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**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**WASHINGTON, D.C. 20549**

 

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**FORM 10-K**

 

**ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHESECURITIES EXCHANGE ACT OF 1934**

 

**For the fiscal year ended January 1,2009**

 

**Commission file number: 033-49598**

 

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**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**

 

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

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

 

Indicate by check mark if the registrant is awell-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o No x

 

Indicateby check mark if the registrant is not required to file reports pursuant to Section 13or Section 15(d) of the Exchange 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

 

Indicateby check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to the bestof the registrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-K or anyamendment to this Form 10-K. x

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-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 companyo |
|----------------------------|---------------------|-----------------------------|-----------------------------|
|                       |                | (Do  not check if a smaller |                        |
|                       |                | reporting  company)         |                        |

 

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act):  Yes o No x

 

Theregistrant is a wholly owned subsidiary of Regal Entertainment Group. As of June 26,2008, there were no shares of voting or non-voting common stock held bynon-affiliates of the registrant.

 

Theregistrant meets the conditions set forth in General Instruction I(1)(a) and(b) of Form 10-K and is therefore filing this form with the reduceddisclosure format permitted by General Instruction I(2).

 

The number of shares outstanding of $1.00 par value common stock at March 24, 2009 was 100 shares.

 

 

 

Table of Contents

 

**TABLE OF CONTENTS**

 
| **PART I**   | 3          |
|-------------------|------------|
| 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 | 9 |
|              |       | 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.           |       | Submission  of Matters to a Vote of Security Holders | 13 |
| ** **        | ** ** | ** ** | ** ** |
| **PART II**  | 14         |
| Item 5.           |       | Market for  the Registrant’s Common Equity, Related Stockholder Matters and Issuer  Purchases of Equity Securities | 14 |
| Item 6.           |       | Selected Financial  Data | 14 |
| Item 7.           |       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations | 14 |
|              |       | Overview and  Basis of Presentation | 14 |
|              |       | Results  of Operations | 15 |
|              |       | Liquidity and Capital Resources | 23 |
|              |       | Contractual Cash Obligations and Commitments | 24 |
|              |       | Critical Accounting Estimates | 25 |
|              |       | Quarterly  Results | 27 |
|              |       | Inflation | 27 |
|              |       | Seasonality | 27 |
|              |       | Recent Accounting Pronouncements | 28 |
|              |       | Off-balance Sheet Arrangements | 28 |
| Item 7A.          |       | Quantitative  and Qualitative Disclosures About Market Risk | 28 |
| Item 8.           |       | Financial  Statements and Supplementary Data | 28 |
| Item 9.           |       | Changes in and Disagreements with  Accountants on Accounting and Financial Disclosure | 50 |
| Item 9A.          |       | Controls and  Procedures | 50 |
| Item 9A (T).      |       | Controls and Procedures | 50 |
|              |       |   |   |
| **PART III** | 51         |
| Item 10.          |       | Directors, Executive Officers and  Corporate Governance | 51 |
| Item 11.          |       | Executive Compensation | 51 |
| Item 12.          |       | Security Ownership of Certain  Beneficial Owners and Management and Related Stockholder Matters | 51 |
| Item 13.          |       | Certain Relationships and Related  Transactions, and Director Independence | 51 |
| Item 14.          |       | Principal Accounting Fees and Services | 51 |
|              |       |   |   |
| **PART IV**  | 52         |
| Item 15.          |       | Exhibits, Financial Statement  Schedules | 52 |
| Signatures        |       |   | 54 |

 

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**UNITEDARTISTS THEATRE CIRCUIT, INC.**

 

**PART I**

 

*Some of the information in this Form 10-Kincludes “forward-looking statements” within the meaning of Section 27A ofthe Securities Act of 1933, as amended, and Section 21E of the SecuritiesExchange Act of 1934, as amended. All statements other than statements ofhistorical facts included in this Form 10-K, including, withoutlimitation, certain statements under “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” and “Business” may constituteforward- looking statements. In some cases you can identify these “forward-lookingstatements” by words like “may,” “will,” “should,” “expects,” “plans,” “anticipates,”“believes,” “estimates,” “predicts,” “potential” or “continue” or the negativeof those words and other comparable words. These forward-looking statementsinvolve risks and uncertainties. Our actual results could differ materiallyfrom those indicated in these statements. The discussion and analysis of ourfinancial condition and results of operations found within “Management’sDiscussion and Analysis of Financial Condition and Results of Operation” shouldbe read in conjunction with the Audited Consolidated Financial Statements andNotes thereto included in Part II,Item 8 of this Form 10-K. The Company’s actual results may differmaterially from the results discussed in the 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.*

 

**Item 1. BUSINESS**

 

**THECOMPANY**

 

UnitedArtists Theatre Company (the “Parent” or “United Artists”), a Delawarecorporation organized in February 2002, is the parent company of UnitedArtists Theatre Circuit, Inc. (“we,” “us,” “our,” the “Company” or “UATC”),a Maryland 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 Artists became a wholly owned subsidiary of Regal EntertainmentHoldings, Inc. (“REH”) through a series of transactions in 2002. REH is awholly owned subsidiary of Regal Entertainment Group (“REG” or “Regal”) whoacquired 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 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 Regal Cinemas, Inc. (“RCI”).As a result, United Artists and its subsidiaries became subsidiaries of RCI.

 

Our Internet addressis www.uatc.com. Our annualreports on Form 10-K, quarterly reports on Form 10-Q and currentreports on Form 8-K, and any amendments to these reports, are availablefree of charge on our Internet website under the heading “Investor Relations”as soon as reasonably practicable after we electronically file such materialwith, 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 January 1,2009, we operate 596 screens in 68 theatres in 19 states with over 20 millionannual attendees for the fifty-three week fiscal year ended January 1, 2009 (“fiscal2008”). Our theatres are managed by RCI, a wholly owned subsidiary of Regal,pursuant to a management arrangement described below. We operate multi-screentheatres and have an average of 8.8 screens per location. Theatre operations inseven states (New York, California, Mississippi, Florida, Maryland, Texas and Pennsylvania)accounted for approximately 70.6% and 67.8%

 

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of our total theatres and screens, respectively, as ofJanuary 1, 2009 and 77.8% of UATC’s theatrical revenue for fiscal 2008.

 

We have historically upgraded our theatrecircuit by retrofitting existing theatres and strategically closing anddisposing of under-performing theatres. Approximately 66% of our screens are intheatres with 10 or more screens. As of January 1, 2009, we operate 24theatres (274 screens) which offer stadium seating, representing 46% of ourscreens.

 

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 2008, we reportedtotal revenues, income from operations and net income of $225.1 million, $12.8million and $8.4 million, respectively. In addition, we generated $14.9 millionof cash flows from operating activities during fiscal 2008.

 

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 ourtheatres for such advertising and event services that is recorded in otherrevenue. On February 13, 2007, National CineMedia Inc. (“NCM Inc.”), anewly formed entity that serves as the sole manager of National CineMedia,completed an initial public offering, or IPO, of its common stock. Inconnection with the completion of the IPO, RCI amended and restated itsexisting exhibitor services agreement (“ESA”) with National CineMedia, wherebyin exchange for its pro rata share of the IPO proceeds, RCI agreed to amodification of National CineMedia’s payment obligation 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. On-screenadvertising time provided to our beverage concessionaire is provided byNational CineMedia under the terms of their agreement with RCI. See Note 5 tothe consolidated financial statements included in Part II, Item 8 of this Form 10-K.

 

**INDUSTRY OVERVIEW AND TRENDS**

 

The domestic motionpicture exhibition industry is a mature business which 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 5% with annual attendance of approximately 1.4 billion attendeesin 2008. Against this background of steady long-term growth in revenues andattendance, the exhibition industry has experienced periodic short-termincreases 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 increasedcompetition from other methods of delivering films to consumers, includingcable television, in-home video and DVD, satellite and pay-per-view servicesand downloads 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

 

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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 motion picture industry is in the processof converting from film-based media to electronic-based media, including thedistribution of feature films in a digital format rather than a 35 mm filmformat. Virtually all entertainment content today can be exhibited digitally.Digital projection produces a consistent state-of-the-art presentation forpatrons as there is no degradation of image over the life of a film. We believethat operating a digital theatre circuit will enable us to generate incrementalrevenue from differentiated motion picture formats such as digital 3D, generateadditional revenue from exhibition of specialty content offerings and providegreater flexibility in exhibiting our programming content, which we expect willenhance our capacity utilization. We remain optimistic regarding the benefitsof digital cinema primarily as it relates to future growth potential associatedwith 3D film product and other 3D content and are pleased to see growingsupport of 3D film product by the major 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, alongwith AMC Entertainment, Inc. (“AMC”) and Cinemark, Inc. (“Cinemark”)formed Digital Cinema Implementation Partners, LLC (‘‘DCIP’’) to create afinancing model and establish agreements with major motion picture studios forthe implementation of digital cinema. Travis Reid, the former president andchief executive officer of Loews Theatres, serves as the chief executiveofficer of DCIP and DCIP has engaged J.P. Morgan Securities Inc. to assist withthe review 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 ownershipand voting interest in DCIP. Recently, DCIP announced the execution oflong-term deployment agreements with five film studios. DCIP is continuing towork with the film studios and financial institutions to negotiate and finalizethe related financing plans that would provide for a studio-financed conversionto digital projection. Upon completion of the financing, we are prepared tobegin converting 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. Through January 1, 2009, we operated 5digital 3D screens.

 

The costs of implementing digital projection in ourtheatres will be substantially funded by DCIP. DCIP has yet to execute definitiveagreements concerning the extent of such funding, but based on currentnegotiations, we expect that with respect to our existing theatres, allowancesfrom DCIP will cover substantially all of the costs of installing digitalprojection systems. We expect DCIP to fund allowances through the collection ofvirtual print fees (“VPFs”) from motion picture studios. We will bear operatingand maintenance costs with respect to digital projection systems in ourtheatres, which we expect to be similar to what we currently spend on ourconventional film projectors.

 

Our ability to implement digital cinema systems inaccordance with our plans will depend on the availability of equipment fromthird-party vendors and on the ongoing negotiation of definitive agreements byDCIP for financing, payment of VPFs by motion picture studios and equipment useagreements with participating exhibitors. We believe that the supply of digitalcinema equipment will be sufficient for our needs and that such definitiveagreements are likely to be executed during calendar 2009.

 

**THEATRE OPERATIONS**

 

UATC operates 596 screens in 68 theatres in 19 statesas of January 1, 2009. We primarily operate multi-screen theatres. Ourmulti-screen theatre complexes typically feature auditoriums ranging from 100to 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,

 

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digital stereo surround-sound, multi-stationconcessions stands, computerized ticketing systems, plush stadium seating withcup holders and retractable armrests, enhanced interiors and exteriors, andvideo game areas adjacent to the theatre lobby.

 

We believe that ourtheatre circuit will be further enhanced with the installation of digitalprojection systems in our theatres. We believe that operating a digital theatrecircuit will enable us to generate incremental revenue from differentiatedmotion picture formats such as digital 3D, generate additional revenue fromexhibition of specialty content offerings and provide greater flexibility inexhibiting our programming content, which we expect will enhance our capacityutilization.

 

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 January 1, 2009:

 

| **State**      | ** ** | **Locations** | ** ** | **Number of Screens** |
|----------------|------------|---------------|------------|---------------------------------|
| New York       |       | 15            |       | 110                             |
| California     |       | 9             |       | 75                              |
| Mississippi    |       | 7             |       | 56                              |
| Florida        |       | 5             |       | 44                              |
| Maryland       |       | 4             |       | 46                              |
| Texas          |       | 4             |       | 45                              |
| Pennsylvania   |       | 4             |       | 28                              |
| New Jersey     |       | 3             |       | 31                              |
| Colorado       |       | 2             |       | 24                              |
| Arizona        |       | 2             |       | 21                              |
| Indiana        |       | 2             |       | 19                              |
| Nevada         |       | 2             |       | 18                              |
| North Carolina |       | 2             |       | 17                              |
| Louisiana      |       | 2             |       | 16                              |
| Michigan       |       | 1             |       | 14                              |
| Arkansas       |       | 1             |       | 12                              |
| Virginia       |       | 1             |       | 10                              |
| Massachusetts  |       | 1             |       | 6                               |
| Georgia        |       | 1             |       | 4                               |
| Total          |       | 68            |       | 596                             |

 

We have implemented a best management practices program across all ofour theatres, including daily, weekly and monthly management reports generatedfor each individual theatre, as well as maintaining active communicationbetween the theatres, divisional management and corporate management. We usethese management 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.

 

Weseek experienced theatre managers and require new theatre managers to completea comprehensive training program within the theatres and at the “RegalEntertainment University,” which is held at our corporate office. The programis designed to encompass all phases of theatre operations, including ouroperating philosophy,

 

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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.

 

Inaddition, we have implemented quality assurance programs in all of our theatresto maintain clean, comfortable and modern facilities. To maintain quality andconsistency within our theatre circuit, district and regional managersregularly inspect each theatre. We also operate a “mystery shopper” program,which involves unannounced visits by unidentified customers who report on thequality of service, film presentation and cleanliness at individual theatres.

 

**FILM DISTRIBUTION**

 

Domesticmovie theatres 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 and pay-per-view services. Astrong opening run at the theatre can help establish a film’s success andsubstantiate the film’s revenue potential. For example, the value of homevideo, DVD and pay cable distribution agreements frequently depends on thesuccess of a film’s theatrical release. As the primary distribution mechanismfor the public’s evaluation of films, we believe that domestic theatricaldistribution remains the cornerstone of a film’s overall financial success.

 

Thedevelopment of additional distribution channels has given motion pictureproducers the ability to generate a greater portion of a film’s revenuesthrough channels other than its theatrical release. Historically, thispotential for increased revenue after a film’s initial theatrical release hasenabled major studios and some independent producers to increase the budgetsfor film production and advertising.

 

**FILM EXHIBITION**

 

***Evaluation of 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.

 

***Access to 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.

 

Inlicensing zones where we are the sole exhibitor, we obtain film licenses byselecting a film from among those films being offered and negotiating directlywith the distributor. In zones where there is competition, a distributor willallocate films among the exhibitors in the zone. When films are licensed underthe allocation process, a distributor will select an exhibitor who thennegotiates film rental terms directly with the distributor.

 

***Film Rental Fees.***** Film licensestypically specify rental fees or formulas by which rental fees may becalculated. The primary formulas used are the “sliding scale” formula, a “firmterm” formula and a “review or settlement”. Under a sliding scale formula, thedistributor receives a percentage of the box office receipts using apre-determined and mutually agreed upon film rental template. This formulaestablishes film rental predicated on box office performance and is thepredominant formula used by us to calculate film rental fees. Under the firmterm formula, the exhibitor and distributor agree prior to the exhibition ofthe film on a specified percentage of the box office receipts to be remitted tothe distributor. Lastly, under the review or settlement method, the exhibitorand distributor negotiate a percentage of the box office receipts to beremitted to the distributor upon completion of the theatrical engagement. Thesenegotiations typically involve the use of historical settlements or pastprecedent.

 

***Duration of Film Licenses.***  The duration of our film licenses arenegotiated with our distributors on a case-by-case basis. The terms of ourlicense agreements depend on performance of each film. Marketable movies 

 

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thatare expected to have high box office admissions revenues will generally havelonger license terms than movies with more uncertain performance andpopularity.

 

***Relationship with Distributors.***  Many distributors provide quality first-runmovies to the motion picture exhibition industry. For the year ended January 1,2009, ten major film distributors accounted for 93% of our admissions revenues.Six of the ten majorfilm distributors each accounted for more than 10% of fiscal 2008 admissionsrevenues. No single film distributor accounted for more than 20% of fiscal 2008admissions revenues. We license films from each of the major distributorsand believe that our relationships with these distributors are good. From yearto year, the revenues attributable to individual distributors will vary widelydepending upon the number and popularity of films that each one distributes.

 

**CONCESSIONS**

 

Inaddition to box office admissions revenues, we generated approximately 27.6% ofour total revenues from concessions sales during fiscal 2008. We emphasizeprominent and appealing concession stations designed for rapid and efficientservice. We continually seek to increase concessions sales by optimizingproduct mix, introducing special promotions from time to time and offeringemployee training and incentive programs to up-sell and cross-sell products. Wehave favorable concession supply contracts and have developed an efficientconcession purchasing and distribution supply chain. RCI, pursuant to itsmanagement agreement, negotiates directly with manufacturers for many of ourconcession items to obtain competitive prices and to ensure adequate supplies.

 

**COMPETI****TION**

 

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 ofprojection and sound systems at their theatres; and

 

·                  ability andwillingness to promote the films they are showing.

 

Wehave several hundred competitors nationwide, which vary substantially in size,from small independent exhibitors to large national chains such as AMC andCinemark. As a result, our theatres are subject to varying degrees ofcompetition in the regions in which they operate. Our competitors, includingnewly established motion picture exhibitors, may build new theatres or screensin areas in which we operate, which may result in increased competition andexcess 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 andUATC theatres. The existence of RCI theatres in these markets could have animpact on UATC film allocation and attendance.

 

We also compete withother motion picture distribution channels, including home video and DVD, cabletelevision, broadcast television and satellite and pay-per-view services. Othertechnologies such as video on demand could also have an adverse effect on ourbusiness and results of operations. Traditionally, when motion picturedistributors licensed their products to the domestic exhibition industry, theyrefrained from licensing their motion pictures to these other distribution channelsfor a period of time, commonly called the theatrical release window. We believethat the theatrical release window has been stable over the past five to sixyears. However, we believe that a material contraction of the theatricalrelease window could significantly dilute the consumer appeal of theout-of-home motion picture offering. As a result, we continue to monitor thestatus of the theatrical release window during our film licensing decisions. Inaddition, we compete for the public’s leisure time and disposable income withother forms of entertainment, including sporting events, concerts, live theatreand restaurants.

 

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**MARKETING AND ADVERTISING**

 

Currently,film distributors organize and finance multimedia advertising campaigns formajor film releases. To market our theatres, we utilize advertisements,including radio advertising, and movie schedules published in newspapers andover the Internet informing our patrons of film selections and show times.Newspaper advertisements are typically displayed in a single grouping for all ofour theatres located in a newspaper’s circulation area. In some of our markets,we employ special marketing programs for specific films and concessions items.

 

We participate in a frequent moviegoer loyalty program sponsored byREG, named the Regal Crown Club®,in all of our markets. Regal Crown Club® members are eligible for specified awards,such as concession items, based on purchases made at our participatingtheatres. In addition, we seek to develop patron loyalty through a number ofother marketing programs such as free summer children’s film series,cross-promotional ticket redemptions and promotions within local communities.We offer these programs only in selected markets. We plan to use these programsin markets where we believe patron loyalty can be further enhanced, and we willcontinue to evaluate our markets on a case-by-case basis to determine thesuitability of these programs in individual regions.

 

**MANAGEMENT INFORMATION SYSTEMS**

 

We make extensive use of information technology (“IT”) for themanagement of our business, our theatres, and other revenue generatingoperations. The revenue streams generated by attendance and concession salesare fully supported by information systems to monitor cash flow and to detectfraud and inventory shrinkage. We have implemented software and hardwaresolutions which provide for enhanced capabilities and efficiency within ourtheatre operations.  These solutions haveenabled us to sell gift cards at various major retailers, grocery stores andmass discounters and to redeem those gift cards at our theatre box offices andconcession stands.  We continue to expandour ability to sell tickets remotely by using our Internet ticketing partner,Fandango.com, and by deploying self-service customer activated terminals (“CATs”)in appropriate theatres. The CATs can sell tickets for current and future showsand provide the capability to retrieve tickets purchased throughFandango.com.  We continue to investigateand invest in IT to improve services to our patrons and provide information toour management, allowing them to operate the theatres efficiently.

 

Our scheduling systems support the coordination needed to properlyallocate our auditoriums between film showings and meetings andevents of National CineMedia, while also ensuring that movie audiencesview the intended advertising and that revenue is allocated to the appropriatebusiness function. The scheduling systems also provide informationelectronically and automatically to the newspapers, which allows them to publishcorrect show starting times with approved advertising graphics. The sales andattendance information developed by the theatre systems is used directly forfilm booking and settlement as well as being the primary source of data for ourfinancial systems.

 

**SEASONALITY**

 

Our revenues are usually seasonal, coincidingwith the timing of releases of motion pictures by the major distributors.Generally, studios release the most marketable motion pictures duringthe summer and the holiday season.  Theunexpected emergence of a hit film during other periods can alter thetraditional trend. The timing of movie releases can have a significant effecton our results of operations, and the results of one quarter are notnecessarily indicative of results for the next quarter or any other quarter.The seasonality of motion picture exhibition, however, has become lesspronounced as studios are releasing motion pictures somewhat more evenlythroughout the year.

 

**EMPLOYEES**

 

As of February 10, 2009, we employed approximately 2,161persons.  Film projectionists at certainof the Company’s theatres in the New York market are covered by two collectivebargaining agreements. The Company considers its employee relations to be good.

 

**REGULATION**

 

The distribution of motion pictures is in large part regulated byfederal and state antitrust laws and has been the subject of numerous antitrustcases. Consent decrees effectively require major film distributors to offer and

 

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licensefilms to exhibitors, including us, on a film-by-film and theatre-by-theatrebasis. Consequently, exhibitors cannot assure themselves of a supply of filmsby entering into long-term arrangements with major distributors, but mustnegotiate for licenses on a film-by-film basis.

 

Our theatres must comply with Title III of the Americans withDisabilities Act of 1990 (the “ADA”) to the extent that such properties are “publicaccommodations” and/or “commercial facilities” as defined by the ADA.Compliance with the ADA requires that public accommodations “reasonablyaccommodate” individuals with disabilities and that new construction oralterations made to “commercial facilities” conform to accessibility guidelinesunless “structurally impracticable” for new construction or technicallyinfeasible for alterations. Non-compliance with the ADA could result in theimposition of injunctive relief, fines, an award of damages to private litigantsand additional capital expenditures to remedy such non-compliance.

 

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 forth inNote 8 to the consolidated financial statements included in Part II, Item8 of this Form 10-K, we do not currently anticipate that compliance willrequire us to expend substantial funds. Our theatre operations are also subjectto federal, state and local laws governing such matters as wages, workingconditions, citizenship and health and sanitation requirements.  We believe that we are in substantialcompliance with all of such laws.

 

**Item 1A. RISK FACTORS**

 

***Our substantial lease obligations could impair ourfinancial condition.***

 

We have substantial lease obligations. For fiscal 2008, our total rentexpense was approximately $38.7 million. As of January 1, 2009, wehad total contractual cash obligations of approximately $265.1 million.For a detailed discussion of our contractual cash obligations and othercommercial commitments over the next several years, refer to “Management’sDiscussion and Analysis of Financial Condition and Results ofOperations—Contractual Cash Obligations and Commitments” provided in Part II,Item 7 of this Form 10-K below.

 

If we are unable to meet our lease obligations, we could be forced torestructure our obligations and seek additional funding from our Parent, awholly owned subsidiary of Regal, or sell assets. We may be unable torestructure our obligations and obtain additional funding from our Parent orsell assets on satisfactory terms or at all. As a result, inability to meet ourlease obligations could cause us to default on those obligations. Many of ourlease agreements 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 a competitiveenvironment.***

 

The motion picture exhibition industry is fragmented and highlycompetitive with no significant barriers to entry. Theatres operated by nationaland regional circuits and by small independent exhibitors compete with ourtheatres, particularly with respect to film licensing, attracting patrons anddeveloping new theatre sites. Moviegoers are generally not brand conscious andusually choose a theatre based on its location, the films showing there and itsamenities.

 

Generally, stadium seating found in modern megaplex theatres ispreferred by patrons over slope-floored multiplex theatres, which were thepredominant theatre-type built prior to 1996. As of January 1, 2009,approximately 54% of our screens were located in theatres that aresloped-floored multiplex theatres. These theatres may be more vulnerable tocompetition than our modern megaplex theatres, and should other theatreoperators choose to build and operate modern megaplex theatres in thesemarkets, the performance of our theatres in these markets may be significantlyand negatively impacted. In addition, should other theatre operators return tothe 

 

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aggressivebuilding strategies undertaken in the late 1990’s, our attendance, revenue andincome from operations per screen could decline substantially.

 

***We depend on motion pictureproduction and performance.***

 

Our ability to operate successfully depends upon the availability,diversity and appeal of motion pictures, our ability to license motion picturesand the performance of such motion pictures in our markets. We licensefirst-run motion pictures, the success of which have increasingly depended onthe marketing efforts of the major studios. Poor performance of, or anydisruption in the production of (including by reason of a strike or lack ofadequate financing) these motion pictures, or a reduction in the marketingefforts of the major studios, could hurt our business and results ofoperations. In addition, a change in the type and breadth of movies offered bystudios may adversely affect the demographic base of moviegoers.

 

***Development of digital technologymay increase our capital expenses.***

 

The industry is in the process of converting film-based media toelectronic based media. There are a variety of constituencies associated withthis anticipated change, which may significantly impact industry participants,including content providers, distributors, equipment providers and exhibitors.Should the conversion process rapidly accelerate and the major studios notcover the cost of the conversion as expected, we may have to use cash flow fromoperations, cash on hand or raise additional capital to finance the conversioncosts associated with this potential change. The additional capital necessarymay not, however, be available to us on attractive terms, if at all.Furthermore, it is impossible to accurately predict how the roles andallocation of costs (including operating costs) between various industryparticipants will change if the industry changes from physical media toelectronic media.

 

***An increase in the use of alternative filmdelivery methods may drive down movie theatre attendance and reduce ticketprices.***

 

We also compete with other movie delivery vehicles, including cabletelevision, downloads via the Internet, in-home video and DVD, satellite andpay-per-view services. Traditionally, when motion picture distributors licensedtheir products to the domestic exhibition industry, they refrained fromlicensing their motion pictures to these other delivery vehicles during thetheatrical release window.  We believethat a material contraction of the current theatrical release window couldsignificantly dilute the consumer appeal of the in-theatre motion pictureoffering, which could have a material adverse effect on our business andresults of operations. We also compete for the public’s leisure time anddisposable income with other forms of entertainment, including sporting events,concerts, live theatre and restaurants.

 

***We depend on our relationships withfilm distributors.***

 

The film distribution business is highly concentrated, with ten majorfilm distributors accounting for 93% of our admissions revenues during fiscal2008. Our business depends on maintaining good relations with thesedistributors. In addition, we are dependent on our ability to negotiatecommercially favorable licensing terms for first-run films. A deterioration inour relationship with any of the ten major film distributors could affect ourability to negotiate film licenses on favorable terms or our ability to obtaincommercially successful films and, therefore, could hurt our business andresults of operations.

 

***No assurance of a supply of motion pictures.***

 

The distribution ofmotion pictures is in large part regulated by federal and state antitrust lawsand has been the subject of numerous antitrust cases. Consent decrees resultingfrom those cases effectively require major motion picture distributors to offerand license 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.

 

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***We depend on our senior management.***

 

Our success depends upon the retention of our senior management,including Michael Campbell, our President and Chairman of the Board. We cannotassure you that we would be able to find qualified replacements for theindividuals who make up our senior management if their services were no longeravailable. The loss of services of one or more members of our senior managementteam could have a material adverse effect on our business, financial conditionand results of operations. The loss of any member of senior management couldadversely affect our ability to effectively pursue our business strategy.

 

***A prolonged economic downturn could materiallyaffect our business by reducing consumer spending on movie attendance.***

 

We depend on consumersvoluntarily spending discretionary funds on leisure activities. Motion picture theatreattendance may be affected by prolonged negative trends in the general economythat adversely affect consumer spending, such trends resulting from terroristattacks on, or wars or threatened wars involving, the United States.  During 2008, many economists determined thatthe U.S. economy has 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.  Continued 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.

 

***The global financial crisis may have an impact onour business and financial condition in ways that we currently cannot predict.***

 

Thecontinued credit crisis and related turmoil in the global financial system hashad, and may continue to have, an impact on our business and our financialcondition.

 

Inaddition, the global financial crisis may present significant challenges forthe Company if conditions in the financial markets do not improve or continueto worsen. For example, our ability to access capital markets may be severelyrestricted at times when the implementation of our business strategy mayrequire us to do so, which could have an impact on our flexibility to react tochanging economic and business conditions. Also, deteriorating conditions inthe global credit markets could negatively impact our business partners whichmay impact film production, the development of new theatres or the enhancementof existing theatres, including delaying the deployment of new projection andother technologies to our theatres. All of these factors could adversely affectour financial condition and results of operations.

 

**Item 1B. UNRESOLVED STAFFCOMMENTS**

 

As of January 1, 2009,there are no unresolved comments from the Commission staff regarding any of ourperiodic or current reports filed under the Exchange Act.

 

**Item 2.  PROPERTIES**

 

As of January 1, 2009, we operated 66****ofour theatres pursuant to lease agreements and owned the land and buildings for2 theatres. For a list of the states in which we operated theatres and thenumber of theatres and screens operated in each such state as of January 1,2009, please see the chart under Part I, Item 1 of this Form 10-Kunder the caption “Business—Theatre Operations”, which is incorporated hereinby reference.

 

The majority of our leased theatres are subject to lease agreementswith original terms of 15 to 20 years or more and, in most cases, renewaloptions for up to an additional 10 years. These leases provide for minimumannual rentals and the renewal options generally provide for rent increases.Some leases require, under specified conditions, further rental payments basedon a percentage of revenues above specified amounts. A significant majority ofthe leases are net leases, which require us to pay the cost of insurance, taxesand a portion of the lessor’s operating costs.

 

Of the 68 owned and leased theatres, onetheatre with nine screens is held by a corporation, owned 51% by UATC.  The remaining owned and leased theatres areheld directly by UATC or its wholly owned subsidiaries.

 

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Certain of our leased theatres 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.

 

UATC leases the land, building and equipmentin the theatres owned by Prop I in accordance with a master affiliatelease.  The Prop I master lease expired in 2003 and UATC exercised itsoption to extend the lease for an additional ten years.

 

**Item 3.  LEGAL PROCEEDINGS**

 

Pursuant to General Instruction G(2) to Form 10-K and Rule 12b-23under the Securities Exchange Act of 1934, as amended, the information requiredto be furnished by us under this Part I, Item 3 (Legal Proceedings) isincorporated by reference to the information contained in Note 8 to the consolidatedfinancial statements included in Part II, Item 8 of this Form 10-K.

 

**Item 4.  SUBMISSION OF MATTERS TOA VOTE OF SECURITY HOLDERS**

 

Under the reduced disclosure format permitted by General Instruction I(2) ofForm 10-K for wholly owned subsidiaries, the information otherwiserequired by this item has been omitted.

 

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**PART II**

 

**Item 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDERMATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES**

 

As of March 24, 2009, UATC’s common stock is held entirely by theParent.  There is no established publictrading market for the Company’s common stock. During 2005, UATC effected two cash dividends totaling approximately$32.3 million to the Parent. UATC’s ability to pay dividends is restricted bythe terms of the Participation Agreement entered into in connection with the1995 sale and leaseback transaction described in Note 6 to the consolidatedfinancial statements included in Part II, Item 8 of this Form 10-K.

 

**Item 6.  SELECTED FINANCIAL DATA**

 

Underthe reduced disclosure 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 DISCUSSIONAND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

*This discussion summarizes the significant factors affecting theconsolidated operating results, financial condition, liquidity and cash flowsof UATC for the fiscal years ended January 1, 2009, December 27, 2007and December 28, 2006.**The following discussion and analysis should be readin conjunction with the consolidated financial statements of**UATC**and the notes theretoincluded elsewhere in this Form 10-K.*

 

**Overview and Basis of Presentation**

 

As of January 1, 2009, weoperate 596 screens in 68 theatres in 19 states with over 20 million annualattendees during fiscal 2008.  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 8.8 screens per location. Theatre operations in sevenstates (New York, California, Mississippi, Florida, Maryland, Texas andPennsylvania) accounted for approximately 70.6% and 67.8% of our total theatresand screens, respectively, as of January 1,2009 and 77.8% of our theatrical revenue for fiscal 2008. The Company manages its business under one reportable segment: theatreexhibition operations.

 

United Artists became a wholly ownedsubsidiary of REH through a series of transactions in 2002.  REH is a wholly owned subsidiary of Regal whoacquired Regal Cinemas, United Artists and Edwards through a series of 

 

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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,United Artists and its subsidiaries became subsidiaries of RCI.

 

We generate revenues primarily from admissions and concession sales.Additional revenues are generated by electronic video games located adjacent tothe lobbies of certain of our theatres and vendor marketing programs.  In addition, National CineMedia provides uswith a theatre access fee associated with revenues generated from its sale ofon-screen advertising, rental of theatres for business meetings and concertsand other events pursuant to its arrangements with RCI (described in Note 5 tothe consolidated financial statements included in Part II, Item 8 of this Form 10-K).Film rental costs depend on a variety of factors including the prospects of afilm, the popularity and box office revenues of a film and such film rentalcosts generally increase as the admissions revenues generated by a filmincrease. Because we purchase certain concession items, such as fountain drinksand popcorn, in bulk and not pre-packaged for individual servings, we are ableto improve our margins by negotiating volume discounts. Other operatingexpenses consist primarily of theatre labor and occupancy costs.

 

On February 12, 2007, Regal, along with AMC and Cinemark, formedDCIP, to create a financing model and establish agreements with major motionpicture studios for the implementation of digital cinema. Future digital cinemadevelopments will be managed by DCIP, subject to the approval of Regal, AMC andCinemark. Each of Regal, AMC and Cinemark has an equal ownership and votinginterest in DCIP. Recently, DCIP announced the execution of long-termdeployment agreements with five film studios. DCIP is continuing to work withfilm studios and financial institutions to negotiate and finalize the relatedfinancing plans that would provide for a studio-financed conversion to digitalprojection. Upon completion, we are prepared to begin converting our existingtheatres from 35 mm film projection to digital projection and intend tocomplete the conversion of our entire circuit in approximately three to fouryears.

 

On June 30, 2007, UATC acquired the remaining partnership interestin two of its subsidiaries for an aggregate purchase price of $1.1 million,which resulted in a loss of $0.2 million. The loss was recorded in the accompanying consolidated statement ofoperations as a component of “Other, net.”

 

In order to provide a meaningful basis of comparing the fiscal yearsended January 1, 2009, December 27, 2007 and December 28, 2006for purposes of the following tables and discussion, the operating results forthe fifty-three weeks ended January 1, 2009 (“Fiscal 2008 Period”) arecompared to the fifty-two weeks ended December 27, 2007 (“Fiscal 2007Period”) and the fifty-two weeks ended December 28, 2006 (“Fiscal 2006Period”).

 

For a summary of other industry trends as well as other risks anduncertainties relevant to the Company, see “Business-Industry Overview andTrends” and “Risk Factors.”

 

**Results of Operations**

 

Based on our review of industry sources, national box office revenuesfor calendar year 2008 were estimated to have decreased slightly in comparisonto that of calendar year 2007. The industry’s box office results werenegatively impacted by difficult comparisons generated by high profile filmsreleased during 2007, including *Spider-Man 3*, *Transformers*, *Pirates of the Caribbean:At World’s End*, *Shrek the Third*and *Harry Potter & the Order of The Phoenix*,largely offset by ticket price increases and strong attendance from 2008 filmreleases, such as *The Dark Knight*, and filmsoutside the 15 highest grossing pictures.

 

Ourtotal revenues for the Fiscal 2008 Period were $225.1 million, consistingof $155.3 million of admissions revenues, $62.2 million from concessionsrevenues and $7.6 million of other operating revenues, and represented a 1.7%decrease over total revenues of $229.1 million for the Fiscal 2007 Period.

 

During the Fiscal 2008 Period, total admissions revenues decreased$2.0 million, or 1.3%, to $155.3 million, from $157.3 millionfor the Fiscal 2007 Period.  The declinein the Company’s total revenues was attributable to a 4.8% decrease inattendance resulting primarily from the continued aging of our theatres

 

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(approximately54% of our screens are located in older, sloped floor multiplexes) and to alesser extent, a decline in industry attendance during the Fiscal 2008Period.  These factors were partiallyoffset by the impact of the timing of the Fiscal 2008 Period calendar, whichconsisted of fifty-three weeks compared to the fifty-two weeks during theFiscal 2007 Period. The additional week of operations was the week betweenChristmas and New Years, a traditionally high attendance and revenue week forthe Company and the industry. The additional week of operations was significantin that it accounted for approximately 0.8 million attendees, or 4.0%, of theFiscal 2008 Period total attendance and contributed to approximately $5.7 million,or 3.7%, of the Fiscal 2008 Period total admissions revenues.  The Fiscal 2008 Period admissions revenueswere also favorably impacted by a 3.7% increase in average ticket prices.  Price increases identified during our ongoingperiodic pricing reviews (which include analysis of various factors includinggeneral inflationary trends and local market conditions) along with the mix offilm product exhibited during the Fiscal 2008 Period were the primary driversof the increase in our Fiscal 2008 Period average ticket price.

 

On a ‘comparable screen’ basis (i.e., excluding the effect of theimpact of week 53 during the Fiscal 2008 Period), attendance for the Fiscal2008 period was approximately 19.3 million, a 8.1% decrease from the Fiscal2007 Period and admissions revenues for the Fiscal 2008 period wasapproximately $149.6 million, a decrease of 4.9% from the Fiscal 2007Period.  These declines were primarily aresult of the continued aging of our theatres and the decline in attendanceamong the top tier films exhibited during the Fiscal 2008 Period, partiallyoffset by a 3.6% increase in comparable screen average ticket prices.

 

Inaddition, during the Fiscal 2008 Period, on a comparable screen basis, weexperienced a decrease in total concessions revenues and a slight increase inother operating revenues.  The decline intotal concessions revenues on a comparable screen basis was primarily a resultof the decrease in attendance discussed above during the Fiscal 2008 Period incomparison to the Fiscal 2007 Period. Average concessions revenues per patron during the Fiscal 2008 Periodwas positively impacted by price increases effected during the Fiscal 2008Period.  The increase in other operatingrevenues for the Fiscal 2008 Period was primarily attributable to increases inrevenues related to National CineMedia revenues and other theatre revenues.

 

On a comparable screen basis, during the Fiscal 2008 Period, incomefrom operations decreased $0.2 million, or 2.0%, from the Fiscal 2007Period.  The decrease in income from operations on a comparable screenbasis during the Fiscal 2008 Period was primarily attributable to a reductionin admissions and concessions revenues, partially offset by increases in otheroperating revenues and a decrease in various operating expense items includingthe net loss on disposal and impairment of operating assets.  The Company reported net income of$8.4 million in the Fiscal 2008 Period compared to net income of$11.5 million in the Fiscal 2007 Period. The decrease in net income wasprimarily due to the decrease in operating income, the $7.0 million gain ($4.2million after related tax effects) recorded in connection with the sale of theCompany’s equity interest in Fandango, Inc. (“Fandango”) during the Fiscal2007 Period, a decrease in interest income and a $0.2 million loss resultingfrom the purchase of the partnership interest in two of our subsidiaries duringthe Fiscal 2007 Period.

 

We are optimistic regarding the breadth of the 2009 film slate and thetiming of the release schedule and share the view of a number of film studioexecutives who believe the industry is poised to benefit from a year of solidbox office performance. Evidenced by the film studios’ continued efforts topromote and market upcoming film releases, 2009 appears to be another year ofhigh-profile releases such as *Monsters vs. Aliens*(3D), *Hannah Montana: The Movie*, *X-Men Origins: Wolverine*, *Angels &Demons*, *Night at the Museum:Battle of the Smithsonian*, *Terminator Salvation, Up*(3D), *Transformers: Revenge of the Fallen*, *Ice Age: Dawn of the Dinosaurs* (3D), *Harry Potterand the Half-Blood Prince* and *Avatar* (3D).

 

Withrespect to capital expenditures, subject to the timing of certain constructionprojects, we expect capital expenditures to be in the range of $4.0 million to$8.0 million for fiscal 2009, consisting of expansion of existing theatrefacilities, upgrades and replacements.

 

Overall for the fiscal 2009year, we expect to benefit from modest increases in ticket prices and averageconcessions per patron. In addition, we expect fiscal 2009 admissions andconcessions revenues to be supported by our continued focus on efficienttheatre operations, however, the continued aging of our theatres and closuresof underperforming screens could offset increases in industry box office andconcessions

 

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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 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 2008 Period, theFiscal 2007 Period and the Fiscal 2006 Period:

 
| ** **                                                                                                                    | ** ** | **Fiscal 2008 Period ** | ** ** | **Fiscal 2007 Period ** | ** ** | **Fiscal 2006 Period ** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|
| Revenues:                                                                                                                     |       |                                   |       |                                   |       |                                   |       |
| Admissions                                                                                                                    |       | 69.0                                   | %          | 68.7                                   | %          | 68.8                                   | %          |
| Concessions                                                                                                                   |       | 27.6                                   |       | 28.1                                   |       | 27.4                                   |       |
| Other operating revenues                                                                                                      |       | 3.4                                    |       | 3.2                                    |       | 3.8                                    |       |
| Total revenues                                                                                                                |       | 100.0                                  |       | 100.0                                  |       | 100.0                                  |       |
| Operating expenses:                                                                                                           |       |                                   |       |                                   |       |                                   |       |
| Film rental and advertising costs                                                                                             |       | 35.4                                   |       | 35.7                                   |       | 35.2                                   |       |
| Cost of concessions                                                                                                           |       | 3.8                                    |       | 3.9                                    |       | 4.1                                    |       |
| Other operating expenses                                                                                                      |       | 41.1                                   |       | 40.9                                   |       | 41.5                                   |       |
| Sale and leaseback rentals                                                                                                    |       | 6.6                                    |       | 6.5                                    |       | 6.3                                    |       |
| General and administrative expenses  (including share-based compensation expense of $0.2 million for the Fiscal  2006 Period) |       | 3.0                                    |       | 3.0                                    |       | 3.1                                    |       |
| Depreciation and amortization                                                                                                 |       | 4.4                                    |       | 4.6                                    |       | 4.9                                    |       |
| Net loss on disposal and impairments of  operating assets                                                                     |       | —                                 |       | 1.0                                    |       | 0.5                                    |       |
| Total operating expenses                                                                                                      |       | 94.3                                   |       | 95.6                                   |       | 95.6                                   |       |
| Income from operations                                                                                                        |       | 5.7                                    | %          | 4.4                                    | %          | 4.4                                    | %          |

 

***Revenues***

 

The following table summarizes revenues and revenue-related data forthe Fiscal 2008 Period, the Fiscal 2007 Period and the Fiscal 2006 Period (inmillions, except averages):

 
| ** **                         | ** ** | **Fiscal 2008 Period** | ** ** | **Fiscal 2007 Period** | ** ** | **Fiscal 2006 Period** | ** ** |
|------------------------------------|------------|----------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| Admissions                         |       | $                                | 155.3      |                             | $          | 157.3                            |       | $ | 163.9 |   |
| Concessions                        |       | 62.2                             |       | 64.5                             |       | 65.3                             |       |
| Other operating revenues           |       | 7.6                              |       | 7.3                              |       | 9.1                              |       |
| Total revenues                     |       | $                                | 225.1      |                             | $          | 229.1                            |       | $ | 238.3 |   |
| Attendance                         |       | 20.0                             |       | 21.0                             |       | 23.1                             |       |
| Average ticket price (1)           |       | $                                | 7.77       |                             | $          | 7.49                             |       | $ | 7.10 |   |
| Average concessions per patron (2) |       | $                                | 3.11       |                             | $          | 3.07                             |       | $ | 2.83 |   |

 

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(1)  Calculated as admissionsrevenue/attendance.

 

(2)  Calculated as concessionsrevenue/attendance.

 

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* *

*Admissions*

 

During the Fiscal 2008 Period, total admissions revenues decreased$2.0 million, or 1.3%, to $155.3 million, from $157.3 millionfor the Fiscal 2007 Period.  The declinein 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 the effects of theimpact of week 53 during the Fiscal 2008 Period), attendance for the Fiscal2008 period was approximately 19.3 million, a 8.1% decrease from the Fiscal2007 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.

 

Total admissions revenues decreased $6.6 million, or 4.0%, to$157.3 million, for the Fiscal 2007 Period from $163.9 million forthe Fiscal 2006 Period.  Our Fiscal 2007Period box office results were unfavorably impacted by a 9.1% decrease inattendance resulting primarily from the closure of 49 underperforming screensduring the Fiscal 2007 Period.  Thedecline in box office revenues was partially offset by a 5.5% increase in theFiscal 2007 Period average ticket prices per patron resulting from ongoingperiodic pricing reviews (which include analysis of various factors includinggeneral inflationary trends and local market conditions) and a favorable mix offilm product exhibited during the Fiscal 2007 Period.

 

*Concessions*

 

During the Fiscal 2008 Period, total concessions revenues decreased$2.3 million, or 3.6%, to $62.2 million, from $64.5 million forthe Fiscal 2007 Period.  On a comparable screen basis, total concessionsrevenues for the Fiscal 2008 Period declined by approximately $4.6 million, or7.1 %, from the Fiscal 2007 Period.  Thedecline in total concessions revenues on a comparable screen basis wasprimarily a result of the decrease in attendance discussed above during theFiscal 2008 Period in comparison to the Fiscal 2007 Period.  Average concessions revenues per patron duringthe Fiscal 2008 Period was positively impacted by price increases effectedduring the Fiscal 2008 Period.

 

Total concessions revenues decreased $0.8 million, or 1.2%, to$64.5 million for the Fiscal 2007 Period from $65.3 million for theFiscal 2006 Period.  The decrease inconcessions revenues in the Fiscal 2007 Period was primarily due to theaforementioned Fiscal 2007 Period decrease in attendance, partially offset by a8.5% increase in the Fiscal 2007 Period average concessions revenues per patron. The growth in average concessions revenues per patron for the Fiscal 2007Period was primarily attributable to price increases, concession-friendly filmsexhibited during the Fiscal 2007 Period, such as*Spider-Man3, Transformers, Pirates of theCaribbean: At World’s End, Shrek the Third, Harry Potter & theOrder of The Phoenix*and *Ratatouille*and a favorable mix of concession products sold during theFiscal 2007 Period.

 

*Other Operating Revenues*

 

Total other operating revenues increased $0.3 million, or 4.1%, to$7.6 million for the Fiscal 2008 Period, from $7.3 million for theFiscal 2007 Period.  Included in otheroperating revenues are the theatre access fees paid by National CineMedia (netof payments for on-screen advertising time provided to our beverageconcessionaire), 

 

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marketingrevenues from our vendor marketing programs and other theatre revenues.  Such increase was primarily attributable toincreases in revenues related to National CineMedia revenues and other theatrerevenues.

 

Total other operating revenues decreased $1.8 million, or 19.8%, to$7.3 million for the Fiscal 2007 Period, from $9.1 million for the Fiscal 2006Period.  Included in other operatingrevenues are the theatre access fees paid by National CineMedia, net ofpayments for on-screen advertising time provided to our beverageconcessionaire, marketing revenues from certain of the Company’s vendormarketing programs and game revenues. The decrease in other operating revenues in the Fiscal 2007 Period wasprimarily due to a modification of the payment arrangement between RCI andNational CineMedia, for all on-screen and lobby advertising and event servicesto UATC described in further detail under Note 5 to the consolidatedfinancial statements included in Part II, Item 8 of this Form 10-Kand to a lesser extent due to the closure of 49 underperforming screens duringthe Fiscal 2007 Period.

 

***Operating Expenses***

 

The following table summarizes certain operating expenses for theFiscal 2008 Period, the Fiscal 2007 Period and the Fiscal 2006 Period (dollarsin millions):

 
| ** **                              | ** ** | **Fiscal 2008 Period** | ** ** | **Fiscal 2007 Period** | ** ** | **Fiscal 2006 Period** | ** ** |
|-----------------------------------------|------------|----------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| ** **                              | ** ** | **$**                            | ** ** | **% of  Revenues**          | ** ** | **$**                            | ** ** | **% of  Revenues** | ** ** | **$** | ** ** | **% of  Revenues** | ** ** |
| Film rental and advertising costs (1)   |       | 79.6                             |       | 51.3                             |       | 81.9                             |       | 52.1 |   | 83.9 |   | 51.2 |   |
| Cost of concessions (2)                 |       | 8.6                              |       | 13.8                             |       | 9.0                              |       | 14.0 |   | 9.8 |   | 15.0 |   |
| Other theatre operating expenses (3)    |       | 92.5                             |       | 41.1                             |       | 93.7                             |       | 40.9 |   | 98.9 |   | 41.5 |   |
| Sale and leaseback rentals (3)          |       | 14.8                             |       | 6.6                              |       | 14.9                             |       | 6.5 |   | 15.0 |   | 6.3 |   |
| General and Administrative expenses (3) |       | 6.8                              |       | 3.0                              |       | 6.9                              |       | 3.0 |   | 7.5 |   | 3.1 |   |

 

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(1)  Percentage of revenues calculated as apercentage of admissions revenues.

 

(2)  Percentage of revenues calculated as apercentage of concessions revenues.

 

(3)  Percentage of revenues calculated as apercentage of total revenues.

 

*Film Rental and Advertising Costs*

 

Film rental and advertising costs as a percentage of admissions revenuesdecreased to 51.3% during the Fiscal 2008 Period as compared to 52.1% in theFiscal 2007 Period.  The decrease in filmrental and advertising costs as a percentage of box office revenues during theFiscal 2008 Period was primarily the result of a lower percentage of box officerevenues generated by the top tier films exhibited during the Fiscal 2008Period and a decline in advertising expense during the period.

 

Film rental and advertising costs as a percentage of admissionsrevenues increased to 52.1% during the Fiscal 2007 Period as compared to 51.2%in the Fiscal 2006 Period.  The increasein film rental and advertising costs as a percentage of box office revenuesduring the Fiscal 2007 Period was primarily the result of a higher percentageof box office revenues generated by the top 10 films exhibited during theFiscal 2007 Period.

 

*Cost of Concessions*

 

Cost of concessions decreased $0.4 million, or 4.4%, during the Fiscal2008 Period as compared to the Fiscal 2007 Period.  During the Fiscal 2008 Period, cost ofconcessions as a percentage of concessions revenues decreased 20 basis pointsto 13.8% from 14.0% in the Fiscal 2007 Period. On a comparable screen basis, cost of concessions declined $0.7 million,or 7.8%, during the Fiscal 2008 Period as compared to the Fiscal 2007Period.  On a comparable screen basis,the decrease in cost of concessions during the Fiscal 2008 Period was primarilyrelated to a change in a vendor marketing program, partially offset by slightlyhigher food costs.  On a comparablescreen basis, cost of concessions as a percentage of concessions revenuesdecreased 10 basis points to 13.9% during the Fiscal 2008 Period as compared to14.0% in the Fiscal 2007 Period.

 

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Duringthe Fiscal 2007 Period, cost of concessions as a percentage of concessionsrevenues decreased to 14.0% as compared to 15.0% in the Fiscal 2006 Period. Thedecrease in the cost of concessions as a percentage of concessions revenuesduring the Fiscal 2007 Period was primarily related to increases in concessionprices, coupled with the mix ofconcession products sold during such periods.

 

*Other Theatre Operating Expenses*

 

Othertheatre operating expenses decreased $1.2 million, or 1.3%, to$92.5 million in the Fiscal 2008 Period, from $93.7 million in theFiscal 2007 Period.  Such decrease wasprimarily due to the aforementioned Fiscal 2008 Period decrease in attendance,partially offset by the impact of the fifty-three weeks of operations duringthe Fiscal 2008 Period. Other theatre operating expenses as a percentageof total revenues increased to 41.1% in the Fiscal 2008 Period as compared to40.9% in the Fiscal 2007 Period. The increase in other theatre operatingexpenses as a percentage of total revenues in the Fiscal 2008 Period wasprimarily attributable to decreasing revenues coupled with the fixed nature ofvarious theatre operating expenses. On a comparable screen basis, during theFiscal 2008 Period, other theatre operating expenses decreased $2.6 million, or2.8%, from the Fiscal 2007 Period.  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.

 

Othertheatre operating expenses decreased $5.2 million, or 5.3%, to $93.7 millionfor the Fiscal 2007 Period, from $98.9 million in the Fiscal 2006 Period.  Other theatre operating expenses as apercentage of total revenues decreased to 40.9% in the Fiscal 2007 Period ascompared to 41.5% in the Fiscal 2006 Period. The decrease in other theatre operating expenses in the Fiscal 2007Period was primarily attributable to the closure of 49 underperforming screensduring the Fiscal 2007 Period.  Thedecrease in other theatre operating expenses as a percentage of total revenuesin the Fiscal 2007 Period was due to a reduction of certain non-rent occupancycosts and labor costs.

 

*Sale and Leaseback Rentals*

 

Saleand leaseback expenses decreased $0.1 million, or 0.7%, to $14.8 million forthe Fiscal 2008 Period, from $14.9 million in the Fiscal 2007 Period.  See Note 6 to the consolidated financialstatements included in Part II, Item 8 of this Form 10-K for furtherdiscussion of sale and leaseback transactions.

 

Saleand leaseback expenses decreased $0.1 million, or 0.7%, to $14.9 million forthe Fiscal 2007 Period, from $15.0 million in the Fiscal 2006 Period.  See Note 6 to the consolidated financialstatements included in Part II, Item 8 of this Form 10-K for furtherdiscussion of sale and leaseback transactions.

 

*General and AdministrativeExpenses*

 

Generaland administrative expenses decreased $0.1 million, or 1.4%, to $6.8 millionduring the Fiscal 2008 Period as compared to $6.9 million in the Fiscal 2007Period.  As a percentage of total revenues, general and administrativeexpenses of 3.0% during the Fiscal 2008 Period were consistent with that of theFiscal 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.

 

Duringthe Fiscal 2007 Period, general and administrative expenses decreased$0.6 million, or 8.0%, to $6.9 million, from $7.5 million in theFiscal 2006 Period.  As a percentage oftotal revenues, general and administrative expenses decreased to 3.0% inthe Fiscal 2007 Period from 3.1% in the Fiscal 2006 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 decrease in general and administrativeexpenses during the Fiscal 2007 Period compared to the Fiscal 2006 Period wasprimarily attributable to the reduction in management fee costs incurred duringthe Fiscal 2007 Period resulting from the decrease in total revenues during theFiscal 2007 Period, and to a lesser extent, the reduction in share-basedcompensation expense 

 

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during the Fiscal 2007 Period as further describedin Note 9 to the consolidated financial statements included in Part II,Item 8 of this Form 10-K.

 

***Depreciation and Amortization***

 

Forthe Fiscal 2008 Period, depreciation and amortization decreased$0.5 million, or 4.8%, to $10.0 million, from $10.5 million in theFiscal 2007 Period.  Such decrease wasprimarily due to a larger number of fully depreciated assets as of the end ofthe Fiscal 2008 Period, partially offset by the impact of the fifty-three weeksof operations during the Fiscal 2008 Period. On a comparable screen basis, depreciation and amortization decreased$0.7 million, or 6.7%, during the Fiscal 2008 Period as compared to theFiscal 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.

 

Depreciationand amortization decreased $1.1 million, or 9.5%, to $10.5 millionduring the Fiscal 2007 Period, from $11.6 million in the Fiscal 2006Period.  The decrease in depreciation andamortization expense during the Fiscal 2007 Period was primarily due to theclosure of 49 underperforming screens during the Fiscal 2007 Period.

 

***Income from Operations***

 

Incomefrom operations totaled $12.8 million during the Fiscal 2008 Period, whichrepresents an increase of $2.8 million, or 28.0%, from $10.0 millionin the Fiscal 2007 Period. On a comparable screen basis, during the Fiscal 2008Period, income from operations decreased $0.2 million, or 2.0%, from the Fiscal2007 Period.  On a comparable screen basis, the decrease in income fromoperations 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 itemsincluding the net loss on disposal and impairment of operating assets.

 

Forthe Fiscal 2007 Period, income from operations totaled approximately$10.0 million, which represents a decrease of $0.5 million, or 4.8%,from $10.5 million in the Fiscal 2006 Period.  The net decrease in income from operationsduring the Fiscal 2007 Period was primarily attributable to a 3.9% decrease intotal revenues for the Fiscal 2007 Period described above, coupled with anincrease in the net loss on disposal and impairment of operating assetsresulting from an increase in the recording of impairment charges during theFiscal 2007 Period, partially offset by the decrease in other operatingexpenses during the Fiscal 2007 Period.

 

***Interest Income, Net***

 

During the Fiscal 2008 Period, net interest income decreased $1.2million, or 75.0%, to $0.4 million, from $1.6 million in the Fiscal 2007Period.  The decrease in net interestincome during the Fiscal 2008 Period was principally due to a lower averagecash balance outstanding and a decline in our average interest rate during thistime period.

 

During the Fiscal 2007 Period, net interestincome increased $1.0 million to $1.6 million, from $0.6 million in the Fiscal2006 Period.  The increase in netinterest income during the Fiscal 2007 Period was primarily dueto interest earned on the higher outstanding cash balance during the Fiscal2007 Period.

 

***Income Taxes***

 

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 40.0% and 37.2% for the Fiscal 2008 andFiscal 2007 Periods, respectively.  The increase in the effective tax ratewas primarily attributable to the recognition of a tax benefit in the Fiscal2007 Period relative to net operating losses that had not been previouslyrecognized.  The effective tax rate for each period reflects the impact ofcertain non-deductible expenses.

 

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Theprovision for income taxes increased $2.0 million, or 41.7%, to $6.8 millionfor the Fiscal 2007 Period, from $4.8 million for the Fiscal 2006 Period. Accordingly, the effective tax rate was 37.2% and 43.6% for the Fiscal 2007 andFiscal 2006 Periods, respectively.  The decrease in the effective tax ratewas primarily attributable to the recognition of a tax benefit relative to netoperating losses that had not been previously recognized.  The effectivetax rate for each period reflects the impact of certain non-deductibleexpenses.

 

Asdiscussed in Note 7 to the consolidated financial statements included in Part II,Item 8 of this Form 10-K, during 2005, REG, the parent company of theconsolidated tax group which includes activity of the Company, was notifiedthat the Internal Revenue Service (“IRS”) would examine its 2002 and 2003federal income tax returns.  In October 2005, the examination of REG’sfederal tax returns for such years was completed, and REG and the IRSagreed to certain adjustments to the years under audit.  Such adjustmentsdid not have a material impact on the Company’s provision for income taxes.

 

***Net Income***

 

Duringthe Fiscal 2008 Period, net income totaled $8.4 million, which representsa decrease of $3.1 million, from net income of $11.5 million in the Fiscal2007 Period.  The decrease in net income for the Fiscal 2008 Period ascompared to the Fiscal 2007 Period was primarily attributable to the decreasein operating income, the $7.0 million gain ($4.2 million after related taxeffects) recorded in connection with the sale of our equity interest in Fandangoduring the Fiscal 2007 Period, a decrease in interest income and a $0.2 millionloss resulting from the purchase of the partnership interest in two of oursubsidiaries during the Fiscal 2007 Period.

 

Netincome totaled $11.5 million during the Fiscal 2007 Period, whichrepresents an increase of $5.3 million, from $6.2 million in the Fiscal2006 Period.  The increase in net incomefor the Fiscal 2007 Period was primarily attributable to a $7.0 million gain($4.2 million after related tax effects) resulting from transactions completedin connection with the sale of our equity interest in Fandango, coupled with anincrease in interest income and a decrease in income taxes, partially offset bya decrease in operating income described above and a $0.2 million lossresulting from the purchase of the partnership interest in two of oursubsidiaries during the Fiscal 2007 Period.

 

***Cash Flows***

 

The following table summarizes certain cash flow data for the Fiscal2008 Period, the Fiscal 2007 Period, and the Fiscal 2006 Period (dollars inmillions):

 
| ** **                                           | ** ** | **Fiscal 2008 Period** | ** ** | **Fiscal 2007 Period** | ** ** | **Fiscal 2006 Period** | ** ** |
|------------------------------------------------------|------------|----------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| Net cash provided by operating activities            |       | $                                | 14.9       |                             | $          | 12.2                             |       | $ | 16.1 |   |
| Net cash provided by (used in) investing  activities |       | (4.0                             | )          | 2.5                              |       | (4.1                             | )          |
| Net cash used in financing activities                |       | (8.2                             | )          | (4.3                             | )          | (3.8                             | )          |
| Net increase in cash and cash equivalents            |       | $                                | 2.7        |                             | $          | 10.4                             |       | $ | 8.2 |   |

 

*Fiscal2008 Period Compared to Fiscal 2007 Period*

 

Netcash flows provided by operating activities increased by approximately$2.7 million to approximately $14.9 million for the Fiscal 2008Period.  The net increase in net cashflows provided by operating activities for the Fiscal 2008 Period was primarilyattributable to the decrease in deferred income tax benefit of approximately$6.8 million resulting from the transactions completed between REG and NationalCineMedia in connection with the IPO of NCM Inc. (see Note 5 to theconsolidated financial statements included in Part II, Item 8 of this Form 10-Kfor further discussion) partially offset by a $3.7 million decrease in changesin operating assets and liabilities.  Thenet 

 

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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.

 

Netcash flows used in investing activities were approximately $4.0 millionfor the Fiscal 2008 Period compared to net cash flows provided by investingactivities of approximately $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 millionduring the Fiscal 2008 Period as compared to the Fiscal 2007 Period.

 

Netcash flows used in financing activities were approximately $8.2 million for theFiscal 2008 Period compared to cash flows used in financing activities ofapproximately $4.3 million for the Fiscal 2007 Period. The net increase incash flows used in financing activities during the Fiscal 2008 Period wasprimarily attributable to the decrease of $0.4 million in excess tax benefitsfrom share based payment arrangements and the net increase in the change in therelated party receivable of $3.5 million during the Fiscal 2008 Period ascompared to the Fiscal 2007 Period.

 

*Fiscal2007 Period Compared to Fiscal 2006 Period*

 

Netcash flows provided by operating activities decreased by approximately$3.9 million for the Fiscal 2007 Period from approximately$16.1 million for the Fiscal 2006 Period. The net decrease in net cash flows provided by operating activities forthe Fiscal 2007 Period was primarily attributable to the decrease in operatingincome and the increase in deferred income tax benefit of approximately $7.3million resulting from the transactions completed between REG and NationalCineMedia, in connection with the IPO of NCM Inc. (see Note 5 to the consolidatedfinancial statements included in Part II, Item 8 of this Form 10-Kfor further discussion), partially offset by a $5.4 million increase in changesin operating assets and liabilities  Thenet increase in the changes in operating assets and liabilities and otherworking capital items was primarily related to the timing of certain Fiscal2007 vendor payments, income tax payments, accounts receivable and prepaidexpenses.

 

Netcash flows provided by investing activities were approximately$2.5 million for the Fiscal 2007 Period compared to cash flows used ininvesting activities of approximately $4.1 million for the Fiscal 2006Period.  The net increase in cash flowsprovided by investing activities during the Fiscal 2007 Period was primarilyattributable to the $7.0 million of proceeds received in connection with thesale of the Company’s equity interest in Fandango during the Fiscal 2007Period, coupled with a decrease in capital expenditures of $1.9 million and the$0.3 million in dividends received from a partnership during the Fiscal 2007Period, partially offset by a $1.5 million decrease in proceeds from thedisposition of assets during the Fiscal 2007 Period and the $1.1 millionpurchase of partnership interests during the Fiscal 2007 Period.

 

Netcash flows used in financing activities were approximately $4.3 million for theFiscal 2007 Period compared to cash flows used in financing activities ofapproximately $3.8 million for the Fiscal 2006 Period. The net increase incash flows used in financing activities during the Fiscal 2007 Period wasprimarily attributable to the decrease of $1.0 million in excess tax benefitsfrom share based payment arrangements during the Fiscal 2007 Period, partiallyoffset by the net decrease in the change in the related party receivable of$0.4 million during the Fiscal 2007 Period as compared to the Fiscal 2006Period and a reduction in debt payments of $0.1 million during the Fiscal 2007Period.

 

***Liquidity and Capital Resources***

 

Ourrevenues are generated principally through admissions and concessions saleswith proceeds received in cash or via credit card at the point of sale. Ouroperating expenses are primarily related to film and advertising costs, rentand occupancy, and payroll. Film costs are ordinarily paid to distributorswithin 30 days following receipt of admissions revenues and the cost ofthe Company’s concessions are generally paid to vendors approximately30 to 35 days from purchase.  Ourcurrent liabilities generally include items that will become due within twelvemonths. 

 

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Inaddition, from time to time, we may use cash from operations to fund dividendsto our Parent in excess of net income and cash flows from operating activitiesless cash flows from investing and financing activities. As a result, at anygiven time, our balance sheet may reflect a working capital deficit.

 

Wefund the cost of capital expenditures through internally generated cash flowsand cash on hand. Our capital requirements have historically arisen principallyin connection with retrofitting existing theatres, upgrading the Company’stheatre facilities (including digital 3D screens) and replacing equipment.  The costs of implementing digital projectionin our theatres will be substantially funded by DCIP. DCIP and its members haveyet to execute definitive agreements concerning the extent of such funding, butbased on current negotiations, we expect DCIP to fund the implementation ofdigital projection through virtual print fees from motion picture studios. Wewill bear operating and maintenance costs with respect to digital projectionsystems in our theatres, which we expect to be similar to what we currentlyspend on our conventional film projectors. Should the conversion process todigital cinema rapidly accelerate and the major studios not cover the cost ofthe conversion as expected, we may have to incur additional capital expendituresassociated with this potential change. The Company has a formal and intensivereview procedure for the authorization of capital projects, with the mostimportant financial measure of acceptability for a discretionarynon-maintenance capital project being whether its projected discounted cashflow return on investment meets or exceeds the Company’s internal rate ofreturn targets.  We currently expectcapital expenditures for theatre expansion, upgrading and replacements to be inthe range of $4.0 million to $8.0 million in fiscal year 2009. During theFiscal 2008 Period, we invested an aggregate of approximately $4.7 million incapital expenditures.

 

Duringthe year ended December 27, 2007, the Company sold its equity interest inFandango for proceeds of $7.0 million. As a result of this transaction, the Company recognized a gain on thesale of approximately $7.0 million ($4.2 million after tax).  In addition, during the year ended January 1,2009, the Company received an additional $0.9 million of sale proceeds relatedto Fandango.  Accordingly, the Companyrecognized an additional gain of $0.9 million ($0.6 million after tax) duringthe year ended January 1, 2009.

 

**Contractual Cash Obligations and Commitments**

 

The Company primarily leases its theatres pursuant to long-termnon-cancelable operating leases, including leases that are subject to sale andleaseback transactions, as further described in Note 6 to the consolidatedfinancial statements 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 January 1, 2009, the Company’s estimated contractual cashobligations over the next several periods are as follows (dollars in millions):

 

 
| ** **                                         | ** ** | **Payments Due By Period** | ** ** |
|----------------------------------------------------|------------|-------------------------------------------|------------|
| **Contractual  cash obligations**                  | ** ** | **Total**                                 | ** ** | **Current** | ** ** | **13-36  Months** | ** ** | **37-60  Months** | ** ** | **After 60  Months** | ** ** |
| Capital lease obligations, including  interest (1) |       | $                                         | 2.7        |   | $ | 0.2 |   | $ | 0.8 |   | $ | 0.8 |   | $ | 0.9 |   |
| Purchase commitments (2)                           |       | 1.8                                       |       | 1.4 |   | 0.4 |   | — |   | — |   |
| Operating leases (3)                               |       | 260.6                                     |       | 39.0 |   | 70.9 |   | 59.7 |   | 91.0 |   |
| Total contractual cash obligations                 |       | $                                         | 265.1      |   | $ | 40.6 |   | $ | 72.1 |   | $ | 60.5 |   | $ | 91.9 |   |

 

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(1)           The present value of these obligations,excluding interest, is included on our consolidated balance sheet as of January 1,2009.  Future interest payments arecalculated based on interest rates implicit in the underlying leases, whichhave an interest rate of 10.0%, maturing in 2016. Refer to Note 4 to theconsolidated financial statements includedin Part II, Item 8 of this Form 10-K for additionalinformation about our capital lease obligations.

 

(2)           Includes estimated capital expenditures towhich we were committed as of January 1, 2009, including improvementsassociated with existing theatres and the estimated cost of ADA relatedbetterments.

 

(3)           We enter into operating leases in the normalcourse of business.  Such leaseagreements provide us with the option to renew the leases at defined or thenfair value rental rates for various periods. Our future operating lease obligations would change if we exercisedthese renewal options or if we enter into additional operating leaseagreements.  Our operating leaseobligations are further described in Note 6 to the consolidated financial statements included in Part II, Item 8 of this Form 10-K.

 

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We believe that the amount of cash and cashequivalents on hand and cash flow expected from operations will be adequate forthe Company to execute its business strategy and meet anticipated requirementsfor lease obligations, capital expenditures, working capital and debt servicefor the next 12 months.

 

***Sale-Leaseback Transactions***

 

For information regarding our various sale and leaseback transactions,refer to Note 6 to the consolidated financial statements included in Part II,Item 8 of this Form 10-K.

 

**Critical Accounting Estimates**

 

Our consolidated financial statements are prepared in conformity withU.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 to theconsolidated 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 Results of Operations”, aswell as in the notes to the consolidated financial statements, if applicable,where such estimates, assumptions, and accounting policies affect our reportedand expected results. Management has discussed the development and selection ofits critical accounting estimates with the audit committee of our board ofdirectors and the audit committee has reviewed our related disclosures herein.

 

We believe the following accounting policies are critical to ourbusiness operations and the understanding of our results of operations andaffect the more significant judgments and estimates used in the preparation ofour consolidated financial statements:

 

·                  Statementof Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and OtherIntangible Assets” specifies that goodwill and indefinite-lived intangibleassets will be subject to an annual impairment assessment. Based on our annualimpairment assessment conducted during fiscal 2008, fiscal 2007 and fiscal2006, we were not required to record a charge for goodwill impairment. Inassessing the recoverability of the goodwill, we must make various assumptionsregarding estimated future cash flows and other factors in determining the fairvalues of the respective assets. If these estimates or their relatedassumptions change in the future, we may be required to record impairmentcharges for these assets in future periods.

 

·                  Weestimate our film cost expense and related film cost payable based onmanagement’s best estimate of the expected box office revenue of each film overthe length of its run in our theatres and the ultimate settlement of such filmcosts with the distributors. Generally, less than one-third of our quarterlyfilm expense is estimated at period-end. The length of time until these costsare known with certainty depends on the ultimate duration of the film play, butis typically “settled” within two to three months of a particular film’sopening release. Upon settlement with our film distributors, film cost expenseand the related film cost payable are adjusted to the final film settlement.The ultimate revenues of a film can be estimated reasonably accurately within afew weeks after the film is released based on the film’s initial box officeperformance, which is determined by a film’s initial box office receipts. As aresult, there are typically insignificant variances between our estimates offilm cost expense and the final film cost payable, because we make suchestimates based on each film’s box office receipts through the end of thereporting 

 

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period. For the fiscal years ended January 1, 2009, December 27,2007 and December 28, 2006, there were no significant changes in our filmcost estimation and settlement procedures.

 

·                  Wedepreciate and amortize the components of our property and equipment relatingto both owned and leased theatres on a straight-line basis over the shorter ofthe lease term or the estimated useful lives of the assets. Each owned theatreconsists of a building structure, structural improvements, seating andconcession and film display equipment. While we have assigned an estimateduseful life of less than 30 years to certain acquired facilities, weestimate that our newly constructed buildings generally have an averageeconomic useful life to us of 30 years. Certain of our buildings have beenin existence for more than 40 years. With respect to equipment (e.g.,concession stand, point-of-sale equipment, etc.), a substantial portion isdepreciated over seven years or less, which has been our historical replacementperiod. Seats and projection equipment generally have a longer useful economiclife, and their depreciable lives (12-15 years) are based on ourexperience and replacement practices. The estimates of the assets’ useful livesrequire our judgment and our knowledge of the assets being depreciated andamortized. Further, we review the economic useful lives of such assets annuallyand make adjustments thereto as necessary. Actual economic lives may differmaterially from these estimates.

 

Themajority of our properties were appraised as part of the bankruptcy process.Such appraisals supported the estimated lives being used for depreciation andamortization purposes. Furthermore, our analysis of our historical capitalreplacement program is consistent with our depreciation policies. Finally, wereview long-lived assets for impairment whenever events or changes incircumstances indicate that the carrying amounts of the assets may not be fullyrecoverable. Such analysis generally evaluates assets for impairment on anindividual theatre basis. When the estimated future undiscounted cash flows ofthe operations to which the assets relate do not exceed the carrying value ofthe assets, such assets are written down to fair value. Our experience indicatesthat theatre properties become impaired primarily due to market or competitivefactors rather than physical (wear and tear) or functional (inadequacy orobsolescence) factors. In this regard, we do not believe the frequency orvolume of facilities impaired due to these market factors are significantenough to impact the useful lives used for depreciation periods.

 

Forthe fiscal years ended January 1, 2009, December 27, 2007 and December 28,2006, no significant changes have been made to the depreciation andamortization rates applied to operating assets, the underlying assumptionsrelated to estimates of depreciation and amortization, or the methodologyapplied. For the fiscal year ended January 1, 2009, consolidateddepreciation and amortization expense was $10.0 million, representing 4.4%of consolidated total revenues. If the estimated lives of all assets beingdepreciated were increased by one year, the consolidated depreciation andamortization expense would have decreased by approximately $0.7 million or7.0%. If the estimated lives of all assets being depreciated were decreased byone year, the consolidated depreciation and amortization expense would haveincreased by approximately $0.8 million or 8.0%.

 

·                  Income taxes are accounted for under the assetand liability method. Deferred tax assets and liabilities are recognized forthe future 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. With the exceptionof valuation allowances recorded relative to pre-acquisition periods, decreasesin the valuation allowance generally result in a decrease in the provision forincome taxes. Should we ultimately realize a benefit from tax 

 

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assetsin excess of the amount recorded that relates to pre-acquisition periods,goodwill would be reduced to the extent of such excess or recorded goodwill, asappropriate (see Note 3 under “Recent Accounting Pronouncements” to theconsolidated financial statements included in Part II, Item 8 of thisForm 10-K).

 

Additionally,income tax rules and regulations are subject to interpretation, requirejudgment by us and may be challenged by the tax authorities. As describedfurther in Note 7 to the consolidated financial statements included in Part II,Item 8 of this Form 10-K, effective December 29, 2006, the Companyadopted the provisions of Financial Accounting Standards Board (“FASB”)Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—aninterpretation of FASB Statement No. 109” (“FIN 48”).  Although we believe that our tax returnpositions are fully supportable, in accordance with FIN 48, we recognize a taxbenefit only for tax positions that we determine will more likely than not besustained based on the technical merits of the tax position.  With respectto such 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 positionsare evaluated on an ongoing basis as part of our process for determining ourprovision for income taxes. Among other items deemed relevant by us, theevaluations are based on new legislation, other new technical guidance,judicial proceedings, and our specific circumstances, including the progress oftax audits. With the exception of tax benefits realized relative to changes inpre-acquisition uncertain tax positions, any change in the determination of theamount of tax benefit recognized relative to an uncertain tax position impactsthe provision for income taxes in the period that such determination is made.

 

Forthe fiscal year ended January 1, 2009, our provision for income taxes was$5.6 million. Changes in management’s estimates and assumptions regardingthe probability that certain tax return positions will be sustained, theenacted tax rate applied to deferred tax assets and liabilities, the ability torealize the value of deferred tax assets, or the timing of the reversal of taxbasis differences could impact the provision for income taxes and change theeffective tax rate.  A one percentage point change in the effective taxrate from 40.0% to 41.0% would have increased the current year income taxprovision by approximately $0.1 million.

 

**Quarterly Results**

 

The following tables set forth selected unaudited quarterly results forthe eight quarters ended January 1, 2009. The quarterly financial data asof each period presented below have been derived from UATC’s unauditedcondensed consolidated financial statements for those periods. Results forthese periods are not necessarily indicative of results for the full year. Thequarterly financial data should be read in conjunction with the consolidatedfinancial statements of UATC and notes thereto included elsewhere in this Form 10-K.

 
| **(in millions)**              | ** ** | **Jan. 1,  2009(1)** | ** ** | **Sept. 25,  2008** | ** ** | **June 26,  2008** | ** ** | **March 27,  2008** | ** ** | **Dec. 27,  2007** | ** ** | **Sept. 27,  2007** | ** ** | **June 28,  2007** | ** ** | **March 29,**

**2007** | ** ** |
|--------------------------------|------------|---------------------------|------------|--------------------------|------------|-------------------------|------------|--------------------------|------------|-------------------------|------------|--------------------------|------------|-------------------------|------------|------------------------------|------------|
| Total revenues                 |       | $                         | 55.9       |                     | $          | 62.5                    |       | $                        | 55.0       |                    | $          | 51.7                     |       | $                       | 50.4       |                         | $          | 65.9 |   | $ | 58.6 |   | $ | 54.2 |   |
| Income  (loss) from operations |       | 3.0                       |       | 4.8                      |       | 2.3                     |       | 2.7                      |       | (0.5                    | )          | 6.8                      |       | 2.4                     |       | 1.3                          |       |
| Net income                     |       | 2.2                       |       | 3.0                      |       | 1.4                     |       | 1.8                      |       | 0.4                     |       | 4.4                      |       | 5.8                     |       | 0.9                          |       |
|                                |            |                           |            |                          |            |                         |            |                          |            |                         |            |                          |            |                         |            |                              |            |  |  |  |  |  |  |  |  |

 

----

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

 

**Inflation**

 

The Company does not believe that inflation has had a material impacton its financial position or results of operations.

 

**Seasonality**

 

The Company’s revenues are usually seasonal, coinciding with the timingof releases of motion pictures by the major distributors. Generally, studiosrelease the most marketable motion pictures during the summer and the 

 

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holiday seasons. The unexpected emergence of a “hit” film during otherperiods can alter the traditional pattern. The timing of movie releases canhave a significant effect on the Company’s results of operations, and theresults of one quarter are not necessarily indicative of the results for thenext or any other quarter. The seasonality of motion picture exhibition,however, has become less pronounced as studios are releasing motion picturessomewhat more evenly throughout the year.

 

**RecentAccounting Pronouncements**

 

For a discussion of therecent accounting pronouncements relevant to our operations, please refer tothe information provided under Note 3 to the consolidated financial statements included in Part II,Item 8 of this Form 10-K, whichinformation is incorporated herein by reference.

 

**Off-BalanceSheet Arrangements**

 

Otherthan the operating leases detailed above under “Contractual Cash Obligations andCommitments,” the Company has no other off-balance sheet arrangements.

 

**Item 7A.  QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

UATC’s market risk isconfined to interest rate exposure of its debt obligations that bear interestbased on floating rates.  As of January 1,2009, the Company maintained no debt obligations bearing floating interestrates.

 

**Item 8.  FINANCIAL STATEMENTS ANDSUPPLEMENTARY DATA**

 

**MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING**

 

The Board ofDirectorsUnited Artists Theatre Circuit, Inc.:

 

Management is responsible for establishing andmaintaining adequate internal control over financial reporting as such term isdefined in Rules 13a-15(f) and 15d-15(f) under the SecuritiesExchange Act of 1934, as amended.

 

Management, including our principal executiveofficer and principal financial officer, conducted an evaluation of theeffectiveness of such controls as of January 1, 2009. This assessmentwas based on criteria for effective internal control over financial reportingdescribed in *Internal Control—IntegratedFramework* issued by the Committee of Sponsoring Organizations of theTreadway Commission. Based on this assessment, our management believes that theCompany’s internal control over financial reporting is effective as of January 1, 2009.

 

This annual report on Form 10-K does notinclude an attestation report of the Company’s independent registered publicaccounting firm regarding internal control over financial reporting.  Management’s report was not subject toattestation by the Company’s independent registered public accounting firmpursuant to temporary rules of the Securities and Exchange Commission thatpermit us to provide only management’s report in this annual report on Form 10-K.

 
| /s/  MICHAEL  L. CAMPBELL        |   | /s/  AMY  E. MILES                                  |
|--------------------------------------------|--------|---------------------------------------------------------------|
| Michael L.  Campbell                       |   | Amy E. Miles                                                  |
| *President  (Principal Executive Officer)* |   | *Vice  President and Treasurer (Principal Financial Officer)* |

 

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**Report of 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 as of January 1, 2009 and December 27, 2007, and therelated consolidated statements of operations, stockholder’s equity andcomprehensive income, and cash flows for each of the years in the three-yearperiod ended January 1, 2009.  Theseconsolidated financial statements are the responsibility of the Company’smanagement.  Our responsibility is toexpress an opinion on these consolidated financial statements based on ouraudits.

 

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 financialstatements.  An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statementpresentation.  We believe that our auditsprovide a reasonable 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 January 1,2009 and December 27, 2007, and the results of their operations and theircash flows for each of the years in the three-year period ended January 1,2009, in conformity with U.S. generally accepted accounting principles.

 

As discussed inNotes 3 and 9 to the consolidated financial statements, effective December 30,2005, the Company adopted Statement of Financial Accounting Standards No. 123(revised),*Share-Based Payment*. As discussed inNote 7 to the consolidated financial statements, effective December 29,2006, the Company adopted Financial Accounting Standards Board Interpretation No. 48,*Accounting for Uncertainty in Income Taxes*.

 

/s/ KPMG LLP

 

Nashville, Tennessee

March 20, 2009

 

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**UNITED ARTISTS THEATRE CIRCUIT, INC.**

**AND SUBSIDIARIES**

 

**CONSOLIDATEDBALANCE SHEETS**

 

(in millions, except share data)

 
| ** **                                                                                                                                                       | ** ** | **January 1, 2009** | ** ** | **December 27, 2007** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------|------------|---------------------------------|------------|
| **Assets**                                                                                                                                                       |       |                          |       |                            |       |
| Current assets:                                                                                                                                                  |       |                          |       |                            |       |
| Cash and cash equivalents                                                                                                                                        |       | $                             | 52.8       |                            | $          | 50.1 |   |
| Receivables, net                                                                                                                                                 |       | 1.8                           |       | 1.6                             |       |
| Prepaid expenses, concession inventory and  other current assets                                                                                                 |       | 0.8                           |       | 0.8                             |       |
| Deferred income tax asset                                                                                                                                        |       | 1.9                           |       | 0.4                             |       |
| Total current assets                                                                                                                                             |       | 57.3                          |       | 52.9                            |       |
| Property and equipment:                                                                                                                                          |       |                          |       |                            |       |
| Land                                                                                                                                                             |       | 3.3                           |       | 3.3                             |       |
| Buildings, leasehold improvements and  equipment                                                                                                                 |       | 134.6                         |       | 130.8                           |       |
| Total property and equipment                                                                                                                                     |       | 137.9                         |       | 134.1                           |       |
| Accumulated depreciation and amortization                                                                                                                        |       | (78.7                         | )          | (69.3                           | )          |
| Total property and equipment, net                                                                                                                                |       | 59.2                          |       | 64.8                            |       |
| Goodwill                                                                                                                                                         |       | 7.1                           |       | 7.1                             |       |
| Other non-current assets                                                                                                                                         |       | 0.2                           |       | 0.2                             |       |
| Total assets                                                                                                                                                     |       | $                             | 123.8      |                            | $          | 125.0 |   |
| **Liabilities and Stockholder’s Equity**                                                                                                                    |       |                          |       |                            |       |
| Current liabilities:                                                                                                                                             | ** ** | ** **                    | ** ** | ** **                      | ** ** |
| Accounts payable                                                                                                                                                 |       | $                             | 10.4       |                            | $          | 13.0 |   |
| Accrued expenses                                                                                                                                                 |       | 5.5                           |       | 6.2                             |       |
| Current portion of debt obligations                                                                                                                              |       | 0.2                           |       | 0.2                             |       |
| Total current liabilities                                                                                                                                        |       | 16.1                          |       | 19.4                            |       |
| Other non-current liabilities                                                                                                                                    |       | 1.7                           |       | 2.6                             |       |
| Non-current deferred revenue                                                                                                                                     |       | 25.5                          |       | 25.8                            |       |
| Long-term debt, less current portion                                                                                                                             |       | 1.7                           |       | 1.8                             |       |
| Deferred income tax liability                                                                                                                                    |       | 22.3                          |       | 18.6                            |       |
| Total liabilities                                                                                                                                                |       | 67.3                          |       | 68.2                            |       |
| Minority interest                                                                                                                                                |       | 0.2                           |       | 0.7                             |       |
| **Stockholder’s equity**                                                                                                                                    |       |                          |       |                            |       |
| Preferred stock, $1.00 par value; 500,000  shares authorized, no shares issued and outstanding at January 1, 2009  and December 27, 2007, respectively |       | —                        |       | —                          |       |
| Common stock, $1.00 par value; 1,000 shares  authorized, 100 shares issued and outstanding at January 1, 2009 and  December 27, 2007, respectively     |       | —                        |       | —                          |       |
| Additional paid-in capital                                                                                                                                       |       | 93.2                          |       | 93.2                            |       |
| Retained earnings                                                                                                                                                |       | 26.8                          |       | 18.4                            |       |
| Related party receivables                                                                                                                                        |       | (63.7                         | )          | (55.5                           | )          |
| Total stockholder’s equity                                                                                                                                  |       | 56.3                          |       | 56.1                            |       |
| Total liabilities and stockholder’s equity                                                                                                                  |       | $                             | 123.8      |                            | $          | 125.0 |   |

 

See accompanying notesto consolidated financial statements.

 

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**UNITED ARTISTS THEATRE CIRCUIT, INC.**

**AND SUBSIDIARIES**

 

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

 

(in millions)

 
| ** **                                                                                                                                   | ** ** | **Year Ended  January 1, 2009** | ** ** | **Year Ended  December 27, 2007** | ** ** | **Year Ended  December 28, 2006** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| Revenues:                                                                                                                                    |       |                                           |       |                                             |       |                                             |       |
| Admissions                                                                                                                                   |       | $                                              | 155.3      |                                             | $          | 157.3                                            |       | $ | 163.9 |   |
| Concessions                                                                                                                                  |       | 62.2                                           |       | 64.5                                             |       | 65.3                                             |       |
| Other operating revenues                                                                                                                     |       | 7.6                                            |       | 7.3                                              |       | 9.1                                              |       |
| Total revenues                                                                                                                               |       | 225.1                                          |       | 229.1                                            |       | 238.3                                            |       |
| Operating expenses:                                                                                                                          |       |                                           |       |                                             |       |                                             |       |
| Film rental and advertising costs                                                                                                            |       | 79.6                                           |       | 81.9                                             |       | 83.9                                             |       |
| Cost of concessions                                                                                                                          |       | 8.6                                            |       | 9.0                                              |       | 9.8                                              |       |
| Other operating expenses                                                                                                                     |       | 92.5                                           |       | 93.7                                             |       | 98.9                                             |       |
| Sale and leaseback rentals                                                                                                                   |       | 14.8                                           |       | 14.9                                             |       | 15.0                                             |       |
| General and administrative expenses (including  share-based compensation expense of $0.2 million for the year ended  December 28, 2006) |       | 6.8                                            |       | 6.9                                              |       | 7.5                                              |       |
| Depreciation and amortization                                                                                                                |       | 10.0                                           |       | 10.5                                             |       | 11.6                                             |       |
| Net loss on disposal and impairment of  operating assets                                                                                     |       | —                                         |       | 2.2                                              |       | 1.1                                              |       |
| Total operating expenses                                                                                                                     |       | 212.3                                          |       | 219.1                                            |       | 227.8                                            |       |
| Income from operations                                                                                                                       |       | 12.8                                           |       | 10.0                                             |       | 10.5                                             |       |
| Other expense (income):                                                                                                                      |       |                                           |       |                                             |       |                                             |       |
| Interest income, net                                                                                                                         |       | (0.4                                           | )          | (1.6                                             | )          | (0.6                                             | )          |
| Gain on sale of Fandango interest                                                                                                            |       | (0.9                                           | )          | (7.0                                             | )          | —                                           |       |
| Minority interest in earnings of consolidated  subsidiaries                                                                                  |       | 0.1                                            |       | 0.1                                              |       | 0.1                                              |       |
| Other, net                                                                                                                                   |       | —                                         |       | 0.2                                              |       | —                                           |       |
| Total other income, net                                                                                                                      |       | (1.2                                           | )          | (8.3                                             | )          | (0.5                                             | )          |
| Income before income taxes                                                                                                                   |       | 14.0                                           |       | 18.3                                             |       | 11.0                                             |       |
| Provision for income taxes                                                                                                                   |       | 5.6                                            |       | 6.8                                              |       | 4.8                                              |       |
| Net income                                                                                                                                   |       | $                                              | 8.4        |                                             | $          | 11.5                                             |       | $ | 6.2 |   |

 

See accompanying notes to consolidatedfinancial statements.

 

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**UNITED ARTISTS THEATRE CIRCUIT, INC.**

**AND SUBSIDIARIES**

 

**CONSOLIDATED STATEMENTS OFSTOCKHOLDER’S EQUITY AND COMPREHENSIVE INCOME**

 

(in millions)

 
| ** **                                 | ** ** | **Preferred  stock** | ** ** | **Common  stock** | ** ** | **Additional  paid-in  capital** | ** ** | **Deferred  stock  compensation** | ** ** | **Retained  earnings** | ** ** | **Intercompany  and  Related  party  receivables** | ** ** | **Total  stockholder’s  equity** | ** ** |
|--------------------------------------------|------------|----------------------|------------|-------------------|------------|----------------------------------|------------|-----------------------------------|------------|------------------------|------------|----------------------------------------------------|------------|---------------------------------------|------------|
| Balances at December 29, 2005         |       | $                    | —     |              | $          | —                           |       | $                                 | 92.0       |                   | $          | (0.8                                               | )          | $                                     | 0.7        |   | $ | (19.8 | ) | $ | 72.1 |   |
| Net income and comprehensive income        |       | —               |       | —            |       | —                           |       | —                            |       | 6.2                    |       | —                                             |       | 6.2                                   |       |
| Adoption of SFAS No. 123R             |       | —               |       | —            |       | (0.8                             | )          | 0.8                               |       | —                 |       | —                                             |       | —                                |       |
| Share-based compensation expense           |       | —               |       | —            |       | 0.2                              |       | —                            |       | —                 |       | —                                             |       | 0.2                                   |       |
| Tax benefit from exercise of stock options |       | —               |       | —            |       | 1.4                              |       | —                            |       | —                 |       | —                                             |       | 1.4                                   |       |
| Change in related party receivables        |       | —               |       | —            |       | —                           |       | —                            |       | —                 |       | (5.0                                               | )          | (5.0                                  | )          |
| Balances at December 28, 2006         |       | —               |       | —            |       | 92.8                             |       | —                            |       | 6.9                    |       | (24.8                                              | )          | 74.9                                  |       |
| Net income and comprehensive income        |       | —               |       | —            |       | —                           |       | —                            |       | 11.5                   |       | —                                             |       | 11.5                                  |       |
| Tax benefit from exercise of stock options |       | —               |       | —            |       | 0.4                              |       | —                            |       | —                 |       | —                                             |       | 0.4                                   |       |
| Change in related party receivables        |       | —               |       | —            |       | —                           |       | —                            |       | —                 |       | (30.7                                              | )          | (30.7                                 | )          |
| Balances at December 27, 2007         |       | —               |       | —            |       | 93.2                             |       | —                            |       | 18.4                   |       | (55.5                                              | )          | 56.1                                  |       |
| Net income and comprehensive income        |       | —               |       | —            |       | —                           |       | —                            |       | 8.4                    |       | —                                             |       | 8.4                                   |       |
| Change in related party receivables        |       | —               |       | —            |       | —                           |       | —                            |       | —                 |       | (8.2                                               | )          | (8.2                                  | )          |
| Balances at January 1, 2009           |       | $                    | —     |              | $          | —                           |       | $                                 | 93.2       |                   | $          | —                                             |       | $                                     | 26.8       |   | $ | (63.7 | ) | $ | 56.3 |   |

 

See accompanying notes to consolidated financial statements.

 

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**UNITED ARTISTS THEATRE CIRCUIT, INC.**

**AND SUBSIDIARIES**

 

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

 

(in millions)

 
| ** **                                                                                        | ** ** | **Year ended  January 1, 2009** | ** ** | **Year ended  December 27, 2007** | ** ** | **Year ended  December 28, 2006** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| Cash flow from operating activities:                                                              |       |                                           |       |                                             |       |                                             |       |
| Net income                                                                                        |       | $                                              | 8.4        |                                             | $          | 11.5                                             |       | $ | 6.2 |   |
| Adjustments to reconcile net income to net  cash provided by operating activities:                |       |                                           |       |                                             |       |                                             |       |
| Effect of leases with escalating minimum  annual rentals                                          |       | (0.9                                           | )          | (0.4                                             | )          | (0.1                                             | )          |
| Depreciation and amortization                                                                     |       | 10.0                                           |       | 10.5                                             |       | 11.6                                             |       |
| Share-based compensation expense                                                                  |       | —                                         |       | —                                           |       | 0.2                                              |       |
| Net loss on disposal and impairment of  operating assets                                          |       | —                                         |       | 2.2                                              |       | 1.1                                              |       |
| Gain on sale of Fandango interest                                                                 |       | (0.9                                           | )          | (7.0                                             | )          | —                                           |       |
| Net loss on purchase of partnership  interests                                                    |       | —                                         |       | 0.2                                              |       | —                                           |       |
| Minority interest in earnings of  consolidated subsidiaries                                       |       | 0.1                                            |       | 0.1                                              |       | 0.1                                              |       |
| Deferred income tax (benefit) expense                                                             |       | 2.6                                            |       | (4.2                                             | )          | 3.1                                              |       |
| Change in operating assets and liabilities  (excluding effects of acquisitions and dispositions): |       |                                           |       |                                             |       |                                             |       |
| Receivables                                                                                       |       | (0.2                                           | )          | 1.7                                              |       | (1.7                                             | )          |
| Prepaid expenses and concession inventory                                                         |       | —                                         |       | 0.1                                              |       | —                                           |       |
| Other assets                                                                                      |       | —                                         |       | —                                           |       | 0.3                                              |       |
| Accounts payable                                                                                  |       | (2.6                                           | )          | 1.6                                              |       | (4.2                                             | )          |
| Deferred revenue                                                                                  |       | (0.3                                           | )          | (0.2                                             | )          | —                                           |       |
| Accrued expenses and other liabilities                                                            |       | (1.3                                           | )          | (3.9                                             | )          | (0.5                                             | )          |
| Net cash provided by operating activities                                                         |       | 14.9                                           |       | 12.2                                             |       | 16.1                                             |       |
| Cash flow from investing activities:                                                              |       |                                           |       |                                             |       |                                             |       |
| Capital expenditures                                                                              |       | (4.7                                           | )          | (3.7                                             | )          | (5.6                                             | )          |
| Proceeds from disposition of assets, net                                                          |       | 0.3                                            |       | —                                           |       | 1.5                                              |       |
| 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 provided by (used in) investing  activities                                              |       | (4.0                                           | )          | 2.5                                              |       | (4.1                                             | )          |
| Cash flow from financing activities:                                                              |       |                                           |       |                                             |       |                                             |       |
| Debt payments                                                                                     |       | (0.1                                           | )          | (0.1                                             | )          | (0.2                                             | )          |
| Increase in related party receivables                                                             |       | (8.1                                           | )          | (4.6                                             | )          | (5.0                                             | )          |
| Excess tax benefit from share-based payment  arrangements                                         |       | —                                         |       | 0.4                                              |       | 1.4                                              |       |
| Net cash used in financing activities                                                             |       | (8.2                                           | )          | (4.3                                             | )          | (3.8                                             | )          |
| Net increase in cash and cash equivalents                                                         |       | 2.7                                            |       | 10.4                                             |       | 8.2                                              |       |
| Cash and cash equivalents:                                                                        |       |                                           |       |                                             |       |                                             |       |
| Beginning of year                                                                                 |       | 50.1                                           |       | 39.7                                             |       | 31.5                                             |       |
| End of year                                                                                       |       | $                                              | 52.8       |                                             | $          | 50.1                                             |       | $ | 39.7 |   |
|                                                                                              |       |                                           |       |                                             |       |                                             |       |
| Supplemental cash flow information:                                                               |       |                                           |       |                                             |       |                                             |       |
| Cash paid for interest                                                                            |       | $                                              | 0.1        |                                             | $          | 0.2                                              |       | $ | 0.1 |   |
| Cash paid for income taxes, net of refunds  received                                              |       | $                                              | 0.4        |                                             | $          | 0.6                                              |       | $ | 0.5 |   |

 

See accompanying notes to consolidatedfinancial statements.

 

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**UNITED ARTISTS THEATRE CIRCUIT, INC.**

**AND SUBSIDIARIES**

 

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS**

 

**January 1, 2009, December 27, 2007 and December 28, 2006**

 

**(1)      The Company and Basis ofPresentation**

 

UnitedArtists Theatre Company (the “Parent” or “United Artists”), a Delawarecorporation, is the parent company of United Artists Theatre Circuit, Inc.(“we,” “us,” “our,” the “Company” or “UATC”) and United Artists Realty Company(“UAR”), which is the parent company of United Artists Properties I Corp. (“PropI”).  UATC leases certain theatres fromProp I.  The terms UATC and the Companyshall be deemed to include the respective subsidiaries of such entity when usedin discussions included herein regarding the current operations or assets ofsuch entity. The accompanying consolidated financial statements include theaccounts of the Company and those of all majority owned subsidiaries.

 

UATCoperates 596 screens in 68 theatres in 19 states as of January 1, 2009. Asof December 27, 2007, UATC operated 604 screens in 69 theatres in 19states. The Company formally operates on a 52-week fiscal year with eachquarter generally consisting of 13 weeks, unless otherwise noted.  The Company’s fiscal year ends on the firstThursday after December 25, which in certain years (such as fiscal 2008)results in a 53-week fiscal year.

 

TheCompany became a subsidiary of Regal Entertainment Group (“REG” or “Regal”) on April 12,2002, in conjunction with an exchange transaction in which REG, through itswholly owned subsidiary Regal Entertainment Holdings, Inc. (“REH”), alsoacquired Edwards Theatres, Inc. (“Edwards”), Regal Cinemas Corporation (“RegalCinemas”) and Regal CineMedia Corporation (“Regal CineMedia”). REG iscontrolled by the  Anschutz Company (“Anschutz”),which indirectly controlled each of us, Edwards, Regal Cinemas, United Artistsand Regal CineMedia prior to REG’s acquisition of us and them in the exchangetransaction. For a detailed discussion of the transactions resulting in Regal’sacquisition of its subsidiaries, see Note 2 to the consolidated financialstatements.  On August 17, 2005, REHtransferred the stock of United Artists to Regal Cinemas, Inc. (“RCI”).  As a result, United Artists and itssubsidiaries became subsidiaries of RCI.

 

Inconnection with Regal’s acquisition of its subsidiaries, RCI, an indirectsubsidiary of Regal, agreed to manage all aspects of the theatre operations ofUATC and its subsidiaries and make all business decisions on behalf of UATCpursuant to a management agreement.  Incertain markets where UATC operates theatres, RCI also operates theatres.

 

**(2)      Formation of RegalEntertainment Group**

 

*Exchange Transaction*

 

On March 8, 2002, Anschutz entered into an agreement toexchange its controlling interest in United Artists for common stock of Regal,resulting in Regal being the majority shareholder of United Artists. Anschutzalso exchanged its ownership interests in two other theatre companies for commonstock of Regal.  The management of thesethree theatre companies was combined, with management of the theatre operationsbased in Knoxville, Tennessee, while management of certain ancillary businesseswas based in Centennial, Colorado.  Asdescribed below, the exchange transaction was consummated on April 12,2002.

 

On April 12, 2002, through a series oftransactions, Regal issued (1) 70,538,017 shares of Class B commonstock to Anschutz in exchange for its controlling equity interests in RegalCinemas, United Artists, Edwards and Regal CineMedia, (2) 14,052,320shares of Class B common stock to OCM Principal Opportunities Fund II,L.P. and its subsidiaries (“Oaktree’s Principal Activities Group”) in exchangefor its contribution 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.

 

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**UNITED ARTISTS THEATRE CIRCUIT, INC.**

**AND SUBSIDIARIES**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

 

**January 1, 2009, December 27, 2007 and December 28, 2006**

 

**(2)      Formation of RegalEntertainment Group****(Continued)**

 

Upon the closing of the exchange transaction,the holders of outstanding options of United Artists received replacementoptions to purchase 2,287,552 shares of Regal Class A common stock atprices ranging from $4.44 to $12.87 per share. Regal also granted to certainholders of United Artists warrants in exchange for their contribution to Regalof outstanding warrants to purchase 3,750,000 shares of United Artists’ commonstock, warrants to purchase 3,928,185 shares of Regal Class B common stockat $8.88 per share and warrants to purchase 296,129 shares of Regal Class Acommon stock at $8.88 per share.  Followingthe exchange transaction, Anschutz transferred beneficial ownership of 1,455,183 shares of Class Bcommon stock to Oaktree’s Principal Activities Group. In addition, Anschutzacquired an additional 697,620 sharesof Class B common stock in May 2002.

 

Anschutz controls approximately 78.0%of the combined voting power of Regal’s outstanding common stock and,therefore, has the ability to direct the election of members of Regal’s boardof directors and to determine the outcome of other matters submitted to thevote of Regal’s stockholders. Because Anschutz controls Regal, Anschutz has the ability tocontrol us.

 

*InitialPublic Offering of Regal Entertainment Group*

 

In May 2002, REG issued18.0 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 ownedsubsidiary of Regal, acquired the remaining outstanding shares of common stockof United Artists held by the United Artists’ minority stockholders andwarrants to acquire shares of common stock of United Artists held by variousinstitutional holders for approximately $34.0 million.  Immediately prior to the acquisition, thecommon stock of United Artists was the only outstanding class of voting stock,of which the minority stockholders owned approximately 9.9%, and REH owned theremaining 90.1%.  As a result of thistransaction, United Artists became a wholly owned subsidiary of REH.

 

**(3)      Summaryof Significant Accounting Policies**

 

***Principles of Consolidation***

 

The consolidated financial statements includethe accounts of UATC and its subsidiaries. All significant intercompany accounts and transactions have beeneliminated in consolidation.  The portionof UATC equity relating to shares not owned by the Company and the relatedearnings or losses were included in minority interest.

 

***Revenue Recognition***

 

Revenuesare generated principally through admissions and concessions sales withproceeds received in cash or via credit card at the point of sale. Otheroperating revenues consist primarily of product advertising (including vendormarketing programs) and other ancillary revenues which are recognized as incomein the period earned. The Company generally recognizes payments receivedattributable to the marketing and advertising services provided by the Companyunder certain vendor programs as revenue in the period in which the relatedimpressions are delivered. Such impressions are measured by the concessionproduct sales volume, which is a mutually agreed

 

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**UNITED ARTISTS THEATRE CIRCUIT, INC.**

**AND SUBSIDIARIES**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

 

**January 1, 2009, December 27, 2007 and December 28, 2006**

 

**(3)      Summaryof Significant Accounting Policies****(Continued)**

 

uponproxy of attendance and reflects the Company’s marketing and advertisingservices delivered to its vendors. In instances where the considerationreceived is in excess of fair value of the advertising services provided, theexcess is recorded as a reduction of concession costs. The Company recognizesrevenue associated with gift certificates and advanced ticket sales at suchtime as the items are redeemed.

 

***Cash Equivalents***

 

The Company considers all unrestricted highlyliquid debt instruments and investments purchased with an original maturity ofthree months or less to be cash equivalents. At January 1, 2009, the Company held substantially all of its cashin temporary cash investments in the form of certificates of deposit andvariable rate investment accounts with major financial institutions.

 

***Inventories***

 

Inventories consist of concession productsand theatre supplies. The Company states inventories on the basis of first-in,first-out (FIFO) cost, which is not in excess of net realizable value.

 

***Property and Equipment***

 

The Company states property and equipment atcost. Major renewals and improvements are capitalized, while maintenance andrepairs which do not improve or extend the lives of the respective assets, areexpensed currently.  Gains and lossesfrom disposition of property and equipment are included in income and expensewhen realized.

 

The Company capitalizes the cost of computerequipment, system hardware and purchased software ready for service. During theyears ended January 1, 2009 and December 27, 2007, the Companycapitalized approximately $1.3 million and $0.3 million, respectively, of suchcosts, which were associated primarily with (i) new point-of-sale devicesat the Company’s box offices and concession stands, (ii) new ticketingkiosks, and (iii) computer hardware and software purchased for the Company’stheater locations. The Company also capitalizes certain direct external costsassociated with software developed for internal use after the preliminarysoftware project stage is completed and Company management has authorizedfurther funding for a software project and it is deemed probable of completion.We capitalize these external software development costs only until the point atwhich the project is substantially complete and the software is ready for itsintended purpose.

 

The Company records depreciation andamortization using the straight-line method over the following estimated usefullives:

 
| 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                              |   |

 

As of January 1, 2009and December 27, 2007, included in property and equipment is $2.7 millionof assets accounted for under capital leases and lease financing arrangements,net of accumulated depreciation of $1.3 million and $1.2 million, respectively.The Company records amortization using the straight-line method over theshorter of the lease terms or the estimated useful lives noted above.

 

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**UNITED ARTISTS THEATRE CIRCUIT, INC.**

**AND SUBSIDIARIES**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

 

**January 1, 2009, December 27, 2007 and December 28, 2006**

 

**(3)      Summaryof Significant Accounting Policies****(Continued)**

 

***Goodwill***

 

The changes in the carrying amount ofgoodwill for the years ended January 1, 2009 and December 27,2007 are as follows (in millions):

** **
| ** **                                                         | ** ** | **Year Ended  January 1, 2009** | ** ** | **Year Ended  December 27, 2007** | ** ** |
|--------------------------------------------------------------------|------------|------------------------------------------------|------------|--------------------------------------------------|------------|
| Balance at beginning of year                                       |       | $                                              | 7.1        |                                             | $          | 36.4 |   |
| Adjustments related to recognition of  deferred tax assets of UATC |       | —                                         |       | (29.3                                            | )          |
| Balance at end of year                                             |       | $                                              | 7.1        |                                             | $          | 7.1 |   |

 

Under Statement of Financial Accounting Standards (“SFAS”) No. 142,*Goodwill and Other Intangible Assets*,the Company has identified its reporting units to be the designated marketareas in which the Company conducts its theatre operations.  The fair value of the Company’s identifiedreporting units were estimated using the expected present value of associatedfuture cash flows and market values of the underlying theatres within eachreporting unit.  The Company’s annualgoodwill impairment assessments for the years ended January 1, 2009 and December 27,2007 indicated that the fair value of its reporting units exceeded theircarrying value and therefore, goodwill was not deemed to be impaired.

 

***Impairment of Long-Lived Assets***

 

The Company reviews long-lived assets forimpairment whenever events or changes in circumstances indicate that thecarrying amounts of the assets may not be fully recoverable.  The Company generally evaluates assets forimpairment on an individual theatre basis, which management believes is thelowest 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.  Thisanalysis resulted in the recording of impairment charges of $1.3 million and $0.2million for the years ended December 27, 2007 and December 28, 2006, respectively.There was no impairment of long-lived assets during the year ended January 1,2009.

 

***Leases***

 

Themajority of the 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.  Thereare no conditions imposed upon us by our lease agreements or by parties otherthan the lessor that legally obligate the Company to incur costs to retireassets as a result of a decision to vacate our leased properties. None of ourlease agreements require us to return the leased property to the lessor in itsoriginal condition (allowing for normal wear and tear) or to remove leaseholdimprovements at our cost.

 

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**UNITED ARTISTS THEATRE CIRCUIT, INC.**

**AND SUBSIDIARIES**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

 

**January 1, 2009, December 27, 2007 and December 28, 2006**

 

**(3)      Summaryof Significant Accounting Policies (Continued)**

 

The Company accounts forleased properties under the provisions of SFAS No. 13, *Accounting for Leases* and other authoritative accountingliterature. SFAS No. 13 requires that the Company evaluate each lease forclassification as either a capital lease or an operating lease. The Companyperforms this evaluation at the inception of the lease and when a modificationis made to a lease. As to those arrangements that are classified as capitalleases, the Company records property under capital leases and a capital leaseobligation in an amount equal to the lesser of the present value of the minimumlease payments to be made over the life of the lease at the beginning of thelease term, or the fair value of the leased property. The property undercapital lease is amortized on a straight-line basis as a charge to expense overthe 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 arereasonably assured at the inception of the lease agreements because our leases:(i) provide for either (a) renewal rents based on market rates or (b) renewalrents that equal or exceed the initial rents, and (ii) do not imposeeconomic penalties upon our determination whether or not to exercise therenewal option. As a result, there are not sufficient economic incentives atthe inception of our leases, in our view, to consider that our lease renewaloptions are reasonably assured of being exercised and therefore, we generallyconsider the initial base term as the lease term under SFAS No. 13.

 

TheCompany records rent expense for its operating leases with contractual rentincreases in accordance with Financial Accounting Standards Board (“FASB”)Technical Bulletin 85-3, *Accounting for OperatingLeases with Scheduled Rent Increases*, on a straight-line basis fromthe “lease commencement date” as specified in the lease agreement until the endof the base lease term.

 

For leases in which the Company is involved with construction of thetheatre, the Company accounts for the lease during the construction periodunder the provisions of Emerging Issues Task Force (“EITF”) 97-10, *The Effect of Lessee Involvement in Asset Construction*. Thelandlord is typically responsible for constructing a theatre using guidelinesand specifications agreed to by the Company and assumes substantially all ofthe risk of construction. In accordance with EITF 97-10, if the Companyconcludes that it has substantially all of the construction period risks, itrecords a construction asset and related liability for the amount of totalproject costs incurred during the construction period. Once construction iscompleted, the Company considers the requirements under SFAS No. 98, *Accounting for Leases: Sale-Leaseback Transactions Involving RealEstate: Sales-Type Leases of Real Estate; Definition of the Lease Term; andInitial Direct Costs of Direct Financing Leases*, for sale-leasebacktreatment, and if the arrangement does not meet such requirements, it recordsthe project’s construction costs funded by the landlord as a financingobligation. The obligation is amortized over the financing term based on thepayments designated in the contract.

 

In accordance with FASB Staff Position 13-1, *Accountingfor Rental Costs Incurred during a Construction Period* (“FSP13-1”),we expense rental costs incurred during construction periods for operatingleases as such costs are incurred. For rental costs incurred duringconstruction periods for both operating and capital leases, the “leasecommencement date” is the date at which we gain access to the leased asset.Historically, and for the fiscal years ended January 1, 2009, December 27,2007 and December 28, 2006, these rental costs have not been significantto our consolidated financial statements.

 

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**UNITED ARTISTS THEATRE CIRCUIT, INC.**

**AND SUBSIDIARIES**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

 

**January 1, 2009, December 27, 2007 and December 28, 2006**

 

**(3)      Summary of SignificantAccounting Policies (Continued)**

 

***Sale and Leaseback Transactions***

 

The Company accounts for the sale and leaseback of real estate assets inaccordance with SFAS No. 98, *AccountingFor Leases.*Losses on sale leaseback transactions are recognized atthe time of sale if the fair value of the property sold is less than theundepreciated cost of the property. Gains on sale and leaseback transactionsare deferred and amortized over the remaining lease term.

 

***Income Taxes***

 

Incometaxes are accounted for under the asset and liability method. Deferred taxassets and liabilities are recognized for the future tax consequencesattributable to differences between the financial statement carrying amounts ofexisting assets and liabilities and their respective tax bases and operatingloss and tax credit carryforwards.  Deferred tax assets and liabilitiesare measured using enacted tax rates expected to apply to taxable income in theyears in which those temporary differences are expected to be recovered orsettled. The effect on deferred tax assets and liabilities of a change in taxrates is recognized in income in the period that includes the enactment date.The Company records a valuation allowance if it is deemed more likely than notthat its deferred income tax assets will not be realized.  The Companyexpects that certain deferred income tax assets are not more likely than not tobe recovered and therefore, has established a valuation allowance. The Companyreassesses its need for the valuation allowance for its deferred income taxeson an ongoing basis. Should the Company realize certain tax assets with avaluation allowance that relate to pre-acquisition periods, goodwill would bereduced (see “Recent Accounting Pronouncements” below in this Note 3).

 

Additionally, income tax rules and regulations are subject tointerpretation, require judgment by the Company and may be challenged by thetaxation authorities. As described further in Note 7—“Income Taxes,”effective December 29, 2006, the Company adopted the provisions of FASBInterpretation No. 48, *Accounting for Uncertaintyin Income Taxes—an interpretation of FASB Statement No. 109* (“FIN 48”).In accordance with FIN 48, the Company recognizes a tax benefit only fortax positions that are determined to be more likely than not sustainable basedon the technical merits of the tax position. With respect to such tax positionsfor which recognition of a benefit is appropriate, the benefit is measured atthe largest amount of benefit that is greater than 50 percent likely ofbeing realized upon ultimate settlement. Tax positions are evaluated on anongoing basis as part of the Company’s process for determining the provisionfor income taxes.

 

***Investments***

 

Duringthe year ended December 27, 2007, the Company sold its equity interest inFandango, Inc. (“Fandango”) for proceeds of $7.0 million. As a result ofthis 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 Company received an additional $0.9 million of sale proceeds relatedto Fandango. Accordingly, the Company recognized an additional gain of $0.9million ($0.6 million after tax) during the year ended January 1, 2009.

 

OnJune 30, 2007, UATC acquired the remaining partnership interest in two ofits subsidiaries for an 

 

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**UNITED ARTISTS THEATRE CIRCUIT, INC.**

**AND SUBSIDIARIES**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

 

**January 1, 2009, December 27, 2007 and December 28, 2006**

 

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

 

aggregatepurchase price of $1.1 million, which resulted in a loss of $0.2 million.  The loss was recorded in the accompanyingconsolidated statement of operations as a component of “Other, net.”

 

***Deferred Revenue***

 

Deferred revenue relates primarily to the amount we received foragreeing to the existing exhibitor service agreement (“ESA”) modificationdescribed in Note 5—“Related Party Transactions.” The amount we received foragreeing to the ESA modification will be amortized to advertising revenue overthe 30 year term of the agreement following the units of revenue method asdescribed in Note 5—“Related Party Transactions.”  As of January 1, 2009 and December 27,2007, approximately $25.5 million and $25.8 million of deferred revenue relatedto the ESA was recorded as a component of non-current deferred revenue in theaccompanying consolidated balance sheets.

 

***Deferred Rent***

 

The Company recognizes rent on a straight-line basis after consideringthe effect of rent escalation provisions resulting in a level monthly rentexpense for each lease over its term. The deferred rent liability is includedin other non-current liabilities in the accompanying consolidated balancesheets.

 

***Film Costs***

 

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 particularfilm’s opening release. Upon settlement withour film distributors, film cost expense and the related film cost payable areadjusted to the final film settlement.

 

***Loyalty Program***

 

Members of the Regal CrownClub® earncredits for each dollar spent at one of our theatres and earn concession orticket awards based on the number of credits accumulated. The Company’saccounting policy for the loyalty program is based on the guidance provided forIssue 1 in EITF Issue No. 00-22. Because we believe that the value of theawards granted to our 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 program at the time theawards are earned. Historically, and for the fiscal years ended January 1,2009, December 27, 2007 and December 28, 2006, the costs of theseawards have not been significant to our consolidated financial statements.

 

***Advertising and Start-UpCosts***

 

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

 

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** **

**UNITED ARTISTS THEATRE CIRCUIT, INC.**

**AND SUBSIDIARIES**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

 

**January 1, 2009, December 27, 2007 and December 28, 2006**

 

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

*** ***

***Stock-Based Compensation***

 

As described in Note 9—“CapitalStock and Share-Based Compensation,” effective December 30, 2005, weadopted SFAS No. 123 (revised), *Share-Based Payment*utilizing the modified prospective approach. Under SFAS No. 123R,share-based compensation cost is measured at the grant date, based on theestimated fair value of the award, and is recognized as expense over theemployee’s requisite service period. Prior to the adoption of SFASNo. 123R, we accounted for stock optiongrants in accordance with Accounting Principles Board (“APB”) Opinion No. 25*Accounting for Stock Issued to Employees*(“APB 25”) (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 SFAS No. 123R, the Company also elected to adopt thealternative transition method provided in FASB Staff Position No. 123(R)-3,*Transition Election Related to Accounting for TaxEffects of Share-Based Payment Awards* for calculating the taxeffects of share-based compensation pursuant to SFAS No. 123R. Thealternative transition method includes a simplified method to establish thebeginning balance of the additional paid-in capital pool (“APIC pool”) relatedto the tax effects of employee share-based compensation, which is available toabsorb tax deficiencies which could be recognized subsequent to the adoption ofSFAS No. 123R.

 

***Estimates***

 

The preparation of financial statements in conformity with U.S.generally accepted accounting principles requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the consolidatedfinancial statements and the reported amounts of revenues and expenses duringthe reporting period.  Significantestimates include, but are not limited to, those related to film costs,property and equipment, goodwill and income taxes.  Actual results could differ from thoseestimates.

 

***Segments***

 

As of January 1, 2009, December 27,2007 and December 28, 2006, UATC managed its business under one reportablesegment: theatre exhibition operations.

 

***Comprehensive Income***

 

Netincome and comprehensive income were the same for all years presented.

 

***Reclassifications***

 

Certainreclassifications have been made to the 2006 and 2007 consolidated financialstatements to conform to the 2008 presentation.

 

***Recent Accounting Pronouncements***

 

In September 2006, the FASB issued SFAS No. 157, *Fair Value Measurements*. Among other requirements, SFAS No. 157defines fair value and establishes a framework for measuring fair value andalso 

 

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**UNITED ARTISTS THEATRE CIRCUIT, INC.**

**AND SUBSIDIARIES**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

 

**January 1, 2009, December 27, 2007 and December 28, 2006**

 

**(3)      Summary of SignificantAccounting Policies (Continued)**

 

expands disclosure about theuse of fair value to measure assets and liabilities. The adoption of SFAS No. 157did not have a material impact on the Company’s consolidated financialposition, cash flows and results of operations.

 

In February 2007, the FASB issued SFAS No. 159, *The Fair Value Option for Financial Assets and Financial Liabilities*.SFAS No. 159 permits entities to choose to measure certain financialinstruments and other eligible items at fair value when the items are nototherwise currently required to be measured at fair value. UnderSFAS No. 159, the decision to measureitems at fair value is made at specified election dates on an irrevocableinstrument-by-instrument basis. Entities electing the fair value option wouldbe required to recognize changes in fair value in earnings and to expenseupfront cost and fees associated with the item for which the fair value optionis elected. Entities electing the fair value option are required todistinguish, on the face of the statement of financial position, the fair valueof assets and liabilities for which the fair value option has been elected andsimilar assets and liabilities measured using another measurement attribute.The adoption of SFAS No. 159 did not have a material impact on the Company’sconsolidated financial position, cash flows and results of operations.

 

In December 2007, theFASB issued SFAS No. 141(R), *BusinessCombinations*. SFAS No. 141(R) requires all businesscombinations completed after the effective date to be accounted for by applyingthe acquisition method (previously referred to as the purchase method).  SFAS No. 141(R) expands thedefinition of transactions and events that qualify as business combinations;requires that the acquired assets and liabilities, including contingencies, berecorded at the fair value determined on the acquisition date and changesthereafter reflected in revenue, not goodwill; changes the recognition timingfor restructuring costs; and requires acquisition costs to be expensed asincurred. Future reductions in the valuation allowance recorded relative topre-acquisition periods will result in a decrease in the provision for incometaxes. In addition, with respect to uncertain tax positions, changes in theamount of tax benefit recognized relative to pre-acquisition periods willresult in an increase/decrease in the provision for income taxes (see Note 7—“IncomeTaxes” for further discussion). Adoption of SFAS No. 141(R) isrequired for combinations after December 15, 2008. Early adoption andretroactive application of SFAS No. 141(R) to fiscal years precedingthe effective date are not permitted. The Company is evaluating the adoption ofSFAS No. 141(R) and its impact on the Company’s consolidatedfinancial position, cash flows and results of operations.

 

In December 2007, theFASB issued SFAS No. 160, *NoncontrollingInterest in Consolidated Financial Statements*. SFAS No. 160establishes new accounting and reporting standards for the noncontrollinginterest in a subsidiary and for the deconsolidation of a subsidiary.Specifically, this statement requires the recognition of a noncontrollinginterest (minority interest) as equity in the consolidated financial statementsand separate from the parent’s equity. The amount of net income attributable tothe noncontrolling interest will be included in consolidated net income on theface of the income statement. SFAS No. 160 clarifies that changes ina parent’s ownership interest in a subsidiary that do not result indeconsolidation are equity transactions if the parent retains it controllingfinancial interest. In addition, this statement requires that a parentrecognize a gain or loss in net income when a subsidiary is deconsolidated.Such gain or loss will be measured using the fair value of the noncontrollingequity investment on the deconsolidation date. SFAS No. 160 alsoincludes expanded disclosure requirements regarding the interests of the parentand its noncontrolling interest. SFAS No. 160 is effective for fiscal years, and interimperiods within those fiscal years, beginning on or after December 15,2008. Earlier adoption is prohibited. The Company is evaluating the adoption of SFAS No. 160 and itsimpact on the Company’s consolidated financial position, cash flows and resultsof operations.

 

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** **

**UNITED ARTISTS THEATRE CIRCUIT, INC.**

**AND SUBSIDIARIES**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

 

**January 1, 2009, December 27, 2007 and December 28, 2006**

 

**(4)      Debt Obligations**

 

Debt obligations are summarized as follows (amounts in millions):

 
| ** **           | ** ** | **January 1, 2009** | ** ** | **December 27, 2007** | ** ** |
|----------------------|------------|-------------------------------|------------|---------------------------------|------------|
| Debt obligations (a) |       | $                             | 1.9        |                            | $          | 2.0 |   |
| Less current portion |       | (0.2                          | )          | (0.2                            | )          |
| Long-term debt       |       | $                             | 1.7        |                            | $          | 1.8 |   |

 

(a)                                  Debt obligationsinclude $1.9 million and $2.0 million of capital lease obligations as ofJanuary 1, 2009 and December 27, 2007, which have an interest rate of10.0%, maturing in 2016.

 

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

 
| 2009                            |   | $    | 0.2    |   |
|---------------------------------|--------|------|--------|--------|
| 2010                            |   | 0.4  |   |
| 2011                            |   | 0.4  |   |
| 2012                            |   | 0.4  |   |
| 2013                            |   | 0.4  |   |
| Thereafter                      |   | 0.9  |   |
|                            |   | 2.7  |   |
| Less interest on capital leases |   | (0.8 | )      |
| Totals                          |   | $    | 1.9    |   |

 

**(5)      RelatedParty Transactions**

 

UATC leases certain of its theatres from PropI in accordance with a master lease (the “Master Lease”).  The MasterLease provides for basic monthly or quarterly rentals and may requireadditional rentals, based on the revenue of the underlying theatre.  Inorder to fund the cost of additions and/or renovations to the theatres leasedby UATC from Prop I, UATC has periodically made advances to Prop I.  Aspart of the application of fresh-start reporting the receivable wasreclassified from other assets to stockholder’s equity and interest no longeraccrues on this account. The receivable will be reduced upon any sale ofproperties by Prop I, with UATC receiving the net proceeds of the sale.

 

RCI manages all aspects of the theatreoperations of UATC and its subsidiaries pursuant to the terms of a managementagreement, which includes all of its cash collections, cash disbursements andother cash management functions. During the years ended January 1, 2009, December 27,2007 and December 28, 2006, UATC recorded

 

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**UNITED ARTISTS THEATRE CIRCUIT, INC.**

**AND SUBSIDIARIES**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

 

**January 1, 2009, December 27, 2007 and December 28, 2006**

 

**(5)      RelatedParty Transactions (Continued)**

 

management feeexpenses of approximately $6.8 million, $6.9 million and $7.1 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 January 1, 2009, the Company’srelated party receivables totaled approximately $63.7 million, which representsan increase of $8.2 million from $55.5 million as of December 27, 2007.The increase in these receivables was due primarily to timing of theintercompany cash collections and disbursements, as described above.

 

Pursuant to the Company’s managementagreement with RCI, RCI, through an agreement with National CineMedia, LLC (“NationalCineMedia”), provides all on-screen and lobby advertising and event services toUATC.

 

In connection with the completion of the initial public offering, orIPO of National CineMedia Inc.’s (“NCM Inc.”) common stock, RCI amended andrestated its ESA with National CineMedia, whereby in exchange for its pro ratashare of the IPO proceeds, RCI agreed to a modification of National CineMedia’spayment obligation under the ESA.  Themodification extended the term of the ESA to 30 years, provided National CineMediawith a five year right of first refusal beginning one year prior to the end ofthe term and changed the basis upon which RCI is paid by National CineMediafrom a percentage of revenues associated with advertising contracts enteredinto by National CineMedia to a monthly theatre access fee.  Also, with respect to any on-screenadvertising time provided by us to our beverage concessionaire, RCI is requiredto purchase such time from National CineMedia at a negotiated rate.

 

As a result of the ESA amendmentand related modification payment, RCI recognizes various types of other revenuefrom National CineMedia, including per patron and per digital screen theatreaccess fees, net of payments for on-screen advertising time provided to ourbeverage concessionaire, other NCM revenue (such as meeting and event services,live and pre-recorded concerts, sporting events and other entertainmentprogramming content) and amortization of upfront ESA modification feesutilizing the units of revenue amortization method.

 

These revenues are presentedas a component of “Other operating revenues” in the accompanying consolidatedfinancial statements and consist of the following amounts:

** **
| ** **                             | ** ** | **Year Ended  January 1, 2009** | ** ** | **Year Ended  December 27, 2007** | ** ** |
|----------------------------------------|------------|------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                             | ** ** | **(in millions)**                         | ** ** |
| Theatre access fees per patron         | ** ** | $                                              | 1.4        |                                             | $          | 1.3 |   |
| Theatre access fees per digital screen | ** ** | 0.4                                            |       | 0.4                                              |       |
| Other NCM revenue                      | ** ** | 0.3                                            |       | 0.2                                              |       |
| Amortization of ESA modification fees  | ** ** | 0.3                                            |       | 0.2                                              |       |
| Payments to beverage concessionaire    | ** ** | (1.1                                           | )          | (1.4                                             | )          |
| Total                                  | ** ** | $                                              | 1.3        |                                             | $          | 0.7 |   |

 

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**UNITED ARTISTS THEATRE CIRCUIT, INC.**

**AND SUBSIDIARIES**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

 

**January 1, 2009, December 27, 2007 and December 28, 2006**

** **

**(6)      Leases**

 

The Company accounts for a majority of its leases as operating leases.The Company, at its option, can renew a substantial portion of the leases atdefined or then fair rental rates for various periods. Certain leases forCompany theatres provide for contingent rentals based on the revenue results ofthe underlying theatre and require the payment of taxes, insurance, and othercosts applicable to the property. Also, certain leases contain escalatingminimum rental provisions that have been accounted for on a straight-line basisover the initial term of the leases.

 

Minimum rentals payable under allnon-cancelable operating leases with terms in excess of one year as of January 1,2009, are summarized for the following fiscal years:

 
| ** ** | ** ** | **(In Millions)** | ** ** |
|------------|------------|------------------------|------------|
| 2009       |       | $                      | 39.0       |   |
| 2010       |       | 37.3                   |       |
| 2011       |       | 33.6                   |       |
| 2012       |       | 30.7                   |       |
| 2013       |       | 29.0                   |       |
| Thereafter |       | 91.0                   |       |
|            |            |                        |            |  |

 

Rent expense, including sale and leaseback rentals of $14.8 million,$14.9 million and $15.0 million, for the years ended January 1, 2009, December 27,2007 and December 28, 2006, under such operating leases amounted to $38.7million, $39.4 million and $40.6 million for the years ended January 1,2009, December 27, 2007 and December 28, 2006, respectively.Contingent rent expense was $1.3 million, $1.3 million and $1.1 million for theyears ended January 1, 2009, December 27, 2007 and December 28,2006, respectively.

 

***Sale-Leaseback Transactions***

 

The Company has historically entered intosale and leaseback transactions whereby owned properties were sold and leasedback under operating leases. The minimum rentals for these operating leases areincluded in the table above.

 

In December 1995, UATC entered into a sale and leasebacktransaction whereby 31 owned properties were sold to and leased back from anunaffiliated third party. In conjunction with the transaction, the buyer of theproperties issued publicly traded pass-through certificates. In connection withthis sale and leaseback transaction, UATC entered into a ParticipationAgreement that requires UATC to comply with various covenants, includinglimitations on indebtedness, restricted payments, transactions with affiliates,guarantees, issuance of preferred stock of subsidiaries and subsidiary distributions,transfer of assets and payment of dividends. As of January 1, 2009, 12theaters were subject to the sale leaseback transaction and approximately $42.8million in principal amount of pass-through certificates were outstanding.

 

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** **

**UNITED ARTISTS THEATRE CIRCUIT, INC.**

**AND SUBSIDIARIES**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

 

**January 1, 2009, December 27, 2007 and December 28, 2006**

** **

**(7)      IncomeTaxes**

 

The components of the provision for income taxes for income fromoperations for each of the fiscal years were as follows (in millions):

 
| ** **                 | ** ** | **Year Ended  January 1, 2009** | ** ** | **Year Ended  December 27, 2007** | ** ** | **Year Ended  December 28, 2006** | ** ** |
|----------------------------|------------|------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| Federal:                   |       |                                           |       |                                             |       |                                             |       |
| Current                    |       | $                                              | 2.8        |                                             | $          | 10.6                                             |       | $ | 1.4 |   |
| Deferred                   |       | 1.8                                            |       | (4.5                                             | )          | 2.6                                              |       |
| Total Federal              |       | 4.6                                            |       | 6.1                                              |       | 4.0                                              |       |
| State:                     |       |                                           |       |                                             |       |                                             |       |
| Current                    |       | 0.2                                            |       | 0.4                                              |       | 0.3                                              |       |
| Deferred                   |       | 0.8                                            |       | 0.3                                              |       | 0.5                                              |       |
| Total State                |       | 1.0                                            |       | 0.7                                              |       | 0.8                                              |       |
| Total income tax provision |       | $                                              | 5.6        |                                             | $          | 6.8                                              |       | $ | 4.8 |   |

 

Duringthe years ended December 27, 2007 and December 28, 2006 a current taxbenefit of $0.4 million and $1.4 million, respectively, was allocated directlyto stockholder’s equity for the exercise of stock options. No tax benefits wereallocated directly to stockholder’s equity for the exercise of stock options inthe year ended January 1, 2009.

 

The reconciliation of the provision for income taxes as reported andthe amount computed by multiplying the income before taxes and extraordinaryitem by the U.S. federal statutory rate of 35% was as follows (in millions):

 
| ** **                                                 | ** ** | **Year Ended  January 1, 2009** | ** ** | **Year Ended  December 27, 2007** | ** ** | **Year Ended  December 28, 2006** | ** ** |
|------------------------------------------------------------|------------|------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| Provision calculated at federal statutory  income tax rate |       | $                                              | 4.9        |                                             | $          | 6.4                                              |       | $ | 3.8 |   |
| State and local income taxes, net of  federal benefit      |       | 0.6                                            |       | 0.8                                              |       | 0.5                                              |       |
| True-up provision to return                                |       | —                                         |       | —                                           |       | 0.4                                              |       |
| Minority interest                                          |       | —                                         |       | (0.1                                             | )          | —                                           |       |
| Other                                                      |       | 0.1                                            |       | (0.3                                             | )          | 0.1                                              |       |
| Total income tax provision                                 |       | $                                              | 5.6        |                                             | $          | 6.8                                              |       | $ | 4.8 |   |

 

Significant components of the Company’s net deferred tax liabilityconsisted of the following at (in millions):

 
| ** **                                                | ** ** | **January 1, 2009** | ** ** | **December 27, 2007** | ** ** |
|-----------------------------------------------------------|------------|-------------------------------|------------|---------------------------------|------------|
| Deferred tax assets:                                      |       |                          |       |                            |       |
| Net operating loss carryforward                           |       | $                             | 21.9       |                            | $          | 27.2 |   |
| Excess of tax basis over book basis of  fixed assets      |       | 15.9                          |       | 15.8                            |       |
| Accrued expenses                                          |       | 0.7                           |       | 0.9                             |       |
| Deferred revenue                                          |       | 10.3                          |       | 10.5                            |       |
| Other                                                     |       | —                        |       | 0.1                             |       |
| Total deferred tax assets before valuation  allowance     |       | 48.8                          |       | 54.5                            |       |
| Valuation allowance                                       |       | (3.1                          | )          | (2.8                            | )          |
| Total deferred tax assets after valuation  allowance      |       | 45.7                          |       | 51.7                            |       |
| Deferred tax liabilities:                                 |       |                          |       |                            |       |
| Deferred gain on sale of theatres                         |       | (38.3                         | )          | (42.1                           | )          |
| Excess of book basis over tax basis of  intangible assets |       | (27.8                         | )          | (27.8                           | )          |
| Total deferred tax liabilities                            |       | (66.1                         | )          | (69.9                           | )          |
| Net deferred tax liability                                |       | $                             | (20.4      | )                               | $          | (18.2 | ) |

 

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**UNITED ARTISTS THEATRE CIRCUIT, INC.**

**AND SUBSIDIARIES**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

 

**January 1, 2009, December 27, 2007 and December 28, 2006**

 

**(7)****                     Income Taxes(Continued)**

 

Asof January 1, 2009, the Company had net operating loss carryforwards forfederal income tax purposes of approximately $47.6 million with expirationcommencing during 2019. The Company’s net operating loss carryforwards weregenerated by the predecessor entities of UATC. The Tax Reform Act of 1986imposed substantial restrictions on the utilization of net operating losses inthe event of an “ownership change” of a corporation. Accordingly, the Company’sability to utilize the net operating losses may be impaired as a result of the “ownershipchange” limitations.

 

In assessing the realizable value of deferred tax assets, managementconsiders whether it is more likely than not that some portion or all of thedeferred tax assets will not be realized. The ultimate realization of deferredtax assets is dependent upon the generation of future taxable income during theperiods in which these temporary differences become deductible. The Company hasrecorded a valuation allowance against deferred tax assets totaling $3.1million and $2.8 million at January 1, 2009 and December 27, 2007respectively, as management believes it is more likely than not that certaindeferred tax assets will not be realized in future tax periods. The valuationallowance primarily relates to pre-acquisition deferred tax assets of UATC.Accordingly, reductions in the valuation allowance associated with a change inmanagement’s determination of the Company’s ability to realize pre-acquisitiondeferred tax assets reduce goodwill related to the acquisition of UATC (seeNote 3 under “Recent Accounting Pronouncements”). During the fiscal yearended January 1, 2009, the valuation allowance was increased by$0.3 million as a result of an adjustment in the deferred tax assetagainst which such valuation allowance was recorded.

 

Effective December 29, 2006, the Company adopted the provisions ofFIN 48.  Relative to the implementation of FIN 48, the Company did notadjust any income tax accounts.

 

As of January 1, 2009 and December 27, 2007, the Company hadno unrecognized tax benefits. The Company does not believe that its grossunrecognized tax benefits will change within the next 12 months.

 

The Company recognizes interest and penalties accrued related tounrecognized tax benefits as a component of income tax expense. As of January 1,2009 and December 27, 2007, the Company had not accrued any interest or penaltiesassociated with unrecognized tax benefits. No interest and penalties were recognized in the statement of income forthe periods ended January 1, 2009 and December 27, 2007.

 

 The Company files income taxreturns in the U.S. federal jurisdiction and certain state jurisdictions aspart of the REG income tax filings and files separate income tax returns invarious other state jurisdictions as well.  In June 2005, REG wasnotified that the Internal Revenue Service (“IRS”) would examine its 2002 and2003 federal income tax returns. During October 2005, the IRS completedits examination of REG’s federal tax returns for such years and REG and the IRSagreed to certain adjustments to REG’s 2002 and 2003 federal tax returns. Suchadjustments did not have a material impact on REG’s or the Company’s provisionfor income taxes.  REG and the Company are no longer subject to U.S.federal income tax examinations by taxing authorities for years before 2005,and with limited exceptions, are no longer subject to state income taxexaminations before 2004.  However, the taxing authorities still have theability to review the propriety of tax attributes created in closed tax yearsif such tax attributes are utilized in an open tax year.

 

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** **

**UNITED ARTISTS THEATRE CIRCUIT, INC.**

**AND SUBSIDIARIES**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

 

**January 1, 2009, December 27, 2007 and December 28, 2006**

 

**(8)      Litigationand contingencies**

** **

****Our theatres must comply with Title III of the Americans withDisabilities Act of 1990 (the “ADA”) to the extent that such properties are “publicaccommodations” and/or “commercial facilities” as defined by the ADA.Compliance with the ADA requires that public accommodations “reasonablyaccommodate” individuals with disabilities and that new construction oralterations made to “commercial facilities” conform to accessibility guidelinesunless “structurally impracticable” for new construction or technicallyinfeasible for alterations. Non-compliance with the ADA could result in theimposition of injunctive relief, fines, awards of damages to private litigantsand additional capital expenditures to remedy such non-compliance.

 

 Fromtime to time, we have received letters from the attorneys general of states inwhich we operate theatres regarding investigation into the accessibility of ourtheatres 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.

 

 Webelieve that we are in substantial compliance with all current applicableregulations relating to accommodations for the disabled. We intend to complywith future regulations in this regard, and except as set forth above, we donot currently anticipate that compliance will require us to expend substantialfunds.  Our theatre operations are alsosubject to federal, state and local laws governing such matters as wages,working conditions, citizenship and health and sanitation requirements.  We believe that we are in substantialcompliance with all of such laws.

 

Onor about January 3, 2007, suit was initiated against the Company inFederal Court, Central District of California, styled, *Bateman, individually and on behalf of all otherssimilarly situated, v. Regal Cinemas, Inc. and**United Artists TheatreCircuit, Inc., et al.,*alleging violations of the Fair and Accurate Transaction Act, for allegedlyprinting expiration dates and credit card numbers on customer receipts. Theplaintiff seeks to represent a class of individuals allegedly harmed by thisalleged practice. The complaint seeks actual damages and/or statutory damages ofat least one hundred dollars or up to one thousand dollars per violation, andattorney fees and costs. We believe we are in substantial compliance with allapplicable federal and state laws governing these trade practices.

 

The Company and its subsidiaries are also presently involved in variouslegal proceedings arising in the ordinary course of its business operations,including personal injury claims, employment and contractual matters and otherdisputes. The Company believes it has adequately provided for the settlement ofsuch matters. Management believes any additional liability with respect tothese claims and disputes will not be material in the aggregate to the Company’sconsolidated financial position, results of operations or cash flows.

 

**(9)      CapitalStock and Share Based Compensation**

 

*Common and Preferred Stock*

 

UATC is authorized to issue 1,000 shares ofits $1.00 par value common stock, of which 100 shares are issued andoutstanding at January 1, 2009, and are all held by the Parent.  At January 1,2009, the Company has 500,000 shares of preferred stock authorized withnone issued.

* *

*Share Based Compensation*

 

EffectiveDecember 30, 2005, Regal and the Company adopted SFAS No. 123Rutilizing the modified prospective approach. Prior to the adoption of SFAS No. 123R,we accounted for stock option grants in accordance with APB 25 (the intrinsicvalue method), and accordingly, recognized no compensation expense for thosestock options having an exercise price equal to the market value of Regal’s Class Acommon stock on the date of the grant.

 

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**UNITED ARTISTS THEATRE CIRCUIT, INC.**

**AND SUBSIDIARIES**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

 

**January 1, 2009, December 27, 2007 and December 28, 2006**

 

**(9)      CapitalStock and Share Based Compensation (Continued)**

 

Underthe modified prospective approach, SFAS No. 123R applies to awards thatwere outstanding on December 30, 2005 and to new awards and themodification, 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 SFAS No. 123R andrecognized as expense over the employee’s requisite service period. Priorperiods were not restated to reflect the impact of adopting the new standard.

 

OnNovember 10, 2005, the FASB issued FASB Staff Position No. 123(R)-3, *Transition Election Related to Accounting for Tax Effects ofShare-Based Payment Awards*. The Company has elected to adopt thealternative transition method provided in this FASB Staff Position forcalculating the tax effects of share-based compensation pursuant to SFAS No. 123R.The alternative transition method includes a simplified method to establish thebeginning balance of the APIC pool related to the tax effects of employeeshare-based compensation, which is available to absorb tax deficienciesrecognized subsequent to the adoption of SFAS No. 123R.

 

Duringthe year ended December 28, 2006, the Company recognized approximately$0.2 million of share-based compensation expense related to stock options.  Such expense is presented in the accompanyingconsolidated statements of operations as a component of “General andAdministrative” expenses for the year ended December 28, 2006.

 

Wereceive a tax deduction for certain stock option exercises during the periodthe options are exercised, generally for the excess of the price at which thestock is sold over the exercise price of the options.  Prior to adoption of SFAS No. 123R, wereported all tax benefits resulting from the exercise of stock options asoperating cash flows in our consolidated statements of cash flows. Inaccordance with SFAS No. 123R, we are required to report excess taxbenefits from 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 and December 28, 2006, our consolidatedstatement of cash flows reflects $0.4 million and $1.4 million of excess taxbenefits as financing cash flows, respectively.

 

**(10)    EmployeeBenefits Plan**

 

REG sponsors an employee benefit plan, the Regal Entertainment Group401(k) Profit Sharing Plan (the “Plan”), under section 401(k) ofthe Internal Revenue Code of 1986, as amended, for the benefit of substantiallyall full-time employees of UATC.  ThePlan provides that participants may contribute up to 50% of their compensation,subject to IRS limitations.  The Plancurrently matches an amount equal to 100% of the first 3% of the participant’scontributions and 50% of the next 2% of the participant’s contributions.  Employee contributions are invested invarious investment funds based upon elections made by the employee.

 

**(11)    FairValue of Financial Instruments**

 

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

 

*Cash and cash equivalents, accountsreceivable, accounts payable and accrued liabilities:*

 

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

 

*Long term obligations, excludingcapital 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.

 

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**Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING ANDFINANCIAL DISCLOSURE**

 

None.

 

**Item 9A. CONTROLS AND PROCEDURES**

 

None.

 

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

 

***Evaluation of Disclosure Controls andProcedures***

 

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 January 1, 2009, pursuant to Rule 13a-15(b) underthe Exchange Act. Based upon that evaluation, our Certifying Officers concludedthat, as of January 1, 2009,our disclosure controls and procedures were effective.

 

***Management’s Report on Internal Control Over FinancialReporting***

 

Our management’s report on internal control overfinancial reporting is included in Part II, Item 8, on page 28of this Form 10-K, which is incorporated herein by reference.

 

***Changes in Internal Control Over FinancialReporting***

 

Therewere no changes in our internal control over financial reporting that occurredduring our fiscal quarter ended January 1, 2009 that have materially affected, or arereasonably likely to materially affect, our internal control over financialreporting.

 

***Limitations on the Effectiveness ofControls***

 

Management is responsible for the preparation and fair presentation ofthe consolidated financial statements included in this annual report. Theconsolidated financial statements have been prepared in conformity with U.S.generally accepted accounting principles and reflect management’s judgments andestimates concerning effects of events and transactions that are accounted foror disclosed. 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.

 

**Item 9B.  OTHERINFORMATION**

 

None.

 

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**PART III**

 

**Item 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATEGOVERNANCE**

 

Underthe reduced disclosure 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.  EXECUTIVE COMPENSATION**

 

Underthe reduced disclosure 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.  SECURITY OWNERSHIP OF CERTAIN BENEFICIALOWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS**

 

Underthe reduced disclosure 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. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONSAND DIRECTOR INDEPENDECE**

 

Underthe reduced disclosure 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 Public Accounting Firm**

 

KPMG LLP (“KPMG”) served as our independent registered publicaccounting firm for the fiscal years ended January 1, 2009 and December 27, 2007.  For such fiscal years we paid fees forservices from KPMG as discussed below.

 

·                       *Audit Fees*. The aggregate fees billed forprofessional services rendered by KPMG for the audit of our annual consolidatedfinancial statements included in our Form 10-K and the review of theconsolidated financial statements included in our Forms 10-Q were approximately$92,000 for the fiscal year ended January 1, 2009 and $94,000 for the fiscal year ended December 27, 2007.

 

·                       *Audit-Related Fees*. The Company did notincur any aggregate fees for professional services rendered by KPMG for assurancesand related services that are reasonably related to the performance of theaudit or review of our consolidated financial statements for the fiscal yearended January 1, 2009 and for thefiscal year ended December 27, 2007.

 

·                       *Tax Fees*. The Company did not incur anyaggregate fees billed for professional services rendered by KPMG related tofederal and state tax compliance, tax advice and tax planning for the fiscalyear ended January 1, 2009 and forthe fiscal year ended December 27, 2007. All of these services arepermitted non-audit services.

 

·                       *All Other Fees.*The Company did not incur any aggregate fees for all other servicesrendered by KPMG for the fiscal year ended January 1, 2009 and for the fiscal year ended December 27,2007.

 

**Board ofDirectors Pre-Approval Policy**

 

Our Board of Directors pre-approves all audit and permissible non-auditservices provided by the independent auditors on a case-by-case basis.  These services may include audit services,audit related services, tax services and other services.  Our Vice President and Treasurer isresponsible for presenting the board with an overview of all proposed audit,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 beperformed.  The board does not delegatethe responsibilities to pre-approve services performed by the independentauditors to management or to an individual member of the board.

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**PART IV**

 

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

 
| (a)    | The following documents are filed as a part of this report on  Form 10-K:                                                                                                                  |   |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   |                                                                                                                                                                                            |   |
| (1)    | Consolidated financial statements of United Artists Theatre  Circuit, Inc.:                                                                                                                |   |
|   |                                                                                                                                                                                            |
|   | Management’s  Report on Internal Control over Financial Reporting                                                                                                                          |   |
|   |                                                                                                                                                                                            |   |
|   | Report of  Independent Registered Public Accounting Firm - Consolidated Financial  Statements                                                                                                   |   |
|   |                                                                                                                                                                                            |   |
|   | UATC’s  Consolidated Balance Sheets as of January 1, 2009 and December 27,  2007                                                                                                 |   |
|   |                                                                                                                                                                                            |   |
|   | UATC’s  Consolidated Statements of Operations for the fiscal years ended January 1,  2009, December 27, 2007 and December 28, 2006                                          |   |
|   |                                                                                                                                                                                            |   |
|   | UATC’s  Consolidated Statements of Stockholder’s Equity and Comprehensive Income for  the fiscal years ended January 1, 2009, December 27, 2007 and December 28,  2006 |   |
|   |                                                                                                                                                                                            |   |
|   | UATC’s  Consolidated Statements of Cash Flows for the fiscal years ended  January 1, 2009, December 27, 2007 and December 28,  2006                                         |   |
|   |                                                                                                                                                                                            |   |
|   | Notes to  UATC’s Consolidated Financial Statements                                                                                                                                         |   |
|   |                                                                                                                                                                                            |   |
| (2)    | Financial Statement Schedules have been omitted because of the  absence of conditions under which they are required, or because the  information is shown elsewhere in this Form 10-K.     |   |
|   |                                                                                                                                                                                            |
| (3)    | Exhibits: The following exhibits are filed as part of the annual  report on Form 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,                                                                                                                                                                        |

 

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|   |   | 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)  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 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 Employment Agreement, dated December 18, 2008, between  Regal Entertainment Group and Michael L. Campbell (filed as exhibit 10.10  Regal Entertainment Group’s Form 10-K (Commission File No. 001  -31315) on March 2, 2009, and incorporated herein by reference)                                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.5*  |   | Amended  and Restated Employment Agreement, dated December 18, 2008, between  Regal Entertainment Group and Gregory W. Dunn (filed as exhibit 10.12 Regal  Entertainment Group’s Form 10-K (Commission File No. 001 -31315) on  March 2, 2009, and incorporated herein by reference)                                                                                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.6*  |   | Amended  and Restated Employment Agreement, dated December 18, 2008, between  Regal Entertainment Group and Amy E. Miles (filed as exhibit 10.11 Regal  Entertainment Group’s Form 10-K (Commission File No. 001 -31315) on  March 2, 2009, 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 orarrangement.

 

(b)           The exhibits required to be filed herewith arelisted above.

 

(c)           Not applicable.

 

53

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Table of Contents

 

**SIGNATURES**

 

Pursuant to the requirements of Section 13or 15(d) of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned, thereuntoduly authorized.

 
|                 |   | UNITED ARTISTS THEATRE CIRCUIT, INC. |
|----------------------|--------|--------------------------------------|
|                 |   |                                 |
| March 24,  2009 |   | By:                                  | /s/  MICHAEL L. CAMPBELL |
|                 |   |                                 | Michael L. Campbell*President* |

 

Pursuant to the requirements of the Securities Exchange Act of 1934, thisreport 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/  MICHAEL L. CAMPBELL |       | President and Chairman of the Board        |       | March 24, 2009 |
| Michael L. Campbell                |       | (Principal Executive Officer)              |       |                |
|                               |       |                                       |       |                |
| /s/  AMY E. MILES        |       | Director, Vice President and Treasurer     |       | March 24, 2009 |
| Amy E. Miles                       |       | (Principal Financial Officer and Principal |       |                |
|                               |       | Accounting Officer)                        |       |                |
|                               |       |                                       |       |                |
| /s/  GREGORY W. DUNN     |       | Director                                   |       | March 24, 2009 |
| Gregory W. Dunn                    |       |                                       |       |                |

 

**Supplemental Information to be Furnished with Reports Filed Pursuant toSection 15(d) of the Act by Registrants Which Have Not RegisteredSecurities Pursuant to Section 12 of the Act**

 

The registranthas not sent to its sole stockholder an annual report to security holderscovering the registrant’s last fiscal year or any proxy statement, form ofproxy or other proxy soliciting material with respect to any annual or othermeeting of security holders.

 

54

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Table of Contents

 

**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                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |

 

55

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Table of Contents

 
|   |   | 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 Employment Agreement, dated December 18, 2008, between  Regal Entertainment Group and Michael L. Campbell (filed as exhibit 10.10  Regal Entertainment Group’s Form 10-K (Commission File No. 001  -31315) on March 2, 2009, and incorporated herein by reference)                                                                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.5*  |   | Amended  and Restated Employment Agreement, dated December 18, 2008, between  Regal Entertainment Group and Gregory W. Dunn (filed as exhibit 10.12 Regal  Entertainment Group’s Form 10-K (Commission File No. 001 -31315) on  March 2, 2009, and incorporated herein by reference)                                                                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.6*  |   | Amended  and Restated Employment Agreement, dated December 18, 2008, between  Regal Entertainment Group and Amy E. Miles (filed as exhibit 10.11 Regal  Entertainment Group’s Form 10-K (Commission File No. 001 -31315) on  March 2, 2009, 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 orarrangement.

 

(b)           The exhibits required to be filedherewith are listed above.

 

(c)           Not applicable.

 

56

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