Movie Gallery Reports Results for the Fourth Quarter of 2005

Movie Gallery Reports Results for the Fourth Quarter of 2005

DOTHAN, Ala., March 23 /PRNewswire-FirstCall/ -- Movie Gallery, Inc. (NASDAQ:MOVI) today reported results for the fourth quarter and full year ended January 1, 2006.

For the fourth quarter of 2005, total revenues were $676.4 million. Same- store total revenues for the fourth quarter decreased 8.6% from the fourth quarter of 2004, primarily reflecting the decline in the overall home video rental industry. The combined Company's net loss totaled $546.5 million, or $17.25 per share. Fourth quarter 2005 operating results included the following one-time charges:

i) a non-cash impairment of goodwill and other intangible assets of
$527.9 million pre-tax, or $14.50 per share after tax;
ii) a non-cash valuation allowance on certain of the Company's deferred
tax assets of $85.2 million, or $2.69 per share;
iii) a store closure accrual in the amount of $9.6 million pre-tax, or
$0.20 per share after tax for 64 Movie Gallery stores whose trade
areas overlapped with acquired Hollywood stores; and,
iv) charges for certain other items of $1.5 million pre-tax, or $0.03 per
share after tax.

Adjusted EBITDA was $33.0 million for the fourth quarter of 2005. Reconciliations of non-GAAP financial measures are provided in the financial schedules accompanying this press release.

"Although the fourth quarter of 2005 included some of the year's biggest titles, including Batman Begins, Star Wars Episode 3, War of the Worlds, and Fantastic Four, the strength of the title slate was more than offset by the carryover of negative momentum caused by the lack of successful movies released in the second and third quarters of 2005," said Joe Malugen, Chairman, President and Chief Executive Officer of Movie Gallery.

For fiscal 2005, Movie Gallery's revenues totaled $2.0 billion, which include revenues for 35 weeks of our wholly-owned subsidiary, Hollywood Entertainment Corporation ("Hollywood"), which was acquired on April 27, 2005. Same-store total revenues for fiscal 2005 decreased 4.7% from fiscal 2004. The combined Company's net loss totaled $552.7 million, or $17.53 per share. Fiscal 2005 operating results included the following one-time charges:

i) a non-cash impairment of goodwill and other intangible assets of
$527.9 million pre-tax, or $14.45 per share after tax;
ii) a non-cash valuation allowance on certain of the Company's deferred
tax assets of $85.2 million, or $2.68 per share;
iii) to conform Hollywood's accounting method for extended viewing fees to
Movie Gallery's method charges for $19.0 million pre-tax, or $0.39
per share after tax;
iv) increased amortization expenses of $10.1 million pre-tax, or $0.21
per share after tax, to reduce Movie Gallery's VHS residual value
from $2.00 to $1.00;
v) a store closure accrual in the amount of $9.6 million pre-tax, or
$0.20 per share after tax for 64 Movie Gallery stores whose trade
areas overlapped with acquired Hollywood stores; and,
vi) stock compensation expense and previously reported merger related
charges of $8.2 million pre-tax, or $0.17 per share after tax.

On a pro forma basis for fiscal 2005 (as if the acquisition of Hollywood as of the beginning of the year), Movie Gallery's revenues totaled $2.6 billion and Adjusted EBITDA was $257.0 million, or 9.9% of total revenues.

At January 1, 2006, we had cash and cash equivalents of $135.2 million and $41.9 million in available borrowings under our senior credit facility. With a successful amendment to our credit facility that, among other things, relaxed the financial covenants for the next four fiscal quarters, we believe that cash flow available from operations and availability under the $75.0 million revolving portion of our senior credit facility will be sufficient to operate our business, satisfy our working capital and capital expenditure requirements, and meet our foreseeable liquidity requirements, including debt service throughout 2006.

"Fiscal 2005 was a challenging year for the industry and our Company primarily due to a weak box-office and, to a lesser extent, the continued growth of various alternative entertainment options and new technologies," stated Malugen. "Nevertheless, we continue to believe that the home video industry will remain a significant business for many years to come and our discussions with many of the studio heads continue to support our position regarding the value proposition of home video for both sell-through and rental. There is still no substitute for a quality movie for the consumer to enjoy on their home entertainment center and quality product does bring people to the video store. Fundamentally, we believe that renting a movie is a convenient, affordable and attractively priced form of entertainment which continues to compare favorably to other entertainment alternatives."

"That being said, we are not satisfied with our recent performance and have responded by taking decisive actions to improve our results," said Malugen. "We are implementing a comprehensive set of initiatives to drive revenues, maximize margin opportunities, further improve our operating efficiencies, cut costs and increase asset utilization. We expect this plan will help offset the continued revenue softness we are seeing and expect to continue to see in the near-term, and will contribute to the long-term success of the Company, which is our goal for stockholders, partners and associates alike."

Operational Improvement Initiatives

In conjunction with our ongoing integration efforts, we are also pursuing cost savings and cash generation opportunities through a combination of real estate optimization strategies, lower capital spending, and non-core asset divestitures.

-- Real Estate Optimization - we are implementing multiple strategies to
better manage our store leases and sales floor space. We plan to
reduce the overall footprint of our fleet by returning under-utilized
portions to landlords and negotiating subleases where economically
feasible. We believe that many of the Hollywood stores can be reduced
in size from an average of 6,600 square feet to approximately 4,000
square feet, and that the Movie Gallery stores can be reduced from an
average of 4,200 square feet to approximately 3,000 square feet.
However, given the store-specific nature of these efforts, it will take
time for us to fully realize the resulting financial benefit. As a
result, we expect that the impact to our 2006 earnings will be nominal;
however, we do believe that the savings over the next three years will
be significant.

In addition, we will continue to evaluate the possible closure of
stores as market conditions warrant. For example, in the fourth
quarter of 2005, we closed 64 Movie Gallery stores that overlapped
trade areas served by competing Hollywood stores and we believe this
action will be beneficial to EBITDA during 2006. We recorded store
closure costs of $9.6 million related to these store closures, which
included $1.8 million in non-cash write-offs of store fixtures and
equipment and $7.6 million of reserves for operating lease obligations
to the end of the lease terms. We will continue to evaluate
opportunities such as these as market conditions dictate.

-- Reduced Capital Spending - we intend to reduce our annual capital
expenditures to approximately $35 million in 2006 from approximately
$58 million in 2005, primarily due to fewer new store openings. To
enhance liquidity, we currently plan to open only the approximately 140
new stores which were already in the pipeline for 2006. Additionally,
in order to maximize free cash flow, we plan to curtail our new store
openings over the next several years.

-- Divestiture of Certain Non-Core Assets - we are currently undergoing a
review of our overall asset portfolio aimed at optimizing our core, in-
store businesses. Net proceeds from any divestiture will be used for
debt reduction, working capital and other general corporate purposes.

Integration Update

Despite the challenging market environment, we are ahead of schedule in achieving the previously announced cash savings related to our acquisition of Hollywood. In the last eight months of 2005, we achieved approximately $20 million in cash savings and now we expect to achieve over $50 million in cash savings by the end of 2006. In previous announcements, we stated that we expected to realize cash savings of approximately $20 million in 2005 and up to approximately $50 million by the end of 2007.

The following table summarizes certain cash synergies and savings that we expect to realize through our ongoing efforts to integrate and improve support functions, leverage our purchasing power, and reduce our cost structure.

($ Millions) 2005A 2006E
OPERATING RELATED
Cost of Goods Sold $3.7 $18.5
Store Operating Expenses 0.2 1.7
G&A Expenses 5.0 15.2
8.9 35.4

BALANCE SHEET RELATED
Real Estate Department $3.9 $7.4
Inventory Optimization 7.7 -
Corporate Aircraft - 10.0
11.6 17.4

TOTAL CASH IMPACT $20.5 $52.8

"With the Hollywood integration process ahead of schedule, we are confident in our ability to continue reducing expenses and realizing substantial cash savings. As a part of our integration efforts and cost reduction efforts, we intend to reduce salaried and administrative office staff from the date of the merger by approximately 17%, or by 300 positions, by December 31, 2006," concluded Mr. Malugen.

Conference Call Information

Management will have a conference call today (March 23, 2006) at 11:00 a.m. eastern time to discuss the quarterly financial results and the outlook for the Company. To listen to the conference, please call 1-877-340-MOVI ten minutes prior to the scheduled start time and reference passcode MOVIE GALLERY. The call may also be accessed on the Investor Relations section of the Company's website at: http://www.moviegallery.com/

About Movie Gallery

Movie Gallery is the second largest North American video rental company with approximately 4,800 stores located in all 50 U.S. states, Canada and Mexico. Since the Company's initial public offering in August 1994, Movie

Gallery has grown from 97 stores to its present size through acquisitions and new store openings.

Forward Looking Statements

To take advantage of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, you are hereby cautioned that this release contains forward-looking statements, including descriptions of the Company's ability to meet its cash needs, projected conditions in the home video rental industry, benefits from the Company's operational improvement initiatives, anticipated capital expenditures and synergies related to the continuing integration of Hollywood Entertainment Corporation, that are based upon the Company's current intent, estimates, expectations and projections and involve a number of risks and uncertainties. Various factors exist which may cause results to differ from these expectations. These risks and uncertainties include, but are not limited to, the risk factors that are discussed from time to time in the Company's SEC reports, including, but not limited to, the annual report on Form 10-K for the fiscal year ended January 1, 2006. In addition to the potential effect of these ongoing factors, the Company's operations and financial performance may be adversely effected if, among other factors; (i) same-store revenues are less than projected; (ii) the Company is unable to comply with the revised financial covenants contained in its senior credit facility; (iii) the Company's operational improvement initiatives fail to generate anticipated cost reductions; (iv) the availability of new movie releases priced for sale negatively impacts the consumers' desire to rent movies; (v) unforeseen issues with the continued integration of the Hollywood Entertainment business; (vi) the Company's actual expenses or liquidity requirements differ from estimates and expectations; (vii) consumer demand for movies and games is less than expected; (viii) the availability of movies and games is less than expected; or (ix) competitive pressures are greater than anticipated. The Company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise.

Contacts
Financial: Thomas D. Johnson, Jr., Movie Gallery, Inc., 503-570-1950
Media: Laura F. Smith of Joele Frank, Wilkinson Brimmer Katcher,
212-355-4449 ext. 154

Movie Gallery, Inc.
Consolidated Statements of Operations
(Unaudited, in thousands, except per share amounts)

Thirteen Weeks Ended Fiscal Year Ended
--------------------- -----------------------
January 2, January 1, January 2, January 1,
2005 2006 2005 2006
--------- --------- --------- ---------
Revenue:
Rentals $ 191,113 $ 520,396 $ 729,167 $1,630,058
Product sales 17,316 155,969 62,010 357,269
--------- --------- --------- ---------
Total revenue 208,429 676,365 791,177 1,987,327

Cost of sales:
Cost of rental revenue 55,397 157,714 208,160 502,873
Cost of product sales 12,197 130,004 41,942 271,900
--------- --------- --------- ---------
Gross profit 140,835 388,647 541,075 1,212,554

Operating costs and expenses:
Store operating expenses 107,637 336,527 395,425 1,027,119
General and administrative 12,765 36,525 54,644 128,441
Amortization of intangibles 639 1,147 2,601 3,865
Impairment of goodwill - 522,950 - 522,950
Impairment of other
Intangibles - 4,940 - 4,940
Stock compensation 36 520 831 1,618
-------- -------- -------- --------
Operating income (loss) 19,758 (513,962) 87,574 (476,379)

Interest expense, net (234) (27,100) (624) (68,529)
Write-off of bridge
Financing costs - - - (4,234)
Equity in losses of
unconsolidated entities (855) - (5,746) (806)
-------- -------- -------- --------
Income (loss) before income
taxes 18,669 (541,062) 81,204 (549,948)
Income taxes 7,281 5,413 31,716 2,792
-------- -------- -------- --------
Net income (loss) $ 11,388 $(546,475) $ 49,488 $(552,740)
======== ======== ======== ========

Net income (loss) per share:
Basic $ 0.37 $ (17.25) $ 1.54 $(17.53)
Diluted $ 0.36 $ (17.25) $ 1.52 $(17.53)

Weighted average shares outstanding:
Basic 31,073 31,685 32,096 31,524
Diluted 31,411 31,685 32,552 31,524

Cash dividends per
common share $ 0.03 $ - $ 0.12 $ 0.06

Movie Gallery, Inc.
Unaudited Financial Highlights
and Supplemental Information
(amounts in thousands)

Thirteen Weeks Ended Fiscal Year Ended
---------------------- -----------------------
January 2, January 1, January 2, January 1,
2005 2006 2005 2006
--------- --------- --------- ---------

Adjusted EBITDA $ 29,050 $ 33,041 $ 117,420 $ 184,644

Total same-store revenues (6.0%) (8.6%) (1.5%) (4.7%)
Movie Gallery same-store
revenues (6.0%) (6.8%) (1.5%) (5.7%)
Hollywood same-store
revenues 2.3% (1) (9.4%) 1.5% (1) (4.3%)

Total same-store rental
revenues (3.0%) (9.0%) (1.0%) (6.2%)
Movie Gallery same-store
revenues (3.0%) (9.3%) (1.0%) (6.5%)
Hollywood same-store
revenues (2.8%)(1) (8.8%) (4.3%)(1) (6.0%)

Total same-store product
sales (29.5%) (7.4%) (12.0%) 1.7%
Movie Gallery same-store
sales (29.5%) 19.8% (12.0%) 3.0%
Hollywood same-store sales 17.4% (1) (10.6%) 29.4% (1) 1.5%

Margin data:
Rental margin 71.0% 69.7% 71.5% 69.1%
Product sales margin 29.6% 16.6% 32.4% 23.9%
Total gross margin 67.6% 57.5% 68.4% 61.0%

Percent of total revenue:
Rental revenue 91.7% 76.9% 92.2% 82.0%
Product sales 8.3% 23.1% 7.8% 18.0%
Store operating expenses 51.6% 49.8% 50.0% 51.7%
General and administrative
expenses 6.1% 5.4% 6.9% 6.5%

(1) Hollywood same-store sales not included in total same-store revenue.

We believe a comparison of our fourth quarter margin rates to the prior year is more meaningful if we include the margin results of Hollywood's fourth quarter as reported. After adjusting prior year to include Hollywood on a pro forma basis, the rental gross margin rates were 70.0% and 69.7% in the fourth quarter of 2004 and 2005, respectively, while the product sales gross margin rates were 21.7% and 16.6% in the fourth quarter of 2004 and 2005, respectively.

We also believe a comparison of our fourth quarter operating and general and administrative expenses to the prior year is more meaningful if we include the results of Hollywood's fourth quarter on a pro forma basis and make adjustments for special items that are not comparable. After adjusting for Hollywood results and special items, operating expenses as a percentage of revenue were 42.9% and 48.3% in the fourth quarter of 2004 and 2005, respectively, while general and administrative expenses were 5.8% and 5.4% in the fourth quarter of 2004 and 2005, respectively.

The following table reconciles the reported margin and expense rates to the adjusted margin and expense rates:

Thirteen Weeks Ended
------------------------------------
Financial Highlights - January 2, Margin/ January 1, Margin/
Movie Gallery as reported: 2005 %Rev 2006 %Rev
---------- ------ --------- -------
Rental revenue $191,113 $ 520,396
Product revenue 17,316 155,969
-------- ---------
Total revenue 208,429 676,365

Rental gross profit 135,716 71.0% 362,682 69.7%
Product gross profit 5,119 29.6% 25,965 16.6%
-------- --------
Total gross profit 140,835 388,647

Store operating expense 107,637 51.6% 336,527 49.8%
G&A expense 12,765 6.1% 36,525 5.4%

Subtract Movie Gallery Special Items:
Store operating expense:
Store closure accrual 9,607
Leasehold improvement
Depreciation adjustment 5,410

Add Hollywood as reported:
Rental revenue $359,394
Product revenue 146,497
--------
Total revenue 505,891

Rental gross profit 249,757
Product gross profit 30,408
--------
Total gross profit 280,165

Store operating expense 217,676
G&A expense 37,240

Subtract Hollywood Special Items:
Store operating expense:
Asset impairment 13,800
G&A expense:
Asset write-off 4,400
Merger related fees 4,120

Pro Forma, Adjusted Margin/ Margin/
Financial Highlights % Rev % Rev
Rental revenue $550,507 $ 520,396
Product revenue 163,813 155,969
-------- ---------
Total revenue 714,320 676,365

Rental gross profit 385,473 70.0% 362,682 69.7%
Product gross profit 35,527 21.7% 25,965 16.6%
-------- --------
Total gross profit 421,000 388,647

Store operating expense 306,103 42.9% 326,920 48.3%
G&A expense 41,485 5.8% 36,525 5.4%

Movie Gallery, Inc.
Unaudited Financial Highlights
and Supplemental Information Continued
(amounts in thousands, except stores)

Fiscal Year Ended
---------------------
January 2, January 1,
2005 2006
--------- ---------
Cash Flow Data:
Net cash flow provided by
operating activities $ 89,873 $ 132,406
Net cash flow used in
investing activities (59,469) (1,145,591)
Net cash provided by(used in)
financing activities (45,353) 1,121,959

Cash interest 694 61,782
Cash taxes 6,826 1,918

Capital Expenditures 46,507 58,198

Balance Sheet Data:
Cash and cash equivalents $ 25,518 $ 135,238
Merchandise inventories 27,419 136,450
Rental inventories, net 126,541 371,565
Accounts payable 68,977 236,989
Long-term obligation,
including current portion - 1,161,229

Total Store count:
Beginning of period 2,158 2,482
New store builds 314 288
Stores acquired 74 2,138
Stores closed (64) (159)
--------- ---------
End of period 2,482 4,749
========= =========

Movie Gallery Store Count:
Beginning of period 2,158 2,482
New store builds 314 253
Stores acquired 74 87
Stores closed (64) (147)
--------- ---------
End of period 2,482 2,675
========= =========

Hollywood Store Count included in Movie
Gallery results since April 27, 2005:
Beginning of period -
New store builds 35
Stores acquired 2,051
Stores closed (12)
---------
End of period 2,074
=========

Disclosures Regarding Non-GAAP Financial Information

In this press release, we have provided a non-GAAP financial measure, Adjusted EBITDA, which is defined as operating income plus depreciation, amortization, non-cash stock compensation, and special items, less purchases of rental inventory. Adjusted EBITDA is presented as an alternative measure of operating performance that is used in making business decisions, executive compensation, and as an alternative measure of liquidity. It is a widely accepted financial indicator in the home video specialty retail industry of a company's ability to incur and service debt, finance its operations, and meet its growth plans. However, our computation of Adjusted EBITDA is not necessarily identical to similarly captioned measures presented by other companies in our industry. We encourage you to compare the components of our reconciliation of Adjusted EBITDA to operating income and our reconciliation of Adjusted EBITDA to cash flows from operations in relation to similar reconciliations provided by other companies in our industry. Our presentation of net cash provided by operating activities and Adjusted EBITDA treats rental inventory as being expensed upon purchase instead of being capitalized and amortized. We believe this presentation is meaningful and appropriate because our annual cash investment in rental inventory is substantial and in many respects is similar to recurring merchandise inventory purchases considering our operating cycle and the relatively short useful lives of our rental inventory. Adjusted EBITDA excludes the impact of changes in operating assets and liabilities. This adjustment eliminates temporary effects attributable to timing differences between accrual accounting and actual cash receipts and disbursements, and other normal, recurring and seasonal fluctuations in working capital that have no long-term or continuing affect on our liquidity. Investors should consider our presentation of Adjusted EBITDA in light of its relationship to operating income and net income in our statements of operations. Investors should also consider our presentation of Adjusted EBITDA in light of its relationship to cash flows from operations, cash flows from investing activities and cash flows from financing activities as shown in our statements of cash flows. Adjusted EBITDA is not necessarily a measure of "free cash flow" because it does not reflect periodic changes in the level of our working capital or our investments in new store openings, business acquisitions, or other long-term investments we may make. However, it is an important measure used internally by executive management of our Company in making decisions about where to allocate resources. Because we use Adjusted EBITDA as a measure of performance and as a measure of liquidity, the tables below reconcile Adjusted EBITDA to both operating income and net cash flow provided by operating activities, the most directly comparable amounts reported under GAAP.

The following table provides a reconciliation of Adjusted EBITDA to operating income:

Thirteen Weeks Ended Fiscal Year Ended
---------------------- -----------------------
January 2, January 1, January 2, January 1,
2005 2006 2005 2006
--------- --------- --------- ---------
Operating income $ 19,758 $(513,962) $ 87,574 $(476,379)
Rental amortization 36,831 81,950 144,521 288,084
Rental purchases (41,609) (102,777) (150,924) (277,028)
Depreciation and
intangible amortization 14,034 31,086 36,185 92,655
Impairment of goodwill - 522,950 - 522,950
Impairment of
intangibles - 4,940 - 4,940
Gain on sale of assets - (494) - (494)
Transaction bonuses - - - 1,500
Store closure adjustment - 7,844 - 7,844
Stock compensation 36 520 64 1,618
Extended viewing fee
adjustment - 984 - 18,954
--------- --------- --------- ---------
Adjusted EBITDA $ 29,050 $ 33,041 $ 117,420 $ 184,644
========= ========= ========= =========

The following table provides a reconciliation of Adjusted EBITDA to net cash provided by operating activities:

Thirteen Weeks Ended Fiscal Year End
-------------------- -----------------------
January 2, January 1, January 2, January 1,
2005 2006 2005 2006
--------- --------- --------- ---------
Net cash provided by
operating activities $ 40,262 $ 83,666 $ 89,873 $ 132,406
Changes in operating
assets and liabilities (17,887) (77,528) (2,744) (60,573)
Loses for unconsolidated
entities 855 - 5,746 806
Investment in base stock
inventory 4,531 3,798 15,616 20,367
Tax benefit of stock
options exercised 384 3,301 (4,305) -
Deferred income taxes (6,610) (20,113) (19,106) (8,556)
Amortization of debt
issuance cost - (1,424) - (3,659)
Transaction bonuses - - - 1,500
Store closure adjustment - 7,844 - 7,844
Interest expense 234 27,100 624 72,763
Income taxes 7,281 5,413 31,716 2,792
Extended viewing fee
adjustment - 984 - 18,954
--------- --------- --------- ---------
Adjusted EBITDA $ 29,050 $ 33,041 $ 117,420 $ 184,644
========= ========= ========= =========

We have also provided a pro forma Adjusted EBITDA, which combines the results of Movie Gallery and Hollywood for the full fiscal year ended January 2, 2006, excluding certain merger-related expenses paid by Hollywood prior to the completion of the merger. We believe this presentation is meaningful and appropriate because it provides investors information regarding our results of information if our business had been combined with Hollywood for the entire year. Management uses this information to analyze results from continuing operations and to view trends and changes in these results. We have also presented pro forma Adjusted EBITDA because the financial covenants under our senior credit facility are calculated based upon our results for the preceding four quarters. You should note, however, that calculations of pro forma Adjusted EBITDA and Adjusted EBITDA contained herein are calculated in a different manner than that required under our senior credit facility. The following table provides a calculation of pro forma Adjusted EBITDA to Adjusted EBITDA as reconciled above to operating income:

Hollywood Ent.
Fiscal Year Ended January 1 2005
to April 26,
January 1, 2006 2005 Pro Forma
----------------- -------------- -----------
Operating income $ (476,379) $ 45,067 $ (431,312)
Rental amortization 288,084 59,042 347,126
Rental purchases (277,028) (74,147) (351,175)
Depreciation and
intangible amortization 92,655 21,108 113,763
Impairment of goodwill 522,950 - 522,950
Impairment of
intangibles 4,940 - 4,940
Gain of sales of asset (494) - (494)
Transaction bonus 1,500 - 1,500
Store closure adjustment 7,844 - 7,844
Stock compensation 1,618 - 1,618
Merger fees - 21,146 21,146
Extended viewing fee
adjustment 18,954 122 19,076
---------- ---------- ----------
Adjusted EBITDA $ 184,644 $ 72,338 $ 256,982
========== ========== ==========

The following table reconciles Adjusted EBITDA and pro forma Adjusted EBITDA to net cash provided by operating activities:

Hollywood Ent.
Fiscal Year Ended January 1 2005
to April 26,
January 1, 2006 2005 Pro Forma
----------------- -------------- -----------
Net cash provided by
operating activities $ 132,406 $ (10,145) $ 122,261
Changes in operating
assets and liabilities (60,573) 45,010 (15,563)
Losses for unconsolidated
entities 806 - 806
Investment in base stock
inventory 20,367 4,561 24,928
Tax benefit of stock
options exercised - (15,204) (15,204)
Deferred income taxes (8,556) 17,700 9,144
Change in deferred rent - 1,650 1,650
Amortization of debt
issuance cost (3,659) (468) (4,127)
Store closure adjustment 7,844 - 7,844
Merger fees - 21,146 21,146
Transaction bonus 1,500 - 1,500
Interest expense 72,763 8,741 81,504
Income taxes 2,792 (775) 2,017
Extended viewing fee
adjustment 18,954 122 19,076
---------- ---------- ----------
Adjusted EBITDA $ 184,644 $ 72,338 $ 256,982
========== ========== ==========

Source: Movie Gallery, Inc.

CONTACT: Financial: Thomas D. Johnson, Jr. of Movie Gallery, Inc.,
+1-503-570-1950, or Media: Laura F. Smith of Joele Frank, Wilkinson Brimmer
Katcher, +1-212-355-4449 ext. 154

Web site: http://www.moviegallery.com/

-------
Profile: intent