Delivering a premium ENTERTAINMENT 2011 ANNUAL REPORT EXPERIENCE VIP Cinemas feature “service at your seat.” Choose from our traditional concession offerings or enjoy an alcoholic beverage and one of the many appetizers created especially for our VIP guests. Extra-large leather rocker seats as well as a row of recliners with arm-tables, make going to the movies extra comfortable. Our VIP lounges and restaurants are the ideal spot to dine and relax. The menu features a wide range of appetizers and specialty drinks guaranteed to satisfy your needs. Before or after the movie, sit back and relax in a sophisticated and relaxing environment. VIP Cinemas take “Enjoy the Show” to a whole new level of entertainment. It was another year of solid operating performance. WE REMAIN WELL-POSITIONED FOR 2012 and are able to capitalize on strategic opportunities. Letter to Shareholders am very pleased to report that 2011 was another strong Our investment over the past three years in this technology Iyear for Cineplex. A new annual record was established for contributed to our ability to outperform the Canadian industry adjusted EBITDA, which increased 3.2% to $173.2 million, and box offi ce in 2011 and positions us well for the future. EBITDA margin which increased to 17.3% in spite of a decline in Even though we are impacted by the quality of fi lm product attendance due to weaker fi lm product. which impacts our box offi ce performance, we continue to Total revenues remained at about the same level as our record grow other areas of our business while managing variable costs 2010 results, down 0.8% to $998.2 million from $1,006.4 million when attendance declines. Concession revenue decreased 1.0% due to declines in box offi ce and concession revenues associated compared to 2010 due to the 4.2% decrease in attendance. with the decline in attendance. Off setting the attendance decline was a 3.3% or $0.14 increase in concession per patron (“CPP”) which increased to $4.41 and Box offi ce revenues for 2011 were $577.3 million, 3.4% lower represents the highest annual CPP in Cineplex history. than the previous year. Cineplex’s top grossing fi lm during the year was Harry Potter and the Deathly Hallows Part 2, which Other revenues increased 13.5% to $129.2 million during 2011. accounted for 4.4% or $25.4 million of Cineplex’s total box offi ce This increase is attributed to higher revenue in all three other revenue, compared to Avatar’s 7.0% or $42.0 million in 2010. revenue categories (Media, Games and Other). Media revenue Avatar is the highest grossing movie of all time and was a very represents the largest portion; increasing 11.1% due to increased tough comparator. advertiser spending and higher Cineplex Digital Media revenues. Box offi ce per patron (“BPP”) increased $0.07 to $8.74 in 2011. The performance records that we’ve set in 2011 can be attributed This is another new annual record for Cineplex. The increase was to the successful execution of several strategic initiatives. primarily due to the higher proportion of box offi ce revenues The key elements of our strategy are to a) continue to enhance derived from premium product off erings such as 3D, VIP, UltraAVX and expand our existing infrastructure and service off erings, and IMAX. During 2011, premium off erings represented 29.4% of b) capitalize on our core media strengths, c) expand our brand box offi ce revenues. presence as an entertainment destination for Canadians by providing in-home and on-the-go experiences, and d) pursue selective acquisitions that are strategic, accretive and capitalize on our core strengths. For the past several years we have identifi ed our business using six key areas. These include Exhibition, which is our core business, Merchandising, Loyalty, Media, Alternative Programming and Interactive. UltraAVX is a premium entertainment experience that features extra-large screens, 7.1 Dolby digital surround sound, extra-wide high back rocker seats, recliners and reserved seating. By the end of 2012, we plan to have more than 37 UltraAVX auditoriums installed in our theatres across Canada. 2 When Canadians “think of movies, we want them to THINK OF CINEPLEX.” EXHIBITION: OFFERING EXPANDED ENTERTAINMENT OPTIONS Exhibition is the largest revenue source for Cineplex representing approximately 58% of total revenues. In 2011, we focused our eff orts on rolling out digital projectors to replace the 35mm projection systems that have traditionally been used in our theatres. Adding premium entertainment off erings such as RealD 3D systems, UltraAVX, VIP Cinemas, IMAX theatres and D-Box motion seats were also a focus. This resulted in greater seat utilization of these premium off erings, which resulted in higher BPP and helped to off set the attendance decline. 3D: ADDING A NEW DIMENSION TO THE MOVIES 3D has had a tremendous impact on our business. Some have called it a game-changer, particularly after the unprecedented success of Avatar, which grossed almost $3 billion in theatres ELLIS JACOB | President and Chief Executive Officer worldwide. 3D is one of our premium-priced entertainment options commanding a $3.00 price premium over a traditional ULTRAAVX: ENHANCED AUDIO VISUAL EXPERIENCE movie ticket. Six of the top 10 grossing movies in 2011 were presented in 3D including Harry Potter and the Deathly Hallows UltraAVX is our enhanced audio visual entertainment experience. Part 2, Transformers: Dark of the Moon and, Pirates of the Caribbean: UltraAVX features wall to wall screens which are 60-70 feet On Stranger Tides. This year more than 30 fi lms are scheduled to wide, superb custom designed digital surround sound systems be released in 3D. Our focus on adding multiple 3D screens to featuring the latest in 7.1 Dolby digital sound technology capable our theatres and our consistent 3D pricing strategy resulted in of delivering up to 26,000 watts of power and reserved seating Cineplex delivering better than average 3D box offi ce versus featuring extra-wide, high back rocker seats. We premiered other circuits. At the end of 2011, we had 396 RealD 3D systems UltraAVX in 2010 in 11 theatres and given its tremendous success, representing 29% of our auditoriums. Subsequent to the year added UltraAVX to 12 more theatres in 2011. We recently end, we announced an agreement to add another 100 RealD 3D announced UltraAVX will be added to another 12 locations in systems which will bring our total 3D enabled auditoriums to 2012. Including new builds, this would bring our total UltraAVX approximately 40% of our circuit. locations to 37 by December 31, 2012. Guests love the combination of great technical enhancements combined with the ability to reserve their seat in advance of showtime. This has resulted in higher seat utilization at a premium price. CINEPLEX INC. | 2011 ANNUAL REPORT 3 VIP Cinemas take movie viewing to a whole new level. VIP CINEMAS: A MORE SOPHISTICATED WAY TO SEE A MOVIE In 2010 we signed an agreement with D-Box Technologies Inc. Our goal with VIP Cinemas is to engage the adult movie-goer to install 250 motion seats in 11 theatre locations across Canada by providing them with a premium entertainment experience. with an option to add another 250 seats. We will add those VIP Cinemas feature adult-only auditoriums, upgraded seats additional D-Box motion seats into 10 locations throughout including some full recliners, reserved seating and service at 2012. This will bring our total to approximately 500 D-Box your seat. There is also a licensed lounge where guests can seats in 21 locations. extend their experience before or after a movie. In December, In June we announced the completion of the fi nancing following extensive renovations to the lobby, concession and transactions for the Canadian Digital Cinema Partnership existing auditoriums at our SilverCity Coquitlam Cinemas, (“CDCP”), a joint venture between Cineplex and Empire we opened fi ve VIP Cinema auditoriums and a new VIP Theatres Ltd. With the fi nancing and studio digital cinema licensed restaurant/lounge. This brings our VIP Cinemas deployment agreements complete, CDCP enabled us to roll to four locations and 15 screens. out digital projectors across our circuit. During 2011, we installed Our VIP Cinemas continue to deliver great guest satisfaction 476 digital projectors bringing our circuit total to 891 digital and increased revenue from both the higher ticket price and the systems. As of December 31, 2011, two thirds of our circuit increased food and beverage purchases associated with the was digitized with the balance expected to be completed by lounges and in-seat service. Guests love the experience and summer, 2012. Converting to digital provides us with improved we plan to add additional VIP Cinemas to three to fi ve locations fi lm presentation quality, increased programming fl exibility and in 2012. This will continue to be a strategic focus in the years the ability to add more RealD 3D systems. to come. Our goal is to increase attendance through new theatre development, expanded off erings, compelling value, innovative IMAX THEATRES: A GIANT SCREEN EXPERIENCE marketing and exceptional guest service. As I have already At the beginning of 2011, our circuit included nine fi lm-based mentioned, adding premium off erings provides more IMAX theatres. In 2011 we announced an agreement to convert entertainment choice for our guests. We are careful to ensure seven of these theatres to digital and open fi ve new digital we strike a balance between providing our traditional theatre IMAX locations. This brings our circuit total to 14 IMAX theatres. experience and premium-priced entertainment.