Table of Contents

 

 

 

**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**WASHINGTON, D.C. 20549**

 

**FORM 10-K**

 

**ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE**

**SECURITIES EXCHANGE ACT OF 1934**

 

**For the fiscal year ended December 31,2009**

 

**Commission file number: 033-49598**

 

**UNITED ARTISTS THEATRE CIRCUIT,INC.**

(Exact name of registrant as specified in itscharter)

 

| **Maryland**                                                    | ** ** | **13-1424080**                                             |
|-----------------------------------------------------------------|------------|------------------------------------------------------------|
| (State or other jurisdiction of  incorporation or organization) |       | (Internal Revenue Service Employer  Identification Number) |

 

| **7132 Regal Lane****Knoxville, TN**      | ** ** | **37918**  |
|-------------------------------------------|------------|------------|
| (Address of principal  executive offices) |       | (Zip Code) |

 

Registrant’s telephone number, including areacode: **865/922-1123**

 

Securities registered pursuant to Section 12(b) of the Act: **None**

Securities registered pursuant to Section 12(g) of the Act: **None**

 

Indicatebycheckmarkiftheregistrantisawell-knownseasonedissuer,asdefinedinRule405oftheSecuritiesAct.  YesoNox

 

Indicateby check mark if the registrant is not required to file reports pursuant to Section 13or Section 15(d) of the Act. Yes x No o

 

Indicateby check mark whether the registrant: (1) has filed all reports requiredto be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. Yes x No o

 

Indicate by check markwhether the registrant has submitted electronically and posted on its corporateWeb site, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter)during the preceding 12 months (or for such shorter period that the registrantwas required to submit and post such files). Yes o No o

 

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405of this chapter) is not contained herein, and will not be contained, to thebest of the registrant’s knowledge, in definitive proxy or informationstatements incorporated by reference in Part III of this Form 10-K orany amendment to this Form 10-K. x

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large acceleratedfiler,” “accelerated filer” and “smaller reporting company” in Rule 12b-2of the Exchange Act.

 

| Large accelerated  filer o                    |   | Accelerated  filer o         |
|-----------------------------------------------|--------|------------------------------|
|                                          |   |                         |
| Non-accelerated  filer x                      |   | Smaller  reporting company o |
| (Do not check if a smaller reporting company) |   |                         |

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theAct):  Yes oNo x

 

The registrant is awholly owned subsidiary of Regal Entertainment Group. As of July 2, 2009,there were no shares of voting or non-voting common stock held bynon-affiliates of the registrant.

 

The registrant meets theconditions set forth in General Instruction I(1)(a) and (b) of Form 10-Kand is therefore filing this form with the reduced disclosure format permittedby General Instruction I(2).

 

The number of shares outstanding of $1.00 par value common stock at March 22, 2010 was 100 shares.

 

 

 

Table of Contents

 

**TABLE OF CONTENTS**

 
| **PART I**   |
|-------------------|
| Item 1.           | Business |   | 3 |
|              | The Company |   | 3 |
|              | Description  of Business |   | 3 |
|              | Industry Overview and Trends |   | 4 |
|              | Theatre  Operations |   | 5 |
|              | Film  Distribution |   | 7 |
|              | Film  Exhibition |   | 7 |
|              | Concessions |   | 8 |
|              | Competition |   | 8 |
|              | Marketing  and Advertising |   | 8 |
|              | Management Information Systems |   | 9 |
|              | Seasonality |   | 9 |
|              | Employees |   | 9 |
|              | Regulation |   | 9 |
| Item 1A.          | Risk Factors |   | 10 |
| Item 1B.          | Unresolved  Staff Comments |   | 12 |
| Item 2.           | Properties |   | 12 |
| Item 3.           | Legal Proceedings |   | 13 |
| Item 4.           | Removed and Reserved |   | 13 |
|              |   |   |   |
| **PART II**  |
| Item 5.           | Market for  the Registrant’s Common Equity, Related Stockholder Matters and Issuer  Purchases of Equity Securities |   | 13 |
| Item 6.           | Selected  Financial Data |   | 13 |
| Item 7.           | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |   | 13 |
|              | Overview and Basis of Presentation |   | 13 |
|              | Results  of Operations |   | 14 |
|              | Liquidity and Capital Resources |   | 22 |
|              | Contractual Cash Obligations and Commitments |   | 23 |
|              | Critical Accounting Estimates |   | 23 |
|              | Quarterly  Results |   | 25 |
|              | Inflation |   | 26 |
|              | Seasonality |   | 26 |
|              | Recent Accounting Pronouncements |   | 26 |
|              | Off-Balance Sheet Arrangements |   | 26 |
| Item 7A.          | Quantitative and Qualitative  Disclosures About Market Risk |   | 26 |
| Item 8.           | Financial Statements and Supplementary  Data |   | 27 |
| Item 9.           | Changes in and Disagreements with  Accountants on Accounting and Financial Disclosure |   | 46 |
| Item 9A.          | Controls and Procedures |   | 46 |
| Item 9A (T).      | Controls and Procedures |   | 47 |
| Item 9B.          | Other Information |   | 47 |
|              |   |   |   |
| **PART III** |
| Item 10.          | Directors, Executive Officers and  Corporate Governance |   | 48 |
| Item 11.          | Executive Compensation |   | 48 |
| Item 12.          | Security Ownership of Certain  Beneficial Owners and Management and Related Stockholder Matters |   | 48 |
| Item 13.          | Certain Relationships and Related  Transactions, and Director Independence |   | 48 |
| Item 14.          | Principal Accounting Fees and  Services |   | 48 |
|              |   |   |   |
| **PART IV**  |
| Item 15.          | Exhibits, Financial Statement  Schedules |   | 49 |
| Signatures        |   |   | 52 |

 

2

----

Table ofContents

 

**UNITEDARTISTS THEATRE CIRCUIT, INC.**

 

**PART I**

 

*Some ofthe information in this Form 10-K includes “forward-looking statements”within the meaning of Section 27A of the Securities Act of 1933, asamended, and Section 21E of the Securities Exchange Act of 1934, asamended. All statements other than statements of historical facts included inthis Form 10-K, including, without limitation, certain statements under “Management’sDiscussion and Analysis of Financial Condition and Results of Operations” and “Business”may constitute forward- looking statements. In some cases you can identify these “forward-looking statements” bywords like “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,”“estimates,” “predicts,” “potential” or “continue” or the negative of thosewords and other comparable words.  Theseforward-looking statements involve risks and uncertainties. Our actual resultscould differ materially from those indicated in these statements. Thediscussion and analysis of our financial condition and results of operationsfound within “Management’s Discussion and Analysis of Financial Condition andResults of Operations” should be read in conjunction with the AuditedConsolidated Financial Statements and Notes thereto included in Part II,Item 8 of this Form 10-K.  TheCompany’s actual results may differ materially from the results discussed inthe forward-looking statements.  Factorsthat might cause such a difference include those discussed in Item 1 and Item1A as well as those discussed elsewhere in this Form 10-K.*

 

**Item1.  BUSINESS**

 

**THE COMPANY**

 

United ArtistsTheatre Company (the “Parent” or “United Artists”), a Delaware corporationorganized in February 2002, is the parent company of United ArtistsTheatre Circuit, Inc. (“we,” “us,” “our,” the “Company” or “UATC”), aMaryland corporation organized in May 1926, and United Artists RealtyCompany (“UAR”), which is the parent company of United Artists Properties ICorp. (“Prop I”). UATC leases certain theatres from Prop I. The terms UATC andthe Company shall be deemed to include the respective subsidiaries of suchentity when used in discussions included herein regarding the currentoperations or assets of such entity.

 

United Artistsbecame a wholly owned subsidiary of Regal Entertainment Holdings, Inc. (“REH”)through a series of transactions in 2002. REH is a wholly owned subsidiary of Regal Entertainment Group (“REG” or “Regal”)who acquired Regal Cinemas Corporation (“Regal Cinemas”), United Artists andEdwards Theatres, Inc. (“Edwards”) through a series of transactions on April 12,2002.  For a detailed discussion of thetransactions resulting in Regal’s acquisition of its subsidiaries, see Note 2to the consolidated financial statements included in Part II, Item 8 ofthis Form 10-K.

 

On August 17,2005, REH transferred the stock of United Artists to Regal Cinemas, Inc. (“RCI”).As a result, United Artists and its subsidiaries became subsidiaries of RCI.

 

Our Internetaddress is *www.uatc.com*.  Our annual reports on Form 10-K,quarterly reports on Form 10-Q and current reports on Form 8-K, andany amendments to these reports, are available free of charge on our Internetwebsite under the heading “Investor Relations” as soon as reasonablypracticable after we electronically file such material with, or furnish it to,the Securities and Exchange Commission (the “Commission”).

 

The Companymanages its business under one reportable segment - theatre exhibitionoperations.

 

**DESCRIPTIONOF BUSINESS**

 

As of December 31,2009, we operate 567 screens in 65 theatres in 19 states with over 19 millionannual attendees for the fiscal year ended December 31, 2009 (“fiscal 2009”).Our theatres are managed by RCI, a wholly owned subsidiary of Regal, pursuantto a management arrangement described below. We operate multi-screen theatres and have an average of 8.7 screens perlocation. Theatre operations in seven states (New York, California,Mississippi, Florida, Maryland, Texas and Pennsylvania) accounted forapproximately 72.3% and 69.8% of our total theatres and screens, respectively,as of December 31, 2009 and 79.4% of UATC’s theatrical revenue for fiscal2009.

 

3

----

Table ofContents

 

We havehistorically upgraded our theatre circuit by retrofitting existing theatres andstrategically closing and disposing of under-performing theatres.  Approximately 66% of our screens are intheatres with 10 or more screens.  As of December 31,2009, we operate 24 theatres (274 screens) which offer stadium seating,representing 48% of our screens.

 

The Company’s fiscal yearends on the first Thursday after December 25, which in certain years (suchas fiscal 2008) results in a 53-week fiscal year. For fiscal 2009, we reportedtotal revenues, income from operations and net income attributable tocontrolling interest of $223.4 million, $7.8 million and $4.8 million,respectively. In addition, we generated $18.7 million of cash flows fromoperating activities during fiscal 2009.

 

In connection with Regal’sacquisition of its subsidiaries, as more fully described in Note 2 to theconsolidated financial statements included in Part II, Item 8 of this Form 10-K,a management agreement was executed between RCI and UATC under which RCImanages all aspects of the theatre operations of UATC and its subsidiaries andmakes all business decisions on behalf of UATC. In certain markets where UATCoperates theatres, RCI operates theatres.

 

Pursuant to ourmanagement agreement with RCI, RCI, through an agreement with NationalCineMedia, LLC (“National CineMedia”), provides all on-screen and lobbyadvertising and event services to UATC. We receive a net fee for the use of our theatres for such advertisingand event services that is recorded in other revenue.  On February 13, 2007, National CineMediaInc. (“NCM Inc.”), a newly formed entity that serves as the sole manager ofNational CineMedia, completed an initial public offering, or IPO, of its commonstock. In connection with the completion of the IPO, RCI amended and restatedits existing exhibitor services agreement (“ESA”) with National CineMedia,whereby in exchange for its pro rata share of the IPO proceeds, RCI agreed to amodification of National CineMedia’s payment obligation under the ESA.  The modification extended the term of the ESAto 30 years, provided National CineMedia with a five-year right of firstrefusal beginning one year prior to the end of the term and changed the basisupon which RCI is paid by National CineMedia from a percentage of revenuesassociated with advertising contracts entered into by National CineMedia to amonthly theatre access fee.  On-screenadvertising time provided to our beverage concessionaire is provided byNational CineMedia under the terms of their agreement with RCI.  See Note 5 to the consolidated financialstatements included in Part II, Item 8 of this Form 10-K.

 

**INDUSTRYOVERVIEW AND TRENDS**

 

The domestic motionpicture exhibition industry is a mature business that has historicallymaintained steady long-term growth in revenues and attendance. Since 1965,total box office revenues have grown at a compound annual growth rate ofapproximately 6% with annual attendance of approximately 1.4 billion attendeesin 2009.  Against this background ofsteady long-term growth in revenues and attendance, the exhibition industry hasexperienced periodic short-term increases and decreases in attendance and,consequently, box office revenues.  Weexpect the cyclical nature of the domestic motion picture exhibition industryto continue for the foreseeable future.

 

More recently, thedomestic motion picture exhibition industry has experienced increased competitionfrom other methods of delivering films to consumers, including cabletelevision, in-home video and DVD, satellite and pay-per-view services anddownloads via the Internet. Traditionally, when motion picture distributorslicensed their films to the domestic exhibition industry, they refrained fromlicensing their products to other delivery channels for a period of time,commonly called the theatrical release window. Over the past several years, theaverage period between a film’s theatrical release and its in-home video or DVDrelease has remained relatively stable. Fundamentally, we believe thatmovie-going is a convenient, affordable and attractively priced form ofout-of-home entertainment, which, on an average price per patron basis,continues to compare favorably to other out-of-home entertainment alternatives,such as concerts and sporting events.

 

We believe a modernmegaplex featuring stadium seating is preferred by patrons over a sloped-floormultiplex theatre, the predominant theatre-type built prior to 1996. We believetheatres larger than the current 10 to 18 screen megaplex are not able togenerate attractive returns in most locations because of the substantial marketsuitability requirements to generate a level of profitability similar to thecurrent megaplex format. We also believe that another evolution of theatreformats beyond the current megaplex is unlikely to occur in the foreseeablefuture. 

 

The domestic motionpicture industry is in the process of converting from film-based media to

 

4

----

Table of Contents

 

electronic-based media,including the distribution of feature films in a digital format rather than a35 mm film format. Virtually all entertainment content today can be exhibiteddigitally. Digital projection produces a consistent state-of-the-artpresentation for patrons as there is no degradation of image over theexhibition period of the motion picture. We believe that operating a digitaltheatre circuit will enable us to generate incremental revenue fromdifferentiated motion picture formats such as digital 3D, generate additionalrevenue from exhibition of specialty content offerings and provide greater flexibilityin scheduling our programming content, which we expect will enhance ourcapacity utilization. We remain optimistic regarding the benefits of digitalcinema primarily as it relates to future growth potential associated with 3Dfilm product and other 3D content and are pleased to see growing support of 3Dfilm product by the major motion picture studios. We have also experienced anincrease in alternative content available to us. As directors and producerscontinue to embrace new technology in their productions, we expect new andinnovative content generation to continue.

 

To that end, on February 12,2007, Regal, along with AMC Entertainment, Inc. (“AMC”) and Cinemark, Inc.(“Cinemark”) formed Digital Cinema Implementation Partners, LLC (‘‘DCIP’’) to createa financing model and establish agreements with major motion picture studiosfor the implementation of digital cinema. Travis Reid, the former president andchief executive officer of Loews Theatres, serves as the chief executiveofficer of DCIP and DCIP engaged J.P. Morgan Securities Inc. to assist with thereview of a business plan for digital cinema and with identifying andevaluating potential financing and capital structure alternatives. Futuredigital cinema developments will be managed by DCIP, subject to the approval ofRegal, AMC and Cinemark. Each of Regal, AMC and Cinemark has an equal votinginterest in DCIP. To date, DCIP has executed long-term deployment agreementswith six motion picture studios. In accordance with these agreements, thedigital projection systems deployed by DCIP will comply with the technology andsecurity specifications developed by the Digital Cinema Initiatives studioconsortium.

 

The costs of implementingdigital projection in our theatres will be substantially funded by DCIP.  We expect that with respect to our existingtheatres, DCIP will cover substantially all of the costs of installing digitalprojection systems. We expect DCIP to fund the cost of conversion through thecollection of virtual print fees (“VPFs”) from motion picture studios andequipment lease payments from participating exhibitors.  We will bear operating and maintenance costswith respect to digital projection systems in our theatres, which we expect tobe relatively comparable to what we currently spend on our conventional filmprojectors. Our ability to implement digital cinema systems in accordance withour plans will depend on the availability of equipment from third-partyvendors, payment of VPFs by motion picture studios and equipment lease paymentsfrom participating exhibitors. We believe that the supply of digital cinemaequipment will be sufficient for our needs. As of December 31, 2009, we operated 31 screens outfitted withdigital 3D projection systems.

 

As more fully describedin Note 12 to the consolidated financial statements included in Part II,Item 8 of this Form 10-K, on March 10, 2010, DCIP completed theexecution of definitive agreements and related financing transactions inconnection with the conversion to digital projection.  The completed financing is expected to coverthe cost of conversion for substantially all of our circuit’s screens.  We ultimately expect to outfit all of ourscreens with digital projection systems. As of the date of this Form 10-K,we have already begun to convert our existing theatres from 35 mm filmprojection to digital projection and intend to complete the conversion of ourentire circuit in approximately three to four years.

 

**THEATREOPERATIONS**

 

UATC operates 567 screensin 65 theatres in 19 states as of December 31, 2009.  We primarily operate multi-screen theatres.Our multi-screen theatre complexes typically feature auditoriums ranging from100 to 500 seats each. As a result, our theatres appeal to a diverse group ofpatrons because we offer a wide selection of films and convenient show times.In addition, many of our theatres feature modern amenities such as wall-to-wallscreens, digital stereo surround-sound, multi-station concessions stands,computerized ticketing systems, plush stadium seating with cup holders andretractable armrests, enhanced interiors and exteriors, and video game areasadjacent to the theatre lobby.

 

We believe that ourtheatre circuit will be further enhanced with the installation of digitalprojection systems. We believe that operating a digital theatre circuit willenable us to generate incremental revenue from differentiated motion pictureformats such as digital 3D, generate additional revenue from exhibition ofspecialty content offerings

 

5

----

Table of Contents

 

and provide greaterflexibility in scheduling our programming content, which we expect will enhanceour capacity utilization.

 

Our multi-screen theatresare designed to increase profitability by optimizing revenues per square footand reducing the cost per square foot of operation. We vary auditorium seatingcapacities within the same theatre, allowing us to exhibit films on a more costeffective basis for a longer period of time by shifting films to smallerauditoriums to meet changing attendance levels. In addition, we realizesignificant operating efficiencies by having common box office, concessions,projection, lobby and restroom facilities, which enables us to spread some ofour costs, such as payroll, advertising and rent, over a higher revenue base.We stagger movie show times to reduce staffing requirements and lobbycongestion and to provide more desirable parking and traffic flow patterns. Wealso actively monitor ticket sales in order to quickly recognize demand surges,which enables us to add seating capacity quickly and efficiently. In addition,we believe that operating a theatre circuit consisting primarily ofmulti-screen theatres enhances our ability to attract patrons.

 

The following tabledetails the number of locations and theatre screens in our theatre circuitranked by the number of locations in each state as of December 31, 2009:

 
| **State**       | ** ** | **Locations** | ** ** | **Number of Screens** | ** ** |
|-----------------|------------|---------------|------------|-----------------------|------------|
| New  York       |       | 15            |       | 110                   |       |
| California      |       | 9             |       | 75                    |       |
| Mississippi     |       | 7             |       | 56                    |       |
| Maryland        |       | 4             |       | 46                    |       |
| Texas           |       | 4             |       | 45                    |       |
| Florida         |       | 4             |       | 36                    |       |
| Pennsylvania    |       | 4             |       | 28                    |       |
| New  Jersey     |       | 3             |       | 31                    |       |
| Colorado        |       | 2             |       | 24                    |       |
| Indiana         |       | 2             |       | 19                    |       |
| Nevada          |       | 2             |       | 18                    |       |
| Louisiana       |       | 2             |       | 16                    |       |
| Michigan        |       | 1             |       | 14                    |       |
| Arkansas        |       | 1             |       | 12                    |       |
| Arizona         |       | 1             |       | 10                    |       |
| Virginia        |       | 1             |       | 10                    |       |
| North  Carolina |       | 1             |       | 7                     |       |
| Massachusetts   |       | 1             |       | 6                     |       |
| Georgia         |       | 1             |       | 4                     |       |
| Total           |       | 65            |       | 567                   |       |

 

We haveimplemented a best management practices program across all of our theatres,including daily, weekly and monthly management reports generated for eachindividual theatre, as well as maintaining active communication between thetheatres, divisional management and corporate management. We use thesemanagement reports and communications to closely monitor admissions andconcessions revenues as well as accounting, payroll and workforce informationnecessary to manage our theatre operations effectively and efficiently.

 

We seekexperienced theatre managers and require new theatre managers to complete acomprehensive training program within the theatres and at the “RegalEntertainment University,” which is held at our corporate office.  The program is designed to encompass allphases of theatre operations, including our operating philosophy, policies,procedures and standards. In addition, we have an incentive compensationprogram for theatre-level management that rewards theatre managers forcontrolling operating expenses while complying with our operating standards.

 

In addition, wehave implemented quality assurance programs in all of our theatres to maintainclean, comfortable and modern facilities. To maintain quality and consistencywithin our theatre circuit, district and regional managers regularly inspecteach theatre. We also operate a “mystery shopper” program, which involvesunannounced

 

6

----

Table of Contents

 

visits by unidentifiedcustomers who report on the quality of service, film presentation andcleanliness at individual theatres.

 

**FILMDISTRIBUTION**

 

Domestic movietheatres are the primary initial distribution channel for domestic filmreleases. The theatrical success of a film is often the most important factorin establishing its value in other film distribution channels. Motion picturesare generally made available through several alternative distribution methodsafter the theatrical release date, including home video and DVD, cabletelevision, broadcast television and satellite, pay-per-view services anddownloads via the Internet. A strong opening run at the theatre can helpestablish a film’s success and substantiate the film’s revenue potential.  For example, the value of home video, DVD andpay cable distribution agreements frequently depends on the success of a film’stheatrical release. As the primary distribution mechanism for the public’sevaluation of films, we believe that domestic theatrical distribution remainsthe cornerstone of a film’s overall financial success.

 

The development ofadditional distribution channels has given motion picture producers the abilityto generate a greater portion of a film’s revenues through channels other thanits theatrical release. Historically, this potential for increased revenueafter a film’s initial theatrical release has enabled major motion picturestudios and some independent producers to increase the budgets for filmproduction and advertising.

 

**FILMEXHIBITION**

 

***Evaluationof Film.***    We license films on a film-by-film andtheatre-by-theatre basis by negotiating directly with film distributors. Priorto negotiating for a film license, we evaluate the prospects for upcomingfilms. Criteria we consider for each film may include cast, producer, director,genre, budget, comparative film performances and various other marketconditions. Successful licensing depends greatly upon the exhibitor’s knowledgeof trends and historical film preferences of the residents in markets served byeach theatre, as well as the availability of commercially successful motionpictures.

 

***Accessto Film Product.***    Films are licensed from film distributorsowned by major production companies and from independent film distributors thatdistribute films for smaller production companies. Film distributors typicallyestablish geographic licensing zones and allocate each available film to onetheatre within that zone.

 

In licensing zoneswhere we are the sole exhibitor, we obtain film licenses by selecting a filmfrom among those films being offered and negotiating directly with thedistributor. In zones where there is competition, a distributor will allocatefilms among the exhibitors in the zone. When films are licensed under theallocation process, a distributor will select an exhibitor for each film whothen negotiates film rental terms directly with the distributor.

 

***FilmRental Fees.***    Film licenses typically specify rental feesor formulas by which rental fees may be calculated.  The primary formulas used are the “slidingscale” formula, a “firm term” formula and a “review or settlement”. Under asliding scale formula, the distributor receives a percentage of the box officereceipts using a pre-determined and mutually agreed upon film rentaltemplate.  This formula establishes filmrental predicated on box office performance and is the predominant formula usedby us to calculate film rental fees. Under the firm term formula, the exhibitorand distributor agree prior to the exhibition of the film on a specifiedpercentage of the box office receipts to be remitted to the distributor.  Lastly, under the review or settlementmethod, the exhibitor and distributor negotiate a percentage of the box officereceipts to be remitted to the distributor upon completion of the theatricalengagement.  These negotiations typicallyinvolve the use of historical settlements or past precedent.

 

***Durationof Film Licenses.***    The duration of our filmlicenses are negotiated with our distributors on a case-by-case basis. Theterms of our license agreements depend on performance of each film. Marketablemovies that are expected to have high box office admissions revenues willgenerally have longer license terms than movies with more uncertain performanceand popularity.

 

***Relationshipwith Distributors.***    Many distributors providequality first-run movies to the motion picture exhibition industry.  For the year ended December 31, 2009,ten major film distributors accounted for approximately 95% of our admissionsrevenues.  Five of the ten major filmdistributors each accounted for more than 10% of fiscal 2009 admissions revenues.One film distributor accounted for approximately 20% of fiscal 2009 admissionsrevenues.  We

 

7

----

Table of Contents

 

license films from eachof the major distributors and believe that our relationships with thesedistributors are good. From year to year, the revenues attributable toindividual distributors will vary widely depending upon the number andpopularity of films that each one distributes.

 

**CONCESSIONS**

 

In addition to boxoffice admissions revenues, we generated approximately 27.2% of our totalrevenues from concessions sales during fiscal 2009. We emphasize prominent andappealing concession stations designed for rapid and efficient service. Wecontinually seek to increase concessions sales by optimizing product mix,introducing special promotions from time to time and offering employee trainingand incentive programs to up-sell and cross-sell products. We have favorable concessionsupply contracts and have developed an efficient concession purchasing anddistribution supply chain. RCI, pursuant to its management agreement,negotiates directly with manufacturers for many of our concession items toobtain competitive prices and to ensure adequate supplies.

 

**COMPETITION**

 

The motion pictureexhibition industry is highly competitive. Motion picture exhibitors generallycompete on the basis of the following competitive factors:

 

·                  ability to secure films with favorable licensingterms;

 

·                  availability of stadium seating, location, reputationof their theatres and seating capacity;

 

·                  quality of projection and sound systems at theirtheatres; and

 

·                  ability and willingness to promote the films they areshowing.

 

We have severalhundred competitors nationwide, which vary substantially in size, from smallindependent exhibitors to large national chains such as AMC and Cinemark. As aresult, our theatres are subject to varying degrees of competition in theregions in which they operate. Our competitors, including newly establishedmotion picture exhibitors, may build new theatres or screens in areas in whichwe operate, which may result in increased competition and excess capacity in thoseareas. If this occurs, it may have an adverse effect on our business andresults of operations.  In addition,there are markets that contain both RCI and UATC theatres.  The existence of RCI theatres in thesemarkets could have an impact on UATC film allocation and attendance.

 

We also compete withother motion picture distribution channels, including home video and DVD, cabletelevision, broadcast television and satellite, pay-per-view services anddownloads via the Internet. Other technologies such as video on demand couldalso have an adverse effect on our business and results of operations.Traditionally, when motion picture distributors licensed their products to thedomestic exhibition industry, they refrained from licensing their motionpictures to these other distribution channels for a period of time, commonlycalled the theatrical release window.  Webelieve that the theatrical release window has been stable over the past fiveto six years.  However, we believe that amaterial contraction of the theatrical release window could significantlydilute the consumer appeal of the out-of-home motion picture offering. As aresult, we continue to monitor the status of the theatrical release windowduring our film licensing decisions.

 

In addition, we competefor the public’s leisure time and disposable income with other forms ofentertainment, including sporting events, concerts, live theatre andrestaurants.

 

**MARKETINGAND ADVERTISING**

 

Currently, filmdistributors organize and finance multimedia advertising campaigns for majorfilm releases. To market our theatres, we utilize newspaper, Internet and radioadvertising to inform our patrons of film selections and show times. Newspaperadvertisements are typically displayed in a single grouping for all of ourtheatres located in a newspaper’s circulation area. In some of our markets, weemploy special marketing programs for specific films and concessions items.

 

8

----

Table of Contents

 

We participate in afrequent moviegoer loyalty program sponsored by REG, named the Regal Crown Club®, in all of our markets. Regal Crown Club® members areeligible for specified awards, such as concession items, based on purchasesmade at our participating theatres. As of December 31, 2009, REG hadapproximately six million active members in the Regal Crown Club®. In addition,we seek to develop patron loyalty through a number of other marketing programssuch as free summer children’s film series, cross-promotional ticketredemptions and promotions within local communities. We offer these programsonly in selected markets. We plan to use these programs in markets where webelieve patron loyalty can be further enhanced, and we will continue toevaluate our markets on a case-by-case basis to determine the suitability ofthese programs in individual regions.

 

**MANAGEMENTINFORMATION SYSTEMS**

 

We make extensive use ofinformation technology (“IT”) for the management of our business, our theatres,and other revenue generating operations. The revenue streams generated byattendance and concession sales are fully supported by information systems tomonitor cash flow and to detect fraud and inventory shrinkage. We have implementedsoftware and hardware solutions which provide for enhanced capabilities andefficiency within our theatre operations. These solutions have enabled us to sell gift cards at various majorretailers, grocery stores and mass discounters and to redeem those gift cardsat our theatre box offices and concession stands.  We continue to expand our ability to selltickets remotely by using our Internet ticketing partner, Fandango.com, and bydeploying self-service customer activated terminals (“CATs”) in appropriatetheatres. The CATs can sell tickets for current and future shows and providethe capability to retrieve tickets purchased through Fandango.com.  We continue to investigate and invest in ITto improve services to our patrons and provide information to our management,allowing them to operate the theatres efficiently.

 

Our schedulingsystems support the coordination needed to properly allocate our auditoriumsbetween film showings and meetings and events of National CineMedia, while alsoensuring that movie audiences view the intended advertising and that revenue isallocated to the appropriate business function. The scheduling systems alsoprovide information electronically and automatically to the newspapers, whichallows them to publish correct show starting times with approved advertisinggraphics. The sales and attendance information collected by the theatre systemsis used directly for film booking and settlement as well as being the primarysource of data for our financial systems.

 

**SEASONALITY**

 

Our revenues areusually seasonal, coinciding with the timing of releases of motion pictures bythe major distributors. Generally, motion picture studios release the mostmarketable motion pictures during the summer and the holiday season.  The unexpected emergence of a hit film duringother periods can alter the traditional trend. The timing of movie releases canhave a significant effect on our results of operations, and the results of onefiscal quarter are not necessarily indicative of results for the next fiscalquarter or any other fiscal quarter. The seasonality of motion pictureexhibition, however, has become less pronounced as motion picture studios arereleasing motion pictures somewhat more evenly throughout the year.

 

**EMPLOYEES**

 

As of February 10,2010, we employed approximately 2,086 persons. Film projectionists at certain of the Company’s theatres in the New Yorkmarket are covered by two collective bargaining agreements. The Companyconsiders its employee relations to be good.

 

**REGULATION**

 

The distributionof motion pictures is in large part regulated by federal and state antitrustlaws and has been the subject of numerous antitrust cases. Consent decreeseffectively require major film distributors to offer and license films toexhibitors, including us, on a film-by-film and theatre-by-theatre basis.Consequently, exhibitors cannot assure themselves of a supply of films byentering into long-term arrangements with major distributors, but must negotiatefor licenses on a film-by-film basis.

 

Our theatres mustcomply with Title III of the Americans with Disabilities Act of 1990 (the “ADA”)to the extent that such properties are “public accommodations” and/or “commercialfacilities” as defined by the ADA. 

 

9

----

Table of Contents

 

Compliance with the ADArequires that public accommodations “reasonably accommodate” individuals withdisabilities and that new construction or alterations made to “commercialfacilities” conform to accessibility guidelines unless “structurallyimpracticable” for new construction or technically infeasible for alterations.Non-compliance with the ADA could result in the imposition of injunctiverelief, fines, an award of damages to private litigants and additional capitalexpenditures to remedy such non-compliance.

 

We believe that weare in substantial compliance with all current applicable regulations relatingto accommodations for the disabled. We intend to comply with future regulationsin this regard and except as set forth in Note 8 to the consolidated financialstatements included in Part II, Item 8 of this Form 10-K, we do notcurrently anticipate that compliance will require us to expend substantial funds.Our theatre operations are also subject to federal, state and local lawsgoverning such matters as wages, working conditions, citizenship and health andsanitation requirements.  We believe thatwe are in substantial compliance with all of such laws.

 

**Item 1A.RISK FACTORS**

 

***Oursubstantial lease obligations could impair our financial condition.***

 

We havesubstantial lease obligations. For fiscal 2009, our total rent expense wasapproximately $37.4 million. As of December 31, 2009, we had totalcontractual cash obligations of approximately $226.1 million. For a detaileddiscussion of our contractual cash obligations and other commercial commitmentsover the next several years, refer to “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations—Contractual Cash Obligations andCommitments” provided in Part II, Item 7 of this Form 10-K.

 

If we are unableto meet our lease obligations, we could be forced to restructure ourobligations and seek additional funding from our Parent, a wholly ownedsubsidiary of Regal, or sell assets. We may be unable to restructure ourobligations and obtain additional funding from our Parent or sell assets onsatisfactory terms or at all. As a result, inability to meet our leaseobligations could cause us to default on those obligations. Many of our leaseagreements contain restrictive covenants that limit our ability to takespecific actions or require us not to allow specific events to occur andprescribe minimum financial maintenance requirements that we must meet. If weviolate those restrictive covenants or fail to meet the minimum financialrequirements contained in a lease, we would be in default under thatinstrument, which could, in turn, result in defaults under other leases. Anysuch defaults could materially impair our financial condition andliquidity.  In addition, UATC’s abilityto sell assets is restricted by the terms of the Participation Agreemententered into in connection with the 1995 sale and leaseback transactiondescribed in Note 6 to the consolidated financial statements included in Part II,Item 8 of this Form 10-K.

 

***Our theatres operate in acompetitive environment.***

 

The motion pictureexhibition industry is fragmented and highly competitive with no significantbarriers to entry. Theatres operated by national and regional circuits and bysmall independent exhibitors compete with our theatres, particularly withrespect to film licensing, attracting patrons and developing new theatre sites.Moviegoers are generally not brand conscious and usually choose a theatre basedon its location, the films showing there and its amenities.

 

Generally, stadiumseating found in modern megaplex theatres is preferred by patrons overslope-floored multiplex theatres, which were the predominant theatre-type builtprior to 1996. As of December 31, 2009, approximately 52% of our screenswere located in theatres that are sloped-floored multiplex theatres. Thesetheatres may be more vulnerable to competition than our modern megaplextheatres, and should other theatre operators choose to build and operate modernmegaplex theatres in these markets, the performance of our theatres in thesemarkets may be significantly and negatively impacted. In addition, should othertheatre operators return to the aggressive building strategies undertaken inthe late 1990’s, our attendance, revenue and income from operations per screencould decline substantially.

 

***Wedepend on motion picture production and performance.***

 

Our ability tooperate successfully depends upon the availability, diversity and appeal ofmotion pictures, our ability to license motion pictures and the performance ofsuch motion pictures in our markets. We license first-run 

 

10

----

Table of Contents

 

motion pictures, thesuccess of which has increasingly depended on the marketing efforts of themajor motion picture studios. Poor performance of, or any disruption in theproduction of these motion pictures (including by reason of a strike or lack ofadequate financing), or a reduction in the marketing efforts of the majormotion picture studios, could hurt our business and results of operations. Inaddition, a change in the type and breadth of movies offered by motion picturestudios may adversely affect the demographic base of moviegoers.

 

***Developmentof digital technology may increase our capital expenses.***

 

The industry is inthe process of converting film-based media to electronic based media. There area variety of constituencies associated with this anticipated change, which maysignificantly impact industry participants, including content providers,distributors, equipment providers and exhibitors. Should the conversion processrapidly accelerate and the major motion picture studios not cover the cost ofthe conversion as expected, we may have to use cash flow from operations, cashon hand or raise additional capital to finance the conversion costs associatedwith this potential change. The additional capital necessary may not, however,be available to us on attractive terms, if at all. Furthermore, it isimpossible to accurately predict how the roles and allocation of costs(including operating costs) between various industry participants will changeas the industry changes from physical media to electronic media.

 

***An increase in the use ofalternative film delivery methods may drive down movie theatre attendance andreduce ticket prices.***

 

We also competewith other movie delivery vehicles, including cable television, downloads viathe Internet, in-home video and DVD, satellite and pay-per-view services.Traditionally, when motion picture distributors licensed their products to thedomestic exhibition industry, they refrained from licensing their motionpictures to these other delivery vehicles during the theatrical releasewindow.  We believe that a materialcontraction of the current theatrical release window could significantly dilutethe consumer appeal of the in-theatre motion picture offering, which could havea material adverse effect on our business and results of operations. We alsocompete for the public’s leisure time and disposable income with other forms ofentertainment, including sporting events, concerts, live theatre and restaurants.

 

***Wedepend on our relationships with film distributors.***

 

The filmdistribution business is highly concentrated, with ten major film distributorsaccounting for approximately 95% of our admissions revenues during fiscal 2009.Our business depends on maintaining good relations with these distributors. Inaddition, we are dependent on our ability to negotiate commercially favorablelicensing terms for first-run films. A deterioration in our relationship withany of the ten major film distributors could affect our ability to negotiatefilm licenses on favorable terms or our ability to obtain commerciallysuccessful films and, therefore, could hurt our business and results ofoperations.

 

***Noassurance of a supply of motion pictures.***

 

The distribution of motionpictures is in large part regulated by federal and state antitrust laws and hasbeen the subject of numerous antitrust cases. Consent decrees resulting fromthose cases effectively require major motion picture distributors to offer andlicense films to exhibitors, including us, on a film-by-film andtheatre-by-theatre basis. Consequently, we cannot assure ourselves of a supplyof motion pictures by entering into long-term arrangements with majordistributors, but must compete for our licenses on a film-by-film andtheatre-by-theatre basis.

 

***Wedepend on our senior management.***

 

Our successdepends upon the retention of our senior management, including Amy Miles, ourPresident. We cannot assure you that we would be able to find qualifiedreplacements for the individuals who make up our senior management if theirservices were no longer available. The loss of services of one or more membersof our senior management team could have a material adverse effect on ourbusiness, financial condition and results of operations. The loss of any memberof senior management could adversely affect our ability to effectively pursueour business strategy.

 

11

----

Table of Contents

 

***A prolonged economic downturncould materially affect our business by reducing consumer spending on movieattendance.***

 

We depend on consumersvoluntarily spending discretionary funds on leisure activities. Motion picturetheatre attendance may be affected by prolonged negative trends in the generaleconomy that adversely affect consumer spending, such trends resulting fromterrorist attacks on, or wars or threatened wars involving, the United States.  During 2008, many economists determined thatthe U.S. economy had entered into a recession as a result of the deteriorationin the credit markets and the related financial crisis, as well as a variety ofother factors.  A prolonged reduction inconsumer confidence or disposable income in general may affect the demand formotion pictures or severely impact the motion picture production industry,which, in turn, could adversely affect our operations.

 

***Theglobal financial crisis may have an impact on our business and financialcondition in ways that we currently cannot predict.***

 

In late 2008 andearly 2009, global financial markets experienced significant disruptions andthe United States and many other economies experienced a prolonged economicdownturn, resulting in heightened credit risk, reduced valuation of investmentsand decreased economic activity.  Whileeconomic conditions have recently improved, that trend may not continue and theU.S. economy may continue to be weak for the foreseeable future or may furtherdeteriorate. Even if growth continues, it may be at a slow rate for an extendedperiod of time and other economic conditions, such as the commercial realestate environment may continue to be weak. If economic conditions remain weak or deteriorate, or if financialmarkets experience additional significant disruption, it could materiallyadversely affect our results of operations, financial position and/orliquidity.  For example, deterioratingconditions in the global credit markets could negatively impact our businesspartners which may impact film production, the development of new theatres orthe enhancement of existing theatres, including delaying the deployment of newprojection and other technologies to our theatres.

 

**Item 1B.UNRESOLVED STAFF COMMENTS**

 

As of December 31,2009, there are no unresolved comments from the Commission staff regarding anyof our periodic or current reports filed under the Exchange Act.

 

**Item2.  PROPERTIES**

 

As of December 31,2009, we operated 63 of our theatres pursuant to lease agreements and owned theland and buildings for 2 theatres. For a list of the states in which weoperated theatres and the number of theatres and screens operated in each suchstate as of December 31, 2009, please see the chart under Part I,Item 1 of this Form 10-K under the caption “Business—Theatre Operations.”

 

The majority ofour leased theatres are subject to lease agreements with original terms of 15to 20 years or more and, in most cases, renewal options for up to an additional10 years. These leases provide for minimum annual rentals and the renewaloptions generally provide for rent increases. Some leases require, underspecified conditions, further rental payments based on a percentage of revenuesabove specified amounts. A significant majority of the leases are net leases,which require us to pay the cost of insurance, taxes and a portion of thelessor’s operating costs.

 

Of the 65 ownedand leased theatres, one theatre with nine screens is held by a corporation,owned 51% by UATC.  The remaining ownedand leased theatres are held directly by UATC or its wholly ownedsubsidiaries.  Certain of our leasedtheatres are subject to sale and leaseback transactions, as further describedin Note 6 to the consolidated financial statements included in Part II,Item 8 of this Form 10-K.

 

UATC leases theland, building and equipment in the theatres owned by Prop I in accordance witha master affiliate lease.  The Prop Imaster lease expired in 2003 and UATC exercised its option to extend the leasefor an additional ten years.

 

12

----

 

Table ofContents

 

**Item3.  LEGAL PROCEEDINGS**

 

Pursuant toGeneral Instruction G(2) to Form 10-K and Rule 12b-23 under theSecurities Exchange Act of 1934, as amended, the information required to befurnished by us under this Part I, Item 3 (Legal Proceedings) isincorporated by reference to the information contained in Note 8 to theconsolidated financial statements included in Part II, Item 8 of this Form 10-K.

 

**Item4.  REMOVED AND RESERVED**

 

**PART II**

 

**Item5.  MARKET FOR THE REGISTRANT’S COMMONEQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES**

 

As of March 22,2010, UATC’s common stock is held entirely by the Parent.  There is no established public trading marketfor the Company’s common stock.  During2005, UATC effected two cash dividends totaling approximately $32.3 million tothe Parent. UATC’s ability to pay dividends is restricted by the terms of theParticipation Agreement entered into in connection with the 1995 sale andleaseback transaction described in Note 6 to the consolidated financialstatements included in Part II, Item 8 of this Form 10-K.

 

**Item6.  SELECTED FINANCIAL DATA**

 

Under the reduceddisclosure format permitted by General Instruction I(2) of Form 10-Kfor wholly owned subsidiaries, the information otherwise required by this itemhas been omitted.

 

**Item 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

*Thisdiscussion summarizes the significant factors affecting the consolidatedoperating results, financial condition, liquidity and cash flows of UATC forthe fiscal years ended December 31, 2009, January 1, 2009 and December 27,2007. The following discussion and analysis should be read in conjunction withthe consolidated financial statements of UATC and the notes thereto includedelsewhere in this Form 10-K.*

 

**Overviewand Basis of Presentation**

 

As of December 31,2009, we operate 567 screens in 65 theatres in 19 states with over 19 millionannual attendees during fiscal 2009.  Thetheatres we operate are managed by RCI, a wholly owned subsidiary of Regal,pursuant to a management arrangement described below.  We primarily operate multi-screen theatresand have an average of 8.7 screens per location. Theatre operations in sevenstates (New York, California, Mississippi, Florida, Maryland, Texas andPennsylvania) accounted for approximately 72.3% and 69.8% of our total theatresand screens, respectively, as of December 31, 2009 and 79.4% of our theatricalrevenue for fiscal 2009.  The Companymanages its business under one reportable segment: theatre exhibitionoperations.

 

United Artistsbecame a wholly owned subsidiary of REH through a series of transactions in2002.  REH is a wholly owned subsidiaryof Regal who acquired Regal Cinemas, United Artists and Edwards through aseries of transactions on April 12, 2002. For a detailed discussion of the transactions resulting in Regal’sacquisition of its subsidiaries, see Note 2 to the consolidated financialstatements included in Part II, Item 8 of this Form 10-K. On August 17,2005, REH transferred the stock of United Artists to RCI. As a result, UnitedArtists and its subsidiaries became subsidiaries of RCI.

 

We generaterevenues primarily from admissions and concession sales. Additional revenuesare generated by electronic video games located adjacent to the lobbies ofcertain of our theatres and vendor marketing programs.  In 

 

13

----

Table of Contents

 

addition, NationalCineMedia provides us with a theatre access fee associated with revenuesgenerated from its sale of on-screen advertising, rental of theatres formeetings and concerts and other events pursuant to its arrangements with RCI(described in Note 5 to the consolidated financial statements included in Part II,Item 8 of this Form 10-K). Film rental costs depend on a variety offactors including the prospects of a film, the popularity and box officerevenues of a film and such film rental costs generally increase as theadmissions revenues generated by a film increase. Because we purchase certainconcession items, such as fountain drinks and popcorn, in bulk and not pre-packagedfor individual servings, we are able to improve our margins by negotiatingvolume discounts. Other operating expenses consist primarily of theatre laborand occupancy costs.

 

On February 12,2007, Regal, along with AMC and Cinemark, formed DCIP, to create a financingmodel and establish agreements with major motion picture studios for theimplementation of digital cinema. Future digital cinema developments will bemanaged by DCIP, subject to the approval of Regal, AMC and Cinemark. Each ofRegal, AMC and Cinemark has an equal voting interest in DCIP. Please refer toNote 12 to the consolidated financial statements included in Part II, Item8 of this Form 10-K for a discussion of recent developments regardingDCIP, which were effected subsequent to the year ended December 31, 2009.

 

On June 30,2007, UATC acquired the remaining partnership interest in two of itssubsidiaries for an aggregate purchase price of $1.1 million, which resulted ina loss of $0.2 million.  The loss wasrecorded in the accompanying consolidated statements of operations as acomponent of “Other, net.”

 

In conjunctionwith Regal’s acquisition of Consolidated Theatres Holdings, G.P. (“ConsolidatedTheatres”) on April 30, 2008, Regal entered into a final judgment with theAntitrust Division of the United States Department of Justice (“DOJ”) to holdseparate and divest of four theatres comprising 52 screens in NorthCarolina.  One of the four theatressubject to the judgment was an existing ten screen theatre leased by UATC withdeclining cash flows.  The assets of thistheatre had been previously impaired due to its declining cash flows.  On April 30, 2009, pursuant to the finaljudgment between Regal and the DOJ, UATC transferred the theatre to anothertheatre operator, Carolina Cinemas LLC (“Carolina Cinemas”).  In order to implement the assignment of thistheatre, UATC entered into an operating agreement with Carolina Cinemas toaddress various matters including, without limitation, the use of equipmentowned by UATC, as well as payment of annual rent during the agreement.  Pursuant to this operating agreement, untilthe lease for this theatre expires on December 31, 2017, UATC shall besolely responsible for paying the landlord the rent due under the lease.  As a result of this agreement, UATC recordeda liability of approximately $4.2 million for the present value of the totalremaining lease obligation for this theatre assigned to Carolina Cinemas.  Furthermore, as a result of this obligation, theCompany recorded an impairment charge of approximately $3.8 million in theaccompanying consolidated statements of operations for the year ended December 31,2009 as a component of “Net loss on disposal and impairment of operatingassets.” Accretion expense will be recorded monthly based on the incrementalborrowing rate over the term of the lease.

 

In order toprovide a meaningful basis of comparing the fiscal years ended December 31,2009, January 1, 2009 and December 27, 2007 for purposes of thefollowing tables and discussion, the operating results for the fifty-two weeksended December 31, 2009 (“Fiscal 2009 Period”) are compared to thefifty-three weeks ended January 1, 2009 (“Fiscal 2008 Period”) and thefifty-two weeks ended December 27, 2007 (“Fiscal 2007 Period”).

 

For a summary of otherindustry trends as well as other risks and uncertainties relevant to theCompany, see “Business-Industry Overview and Trends” and “Risk Factors.”

 

**Resultsof Operations**

 

Based on ourreview of industry sources, national box office revenues for the time periodthat corresponds to UATC’s fiscal year of 2009 were estimated to have increasedby approximately 6% in comparison to the fiscal year of 2008.  Theindustry’s box office results were positively impacted by ticket priceincreases, growth in premium-priced IMAX® and 3D films and the breadth of keyfilms released in the fiscal year of 2009, which included strong attendancefrom releases such as*Transformers: Revengeof the Fallen*,*Harry Potter and the Half-Blood Prince*,*Avatar*,*The Twilight Saga: New Moon*and *Up*.

 

Our total revenuesfor the Fiscal 2009 Period were $223.4 million, consisting of $155.4 million ofadmissions revenues, $60.7 million from concessions revenues and $7.3 millionof other operating revenues, and represented a 

 

14

----

Table of Contents

 

0.8% decrease over totalrevenues of $225.1 million for the Fiscal 2008 Period.

 

Total admissionsrevenues increased $0.1 million during the Fiscal 2009 Period, or 0.1%, to$155.4 million, from $155.3 million in the Fiscal 2008 Period, primarily due toa 4.1% increase in average ticket prices, partially offset by a 4.0% decreasein attendance.  We believe the overalldecrease in attendance during the Fiscal 2009 Period was primarily a result ofthe timing of the Fiscal 2008 Period calendar, which consisted of fifty-threeweeks compared to fifty-two weeks during the Fiscal 2009 Period, the continuedaging of our theatres (approximately 52% of our screens are located in older,sloped floor multiplexes) and the closure of 29 underperforming screens duringthe Fiscal 2009 Period.  Price increasesidentified during our ongoing periodic pricing reviews (which include analysisof various factors such as general inflationary trends and local marketconditions) along with an increase in the percentage of our admissions revenuesgenerated by premium priced 3D films exhibited during the Fiscal 2009 Periodwere the primary drivers of the increase in our Fiscal 2009 Period averageticket prices.

 

We are optimisticregarding the breadth of the 2010 film slate, including the timing of therelease schedule and the number of films scheduled for release inpremium-priced formats.  Evidenced by themotion picture studios’ continued efforts to promote and market upcoming filmreleases, 2010 appears to be another year of high-profile releases such as *Alice in Wonderland*, *How to Train Your Dragon*,*Iron Man 2*, *ShrekForever After*, *Sex and the City 2*,*Toy Story 3, The Twilight Saga: Eclipse*,*Inception*, *Megamind*,*Harry Potter and the Deathly Hallows: Part 1*,*The Chronicles of Narnia: The Voyage of the DawnTreader*, *Tron Legacy*, *The Green Hornet* and *Gulliver’s Travels*.

 

With respect tocapital expenditures, subject to the timing of certain construction projects,we expect capital expenditures to be in the range of $4.0 million to $8.0million for fiscal 2010, consisting of expansion of existing theatrefacilities, equipment upgrades and replacements.

 

Overall for the fiscal2010 year, we expect to benefit from modest increases in ticket prices andaverage concessions per patron and a continued increase in 3D screens and thenumber of films scheduled for release in premium-priced formats. In addition,we expect fiscal 2010 admissions and concessions revenues to be supported byour continued focus on efficient theatre operations, however, the continuedaging of our theatres and closures of underperforming screens could offsetincreases in industry box office and concessions per patron. For anunderstanding of the significant factors that influenced our performance duringthe past three fiscal years, the preceding and following discussion should beread in conjunction with the consolidated financial statements and the notesthereto presented in Part II, Item 8 of this Form 10-K.

 

The following table setsforth the percentage of total revenues represented by certain items reflectedin UATC’s consolidated statements of operations for the Fiscal 2009 Period, theFiscal 2008 Period and the Fiscal 2007 Period:

 
| ** **                                                | ** ** | **Fiscal 2009 Period** | ** ** | **Fiscal 2008 Period** | ** ** | **Fiscal 2007 Period** | ** ** |
|-----------------------------------------------------------|------------|------------------------|------------|------------------------|------------|------------------------|------------|
| Revenues:                                                 |       |                   |       |                   |       |                   |       |
| Admissions                                                |       | 69.5                   | %          | 69.0                   | %          | 68.7                   | %          |
| Concessions                                               |       | 27.2                   |       | 27.6                   |       | 28.1                   |       |
| Other operating revenues                                  |       | 3.3                    |       | 3.4                    |       | 3.2                    |       |
| Total revenues                                            |       | 100.0                  |       | 100.0                  |       | 100.0                  |       |
| Operating expenses:                                       |       |                   |       |                   |       |                   |       |
| Film rental and advertising costs                         |       | 35.5                   |       | 35.4                   |       | 35.7                   |       |
| Cost of concessions                                       |       | 3.8                    |       | 3.8                    |       | 3.9                    |       |
| Other operating expenses                                  |       | 40.5                   |       | 41.1                   |       | 40.9                   |       |
| Sale and leaseback rentals                                |       | 6.6                    |       | 6.6                    |       | 6.5                    |       |
| General and administrative expenses                       |       | 3.0                    |       | 3.0                    |       | 3.0                    |       |
| Depreciation and amortization                             |       | 4.1                    |       | 4.4                    |       | 4.6                    |       |
| Net loss on disposal and impairments of operating  assets |       | 3.0                    |       | —                 |       | 1.0                    |       |
| Total operating expenses                                  |       | 96.5                   |       | 94.3                   |       | 95.6                   |       |
| Income from operations                                    |       | 3.5                    | %          | 5.7                    | %          | 4.4                    | %          |

 

15

----

Table of Contents

 

***Revenues***

 

Thefollowing table summarizes revenues and revenue-related data for the Fiscal2009 Period, the Fiscal 2008 Period and the Fiscal 2007 Period (in millions,except averages):

 
| ** **                         | ** ** | **Fiscal  2009 Period** | ** ** | **Fiscal  2008 Period** | ** ** | **Fiscal  2007 Period** | ** ** |
|------------------------------------|------------|-------------------------|------------|-------------------------|------------|-------------------------|------------|
| Admissions                         |       | $                       | 155.4      |                    | $          | 155.3                   |       | $ | 157.3 |   |
| Concessions                        |       | 60.7                    |       | 62.2                    |       | 64.5                    |       |
| Other operating revenues           |       | 7.3                     |       | 7.6                     |       | 7.3                     |       |
| Total revenues                     |       | $                       | 223.4      |                    | $          | 225.1                   |       | $ | 229.1 |   |
| Attendance                         |       | 19.2                    |       | 20.0                    |       | 21.0                    |       |
| Average ticket price (1)           |       | $                       | 8.09       |                    | $          | 7.77                    |       | $ | 7.49 |   |
| Average concessions per patron (2) |       | $                       | 3.16       |                    | $          | 3.11                    |       | $ | 3.07 |   |

 

----

(1)           Calculatedas admissions revenue/attendance.

 

(2)           Calculatedas concessions revenue/attendance.

 

*Admissions*

 

Total admissions revenues increased $0.1 millionduring the Fiscal 2009 Period, or 0.1%, to $155.4 million, from $155.3 millionin the Fiscal 2008 Period, primarily due to a 4.1% increase in average ticketprices, partially offset by a 4.0% decrease in attendance.  We believe the overall decrease in attendanceduring the Fiscal 2009 Period was primarily a result of the timing of theFiscal 2008 Period calendar, which consisted of fifty-three weeks compared to fifty-twoweeks during the Fiscal 2009 Period, the continued aging of our theatres(approximately 52% of our screens are located in older, sloped floormultiplexes) and the closure of 29 underperforming screens during the Fiscal2009 Period.  Price increases identifiedduring our ongoing periodic pricing reviews (which include analysis of variousfactors such as general inflationary trends and local market conditions) alongwith an increase in the percentage of our admissions revenues generated bypremium priced 3D films exhibited during the Fiscal 2009 Period were theprimary drivers of the increase in our Fiscal 2009 Period average ticketprices.

 

During the Fiscal 2008 Period, total admissionsrevenues decreased $2.0 million, or 1.3%, to $155.3 million, from $157.3million for the Fiscal 2007 Period.  Thedecline in the Company’s total revenues was attributable to a 4.8% decrease inattendance resulting primarily from the continued aging of our theatres(approximately 54% of our screens are located in older, sloped floormultiplexes) and to a lesser extent, a decline in industry attendance duringthe Fiscal 2008 Period.  These factorswere partially offset by the impact of the timing of the Fiscal 2008 Periodcalendar, which consisted of fifty-three weeks compared to the fifty-two weeksduring the Fiscal 2007 Period. The additional week of operations was the weekbetween Christmas and New Years, a traditionally high attendance and revenueweek for the Company and the industry. The additional week of operations wassignificant in that it accounted for approximately 0.8 million attendees, or4.0%, of the Fiscal 2008 Period total attendance and contributed toapproximately $5.7 million, or 3.7%, of the Fiscal 2008 Period total admissionsrevenues.  The Fiscal 2008 Periodadmissions revenues were also favorably impacted by a 3.7% increase in averageticket prices.  Price increasesidentified during our ongoing periodic pricing reviews (which include analysisof various factors including general inflationary trends and local marketconditions) along with the mix of film product exhibited during the Fiscal 2008Period were the primary drivers of the increase in our Fiscal 2008 Periodaverage ticket price.

 

On a ‘comparable screen’ basis (i.e., excluding theeffects of the impact of week 53 during the Fiscal 2008 Period), attendance forthe Fiscal 2008 period was approximately 19.3 million, a 8.1% decrease from theFiscal 2007 Period and admissions revenues for the Fiscal 2008 period wasapproximately $149.6 million, a decrease of 4.9% from the Fiscal 2007 Period.  These declines were primarily a result of thecontinued aging of our theatres and the decline in attendance among the toptier films exhibited during the Fiscal 2008 Period, partially offset by a 3.6%increase in comparable screen average ticket prices.

 

16

----

Table of Contents

 

*Concessions*

 

During the Fiscal2009 Period, total concessions revenues decreased $1.5 million, or 2.4%, to$60.7 million, from $62.2 million for the Fiscal 2008 Period.  Average concessions revenues per patronduring the Fiscal 2009 Period increased 1.6%, to $3.16, from $3.11 in theFiscal 2008 Period.  The decrease intotal concessions revenues during the Fiscal 2009 Period were attributable tothe aforementioned decrease in attendance during the period, partially offsetby the increase in average concessions revenues per patron.  The increase in average concessions revenuesper patron for the Fiscal 2009 Period was primarily a result of price increasesand also benefitted from the concession friendly mix of film product exhibitedduring the Fiscal 2009 Period.

 

During the Fiscal2008 Period, total concessions revenues decreased $2.3 million, or 3.6%, to $62.2million, from $64.5 million for the Fiscal 2007 Period.  On a comparable screen basis, totalconcessions revenues for the Fiscal 2008 Period declined by approximately $4.6million, or 7.1 %, from the Fiscal 2007 Period. The decline in total concessions revenues on a comparable screen basiswas primarily a result of the decrease in attendance discussed above during theFiscal 2008 Period in comparison to the Fiscal 2007 Period. Average concessionsrevenues per patron during the Fiscal 2008 Period was positively impacted byprice increases effected during the Fiscal 2008 Period.

 

*OtherOperating Revenues*

 

Other operatingrevenues decreased $0.3 million, or 3.9%, to $7.3 million for the Fiscal 2009Period, from $7.6 million for the Fiscal 2008 Period.  Included in other operating revenues are thetheatre access fees paid by National CineMedia (net of payments for on-screenadvertising time provided to our beverage concessionaire), marketing revenuesfrom our vendor marketing programs and other theatre revenues.  The decrease in other operating revenuesduring the Fiscal 2009 Period was primarily attributable to a decrease in othertheatre revenues and a slight decline in revenue generated by NationalCineMedia.

 

Total otheroperating revenues increased $0.3 million, or 4.1%, to $7.6 million for theFiscal 2008 Period, from $7.3 million for the Fiscal 2007 Period.  Included in other operating revenues are thetheatre access fees paid by National CineMedia (net of payments for on-screenadvertising time provided to our beverage concessionaire), marketing revenuesfrom our vendor marketing programs and other theatre revenues.  Such increase was primarily attributable toincreases in revenues related to National CineMedia revenues and other theatrerevenues.

 

***OperatingExpenses***

 

The followingtable summarizes certain operating expenses for the Fiscal 2009 Period, theFiscal 2008 Period and the Fiscal 2007 Period (dollars in millions):

 
| ** **                              | ** ** | **Fiscal  2009 Period** | ** ** | **Fiscal  2008 Period** | ** ** | **Fiscal  2007 Period** | ** ** |
|-----------------------------------------|------------|-------------------------|------------|-------------------------|------------|-------------------------|------------|
| ** **                              | ** ** | **$**                   | ** ** | **% of   Revenues**     | ** ** | **$**                   | ** ** | **% of  Revenues** | ** ** | **$** | ** ** | **% of  Revenues** | ** ** |
| Film rental and advertising costs (1)   |       | 79.3                    |       | 51.0                    |       | 79.6                    |       | 51.3 |   | 81.9 |   | 52.1 |   |
| Cost of concessions (2)                 |       | 8.6                     |       | 14.2                    |       | 8.6                     |       | 13.8 |   | 9.0 |   | 14.0 |   |
| Other theatre operating expenses (3)    |       | 90.4                    |       | 40.5                    |       | 92.5                    |       | 41.1 |   | 93.7 |   | 40.9 |   |
| Sale and leaseback rentals (3)          |       | 14.8                    |       | 6.6                     |       | 14.8                    |       | 6.6 |   | 14.9 |   | 6.5 |   |
| General and Administrative expenses (3) |       | 6.8                     |       | 3.0                     |       | 6.8                     |       | 3.0 |   | 6.9 |   | 3.0 |   |

 

----

(1)           Percentageof revenues calculated as a percentage of admissions revenues.

 

(2)           Percentageof revenues calculated as a percentage of concessions revenues.

 

(3)           Percentageof revenues calculated as a percentage of total revenues.

 

*FilmRental and Advertising Costs*

 

Film rental andadvertising costs as a percentage of admissions revenues declined slightly to51.0% during the Fiscal 2009 Period from 51.3% in the Fiscal 2008 Period. Thedecrease in film rental and advertising costs as a 

 

17

----

Tableof Contents

 

percentage of box officerevenues during the Fiscal 2009 Period was primarily the result of a reductionin newspaper advertising costs during such period.

 

Film rental andadvertising costs as a percentage of admissions revenues decreased to 51.3% duringthe Fiscal 2008 Period as compared to 52.1% in the Fiscal 2007 Period.  The decrease in film rental and advertisingcosts as a percentage of box office revenues during the Fiscal 2008 Period wasprimarily the result of a lower percentage of box office revenues generated bythe top tier films exhibited during the Fiscal 2008 Period and a decline inadvertising expense during the period.

 

*Cost ofConcessions*

 

During the Fiscal2009 Period, cost of concessions was consistent with that of the Fiscal 2008Period. Cost of concessions as a percentage of concessions revenues for theFiscal 2009 Period was approximately 14.2% compared to 13.8% for the Fiscal2008 Period.  The increase in cost ofconcessions as a percentage of concessions revenues during the Fiscal 2009Period was primarily related to a greater percentage of our concession salesbeing generated from higher cost items and a decrease in the amount of vendormarketing revenue recorded as a reduction of cost of concessions.

 

Cost ofconcessions decreased $0.4 million, or 4.4%, during the Fiscal 2008 Period ascompared to the Fiscal 2007 Period. During the Fiscal 2008 Period, cost of concessions as a percentage ofconcessions revenues decreased 20 basis points to 13.8% from 14.0% in theFiscal 2007 Period.  On a comparablescreen basis, cost of concessions declined $0.7 million, or 7.8%, during theFiscal 2008 Period as compared to the Fiscal 2007 Period.  On a comparable screen basis, the decrease incost of concessions during the Fiscal 2008 Period was primarily related to achange in a vendor marketing program, partially offset by slightly higher foodcosts.  On a comparable screen basis,cost of concessions as a percentage of concessions revenues decreased 10 basispoints to 13.9% during the Fiscal 2008 Period as compared to 14.0% in theFiscal 2007 Period.

 

*OtherTheatre Operating Expenses*

 

Othertheatre operating expenses decreased $2.1 million, or 2.3%, to $90.4 million inthe Fiscal 2009 Period, from $92.5 million in the Fiscal 2008 Period.  Other theatre operating expenses as apercentage of total revenues decreased to 40.5% in the Fiscal 2009 Period ascompared to 41.1% in the Fiscal 2008 Period.  The decrease in other theatre operating expenses during the Fiscal 2009Period as compared to the Fiscal 2008 Period was primarily driven by decreasedvariable payroll costs related to the decrease in attendance, a decrease inrent expense and other fixed costs resulting from the closure of 29underperforming screens during the Fiscal 2009 Period, partially offset byincreased costs associated with higher 3D film revenues and generalinflationary increases.

 

Other theatreoperating expenses decreased $1.2 million, or 1.3%, to $92.5 million in theFiscal 2008 Period, from $93.7 million in the Fiscal 2007 Period.  Such decrease was primarily due to theaforementioned Fiscal 2008 Period decrease in attendance, partially offset bythe impact of the fifty-three weeks of operations during the Fiscal 2008Period. Other theatre operating expenses as a percentage of total revenuesincreased to 41.1% in the Fiscal 2008 Period as compared to 40.9% in the Fiscal2007 Period. The increase in other theatre operating expenses as a percentageof total revenues in the Fiscal 2008 Period was primarily attributable to decreasingrevenues coupled with the fixed nature of various theatre operating expenses.On a comparable screen basis, during the Fiscal 2008 Period, other theatreoperating expenses decreased $2.6 million, or 2.8%, from the Fiscal 2007Period.  The decrease in other theatreoperating expenses on a comparable screen basis during the Fiscal 2008 Periodwas primarily attributable to the decrease in attendance and decreases innon-rent occupancy costs.

 

*Sale andLeaseback Rentals*

 

Sale and leasebackexpenses of $14.8 million for the Fiscal 2009 Period were consistent with thatof the Fiscal 2008 Period.  See Note 6 tothe consolidated financial statements included in Part II, Item 8 of this Form 10-Kfor further discussion of sale and leaseback transactions.

 

Sale and leasebackexpenses decreased $0.1 million, or 0.7%, to $14.8 million for the Fiscal 2008Period, from $14.9 million in the Fiscal 2007 Period.  See Note 6 to the consolidated financialstatements included in Part II, 

 

18

----

Table of Contents

 

Item 8 of this Form 10-Kfor further discussion of sale and leaseback transactions.

 

*Generaland Administrative Expenses*

 

For the Fiscal2009 Period, general and administrative expenses of $6.8 million wereconsistent with that of the Fiscal 2008 Period. As a percentage of totalrevenues, general and administrative expenses remained consistent, at 3.0%,during the Fiscal 2009 Period and the Fiscal 2008 Period. Included in generaland administrative expenses are management fees associated with the managementagreement between RCI and UATC under which RCI manages the theatre operationsof UATC.

 

General andadministrative expenses decreased $0.1 million, or 1.4%, to $6.8 million duringthe Fiscal 2008 Period as compared to $6.9 million in the Fiscal 2007Period.  As a percentage of totalrevenues, general and administrative expenses of 3.0% during the Fiscal 2008Period were consistent with that of the Fiscal 2007 Period.  Included in general and administrativeexpenses are management fees associated with the management agreement betweenRCI and UATC under which RCI manages the theatre operations of UATC.  The slight decrease in general andadministrative expenses during the Fiscal 2008 Period was primarilyattributable to the reduction in management fee costs incurred during theFiscal 2008 Period resulting from the decrease in total revenues during theFiscal 2008 Period.

 

***Depreciationand Amortization***

 

Depreciation andamortization expense decreased $0.9 million, or 9.0%, to $9.1 million for theFiscal 2009 Period, from $10.0 million in the Fiscal 2008 Period. The decreasein depreciation and amortization expense during the Fiscal 2009 Period as comparedto the Fiscal 2008 Period was primarily due to a greater number of fullydepreciated fixed assets during the Fiscal 2009 Period as compared to theFiscal 2008 Period.

 

For the Fiscal2008 Period, depreciation and amortization expense decreased $0.5 million, or4.8%, to $10.0 million, from $10.5 million in the Fiscal 2007 Period.  Such decrease was primarily due to a largernumber of fully depreciated assets as of the end of the Fiscal 2008 Period,partially offset by the impact of the fifty-three weeks of operations duringthe Fiscal 2008 Period.  On a comparablescreen basis, depreciation and amortization decreased $0.7 million, or 6.7%,during the Fiscal 2008 Period as compared to the Fiscal 2007 Period.  On a comparable screen basis, the decrease indepreciation and amortization expense during the Fiscal 2008 Period wasprimarily related to a larger number of fully depreciated assets as of the endof the Fiscal 2008 Period.

 

***Netloss on disposal and impairment of operating assets***

 

For the Fiscal2009 Period, net loss on disposal and impairment of operating assets was $6.6million compared to no net loss on disposal and impairment of operating assetsfor the Fiscal 2008 Period.  The increasein net loss on disposal and impairment of operating assets during the Fiscal2009 Period was primarily attributable to a $3.8 million charge for theremaining lease obligation related to the theatre transferred to CarolinaCinemas on April 30, 2009 (See Note 1 to the consolidated financialstatements included in Part II, Item 8 of this Form 10-K for furtherdiscussion).  In addition, during theFiscal 2009 Period, net loss on disposal and impairment of operating assets wasimpacted by the satisfaction of remaining lease obligations related to theclosure of an underperforming theatre and the impairment of three theatresduring the period.

 

***Incomefrom Operations***

 

During the Fiscal2009 Period, income from operations decreased $5.0 million, or 39.1%, to $7.8million, from $12.8 million in the Fiscal 2008 Period.  The overall decrease in income fromoperations during the Fiscal 2009 Period as compared to the Fiscal 2008 Periodwas driven by the decrease in concessions and other operating revenues and theincrease in the net loss on disposal and impairment of operating assetsdiscussed above, partially offset by the increase in admissions revenues anddecreases in various operating expense line items including film rental andadvertising costs, other theatre operating expenses and depreciation during theFiscal 2009 Period.

 

19

----

Table of Contents

 

Income from operations totaled $12.8 million duringthe Fiscal 2008 Period, whichrepresents an increase of $2.8 million, or 28.0%, from $10.0 million in theFiscal 2007 Period. On a comparable screen basis, during the Fiscal 2008 Period, income fromoperations decreased $0.2 million, or 2.0%, from the Fiscal 2007 Period.  On a comparable screen basis, the decrease inincome from operations during the Fiscal 2008 Period was primarily attributable to areduction in admissions and concessions revenues, partially offset by increasesin other operating revenues and a decrease in various operating expense items includingthe net loss on disposal and impairment of operating assets.

 

***InterestIncome, Net***

 

Net interestincome totaled $0.1 million for the Fiscal 2009 Period, which represents adecrease of $0.3 million, or 75.0%, from that of the Fiscal 2008 Period.  The decrease in net interest income duringthe Fiscal 2009 Period was principally due to a decline in our average interestrate during this time period.

 

During the Fiscal2008 Period, net interest income decreased $1.2 million, or 75.0%, to $0.4million, from $1.6 million in the Fiscal 2007 Period.  The decrease in net interest income duringthe Fiscal 2008 Period was principally due to a lower average cash balanceoutstanding and a decline in our average interest rate during this time period.

 

***IncomeTaxes***

 

The provisionfor income taxes decreased $2.6 million, or 46.4%, to $3.0 million for theFiscal 2009 Period, from $5.6 million for the Fiscal 2008 Period.  Accordingly, the effective tax rate was 38.0%and 39.7% for the Fiscal 2009 and Fiscal 2008 Periods, respectively.  The decrease in the effective tax rate wasprimarily attributable to the recognition of a tax benefit in the Fiscal 2009Period relative to net operating losses that had not been previouslyrecognized.  The effective tax rate foreach period reflects the impact of certain non-deductible expenses.

 

Theprovision for income taxes decreased $1.2 million, or 17.6%, to $5.6 millionfor the Fiscal 2008 Period, from $6.8 million for the Fiscal 2007 Period.  Accordingly, the effective tax rate was 39.7%and 37.0% for the Fiscal 2008 and Fiscal 2007 Periods, respectively.  The increase in the effective tax rate wasprimarily attributable to the recognition of a tax benefit in the Fiscal 2007Period relative to net operating losses that had not been previouslyrecognized.  The effective tax rate foreach period reflects the impact of certain non-deductible expenses.

 

***NetIncome Attributable to Controlling Interest***

 

During the Fiscal2009 Period, net income attributable to controlling interest totaled $4.8 million,which represents a decrease of $3.6 million, from net income attributable tocontrolling interest of $8.4 million in the Fiscal 2008 Period.  The decrease in net income attributable tocontrolling interest for the Fiscal 2009 Period was primarily attributable tothe decrease in operating income coupled with a decrease in interest income andthe gain recorded on the sale of the Company’s equity interest in Fandango, Inc.(“Fandango”) during the Fiscal 2008 Period, partially offset by a decrease inincome taxes described above.

 

During the Fiscal2008 Period, net income totaled $8.4 million, which represents a decrease of$3.1 million, from net income of $11.5 million in the Fiscal 2007 Period.  The decrease in net income for the Fiscal2008 Period as compared to the Fiscal 2007 Period was primarily attributable tothe decrease in operating income, the $7.0 million gain ($4.2 million afterrelated tax effects) recorded in connection with the sale of our equityinterest in Fandango during the Fiscal 2007 Period, a decrease in interestincome and a $0.2 million loss resulting from the purchase of the partnershipinterest in two of our subsidiaries during the Fiscal 2007 Period.

 

***CashFlows***

 

The followingtable summarizes certain cash flow data for the Fiscal 2009 Period, the Fiscal2008 Period and the Fiscal 2007 Period (dollars in millions):

 

20

----

Table ofContents

 
| ** **                                           | ** ** | **Fiscal  2009 Period** | ** ** | **Fiscal  2008 Period** | ** ** | **Fiscal  2007 Period** | ** ** |
|------------------------------------------------------|------------|-------------------------|------------|-------------------------|------------|-------------------------|------------|
| Net  cash provided by operating activities           |       | $                       | 18.7       |                    | $          | 14.9                    |       | $ | 12.2 |   |
| Net  cash (used in) provided by investing activities |       | (4.7                    | )          | (4.0                    | )          | 2.5                     |       |
| Net  cash used in financing activities               |       | (7.0                    | )          | (8.2                    | )          | (4.3                    | )          |
| Net  increase in cash and cash equivalents           |       | $                       | 7.0        |                    | $          | 2.7                     |       | $ | 10.4 |   |

 

*Fiscal 2009 Period Compared to Fiscal 2008 Period*

 

Net cash flows providedby operating activities increased by approximately $3.8 million toapproximately $18.7 million for the Fiscal 2009 Period from approximately $14.9million for the Fiscal 2008 Period. The increase in net cash flows generatedfrom operating activities for the Fiscal 2009 Period was primarily attributableto an increase in working capital, primarily the timing of certain Fiscal 2009 Periodvendor payments.

 

Net cash flowsused in investing activities were approximately $4.7 million for the Fiscal2009 Period compared to cash flows used in investing activities ofapproximately $4.0 million for the Fiscal 2008 Period.  Contributing to the increase in cash flowsused in investing activities during the Fiscal 2009 Period was incrementalcapital expenditures of approximately $0.2 million during the Fiscal 2009Period coupled with the impact of the $0.9 million of proceeds received in theFiscal 2008 Period in connection with the sale of the Company’s equity interestin Fandango and fewer proceeds from the disposition of assets of approximately$0.1 million during the Fiscal 2009 Period, partially offset by the $0.5million in partnership distributions during the Fiscal 2008 Period.

 

Net cash flowsused in financing activities were approximately $7.0 million for the Fiscal2009 Period compared to cash flows used in financing activities ofapproximately $8.2 million for the Fiscal 2008 Period. The decrease in net cashflows used in financing activities during the Fiscal 2009 Period was primarilyattributable to the change in the related party receivable of $1.3 millionduring the Fiscal 2009 Period as compared to the Fiscal 2008 Period, partiallyoffset by an increase of $0.1 million in debt payments incurred during theFiscal 2009 Period.

 

*Fiscal2008 Period Compared to Fiscal 2007 Period*

 

Net cash flowsprovided by operating activities increased by approximately $2.7 million toapproximately $14.9 million for the Fiscal 2008 Period.  The net increase in net cash flows providedby operating activities for the Fiscal 2008 Period was primarily attributableto the decrease in deferred income tax benefit of approximately $6.8 millionresulting from the transactions completed between REG and National CineMedia inconnection with the IPO of NCM Inc. (see Note 5 to the consolidated financialstatements included in Part II, Item 8 of this Form 10-K for furtherdiscussion) partially offset by a $3.7 million decrease in changes in operatingassets and liabilities.  The net decreasein the changes in operating assets and liabilities and other working capitalitems was primarily related to the timing of certain vendor payments, incometax payments and other liabilities in the Fiscal 2008 Period.

 

Net cash flowsused in investing activities were approximately $4.0 million for the Fiscal2008 Period compared to net cash flows provided by investing activities ofapproximately $2.5 million for the Fiscal 2007 Period.  Contributing to the increase in cash flowsused in investing activities was incremental capital expenditures ofapproximately $1.0 million, coupled with the $0.5 million in partnershipdistributions during the Fiscal 2008 Period, the impact of the additional $6.1million of proceeds received in connection with the sale of the Company’sequity interest in Fandango and the $0.3 million in dividends received duringthe Fiscal 2007 Period, partially offset by the $1.1 million purchase ofpartnership interests during the Fiscal 2007 Period and the increase inproceeds from the disposition of assets of approximately $0.3 million duringthe Fiscal 2008 Period as compared to the Fiscal 2007 Period.

 

Net cash flowsused in financing activities were approximately $8.2 million for the Fiscal2008 Period compared to cash flows used in financing activities ofapproximately $4.3 million for the Fiscal 2007 Period. The net increase in cashflows used in financing activities during the Fiscal 2008 Period was primarily attributableto the decrease of $0.4 million in excess tax benefits from share based paymentarrangements and the net increase in the change in the related party receivableof $3.5 million during the Fiscal 2008 Period as compared to the Fiscal 2007Period.

 

21

----

Table of Contents

 

***Liquidity and Capital Resources***

 

Our revenues aregenerated principally through admissions and concessions sales with proceedsreceived in cash or via credit cards at the point of sale. Our operatingexpenses are primarily related to film and advertising costs, rent andoccupancy, and payroll. Film costs are ordinarily paid to distributors within30 days following receipt of admissions revenues and the cost of the Company’sconcessions are generally paid to vendors approximately 30 to 35 days frompurchase.  Our current liabilitiesgenerally include items that will become due within twelve months. In addition,from time to time, we may use cash from operations to fund dividends to ourParent in excess of net income (loss) attributable to controlling interest andcash flows from operating activities less cash flows from investing and otherfinancing activities. As a result, at any given time, our balance sheet mayreflect a working capital deficit.

 

We fund the costof capital expenditures through internally generated cash flows and cash onhand. Our capital requirements have historically arisen principally in connectionwith retrofitting existing theatres, upgrading the Company’s theatre facilities(including digital 3D screens) and replacing equipment.

 

The costs ofimplementing digital projection in our theatres will be substantially funded byDCIP.  We expect that with respect to ourexisting theatres, DCIP will cover substantially all of the costs of installingdigital projection systems.  We expectDCIP to fund the cost of conversion through the collection of virtual printfees from motion picture studios and equipment lease payments fromparticipating exhibitors. We will bear operating and maintenance costs withrespect to digital projection systems in our theatres, which we expect to berelatively comparable to what we currently spend on our conventional film projectors.  We have made incremental investments indigital projectors and 3D projection technology to selectively add 3D capabledigital projection systems to our circuit to capture incremental 3D admissionsrevenues. To that end, as of December 31, 2009, we operated 31 screensoutfitted with digital 3D projection systems.

 

As more fullydescribed in Note 12 to the consolidated financial statements included in Part II,Item 8 of this Form 10-K, on March 10, 2010, DCIP completed theexecution of definitive agreements and related financing transactions inconnection with the conversion to digital projection. The completed financingis expected to cover the cost of conversion for substantially all of ourcircuit’s screens. We ultimately expect to outfit all of our screens withdigital projection systems. In the event that future additional financing isunavailable to complete the conversion of the remaining screens in our circuitas expected, we may have to incur additional capital expenditures in order tocomplete the full conversion of our circuit. As of the date of this Form 10-K,we have already begun to convert our existing theatres from 35 mm filmprojection to digital projection and intend to complete the conversion of ourentire circuit in approximately three to four years.

 

We believe theinstallation of digital projection systems, when combined with 3D technology,will allow us to offer our patrons premium 3D and large format movieexperiences, which we believe will generate incremental revenue for the Company.We remain optimistic about the benefits of digital cinema primarily as itrelates to future growth potential associated with 3D film product and other 3Dcontent and are pleased to see growing support of 3D film product by the majormotion picture studios.

 

The Company has aformal and intensive review procedure for the authorization of capitalprojects, with the most important financial measure of acceptability for adiscretionary non-maintenance capital project being whether its projecteddiscounted cash flow return on investment meets or exceeds the Company’sinternal rate of return targets.  Wecurrently expect capital expenditures for theatre expansion, upgrading andequipment replacements to be in the range of $4.0 million to $8.0 million infiscal year 2010. During the Fiscal 2009 Period, we invested an aggregate ofapproximately $4.9 million in capital expenditures.

 

During the yearended December 27, 2007, the Company sold its equity interest in Fandangofor proceeds of $7.0 million.  As a resultof this transaction, the Company recognized a gain on the sale of approximately$7.0 million ($4.2 million after tax). In addition, during the year ended January 1, 2009, the Companyreceived an additional $0.9 million of sale proceeds related to Fandango.  Accordingly, the Company recognized anadditional gain of $0.9 million ($0.6 million after tax) during the year ended January 1,2009.

 

22

----

Table ofContents

 

**ContractualCash Obligations and Commitments**

 

TheCompany primarily leases its theatres pursuant to long-term non-cancelableoperating leases, including leases that are subject to sale and leasebacktransactions, as further described in Note 6 to the consolidated financialstatements included in Part II, Item 8 of this Form 10-K.  Other than operating leases which aredetailed below, the Company does not utilize variable interest entities or anyother form of off-balance sheet financing. As of December 31, 2009, the Company’s estimated contractual cashobligations over the next several periods are as follows (dollars in millions):

 
| ** **                                       | ** ** | **Payments  Due By Period** | ** ** |
|--------------------------------------------------|------------|-----------------------------|------------|
| **Contractual Obligations**                      | ** ** | **Total**                   | ** ** | **Current** | ** ** | **13-36  Months** | ** ** | **37-60  Months** | ** ** | **After 60  Months** | ** ** |
| Capital lease obligations,including  interest(1) |       | $                           | 2.3        |   | $ | 0.3 |   | $ | 0.7 |   | $ | 0.7 |   | $ | 0.6 |   |
| Purchase commitments(2)                          |       | 1.4                         |       | 0.8 |   | 0.6 |   | — |   | — |   |
| Operating leases(3)                              |       | 222.4                       |       | 37.7 |   | 64.6 |   | 57.2 |   | 62.9 |   |
|                                             |       |                        |       |   |   |   |   |   |   |   |   |
| Total contractual cash obligations               |       | $                           | 226.1      |   | $ | 38.8 |   | $ | 65.9 |   | $ | 57.9 |   | $ | 63.5 |   |

 

----

(1)                                  The presentvalue of these obligations, excluding interest, is included on our consolidatedbalance sheet as of December 31, 2009. Future interest payments are calculated based on interest rates implicitin the underlying leases, which have an interest rate of 10.0%, maturing in2016. Refer to Note 4 to the consolidated financial statements included in Part II, Item 8 of this Form 10-Kfor additional information about our capital lease obligations.

 

(2)                                  Includesestimated capital expenditures to which we were committed as of December 31,2009, including improvements associated with existing theatres and theestimated cost of ADA related betterments.

 

(3)                                  We enter intooperating leases in the normal course of business.  Such lease agreements provide us with theoption to renew the leases at defined or then fair value rental rates forvarious periods.  Our future operatinglease obligations would change if we exercised these renewal options or if weenter into additional operating lease agreements.  Our operating lease obligations are furtherdescribed in Note 6 to the consolidated financial statements included in Part II, Item 8 of this Form 10-K.

 

We believethat the amount of cash and cash equivalents on hand and cash flow expectedfrom operations will be adequate for the Company to execute its businessstrategy and meet anticipated requirements for lease obligations, capitalexpenditures, working capital and debt service for the next 12 months.

 

***Sale-LeasebackTransactions***

 

Forinformation regarding our various sale and leaseback transactions, refer toNote 6 to the consolidated financial statements included in Part II, Item 8 ofthis Form 10-K.

 

**CriticalAccounting Estimates**

 

Ourconsolidated financial statements are prepared in conformity with U.S.generally accepted accounting principles, which require management to makeestimates and assumptions that affect the reported amounts of the assets andliabilities and disclosures of contingent assets and liabilities as of the dateof the balance sheet as well as the reported amounts of revenues and expensesduring the reporting period. We routinely make estimates and judgments aboutthe carrying value of our assets and liabilities that are not readily apparentfrom other sources. We evaluate and modify on an ongoing basis such estimatesand assumptions, which include those related to film costs, property andequipment, goodwill and income taxes as well as others discussed in Note 3 tothe consolidated financial statements included in Part II, Item 8 of this Form 10-K.Estimates and assumptions are based on historical and other factors believed tobe reasonable under the circumstances. The results of these estimates may formthe basis of the carrying value of certain assets and liabilities. Actualresults, under conditions and circumstances different from those assumed, maydiffer materially from estimates. The impact and any associated risks relatedto estimates, assumptions, and accounting policies are discussed within “Management’sDiscussion and Analysis of Financial Condition and Resultsof Operations”, as well as in the notesto the consolidated financial statements, if applicable, where such estimates,assumptions, and accounting policies affect our reported and expected results.Management has discussed the development and selection of its criticalaccounting estimates with the audit committee of our board of directors and theaudit committee has reviewed our related disclosures herein.

 

23

----

Table of Contents

 

Webelieve the following accounting policies are critical to our businessoperations and the understanding of our results of operations and affect themore significant judgments and estimates used in the preparation of ourconsolidated financial statements:

 

·                  Accounting Standards Codification (“ASC”)Subtopic 350-20, *Intangibles—Goodwill and Other—Goodwill*specifies that goodwill and indefinite-lived intangible assets will be subjectto an annual impairment assessment. Based on our annual impairment assessmentconducted during fiscal 2009, fiscal 2008 and fiscal 2007, we were not requiredto record a charge for goodwill impairment. In assessing the recoverability ofthe goodwill, we must make various assumptions regarding estimated future cashflows and other factors in determining the fair values of the respectiveassets. If these estimates or their related assumptions change in the future,we may be required to record impairment charges for these assets in futureperiods.

 

·                  We estimate our film cost expense andrelated film cost payable based on management’s best estimate of the expectedbox office revenue of each film over the length of its run in our theatres andthe ultimate settlement of such film costs with the distributors. Generally,less than one-third of our quarterly film expense is estimated at period-end.The length of time until these costs are known with certainty depends on theultimate duration of the film play, but is typically “settled” within two tothree months of a particular film’s opening release. Upon settlement with ourfilm distributors, film cost expense and the related film cost payable areadjusted to the final film settlement. The ultimate revenues of a film can beestimated reasonably accurately within a few weeks after the film is releasedbased on the film’s initial box office performance, which is determined by afilm’s initial box office receipts. As a result, there are typicallyinsignificant variances between our estimates of film cost expense and thefinal film cost payable, because we make such estimates based on each film’sbox office receipts through the end of the reporting period. For the fiscalyears ended December 31, 2009, January 1, 2009 and December 27, 2007, therewere no significant changes in our film cost estimation and settlementprocedures.

 

·                  We depreciate and amortize the componentsof our property and equipment relating to both owned and leased theatres on astraight-line basis over the shorter of the lease term or the estimated usefullives of the assets. Each owned theatre consists of a building structure,structural improvements, seating and concession and film display equipment.While we have assigned an estimated useful life of less than 30 years tocertain acquired facilities, we estimate that our newly constructed buildingsgenerally have an average economic useful life of 30 years. Certain of ourbuildings have been in existence for more than 40 years. With respect toequipment (e.g., concession stand, point-of-sale equipment, etc.), asubstantial portion is depreciated over seven years or less, which has been ourhistorical replacement period. Seats and 35mm projection equipment generallyhave a longer useful economic life, and their depreciable lives (12-15 years) arebased on our experience and replacement practices. The estimates of the assets’useful lives require our judgment and our knowledge of the assets beingdepreciated and amortized. Further, we review the economic useful lives of suchassets annually and make adjustments thereto as necessary. To the extent wedetermine that certain of our assets have become obsolescent, we acceleratedepreciation over the remaining useful lives of the assets. Actual economiclives may differ materially from these estimates.

 

The majority of ourproperties have been appraised. Such appraisals supported the estimated livesbeing used for depreciation and amortization purposes. Furthermore, ouranalysis of our historical capital replacement program is consistent with ourdepreciation policies. Finally, we review long-lived assets for impairmentwhenever events or changes in circumstances indicate that the carrying amountsof the assets may not be fully recoverable. Such analysis generally evaluatesassets for impairment on an individual theatre basis. When the estimated futureundiscounted cash flows of the operations to which the assets relate do notexceed the carrying value of the assets, such assets are written down to fairvalue. Our experience indicates that theatre properties become impairedprimarily due to market or competitive factors rather than physical (wear andtear) or functional (inadequacy or obsolescence) factors. In this regard, we donot believe the frequency or 

 

24

----

Table of Contents

 

volume of facilitiesimpaired due to these market factors are significant enough to impact theuseful lives used for depreciation periods.

 

For the fiscal yearsended December 31, 2009, January 1, 2009 and December 27, 2007, no significantchanges have been made to the depreciation and amortization rates applied tooperating assets, the underlying assumptions related to estimates ofdepreciation and amortization, or the methodology applied. For the fiscal yearended December 31, 2009, consolidated depreciation and amortization expense was$9.1 million, representing 4.1% of consolidated total revenues. If theestimated lives of all assets being depreciated were increased by one year, theconsolidated depreciation and amortization expense would have decreased byapproximately $0.6 million or 6.6%. If the estimated lives of all assets beingdepreciated were decreased by one year, the consolidated depreciation and amortizationexpense would have increased by approximately $0.7 million or 7.7%.

 

·                  Income taxes are accounted for under the asset andliability method. Deferred tax assets and liabilities are recognized for thefuture tax consequences attributable to differences between the financialstatement carrying amounts of existing assets and liabilities and theirrespective tax bases as well as operating loss and tax credit carryforwards.Deferred tax assets and liabilities are measured using enacted tax ratesexpected to apply to taxable income in the years in which those temporarydifferences are expected to be recovered or settled. The effect on deferred taxassets and liabilities of a change in tax rates is recognized in income in theperiod that includes the enactment date. We record a valuation allowance if itis deemed more likely than not that our deferred income tax assets will not berealized. We reassess the need for such valuation allowance on an ongoingbasis. An increase in the valuation allowance generally results in an increasein the provision for income taxes recorded in such period. A decrease in thevaluation allowance generally results in a decrease in the provision for incometaxes recorded in such period.

 

Additionally, income tax rulesand regulations are subject to interpretation, require judgment by us and maybe challenged by the tax authorities. As described further in Note 7 to theconsolidated financial statements included in Part II, Item 8 of this Form 10-K,effective December 29, 2006, the Company adopted the provisions of ASC Subtopic740-10,*Income Taxes—Overview*. Although webelieve that our tax return positions are fully supportable, in accordance withASC Subtopic 740-10, we recognize a tax benefit only for tax positions that wedetermine will more likely than not be sustained based on the technical meritsof the tax position.  With respect tosuch tax positions for which recognition of a benefit is appropriate, thebenefit is measured at the largest amount of benefit that is greater than 50percent likely of being realized upon ultimate settlement.  Tax positions are evaluated on an ongoingbasis as part of our process for determining our provision for income taxes.Among other items deemed relevant by us, the evaluations are based on newlegislation, other new technical guidance, judicial proceedings, and our specificcircumstances, including the progress of tax audits. Any change in thedetermination of the amount of tax benefit recognized relative to an uncertaintax position impacts the provision for income taxes in the period that suchdetermination is made.

 

For the fiscal year endedDecember 31, 2009, our provision for income taxes was $3.0 million. Changes inmanagement’s estimates and assumptions regarding the probability that certaintax return positions will be sustained, the enacted tax rate applied to deferredtax assets and liabilities, the ability to realize the value of deferred taxassets, or the timing of the reversal of tax basis differences could impact theprovision for income taxes and change the effective tax rate.  A one percentage point change in theeffective tax rate from 38.0% to 39.0% would have increased the current yearincome tax provision by approximately $0.1 million.

 

**QuarterlyResults**

 

Thefollowing tables set forth selected unaudited quarterly results for the eightquarters ended December 31, 2009. The quarterly financial data as of eachperiod presented below have been derived from UATC’s unaudited 

 

25

----

Table of Contents

 

condensed consolidatedfinancial statements for those periods. Results for these periods are notnecessarily indicative of results for the full year. The quarterly financialdata should be read in conjunction with the consolidated financial statementsof UATC and notes thereto included in Part II, Item 8 of this Form 10-K.

 
| ** **                                      | ** ** | **Dec. 31,  2009** | ** ** | **Oct. 1,  2009** | ** ** | **July 2,  2009** | ** ** | **April 2,  2009** | ** ** | **Jan. 1,  2009(1)** | ** ** | **Sept.  25,  2008** | ** ** | **June 26,  2008** | ** ** | **March  27,  2008** | ** ** |
|-------------------------------------------------|------------|--------------------|------------|-------------------|------------|-------------------|------------|--------------------|------------|----------------------|------------|----------------------|------------|--------------------|------------|----------------------|------------|
| ** **                                      | ** ** | ** **         | ** ** | ** **        | ** ** | ** **        | ** ** | **(in  millions)** | ** ** | ** **           | ** ** | ** **           | ** ** | ** **         | ** ** | ** **           | ** ** |
| Total revenues                                  |       | $                  | 56.7       |              | $          | 53.5              |       | $                  | 61.5       |                 | $          | 51.7                 |       | $                  | 55.9       |                 | $          | 62.5 |   | $ | 55.0 |   | $ | 51.7 |   |
| Income from operations                          |       | 2.8                |       | 1.9               |       | 2.0               |       | 1.1                |       | 3.0                  |       | 4.8                  |       | 2.3                |       | 2.7                  |       |
| Net income attributable to controlling interest |       | 1.8                |       | 1.2               |       | 1.1               |       | 0.7                |       | 2.2                  |       | 3.0                  |       | 1.4                |       | 1.8                  |       |
|                                                 |            |                    |            |                   |            |                   |            |                    |            |                      |            |                      |            |                    |            |                      |            |  |  |  |  |  |  |  |  |

 

----

(1)                                  The fiscalquarter ended January 1, 2009 was comprised of 14 weeks.

 

**Inflation**

 

TheCompany does not believe that inflation has had a material impact on itsfinancial position or results of operations.

 

**Seasonality**

 

TheCompany’s revenues are usually seasonal, coinciding with the timing of releasesof motion pictures by the major distributors. Generally, motion picture studiosrelease the most marketable motion pictures during the summer and the holidayseasons. The unexpected emergence of a “hit” film during other periods canalter the traditional pattern. The timing of movie releases can have asignificant effect on the Company’s results of operations, and the results ofone fiscal quarter are not necessarily indicative of the results for the nextfiscal quarter or any other fiscal quarter. The seasonality of motion pictureexhibition, however, has become less pronounced as motion picture studios arereleasing motion pictures somewhat more evenly throughout the year.

 

**RecentAccounting Pronouncements**

 

For adiscussion of the recent accounting pronouncements relevant to our operations,please refer to the information provided under Note 3 to the consolidatedfinancial statements included in Part II, Item 8 of this Form 10-K.

 

**Off-BalanceSheet Arrangements**

 

Otherthan the operating leases detailed above in this Form 10-K, under the heading “ContractualCash Obligations and Commitments,” the Company has no other off-balance sheetarrangements.

 

**Item 7A.  QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

UATC’smarket risk is confined to interest rate exposure of its debt obligations thatbear interest based on floating rates. As of December 31, 2009, the Company maintained no debt obligationsbearing floating interest rates.

 

26

----

Table of Contents

 

**Item 8.  FINANCIALSTATEMENTS AND SUPPLEMENTARY DATA**

 

**MANAGEMENT’SREPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING**

 

The Board of Directors

United Artists Theatre Circuit,Inc.:

 

Management is responsiblefor establishing and maintaining adequate internal control over financialreporting as such term is defined in Rules 13a-15(f) and 15d-15(f) under theSecurities Exchange Act of 1934, as amended.

 

Management, including ourprincipal executive officer and principal financial officer, conducted anevaluation of the effectiveness of such controls as of December 31, 2009. Thisassessment was based on criteria for effective internal control over financialreporting described in *InternalControl—Integrated Framework* issued by the Committee of SponsoringOrganizations of the Treadway Commission. Based on this assessment, ourmanagement believes that the Company’s internal control over financialreporting is effective as of December 31, 2009.

 

This annual report on Form10-K does not include an attestation report of the Company’s independentregistered public accounting firm regarding internal control over financialreporting.  Management’s report was notsubject to attestation by the Company’s independent registered publicaccounting firm pursuant to temporary rules of the Securities and ExchangeCommission that permit us to provide only management’s report in this annualreport on Form 10-K.

 

 
| /s/ AMY E. MILES                                         |   | /s/ DAVID H. OWNBY                                                            |
|----------------------------------------------------------|--------|-------------------------------------------------------------------------------|
|                                                     |   |                                                                          |
| Amy E. Miles

*President  (Principal Executive Officer)* |   | David H. Ownby

*Vice  President and Treasurer (Principal Financial Officer)* |

 

27

----

Table of Contents

 

**Reportof Independent Registered Public Accounting Firm**

 

The Board of Directors

United Artists TheatreCircuit, Inc.:

 

We have audited theaccompanying consolidated balance sheets of United Artists Theatre Circuit, Inc.and subsidiaries (the Company) as of December 31, 2009 and January 1, 2009, andthe related consolidated statements of operations, equity and comprehensiveincome, and cash flows for each of the years in the three-year period ended December31, 2009.  These consolidated financialstatements are the responsibility of the Company’s management.  Our responsibility is to express an opinion onthese consolidated financial statements based on our audits.

 

We conducted our auditsin accordance with the standards of the Public Company Accounting OversightBoard (United States).  Those standardsrequire that we plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement.  An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing theaccounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation.  We believe that our audits provide areasonable basis for our opinion.

 

In our opinion, theconsolidated financial statements referred to above present fairly, in allmaterial respects, the financial position of United Artists Theatre Circuit, Inc.and subsidiaries as of December 31, 2009 and January 1, 2009, and the resultsof their operations and their cash flows for each of the years in thethree-year period ended December 31, 2009, in conformity with U.S. generallyaccepted accounting principles.

 

As discussed in the notesto the consolidated financial statements, the Company changed the manner inwhich it accounts for noncontrolling interests as of January 2, 2009 (note 3)and uncertain tax positions as of December 29, 2006 (note 7).

 

 

/s/ KPMG LLP

 

 

Nashville, Tennessee

March 22, 2010

 

28

----

Table of Contents

 

**UNITEDARTISTS THEATRE CIRCUIT, INC.**

**ANDSUBSIDIARIES**

 

**CONSOLIDATEDBALANCE SHEETS**

(in millions,except share data)

 
| ** **                                                                                                                              | ** ** | **December 31, 2009** | ** **  | **January 1, 2009** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|-------------|---------------------|------------|
| **Assets**                                                                                                                              |       |                  |        |                |       |
| Current assets:                                                                                                                         |       |                  |        |                |       |
| Cash and cash equivalents                                                                                                               |       | $                     |  59.8  |                | $          |  52.8 |   |
| Receivables                                                                                                                             |       | 2.0                   |        | 1.8                 |       |
| Prepaid expenses, concession inventory and other  current assets                                                                        |       | 1.1                   |        | 0.8                 |       |
| Deferred income tax asset                                                                                                               |       | 2.0                   |        | 1.9                 |       |
| Total current assets                                                                                                                    |       | 64.9                  |        | 57.3                |       |
| Property and equipment:                                                                                                                 |       |                  |        |                |       |
| Land                                                                                                                                    |       | 3.3                   |        | 3.3                 |       |
| Buildings, leasehold improvements and equipment                                                                                         |       | 128.6                 |        | 134.6               |       |
| Total property and equipment                                                                                                            |       | 131.9                 |        | 137.9               |       |
| Accumulated depreciation and amortization                                                                                               |       | (78.8                 | )           | (78.7               | )          |
| Total property and equipment, net                                                                                                       |       | 53.1                  |        | 59.2                |       |
| Goodwill                                                                                                                                |       | 7.1                   |        | 7.1                 |       |
| Other non-current assets                                                                                                                |       | 0.2                   |        | 0.2                 |       |
| Total assets                                                                                                                            |       | $                     |  125.3 |                | $          |  123.8 |   |
| **Liabilities and Equity**                                                                                                              |       |                  |        |                |       |
| Current liabilities:                                                                                                                    |       |                  | ** **  | ** **          | ** ** |
| Accounts payable                                                                                                                        |       | $                     |  12.6  |                | $          |  10.4 |   |
| Accrued expenses and other                                                                                                              |       | 5.5                   |        | 5.5                 |       |
| Current portion of debt obligations                                                                                                     |       | 0.2                   |        | 0.2                 |       |
| Total current liabilities                                                                                                               |       | 18.3                  |        | 16.1                |       |
| Other non-current liabilities                                                                                                           |       | 3.7                   |        | 1.7                 |       |
| Non-current deferred revenue                                                                                                            |       | 25.2                  |        | 25.5                |       |
| Long-term debt, less current portion                                                                                                    |       | 1.5                   |        | 1.7                 |       |
| Deferred income tax liability                                                                                                           |       | 21.8                  |        | 22.3                |       |
| Total liabilities                                                                                                                       |       | 70.5                  |        | 67.3                |       |
| Equity:                                                                                                                                 |       |                  |        |                |       |
| Preferred stock, $1.00 par value; 500,000 shares  authorized,no shares issued and  outstanding at December 31, 2009 and January 1, 2009 |       | —                |        | —              |       |
| Common stock, $1.00 par value; 1,000 shares  authorized, 100 shares issued and outstanding at December 31, 2009 and  January 1, 2009    |       | —                |        | —              |       |
| Additional paid-in capital                                                                                                              |       | 93.2                  |        | 93.2                |       |
| Retained earnings                                                                                                                       |       | 31.6                  |        | 26.8                |       |
| Related party receivables                                                                                                               |       | (70.3                 | )           | (63.7               | )          |
| Total stockholder’s equity of United Artists  Theatre Circuit, Inc.                                                                |       | 54.5                  |        | 56.3                |       |
| Noncontrolling interest                                                                                                                 |       | 0.3                   |        | 0.2                 |       |
| Total equity                                                                                                                            |       | 54.8                  |        | 56.5                |       |
| Total liabilities and equity                                                                                                            |       | $                     |  125.3 |                | $          |  123.8 |   |

 

See accompanying notesto consolidated financial statements.

 

29

----

Table of Contents

 

**UNITEDARTISTS THEATRE CIRCUIT, INC.**

**ANDSUBSIDIARIES**

 

**CONSOLIDATED STATEMENTS OF OPERATIONS**

(in millions)

 
| ** **                                               | ** ** | **Year  Ended********December  31, 2009** | ** ** | **Year  Ended********January  1, 2009** | ** ** | **Year  Ended********December  27, 2007** | ** ** |
|----------------------------------------------------------|------------|-------------------------------------------|------------|-----------------------------------------|------------|-------------------------------------------|------------|
| Revenues:                                                |       |                                      |       |                                    |       |                                      |       |
| Admissions                                               |       | $                                         | 155.4      |                                    | $          | 155.3                                     |       | $ | 157.3 |   |
| Concessions                                              |       | 60.7                                      |       | 62.2                                    |       | 64.5                                      |       |
| Other  operating revenues                                |       | 7.3                                       |       | 7.6                                     |       | 7.3                                       |       |
| Total  revenues                                          |       | 223.4                                     |       | 225.1                                   |       | 229.1                                     |       |
|                                                     |       |                                      |       |                                    |       |                                      |       |
| Operating  expenses:                                     |       |                                      |       |                                    |       |                                      |       |
| Film  rental and advertising costs                       |       | 79.3                                      |       | 79.6                                    |       | 81.9                                      |       |
| Cost  of concessions                                     |       | 8.6                                       |       | 8.6                                     |       | 9.0                                       |       |
| Other  theatre operating expenses                        |       | 90.4                                      |       | 92.5                                    |       | 93.7                                      |       |
| Sale  and leaseback rentals                              |       | 14.8                                      |       | 14.8                                    |       | 14.9                                      |       |
| General  and administrative expenses                     |       | 6.8                                       |       | 6.8                                     |       | 6.9                                       |       |
| Depreciation  and amortization                           |       | 9.1                                       |       | 10.0                                    |       | 10.5                                      |       |
| Net  loss on disposal and impairment of operating assets |       | 6.6                                       |       | —                                  |       | 2.2                                       |       |
| Total  operating expenses                                |       | 215.6                                     |       | 212.3                                   |       | 219.1                                     |       |
| Income  from operations                                  |       | 7.8                                       |       | 12.8                                    |       | 10.0                                      |       |
| Other  expense (income):                                 |       |                                      |       |                                    |       |                                      |       |
| Interest  income, net                                    |       | (0.1                                      | )          | (0.4                                    | )          | (1.6                                      | )          |
| Gain  on sale of Fandango interest                       |       | —                                    |       | (0.9                                    | )          | (7.0                                      | )          |
| Other,  net                                              |       | —                                    |       | —                                  |       | 0.2                                       |       |
| Total  other income, net                                 |       | (0.1                                      | )          | (1.3                                    | )          | (8.4                                      | )          |
| Income  before income taxes                              |       | 7.9                                       |       | 14.1                                    |       | 18.4                                      |       |
| Provision  for income taxes                              |       | 3.0                                       |       | 5.6                                     |       | 6.8                                       |       |
| Net  income                                              |       | 4.9                                       |       | 8.5                                     |       | 11.6                                      |       |
| Noncontrolling  interest, net of tax                     |       | (0.1                                      | )          | (0.1                                    | )          | (0.1                                      | )          |
| Net  income attributable to controlling interest         |       | $                                         | 4.8        |                                    | $          | 8.4                                       |       | $ | 11.5 |   |

 

See accompanyingnotes to consolidated financial statements.

 

30

----

Table of Contents

 

**UNITEDARTISTS THEATRE CIRCUIT, INC.**

**ANDSUBSIDIARIES**

 

**CONSOLIDATED STATEMENTS OF EQUITY ANDCOMPREHENSIVE INCOME**

(in millions)

 
| ** **                                  | ** ** | **Preferred  Stock** | ** ** | **Common  Stock** | ** ** | **Additional  Paid-In Capital** | ** ** | **Retained  Earnings** | ** ** | **Intercompany  and  Related Party  Receivables** | ** ** | **Total Stockholder’s  Equity of UATC** | ** ** | **Noncontrolling  Interest** | ** ** | **Total  Equity** | ** ** |
|---------------------------------------------|------------|----------------------|------------|-------------------|------------|--------------------------------------|------------|------------------------|------------|---------------------------------------------------|------------|-------------------------------------------------------------|------------|------------------------------|------------|-------------------|------------|
| Balances  at December 28, 2006              |       | $                    | —     |              | $          | —                               |       | $                      | 92.8       |                                              | $          | 6.9                                                         |       | $                            | (24.8      | )                 | $          | 74.9 |   | $ | 1.9 |   | $ | 76.8 |   |
| Net  income and comprehensive income        |       | —               |       | —            |       | —                               |       | 11.5                   |       | —                                            |       | 11.5                                                        |       | —                       |       | 11.5              |       |
| Tax  benefit from exercise of stock options |       | —               |       | —            |       | 0.4                                  |       | —                 |       | —                                            |       | 0.4                                                         |       | —                       |       | 0.4               |       |
| Change  in related party receivables        |       | —               |       | —            |       | —                               |       | —                 |       | (30.7                                             | )          | (30.7                                                       | )          | —                       |       | (30.7             | )          |
| Noncontrolling  interest adjustment         |       | —               |       | —            |       | —                               |       | —                 |       | —                                            |       | —                                                      |       | (1.2                         | )          | (1.2              | )          |
| Balances  at December 27, 2007              |       | —               |       | —            |       | 93.2                                 |       | 18.4                   |       | (55.5                                             | )          | 56.1                                                        |       | 0.7                          |       | 56.8              |       |
| Net  income and comprehensive income        |       | —               |       | —            |       | —                               |       | 8.4                    |       | —                                            |       | 8.4                                                         |       | —                       |       | 8.4               |       |
| Change  in related party receivables        |       | —               |       | —            |       | —                               |       | —                 |       | (8.2                                              | )          | (8.2                                                        | )          | —                       |       | (8.2              | )          |
| Noncontrolling  interest adjustment         |       | —               |       | —            |       | —                               |       | —                 |       | —                                            |       | —                                                      |       | (0.5                         | )          | (0.5              | )          |
| Balances  at January 1, 2009                |       | —               |       | —            |       | 93.2                                 |       | 26.8                   |       | (63.7                                             | )          | 56.3                                                        |       | 0.2                          |       | 56.5              |       |
| Net  income and comprehensive income        |       | —               |       | —            |       | —                               |       | 4.8                    |       | —                                            |       | 4.8                                                         |       | —                       |       | 4.8               |       |
| Change  in related party receivables        |       | —               |       | —            |       | —                               |       | —                 |       | (6.6                                              | )          | (6.6                                                        | )          | —                       |       | (6.6              | )          |
| Noncontrolling  interest adjustment         |       | —               |       | —            |       | —                               |       | —                 |       | —                                            |       | —                                                      |       | 0.1                          |       | 0.1               |       |
| Balances  at December 31, 2009              |       | $                    | —     |              | $          | —                               |       | $                      | 93.2       |                                              | $          | 31.6                                                        |       | $                            | (70.3      | )                 | $          | 54.5 |   | $ | 0.3 |   | $ | 54.8 |   |

 

See accompanyingnotes to consolidated financial statements.

 

31

----

Table of Contents

 

**UNITEDARTISTS THEATRE CIRCUIT, INC.**

**ANDSUBSIDIARIES**

 

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

(in millions)

 
| ** **                                                                         | ** ** | **Year  ended********December  31, 2009** | ** ** | **Year  ended********January  1, 2009** | ** ** | **Year  ended********December  27, 2007** | ** ** |
|------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|-----------------------------------------|------------|-------------------------------------------|------------|
| Cash  flows from operating activities:                                             |       |                                      |       |                                    |       |                                      |       |
| Net  income                                                                        |       | $                                         | 4.9        |                                    | $          | 8.5                                       |       | $ | 11.6 |   |
| Adjustments  to reconcile net income to net cash provided by operating activities: |       |                                      |       |                                    |       |                                      |       |
| Effect of leases with escalating minimum annual  rentals                           |       | (1.2                                      | )          | (0.9                                    | )          | (0.4                                      | )          |
| Depreciation  and amortization                                                     |       | 9.1                                       |       | 10.0                                    |       | 10.5                                      |       |
| Net  loss on disposal and impairment of operating assets                           |       | 6.6                                       |       | —                                  |       | 2.2                                       |       |
| Gain  on sale of Fandango interest                                                 |       | —                                    |       | (0.9                                    | )          | (7.0                                      | )          |
| Net  loss on purchase of partnership interests                                     |       | —                                    |       | —                                  |       | 0.2                                       |       |
| Deferred  income tax (benefit) expense                                             |       | (0.4                                      | )          | 2.6                                     |       | (4.2                                      | )          |
| Changes  in operating assets and liabilities:                                      |       |                                      |       |                                    |       |                                      |       |
| Receivables                                                                        |       | (0.2                                      | )          | (0.2                                    | )          | 1.7                                       |       |
| Prepaid  expenses and concession inventory                                         |       | (0.3                                      | )          | —                                  |       | 0.1                                       |       |
| Accounts  payable                                                                  |       | 2.2                                       |       | (2.6                                    | )          | 1.6                                       |       |
| Deferred  revenue                                                                  |       | (0.3                                      | )          | (0.3                                    | )          | (0.2                                      | )          |
| Accrued  expenses and other liabilities                                            |       | (1.7                                      | )          | (1.3                                    | )          | (3.9                                      | )          |
| Net  cash provided by operating activities                                         |       | 18.7                                      |       | 14.9                                    |       | 12.2                                      |       |
| Cash  flows from investing activities:                                             |       |                                      |       |                                    |       |                                      |       |
| Capital  expenditures                                                              |       | (4.9                                      | )          | (4.7                                    | )          | (3.7                                      | )          |
| Proceeds  from disposition of assets, net                                          |       | 0.2                                       |       | 0.3                                     |       | —                                    |       |
| Purchase  of partnership interests, net of cash acquired                           |       | —                                    |       | —                                  |       | (1.1                                      | )          |
| Proceeds  from the sale of Fandango interest                                       |       | —                                    |       | 0.9                                     |       | 7.0                                       |       |
| Distributions  (to) from partnership                                               |       | —                                    |       | (0.5                                    | )          | 0.3                                       |       |
| Net  cash (used in) provided by investing activities                               |       | (4.7                                      | )          | (4.0                                    | )          | 2.5                                       |       |
| Cash  flows from financing activities:                                             |       |                                      |       |                                    |       |                                      |       |
| Debt  payments                                                                     |       | (0.2                                      | )          | (0.1                                    | )          | (0.1                                      | )          |
| Increase  in related party receivables                                             |       | (6.8                                      | )          | (8.1                                    | )          | (4.6                                      | )          |
| Excess  tax benefit from share-based payment arrangements                          |       | —                                    |       | —                                  |       | 0.4                                       |       |
| Net  cash used in financing activities                                             |       | (7.0                                      | )          | (8.2                                    | )          | (4.3                                      | )          |
| Net  increase in cash and cash equivalents                                         |       | 7.0                                       |       | 2.7                                     |       | 10.4                                      |       |
| Cash  and cash equivalents:                                                        |       |                                      |       |                                    |       |                                      |       |
| Beginning  of year                                                                 |       | 52.8                                      |       | 50.1                                    |       | 39.7                                      |       |
| End  of year                                                                       |       | $                                         | 59.8       |                                    | $          | 52.8                                      |       | $ | 50.1 |   |
| Supplemental  cash flow information:                                               |       |                                      |       |                                    |       |                                      |       |
| Cash  paid for interest                                                            |       | $                                         | 0.0        |                                    | $          | 0.1                                       |       | $ | 0.2 |   |
| Cash  paid for income taxes, net of refunds received                               |       | $                                         | 0.2        |                                    | $          | 0.4                                       |       | $ | 0.6 |   |

 

See accompanyingnotes to consolidated financial statements.

 

32

----

Table of Contents

 

**UNITEDARTISTS THEATRE CIRCUIT, INC.**

**ANDSUBSIDIARIES**

 

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS**

 

**December 31,2009, January 1, 2009 and December 27, 2007**

 

**(1)      TheCompany and Basis of Presentation**

 

United ArtistsTheatre Company (the “Parent” or “United Artists”), a Delaware corporation, isthe parent company of United Artists Theatre Circuit, Inc. (“we,” “us,” “our,”the “Company” or “UATC”) and United Artists Realty Company (“UAR”), which isthe parent company of United Artists Properties I Corp. (“Prop I”).  UATC leases certain theatres from PropI.  The terms UATC and the Company shallbe deemed to include the respective subsidiaries of such entity when used indiscussions included herein regarding the current operations or assets of suchentity. The accompanying consolidated financial statements include the accountsof the Company and those of all majority owned subsidiaries.

 

UATC operates 567screens in 65 theatres in 19 states as of December 31, 2009. As of January 1,2009, UATC operated 596 screens in 68 theatres in 19 states. The Companyformally operates on a 52-week fiscal year with each quarter generallyconsisting of 13 weeks, unless otherwise noted. The Company’s fiscal year ends on the first Thursday after December 25,which in certain years (such as fiscal 2008) results in a 53-week fiscal year.

 

The Company becamea subsidiary of Regal Entertainment Group (“REG” or “Regal”) on April 12, 2002,in conjunction with an exchange transaction in which REG, through its whollyowned subsidiary Regal Entertainment Holdings, Inc. (“REH”), also acquiredEdwards Theatres, Inc. (“Edwards”), Regal Cinemas Corporation (“Regal Cinemas”)and Regal CineMedia Corporation (“Regal CineMedia”). REG is controlled by the AnschutzCompany (“Anschutz”), which indirectly controlled each of us, Edwards, RegalCinemas, United Artists and Regal CineMedia prior to REG’s acquisition of usand them in the exchange transaction. For a detailed discussion of thetransactions resulting in Regal’s acquisition of its subsidiaries, see Note 2to the consolidated financial statements. On August 17, 2005, REH transferred the stock of United Artists to RegalCinemas, Inc. (“RCI”).  As a result,United Artists and its subsidiaries became subsidiaries of RCI.

 

In connection withRegal’s acquisition of its subsidiaries, RCI, an indirect subsidiary of Regal,agreed to manage all aspects of the theatre operations of UATC and itssubsidiaries and make all business decisions on behalf of UATC pursuant to amanagement agreement.  In certain marketswhere UATC operates theatres, RCI also operates theatres.

 

In conjunction with Regal’sacquisition of Consolidated Theatres Holdings, G.P. (“Consolidated Theatres”)on April 30, 2008, Regal entered into a final judgment with the AntitrustDivision of the United States Department of Justice (“DOJ”) to hold separateand divest of four theatres comprising 52 screens in North Carolina.  One of the four theatres subject to thejudgment was an existing ten screen theatre leased by UATC with declining cashflows.  The assets of this theatre hadbeen previously impaired due to its declining cash flows.  On April 30, 2009, pursuant to the finaljudgment between Regal and the DOJ, UATC transferred the theatre to anothertheatre operator, Carolina Cinemas LLC (“Carolina Cinemas”).  In order to implement the assignment of thistheatre, UATC entered into an operating agreement with Carolina Cinemas toaddress various matters including, without limitation, the use of equipmentowned by UATC, as well as payment of annual rent during the agreement.  Pursuant to this operating agreement, untilthe lease for this theatre expires on December 31, 2017, UATC shall be solelyresponsible for paying the landlord the rent due under the lease.  As a result of this agreement, UATC recordeda liability of approximately $4.2 million for the present value of the totalremaining lease obligation for this theatre assigned to Carolina Cinemas.  Furthermore, as a result of this obligation,the Company recorded an impairment charge of approximately $3.8 million in theaccompanying consolidated statements of operations for the year ended December 31,2009 as a component of “Net loss on disposal and impairment of operatingassets.” Accretion expense will be recorded monthly based on the incrementalborrowing rate over the term of the lease.

 

On February 12,2007, Regal, along with AMC Entertainment, Inc. (“AMC”) and Cinemark, Inc.(“Cinemark”), formed a joint venture company known as Digital CinemaImplementation Partners, LLC, a Delaware limited liability company (“DCIP”), tocreate a financing model and establish agreements with major motion picturestudios for the implementation of digital cinema. Future digital 

 

33

----

Table of Contents

 

cinema developments willbe managed by DCIP, subject to the approval of Regal, AMC and Cinemark. Each ofRegal, AMC and Cinemark has an equal voting interest in DCIP. Please refer toNote 12 to the consolidated financial statements for a discussion of recentdevelopments regarding DCIP, which were effected subsequent to the year ended December31, 2009.

 

**(2)      Formation of Regal Entertainment Group**

 

*ExchangeTransaction*

 

On March 8, 2002,Anschutz entered into an agreement to exchange its controlling interest inUnited Artists for common stock of Regal, resulting in Regal being the majorityshareholder of United Artists. Anschutz also exchanged its ownership interestsin two other theatre companies for common stock of Regal.  The management of these three theatrecompanies was combined, with management of the theatre operations based in Knoxville,Tennessee, while management of certain ancillary businesses was based inCentennial, Colorado.  As describedbelow, the exchange transaction was consummated on April 12, 2002.

 

On April 12, 2002,through a series of transactions, Regal issued (1) 70,538,017 shares of Class Bcommon stock to Anschutz in exchange for its controlling equity interests inRegal Cinemas, United Artists, Edwards and Regal CineMedia, (2) 14,052,320shares of Class B common stock to OCM Principal Opportunities Fund II, L.P. andits subsidiaries (“Oaktree’s Principal Activities Group”) in exchange for itscontribution of capital stock of Regal Cinemas and Edwards and (3) 27,493,575shares of Class A common stock to the other stockholders of Regal Cinemas,United Artists, Edwards and Regal CineMedia party to an exchange agreement inexchange for their capital stock of Regal Cinemas, United Artists, Edwards andRegal CineMedia.

 

Upon the closingof the exchange transaction, the holders of outstanding options of UnitedArtists received replacement options to purchase 2,287,552 shares of Regal ClassA common stock at prices ranging from $4.44 to $12.87 per share. Regal alsogranted to certain holders of United Artists warrants in exchange for theircontribution to Regal of outstanding warrants to purchase 3,750,000 shares ofUnited Artists’ common stock, warrants to purchase 3,928,185 shares of Regal ClassB common stock at $8.88 per share and warrants to purchase 296,129 shares ofRegal Class A common stock at $8.88 per share. Following the exchange transaction, Anschutz transferred beneficialownership of 1,455,183 shares of Class B common stock to Oaktree’s PrincipalActivities Group. In addition, Anschutz acquired an additional 697,620 sharesof Class B common stock in May 2002.

 

Anschutz controlsapproximately 78.0% of the combined voting power of Regal’s outstanding commonstock and, therefore, has the ability to direct the election of members ofRegal’s board of directors and to determine the outcome of other matterssubmitted to the vote of Regal’s stockholders. Because Anschutz controls Regal,Anschutz has the ability to control us.

 

*InitialPublic Offering of Regal Entertainment Group*

 

In May 2002, REGissued 18.0 million shares of its Class A common stock in an initial publicoffering at a price of $19.00 per share, receiving aggregate net offeringproceeds, net of underwriting discounts, commissions and other offeringexpenses, of $314.8 million.  A portionof the proceeds from this offering were used to repay UATC’s term bank creditfacility, which was replaced by a note payable to the Parent, which wasobligated under a substantially similar note payable to Regal.

 

On August 16,2002, REH, a wholly owned subsidiary of Regal, acquired the remainingoutstanding shares of common stock of United Artists held by the United Artists’minority stockholders and warrants to acquire shares of common stock of UnitedArtists held by various institutional holders for approximately $34.0million.  Immediately prior to theacquisition, the common stock of United Artists was the only outstanding classof voting stock, of which the minority stockholders owned approximately 9.9%,and REH owned the remaining 90.1%.  As aresult of this transaction, United Artists became a wholly owned subsidiary ofREH.

 

34

----

Table of Contents

 

**(3)      Summary of Significant Accounting Policies**

 

***Principlesof Consolidation***

 

The consolidatedfinancial statements include the accounts of UATC and its subsidiaries.  All significant intercompany accounts andtransactions have been eliminated in consolidation.

 

***RevenueRecognition***

 

Revenues aregenerated principally through admissions and concessions sales with proceedsreceived in cash or via credit card at the point of sale. Other operatingrevenues consist primarily of product advertising (including vendor marketingprograms) and other ancillary revenues which are recognized as income in theperiod earned. The Company generally recognizes payments received attributableto the marketing and advertising services provided by the Company under certainvendor programs as revenue in the period in which the related impressions aredelivered. Such impressions are measured by the concession product salesvolume, which is a mutually agreed upon proxy of attendance and reflects theCompany’s marketing and advertising services delivered to its vendors. Ininstances where the consideration received is in excess of fair value of theadvertising services provided, the excess is recorded as a reduction ofconcession costs. The Company recognizes revenue associated with gift cards andadvanced ticket sales at such time as the items are redeemed.

 

***CashEquivalents***

 

The Companyconsiders all unrestricted highly liquid debt instruments and investmentspurchased with an original maturity of three months or less to be cashequivalents.  At December 31, 2009, theCompany held substantially all of its cash in temporary cash investments in theform of certificates of deposit and variable rate investment accounts withmajor financial institutions.

 

***Inventories***

 

Inventoriesconsist of concession products and theatre supplies. The Company statesinventories on the basis of first-in, first-out (FIFO) cost, which is not inexcess of net realizable value.

 

***Propertyand Equipment***

 

The Company statesproperty and equipment at cost. Major renewals and improvements arecapitalized, while maintenance and repairs which do not improve or extend thelives of the respective assets, are expensed currently.  Gains and losses from disposition of propertyand equipment are included in income and expense when realized.

 

The Companycapitalizes the cost of computer equipment, system hardware and purchasedsoftware ready for service. During the years ended December 31, 2009 and January1, 2009, the Company capitalized approximately $0.3 million and $1.3 million,respectively, of such costs, which were associated primarily with (i) newpoint-of-sale devices at the Company’s box offices and concession stands, (ii) newticketing kiosks, and (iii) computer hardware and software purchased for theCompany’s theatre locations. The Company also capitalizes certain directexternal costs associated with software developed for internal use after thepreliminary software project stage is completed and Company management hasauthorized further funding for a software project and it is deemed probable ofcompletion. We capitalize these external software development costs only untilthe point at which the project is substantially complete and the software isready for its intended purpose.

 

The Companyrecords depreciation and amortization using the straight-line method over thefollowing estimated useful lives:

 
| Buildings                        |   | 20-30 years                            |
|----------------------------------|--------|----------------------------------------|
| Equipment                        |   | 3-20 years                             |
| Leasehold improvements           |   | Lesser of term of lease  or asset life |
| Computer equipment and  software |   | 3-5 years                              |

 

35

----

Table of Contents

 

As of December 31, 2009and January 1, 2009, included in property and equipment is $2.7 million ofassets accounted for under capital leases, net of accumulated depreciation of$1.5 million and $1.3 million, respectively. The Company records amortizationusing the straight-line method over the shorter of the lease terms or theestimated useful lives noted above.

 

***Goodwill***

 

The carrying amount ofgoodwill was $7.1 million for the years ended December 31, 2009 and January 1,2009.

 

Under AccountingStandards Codification (“ASC”) Subtopic 350-20, *Intangibles—Goodwilland Other—Goodwill*, the Company has identified its reporting unitsto be the designated market areas in which the Company conducts its theatreoperations.  The fair value of theCompany’s identified reporting units were estimated using the expected presentvalue of associated future cash flows and market values of the underlyingtheatres within each reporting unit.  TheCompany’s annual goodwill impairment assessments for the years ended December 31,2009 and January 1, 2009 indicated that the fair value of its reporting unitsexceeded their carrying value and therefore, goodwill was not deemed to beimpaired.

 

***Impairmentof Long-Lived Assets***

 

The Companyreviews long-lived assets for impairment whenever events or changes incircumstances indicate that the carrying amounts of the assets may not be fullyrecoverable.  The Company generallyevaluates assets for impairment on an individual theatre basis, which managementbelieves is the lowest level for which there are identifiable cash flows.  If the sum of the expected future cash flows,undiscounted and without interest charges, is less than the carrying amount ofthe assets, the Company recognizes an impairment charge in the amount by whichthe carrying value of the assets exceeds their fair market value. The fairvalue of assets is determined using the present value of the estimated futurecash flows or the expected selling price less selling costs for assets of whichthe Company expects to dispose (Level 3 inputs as described in ASC Topic 820, *Fair Value Measurements and Disclosures*).  This analysis resulted in the recording ofimpairment charges of $1.7 million and $1.3 million for the years ended December31, 2009 and December 27, 2007, respectively. There was no impairment oflong-lived assets during the year ended January 1, 2009.

 

***Leases***

 

The majority ofthe Company’s operations are conducted in premises occupied undernon-cancelable lease agreements with initial base terms ranging generally from15 to 20 years. The Company, at its option, can renew a substantial portion ofthe leases at defined or then fair rental rates for various periods. Certainleases for Company theatres provide for contingent rentals based on the revenueresults of the underlying theatre and require the payment of taxes, insurance,and other costs applicable to the property. Also, certain leases containescalating minimum rental provisions. There are no conditions imposed upon us by our lease agreements or byparties other than the lessor that legally obligate the Company to incur coststo retire assets as a result of a decision to vacate our leased properties.None of our lease agreements require us to return the leased property to the lessorin its original condition (allowing for normal wear and tear) or to removeleasehold improvements at our cost.

 

The Company accounts forleased properties under the provisions of ASC Topic 840, *Leases*and other authoritative accounting literature. ASC Subtopic 840-10, *Leases—Overview*requires that the Company evaluate eachlease for classification as either a capital lease or an operating lease. TheCompany performs this evaluation at the inception of the lease and when amodification is made to a lease. As to those arrangements that are classifiedas capital leases, the Company records property under capital leases and acapital lease obligation in an amount equal to the lesser of the present valueof the minimum lease payments to be made over the life of the lease at thebeginning of the lease term, or the fair value of the leased property. Theproperty under capital lease is amortized on a straight-line basis as a chargeto expense over the lease term, as defined, or the economic life of the leased property,whichever is less.  During the leaseterm, as defined, each minimum lease payment is allocated between a reductionof the lease obligation and interest expense so as to produce a constantperiodic rate of interest on the remaining balance of the lease obligation. TheCompany does not believe that exercise of the renewal options in its leases arereasonablyassured atthe inception of the lease agreements because our leases: (i) provide foreither (a) renewal rents based on 

 

36

----

Table of Contents

 

market rates or (b) renewalrents that equal or exceed the initial rents, and (ii) do not impose economicpenalties upon our determination whether or not to exercise the renewal option.As a result, there are not sufficient economic incentives at the inception ofour leases, in our view, to consider that our lease renewal options arereasonably assured of being exercised and therefore, we generally consider theinitial base term as the lease term under ASC Subtopic 840-10.

 

The Company records rent expense for itsoperating leases with contractual rent increases in accordance with ASCSubtopic 840-20, *Leases—Operating Leases*, on astraight-line basis from the “lease commencement date” as specified in thelease agreement until the end of the base lease term.

 

For leases inwhich the Company is involved with construction of the theatre, the Companyaccounts for the lease during the construction period under the provisions ofASC Subtopic 840-40, *Leases—Sale LeasebackTransactions*. The landlord is typically responsible for constructinga theatre using guidelines and specifications agreed to by the Company andassumes substantially all of the risk of construction. In accordance with ASCSubtopic 840-40, if the Company concludes that it has substantially all of theconstruction period risks, it records a construction asset and relatedliability for the amount of total project costs incurred during theconstruction period. Once construction is completed, the Company considers therequirements under ASC Subtopic 840-40, for sale-leaseback treatment, and ifthe arrangement does not meet such requirements, it records the project’sconstruction costs funded by the landlord as a financing obligation. Theobligation is amortized over the financing term based on the paymentsdesignated in the contract.

 

In accordance withASC Subtopic 840-20, we expense rental costs incurred during constructionperiods for operating leases as such costs are incurred. For rental costsincurred during construction periods for both operating and capital leases, the“lease commencement date” is the date at which we gain access to the leasedasset. Historically, and for the years ended December 31, 2009, January 1, 2009and December 27, 2007, these rental costs have not been significant to ourconsolidated financial statements.

 

***Saleand Leaseback Transactions***

 

The Companyaccounts for the sale and leaseback of real estate assets in accordance withASC Subtopic 840-40*.*Losses onsale leaseback transactions are recognized at the time of sale if the fairvalue of the property sold is less than the undepreciated cost of the property.Gains on sale and leaseback transactions are deferred and amortized over theremaining lease term.

 

***IncomeTaxes***

 

Income taxes areaccounted for under the asset and liability method. Deferred tax assets andliabilities are recognized for the future tax consequences attributable todifferences between the financial statement carrying amounts of existing assetsand liabilities and their respective tax bases and operating loss and taxcredit carryforwards. Deferred tax assets and liabilities are measured usingenacted tax rates expected to apply to taxable income in the years in whichthose temporary differences are expected to be recovered or settled. The effecton deferred tax assets and liabilities of a change in tax rates is recognizedin income in the period that includes the enactment date. The Company records avaluation allowance if it is deemed more likely than not that its deferredincome tax assets will not be realized. The Company expects that certaindeferred income tax assets are not more likely than not to be recovered andtherefore has established a valuation allowance. The Company reassesses itsneed for the valuation allowance for its deferred income taxes on an ongoingbasis.

 

Additionally,income tax rules and regulations are subject to interpretation, requirejudgment by the Company and may be challenged by the taxation authorities. Asdescribed further in Note 7—“Income Taxes,” effective December 29, 2006, theCompany adopted the provisions of ASC Subtopic 740-10, *Income Taxes—Overview*.In accordance with ASC Subtopic 740-10, the Company recognizes a tax benefitonly for tax positions that are determined to be more likely than notsustainable based on the technical merits of the tax position. With respect tosuch tax positions for which recognition of a benefit is appropriate, thebenefit is measured at the largest amount of benefit that is greater than 50percent likely of being realized upon ultimate settlement. Tax positions areevaluated on an ongoing basis as part of the Company’s process for determiningthe provision for income taxes.

 

37

----

Table of Contents

 

***Investments***

 

During the year ended December27, 2007, the Company sold its equity interest in Fandango, Inc. (“Fandango”)for proceeds of $7.0 million. As a result of this transaction, the Companyrecognized a gain on the sale of approximately $7.0 million ($4.2 million aftertax). In addition, during the year ended January 1, 2009, the Company receivedan additional $0.9 million of sale proceeds related to Fandango. Accordingly,the Company recognized an additional gain of $0.9 million ($0.6 million aftertax) during the year ended January 1, 2009.

 

On June 30, 2007, UATCacquired the remaining partnership interest in two of its subsidiaries for anaggregate purchase price of $1.1 million, which resulted in a loss of $0.2million.  The loss was recorded in theaccompanying consolidated statement of operations as a component of “Other,net.”

 

***DeferredRevenue***

 

Deferred revenue relatesprimarily to the amount we received for agreeing to the existing exhibitorservice agreement (“ESA”) modification described in Note 5—“Related PartyTransactions.” The amount we received for agreeing to the ESA modification willbe amortized to advertising revenue over the 30 year term of the agreementfollowing the units of revenue method as described in Note 5—“Related PartyTransactions.”  As of December 31, 2009and January 1, 2009, approximately $25.2 million and $25.5 million of deferredrevenue related to the ESA was recorded as a component of non-current deferredrevenue in the accompanying consolidated balance sheets.

 

***DeferredRent***

 

The Company recognizesrent on a straight-line basis after considering the effect of rent escalationprovisions resulting in a level monthly rent expense for each lease over itsterm. The deferred rent liability is included in other non-current liabilitiesin the accompanying consolidated balance sheets.

 

***FilmCosts***

 

The Company estimates itsfilm cost expense and related film cost payable based on management’s bestestimate of the ultimate settlement of the film costs with the distributors.Generally, less than one-third of our quarterly film expense is estimated atperiod-end. The length of time until these costs are known with certaintydepends on the ultimate duration of the film play, but is typically “settled”within two to three months of a particular film’s opening release. Uponsettlement with our film distributors, film cost expense and the related filmcost payable are adjusted to the final film settlement.

 

***LoyaltyProgram***

 

Members of the RegalCrown Club® earn credits for each dollar spent at one ofour theatres and earn concession or ticket awards based on the number ofcredits accumulated. Because we believe that the value of the awards granted toour Regal Crown Club® members is insignificant in relation to thevalue of the transactions necessary to earn the award, the Company records theestimated incremental cost of providing awards under our Regal Crown Club® loyalty programat the time the awards are earned. Historically, and for the years ended December31, 2009, January 1, 2009 and December 27, 2007, the costs of these awards havenot been significant to our consolidated financial statements.

 

***Advertisingand Start-Up Costs***

 

The Company expensesadvertising costs as incurred.  Start-upcosts associated with a new theatre are also expensed as incurred.

 

***Stock-BasedCompensation***

 

As described in Note 9—“CapitalStock and Share-Based Compensation,” effective December 30, 2005, we adoptedASC Subtopic 718-10, *Compensation—StockCompensation—Overall* utilizing the modified prospective approach.Under ASC Subtopic 718-10, share-based compensation cost is measured at thegrant date, based on the

 

38

----

Table ofContents

 

estimated fair value ofthe award, and is recognized as expense over the employee’s requisite serviceperiod. Prior to the adoption of ASC Subtopic 718-10, we accounted for stockoption grants using the intrinsic value method, and accordingly, recognized nocompensation expense for stock option grants when the exercise price equaledthe fair value of common stock on the date of grant.

 

In connection with theadoption of ASC Subtopic 718-10, the Company also elected to adopt thealternative transition method for calculating the tax effects of share-basedcompensation. The alternative transition method includes a simplified method toestablish the beginning balance of the additional paid-in capital pool (“APICpool”) related to the tax effects of employee share-based compensation, whichis available to absorb tax deficiencies which could be recognized subsequent tothe adoption of ASC Subtopic 718-10.

 

***Estimates***

 

The preparation offinancial statements in conformity with U.S. generally accepted accountingprinciples requires management to make estimates and assumptions that affectthe reported amounts of assets and liabilities and disclosure of contingentassets and liabilities at the date of the consolidated financial statements andthe reported amounts of revenues and expenses during the reporting period.  Significant estimates include, but are notlimited to, those related to film costs, property and equipment, goodwill andincome taxes.  Actual results coulddiffer from those estimates.

 

***Segments***

 

As of December 31,2009, January 1, 2009 and December 27, 2007, UATC managed itsbusiness under one reportable segment: theatre exhibition operations.

 

***ComprehensiveIncome***

 

Net income andcomprehensive income were the same for all years presented.

 

***Reclassifications***

 

Certain reclassificationshave been made to the 2007 and 2008 consolidated financial statements toconform to the 2009 presentation.

 

***RecentAccounting Pronouncements***

 

In December 2007,the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 141(R),*Business Combinations*. SFAS No. 141(R) requiresall business combinations completed after the effective date to be accountedfor by applying the acquisition method (previously referred to as the purchasemethod). SFAS No. 141(R) expands the definition of transactions andevents that qualify as business combinations; requires that the acquired assetsand liabilities, including contingencies, be recorded at the fair valuedetermined on the acquisition date and changes thereafter reflected in revenue,not goodwill; changes the recognition timing for restructuring costs; andrequires acquisition costs to be expensed as incurred. Future reductions in thevaluation allowance recorded relative to pre-acquisition periods will result ina decrease in the provision for income taxes. In addition, with respect touncertain tax positions, changes in the amount of tax benefit recognizedrelative to pre-acquisition periods will result in an increase/decrease in the provisionfor income taxes (see Note 7–”Income Taxes” for further discussion). Theadoption of SFAS No. 141(R) did not have a material impact on theCompany’s consolidated financial position, cash flows or results of operations.

 

In December 2007,the FASB issued SFAS No. 160, *Noncontrolling Interest inConsolidated Financial Statements*. SFAS No. 160 establishes newaccounting and reporting standards for the noncontrolling interest in a subsidiaryand for the deconsolidation of a subsidiary. Specifically, this statementrequires the recognition of a noncontrolling interest (minority interest) asequity in the consolidated financial statements and separate from the parent’sequity. The amount of net income attributable to the noncontrolling interestwill be included in consolidated net income on the face of the incomestatement. SFAS No. 160 clarifies that changes in a parent’s ownershipinterest in a subsidiary that do not result in deconsolidation are equity transactionsif the parent retains its controlling financial

 

39

----

Tableof Contents

 

interest. In addition,this statement requires that a parent recognize a gain or loss in net incomewhen a subsidiary is deconsolidated. Such gain or loss will be measured usingthe fair value of the noncontrolling equity investment on the deconsolidationdate. SFAS No. 160 also includes expanded disclosure requirementsregarding the interests of the parent and its noncontrolling interest. SFAS No. 160was adopted by the Company on January 2, 2009. The adoption had the effectof reclassifying amounts previously classified under “minority interest” (approximately$0.1 million as of January 1, 2009 and December 27, 2007) to acomponent of equity under “noncontrolling interest” in the accompanyingconsolidated balance sheets and consolidated statements of equity andcomprehensive income.  Amounts previouslyclassified under “minority interest in earnings of consolidated subsidiaries”are now classified as “noncontrolling interest” and presented net of tax below “netincome” to arrive at “net income attributable to controlling interest” in theaccompanying consolidated statements of operations.

 

In May 2009, theFASB issued SFAS No. 165, *Subsequent Events*,which establishes reporting and disclosure requirements based on the existenceof conditions at the date of the balance sheet for events or transactions thatoccurred after the balance sheet date but before the financial statements areissued or are available to be issued. Companies are required to disclose thedate through which subsequent events have been evaluated and whether that dateis the date the financial statements were issued or were available to beissued. The Company adopted SFAS No. 165 as of July 2, 2009 and hasincluded certain disclosures in Note 12 —“Subsequent Events”.

 

During June 2009,the FASB issued SFAS No. 167, *Amendments to FASB InterpretationNo. 46(R) *which is to be adopted as of the beginning ofits first annual reporting period that begins after November 15, 2009, andinterim and annual reporting periods thereafter.  SFAS No. 167 amends FASB Interpretation No. 46(R),*Consolidation of Variable Interest Entities aninterpretation of ARB No. 51* (“FIN 46(R)”) to require anenterprise to perform an analysis to determine whether the enterprise’svariable interest or interests give it a controlling financial interest in avariable interest entity. This analysis identifies the primary beneficiary of avariable interest entity as the enterprise that has both of the followingcharacteristics:

 

a.           The power to direct the activities of avariable interest entity that most significantly impact the entity’s economicperformance; and

 

b.              The obligation to absorb losses of theentity that could potentially be significant to the variable interest entity orthe right to receive benefits from the entity that could potentially besignificant to the variable interest entity.

 

Additionally, anenterprise is required to assess whether it has an implicit financialresponsibility to ensure that a variable interest entity operates as designedwhen determining whether it has the power to direct the activities of thevariable interest entity that most significantly impact the entity’s economicperformance. SFAS No. 167 amends FIN 46(R) to require ongoingreassessments of whether an enterprise is the primary beneficiary of a variableinterest entity. SFAS No. 167 amends FIN 46(R) to add an additionalreconsideration event for determining whether an entity is a variable interestentity when any changes in facts and circumstances occur such that the holdersof the equity investment at risk, as a group, lose the power from voting rightsor similar rights of those investments to direct the activities of the entitythat most significantly impact the entity’s economic performance.  SFAS No. 167 amends FIN 46(R) torequire enhanced disclosures that will provide users of financial statementswith more transparent information about an enterprise’s involvement in avariable interest entity. The enhanced disclosures are required for anyenterprise that holds a variable interest in a variable interest entity.  The Company is evaluating the adoption ofSFAS No. 167 and its impact on the Company’s consolidated financialposition, cash flows and results of operations.

 

In June 2009,the FASB issued SFAS No. 168, *The FASB AccountingStandards Codification and the Hierarchy of Generally Accepted AccountingPrinciples.*  SFAS No. 168became the single source of authoritative nongovernmental U.S. generallyaccepted accounting principles (GAAP), superseding existing FASB, AmericanInstitute of Certified Public Accountants, Emerging Issues Task Force, andrelated accounting literature. SFAS No. 168 reorganizes the thousands of GAAPpronouncements into roughly 90 accounting topics and displays them using aconsistent structure. Also included is relevant Commission guidance organizedusing the same topical structure in separate sections. SFAS No. 168 waseffective for financial statements issued for reporting periods that end after September 15,2009. The Company adopted the provisions of this guidance as of October 1,2009.  The adoption did not have animpact on the Company’s consolidated financial position, cash flows or resultsof operations.

 

40

----

Tableof Contents

** **

**(4)     DebtObligations**

 

Debt obligationsare summarized as follows (amounts in millions):

 

| ** **           | ** ** | **December 31,  2009** | ** ** | **January 1,  2009** | ** ** |
|----------------------|------------|-----------------------------|------------|---------------------------|------------|
| Debt obligations (a) |       | $                           | 1.7        |                      | $          | 1.9 |   |
| Less current portion |       | (0.2                        | )          | (0.2                      | )          |
| Long-term debt       |       | $                           | 1.5        |                      | $          | 1.7 |   |

 

----

(a)                                  Debt obligationsinclude $1.7 million and $1.9 million of capital lease obligations as ofDecember 31, 2009 and January 1, 2009, which have an interest rate of10.0%, maturing in 2016.

 

Theaggregate annual maturities of debt obligations are as follows (amounts inmillions):

 

| 2010                             |   | $    | 0.3    |   |
|----------------------------------|--------|------|--------|--------|
| 2011                             |   | 0.3  |   |
| 2012                             |   | 0.4  |   |
| 2013                             |   | 0.3  |   |
| 2014                             |   | 0.4  |   |
| Thereafter                       |   | 0.6  |   |
|                             |   | 2.3  |   |
| Less  interest on capital leases |   | (0.6 | )      |
| Totals                           |   | $    | 1.7    |   |

 

**(5)     Related Party Transactions**

 

UATC leasescertain of its theatres from Prop I in accordance with a master lease (the “MasterLease”).  The Master Lease provides forbasic monthly or quarterly rentals and may require additional rentals, based onthe revenue of the underlying theatre. In order to fund the cost of additions and/or renovations to the theatresleased by UATC from Prop I, UATC has periodically made advances to Prop I.  As part of the application of fresh-startreporting the receivable was reclassified from other assets to stockholder’sequity and interest no longer accrues on this account. The receivable will bereduced upon any sale of properties by Prop I, with UATC receiving the netproceeds of the sale.

 

RCI manages allaspects of the theatre operations of UATC and its subsidiaries pursuant to theterms of a management agreement, which includes all of its cash collections,cash disbursements and other cash management functions. During the years ended December 31,2009, January 1, 2009 and December 27, 2007, UATC recorded managementfee expenses of approximately $6.8 million, $6.8 million and $6.9 million,respectively, related to this arrangement. Such fees have been recorded in the accompanying consolidated statementsof operations as a component of “General and Administrative” expenses.

 

As of December 31,2009, the Company’s related party receivables totaled approximately $70.3million, which represents an increase of $6.6 million from $63.7 million as of January 1,2009. The increase in these receivables was due primarily to timing of theintercompany cash collections and disbursements, as described above.

 

Pursuant to theCompany’s management agreement with RCI, RCI, through an agreement withNational CineMedia, LLC (“National CineMedia”), provides all on-screen andlobby advertising and event services to UATC.

 

In connection withthe completion of the initial public offering, or IPO of National CineMediaInc.’s (“NCM Inc.”) common stock, RCI amended and restated its ESA withNational CineMedia, whereby in exchange for its pro rata share of the IPOproceeds, RCI agreed to a modification of National CineMedia’s paymentobligation under the ESA.  Themodification extended the term of the ESA to 30 years, provided NationalCineMedia with a five year right of first refusal beginning one year prior tothe end of the term and changed the basis upon which RCI is paid by NationalCineMedia from a percentage of revenues associated with advertising contractsentered into by National CineMedia to a monthly theatre access fee.  Also, with respect to any on-screen advertisingtime provided by us to our 

 

41

----

Tableof Contents

 

beverage concessionaire,RCI is required to purchase such time from National CineMedia at a negotiatedrate.

 

As a result of theESA amendment and related modification payment, RCI recognizes various types ofother revenue from National CineMedia, including per patron and per digitalscreen theatre access fees, net of payments for on-screen advertising timeprovided to our beverage concessionaire, other NCM revenue (such as meeting andevent services, live and pre-recorded concerts, sporting events and otherentertainment programming content) and amortization of upfront ESA modificationfees utilizing the units of revenue amortization method. These revenues arepresented as a component of “Other operating revenues” in the accompanyingconsolidated financial statements and consist of the following amounts:

 

| ** **                                        | ** ** | **Year  Ended********December 31,  2009** | ** ** | **Year  Ended********January 1,  2009** | ** ** |
|---------------------------------------------------|------------|------------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                        | ** ** | **(in millions)**                              | ** ** |
| Theatre  access fees per patron                   |       | $                                              | 1.3        |                                         | $          | 1.4 |   |
| Theatre  access fees per digital screen           |       | 0.4                                            |       | 0.4                                          |       |
| Other  NCM revenue                                |       | 0.2                                            |       | 0.3                                          |       |
| Amortization  of ESA modification fees            |       | 0.3                                            |       | 0.3                                          |       |
| Payments  for beverage concessionaire advertising |       | (1.1                                           | )          | (1.1                                         | )          |
| Total                                             |       | $                                              | 1.1        |                                         | $          | 1.3 |   |

 

**(6)     Leases**

 

The Companyaccounts for a majority of its leases as operating leases. The Company, at itsoption, can renew a substantial portion of the leases at defined or then fairrental rates for various periods. Certain leases for Company theatres providefor contingent rentals based on the revenue results of the underlying theatreand require the payment of taxes, insurance, and other costs applicable to theproperty. Also, certain leases contain escalating minimum rental provisionsthat have been accounted for on a straight-line basis over the initial term ofthe leases.

 

Minimum rentalspayable under all non-cancelable operating leases with terms in excess of oneyear as of December 31, 2009, are summarized for the following fiscalyears (in millions):

 

| 2010       |   | $    | 37.7   |   |
|------------|--------|------|--------|--------|
| 2011       |   | 33.9 |   |
| 2012       |   | 30.7 |   |
| 2013       |   | 29.0 |   |
| 2014       |   | 28.2 |   |
| Thereafter |   | 62.9 |   |

 

Rent expense,including sale and leaseback rentals of $14.8 million, $14.8 million and $14.9million, for the years ended December 31, 2009, January 1, 2009 and December 27,2007, under such operating leases amounted to $37.4 million, $38.7 million and$39.4 million for the years ended December 31, 2009, January 1, 2009and December 27, 2007, respectively. Contingent rent expense was $1.4million, $1.3 million and $1.3 million for the years ended December 31,2009, January 1, 2009 and December 27, 2007, respectively.

 

***Sale-LeasebackTransactions***

 

The Company hashistorically entered into sale and leaseback transactions whereby owned propertieswere sold and leased back under operating leases. The minimum rentals for theseoperating leases are included in the table above.

 

In December 1995,UATC entered into a sale and leaseback transaction whereby 31 owned propertieswere sold to and leased back from an unaffiliated third party. In conjunctionwith the transaction, the buyer of the properties issued publicly tradedpass-through certificates. In connection with this sale and leasebacktransaction, UATC entered into a Participation Agreement that requires UATC tocomply with various covenants, including limitations on indebtedness,restricted payments, transactions with affiliates, guarantees, issuance ofpreferred stock of subsidiaries

 

42

----

Tableof Contents

 

and subsidiarydistributions, transfer of assets and payment of dividends. As of December 31,2009, 12 theatres were subject to the sale leaseback transaction and approximately$38.4 million in principal amount of pass-through certificates wereoutstanding.

 

**(7)     Income Taxes**

 

The components ofthe provision for income taxes for income from operations for each of thefiscal years were as follows (in millions):

 

| ** **                  | ** ** | **Year Ended  December 31, 2009** | ** ** | **Year Ended  January 1, 2009** | ** ** | **Year Ended  December 27, 2007** | ** ** |
|-----------------------------|------------|----------------------------------------|------------|--------------------------------------|------------|----------------------------------------|------------|
| Federal:                    |       |                                   |       |                                 |       |                                   |       |
| Current                     |       | $                                      | 2.9        |                                 | $          | 2.8                                    |       | $ | 10.6 |   |
| Deferred                    |       | (0.3                                   | )          | 1.8                                  |       | (4.5                                   | )          |
| Total Federal               |       | 2.6                                    |       | 4.6                                  |       | 6.1                                    |       |
| State:                      |       |                                   |       |                                 |       |                                   |       |
| Current                     |       | 0.5                                    |       | 0.2                                  |       | 0.4                                    |       |
| Deferred                    |       | (0.1                                   | )          | 0.8                                  |       | 0.3                                    |       |
| Total State                 |       | 0.4                                    |       | 1.0                                  |       | 0.7                                    |       |
| Total income tax  provision |       | $                                      | 3.0        |                                 | $          | 5.6                                    |       | $ | 6.8 |   |

 

During the yearended December 27, 2007, a current tax benefit of $0.4 million wasallocated directly to stockholder’s equity for the exercise of stock options.No tax benefits were allocated directly to stockholder’s equity for theexercise of stock options in the years ended December 31, 2009 and January 1,2009.

 

The reconciliationof the provision for income taxes as reported and the amount computed bymultiplying the income before taxes and extraordinary item by the U.S. federalstatutory rate of 35% was as follows (in millions):

 
| ** **                                                 | ** ** | **Year Ended  December 31, 2009** | ** ** | **Year Ended  January 1, 2009** | ** ** | **Year Ended  December 27, 2007** | ** ** |
|------------------------------------------------------------|------------|----------------------------------------|------------|--------------------------------------|------------|----------------------------------------|------------|
| Provision  calculated at federal statutory income tax rate |       | $                                      | 2.8        |                                 | $          |  4.9                              |       | $ |  6.4 |   |
| State  and local income taxes, net of federal benefit      |       | 0.3                                    |       | 0.6                                  |       | 0.8                                    |       |
| Other                                                      |       | (0.1                                   | )          | 0.1                                  |       | (0.4                                   |  )    |
| Total  income tax provision                                |       | $                                      | 3.0        |                                 | $          |  5.6                              |       | $ |  6.8 |   |

 

Significantcomponents of the Company’s net deferred tax liability consisted of thefollowing (in millions):

 

| ** **                                                | ** ** | **December 31, 2009** | ** ** | **January 1, 2009** | ** ** |
|-----------------------------------------------------------|------------|----------------------------|------------|--------------------------|------------|
| Deferred  tax assets:                                     |       |                       |       |                     |       |
| Net  operating loss carryforward                          |       | $                          | 18.0       |                     | $          | 21.9 |   |
| Excess  of tax basis over book basis of fixed assets      |       | 16.0                       |       | 15.9                     |       |
| Accrued  expenses                                         |       | 0.3                        |       | 0.7                      |       |
| Deferred  revenue                                         |       | 10.2                       |       | 10.3                     |       |
| Other                                                     |       | 1.5                        |       | —                   |       |
| Total deferred tax  assets before valuation allowance     |       | 46.0                       |       | 48.8                     |       |
| Valuation allowance                                       |       | (3.1                       | )          | (3.1                     | )          |
| Total deferred tax  assets after valuation allowance      |       | 42.9                       |       | 45.7                     |       |
| Deferred tax  liabilities:                                |       |                       |       |                     |       |
| Deferred gain on sale  of theatres                        |       | (34.7                      | )          | (38.3                    | )          |
| Excess of book basis  over tax basis of intangible assets |       | (27.8                      | )          | (27.8                    | )          |
| Other                                                     |       | (0.2                       | )          | —                   |       |
| Total deferred tax  liabilities                           |       | (62.7                      | )          | (66.1                    | )          |
| Net deferred tax  liability                               |       | $                          | (19.8      | )                        | $          | (20.4 | ) |

 

As of December 31,2009, the Company had net operating loss carryforwards for federal income taxpurposes

 

43

----

Tableof Contents

 

of approximately $36.6million with expiration commencing during 2019. The Company’s net operatingloss carryforwards were generated by the predecessor entities of UATC. The TaxReform Act of 1986 imposed substantial restrictions on the utilization of netoperating losses in the event of an “ownership change” of a corporation.Accordingly, the Company’s ability to utilize the net operating losses may beimpaired as a result of the “ownership change” limitations.

 

In assessing therealizable value of deferred tax assets, management considers whether it ismore likely than not that some portion or all of the deferred tax assets willnot be realized. The ultimate realization of deferred tax assets is dependent uponthe generation of future taxable income during the periods in which thesetemporary differences become deductible. The Company has recorded a valuationallowance against deferred tax assets at December 31, 2009 and January 1,2009, totaling $3.1 million as management believes it is more likely than notthat certain deferred tax assets will not be realized in future tax periods.Future reductions in the valuation allowance associated with a change inmanagement’s determination of the Company’s ability to realize these deferredtax assets will result in a decrease in the provision for income taxes.

 

Effective December 29,2006, the Company adopted the provisions of ASC Subtopic 740-10-25, *Income Taxes—Overall— Recognition*.  Relative to the implementation of theseprovisions, the Company did not adjust any income tax accounts.

 

As of December 31,2009 and January 1, 2009, the Company had no unrecognized tax benefits.The Company does not believe that its gross unrecognized tax benefits willchange within the next 12 months.

 

The Companyrecognizes interest and penalties accrued related to unrecognized tax benefitsas a component of income tax expense. As of December 31, 2009 and January 1,2009, the Company had not accrued any interest or penalties associated withunrecognized tax benefits.  No interestand penalties were recognized in the statements of operations for the periodsended December 31, 2009 and January 1, 2009.

 

The Company filesincome tax returns in the U.S. federal jurisdiction and certain statejurisdictions as part of the REG income tax filings and files separate incometax returns in various other state jurisdictions as well.  REG and the Company are no longer subject toU.S. federal income tax examinations by taxing authorities for years before2006, and with limited exceptions, are no longer subject to state income taxexaminations before 2005.  However, thetaxing authorities still have the ability to review the propriety of taxattributes created in closed tax years if such tax attributes are utilized inan open tax year.

 

**(8)     Litigation and contingencies**

 

Our theatres mustcomply with Title III of the Americans with Disabilities Act of 1990 (the “ADA”)to the extent that such properties are “public accommodations” and/or “commercialfacilities” as defined by the ADA. Compliance with the ADA requires that publicaccommodations “reasonably accommodate” individuals with disabilities and thatnew construction or alterations made to “commercial facilities” conform toaccessibility guidelines unless “structurally impracticable” for newconstruction or technically infeasible for alterations. Non-compliance with theADA could result in the imposition of injunctive relief, fines, awards ofdamages to private litigants and additional capital expenditures to remedy suchnon-compliance.

 

From time to time, we have received letters from the attorneys generalof states in which we operate theatres regarding investigation into theaccessibility of our theatres to persons with visual or hearing impairments.  We believe we provide the members of thevisually and hearing impaired communities with reasonable access to themovie-going experience.

 

We believe that we are in substantial compliance with all currentapplicable regulations relating to accommodations for the disabled. We intendto comply with future regulations in this regard, and except as set forthabove, we do not currently anticipate that compliance will require us to expendsubstantial funds.  Our theatreoperations are also subject to federal, state and local laws governing suchmatters as wages, working conditions, citizenship and health and sanitationrequirements.  We believe that we are insubstantial compliance with all of such laws.

 

44

----

Table ofContents

 

The Company and its subsidiaries are also presently involved in variouslegal proceedings arising in the ordinary course of its business operations,including, but not limited to, personal injury claims, employment andcontractual matters. The Company believes it has adequately provided for thesettlement of such matters. Management believes any additional liability withrespect to these claims and disputes will not be material in the aggregate tothe Company’s consolidated financial position, results of operations or cashflows.

 

**(9)     Capital Stock and ShareBased Compensation**

 

*Common and Preferred Stock*

 

UATC is authorized to issue 1,000 shares of its $1.00 par value commonstock, of which 100 shares are issued and outstanding at December 31,2009, and are all held by the Parent.  AtDecember 31, 2009, the Company has 500,000 shares of preferred stockauthorized with none issued.

 

*Share Based Compensation*

 

Effective December 30, 2005, Regal and the Company adopted ASCSubtopic 718-10 utilizing the modified prospective approach. Prior to theadoption of ASC Subtopic 718-10, we accounted for stock option grants inaccordance with the intrinsic value method, and accordingly, recognized nocompensation expense for those stock options having an exercise price equal tothe market value of Regal’s Class A common stock on the date of the grant.

 

Under the modified prospective approach, ASC Subtopic 718-10 applies toawards that were outstanding on December 30, 2005 and to new awards andthe modification, repurchase or cancellation of awards after December 30,2005. Under the modified prospective approach, compensation cost recognized inthe first quarter of fiscal 2006 includes share-based compensation cost for allshare-based payments granted prior to, but not yet vested as of December 30,2005, based on the grant-date fair value estimated in accordance with theoriginal provisions of SFAS No. 123, *Accounting for Stock-BasedCompensation* and recognized as expense over the remaining requisiteservice period. Share-based compensation cost for all share-based paymentsgranted subsequent to December 30, 2005 are based on the grant-date fairvalue estimated in accordance with the provisions of ASC Subtopic 718-10 andrecognized as expense over the employee’s requisite service period. Priorperiods were not restated to reflect the impact of adopting the new standard.In addition, the Company has elected to adopt the alternative transition methodfor calculating the tax effects of share-based compensation. The alternativetransition method includes a simplified method to establish the beginningbalance of the APIC pool related to the tax effects of employee share-basedcompensation, which is available to absorb tax deficiencies recognizedsubsequent to the adoption of ASC Subtopic 718-10.

 

We receive a tax deduction for certain stock option exercises during theperiod the options are exercised, generally for the excess of the price at whichthe stock is sold over the exercise price of the options.  We are required to report excess tax benefitsfrom the award of equity instruments as financing cash flows.  Excess tax benefits are recorded when adeduction reported for tax return purposes for an award of equity instrumentsexceeds the cumulative compensation cost for the instruments recognized forfinancial reporting purposes.  For theyear ended December 27, 2007, our consolidated statement of cash flowsreflects $0.4 million of excess tax benefits as financing cash flows.

** **

**(10)     Employee Benefits Plan**

 

REG sponsors an employee benefit plan, the Regal Entertainment Group 401(k) ProfitSharing Plan (the “Plan”), under section 401(k) of the Internal RevenueCode of 1986, as amended, for the benefit of substantially all full-timeemployees of UATC.  The Plan providesthat participants may contribute up to 50% of their compensation, subject toInternal Revenue Service limitations. The Plan currently matches an amount equal to 100% of the first 3% ofthe participant’s contributions and 50% of the next 2% of the participant’scontributions.  Employee contributionsare invested in various investment funds based upon elections made by theemployee.

 

**(11)      Fair Value of FinancialInstruments**

 

The methods and assumptions used to estimate the fair value of eachclass of financial instrument are as follows:

 

45

----

Table ofContents

 

*Cash and cash equivalents, accounts receivable, accounts payable andaccrued liabilities:*

 

The carrying amounts approximate fair value because of the shortmaturity of these instruments.

 

*Long term obligations, excluding capital lease obligations:*

 

The fair value of the Company’s debt obligations were based on recentfinancing transactions for similar debt issuances and the carrying amountsapproximate the fair value.

 

**(12)      Subsequent Events**

 

On March 10,2010, DCIP completed the execution of definitive agreements and relatedfinancing transactions in connection with the conversion to digital projection.Concurrent with closing, RCI entered into a master equipment lease agreement(the “Master Lease”) and other related agreements (collectively the “DigitalCinema Agreements”) with Kasima, LLC a wholly-owned subsidiary of DCIP andrelated party to Regal. Upon execution of the Digital Cinema Agreements, UATCwill distribute its existing digital projection systems to RCI of approximately$1.4 million.

 

We expect DCIP tofund the cost of conversion principally through the collection of virtual printfees from motion picture studios and equipment lease payments fromparticipating exhibitors. In accordance with the Master Lease, RCI willsublease the digital projection systems to UATC under a twelve-year lease withten one-year fair value lease renewal options. The Master Lease also contains afair value purchase option. Under the Master Lease, the Company will pay annualminimum rent of $1,000 per digital projection system for the first six and halfyears from the effective date of the agreement and upon certain conditions, issubject to minimum annual rent of $3,000 per digital projection systembeginning at six and half years from the effective date of the agreementthrough the end of the lease term. The Company is also subject to various typesof other rent if such digital projection systems do not meet minimumperformance requirements as outlined in the Master Lease. Certain of the otherrent payments are subject to either a monthly or an annual maximum. The Companywill account for the Master Lease as an operating lease for accountingpurposes.

 

The completedfinancing is expected to cover the cost of conversion for substantially all ofour circuit’s screens. We ultimately expect to outfit all of our screens withdigital projection systems. As of the date of this report, we have alreadybegun to convert our existing theatres from 35 mm film projection to digitalprojection and intend to complete the conversion of our entire circuit inapproximately three to four years. In addition, during the first few years ofdeployment, the Company expects to focus on an accelerated deployment of 3-Dcompatible digital projection systems to a majority of its first run U.S.theatres. With respect to the Company’s existing 35mm projection equipment thatis scheduled to be replaced with digital projection systems, the Company willbegin to accelerate depreciation on such 35 mm projection equipment over theexpected deployment schedule (approximately 3-4 years) since the Company plansto dispose of such equipment prior to the end of their useful lives.

 

**Item9.  CHANGESIN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE**

 

None.

 

**Item 9A. CONTROLS AND PROCEDURES**

 

None.

 

46

----

Table ofContents

 

**Item 9A(T). CONTROLS AND PROCEDURES**

 

***Evaluationof Disclosure Controls and Procedures***

 

We maintain disclosurecontrols and procedures that are designed to ensure that information requiredto be disclosed by us in the reports that we file or submit to the Securitiesand Exchange Commission under the Securities Exchange Act of 1934 (“ExchangeAct”), as amended, is recorded, processed, summarized and reported within thetime periods specified by the Commission’s rules and forms, and thatinformation is accumulated and communicated to our management, including ourprincipal executive and principal financial officers (whom we refer to in thisperiodic report as our Certifying Officers), as appropriate to allow timelydecisions regarding required disclosure. Our management evaluated, with theparticipation of our Certifying Officers, the effectiveness of our disclosurecontrols and procedures as of December 31, 2009, pursuant to Rule 13a-15(b) underthe Exchange Act. Based upon that evaluation, our Certifying Officers concludedthat, as of December 31, 2009, our disclosure controls and procedures wereeffective.

 

***Management’sReport on Internal Control Over Financial Reporting***

 

Our management’s reporton internal control over financial reporting is included in Part II, Item8, on page 27 of this Form 10-K, which is incorporated herein byreference.

 

***Changesin Internal Control Over Financial Reporting***

 

There were nochanges in our internal control over financial reporting that occurred duringour fiscal quarter ended December 31, 2009 that have materially affected,or are reasonably likely to materially affect, our internal control overfinancial reporting.

 

***Limitationson the Effectiveness of Controls***

 

Managementis responsible for the preparation and fair presentation of the consolidatedfinancial statements included in this annual report. The consolidated financialstatements have been prepared in conformity with U.S. generally acceptedaccounting principles and reflect management’s judgments and estimatesconcerning effects of events and transactions that are accounted for ordisclosed. The Company’s internal control over financial reporting includesthose policies and procedures that pertain to the Company’s ability to record,process, summarize and report reliable financial data. Management recognizesthat there are inherent limitations in the effectiveness of any internalcontrol over financial reporting, including the possibility of human error andthe circumvention or overriding of internal control. Accordingly, eveneffective internal control over financial reporting can provide only reasonableassurance with respect to financial statement preparation. Further, because ofchanges in conditions, the effectiveness of internal control over financialreporting may vary over time.

 

**Item9B.  OTHERINFORMATION**

 

None.

 

47

----

Table ofContents

 

**PART III**

 

**Item10.  DIRECTORS,EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE**

 

Under the reduceddisclosure format permitted by General Instruction I(2) of Form 10-Kfor wholly owned subsidiaries, the information otherwise required by this itemhas been omitted.

 

**Item 11.  EXECUTIVECOMPENSATION**

 

Under the reduceddisclosure format permitted by General Instruction I(2) of Form 10-Kfor wholly owned subsidiaries, the information otherwise required by this itemhas been omitted.

 

**Item 12.  SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED    STOCKHOLDER MATTERS**

 

Under the reduceddisclosure format permitted by General Instruction I(2) of Form 10-Kfor wholly owned subsidiaries, the information otherwise required by this itemhas been omitted.

 

**Item 13.  CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDECE**

 

Under the reduceddisclosure format permitted by General Instruction I(2) of Form 10-Kfor wholly owned subsidiaries, the information otherwise required by this itemhas been omitted.

 

**Item 14.  PRINCIPALACCOUNTING FEES AND SERVICES**

 

**Independent Registered PublicAccounting Firm**

 

KPMG LLP (“KPMG”)served as our independent registered public accounting firm for the fiscalyears ended December 31, 2009 and January 1, 2009.  For such fiscal years we paid fees forservices from KPMG as discussed below.

 

·                         *Audit Fees*. The aggregate fees billed for professionalservices rendered by KPMG for the audit of our annual consolidated financialstatements included in our Form 10-K and the reviews of the consolidatedfinancial statements included in our Forms 10-Q were approximately $83,160 forthe fiscal year ended December 31, 2009 and $92,000 for the fiscal yearended January 1, 2009.

 

·                         *Audit-Related Fees*. The Company did not incur any aggregatefees for professional services rendered by KPMG for assurances and relatedservices that are reasonably related to the performance of the audit or reviewof our consolidated financial statements for the fiscal year ended December 31,2009 and for the fiscal year ended January 1, 2009.

 

·                         *Tax Fees*. The Company did not incur any aggregate feesbilled for professional services rendered by KPMG related to federal and statetax compliance, tax advice and tax planning for the fiscal year ended December 31,2009 and for the fiscal year ended January 1, 2009. All of these servicesare permitted non-audit services.

 

·                         *All Other Fees.*The Company did not incur any aggregate feesfor all other services rendered by KPMG for the fiscal year ended December 31,2009 and for the fiscal year ended January 1, 2009.

 

**Board ofDirectors Pre-Approval Policy**

 

Our Board of Directorspre-approves all audit and permissible non-audit services provided by the independentauditors on a case-by-case basis.  Theseservices may include audit services, audit related services, tax services andother services.  Our Vice President andTreasurer is responsible for presenting the board with an overview of all proposedaudit, audit related, tax or other non-audit services to be performed by theindependent auditors.  The presentationmust be in sufficient detail to define clearly the services to be performed.  The board does not delegate theresponsibilities to pre-approve services performed by the independent auditorsto management or to an individual member of the board.

 

48

----

Table ofContents

 

**PART IV**

 

**Item 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES**

 

(a)          The following documents are filed as a part of thisreport on Form 10-K:

 

(1)                  Consolidated financial statements of United ArtistsTheatre Circuit, Inc.:

 

Management’s Report onInternal Control over Financial Reporting

 

Report of IndependentRegistered Public Accounting Firm - Consolidated Financial Statements

 

UATC’s ConsolidatedBalance Sheets as of December 31, 2009 and January 1, 2009

 

UATC’s Consolidated Statements of Operations for thefiscal years ended December 31, 2009, January 1, 2009 and December 27,2007

 

UATC’s Consolidated Statements of Equity andComprehensive Income for the fiscal years ended December 31, 2009, January 1,2009 and December 27, 2007

 

UATC’s Consolidated Statements of Cash Flows for thefiscal years ended December 31, 2009, January 1, 2009 and December 27,2007

 

Notes to UATC’sConsolidated Financial Statements

 

(2)                  Financial Statement Schedules have been omittedbecause of the absence of conditions under which they are required, or becausethe information is shown elsewhere in this Form 10-K.

 

(3)                Exhibits: The following exhibits are filed as part of thisForm 10-K.

 
| **Exhibit   Number** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|---------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                      |       |                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 2.1                       |       | United Artists Second  Amended Joint Plan of Reorganization (filed as exhibit 2 to United Artists  Theatre Circuit, Inc.’s Current Report on Form 8-K filed on  February 9, 2001 (Commission File No. 033-49598), and incorporated  herein by reference)                                                                                                                                                                 |
|                      |       |                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 3.1                       |       | Restated Articles of  Incorporation of United Artists Theatre Circuit, Inc. (filed as exhibit  3.1 to United Artists Theatre Circuit, Inc.’s Form S-1 (Commission  File No. 033-49598) filed on October 5, 1992, and incorporated herein  by reference)                                                                                                                                                             |
|                      |       |                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 3.2                       |       | Bylaws of United  Artists Theatre Circuit, Inc. (filed as exhibit 3.2 to United Artists  Theatre Circuit, Inc.’s Form S-1 (Commission File  No. 033-49598) filed on October 5, 1992, and incorporated herein by  reference)                                                                                                                                                                                         |
|                      |       |                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 4.1                       |       | Amendment to Leveraged  Lease Facility and Second Supplemental Indenture, dated as of March 7,  2001, among United Artists Theatre Circuit, Inc., Wilmington Trust  Company, William J. Wade, Theatre Investors, Northway Associates Limited  Partnership, State Street Bank and Trust Company, Susan Keller and MacKay  Shields LLC (filed as exhibit 10.2 to United Artists Theatre  Circuit, Inc.’s Form 10-Q for the |

 

49

----

Table of Contents

 
|   |   | fiscal quarter ended  March 29, 2001 (Commission File No. 033-49598), and incorporated  herein by reference)                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.2    |   | Trust Indenture and  Security Agreement, dated as of December 13, 1995, between Wilmington  Trust Company, William J. Wade and Fleet National Bank of Connecticut and  Alan B. Coffey (filed as exhibit 4.2 to United Artists Theatre  Circuit, Inc.’s Form S-2 (Commission File No. 333-1024) filed  on February 5, 1996, and incorporated herein by reference)                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.3    |   | Pass Through  Certificates, Series 1995-A Registration Rights Agreement, dated as of  December 13, 1995, among United Artists Theatre Circuit, Inc.,  Morgan Stanley & Co. Incorporated and Merrill Lynch, Pierce,  Fenner & Smith Incorporated (filed as exhibit 4.3 to United Artists  Theatre Circuit, Inc.’s Form S-2 (Commission File  No. 333-1024) filed on February 5, 1996, and incorporated herein by  reference)                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.4    |   | Participation  Agreement, dated as of December 13, 1995, among United Artists Theatre  Circuit, Inc., Wilmington Trust Company, William J. Wade, Theatre  Investors, Inc., Northway Mall Associates, LLC, Wilmington Trust  Company, William J. Wade, Fleet National Bank of Connecticut, Alan B. Coffey  and Fleet National Bank of Connecticut (filed as exhibit 4.4 to United  Artists Theatre Circuit, Inc.’s Form S-2 (Commission File  No. 333-1024) filed on February 5, 1996, and incorporated herein by  reference)         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.5    |   | Pass Through Trust  Agreement, dated as of December 13, 1995, between United Artists Theatre  Circuit, Inc. and Fleet National Bank of Connecticut (filed as exhibit  4.5 to United Artists Theatre Circuit, Inc.’s Form S-2 (Commission  File No. 333-1024) filed on February 5, 1996, and incorporated  herein by reference)                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.6    |   | Lease Agreement, dated  as of December 13, 1995, between Wilmington Trust Company and William J.  Wade and United Artists (filed as exhibit 4.6 to United Artists Theatre  Circuit, Inc.’s Form S-2 (Commission File No. 333-1024) filed  on February 5, 1996, and incorporated herein by reference)                                                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.7    |   | Lease Agreement, dated  as of October 1, 1988, between United Artists Properties I Corporation  and United Artists Theatre Circuit, Inc. (filed as exhibit 10.1 to  United Artists Theatre Circuit, Inc.’s Form S-1 (Commission File  No. 033-49598) filed on October 5, 1992, and incorporated herein by  reference)                                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.1   |   | Trademark Agreement as  of May 12, 1992 by United Artists Entertainment Company, United Artists  Holdings, Inc., United Artists Cable Holdings, Inc., United Artists  Theatre Holding Company, on the one hand and United Artists Theatre  Circuit, Inc., United Artists Realty Company, UAB, Inc., and UAB  II, Inc., on the other hand (filed as exhibit 10.9 to United Artists  Theatre Circuit, Inc.’s Form S-1 (Commission File  No. 033-49598) filed on October 5, 1992, and incorporated herein by  reference) |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.2   |   | Tax Sharing Agreement,  dated as of May 12, 1992, between United Artists Theatre Company and  United Artists Theatre Circuit, Inc. (filed as exhibit 10.11 to United  Artists Theatre Circuit, Inc.’s Form S-1 (Commission File  No. 033-49598) filed on October 5, 1992, and incorporated herein by  reference)                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.3   |   | Management Agreement,  dated as of May 27, 2003, between Regal Cinemas, Inc. and United  Artists Theatre Circuit, Inc. (filed as exhibit 10.3 to United Artists  Theatre Circuit, Inc.’s Form 10-K (Commission File  No. 033-49598) filed on March 31, 2004, and incorporated herein by  reference)                                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.4*  |   | Amended and Restated  Executive Employment Agreement, dated May 5, 2009, by and between Regal  Entertainment Group and Michael L. Campbell (filed as Exhibit 10.1 to  Regal Entertainment Group’s Current Report on Form 8-K (Commission File  No. 001-31315) on May 6, 2009, and incorporated herein by  reference)                                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.5*  |   | Amended and Restated Executive  Employment Agreement, dated May 5, 2009, by and between Regal  Entertainment Group and Amy E. Miles (filed as Exhibit 10.2 to Regal  Entertainment Group’s Current Report on Form 8-K (Commission File  No. 001-31315) on May 6, 2009, and incorporated herein by  reference)                                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.6*  |   | Amended and Restated  Executive Employment Agreement, dated May 5, 2009, by and between Regal                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |

 

50

----

Table of Contents

 
|       |   | Entertainment Group and  Gregory W. Dunn (filed as Exhibit 10.3 to Regal Entertainment Group’s  Current Report on Form 8-K (Commission File No. 001-31315) on  May 6, 2009, and incorporated herein by reference)                                                                                          |
|------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |   |                                                                                                                                                                                                                                                                                                                                |
| 10.7*      |   | Executive Employment  Agreement, dated May 5, 2009, by and between Regal Entertainment Group  and David H. Ownby (filed as Exhibit 10.4 to Regal Entertainment Group’s  Current Report on Form 8-K (Commission File No. 001-31315) on  May 6, 2009, and incorporated herein by reference)             |
|       |   |                                                                                                                                                                                                                                                                                                                                |
| 10.8*      |   | Executive Employment  Agreement, dated January 13, 2010, by and between Regal Entertainment  Group and Peter B. Brandow (filed as Exhibit 10.1 to Regal Entertainment  Group’s Current Report on Form 8-K (Commission File No. 001-31315)  on January 19, 2010, and incorporated herein by reference) |
| ** ** |   |                                                                                                                                                                                                                                                                                                                                |
| 31.1       |   | Rule 13a-14(a) Certification  of Principal Executive Officer                                                                                                                                                                                                                                                              |
|       |   |                                                                                                                                                                                                                                                                                                                                |
| 31.2       |   | Rule 13a-14(a) Certification  of Principal Financial Officer                                                                                                                                                                                                                                                              |

 

----

| *      | Identifies each  management contract or compensatory plan or arrangement. |
|--------|---------------------------------------------------------------------------|
|   |                                                                      |
| (b)    | The exhibits required  to be filed herewith are listed above.             |
|   |                                                                      |
| (c)    | Not applicable.                                                           |

 

51

----

Table ofContents

 

**SIGNATURES**

 

Pursuant to the requirements of Section 13 or 15(d) of theSecurities Exchange Act of 1934, the registrant has duly caused this report tobe signed on its behalf by the undersigned, thereunto duly authorized.

 
|                | UNITED  ARTISTS THEATRE CIRCUIT, INC. |
|---------------------|---------------------------------------|
|                |                                  |   |
| March 22, 2010 | By:                                   | /s/ AMY E.  MILES |
|                |                                  | Amy E. Miles*President* |

 

Pursuant to the requirements of the Securities Exchange Act of 1934,this report has been signed below by the following persons on behalf of theregistrant and in the capacities and on the dates indicated.

 
| **Signature**                   | ** ** | **Title**                                                    | ** ** | **Date**             |
|---------------------------------|------------|--------------------------------------------------------------|------------|----------------------|
|                            |       |                                                         |       |                 |
| /s/  AMY  E. MILES    |       | President  (Principal Executive Officer)                     |       | March 22,  2010 |
| Amy E. Miles                    |       |                                                         |       |                 |
|                            |       |                                                         |       |                 |
| /s/  DAVID  H. OWNBY  |       | Director,  Vice President and Treasurer (Principal Financial |       | March 22,  2010 |
| David H. Ownby                  |       | Officer  and Principal Accounting Officer)                   |       |                 |
|                            |       |                                                         |       |                 |
| /s/  GREGORY  W. DUNN |       | Director                                                     |       | March 22,  2010 |
| Gregory W. Dunn                 |       |                                                         |       |                 |

 

**SupplementalInformation to be Furnished with Reports Filed Pursuant to Section 15(d) ofthe Act by Registrants Which Have Not Registered Securities Pursuant to Section 12of the Act**

 

Theregistrant has not sent to its sole stockholder an annual report to securityholders covering the registrant’s last fiscal year or any proxy statement, formof proxy or other proxy soliciting material with respect to any annual or othermeeting of security holders.

 

52

----

Table ofContents

 

**Exhibit Index**

 
| **Exhibit   Number** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|---------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                      |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 2.1                       |       | United Artists Second  Amended Joint Plan of Reorganization (filed as exhibit 2 to United Artists  Theatre Circuit, Inc.’s Current Report on Form 8-K filed on  February 9, 2001 (Commission File No. 033-49598), and incorporated  herein by reference)                                                                                                                                                                                                                                                                                            |
|                      |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 3.1                       |       | Restated Articles of  Incorporation of United Artists Theatre Circuit, Inc. (filed as exhibit  3.1 to United Artists Theatre Circuit, Inc.’s Form S-1 (Commission  File No. 033-49598) filed on October 5, 1992, and incorporated  herein by reference)                                                                                                                                                                                                                                                                                        |
|                      |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 3.2                       |       | Bylaws of United  Artists Theatre Circuit, Inc. (filed as exhibit 3.2 to United Artists  Theatre Circuit, Inc.’s Form S-1 (Commission File  No. 033-49598) filed on October 5, 1992, and incorporated herein by  reference)                                                                                                                                                                                                                                                                                                                    |
|                      |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.1                       |       | Amendment to Leveraged  Lease Facility and Second Supplemental Indenture, dated as of March 7,  2001, among United Artists Theatre Circuit, Inc., Wilmington Trust  Company, William J. Wade, Theatre Investors, Northway Associates Limited  Partnership, State Street Bank and Trust Company, Susan Keller and MacKay  Shields LLC (filed as exhibit 10.2 to United Artists Theatre  Circuit, Inc.’s Form 10-Q for the fiscal quarter ended  March 29, 2001 (Commission File No. 033-49598), and incorporated  herein by reference)     |
|                      |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.2                       |       | Trust Indenture and  Security Agreement, dated as of December 13, 1995, between Wilmington  Trust Company, William J. Wade and Fleet National Bank of Connecticut and  Alan B. Coffey (filed as exhibit 4.2 to United Artists Theatre  Circuit, Inc.’s Form S-2 (Commission File No. 333-1024) filed  on February 5, 1996, and incorporated herein by reference)                                                                                                                                                                               |
|                      |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.3                       |       | Pass Through  Certificates, Series 1995-A Registration Rights Agreement, dated as of  December 13, 1995, among United Artists Theatre Circuit, Inc.,  Morgan Stanley & Co. Incorporated and Merrill Lynch, Pierce,  Fenner & Smith Incorporated (filed as exhibit 4.3 to United Artists  Theatre Circuit, Inc.’s Form S-2 (Commission File  No. 333-1024) filed on February 5, 1996, and incorporated herein by  reference)                                                                                        |
|                      |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.4                       |       | Participation  Agreement, dated as of December 13, 1995, among United Artists Theatre  Circuit, Inc., Wilmington Trust Company, William J. Wade, Theatre  Investors, Inc., Northway Mall Associates, LLC, Wilmington Trust  Company, William J. Wade, Fleet National Bank of Connecticut, Alan B. Coffey  and Fleet National Bank of Connecticut (filed as exhibit 4.4 to United  Artists Theatre Circuit, Inc.’s Form S-2 (Commission File  No. 333-1024) filed on February 5, 1996, and incorporated herein by  reference)         |
|                      |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.5                       |       | Pass Through Trust  Agreement, dated as of December 13, 1995, between United Artists Theatre  Circuit, Inc. and Fleet National Bank of Connecticut (filed as exhibit  4.5 to United Artists Theatre Circuit, Inc.’s Form S-2 (Commission  File No. 333-1024) filed on February 5, 1996, and incorporated  herein by reference)                                                                                                                                                                                                            |
|                      |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.6                       |       | Lease Agreement, dated  as of December 13, 1995, between Wilmington Trust Company and William J.  Wade and United Artists (filed as exhibit 4.6 to United Artists Theatre  Circuit, Inc.’s Form S-2 (Commission File No. 333-1024) filed  on February 5, 1996, and incorporated herein by reference)                                                                                                                                                                                                                                           |
|                      |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.7                       |       | Lease Agreement, dated  as of October 1, 1988, between United Artists Properties I Corporation  and United Artists Theatre Circuit, Inc. (filed as exhibit 10.1 to  United Artists Theatre Circuit, Inc.’s Form S-1 (Commission File  No. 033-49598) filed on October 5, 1992, and incorporated herein by  reference)                                                                                                                                                                                                                     |
|                      |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.1                      |       | Trademark Agreement as  of May 12, 1992 by United Artists Entertainment Company, United Artists  Holdings, Inc., United Artists Cable Holdings, Inc., United Artists  Theatre Holding Company, on the one hand and United Artists Theatre  Circuit, Inc., United Artists Realty Company, UAB, Inc., and UAB  II, Inc., on the other hand (filed as exhibit 10.9 to United Artists  Theatre Circuit, Inc.’s Form S-1 (Commission File  No. 033-49598) filed on October 5, 1992, and incorporated herein by  reference) |

 

53

----

Table of Contents

 
| 10.2       |   | Tax Sharing Agreement,  dated as of May 12, 1992, between United Artists Theatre Company and  United Artists Theatre Circuit, Inc. (filed as exhibit 10.11 to United  Artists Theatre Circuit, Inc.’s Form S-1 (Commission File  No. 033-49598) filed on October 5, 1992, and incorporated herein by  reference) |
|------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |   |                                                                                                                                                                                                                                                                                                                                                |
| 10.3       |   | Management Agreement,  dated as of May 27, 2003, between Regal Cinemas, Inc. and United  Artists Theatre Circuit, Inc. (filed as exhibit 10.3 to United Artists  Theatre Circuit, Inc.’s Form 10-K (Commission File  No. 033-49598) filed on March 31, 2004, and incorporated herein by  reference)         |
|       |   |                                                                                                                                                                                                                                                                                                                                                |
| 10.4*      |   | Amended and Restated  Executive Employment Agreement, dated May 5, 2009, by and between Regal  Entertainment Group and Michael L. Campbell (filed as Exhibit 10.1 to  Regal Entertainment Group’s Current Report on Form 8-K (Commission File  No. 001-31315) on May 6, 2009, and incorporated herein by  reference)  |
|       |   |                                                                                                                                                                                                                                                                                                                                                |
| 10.5*      |   | Amended and Restated  Executive Employment Agreement, dated May 5, 2009, by and between Regal  Entertainment Group and Amy E. Miles (filed as Exhibit 10.2 to Regal  Entertainment Group’s Current Report on Form 8-K (Commission File  No. 001-31315) on May 6, 2009, and incorporated herein by  reference)         |
|       |   |                                                                                                                                                                                                                                                                                                                                                |
| 10.6*      |   | Amended and Restated  Executive Employment Agreement, dated May 5, 2009, by and between Regal  Entertainment Group and Gregory W. Dunn (filed as Exhibit 10.3 to Regal  Entertainment Group’s Current Report on Form 8-K (Commission File No. 001-31315)  on May 6, 2009, and incorporated herein by reference)       |
|       |   |                                                                                                                                                                                                                                                                                                                                                |
| 10.7*      |   | Executive Employment  Agreement, dated May 5, 2009, by and between Regal Entertainment Group  and David H. Ownby (filed as Exhibit 10.4 to Regal Entertainment Group’s  Current Report on Form 8-K (Commission File No. 001-31315) on  May 6, 2009, and incorporated herein by reference)                             |
|       |   |                                                                                                                                                                                                                                                                                                                                                |
| 10.8*      |   | Executive Employment  Agreement, dated January 13, 2010, by and between Regal Entertainment  Group and Peter B. Brandow (filed as Exhibit 10.1 to Regal Entertainment  Group’s Current Report on Form 8-K (Commission File No. 001-31315)  on January 19, 2010, and incorporated herein by reference)                 |
| ** ** |   |                                                                                                                                                                                                                                                                                                                                                |
| 31.1       |   | Rule 13a-14(a) Certification  of Principal Executive Officer                                                                                                                                                                                                                                                                              |
|       |   |                                                                                                                                                                                                                                                                                                                                                |
| 31.2       |   | Rule 13a-14(a) Certification  of Principal Financial Officer                                                                                                                                                                                                                                                                              |

 

----

| *      | Identifies each  management contract or compensatory plan or arrangement. |
|--------|---------------------------------------------------------------------------|
|   |                                                                      |
| (b)    | The exhibits required  to be filed herewith are listed above.             |
|   |                                                                      |
| (c)    | Not applicable.                                                           |

 

54

----