary Revenues.. .......................... 5 Capital Structure Considerations ............. 6 Industry Overview and Long-Term Outlook ............................ 7 Appendix A AMC Credit Analysis ............. 11 Appendix B Regal Credit Analysis ........... 24 Key Considerations Category Performance Fitch's Expectations Box Office Revenues 2009 box office revenues of $10.6 billion was a record for the industry. Fitch expects box office revenues for 2010 to grow in the low to mid-single digits, as average ticket prices continue to benefit from the 3-D and IMAX premiums and the upcoming movie slate is expected to provide low-single-digit attendance growth. Attendance Attendance has been volatile over the last 10 years. 2009 attendance of 1,413.3 million is down 4.3% from 1999 attendance of 1,476.4 million (CAGR of −0.4%). While Fitch expects 2010 attendance to be up in the low single digits, Fitch is cautious of the longer term prospects of attendance, given the indirect competition and the potential of piracy (particularly given the shift to digital delivery). Fitch expects attendance to continue to be volatile and to slowly and steadily decline over the long term. Pricing Since 1995, the average ticket price has increased from $4.35 to $7.50 (before any adjustments for inflation). Most recently, ticket prices increased 4.5% from $7.18 in 2008 to $7.50, mostly fueled by the premium up charge on 3-D and IMAX films. Fitch expects pricing to continue to rise in the short to medium term, as more 3-D films are released, leading to more premium tickets sales. Fitch remains cautious regarding movie exhibitors’ capacity to maintain their pricing power in future years, when film product may be less robust Concessions Despite constraints on discretionary spending, Fitch notes that concession per patron grew (as of LTM ended Dec. 31, 2009) by 4% and 3% for AMC and Regal, respectiv