**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION****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 December 27,2007**

 

**Commission file number: 033-49598**

 

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**UNITED ARTISTS THEATRE CIRCUIT,INC.******(Exact name of registrant as Specified in its Charter)

 

| **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

 

Indicateby check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405of 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 mark whether the registrant isa large accelerated filer, an accelerated filer, a non-accelerated filer or asmaller reporting company.  See the definitionsof “large accelerated filer,” “accelerated filer” and “smaller reportingcompany” in Rule 12b-2 of the Exchange Act. (Check one):

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

 

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

 

Theregistrant is a wholly owned subsidiary of Regal Entertainment Group. As of June 28,2007, 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).

 

Thenumber of shares outstanding of $1.00 par value common stock at March 12,2008 was 100 shares.

 

 

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**TABLE OF CONTENTS**

 
| **PART I**   |
|-------------------|
|              | Item 1. | Business | 3 |
|              |   | The Company | 3 |
|              |   | Description of Business | 3 |
|              |   | Industry Overview and  Trends | 4 |
|              |   | Theatre Operations | 5 |
|              |   | Film Distribution | 6 |
|              |   | Film Exhibition | 7 |
|              |   | Concessions | 8 |
|              |   | Competition | 8 |
|              |   | Marketing and Advertising | 8 |
|              |   | Management  Information Systems | 9 |
|              |   | Seasonality | 9 |
|              |   | Employees | 9 |
|              |   | Regulation | 9 |
|              | Item 1A. | Risk Factors | 10 |
|              | Item 1B. | Unresolved Staff  Comments | 12 |
|              | Item 2. | Properties | 12 |
|              | Item 3. | Legal Proceedings | 12 |
|              | Item 4. | Submission of Matters to a  Vote of Security Holders | 13 |
| ** **        | ** ** | ** ** |
| **PART II**  |
|              | Item 5. | Market for the Registrant’s  Common Equity, Related Stockholder Matters and Issuer Purchases of Equity  Securities | 13 |
|              | Item 6. | Selected  Financial Data | 13 |
|              | Item 7. | Management’s  Discussion and Analysis of Financial Condition and Results of Operations | 13 |
|              |   | Overview and Basis  of Presentation | 13 |
|              |   | Results of Operations | 14 |
|              |   | Liquidity and Capital  Resources | 21 |
|              |   | Contractual Cash  Obligations and Commitments | 22 |
|              |   | Critical Accounting  Estimates | 23 |
|              |   | Quarterly Results | 25 |
|              |   | Inflation | 25 |
|              |   | Seasonality | 25 |
|              |   | Recent Accounting Pronouncements | 25 |
|              |   | Off-balance Sheet  Arrangements | 26 |
|              | Item 7A. | Quantitative and Qualitative  Disclosures About Market Risk | 26 |
|              | Item 8. | Financial Statements  and Supplementary Data | 26 |
|              | Item 9. | Changes in and Disagreements with  Accountants on Accounting and Financial Disclosure | 45 |
|              | Item 9A. | Controls and Procedures | 45 |
|              | Item 9B. | Other Information | 45 |
|              |   |   |
| **PART III** |
|              | Item 10. | Directors, Executive Officers and  Corporate Governance | 45 |
|              | Item 11. | Executive Compensation | 46 |
|              | Item 12. | Security Ownership of Certain Beneficial  Owners and Management and Related Stockholder Matters | 46 |
|              | Item 13. | Certain Relationships and Related  Transactions, and Director Independence | 46 |
|              | Item 14. | Principal Accounting Fees and Services | 46 |
|              |   |   |
| **PART IV**  |
|              | Item 15. | Exhibits, Financial Statement Schedules | 47 |
|              |   |   |
| Signatures        | 50 |
|                   |  |  |  |  |  |  |  |  |  |  |  |  |

 

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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 somecases you can identify these “forward-looking statements” by words like “may,” “will,”“should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,”“potential” or “continue” or the negative of those words and other comparablewords.  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 differ materially from the resultsdiscussed in the forward-looking statements. Factors that might cause such a difference include those discussed inItem 1 and Item 1A as well as those discussed elsewhere in this Form 10-K.*

 

**Item 1.  BUSINESS**

 

**THE COMPANY**

 

United Artists Theatre Company (the “Parent” or “United Artists”), aDelaware corporation organized in February 2002, is the parent company ofUnited Artists 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 a wholly owned subsidiary of RegalEntertainment Group (“REG” or “Regal”) who acquired Regal Cinemas Corporation (“RegalCinemas”), United Artists, Edwards Theatres, Inc. (“Edwards”) and RegalCineMedia Corporation (“Regal CineMedia”) through a series of transactions on April 12,2002.  For a detailed discussion of thetransactions resulting in Regal’s acquisition of its subsidiaries, see Note 2to the consolidated financial statements included in Part II, Item 8 ofthis Form 10-K.

 

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

 

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

 

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

 

**DESCRIPTIONOF BUSINESS**

 

As of December 27,2007, UATC operates 604 screens in 69 theatres in 19 states with over 21million annual  attendees.  The UATC theatres are managed by RCI, awholly owned subsidiary of Regal, pursuant to a management  arrangement described below.  The Company operates multi-screen theatresand has an average of 8.8 screens  perlocation. Theatre operations in seven states (California, New York, Florida,Maryland, Texas, Mississippi and  Pennsylvania)accounted for approximately 69.6% and 66.9% of UATC’s total theatres and screens,respectively,  as of December 27,2007 and 76.2% of UATC’s theatrical revenue for the fiscal year ended December 27,2007.

 

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The Company hashistorically upgraded its theatre circuit by retrofitting existing theatres andstrategically closing and disposing of under-performing theatres. Approximately65.2% of the Company’s screens are in theatres with 10 or more screens.  As of December 27, 2007, UATC operates24 theatres (274 screens) which offer stadium seating, representing 45.4% ofUATC’s screens.  Virtually all of thetheatres UATC has built or renovated since 1997 have beenstate-of-the-art, 9 to 16 screen multiplex theatres with stadium seating,high-backed rocking seats, digital sound, expanded concession areas and otherstate-of-the-art design features and amenities. These state-of-the-art amenities are included in UATC’s renovations toexisting theatres.  As compared to theprior generation of non-stadium theatres, UATC believes that these theatresprovide a higher quality entertainment experience for patrons and significantoperating efficiencies and improved economics for UATC.

 

In connection withRegal’s acquisition of its subsidiaries, as more fully described in Note 2 tothe consolidated 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 the Company’smanagement agreement with RCI, RCI, through an agreement with NationalCineMedia, LLC (“National CineMedia”), provides all on-screen and lobbyadvertising and event services to UATC. UATC receives a net fee for the use of its theatres for such advertisingand event services that is recorded in other revenue.  On February 13, 2007, National CineMediaInc. (“NCM Inc.”), a newly formed entity that serves as the sole manager ofNational CineMedia, completed an initial public offering, or IPO, of its commonstock. In connection with the completion of the IPO, RCI amended and restatedits existing exhibitor services agreement (“ESA”) with National CineMedia,whereby in exchange for its pro rata share of the IPO proceeds, RCI agreed to amodification of National CineMedia’s payment obligation under the ESA.  The modification extended the term of the ESAto 30 years, provided National CineMedia with a five year right of firstrefusal beginning one year prior to the end of the term and changed the basisupon which RCI is paid by National CineMedia from a percentage of revenuesassociated with advertising contracts entered into by National CineMedia to a monthlytheatre access fee.  On-screenadvertising time provided to our beverage concessionaire is provided byNational CineMedia under the terms of their agreement with RCI.  See Note 5 to the consolidated financialstatements included in Part II, Item 8 of this Form 10-K.

 

**INDUSTRY OVERVIEW AND TRENDS**

 

The domestic motion picture exhibition industry is a mature business whichhas historically maintained steady long-term growth in revenues and attendance.Since 1965, total box office revenues have grown at a compound annual growthrate of approximately 6% with annual attendance of approximately1.45 billion attendees in 2006. 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 officerevenues.  We expect the cyclical natureof the domestic motion picture exhibition industry to continue for theforeseeable future.

 

Over the past decade, the domestic motion picture exhibition industryexperienced a period of extraordinary new theatre construction.  From 1996 to 1999, the number of screensincreased at a compound annual growth rate of approximately 8%, which was morethan double the industry’s screen growth rate of approximately 3.5% from 1965to 1995. This industry expansion was primarily driven by major exhibitorsupgrading their asset bases to an attractive megaplex format, which typicallyincludes 10 or more screens per theatre and features such as stadium seating,improved projection quality and superior sound systems.  Generally, a modern megaplex is preferred bypatrons over a sloped-floor multiplex theatre, the predominant theatre-typebuilt prior to 1996.  We believe theatreslarger than the current 10 to 18 screen megaplex are not able to generateattractive returns in most locations because of the substantial marketsuitability requirements to generate a level of profitability similar to thecurrent megaplex format.  We also believethat another evolution of theatre formats beyond the current megaplex isunlikely to occur in the foreseeable future.

 

More recently, the domestic motion picture exhibition industry hasexperienced increased competition from other methods of delivering films toconsumers, including cable television, in-home video and DVD, satellite andpay-per-view services and downloads via the Internet.  Traditionally, when motion picturedistributors licensed their films to the domestic exhibition industry, theyrefrained from licensing their products to other 

 

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deliverychannels for a period of time, commonly called the theatrical releasewindow.  Over the past several years, theaverage period between a film’s theatrical release and its in-home video or DVDrelease has shortened.  We believe thatthe contraction in the average theatrical release window reflects the shorterperiod of time in which the average motion picture is able to generatemeaningful revenue in its theatrical exhibition license period.  As a consequence, we believe that theshrinking of the theatrical release window over the past five to six years hasnot represented a material change in the studio/exhibition distribution model.  Fundamentally, we believe that movie-going isa convenient, affordable and attractively priced form of out-of-homeentertainment, which, on an average price per patron basis, continues tocompare favorably to other out-of-home entertainment alternatives, such as concerts and sporting events.

 

We believe that a contraction of the theatrical release window, ifmaterial, could significantly dilute the consumer appeal of the out-of-homemotion picture offering.  As a result, wecontinue to monitor the status of the theatrical release window during our filmlicensing decisions.  Our discussionswith several film studios lead us to believe that these studios continue torecognize the value of maintaining meaningful theatrical release windows forboth distribution and exhibition companies. Consequently, we believe a furthermaterial contraction in the theatrical release window is unlikely, but shouldsuch a contraction occur we believe that it could significantly impact ourbusiness, financial condition and results of operations.

 

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. There are a variety of constituencies associated with this change,which may significantly impact industry participants, including contentproviders, distributors, equipment providers and exhibitors. To that end, on February 12,2007, Regal, along with AMC Entertainment, Inc. (“AMC”) and Cinemark, Inc.(“Cinemark”), formed a joint venture company known as Digital CinemaImplementation Partners, LLC, a Delaware limited liability company (‘‘DCIP’’),to explore the possibility of implementing digital cinema in our theatres andto create a financing model and establish agreements with major motion picturestudios for the implementation of digital cinema. Travis Reid, the formerpresident and chief executive officer of Loews Theatres, serves as the chiefexecutive officer of DCIP and DCIP has engaged J.P. Morgan Securities Inc. to assistwith the 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 ownershipinterest in DCIP.

 

We expect to begin converting our existing theatresfrom 35 mm film projection to digital projection during the second half of 2008and intend to complete the conversion of our entire circuit in approximatelythree to four years. DCIP is continuing to work with film studios and financialinstitutions to negotiate and finalize the related financing plans that wouldprovide for a studio-financed conversion to digital projection. We remainoptimistic regarding the benefits of digital cinema primarily as it relates tofuture growth potential associated with 3D film product and other 3D contentand are pleased to see continued support of 3D and IMAX film product by themajor studios.

 

**THEATRE OPERATIONS**

 

UATC operates 604 screens in 69 theatres in 19 statesas of December 27, 2007.  Weprimarily operate multi-screen theatres. Our multi-screen theatre complexestypically feature auditoriums ranging from 100 to 500 seats each. As a result,our theatres appeal to a diverse group of patrons because we offer a wideselection of films and convenient show times. In addition, many of our theatresfeature modern amenities such as wall-to-wall screens, digital stereosurround-sound, multi-station concessions stands, computerized ticketingsystems, plush stadium seating with cup holders and retractable armrests,neon-enhanced interiors and exteriors, and video game areas adjacent to thetheatre lobby.

 

Our multi-screen theatres are designed to increaseprofitability by optimizing revenues per square foot and reducing the cost persquare foot of operation. We vary auditorium seating capacities within the sametheatre, allowing us to exhibit films on a more cost effective basis for alonger period of time by shifting films to smaller auditoriums to meet changingattendance levels. In addition, we realize significant operating efficienciesby having common box office, concessions, projection, lobby and restroomfacilities, which enables us to spread some of our 

 

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costs, such as payroll, advertising and rent, over ahigher revenue base. We stagger movie show times to reduce staffingrequirements and lobby congestion and to provide more desirable parking andtraffic flow patterns. We also actively monitor ticket sales in order toquickly recognize demand surges, which enables us to add seating capacityquickly and efficiently. In addition, we believe that operating a theatrecircuit consisting primarily of multi-screen theatres enhances our ability toattract patrons. 

 

The following tabledetails the number of locations and theatre screens in our theatre circuitranked by the number of locations in each state as of December 27,2007:

 

| **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                    |       |
| Arkansas       |       | 2             |       | 20                    |       |
| Indiana        |       | 2             |       | 19                    |       |
| Nevada         |       | 2             |       | 18                    |       |
| North Carolina |       | 2             |       | 17                    |       |
| Louisiana      |       | 2             |       | 16                    |       |
| Michigan       |       | 1             |       | 14                    |       |
| Virginia       |       | 1             |       | 10                    |       |
| Massachusetts  |       | 1             |       | 6                     |       |
| Georgia        |       | 1             |       | 4                     |       |
| Total          |       | 69            |       | 604                   |       |

 

We have implemented best management practices across all of ourtheatres, including daily, weekly and monthly management reports generated foreach individual theatre, as well as maintaining active communication betweenthe theatres, divisional management and corporate management. We use thesemanagement reports and communications to closely monitor admissions andconcessions revenues as well as accounting, payroll and workforce informationnecessary to manage our theatre operations effectively and efficiently.

 

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

 

In addition, we have implemented quality assurance programs in all ofour theatres to maintain clean, comfortable and modern facilities. To maintainquality and consistency within our theatre circuit, district and regionalmanagers regularly inspect each theatre. We also operate a “mystery shopper”program, which involves unannounced visits by unidentified customers who reporton the quality of service, film presentation and cleanliness at individualtheatres.

 

**FILM DISTRIBUTION**

 

Domestic movie theatres are the primary initial distribution channelfor domestic film releases. The theatrical success of a film is often the mostimportant factor in establishing its value in other film distribution channels.Motion pictures are generally made available through several alternativedistribution methods after the 

 

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theatricalrelease date, including home video and DVD, cable television, broadcasttelevision and satellite and pay-per-view services. A strong opening run at thetheatre can help establish a film’s success and substantiate the film’s revenuepotential.  For example, the value ofhome video, 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.

 

The development of additional distribution channels has given motionpicture producers 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.***    Welicense films on a film-by-film and theatre-by-theatre basis by negotiatingdirectly with film distributors. Prior to negotiating for a film license, weevaluate the prospects for upcoming films. Criteria we consider for each filmmay include cast, producer, director, genre, budget, comparative filmperformances and various other market conditions. Successful licensing dependsgreatly upon the exhibitor’s knowledge of trends and historical film preferencesof the residents in markets served by each theatre, as well as the availabilityof commercially successful motion pictures.

 

***Access to******Film******Product.***    Films are licensed from filmdistributors owned by major production companies and from independent filmdistributors that distribute films for smaller production companies. Filmdistributors typically establish geographic licensing zones and allocate eachavailable film to one theatre within that zone.

 

In licensing zones where we arethe sole exhibitor, we obtain film licenses by selecting a film from amongthose films being offered and negotiating directly with the distributor. Inzones where there is competition, a distributor will allocate films among theexhibitors in the zone. When films are licensed under the allocation process, adistributor will select an exhibitor for each film who then negotiates filmrental terms directly with the distributor.

 

***Film Rental Fees.***    Filmlicenses typically 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 formula, the exhibitorand distributor negotiate a percentage of the box office receipts to be remittedto the distributor upon completion of the theatrical engagement. Thesenegotiations typically involve the use of historical settlements or pastprecedent. 

 

***Duration of Film Licenses.***    Theduration of our film licenses are negotiated with our distributors on acase-by-case basis. The terms of our license agreements depend on performanceof each film. Marketable movies that are expected to have high box officeadmission revenues will generally have longer license terms than movies withmore uncertain performance and popularity.

 

***Relationship with Distributors.***    Manydistributors provide quality first-run movies to the motion picture exhibitionindustry.  During fiscal 2007, ten majorfilm distributors accounted for 95% of the Company’s admissions revenues.  Six of the ten major film distributors each accountedfor more than 10% of fiscal 2007 admission revenues. No single film distributoraccounted for more than 20% of fiscal 2007 admissions revenues.  We license films from eachof the major distributors and believe that our relationships with thesedistributors are good. From year to year, the revenues attributable toindividual distributors will vary widely depending upon the number andpopularity of films that each one distributes.

 

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**CONCESSIONS**

 

                In addition to box officeadmissions revenues, we generated approximately 28.1% of our total revenuesfrom concessions sales during fiscal 2007. We emphasize prominent and appealingconcession stations designed for rapid and efficient service. We continuallyseek to increase concessions sales by optimizing product mix, introducingspecial promotions from time to time and offering employee training andincentive programs to up-sell and cross-sell products. We have favorableconcession supply contracts and have developed an efficient concessionpurchasing and distribution supply chain. RCI, pursuant to its managementagreement, negotiates directly with manufacturers for many of our concessionitems to obtain competitive prices and to ensure adequate supplies.

 

**COMPETI****TION**

 

The motion pictureindustry is highly competitive. Motion picture exhibitors generally compete onthe 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.

 

 

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

 

                We also compete with other motion picturedistribution channels, including home video and DVD, cable television,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 picture distributors licensed their productsto the domestic exhibition industry, they refrained from licensing their motionpictures to these other distribution channels for a period of time, commonlycalled the theatrical release window.  Webelieve that the shortening of the theatrical release window over the past fiveto six years does not represent a material change in the studio/exhibitiondistribution model.   However, we believethat a material contraction of the theatrical release window couldsignificantly dilute the consumer appeal of the out-of-home motion pictureoffering.  As a result, we continue tomonitor the status of the theatrical release window during our film licensingdecisions.   In addition, we compete forthe public’s leisure time and disposable income with other forms ofentertainment, including sporting events, concerts, live theatre andrestaurants.

 

**MARKETING AND ADVERTISING**

 

                Currently, film distributorsorganize and finance multimedia advertising campaigns for major film releases.To market our theatres, we utilize advertisements, including radio advertising,and movie schedules published in newspapers and over the Internet informing ourpatrons of film selections and show times. Newspaper advertisements aretypically displayed in a single grouping for all of our theatres located in anewspaper’s circulation area. In some of our markets we employ specialmarketing programs for specific films and concessions items.

 

                We participate ina frequent moviegoer loyalty program sponsored by REG, named the Regal CrownClub®, in all of our markets. Regal Crown Club® members are eligible forspecified awards, such as concession items, based on purchases made at ourparticipating theatres. In addition, we seek to develop patron loyalty througha number of other marketing programs such as free summer children’s film seriesand cross-promotional ticket redemptions and promotions within localcommunities. We currently offer these programs only in selected markets. Weplan to use these programs in markets where we believe patron loyalty can befurther enhanced, and we will 

 

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continueto evaluate our markets on a case-by-case basis to determine the suitability ofthese programs in individual regions. 

**MANAGEMENT INFORMATION SYSTEMS**

 

                We make extensive use of information technology (IT)for the management 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 most major retailers, grocery stores and massdiscounters 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 technologies to improve services to our patrons and provideinformation to our management, allowing them to operate the theatresefficiently.

 

                Our scheduling systems support the coordinationneeded to properly allocate our auditoriums between film showings andmeetings and events of National CineMedia, while also ensuringthat movie audiences view the intended advertising and that revenue is allocatedto the appropriate business function. The scheduling systems also provideinformation electronically and automatically to the newspapers, which allowsthem to publish correct show starting times with approved advertising graphics.The sales and attendance information developed by the theatre systems is useddirectly for film booking and settlement as well as being the primary source ofdata for our financial systems.

 

**SEASONALITY**

 

                Our revenues are usuallyseasonal, coinciding with the timing of releases of motion pictures by themajor distributors. Generally, studios release the most marketable motionpictures during the summer and the holiday season.  The unexpected emergence of a hit film duringother periods can alter the traditional trend. The timing of movie releases canhave a significant effect on our results of operations, and the results of onequarter are not necessarily indicative of results for the next quarter or anyother quarter. The seasonality of motion picture exhibition, however, hasbecome less pronounced as studios are releasing motion pictures somewhat moreevenly throughout the year.

 

**EMPL****OYEES**

 

                As of February 12, 2008, we employedapproximately 2,176 persons.  Filmprojectionists at certain of the Company’s theatres in the New York market arecovered by two collective bargaining agreements. The Company considers itsemployee relations to be good.

 

**REGULATION**

 

                The distribution of motion pictures is in large partregulated by federal and state antitrust laws and has been the subject of numerousantitrust cases. Consent decrees effectively require major film distributors tooffer and license films to exhibitors, including us, on a film-by-film andtheatre-by-theatre basis. Consequently, exhibitors cannot assure themselves ofa supply of films by entering into long-term arrangements with majordistributors, but must negotiate for licenses on a film-by-film basis.

 

                Our theatres must comply withTitle III of the Americans with Disabilities Act of 1990 (the “ADA”) to theextent that such properties are “public accommodations” and/or “commercialfacilities” as defined by the ADA. Compliance with the ADA requires that publicaccommodations “reasonably accommodate” individuals with disabilities and thatnew construction or alterations made to “commercial facilities” conform toaccessibility guidelines unless “structurally impracticable” for newconstruction or technically infeasible for alterations. Non-

 

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compliancewith the ADA could result in the imposition of injunctive relief, fines, anaward of damages to private litigants and additional capital expenditures to remedy such non-compliance.

 

                We believe that we are in substantial compliance withall current applicable regulations relating to accommodations for the disabled.We intend to comply with future regulations in this regard and except as setforth in Note 8 to the consolidated financial statements included in Part II,Item 8 of this Form 10-K, we do not currently anticipate that compliancewill require us to expend substantial funds.

 

                Our theatre operations are also subject to federal,state and local laws governing such matters as wages, working conditions,citizenship, consumer protection and health and sanitation requirements.  We believe that we are in substantialcompliance with all of such laws.

 

**Item 1A. RISK FACTORS**

 

***                Our substantial leaseobligations could impair our financial condition.***

 

                We have substantial lease obligations. For fiscal2007, our total rent expense was approximately $39.4 million. As of December 27,2007, we had total contractual cash obligations of approximately$304.4 million. For a detailed discussion of our contractual cashobligations and other commercial commitments over the next several years, referto “Management’s Discussion 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, wecould be forced to restructure our obligations and seek additional funding fromour Parent, a wholly owned subsidiary of Regal, or sell assets. We may beunable to restructure our obligations and obtain additional funding from ourParent or sell assets on satisfactory terms or at all. As a result, inabilityto meet our lease obligations could cause us to default on those obligations.Many of our lease agreements contain restrictive covenants that limit ourability to take specific actions or require us not to allow specific events tooccur and prescribe minimum financial maintenance requirements that we mustmeet. If we violate those restrictive covenants or fail to meet the minimumfinancial requirements 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.

 

***                Ourtheatres operate in a competitive environment.***

 

                The motion picture exhibition industry is fragmentedand highly competitive with no significant barriers to entry. Theatres operatedby national and regional circuits and by small independent exhibitors competewith our theatres, particularly with respect to film licensing, attractingpatrons and developing new theatre sites. Moviegoers are generally not brandconscious and usually choose a theatre based on its location, the films showingthere and its amenities.

 

                Over the past decade, motion picture exhibitors havebeen upgrading their asset bases to an attractive megaplex format whichfeatures stadium seating, improved projection quality and superior soundsystems. 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 December 27, 2007,approximately 55% 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 aggressive building strategies undertaken in the late 1990’s, ourattendance, revenue and income from operations per screen could declinesubstantially.

 

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

 

                Our ability to operate successfully depends upon theavailability, diversity and appeal of motion pictures, our ability to licensemotion pictures and the performance of such motion pictures in our markets. Welicense first-run motion pictures, the success of which have increasinglydepended on the marketing efforts of the major studios. Poor performance of, orany disruption in the production of (including by reason of a strike) thesemotion pictures, or a reduction in the marketing efforts of the major studios,could hurt our business and results of operations. In addition, a change in thetype and breadth of movies offered by studios may adversely affect thedemographic base of moviegoers.

 

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

 

                The industry is in the process of convertingfilm-based media to electronic based media. There are a variety ofconstituencies associated with this anticipated change, which may significantlyimpact industry participants, including content providers, distributors,equipment providers and exhibitors. Should the conversion process rapidlyaccelerate and the major studios not cover the cost of the conversion asexpected, we may have to use cash flow from operations, cash on hand or raiseadditional capital to finance the conversion costs associated with thispotential change. The additional capital necessary may not, however, beavailable to us on attractive terms, if at all. Furthermore, it is impossibleto accurately predict how the roles and allocation of costs (includingoperating costs) between various industry participants will change if theindustry changes from physical media to electronic media.

 

***                Anincrease in the use of alternative film delivery methods may drive down movietheatre attendance  and reduce ticketprices.***

 

                We also compete with other movie delivery vehicles,including cable television, downloads via the Internet, in-home video and DVD,satellite and pay-per-view services. Traditionally, when motion picture distributorslicensed their products to the domestic exhibition industry, they refrainedfrom licensing their motion pictures to these other delivery vehicles duringthe theatrical release window.  Webelieve that a material contraction of the current theatrical release windowcould significantly 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.

 

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

 

                The film distribution business is highlyconcentrated, with ten major film distributors accounting for 95% of ouradmissions revenues during fiscal 2007. Our business depends on maintaininggood relations with these distributors. In addition, we are dependent on ourability to negotiate commercially favorable licensing terms for first-run films.A deterioration in our relationship with any of the ten major film distributorscould affect our ability to negotiate film licenses on favorable terms or ourability to obtain commercially successful films and, therefore, could hurt ourbusiness and results of operations.

 

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

 

                The distribution of motion pictures is in large partregulated by federal and state antitrust laws and has been the subject ofnumerous antitrust cases. Consent decrees resulting from those caseseffectively require major motion picture distributors to offer and licensefilms to exhibitors, including us, on a film-by-film and theatre-by-theatrebasis. Consequently, we cannot assure ourselves of a supply of motion picturesby entering into long-term arrangements with major distributors, but mustcompete for our licenses on a film-by-film and theatre-by-theatre basis.

 

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

 

                Our success depends upon the retention of our seniormanagement, including Michael Campbell, our President and Chairman of theBoard. We cannot assure you that we would be able to find qualifiedreplacements for the individuals who make up our senior management if theirservices were no longer available. The loss of services of one or more membersof our senior management team could have a material adverse effect on our 

 

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business, financialcondition and results of operations. We do not currently maintain key-man lifeinsurance for any of our employees. The loss of any member of senior managementcould adversely affect our ability to effectively pursue our business strategy.

 

***A prolonged economic downturn could materially affect ourbusiness by reducing consumer spending on movie attendance.***

 

We depend on consumers voluntarily spendingdiscretionary funds on leisure activities. Motion picture theatre attendancemay be affected by prolonged negative trends in the general economy thatadversely affect consumer spending, including such trends resulting fromterrorist attacks on, or wars or threatened wars involving, the United States.Any reduction in consumer confidence or disposable income in general may affectthe demand for motion pictures or severely impact the motion picture productionindustry, which, in turn, could adversely affect our operations.

 

**Item 1B. UNRESOLVED STAFF COMMENTS**

 

As of December 27, 2007, there are no unresolvedcomments from the Securities and ExchangeCommission staff regarding any of our periodic orcurrent reports filed under the Exchange Act.

 

**Item2.  PROPERTIES**

 

As of December 27,2007, we operated 67****of ourtheatres pursuant to lease agreements and owned the land and buildings for 2theatres. For a December 27, 2007 list of the states in which we operatedtheatres and the number of theatres and screens operated in each such state,please see the chart under Part I, Item 1 of this Form 10-K under thecaption “Business—Theatre Operations”, which is incorporated herein byreference.

 

The majority ofour leased theatres are subject to lease agreements with original terms of 15to 20 years or more and, in most cases, renewal options for up to anadditional 10 years. These leases provide for minimum annual rentals andthe renewal options generally provide for rent increases. Some leases require,under specified conditions, further rental payments based on a percentage ofrevenues above specified amounts. A significant majority of the leases are netleases, which require us to pay the cost of insurance, taxes and a portion ofthe lessor’s operating costs.

 

Of the 69 owned and leased theatres, 1 theatre and nine screens is heldby a corporation, owned 51% by UATC.  Theremaining owned and leased theatres are held directly by UATC or its whollyowned subsidiaries.  Certain of our leased theatres are subject to saleand leaseback transactions, as further described in Note 6 to the consolidatedfinancial statements included in Part II, Item 8 of this Form 10-K.

 

UATC leases the land, building and equipment in the theatres owned byProp I in accordance with a master affiliate lease.  The Prop I master lease expired in 2003and UATC exercised its option to extend the lease for an additional ten years.

 

**Item3.  LEGAL PROCEEDINGS**

 

Pursuant toGeneral Instruction G(2) to Form 10-K and Rule 12b-23 under the SecuritiesExchange Act of 1934, as amended, the information required to be furnished byus under this Part I, Item 3 (Legal Proceedings) is incorporated byreference to the information contained in Note 8 to the consolidated financialstatements included in Part II, Item 8 of this Form 10-K.

 

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**Item4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

 

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

 

**PART II**

 

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

 

As of March 12,2008, UATC’s common stock is held entirely by the Parent.  There is no established public trading marketfor the Company’s common stock.  During2005, UATC effected two cash dividends totaling approximately $32.3 million tothe Parent. UATC’s ability to pay dividends is restricted by the terms of theParticipation Agreement entered into in connection with the 1995 sale andleaseback transaction described in Note 6 to the consolidated financialstatements included in Part II, Item 8 of this Form 10-K.

 

**Item 6. SELECTED FINANCIAL DATA**

 

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

 

**Item 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF O****PERATIONS**

 

*Thisdiscussion summarizes the significant factors affecting the consolidatedoperating results, financial condition, liquidity and cash flows of UATC forthe fiscal years ended December 27, 2007, December 28, 2006 and December 29,2005.**The following discussion and analysis should be read inconjunction with the consolidated financial statements of**UATC**and the notes theretoincluded elsewhere in this Form 10-K.*

 

**Overview and Basis of Presentation**

 

As of December 27,2007, UATC operates 604 screens in 69 theatres in 19 states with over 21million annual attendees.  The UATCoperated theatres are managed by RCI, a wholly owned subsidiary of Regal,pursuant to a management arrangement described below.  The Company primarily operates multi-screentheatres and has an average of 8.8 screens per location. Theatre operations inseven states (California, New York, Florida, Maryland, Texas, Mississippi andPennsylvania) accounted for approximately 69.6% and 66.9% of UATC’s totaltheatres and screens, respectively, as of December 27, 2007 and 76.2% of UATC’stheatrical revenue for the fiscal year ended December 27, 2007.  The Company manages its business under onereportable segment: theatre exhibition operations.

 

United Artists became a wholly owned subsidiary of REH through a seriesof transactions in 2002.  REH is a whollyowned subsidiary of Regal who acquired Regal Cinemas, United Artists, Edwardsand Regal CineMedia through a series of transactions on April 12,2002.  For a detailed discussion of thetransactions resulting in Regal’s acquisition of its subsidiaries, see Note 2to the consolidated financial statements included in Part II, Item 8 ofthis Form 10-K. On August 17, 2005, REH transferred the stock of UnitedArtists to RCI. As a result, United Artists and its subsidiaries becamesubsidiaries of RCI.

 

We generate revenuesprimarily from admissions and concession sales. Additional revenues aregenerated by electronic video games located adjacent to the lobbies of certainof our theatres and vendor marketing programs. In addition, National CineMedia provides us with a theatre access feeassociated with revenues generated from its sale of on-screen advertising,rental of theatres for business meetings and concerts and other events pursuantto its arrangements with RCI (described in Note 5 to the consolidated financialstatements included in Part II, Item 8 of this Form 10-K). Filmrental costs depend on a variety of factors including the 

 

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prospects of a film andthe popularity of a film and such film rental costs generally increase as theadmissions revenues generated by a film increase. Because we purchase certainconcession items, such as fountain drinks and popcorn, in bulk and notpre-packaged for individual servings, we are able to improve our margins bynegotiating volume discounts. Other operating expenses consist primarily oftheatre labor and occupancy costs.

 

As described inNote 1 to the consolidated financial statements included in Part II, Item8 of this Form 10-K, during the year ended December 27, 2007, theCompany sold its equity interest in an internet ticketing company, Fandango, Inc.(“Fandango”), 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).

 

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

 

In order to provide a meaningful basis of comparing the fiscal yearsended December 27,2007, December 28, 2006 and December 29, 2005 for purposes of thefollowing tables and discussion, the operating results for the fifty-two weeksended December 27, 2007 (“Fiscal 2007 Period”) are compared to thefifty-two weeks ended December 28, 2006 (“Fiscal 2006 Period”) and thefifty-two weeks ended December 29, 2005 (“Fiscal 2005 Period”).

 

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

 

**Results of Operations**

 

Based on ourreview of industry sources, national box office revenues for the time periodthat corresponds to UATC’s 2007 fiscal year were estimated to have increased byapproximately 4-5% in comparison to the 2006 fiscal year. The industry’ssuccess in 2007 was driven primarily by ticket price increases and alsobenefited from the success of top-tier films including *Spider-Man 3, Transformers, Pirates of the Caribbean:At World’s End, Shrek the Third*and *Harry Potter & TheOrder of The Phoenix.*

 

Our total revenuesfor the Fiscal 2007 Period was $229.1 million, consisting of $157.3million of admissions revenues, $64.5 million from concessions revenues and$7.3 million of other operating revenues, and represented a 3.9% decrease overtotal revenues of $238.3 million for the Fiscal 2006 Period.

 

The decline in theCompany’s operating results was attributable to a 9.1% decrease in attendanceresulting primarily from the closure of 49 underperforming screens during theFiscal 2007 Period.  The decline in boxoffice revenues was partially offset by a 5.5% increase in the Fiscal 2007Period average ticket prices per patron resulting from ongoing periodic pricingreviews (which include analysis of various factors including generalinflationary trends and local market conditions) and a favorable mix of filmproduct exhibited during the Fiscal 2007 Period.

 

In addition,during the Fiscal 2007 Period, we experienced growth in average concessionsrevenues per patron and a decline in other operating revenues. The growth inaverage concessions revenues per patron was primarily attributable to priceincreases, concession-friendly films exhibited during the Fiscal 2007 Period,such as*Spider-Man 3, Transformers, Pirates of theCaribbean: At World’s End, Shrek the Third, Harry Potter & the Orderof The Phoenix*and*Ratatouille*and a favorable mix ofconcession products sold during the Fiscal 2007 Period.  The decrease inother operating revenues in the Fiscal 2007 Period was primarily attributableto a modification of the payment arrangement between RCI and NationalCineMedia, described in further detail under Note 5 to the consolidatedfinancial statements included in Part II, Item 8 of this Form 10-K.

 

Income fromoperations decreased 4.8% to $10.0 million for the Fiscal 2007 Periodcompared to $10.5 million in the Fiscal 2006 Period. The net decrease inincome from operations during the Fiscal 2007 Period was primarily attributableto the decrease in total revenues described above, coupled with an increase inthe net loss on disposal and impairment of operating assets, partially offsetby decreases in various operating expense items described in further detailbelow.  Net income increased to$11.5 million in the Fiscal 2007 

 

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Period compared to netincome of $6.2 million in the Fiscal 2006 Period.  The increase in net income was primarily dueto a $7.0 million gain ($4.2 million after related tax effects) resulting fromtransactions completed in connection with the sale of our equity interest inFandango (see Note 1 to the consolidated financial statements included in Part II,Item 8 of this Form 10-K for further discussion) and a net increase ininterest income.

 

                With respect to capital expenditures, due in part tothe timing of certain construction projects, we expect capital expenditures tobe in the range of $5.0 million to $10.0 million for fiscal 2008, consisting ofexpansion of existing theatre facilities, upgrades and replacements.

 

                Overallfor the fiscal 2008 year, we expect to benefit from the impact of a 53-weekfiscal year along with modest increases in ticket prices and averageconcessions per patron. In addition, we expect fiscal 2008 admissions andconcessions revenues to be supported by our continued focus on efficienttheatre operations, however, further closures of underperforming screens couldoffset increases in industry box office and concessions per patron. For anunderstanding of the significant factors that influenced our performance duringthe past three fiscal years, the preceding and following discussion should beread in conjunction with the consolidated financial statements and the notesthereto presented in this Form 10-K.

 

                Thefollowing table sets forth the percentage of total revenues represented bycertain items reflected in UATC’s consolidated statements of operations for theFiscal 2007 Period, the Fiscal 2006 Period and the Fiscal 2005 Period:

 
| ** **                                                                                                                                                                              | ** ** | **Fiscal 2007 Period** | ** ** | **Fiscal 2006 Period** | ** ** | **Fiscal 2005 Period** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|------------------------|------------|------------------------|------------|
| Revenues:                                                                                                                                                                               |       |                   |       |                   |       |                   |       |
| Admissions                                                                                                                                                                              |       | 68.7                   | %          | 68.8                   | %          | 69.2                   | %          |
| Concessions                                                                                                                                                                             |       | 28.1                   |       | 27.4                   |       | 27.2                   |       |
| Other operating revenues                                                                                                                                                                |       | 3.2                    |       | 3.8                    |       | 3.6                    |       |
|                                                                                                                                                                                    |       |                   |       |                   |       |                   |       |
| Total revenues                                                                                                                                                                          |       | 100.0                  |       | 100.0                  |       | 100.0                  |       |
| Operating expenses:                                                                                                                                                                     |       |                   |       |                   |       |                   |       |
| Film rental and advertising costs                                                                                                                                                       |       | 35.7                   |       | 35.2                   |       | 35.8                   |       |
| Cost of concessions                                                                                                                                                                     |       | 3.9                    |       | 4.1                    |       | 3.9                    |       |
| Other operating expenses                                                                                                                                                                |       | 40.9                   |       | 41.5                   |       | 43.5                   |       |
| Sale and leaseback rentals                                                                                                                                                              |       | 6.5                    |       | 6.3                    |       | 6.0                    |       |
| General and administrative expenses (including share-based  compensation expense of $0.2 million and $2.3 million for the Fiscal 2006  Period and the Fiscal 2005 Period, respectively) |       | 3.0                    |       | 3.1                    |       | 4.0                    |       |
| Depreciation and amortization                                                                                                                                                           |       | 4.6                    |       | 4.9                    |       | 5.3                    |       |
| Net loss (gain) on disposal and impairments of operating assets                                                                                                                         |       | 1.0                    |       | 0.5                    |       | (0.7                   | )          |
|                                                                                                                                                                                    |       |                   |       |                   |       |                   |       |
| Total operating expenses                                                                                                                                                                |       | 95.6                   |       | 95.6                   |       | 97.8                   |       |
|                                                                                                                                                                                    |       |                   |       |                   |       |                   |       |
| Income from operations                                                                                                                                                                  |       | 4.4                    | %          | 4.4                    | %          | 2.2                    | %          |

 

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***Total Revenues***

 

                The following table summarizes revenues andrevenue-related data for the Fiscal 2007 Period, Fiscal 2006 Period and theFiscal 2005 Period (in millions, except averages):

 
| ** **                          | ** ** | **Fiscal 2007 Period** | ** ** | **Fiscal 2006 Period** | ** ** | **Fiscal 2005 Period** | ** ** |
|-------------------------------------|------------|------------------------|------------|------------------------|------------|------------------------|------------|
| Admissions                          |       | $                      | 157.3      |                   | $          | 163.9                  |       | $ | 174.7 |   |
| Concessions                         |       | 64.5                   |       | 65.3                   |       | 68.7                   |       |
| Other operating revenues            |       | 7.3                    |       | 9.1                    |       | 9.1                    |       |
|                                |       |                   |       |                   |       |                   |       |
| Total revenues                      |       | $                      | 229.1      |                   | $          | 238.3                  |       | $ | 252.5 |   |
|                                |       |                   |       |                   |       |                   |       |
| Attendance                          |       | 21.0                   |       | 23.1                   |       | 25.4                   |       |
| Average ticket price (1)            |       | $                      | 7.49       |                   | $          | 7.10                   |       | $ | 6.88 |   |
| Average concessions per  patron (2) |       | $                      | 3.07       |                   | $          | 2.83                   |       | $ | 2.70 |   |

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(1)  Calculated as admissionsrevenue/attendance.

 

(2)  Calculated as concessionsrevenue/attendance.

 

**Revenues**

 

*Admissions*

 

Total admissionsrevenues decreased $6.6 million, or 4.0%, to $157.3 million, for theFiscal 2007 Period from $163.9 million for the Fiscal 2006 Period.  Our Fiscal 2007 Period box office resultswere unfavorably impacted by a 9.1% decrease in attendance resulting primarilyfrom the closure of 49 underperforming screens during the Fiscal 2007Period.  The decline in box officerevenues was partially offset by a 5.5% increase in the Fiscal 2007 Period averageticket prices per patron resulting from ongoing periodic pricing reviews (whichinclude analysis of various factors including general inflationary trends andlocal market conditions) and a favorable mix of film product exhibited duringthe Fiscal 2007 Period.

 

Total admissionsrevenues decreased $10.8 million, or 6.2%, to $163.9 million, for theFiscal 2006 Period from $174.7 million for the Fiscal 2005 Period.  Our Fiscal 2006 Period box office resultswere unfavorably impacted by a 9.1% decrease in attendance. The decrease inattendance during the Fiscal 2006 Period compared to the Fiscal 2005 Period wasprimarily attributable to the closure of 62 underperforming screens during theFiscal 2006 Period and the sale of 37 screens to another theatre operator in November 2005.The decline in admissions revenue was partially offset by the growth in theoverall industry box office and a 3.2% increase in the Fiscal 2006 Periodaverage ticket prices per patron resulting from periodic pricing reviews.  Such reviews include an analysis of variousfactors, including general inflationary trends and local market conditions.

 

*Concessions*

* *

Total concessionsrevenues decreased $0.8 million, or 1.2%, to $64.5 million for theFiscal 2007 Period from $65.3 million for the Fiscal 2006 Period.  The decrease in concessions revenues in theFiscal 2007 Period was primarily due to the aforementioned Fiscal 2007 Perioddecrease in attendance, partially offset by a 8.5% increase in the Fiscal 2007Period average concessions per patron  The growth in average concessions revenuesper patron for the Fiscal 2007 Period was primarily attributable to priceincreases, concession-friendly films exhibited during the Fiscal 2007 Period,such as*Spider-Man 3, Transformers, Pirates of the Caribbean: At World’s End,Shrek the Third, Harry Potter & The Order of the Phoenix*and *Ratatouille*anda favorable mix of concession products sold during the Fiscal 2007 Period.

 

Total concessionsrevenues decreased $3.4 million, or 4.9%, to $65.3 million for theFiscal 2006 Period from $68.7 million for the Fiscal 2005 Period.  The decrease in concessions revenues in theFiscal 2006 Period compared to the Fiscal 2005 Period was primarily due to theaforementioned Fiscal 2006 Period decrease in attendance.   The decline in concessions revenues was partiallyoffset by a 4.8% increase in the Fiscal 2006 Period average concessions perpatron, primarily attributable to changes in our concessions product mix(including certain size changes) and increases in concession prices.  In addition, the success of certainfamily-oriented and concession-friendly films such as *Pirates ofthe Caribbean: Dead Man’s Chest, X-Men 3*and*Cars*benefitedconcessions revenues for the Fiscal 2006 Period.

 

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* *

*OtherOperating Revenues*

                Total other operating revenues decreased $1.8million, or 19.8%, to $7.3 million for the Fiscal 2007 Period, from $9.1million for the Fiscal 2006 Period. Included in other operating revenues are the theatre access fees paid byNational CineMedia, net of payments for on-screen advertising time provided toour beverage concessionaire, marketing revenues from certain of the Company’svendor marketing 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.

 

                Total other operating revenues were $9.1 million forthe Fiscal 2006 Period and for the Fiscal 2005 Period. Included in otheroperating revenues are on-screen and lobby advertising revenues, businessmeetings and concert event revenues, marketing revenues from certain of theCompany’s vendor marketing programs and game revenues.  ***Operating Expenses***

 

The followingtable summarizes certain operating expenses for the Fiscal 2007 Period, Fiscal2006 Period and the Fiscal 2005 Period (dollars in millions):

 
| ** **                               | ** ** | **Fiscal 2007 Period** | ** ** | **Fiscal 2006 Period** | ** ** | **Fiscal 2005 Period** | ** ** |
|------------------------------------------|------------|------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                               | ** ** | **$**                  | ** ** | **% of  Revenues**     | ** ** | **$**                  | ** ** | **% of  Revenues** | ** ** | **$** | ** ** | **% of  Revenues** | ** ** |
| Film rental and  advertising costs (1)   |       | 81.9                   |       | 52.1                   |       | 83.9                   |       | 51.2 |   | 90.4 |   | 51.7 |   |
| Cost of concessions (2)                  |       | 9.0                    |       | 14.0                   |       | 9.8                    |       | 15.0 |   | 10.0 |   | 14.6 |   |
| Other theatre operating  expenses (3)    |       | 93.7                   |       | 40.9                   |       | 98.9                   |       | 41.5 |   | 109.8 |   | 43.5 |   |
| Sale and leaseback rentals  (3)          |       | 14.9                   |       | 6.5                    |       | 15.0                   |       | 6.3 |   | 15.1 |   | 6.0 |   |
| General and Administrative  expenses (3) |       | 6.9                    |       | 3.0                    |       | 7.5                    |       | 3.1 |   | 10.1 |   | 4.0 |   |

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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.

 

*FilmRental and Advertising Costs*

 

                Film rental and advertising costs as a percentage ofadmissions revenues increased to 52.1% during the Fiscal 2007 Period ascompared to 51.2% in the Fiscal 2006 Period. The increases in film rental and advertising costs as a percentage ofbox office revenues during the Fiscal 2007 Period was primarily the result of ahigher percentage of box office revenues generated by the top 10 filmsexhibited during the Fiscal 2007 Period.

 

                During the Fiscal 2006 Period, film rental andadvertising costs as a percentage of admissions revenues decreased to 51.2% ascompared to 51.7% in the Fiscal 2005 Period. The decrease in film rental and advertising costs as a percentage of boxoffice revenues during the Fiscal 2006 Period compared to the Fiscal 2005Period was primarily the result of a higher percentage of box office revenuesgenerated from lower grossing films, coupled with higher film rental costsassociated with certain Fiscal 2005 Period films such as *Star Wars: Episode III— Revenge of the Sith*.

 

*Cost of Concessions*

                During the Fiscal 2007 Period, cost of concessions asa percentage of concessions revenues decreased to 14.0% as compared to 15.0% inthe Fiscal 2006 Period. The decrease in the cost of concessions as a percentageof concessions revenues during the Fiscal 2007 Period was primarily related toincreases in concession prices, coupled with the mix of concession products sold during such periods.

 

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                Cost of concessions as a percentage of concessionsrevenues increased to 15.0% in the Fiscal 2006 Period as compared to 14.6% inthe Fiscal 2005 Period.  The increase inthe cost of concessions as a percentage of concessions revenues during theFiscal 2006 Period compared to the Fiscal 2005 Period was primarily related toa greater percentage of lower margin concession items in the overall mix ofconcession product sold during the Fiscal 2006 Period as compared to the Fiscal2005 Period.

* *

*OtherTheatre Operating Expenses*

 

                Other theatre operating expenses decreased $5.2million, or 5.3%, to $93.7 million for the Fiscal 2007 Period, from $98.9million in the Fiscal 2006 Period.  Othertheatre operating expenses as a percentage of total revenues decreased to 40.9%in the Fiscal 2007 Period as compared to 41.5% in the Fiscal 2006 Period.  The decrease in other theatre operatingexpenses in the Fiscal 2007 Period was primarily attributable to the closure of49 underperforming screens during the Fiscal 2007 Period.  The decrease in other theatre operatingexpenses as a percentage of total revenues in the Fiscal 2007 Period was due toa reduction of certain non-rent occupancy costs and labor costs.

 

                Other theatre operating expenses decreased $10.9million, or 9.9%, to $98.9 million for the Fiscal 2006 Period, from $109.8million in the Fiscal 2005 Period.  Othertheatre operating expenses as a percentage of total revenues decreased to 41.5%in the Fiscal 2006 Period as compared to 43.5% in the Fiscal 2005 Period. Thedecrease in other theatre operating expenses in the Fiscal 2006 Period comparedto the Fiscal 2005 Period was primarily attributable to the closure of 62underperforming screens during the Fiscal 2006 Period and from the sale of 37screens to another theatre operator in November 2005.  The decrease in other theatre operatingexpenses as a percentage of total revenues in the Fiscal 2006 Period comparedto the Fiscal 2005 Period was due to a reduction of certain non-rent occupancycosts and certain other variable operating costs.

* *

*Sale and Leaseback Rentals*

*               *Sale and leaseback expenses decreased$0.1 million, or 0.7%, to $14.9 million for the Fiscal 2007 Period, from $15.0million in the Fiscal 2006 Period.  SeeNote 6 to the consolidated financial statements included in Part II, Item8 of this Form 10-K for further discussion of sale and leasebacktransactions.

 

*               *Sale and leaseback expenses decreased $0.1million, or 0.7%, to $15.0 million for the Fiscal 2006 Period, from $15.1million for the Fiscal 2005 Period.  SeeNote 6 to the consolidated financial statements included in Part II, Item8 of this Form 10-K for further discussion of sale and leasebacktransactions.

 

*General and Administrative Expenses*

 

During the Fiscal2007 Period, general and administrative expenses decreased $0.6 million,or 8.0%, to $6.9 million, from $7.5 million in the Fiscal 2006Period.  As a percentage of totalrevenues, 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 administrativeexpense 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 during the Fiscal 2007 Period as further described in Note9 to the consolidated financial statements included in Part II, Item 8 ofthis Form 10-K.

 

General andadministrative expenses decreased $2.6 million, or 25.7%, to$7.5 million during the Fiscal 2006 Period, from $10.1 million in theFiscal 2005 Period.  As a percentage oftotal revenues, general and administrative expenses decreased to 3.1% in theFiscal 2006 Period, from 4.0% in the Fiscal 2005 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 2006 Period compared to the Fiscal 2005 Period wasprimarily attributable to the reduction in share-based compensation expenseduring the Fiscal 2006 Period, as further described in Note 9 to theconsolidated financial statements included in Part II, Item 8 of this Form 10-K,and to a lesser extent, the 

 

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reductionin management fee costs incurred during the Fiscal 2006 Period resulting fromthe decrease in total revenues during the Fiscal 2006 Period compared to theFiscal 2005 Period.

 

***Depreciation and Amortization***

 

                Depreciation and amortization decreased$1.1 million, or 9.5%, to $10.5 million during the Fiscal 2007Period, from $11.6 million in the Fiscal 2006 Period.  The decrease in depreciation and amortizationexpense during the Fiscal 2007 Period was primarily due to the closure of 49underperforming screens during the Fiscal 2007 Period.

 

                Depreciation and amortization expense decreased$1.7 million, or 12.8%, to $11.6 million for the Fiscal 2006 Period,from $13.3 million for the Fiscal 2005 Period.  The decrease in depreciation and amortizationexpense during the Fiscal 2006 Period compared to the Fiscal 2005 Period wasprimarily due to the closure of 62 underperforming screens during the Fiscal2006 Period and the sale of 37 screens to another theatre operator in November 2005.

 

***Income from Operations***

 

                For the Fiscal 2007 Period, income from operationstotaled approximately $10.0 million, which represents a decrease of$0.5 million, or 4.8%, from $10.5 million in the Fiscal 2006Period.  The net decrease in income fromoperations during the Fiscal 2007 Period was primarily attributable to a 3.9%decrease in total revenues for the Fiscal 2007 Period described above, coupledwith an increase 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.

 

                Income from operations totaled approximately$10.5 million for the Fiscal 2006 Period, which represents an increase of$5.0 million, or 90.9%, from $5.5 million in the Fiscal 2005Period.  The net increase in income fromoperations during the Fiscal 2006 Period compared to the Fiscal 2005 Period wasprimarily attributable to the decrease in total operating expenses, partiallyoffset by a 5.6% decrease in total revenues for the Fiscal 2006 Period,described above and the increase in the net loss on disposal and impairment ofoperating assets during the Fiscal 2006 Period resulting from a net gain of$2.5 million on disposal of assets during the Fiscal 2005 Period.

 

***Interest Income, Net***

 

                During the Fiscal 2007 Period,net interest income increased $1.0 million to $1.6 million, from $0.6 millionin the Fiscal 2006 Period.  The increasein net interest income during the Fiscal 2007 Period was primarily due tointerest earned on the higher outstanding cash balance during the Fiscal 2007Period.

 

                Net interest income increased$0.5 million to $0.6 million for the Fiscal 2006 Period, from $0.1 million forthe Fiscal 2005 Period.  The increase innet interest income during the Fiscal 2006 Period compared to the Fiscal 2005 Period was primarilydue to the repayment of the mortgage associated with the sale of the land andbuilding related to one theatre location in September 2005 and theinterest earned on the higher cash balance during the Fiscal 2006 Period.

 

***Income Taxes***

 

                The provision for income taxes increased $2.0million, or 41.7%, to $6.8 million for the Fiscal 2007 Period, from $4.8million for the Fiscal 2006 Period.  Accordingly, the effective tax ratewas 37.2% and 43.6% for the Fiscal 2007 and Fiscal 2006 Periods,respectively.  The decrease in the effective tax rate was primarilyattributable to the recognition of a tax benefit relative to net operatinglosses that had not been previously recognized. The effective tax rate for each period reflects the impact of certainnon-deductible expenses.

 

                The provision for income taxes increased $2.3million, or 92.0%, to $4.8 million for the Fiscal 2006 Period, from $2.5million for the Fiscal 2005 Period.  Accordingly, the effective tax ratewas 43.6% and 43.1% for the Fiscal 2006 and Fiscal 2005 Periods,respectively.  The effective tax rate for each period reflects the impactof certain non-deductible expenses.

 

                As discussed in Note 7 to the consolidatedfinancial statements included in Part II, Item 8 of this Form 10-K,during 2005, REG, the parent company of the consolidated tax group whichincludes activity of the Company, 

 

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was notified that theInternal Revenue Service (“IRS”) would examine its 2002 and 2003 federal incometax returns.  In October 2005, the examination of REG’s federal taxreturns for such years was completed, and REG and the IRS agreed tocertain adjustments to the years under audit.  Such adjustments did nothave a material impact on the Company’s provision for income taxes.

 

***Net Income***

 

                Net income totaled $11.5 million during theFiscal 2007 Period, which represents an increase of $5.3 million, from$6.2 million in the Fiscal 2006 Period. The increase in net income for the Fiscal 2007 Period was primarilyattributable to a $7.0 million gain ($4.2 million after related tax effects)resulting from transactions completed in connection with the sale of our equityinterest in Fandango (see Note 1 to the consolidated financial statementsincluded in Part II, Item 8 of this Form 10-K for furtherdiscussion), coupled with an increase in interest income and a decrease inincome taxes, partially offset by a decrease in operating income describedabove and a $0.2 million loss resulting from the purchase of the partnershipinterest in two of our subsidiaries during the Fiscal 2007 Period (see Note 1to the consolidated financial statements included in Part II, Item 8 ofthis Form 10-K for further discussion).

 

                Net income totaled $6.2 million for the Fiscal2006 Period, which represents an increase of $2.9 million, from$3.3 million in the Fiscal 2005 Period. The increase in net income for the Fiscal 2006 Period compared to theFiscal 2005 Period was primarily attributable to the increase in operatingincome described above and the increase in interest income, partially offset byan increase in income taxes during the Fiscal 2006 Period.

 

***CashFlows***

 

                The following table summarizes certain cash flow datafor the Fiscal 2007 Period, Fiscal 2006 Period and Fiscal 2005 Period (dollarsin millions):

 

 
| ** **                                            | ** ** | **Fiscal 2007 Period** | ** ** | **Fiscal 2006 Period** | ** ** | **Fiscal 2005 Period** | ** ** |
|-------------------------------------------------------|------------|------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                            | ** ** | ** **             | ** ** | ** **             | ** ** | ** **             | ** ** |
| Net cash provided by  operating activities            |       | $                      | 12.2       |                   | $          | 16.1                   |       | $ | 19.4 |   |
| Net cash provided by (used  in) investing activities  |       | 2.5                    |       | (4.1                   | )          | 9.5                    |       |
| Net cash used in financing  activities                |       | (4.3                   | )          | (3.8                   | )          | (32.9                  | )          |
| Net increase (decrease) in  cash and cash equivalents |       | $                      | 10.4       |                   | $          | 8.2                    |       | $ | (4.0 | ) |

 

*                Fiscal 2007**Period**Compared to Fiscal2006 Period*

 

                Net cash flows provided by operating activitiesdecreased by approximately $3.9 million for the Fiscal 2007 Period fromapproximately $16.1 million for the Fiscal 2006 Period.  The net decrease in net cash flows providedby operating activities for the Fiscal 2007 Period was primarily attributableto the decrease in operating income and the increase in deferred income taxbenefit of approximately $7.3 million resulting from the transactions completedbetween REG and National CineMedia, in connection with the IPO of NCM Inc. (seeNote 5 to the consolidated financial statements included in Part II, Item8 of this Form 10-K for further discussion), partially offset by a $5.4million increase in changes in operating assets and liabilities  The net increase in the changes in operating assetsand liabilities and other working capital items was primarily related to thetiming of certain Fiscal 2007 vendor payments, income tax payments, accountsreceivable and prepaid expenses.

 

                Net cash flows provided by investing activities wereapproximately $2.5 million for the Fiscal 2007 Period compared to cashflows used in investing activities of approximately $4.1 million for theFiscal 2006 Period.  The 

 

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net increase in cashflows provided by investing activities during the Fiscal 2007 Period wasprimarily attributable to the $7.0 million of proceeds received in connectionwith the sale of the Company’s equity interest in Fandango during the Fiscal2007 Period, coupled with a decrease in capital expenditures of $1.9 millionand the $0.3 million in dividends received from a partnership during the Fiscal2007 Period, partially offset by a $1.5 million decrease in proceeds fromthe disposition of assets during the Fiscal 2007 Period and the $1.1 millionpurchase of partnership interests during the Fiscal 2007 Period.

 

                Net cash flows used in financing activities wereapproximately $4.3 million for the Fiscal 2007 Period compared to cash flowsused in financing activities of approximately $3.8 million for the Fiscal2006 Period. The net increase in cash flows used in financing activities duringthe Fiscal 2007 Period was primarily attributable to the decrease of $1.0million in excess tax benefits from share based payment arrangements during theFiscal 2007 Period, partially offset by the net decrease in the change in therelated party receivable of $0.4 million during the Fiscal 2007 Period ascompared to the Fiscal 2006 Period and a reduction in debt payments of $0.1million during the Fiscal 2007 Period.

 

*                Fiscal 2006 Period Compared toFiscal 2005 Period*

 

                Netcash flows provided by operating activities were approximately$16.1 million for the Fiscal 2006 Period, which represents a decrease of$3.3 million compared to $19.4 million in the Fiscal 2005 Period. Fiscal2006 Period net cash flows generated from operating activities were impacted byseveral factors including an approximate $2.7 million decrease inadjustments (primarily a decrease in depreciation expense, a reduction inshare-based compensation expense, a decrease in escalating rent and in deferredincome tax expense, partially offset by an increase in minority interestexpense and a greater loss on disposal and impairment of operating assets) toreconcile net income to cash provided by operating activities and a$3.5 million reduction of changes in operating assets and liabilities,partially offset by a $2.9 million increase in net income contributed tothe net decrease in net cash provided by operating activities. The net decreasein the changes in operating assets and liabilities and other working capitalitems was primarily related to the timing of certain vendor payments and incometax payments (including a reclassification of excess tax benefits fromshare-based payment arrangements to cash flows used in financing activitiesdiscussed further in Note 9 to the consolidated financial statements includedin Part II, Item 8 of this Form 10-K) and decreases in prepaidexpenses and other current assets, partially offset by an increase in certainaccrued expenses and other liabilities.

 

                Netcash flows used in investing activities totaled approximately $4.1 millionfor the Fiscal 2006 Period compared to cash flows provided by investingactivities of approximately $9.5 million for the Fiscal 2005 Period.  The net decrease in cash flows provided byinvesting activities during the Fiscal 2006 Period was primarily attributableto a decrease in proceeds from the disposition of assets of $13.5 million andan increase in capital expenditures of $0.1 million during the Fiscal 2006Period as compared the Fiscal 2005 Period.

 

                Netcash flows used in financing activities were approximately $3.8 millionfor the Fiscal 2006 Period compared to cash flows used in financing activitiesof approximately $32.9 million for the Fiscal 2005 Period. The netdecrease in cash flows used in financing activities during the Fiscal 2006Period was primarily attributable to a decrease in cash dividends to the Parentof $32.3 million, a $2.7 million mortgage repayment during the Fiscal 2005Period, fewer debt payments and the reclassification of excess tax benefitsfrom share-based payment arrangements from cash flows from operating activitiesdiscussed further in Note 9 to the consolidated financial statements includedin Part II, Item 8 of this Form 10-K, partially offset by the netincrease in the change in the related party receivable of $7.5 million duringthe Fiscal 2006 Period as compared to the Fiscal 2005 Period, described furtherin Note 5 to the consolidated financial statements included in Part II,Item 8 of this Form 10-K.

 

***Liquidity and Capital Resources***

*** ***

                TheCompany’s revenues are generally collected in cash through admissions andconcessions revenues. The Company’s operating expenses are primarily related tofilm and advertising costs, rent and occupancy, and payroll. Film costs areordinarily paid to distributors within 30 days following receipt ofadmissions revenues and the cost of the Company’s concessions are generallypaid to vendors approximately 30 days from purchase.  The Company’s current liabilities, however,generally include items that will become due within twelve months.  In addition, from time to time, we may usecash from operations to fund dividends to our Parent in excess of net incomeand cash flows from operating activities less cash flows from investing andfinancing activities.  As a result, atany given time, the Company’s balance sheet is likely to reflect a workingcapital deficit. 

 

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                TheCompany funds the cost of its capital expenditures through internally generatedcash flows and cash on hand. The Company’s capital requirements havehistorically arisen principally in connection with retrofitting existingtheatres, upgrading the Company’s theatre facilities and replacingequipment.  Should the conversion processto digital cinema rapidly accelerate and the major studios not cover the costof the conversion as expected, we may have to incur additional capitalexpenditures associated with this potential change.  The Company has a formal and intensive reviewprocedure for the authorization of capital projects, with the most importantfinancial measure of acceptability for a discretionary non-maintenance capitalproject being whether its projected discounted cash flow return on investmentmeets or exceeds the Company’s internal rate of return targets.  The Company currently expects capitalexpenditures for theatre expansion, upgrading and replacements to be in therange of $5.0 million to $10.0 million in fiscal 2008. During the Fiscal 2007Period, the Company invested an aggregate of approximately $3.7 million incapital expenditures. 

 

                OnOctober 11, 2005, UATC entered into a purchase and sale agreement withBoardwalk Ventures, LLC (“Boardwalk”) to sell a total of 5 theatres and 37screens in Mississippi and Louisiana for cash in the amount of approximately$5.5 million. The disposition was completed on November 4, 2005. 

 

                Asdescribed in Note 1 to the consolidated financial statements included in Part II,Item 8 of this Form 10-K, during the fiscal year ended December 27,2007, the Company sold its equity interest in Fandango for proceeds of $7.0million.  As a result of thistransaction, the Company recognized a gain on the sale of approximately $7.0million ($4.2 million after tax).

 

                OnJune 30, 2007, UATC acquired the remaining partnership interest in two ofits subsidiaries for an aggregate purchase price of $1.1 million, whichresulted in a loss of $0.2 million.  Theloss was recorded in the accompanying consolidated statement of operations as acomponent of “Other, net.”

 

**ContractualCash Obligations andCommitments**

 

The Companyprimarily leases its theatres pursuant to long-term non-cancelable operatingleases, including leases that are subject to sale and leaseback transactions,as further described in Note 6 to the consolidated financial statementsincluded in Part II, Item 8 of this Form 10-K.  Other than operating leases which aredetailed below, the Company does not utilize variable interest entities or anyother form of off-balance sheet financing. As of December 27, 2007, 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) |       | $                          | 3.0        |   | $ | 0.3 |   | $ | 0.7 |   | $ | 0.7 |   | $ | 1.3 |   |
| Operating leases (2)                               |       | 301.4                      |       | 38.9 |   | 76.3 |   | 64.6 |   | 121.6 |   |
| Total contractual cash  obligations                |       | $                          | 304.4      |   | $ | 39.2 |   | $ | 77.0 |   | $ | 65.3 |   | $ | 122.9 |   |

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(1)                                  The presentvalue of these obligations, excluding interest, is included on our consolidatedbalance sheet as of December 27, 2007. Future interest payments are calculated based on interest rates implicitin the underlying leases, which have an interest rate of 10.0%, maturing in2016. Refer to Note 4 to the consolidated financial statements included in Part II, Item 8 of this Form 10-Kfor additional information about our capital lease obligations.

 

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

 

We believe that the amount of cash and cash equivalents on hand andcash flow expected from operations will be adequate for the Company to executeits business strategy and meet anticipated requirements for lease obligations,capital expenditures, working capital and debt service for the next 12 months.

 

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***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 consolidatedfinancial statements are prepared in conformity with accounting principlesgenerally accepted in the United States of America, which require management tomake estimates and assumptions that affect the reported amounts of the assetsand liabilities and disclosures of contingent assets and liabilities as of thedate of the balance sheet as well as the reported amounts of revenues andexpenses during the reporting period. We routinely make estimates and judgmentsabout the carrying value of our assets and liabilities that are not readilyapparent from other sources. We evaluate and modify on an ongoing basis suchestimates and assumptions, which include those related to film costs, propertyand equipment, goodwill and income taxes as well as others discussed in Note 3to the consolidated financial statements included in Part II, Item 8 ofthis Form 10-K. Estimates and assumptions are based on historical andother factors believed to be reasonable under the circumstances. The results ofthese estimates may form the basis of the carrying value of certain assets andliabilities. Actual results, under conditions and circumstances different fromthose assumed, may differ materially from estimates. The impact and anyassociated risks related to estimates, assumptions, and accounting policies arediscussed within “Management’s Discussion and Analysis of Financial Conditionand Results of Operations”, as well as in the notes to the consolidatedfinancial statements, if applicable, where such estimates, assumptions, andaccounting policies affect our reported and expected results. Management hasdiscussed the development and selection of its critical accounting estimateswith the audit committee of our Board of Directors and the audit committee hasreviewed our related disclosures herein.

 

We believe thefollowing accounting policies are critical to our business operations and theunderstanding of our results of operations and affect the more significantjudgments and estimates used in the preparation of our consolidated financialstatements:

 

·                  Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwilland Other Intangible Assets” specifies that goodwill and indefinite-livedintangible assets will be subject to an annual impairment assessment. Based onour annual impairment assessment conducted during fiscal 2007, fiscal 2006 andfiscal 2005, we were not required to record a charge for goodwill impairment.In assessing the recoverability of the goodwill, we must make variousassumptions regarding estimated future cash flows and other factors indetermining the fair values of the respective assets. If these estimates ortheir related assumptions change in the future, we may be required to recordimpairment charges for these assets in future periods.

 

·                  We estimate our film cost expense and related film cost payable basedon management’s best estimate of the expected box office revenue of each filmover the length of its run in our theatres and the ultimate settlement of suchfilm costs with the distributors. Generally, less than one-third of ourquarterly film expense is estimated at period-end. The length of time untilthese costs are known with certainty depends on the ultimate duration of thefilm play, but is typically “settled” within two to three months of aparticular film’s opening release. Upon settlement with our film distributors,film cost expense and the related film cost payable are adjusted to the finalfilm settlement. The ultimate revenues of a film can be estimated reasonablyaccurately within a few weeks after the film is released based on the film’sinitial box office performance, which is determined by a film’s initial boxoffice receipts. As a result, there are typically insignificant variancesbetween our estimates of film cost expense and the final film cost payable,because we make such estimates based on each film’s box office receipts throughthe end of the reporting period. For the fiscal years ended December 27,2007, December 28, 2006 and December 29, 2005, there were no significantchanges in our film cost estimation and settlement procedures.

 

·                  We depreciate and amortize the components of our property and equipmentrelating to both owned and leased theatres on a straight-line basis over theshorter of the lease term or the estimated useful lives of the assets. Eachowned theatre consists of a building structure, structural improvements, 

 

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seating andconcession and film display equipment. While we have assigned an estimated usefullife of less than 30 years to certain acquired facilities, we estimatethat our newly constructed buildings generally have an average economic usefullife to us of 30 years. Certain of our buildings have been in existencefor more than 40 years. With respect to equipment (e.g., concession stand,point-of-sale equipment, etc.), a substantial portion is depreciated over sevenyears or less, which has been our historical replacement period. Seats andprojection equipment generally have a longer useful economic life, and theirdepreciable lives (12-15 years) are based on our experience andreplacement practices. The estimates of the assets’ useful lives require ourjudgment and our knowledge of the assets being depreciated and amortized.Further, we review the economic useful lives of such assets annually and makeadjustments thereto as necessary. Actual economic lives may differ materiallyfrom these estimates.

 

The majority of ourproperties were appraised as part of the bankruptcy process. Such appraisalssupported the estimated lives being used for depreciation and amortizationpurposes. Furthermore, our analysis of our historical capital replacementprogram is consistent with our depreciation policies. Finally, we reviewlong-lived assets for impairment whenever events or changes in circumstancesindicate that the carrying amounts of the assets may not be fully recoverable.Such analysis generally evaluates assets for impairment on an individualtheatre basis. When the estimated future undiscounted cash flows of theoperations to which the assets relate do not exceed the carrying value of theassets, 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.

 

For the fiscal yearsended December 27, 2007, December 28, 2006 and December 29,2005, 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 December 27, 2007, consolidateddepreciation and amortization expense was $10.5 million, representing 4.6%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 $0.8 million or7.6%. If the estimated lives of all assets being depreciated were decreased byone year, the consolidated depreciation and amortization expense would haveincreased by approximately $0.9 million or 8.6%.

 

·                  Income taxes are accounted for under the asset and liability method.Deferred tax assets and liabilities are recognized for the future taxconsequences attributable to differences between the financial statementcarrying amounts of existing assets and liabilities and their respective taxbases as well as operating loss and tax credit carryforwards. Deferred taxassets and liabilities are measured using enacted tax rates expected to applyto taxable income in the years in which those temporary differences areexpected to be recovered or settled. The effect on deferred tax assets andliabilities of a change in tax rates is recognized in income in the period thatincludes the enactment date. We record a valuation allowance if it is deemedmore likely than not that our deferred income tax assets will not be realized.We reassess the need for such valuation allowance on an ongoing basis. Anincrease in the valuation allowance generally results in an increase in theprovision for income taxes recorded in such period. With the exception ofvaluation allowances recorded relative to pre-acquisition periods, decreases inthe valuation allowance generally result in a decrease in the provision forincome taxes. Should we ultimately realize a benefit from tax assets in excessof the amount recorded that relates to pre-acquisition periods, goodwill wouldbe reduced to the extent of such excess or recorded goodwill, as appropriate.

 

Additionally, income tax rules and regulationsare subject to interpretation, require judgment by us and may be challenged bythe tax authorities. As described further in Note 7 to the consolidatedfinancial statements included in Part II, Item 8 of this Form 10-K,effective December 29, 2006, 

 

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the Company adopted the provisions of FASBInterpretation No. 48, “Accounting for Uncertainty in Income Taxes—aninterpretation of FASB Statement No. 109” (“FIN 48”). Although we believethat our tax return positions are fully supportable, in accordance with FIN 48,we recognize a tax benefit only for tax positions that we determine will morelikely than not be sustained based on the technical merits of the taxposition.  With respect to such taxpositions for which recognition of a benefit is appropriate, the benefit ismeasured at the largest amount of benefit that is greater than 50 percent likelyof being realized upon ultimate settlement. Tax positions are evaluated on an ongoing basis as part of our processfor determining our provision for income taxes. Among other items deemedrelevant by us, the evaluations are based on new legislation, other newtechnical guidance, judicial proceedings, and our specific circumstances,including the progress of tax audits. With the exception of tax benefitsrealized relative to changes in pre-acquisition uncertain tax positions, anychange in the determination of the amount of tax benefit recognized relative toan uncertain tax position impacts the provision for income taxes in the periodthat such determination is made.

 

For the fiscal year ended December 27, 2007, ourprovision for income taxes was $6.8 million. Changes in management’sestimates and assumptions regarding the probability that certain tax returnpositions will be sustained, the enacted tax rate applied to deferred taxassets and liabilities, the ability to realize the value of deferred taxassets, or the timing of the reversal of tax basis differences could impact theprovision for income taxes and change the effective tax rate.  A onepercentage point change in the effective tax rate from 37.2% to 38.2% wouldhave increased the current year income tax provision by approximately $0.2million.

 

**Quarterly Results**

 

                The following tables set forthselected unaudited quarterly results for the eight quarters ended December 27, 2007. The quarterlyfinancial data as of each period presented below have been derived from UATC’sunaudited condensed consolidated financial statements for those periods.Results for these periods are not necessarily indicative of results for thefull year. The quarterly financial data should be read in conjunction with theconsolidated financial statements of UATC and notes thereto included elsewherein this Form 10-K.

 
| **(In millions)**                 | ** ** | **Dec. 27,  2007** | ** ** | **Sept.  27, 2007** | ** ** | **June 28,  2007** | ** ** | **March 29,  2007** | ** ** | **Dec. 28,  2006** | ** ** | **Sept.  28, 2006** | ** ** | **June 29,  2006** | ** ** | **March 30,  2006** | ** ** |
|-----------------------------------|------------|-------------------------|------------|---------------------|------------|-------------------------|------------|--------------------------|------------|-------------------------|------------|---------------------|------------|-------------------------|------------|--------------------------|------------|
| **Total revenues**                |       | $                       | 50.4       |                | $          | 65.9                    |       | $                        | 58.6       |                    | $          | 54.2                |       | $                       | 57.7       |                     | $          | 61.6 |   | $ | 63.2 |   | $ | 55.8 |   |
| **Income (loss) from operations** |       | (0.5                    | )          | 6.8                 |       | 2.4                     |       | 1.3                      |       | 2.9                     |       | 2.3                 |       | 3.8                     |       | 1.5                      |       |
| **Net income**                    |       | 0.4                     |       | 4.4                 |       | 5.8                     |       | 0.9                      |       | 1.4                     |       | 1.5                 |       | 2.4                     |       | 0.9                      |       |
|                                   |            |                         |            |                     |            |                         |            |                          |            |                         |            |                     |            |                         |            |                          |            |  |  |  |  |  |  |  |  |

 

**Inflation**

 

                The Company does not believethat inflation has had a material impact on its financial position or resultsof operations.

 

**Seasonality**

 

                The Company’s revenues areusually seasonal, coinciding with the timing of releases of motion pictures bythe major distributors. Generally, studios release the most marketable motionpictures during the summer and the holiday seasons. The unexpected emergence ofa “hit” film during other periods can alter the traditional pattern. The timingof movie releases can have a significant effect on the Company’s results ofoperations, and the results of one quarter are not necessarily indicative ofthe results for the next or any other quarter. The seasonality of motionpicture exhibition, however, has become less pronounced as studios arereleasing motion pictures somewhat more evenly throughout the year.

 

**Recent Accounting Pronouncements**

 

                Fora discussion of the recent accounting pronouncements relevant to ouroperations, please refer to the information provided under Note 3 to theconsolidated financial statements included in Part II,Item 8 of this Form 10-K, which informationis incorporated herein by reference.

 

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**Off-Balance Sheet Arrangements**

 

                Other than the operating leases detailed above under “ContractualCash Obligations and Commitments,” the Company has no other off-balance sheet arrangements.

**Item 7A. QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK**

** **

**               **UATC’s market risk is confined tointerest rate exposure of its debt obligations that bear interest based onfloating rates.  As of December 27,2007, the Company maintained no debt obligations bearing floating interestrates.

**Item8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**

** **

**MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIALREPORTING**

 

The Board of DirectorsUnited Artists Theatre Circuit, Inc.:

 

                Managementis responsible for establishing and maintaining adequate internal control overfinancial reporting as such term is defined in Rules 13a-15(f) and15d-15(f) under the Securities Exchange Act of 1934, as amended.

 

                Management,including our principal executive officer and principal financial officer,conducted an evaluation of the effectiveness of such controls as of December 27,2007. This assessment was based on criteria for effective internal control overfinancial reporting described in *InternalControl—Integrated Framework* issued by the Committee of SponsoringOrganizations of the Treadway Commission. Based on this assessment, ourmanagement believes that the Company’s internal control over financialreporting is effective as of December 27, 2007.

 

                Thisannual report on Form 10-K does not include an attestation report of theCompany’s registered public accounting firm regarding internal control overfinancial reporting.  Management’s reportwas not subject to attestation by the Company’s registered public accountingfirm pursuant to temporary rules of the Securities and Exchange Commissionthat permit 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)* |

 

26

----

 

**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM**

 

The Board of Directors

United Artists TheatreCircuit, Inc.:

 

                We have audited the accompanyingconsolidated balance sheets of United Artists Theatre Circuit, Inc. andsubsidiaries as of December 27, 2007 and December 28, 2006, and therelated consolidated statements of operations, stockholders’ equity andcomprehensive income, and cash flows for each of the years in the three-yearperiod ended December 27, 2007. These consolidated financial statements are the responsibility of theCompany’s management.  Our responsibilityis to express an opinion on these consolidated financial statements based onour audits.

 

                We conducted our audits inaccordance with the standards of the Public Company Accounting Oversight Board(United States).  Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whetherthe 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, the consolidatedfinancial statements referred to above present fairly, in all materialrespects, the financial position of United Artists Theatre Circuit, Inc. and subsidiaries as of December 27,2007 and December 28, 2006, and the results of their operations and theircash flows for each of the years in the three-year period ended December 27,2007, in conformity with U.S. generally accepted accounting principles.

 

                As discussed in Notes 2 and 9 to theconsolidated financial statements, effective December 30, 2005, theCompany adopted Statement of Financial Accounting Standards No. 123(revised),Share-Based Payment. As discussed in Note 7 to the consolidated financialstatements, effective December 29, 2006, the Company adopted Financial AccountingStandards Board Interpretation No. 48, Accounting for Uncertainty inIncome Taxes.

 

/s/ KPMG LLP

 

Nashville, Tennessee

March 12, 2008

 

27

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**UNITEDARTISTS THEATRE CIRCUIT, INC.**

**ANDSUBSIDIARIES**

 

Consolidated Balance Sheets

(Amounts in millions, except share data)

 
| ** **                                                                                                                                                         | ** ** | **December 27, 2007** | ** ** | **December 28, 2006** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------|------------|----------------------------|------------|
| **Assets**                                                                                                                                                         | ** ** | ** **                 | ** ** | ** **                 | ** ** |
| Current assets:                                                                                                                                                    |       |                       |       |                       |       |
| Cash and cash equivalents                                                                                                                                          |       | $                          | 50.1       |                       | $          | 39.7 |   |
| Receivables, net                                                                                                                                                   |       | 1.6                        |       | 3.3                        |       |
| Prepaid expenses, concession inventory and other current assets                                                                                                    |       | 0.8                        |       | 0.9                        |       |
| Deferred income tax asset                                                                                                                                          |       | 0.4                        |       | —                     |       |
| Total current assets                                                                                                                                               |       | 52.9                       |       | 43.9                       |       |
| Property and equipment:                                                                                                                                            |       |                       |       |                       |       |
| Land                                                                                                                                                               |       | 3.3                        |       | 3.3                        |       |
| Buildings, leasehold improvements and equipment                                                                                                                    |       | 130.8                      |       | 134.2                      |       |
| Total property and  equipment                                                                                                                                      |       | 134.1                      |       | 137.5                      |       |
| Accumulated depreciation  and amortization                                                                                                                         |       | (69.3                      | )          | (63.9                      | )          |
| Total property and  equipment, net                                                                                                                                 |       | 64.8                       |       | 73.6                       |       |
| Goodwill                                                                                                                                                           |       | 7.1                        |       | 36.4                       |       |
| Other non-current assets                                                                                                                                           |       | 0.2                        |       | 0.4                        |       |
| Total assets                                                                                                                                                       |       | $                          | 125.0      |                       | $          | 154.3 |   |
| **Liabilities and Stockholder’s  Equity**                                                                                                                     | ** ** | ** **                 | ** ** | ** **                 | ** ** |
| Current liabilities:                                                                                                                                               |       |                       |       |                       |       |
| Accounts payable                                                                                                                                                   |       | $                          | 13.0       |                       | $          | 11.4 |   |
| Accrued expenses                                                                                                                                                   |       | 6.2                        |       | 8.0                        |       |
| Deferred income tax liability                                                                                                                                      |       | —                     |       | 0.5                        |       |
| Current portion of debt obligations                                                                                                                                |       | 0.2                        |       | 0.1                        |       |
| Total current liabilities                                                                                                                                          |       | 19.4                       |       | 20.0                       |       |
| Other non-current  liabilities                                                                                                                                     |       | 2.6                        |       | 3.2                        |       |
| Non-current deferred  revenue                                                                                                                                      |       | 25.8                       |       | —                     |       |
| Long-term debt                                                                                                                                                     |       | 1.8                        |       | 2.0                        |       |
| Deferred income tax  liability                                                                                                                                     |       | 18.6                       |       | 52.3                       |       |
| Total liabilities                                                                                                                                                  |       | 68.2                       |       | 77.5                       |       |
| Minority interest                                                                                                                                                  |       | 0.7                        |       | 1.9                        |       |
| **Stockholder’s equity**                                                                                                                                      | ** ** | ** **                 | ** ** | ** **                 | ** ** |
| Preferred stock, $1.00 par value; 500,000 shares authorized, no  shares issued and outstanding at December 27, 2007 and December 28,  2006, respectively |       | —                     |       | —                     |       |
| Common stock, $1.00 par value; 1,000 shares authorized, 100 shares  issued and outstanding at December 27, 2007 and December 28, 2006,  respectively     |       | —                     |       | —                     |       |
| Additional paid-in capital                                                                                                                                         |       | 93.2                       |       | 92.8                       |       |
| Retained earnings                                                                                                                                                  |       | 18.4                       |       | 6.9                        |       |
| Related party receivables                                                                                                                                          |       | (55.5                      | )          | (24.8                      | )          |
| Total stockholder’s equity                                                                                                                                    |       | 56.1                       |       | 74.9                       |       |
| Total liabilities and  stockholder’s equity                                                                                                                   |       | $                          | 125.0      |                       | $          | 154.3 |   |

 

See accompanying notesto consolidated financial statements.

 

 

28

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**UNITEDARTISTS THEATRE CIRCUIT, INC.**

**ANDSUBSIDIARIES**

 

ConsolidatedStatements of Operations

(Amounts in Millions)

 
| ** **                                                                                                                                                                                              | ** ** | **Year Ended  December 27, 2007** | ** ** | **Year Ended  December 28, 2006** | ** ** | **Year Ended  December 29, 2005** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|
| Revenues:                                                                                                                                                                                               |       |                                   |       |                                   |       |                                   |       |
| Admissions                                                                                                                                                                                              |       | $                                      | 157.3      |                                   | $          | 163.9                                  |       | $ | 174.7 |   |
| Concessions                                                                                                                                                                                             |       | 64.5                                   |       | 65.3                                   |       | 68.7                                   |       |
| Other operating revenue                                                                                                                                                                                 |       | 7.3                                    |       | 9.1                                    |       | 9.1                                    |       |
| Total revenues                                                                                                                                                                                          |       | 229.1                                  |       | 238.3                                  |       | 252.5                                  |       |
|                                                                                                                                                                                                    |       |                                   |       |                                   |       |                                   |       |
| Operating expenses:                                                                                                                                                                                     |       |                                   |       |                                   |       |                                   |       |
| Film rental and advertising costs                                                                                                                                                                       |       | 81.9                                   |       | 83.9                                   |       | 90.4                                   |       |
| Cost of concessions                                                                                                                                                                                     |       | 9.0                                    |       | 9.8                                    |       | 10.0                                   |       |
| Other operating expenses                                                                                                                                                                                |       | 93.7                                   |       | 98.9                                   |       | 109.8                                  |       |
| Sale and leaseback rentals                                                                                                                                                                              |       | 14.9                                   |       | 15.0                                   |       | 15.1                                   |       |
| General and administrative expenses (including share-based  compensation expense of $0.2 million and $2.3 million for the years ended  December 28, 2006 and December 29, 2005, respectively) |       | 6.9                                    |       | 7.5                                    |       | 10.1                                   |       |
| Depreciation and amortization                                                                                                                                                                           |       | 10.5                                   |       | 11.6                                   |       | 13.3                                   |       |
| Net loss (gain) on disposal and impairment of operating assets                                                                                                                                          |       | 2.2                                    |       | 1.1                                    |       | (1.7                                   | )          |
| Total operating expenses                                                                                                                                                                                |       | 219.1                                  |       | 227.8                                  |       | 247.0                                  |       |
|                                                                                                                                                                                                    |       |                                   |       |                                   |       |                                   |       |
| Income from operations                                                                                                                                                                                  |       | 10.0                                   |       | 10.5                                   |       | 5.5                                    |       |
|                                                                                                                                                                                                    |       |                                   |       |                                   |       |                                   |       |
| Other expense (income):                                                                                                                                                                                 |       |                                   |       |                                   |       |                                   |       |
| Interest income, net                                                                                                                                                                                    |       | (1.6                                   | )          | (0.6                                   | )          | (0.1                                   | )          |
| Gain on sale of Fandango interest                                                                                                                                                                       |       | (7.0                                   | )          | —                                 |       | —                                 |       |
| Minority interest in earnings (loss) of consolidated subsidiaries                                                                                                                                       |       | 0.1                                    |       | 0.1                                    |       | (0.2                                   | )          |
| Other, net                                                                                                                                                                                              |       | 0.2                                    |       | —                                 |       | —                                 |       |
| Total other expense  (income), net                                                                                                                                                                      |       | (8.3                                   | )          | (0.5                                   | )          | (0.3                                   | )          |
| Income before income taxes                                                                                                                                                                              |       | 18.3                                   |       | 11.0                                   |       | 5.8                                    |       |
| Provision for income taxes                                                                                                                                                                              |       | 6.8                                    |       | 4.8                                    |       | 2.5                                    |       |
| Net income                                                                                                                                                                                              |       | $                                      | 11.5       |                                   | $          | 6.2                                    |       | $ | 3.3 |   |

 

See accompanying notes to consolidated financialstatements.

 

 

29

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**UNITED ARTISTS THEATRE CIRCUIT,INC.**

**AND SUBSIDIARIES**

 

Consolidated Statementsof Stockholder’s Equity and Comprehensive Income

(Amounts in Millions)

 
| ** **                                   | ** ** | **Preferred  stock** | ** ** | **Common  stock** | ** ** | **Additional  paid-in  capital** | ** ** | **Deferred  stock  compensation** | ** ** | **Retained  earnings/  (accumulated  deficit)** | ** ** | **Intercompany  and  Related  party  receivable** | ** ** | **Total  stockholder’s  equity** | ** ** |
|----------------------------------------------|------------|----------------------|------------|-------------------|------------|----------------------------------|------------|-----------------------------------|------------|-------------------------------------------------|------------|---------------------------------------------------|------------|---------------------------------------|------------|
|                                         |       | $                    |       |              | $          |                             |       | $                                 |       |                                            | $          |                                              |       | $                                     |       |   | $ |   |   | $ |   |   |
| Balances at  December 30, 2004          |       | —               |       | —            |       | 120.8                            |       | (3.1                              | )          | (2.6                                            | )          | (22.3                                             | )          | 92.8                                  |       |
| Net income and  comprehensive income         |       | —               |       | —            |       | —                           |       | —                            |       | 3.3                                             |       | —                                            |       | 3.3                                   |       |
| Dividends to Parent                          |       | —               |       | —            |       | (32.3                            | )          | —                            |       | —                                          |       | —                                            |       | (32.3                                 | )          |
| Amortization of deferred  stock compensation |       | —               |       | —            |       | —                           |       | 2.3                               |       | —                                          |       | —                                            |       | 2.3                                   |       |
| Tax benefit from exercise  of stock options  |       | —               |       | —            |       | 3.5                              |       | —                            |       | —                                          |       | —                                            |       | 3.5                                   |       |
| Change in related party  receivable          |       | —               |       | —            |       | —                           |       | —                            |       | —                                          |       | 2.5                                               |       | 2.5                                   |       |
| 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 |   |

 

See accompanyingnotes to consolidated financial statements.

 

 

30

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**UNITEDARTISTS THEATRE CIRCUIT, INC.**

**ANDSUBSIDIARIES**

 

Consolidated Statements of Cash Flows

(Amountsin Millions)

 
| ** **                                                                                       | ** ** | **Year ended  December 27, 2007** | ** ** | **Year ended  December 28, 2006** | ** ** | **Year ended  December 29, 2005** | ** ** |
|--------------------------------------------------------------------------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|
| Cash flow from operating  activities:                                                            |       |                                   |       |                                   |       |                                   |       |
| Net income                                                                                       |       | $                                      | 11.5       |                                   | $          | 6.2                                    |       | $ | 3.3 |   |
| Adjustments to reconcile  net income to cash provided by operating activities:                   |       |                                   |       |                                   |       |                                   |       |
| Effect of leases with escalating minimum annual rentals                                          |       | (0.4                                   | )          | (0.1                                   | )          | 0.2                                    |       |
| Depreciation and amortization                                                                    |       | 10.5                                   |       | 11.6                                   |       | 13.3                                   |       |
| Share-based compensation expense                                                                 |       | —                                 |       | 0.2                                    |       | 2.3                                    |       |
| Net  loss (gain) on disposal and impairment of operating assets                                  |       | 2.2                                    |       | 1.1                                    |       | (1.7                                   | )          |
| Gain on sale of Fandango interest                                                                |       | (7.0                                   | )          | —                                 |       | —                                 |       |
| Net loss on purchase of partnership interests                                                    |       | 0.2                                    |       | —                                 |       | —                                 |       |
| Minority  interest in earnings (loss) of consolidated subsidiaries                               |       | 0.1                                    |       | 0.1                                    |       | (0.2                                   | )          |
| Deferred income tax (benefit) expense                                                            |       | (4.2                                   | )          | 3.1                                    |       | 4.8                                    |       |
| Change in operating assets  and liabilities (excluding effects of acquisition and dispositions): |       |                                   |       |                                   |       |                                   |       |
| Receivables                                                                                      |       | 1.7                                    |       | (1.7                                   | )          | 0.3                                    |       |
| Prepaid expenses and concession inventory                                                        |       | 0.1                                    |       | —                                 |       | 1.7                                    |       |
| Other assets                                                                                     |       | —                                 |       | 0.3                                    |       | 0.4                                    |       |
| Accounts payable                                                                                 |       | 1.6                                    |       | (4.2                                   | )          | (1.9                                   | )          |
| Deferred revenue                                                                                 |       | (0.2                                   | )          | —                                 |       | —                                 |       |
| Accrued expenses and other liabilities                                                           |       | (3.9                                   | )          | (0.5                                   | )          | (3.1                                   | )          |
| Net cash provided by operating  activities                                                       |       | 12.2                                   |       | 16.1                                   |       | 19.4                                   |       |
| Cash flow from investing  activities:                                                            |       |                                   |       |                                   |       |                                   |       |
| Capital expenditures                                                                             |       | (3.7                                   | )          | (5.6                                   | )          | (5.5                                   | )          |
| Proceeds from disposition of fixed assets, net                                                   |       | —                                 |       | 1.5                                    |       | 15.0                                   |       |
| Purchase  of partnership interests, net of cash acquired                                         |       | (1.1                                   | )          | —                                 |       | —                                 |       |
| Proceeds from the sale of Fandango interest                                                      |       | 7.0                                    |       | —                                 |       | —                                 |       |
| Dividends received from partnership                                                              |       | 0.3                                    |       | —                                 |       | —                                 |       |
| Net cash provided by (used  in) investing activities                                             |       | 2.5                                    |       | (4.1                                   | )          | 9.5                                    |       |
| Cash flow from financing  activities:                                                            |       |                                   |       |                                   |       |                                   |       |
| Debt payments                                                                                    |       | (0.1                                   | )          | (0.2                                   | )          | (0.4                                   | )          |
| Decrease (increase) in related party receivables                                                 |       | (4.6                                   | )          | (5.0                                   | )          | 2.5                                    |       |
| Payment of mortgage                                                                              |       | —                                 |       | —                                 |       | (2.7                                   | )          |
| Dividend to Parent                                                                               |       | —                                 |       | —                                 |       | (32.3                                  | )          |
| Excess  tax benefit from share-based payment arrangements                                        |       | 0.4                                    |       | 1.4                                    |       | —                                 |       |
| Net cash used in financing  activities                                                           |       | (4.3                                   | )          | (3.8                                   | )          | (32.9                                  | )          |
| Net increase (decrease) in  cash and cash equivalents                                            |       | 10.4                                   |       | 8.2                                    |       | (4.0                                   | )          |
| Cash and cash equivalents:                                                                       |       |                                   |       |                                   |       |                                   |       |
| Beginning of period                                                                              |       | 39.7                                   |       | 31.5                                   |       | 35.5                                   |       |
| End of period                                                                                    |       | $                                      | 50.1       |                                   | $          | 39.7                                   |       | $ | 31.5 |   |
|                                                                                             |       |                                   |       |                                   |       |                                   |       |
| Supplemental cash flow  information:                                                             |       |                                   |       |                                   |       |                                   |       |
| Cash paid for interest                                                                           |       | $                                      | 0.2        |                                   | $          | 0.1                                    |       | $ | 0.2 |   |
| Cash paid for income taxes, net of refunds received                                              |       | $                                      | 0.6        |                                   | $          | 0.5                                    |       | $ | 0.3 |   |

 

See accompanying notes to consolidated financialstatements.

 

 

31

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**UNITEDARTISTS THEATRE CIRCUIT, INC.**

**ANDSUBSIDIARIES**

**Notesto Consolidated Financial Statements**

**December 27,2007**

 

**(1)      The Company and Basis of Presentation**

 

                United Artists Theatre Company (the “Parent” or “UnitedArtists”), a Delaware corporation, is the parent company of United ArtistsTheatre Circuit, Inc. (“we,” “us,” “our,” the “Company” or “UATC”) andUnited Artists Realty Company (“UAR”), which is the parent company of UnitedArtists Properties I Corp. (“Prop I”). UATC leases certain theatres from Prop I.  The terms UATC and the Company shall bedeemed to include the respective subsidiaries of such entity when used indiscussions included herein regarding the current operations or assets of suchentity.

 

                The accompanying consolidated financial statementsinclude the accounts of the Company and those of all majority ownedsubsidiaries.  All significantintercompany accounts and transactions have been eliminated in consolidation.

 

                UATC operates 604screens in 69 theatres in 19 states as of December 27, 2007. As of December 28,2006, UATC operated 653 screens in 75 theatres in 19 states. The Companyformally operates on a 52-week fiscal year with each quarter generallyconsisting of 13 weeks, unless otherwise noted. The Company’s fiscal year endson the first Thursday after December 25, which in certain years results ina 53-week fiscal year.

 

                The Company became a subsidiary of RegalEntertainment Group (“REG” or “Regal”) on April 12, 2002, in conjunctionwith an exchange transaction in which REG, through its wholly owned subsidiaryRegal Entertainment Holdings, Inc. (“REH”), also acquired Edwards Theatres, Inc.(“Edwards”), Regal Cinemas Corporation (“Regal Cinemas”) and Regal CineMediaCorporation (“Regal CineMedia”). REG is controlled by the  Anschutz Company (“Anschutz”), whichindirectly controlled each of us, Edwards, Regal Cinemas, United Artists andRegal 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.

 

                In connection with Regal’s acquisition of itssubsidiaries, RCI, an indirect subsidiary of Regal, agreed to manage allaspects of the theatre operations of UATC and its subsidiaries and make allbusiness decisions on behalf of UATC pursuant to a management agreement.  In certain markets where UATC operatestheatres, RCI also operates theatres.

 

                On October 11, 2005, UATC entered into apurchase and sale agreement with Boardwalk Ventures, LLC (“Boardwalk”) to sella total of 5 theatres and 37 screens in Mississippi and Louisiana for cash inthe amount of approximately $5.5 million. The disposition was completed onNovember 4, 2005.

 

                During the year ended December 27, 2007, theCompany sold its equity interest in Fandango, Inc. (“Fandango”) forproceeds 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).

 

                On June 30, 2007, UATC acquired the remainingpartnership interest in two of its subsidiaries for an aggregate purchase priceof $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.”

 

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

 

*ExchangeTransaction*

 

On March 8,2002, Anschutz entered into an agreement to exchange its controllinginterest in United

 

 

32

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Artistsfor common stock of Regal, resulting in Regal being the majority shareholder ofUnited Artists. Anschutz also exchanged its ownership interests in two othertheatre companies for common stock of Regal. The management of these three theatre companies was combined, withmanagement of the theatre operations based in Knoxville, Tennessee, whilemanagement of certain ancillary businesses was based in Centennial,Colorado.  As described below, theexchange transaction was consummated on April 12, 2002.

 

On April 12, 2002, through a series of transactions, Regal issued (1) 70,538,017shares of Class B common stock to Anschutz in exchange for its controllingequity interests in Regal Cinemas, United Artists, Edwards and Regal CineMedia,(2) 14,052,320 shares of Class B common stock to OCM PrincipalOpportunities Fund II, L.P. and its subsidiaries (“Oaktree’s PrincipalActivities Group”) in exchange for its contribution of capital stock of RegalCinemas and Edwards and (3) 27,493,575 shares of Class A common stockto the other stockholders of Regal Cinemas, United Artists, Edwards and RegalCineMedia party to an exchange agreement in exchange for their capital stock ofRegal Cinemas, United Artists, Edwards and Regal CineMedia.

 

Upon the closing of the exchange transaction, the holders ofoutstanding options of United Artists received replacement options to purchase2,287,552 shares of Regal Class A common stock at prices ranging from$4.44 to $12.87 per share. Regal also granted to certain holders of UnitedArtists warrants in exchange for their contribution to Regal of outstanding warrantsto purchase 3,750,000 shares of United Artists’ common stock, warrants topurchase 3,928,185 shares of Regal Class B common stock at $8.88 per shareand warrants to purchase 296,129 shares of Regal Class A common stock at$8.88 per share.  Following the exchange transaction, Anschutz transferred beneficial ownership of1,455,183 shares of Class B common stock to Oaktree’s Principal ActivitiesGroup. In addition, Anschutz acquired an additional 697,620 shares of Class Bcommon stock in May 2002.

 

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

 

*Initial Public Offering of Regal Entertainment Group*

 

In May 2002, REG issued 18.0 million shares ofits Class A common stock in an initial public offering at a price of$19.00 per share, receiving aggregate net offering proceeds, net ofunderwriting discounts, commissions and other offering expenses, of $314.8million.  A portion of the proceeds fromthis offering were used to repay UATC’s term bank credit facility, which wasreplaced by a note payable to the Parent, which was obligated under asubstantially similar note payable to Regal.

 

On August 16, 2002, REH, a wholly owned subsidiary of Regal,acquired the remaining outstanding shares of common stock of United Artistsheld by the United Artists’ minority stockholders and warrants to acquireshares of common stock of United Artists held by various institutional holdersfor approximately $34.0 million.  Immediatelyprior to the acquisition, the common stock of United Artists was the onlyoutstanding class of voting stock, of which the minority stockholders ownedapproximately 9.9%, and REH owned the remaining 90.1%.  As a result of this transaction, United Artistsbecame a wholly owned subsidiary of REH.

 

**(3)      Summary ofSignificant Accounting Policies**

 

***Principles of Consolidation***

 

The consolidated financial statements include the accounts ofUATC.  All significant intercompanyaccounts and transactions have been eliminated in consolidation.  The portion of UATC equity relating to sharesnot owned by the Company and the related earnings or losses were included inminority interest.

 

***Revenue Recognition***

 

                Revenues are generated principally through admissionsand concessions sales with proceeds received in cash or via credit card at thepoint of sale. Other operating revenues consist primarily of productadvertising (including vendor marketing programs) and other ancillary revenueswhich are recognized as income in the period earned. The Company recognizespayments received attributable to the marketing and advertising servicesprovided by the Company under certain vendor programs as revenue in the periodin which the related impressions are 

 

 

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delivered. Suchimpressions are measured by the concession product sales volume, which is amutually agreed upon proxy of attendance and reflects the Company’s marketingand advertising services delivered to its vendors. 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 highly liquid debt instrumentsand investments purchased with an original maturity of three months or less tobe cash equivalents.  At December 27, 2007, the Companyheld substantially all of its cash in temporary cash investments in the form ofcertificates of deposit and variable rate investment accounts with major financialinstitutions.

 

***Inventories***

 

Inventories consist of concession products and theatre supplies. TheCompany 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 at cost. Major renewals andimprovements are capitalized, while maintenance and repairs which do notimprove or extend the lives of the respective assets, are expensedcurrently.  Gains and losses fromdisposition of property and equipment are included in income and expense whenrealized.

 

The Company capitalizes the cost of computer equipment, system hardwareand purchased software ready for service. During the years ended December 27,2007 and December 28, 2006, the Company capitalized approximately $0.3million and $0.7 million of such costs, which were associated primarily with (i) newpoint-of-sale devices at the Company’s box offices and concession stands, (ii) newticketing kiosks, and (iii) computer hardware and software purchased forthe Company’s theater locations. The Company also capitalizes certain directexternal costs associated with software we develop for internal use after thepreliminary software 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 and amortization using thestraight-line method over the following estimated useful lives:

 

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

 

Included in property and equipment is $2.0 million and $2.1 million ofassets accounted for under capital leases as of December 27, 2007 and December 28, 2006, respectively.The Company records amortization using the straight-line method over theshorter of the lease terms or the estimated useful lives noted above.

 

***Goodwill***

 

The changes in the carrying amount of goodwill for the years ended December 27, 2007 and December 28,2006 are as follows (in millions):

 

 
| ** **                                                         | ** ** | **Year Ended   December 27, 2007** | ** ** | **Year Ended   December 28, 2006** | ** ** |
|--------------------------------------------------------------------|------------|-----------------------------------------|------------|-----------------------------------------|------------|
| Balance at beginning of  year                                      |       | $                                       | 36.4       |                                    | $          | 36.4 |   |
| Adjustments related to  recognition of deferred tax assets of UATC |       | (29.3                                   | )          | —                                  |       |
| Balance at end of year                                             |       | $                                       | 7.1        |                                    | $          | 36.4 |   |

 

 

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Under Statement of Financial Accounting Standards (“SFAS”) No. 142,“Goodwill and Other Intangible Assets,” the Company has identified itsreporting units to be the designated market areas in which the Company conductsits theatre operations.  The fair valueof the Company’s identified reporting units were estimated using the expectedpresent value of associated future cash flows and market values of theunderlying theatres within each reporting unit. The Company’s annual goodwill impairment assessments for the years endedDecember 27,2007 and December 28, 2006 indicated that the fairvalue of its reporting units exceeded their carrying value and therefore,goodwill was not deemed to be impaired.

 

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

 

The Company reviews long-lived assets for impairment whenever events orchanges in circumstances indicate that the carrying amounts of the assets maynot be fully recoverable.  The Companygenerally evaluates assets for impairment on an individual theatre basis, whichmanagement believes is the lowest level for which there are identifiable cashflows.  If the sum of the expected futurecash flows, undiscounted and without interest charges, is less than thecarrying amount of the assets, the Company recognizes an impairment charge inthe amount by which the carrying value of the assets exceeds their fair marketvalue. The fair value of assets is determined using the present value of theestimated future cash flows or the expected selling price less selling costs forassets of which the Company expects to dispose. This analysis resulted in the recording of impairment charges of $1.3million, $0.2 million and $0.8 million for the years ended December 27, 2007, December 28,2006 and December 29, 2005, respectively.

 

***Leases***

 

The majority of theCompany’s operations are conducted in premises occupied under non-cancelablelease agreements with initial base terms ranging generally from 15 to 20 years.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.  There are noconditions imposed upon us by our lease agreements or by parties other than thelessor that legally obligate the Company to incur costs to retire assets as aresult of a decision to vacate our leased properties. None of our leaseagreements 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.

 

                The Company accounts for leased properties under theprovisions of SFAS No. 13, “Accountingfor Leases” (“SFAS 13”) and other authoritative accounting literature.SFAS 13 requires that the Company evaluate each lease for classification aseither a capital lease or an operating lease. The Company performs thisevaluation at the inception of the lease and when a modification is made to alease. As to those arrangements that are classified as capital leases, theCompany records property under capital leases and a capital lease obligation inan amount equal to the lesser of the present value of the minimum leasepayments to be made over the life of the lease at the beginning of the leaseterm, or the fair value of the leased property. The property under capitallease is amortized on a straight-line basis as a charge to expense over thelease term, as defined, or the economic life of the leased property, whicheveris less. During the lease term, as defined, each minimum lease payment isallocated between a reduction of the lease obligation and interest expense soas to produce a constant periodic rate of interest on the remaining balance ofthe lease obligation. The Company does not believe that exercise of the renewaloptions in its leases are reasonably assured at the inception of the leaseagreements because our leases: (i) provide for either (a) renewalrents based on market rates or (b) renewal rents that equal or exceed theinitial rents, and (ii) do not impose economic penalties upon ourdetermination whether or not to exercise the renewal option. As a result, thereare not sufficient economic incentives at the inception of our leases, in ourview, to consider that our lease renewal options are reasonably assured ofbeing exercised and therefore, we generally consider the initial base term asthe lease term under SFAS No. 13.

 

The Company records rent expense for itsoperating leases with contractual rent increases in accordance 

 

 

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with Financial Accounting Standards Board (“FASB”)Technical Bulletin 85-3, “Accounting for Operating Leases with Scheduled RentIncreases,” on a straight-line basis from the “lease commencement date” asspecified in the lease agreement until the end of the base lease term.

 

For leases in whichthe Company is involved with construction of the theatre, the Company accountsfor the lease during the construction period under the provisions of EmergingIssues Task Force (“EITF”) 97-10, “The Effect of Lessee Involvement in AssetConstruction.” The landlord is typically responsible for constructing a theatreusing guidelines and specifications agreed to by the Company and assumessubstantially all of the risk of construction. In accordance with EITF 97-10,if the Company concludes that it has substantially all of the constructionperiod risks, it records a construction asset and related liability for theamount of total project costs incurred during the construction period. Onceconstruction is completed, the Company considers the requirements under SFAS No. 98,“Accounting for Leases: Sale-Leaseback Transactions Involving Real Estate:Sales-Type Leases of Real Estate; Definition of the Lease Term; and InitialDirect Costs of Direct Financing Leases” (“SFAS No. 98”), forsale-leaseback treatment, and if the arrangement does not meet suchrequirements, it records the project’s construction costs funded by thelandlord as a financing obligation. The obligation is amortized over thefinancing term based on the payments designated in the contract.

 

In accordance withFASB Staff Position 13-1, *Accounting for RentalCosts Incurred during a Construction Period* (“FSP13-1”), we expenserental costs incurred during construction periods for operating leases as suchcosts are incurred. For rental costs incurred during construction periods forboth operating and capital leases, the “lease commencement date” is the date atwhich we gain access to the leased asset. Historically, and for the fiscalyears ended December 27, 2007, December 28, 2006 and December 29,2005, these rental costs have not been significant to our consolidatedfinancial statements.

 

***Income Taxes***

 

Income taxes areaccounted for under the asset and liability method. Deferred tax assets andliabilities are recognized for the future tax consequences attributable todifferences between the financial statement carrying amounts of existing assetsand liabilities and their respective tax bases and operating loss and taxcredit carryforwards.  Deferred taxassets and liabilities are measured using enacted tax rates expected to applyto taxable income in the years in which those temporary differences areexpected to be recovered or settled. The effect on deferred tax assets andliabilities of a change in tax rates is recognized in income in the period thatincludes the enactment date. The Company records a valuation allowance if it isdeemed more likely than not that its deferred income tax assets will not berealized.  The Company expects thatcertain deferred income tax assets are not more likely than not to be recoveredand therefore, has established a valuation allowance. The Company reassessesits need for the valuation allowance for its deferred income taxes on anongoing basis. Should the Company realize certain tax assets with a valuationallowance that relate to pre-acquisition periods, goodwill would be reduced.

 

Additionally,income tax rules and regulations are subject to interpretation, requirejudgment by the Company and may be challenged by the taxation authorities. Asdescribed further in Note 7—“Income Taxes,” effective December 29, 2006,the Company adopted the provisions of FASB Interpretation No. 48, “Accountingfor Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109”(“FIN 48”). In accordance with FIN 48, the Company recognizes a tax benefitonly for tax positions that are determined to be more likely than notsustainable based on the technical merits of the tax position.  With respect to such tax positions for whichrecognition of a benefit is appropriate, the benefit is measured at the largestamount of benefit that is greater than 50 percent likely of being realized uponultimate settlement.  Tax positions areevaluated on an ongoing basis as part of the Company’s process for determiningthe provision for income taxes.

 

***DeferredRevenue***

 

Deferred revenuerelates primarily to the amount we received for agreeing to the existingexhibitor service agreement (“ESA”) modification described in Note 5—“RelatedParty Transactions.” The amount we received for agreeing to the ESA modificationwill be amortized to advertising revenue over the 30 year term of the agreementfollowing the units of revenue method as described in Note 5—“Related PartyTransactions.”  

 

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***DeferredRent***

 

The Companyrecognizes rent on a straight-line basis after considering the effect of rentescalation provisions resulting in a level monthly rent expense for each leaseover its term. The deferred rent liability is included in other non-currentliabilities.

 

***FilmCosts***

 

The Company estimates its film cost expense andrelated film cost payable based on management’s best estimate of the ultimatesettlement of the film costs with the distributors. Generally, less thanone-third of our quarterly film expense is estimated at period-end. The lengthof time until these costs are known with certainty depends on the ultimateduration of the film play, but is typically “settled” within two to threemonths of a particular film’s opening release. Upon settlement with our filmdistributors, film cost expense and the related film cost payable are adjustedto the final film settlement.

 

***Loyalty Program***

 

Members of the Regal Crown Club earn credits for eachdollar spent at one of our theatres and earn concession or ticket awards basedon the number of credits accumulated. The Company’s accounting policy for theloyalty program is based on the guidance provided for Issue 1 in EITF Issue No. 00-22.Because we believe that the value of the awards granted to our Regal Crown Clubmembers is insignificant in relation to the value of the transactions necessaryto earn the award, the Company records the estimated incremental cost ofproviding awards under our Regal Crown Club loyalty program at the time theawards are earned. Historically, and for the fiscal years ended December 27,2007, December 28, 2006 and December 29, 2005, the costs of theseawards have not been significant to our consolidated financial statements.

 

***Advertising and Start-Up Costs***

 

The Company expenses advertising costs as incurred. Start-up costs associated with a new theatre are also expensed asincurred.

 

***Stock-Based Compensation***

 

As described inNote 9—“Capital Stock and Share-Based Compensation,” effective December 30,2005, we adopted SFAS No. 123 (revised), “Share-Based Payment” (“SFAS 123R”)utilizing the modified prospective approach. Under SFAS 123R, share-basedcompensation cost is measured at the grant date, based on the  estimated fair value of the award, and isrecognized as expense over the employee’s requisite service period. Prior tothe adoption of SFAS 123R, we accounted for stock option grants in accordancewith Accounting Principles Board (“APB”) Opinion No. 25 “Accounting forStock Issued to Employees” (“APB 25”) (the intrinsic value method), and accordingly,recognized no compensation expense for stock option grants when the exerciseprice equaled the fair value of common stock on the date of grant.

 

In connection withthe adoption of SFAS 123R, the Company also elected to adopt the alternativetransition method provided in FASB Staff Position No. 123(R)-3, “TransitionElection Related to Accounting for Tax Effects of Share-Based Payment Awards”for calculating the tax effects of share-based compensation pursuant to SFAS123R. The alternative transition method includes a simplified method toestablish the beginning balance of the additional paid-in capital pool (“APICpool”) related to the tax effects of employee share-based compensation, whichis available to absorb tax deficiencies which could be recognized subsequent tothe adoption of SFAS 123R.

 

***Estimates***

 

The preparation offinancial statements in conformity with accounting principles generallyaccepted in the United States of America requires management to make estimatesand assumptions that affect the reported amounts 

 

 

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of assets and liabilitiesand disclosure of contingent assets and liabilities at the date of thefinancial statements and the reported amounts of revenues and expenses during thereporting period.  Significant estimatesinclude, but are not limited to, those related to film costs, property andequipment, goodwill and income taxes. Actual results could differ from those estimates.

 

***Segments***

 

As of December 27,2007, December 28, 2006 and December 29, 2005, UATC managed itsbusiness under one reportable segment —theatre exhibition operations.

 

***ComprehensiveIncome***

 

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

 

***Reclassifications***

 

Certain reclassificationshave been made to the 2005 and 2006 consolidated financial statements toconform to the 2007 presentation.

 

***RecentAccounting Pronouncements***

 

In September 2006,the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”).Among other requirements, SFAS 157 defines fair value and establishes aframework for measuring fair value and also expands disclosure about the use offair value to measure assets and liabilities. SFAS 157 is effective beginningthe first fiscal year that begins after November 15, 2007. The adoption ofSFAS 157 is not expected to have a material impact on the Company’sconsolidated financial position, cash flows and results of operations.

 

In February 2007,the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assetsand Financial Liabilities” (“SFAS 159”). SFAS 159 permits entities to choose tomeasure certain financial instruments and other eligible items at fair valuewhen the items are not otherwise currently required to be measured at fairvalue. Under SFAS 159, the decision to measure items at fair value is made atspecified election dates on an irrevocable instrument-by-instrument basis.Entities electing the fair value option would be required to recognize changesin fair value in earnings and to expense upfront cost and fees associated withthe item for which the fair value option is elected. Entities electing the fairvalue option are required to distinguish, on the face of the statement offinancial position, the fair value of assets and liabilities for which the fairvalue option has been elected and similar assets and liabilities measured usinganother measurement attribute. If elected, SFAS 159 will be effective as of thebeginning of the first fiscal year that begins after November 15, 2007,with earlier adoption permitted if all of the requirements of SFAS 157 areadopted. The adoption of SFAS 159 is not expected to have a material impact onthe Company’s consolidated financial position, cash flows and results ofoperations.

 

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS 141(R)”).  SFAS 141(R) requires all business combinations completed after the effective date to be accounted for by applying the acquisition method (previously referred to as the purchase method).  SFAS 141(R) expands the definition of transactions and events that qualify as business combinations; requires that the acquired assets and liabilities, including contingencies, be recorded at the fair value determined on the acquisition date and changes thereafter reflected in revenue, not goodwill; changes the recognition timing for restructuring costs; and requires acquisition costs to be expensed as incurred. Adoption of SFAS 141(R) is required for combinations after December 15, 2008. Early adoption and retroactive application of SFAS 141(R) to fiscal years preceding the effective date are not permitted. The Company is evaluating the adoption of SFAS 141(R) and its impact on the Company’s consolidated financial position, cash flows and results of operations.

 

In December 2007,the FASB issued SFAS No. 160, “NoncontrollingInterest in Consolidated Financial Statements”**(“SFAS 160”). SFAS 160 establishes new accounting and reporting standards for thenoncontrolling interest in a subsidiary and for the deconsolidation of asubsidiary. Specifically, this statement requires the recognition of anoncontrolling interest (minority interest) as equity in the consolidatedfinancial statements and separate from the parent’s equity. The amount of netincome attributable to the noncontrolling interest will be 

 

 

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included in consolidatednet income on the face of the income statement. SFAS 160 clarifies thatchanges in a 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 160 also includesexpanded disclosure requirements regarding the interests of the parent and itsnoncontrolling interest.  SFAS 160is effective for fiscal years, and interim periods within those fiscal years,beginning on or after December 15, 2008. Earlier adoption isprohibited.  The Company is evaluatingthe adoption of SFAS 160 and its impact on the Company’s consolidated financialposition, cash flows and results of operations.

 

**(4)      Debt Obligations**

 

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

 
| ** **           | ** ** | **December 27, 2007** | ** ** | **December 28, 2006** | ** ** |
|----------------------|------------|----------------------------|------------|----------------------------|------------|
| Debt obligations (a) |       | $                          | 2.0        |                       | $          | 2.1 |   |
| Less current portion |       | (0.2                       | )          | (0.1                       | )          |
| Long-term debt       |       | $                          | 1.8        |                       | $          | 2.0 |   |

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| (a) | Debt obligations include $2.0 million  and $2.1 million of capital lease obligations as of December 27, 2007  and December 28, 2006, which have an interest rate of 10.0%, maturing in  2016. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

In September 2005, UATC repaid the $2.7 million mortgagecollateralized by land and building resulting from the sale of a theatreproperty located in Staten Island, NY.

 

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

 

 

| 2008                             |   | $    | 0.3    |   |
|----------------------------------|--------|------|--------|--------|
| 2009                             |   | 0.3  |   |
| 2010                             |   | 0.4  |   |
| 2011                             |   | 0.3  |   |
| 2012                             |   | 0.4  |   |
| Thereafter                       |   | 1.3  |   |
|                             |   | 3.0  |   |
| Less interest on capital  leases |   | (1.0 | )      |
| Totals                           |   | $    | 2.0    |   |

 

**(5)      Related Party Transactions**

 

UATC leases certain of its theatres from Prop I in accordance with amaster lease (the “Master Lease”).  The Master Lease provides for basicmonthly or quarterly rentals and may require additional rentals, based on therevenue of the underlying theatre.  In order to fund the cost of additionsand/or renovations to the theatres leased by UATC from Prop I, UATC hasperiodically made advances to Prop I.  As part of the application offresh-start reporting the receivable was reclassified from other assets tostockholder’s equity and interest no longer accrues on this account. Thereceivable will be reduced upon any sale of properties by Prop I, with UATCreceiving the net proceeds of the sale.

 

RCI manages all aspects of the theatre operations of UATC and itssubsidiaries pursuant to the terms of a management agreement, which includesall of its cash collections, cash disbursements and other cash managementfunctions. During the years ended December 27, 2007, December 28,2006 and December 29, 2005, UATC recorded management fee expenses ofapproximately $6.9 million, $7.1 million and $7.6 million, respectively, relatedto this arrangement.  Such fees have beenrecorded in the accompanying consolidated statements of operations as acomponent of “General and Administrative” expenses.

 

 

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Pursuant to the Company’s management agreement with RCI, RCI, throughan agreement with National CineMedia, LLC (“National CineMedia”), provides allon-screen and lobby advertising and event services to UATC.  UATC receives a net fee for the use of itstheatres for such advertising and event services that is recorded in otherrevenue and totaled $0.7 million, $2.0 million and $1.5 million in the yearsended December 27, 2007, December 28, 2006 and December 29,2005, respectively.

 

As of December 27, 2007, the Company’s related party receivablestotaled approximately $55.5 million, which represents an increase of $30.7million from $24.8 million as of December 28, 2006. The increase in thesereceivables was due primarily to the transactions completed between REG andNational CineMedia in connection with the initial public offering, or IPO, ofNational CineMedia Inc.’s (“NCM Inc.”) common stock (which resulted in a $26.1million increase in related party receivables and a corresponding increase innon-current deferred revenue) and to a lesser extent, the timing of theintercompany cash collections and disbursements, as described above.

 

In connection with the completion of the IPO, RCI amended and restatedits existing exhibitor services agreement (“ESA”) with National CineMedia,whereby in exchange for its pro rata share of the IPO proceeds, RCI agreed to amodification of National CineMedia’s payment obligation under the ESA.  The modification extended the term of the ESAto 30 years, provided National CineMedia with a five year right of firstrefusal beginning one year prior to the end of the term and changed the basisupon which RCI is paid by National CineMedia from a percentage of revenuesassociated with advertising contracts entered into by National CineMedia to amonthly theatre access fee.  Also, withrespect to any on-screen advertising time provided by us to our beverageconcessionaire, RCI is required to purchase such time from National CineMediaat a negotiated rate.

 

In March 2005and October 2005, UATC effected cash dividends of approximately $21.8million and $10.5 million, respectively to the Parent.  The dividends were recorded as a reduction ofadditional paid-in capital upon declaration.

 

On August 17,2005 REH, transferred the stock of United Artists to RCI. As a result, UnitedArtists and its subsidiaries became subsidiaries of RCI.

 

**(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 all non-cancelable operating leases withterms in excess of one year as of December 27, 2007, are summarized forthe following fiscal years:

 

 
| ** ** | ** ** | **(In Millions)** | ** ** |
|------------|------------|-------------------|------------|
| 2008       |       | $                 | 38.9       |   |
| 2009       |       | 38.9              |       |
| 2010       |       | 37.4              |       |
| 2011       |       | 33.8              |       |
| 2012       |       | 30.8              |       |
| Thereafter |       | 121.6             |       |
|            |            |                   |            |  |

 

                    Rent expense, includingsale and leaseback rentals of $14.9 million, $15.0 million and $15.1 million,for the years ended December 27, 2007, December 28, 2006 and December 29,2005, under such operating leases amounted to $39.4 million, $40.6 million and$44.5 million for the years ended December 27, 2007, December 28,2006 and December 29, 2005, respectively. Contingent rent expense was $1.3million, $1.1 million and $1.1 million for the years ended December 27,2007, December 28, 2006 and December 29, 2005, respectively.

 

 

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***Sale-Leaseback Transactions***

 

The Company has historically entered into sale and leasebacktransactions whereby owned properties were sold and leased back under operatingleases. The minimum rentals for these operating leases are included in thetable 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 subsidiarydistributions, transfer of assets and payment of dividends. As of December 27,2007, 12 theaters were subject to the sale leaseback transaction andapproximately $46.9 million in principal amount of pass-through certificateswere outstanding.**(7)     Income Taxes**

 

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

 

 
| ** **                 | ** ** | **Year Ended  December 27, 2007** | ** ** | **Year Ended  December 28, 2006** | ** ** | **Year Ended  December 29, 2005** | ** ** |
|----------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| Federal:                   |       |                                             |       |                                             |       |                                             |       |
| Current                    |       | $                                                | 10.6       |                                             | $          | 1.4                                              |       | $ | (1.9 | ) |
| Deferred                   |       | (4.5                                             | )          | 2.6                                              |       | 4.0                                              |       |
| Total Federal              |       | 6.1                                              |       | 4.0                                              |       | 2.1                                              |       |
| State:                     |       |                                             |       |                                             |       |                                             |       |
| Current                    |       | 0.4                                              |       | 0.3                                              |       | (0.4                                             | )          |
| Deferred                   |       | 0.3                                              |       | 0.5                                              |       | 0.8                                              |       |
| Total State                |       | 0.7                                              |       | 0.8                                              |       | 0.4                                              |       |
| Total income tax provision |       | $                                                | 6.8        |                                             | $          | 4.8                                              |       | $ | 2.5 |   |

 

During the yearsended December 27, 2007, December 28, 2006 and December 29, 2005a current tax benefit of $0.4 million, $1.4 million and $3.5 million,respectively, was allocated directly to stockholder’s equity for the exerciseof stock options.

 

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

 

 
| ** **                                                 | ** ** | **Year Ended  December 27, 2007** | ** ** | **Year Ended  December 28, 2006** | ** ** | **Year Ended  December 29, 2005** | ** ** |
|------------------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| Provision calculated at  federal statutory income tax rate |       | $                                                | 6.4        |                                             | $          | 3.8                                              |       | $ | 2.0 |   |
| State and local income  taxes, net of federal benefit      |       | 0.8                                              |       | 0.5                                              |       | 0.3                                              |       |
| Disallowed loss                                            |       | —                                           |       | —                                           |       | 0.3                                              |       |
| True-up provision to  return                               |       | —                                           |       | 0.4                                              |       | —                                           |       |
| Minority interest                                          |       | (0.1                                             | )          | —                                           |       | (0.1                                             | )          |
| Other                                                      |       | (0.3                                             | )          | 0.1                                              |       | —                                           |       |
| Total income tax provision                                 |       | $                                                | 6.8        |                                             | $          | 4.8                                              |       | $ | 2.5 |   |

 

 

41

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

 
| ** **                                               | ** ** | **December 27, 2007** | ** ** | **December 28, 2006** | ** ** |
|----------------------------------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| Deferred tax assets:                                     |       |                            |       |                            |       |   |   |
| Net operating loss carryforward                          |       | $                               | 27.2       |                            | $          | 28.1 |   |
| Excess of tax basis over book basis of fixed assets      |       | 15.8                            |       | 14.3                            |       |
| Accrued expenses                                         |       | 0.9                             |       | 1.2                             |       |
| Deferred revenue                                         |       | 10.5                            |       | —                          |       |
| Other                                                    |       | 0.1                             |       | —                          |       |
| Total deferred tax assets before valuation allowance     |       | 54.5                            |       | 43.6                            |       |
| Valuation allowance                                      |       | (2.8                            | )          | (28.1                           | )          |
| Total deferred tax assets after valuation allowance      |       | 51.7                            |       | 15.5                            |       |
| Deferred tax liabilities:                                |       |                            |       |                            |       |
| Deferred gain on sale of theatres                        |       | (42.1                           | )          | (45.1                           | )          |
| Excess of book basis over tax basis of intangible assets |       | (27.8                           | )          | (22.6                           | )          |
| Other                                                    |       | —                          |       | (0.6                            | )          |
| Total deferred tax liabilities                           |       | (69.9                           | )          | (68.3                           | )          |
| Net deferred tax liability                               |       | $                               | (18.2      | )                               | $          | (52.8 | ) |

 

As of December 27,2007, the Company had net operating loss carryforwards for federal income taxpurposes of approximately $63.2 million with expiration commencing during 2012.The Company’s net operating loss carryforwards were generated by thepredecessor entities of UATC. The Tax Reform Act of 1986 imposed substantialrestrictions on the utilization of net operating losses in the event of an “ownershipchange” of a corporation. Accordingly, the Company’s ability to utilize the netoperating losses may be impaired as a result of the “ownership change”limitations.

 

In assessing the realizablevalue of deferred tax assets, management considers whether it is more likelythan not that some portion or all of the deferred tax assets will not berealized. The ultimate realization of deferred tax assets is dependent upon thegeneration of future taxable income during the periods in which these temporarydifferences become deductible. The Company has recorded a valuation allowanceagainst deferred tax assets totaling $2.8 million and $28.1 million at December 27,2007 and December 28, 2006 respectively, as management believes it is morelikely than not that certain deferred tax assets will not be realized in futuretax periods. The valuation allowance primarily relates to pre-acquisitiondeferred tax assets of UATC. Accordingly, future reductions in the valuationallowance associated with a change in management’s determination of the Company’sability to realize pre-acquisition deferred tax assets will reduce goodwillrelated to the acquisition of UATC. During the fiscal year ended December 27, 2007, based on thehistorical earnings of the Company and updated projections for future income,management determined that the Company would more likely than not realizecertain pre-acquisition deferred tax assets of the Company.  Accordingly,the valuation allowance associated with such pre-acquisition deferred taxassets and goodwill were reduced by $25.3 million during the year ended December 27,2007.

 

Effective December 29,2006, the Company adopted the provisions of FIN 48.  Relative to theimplementation of FIN 48, the Company did not adjust any income tax accounts.

 

As of December 27,2007, the Company had no unrecognized tax benefits. The Company does notbelieve that its gross unrecognized tax benefits will change within the next 12months.

 

The Companyrecognizes interest and penalties accrued related to unrecognized tax benefitsas a component of income tax expense. As of December 27, 2007, the Companyhad not accrued any interest or penalties associated with unrecognized taxbenefits.

 

The Company filesincome tax returns in the U.S. federal jurisdiction and certain statejurisdictions as part of the REG income tax filings and files separate incometax returns in various other state jurisdictions as well.  In June 2005,REG was notified that the Internal Revenue Service (“IRS”) would examine its2002 and 2003 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 

 

 

42

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Company are no longersubject to U.S. federal income tax examinations by taxing authorities for yearsbefore 2004, and with limited exceptions, are no longer subject to state incometax examinations before 2003.  However, the taxing authorities still havethe ability to review the propriety of tax attributes created in closed taxyears if such tax attributes are utilized in an open tax year.

 

** (8)      Litigation and contingencies**

 

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

 

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

 

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

 

On or about January 3, 2007, suit was initiatedagainst the Company in Federal Court, Central District of California, styled, *Bateman, individually and on behalf of all others similarly situated,v. Regal Cinemas, Inc. and United Artists Theatre Circuit, Inc., etal.,*alleging violations of the Fair and Accurate Transaction Act,for allegedly printing expiration dates and credit card numbers on customerreceipts. The plaintiff seeks to represent a class of individuals allegedlyharmed by this alleged practice. The complaint seeks actual damages and/orstatutory damages of at least one hundred dollars or up to one thousand dollarsper violation, and attorney fees and costs. We believe we are in substantialcompliance with all applicable federal and state laws governing these tradepractices.

 

The Company and its subsidiaries are also presentlyinvolved in various legal proceedings arising in the ordinary course of itsbusiness operations, including personal injury claims, employment andcontractual matters and other disputes. The Company believes it has adequatelyprovided for the settlement of such matters. Management believes any additionalliability with respect to these claims and disputes will not be material in theaggregate to the Company’s consolidated financial position, results ofoperations or cash flows.

 

** (9)     Capital Stock and Share Based Compensation**

 

*Common and Preferred Stock*

 

UATC is authorized to issue 1,000 shares of its $1.00 par value commonstock, of which 100 shares are issued and outstanding at December 27,2007, and are all held by the Parent.  At December 27, 2007, theCompany has 500,000 shares of preferred stock authorized with none issued.

 

*Share Based Compensation*

 

Effective December 30,2005, Regal and the Company adopted SFAS 123R utilizing the modifiedprospective approach. Prior to the adoption of SFAS 123R, we accounted forstock option grants in accordance with APB 25 (the intrinsic value method), andaccordingly, recognized no compensation expense for those stock options havingan exercise price equal to the market value of Regal’s Class A commonstock on the date of the grant.

 

 Under the modified prospective approach, SFAS123R applies to awards that were outstanding on December 30, 2005 and tonew awards and the modification, repurchase or cancellation of awards after December 

 

 

43

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30, 2005. Under themodified prospective approach, compensation cost recognized in the firstquarter 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” (“SFAS 123”) and recognized as expense over the remainingrequisite service period. Share-based compensation cost for all share-basedpayments granted subsequent to December 30, 2005 are based on thegrant-date fair value estimated in accordance with the provisions of SFAS 123Rand recognized as expense over the employee’s requisite service period. Priorperiods were not restated to reflect the impact of adopting the new standard.

 

On November 10,2005, the FASB issued FASB Staff Position No. 123(R)-3, “TransitionElection Related to Accounting for Tax Effects of Share-Based Payment Awards.”The Company has elected to adopt the alternative transition method provided inthis FASB Staff Position for calculating the tax effects of share-basedcompensation pursuant to SFAS 123R. The alternative transition method includesa simplified method to establish the beginning balance of the APIC pool relatedto the tax effects of employee share-based compensation, which is available toabsorb tax deficiencies recognized subsequent to the adoption of SFAS 123R.

 

During the yearended December 28, 2006 and December 29, 2005, the Company recognizedapproximately $0.2 million and $2.3 million of share-based compensation expenserelated to stock options.  Such expenseis presented as a component of general and administrative expenses for the yearended December 28, 2006 and December 29, 2005.

 

We receive a taxdeduction for certain stock option exercises during the period the options areexercised, generally for the excess of the price at which the stock is soldover the exercise price of the options. Prior to adoption of SFAS 123R, we reported all tax benefits resultingfrom the exercise of stock options as operating cash flows in our consolidatedstatements of cash flows. In accordance with SFAS 123R, we are required toreport excess tax benefits from the award of equity instruments as financingcash flows.  Excess tax benefits arerecorded when a deduction reported for tax return purposes for an award ofequity instruments exceeds the cumulative compensation cost for the instrumentsrecognized for financial reporting purposes. For the year ended December 27, 2007 and December 28, 2006,our consolidated statement of cash flows reflects $0.4 million and $1.4 millionof excess tax benefits as financing cash flows, respectively.

 

**(10)      Employee BenefitsPlan**

 

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 Internal Revenue Service limitations.  The Plan currently matches an amount equal to100% of the first 3% of the participant’s contributions and 50% of the next 2%of the participant’s contributions. Employee contributions are invested in various investment funds basedupon elections made by the employee.

 

**(11)      Fair Value of FinancialInstruments**

 

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

 

*Cash and cash equivalents, accounts receivable, inventory, accountspayable and accrued liabilities:*

 

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

 

*Long ter**m obligations, excluding capital lease obligations:*

 

The fair value ofthe Company’s debt obligations were based on recent financing transactions forsimilar debt issuances and the carrying amounts approximate the fair value.

 

44

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**Item 9.  CHANGES IN ANDDISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE**

** **

**               **None.

 

 

**Item 9A. CONTROLS AND PROCEDURES**

 

***Evaluation of Disclosure Controls and Procedures***

 

                We maintain disclosure controls and procedures thatare designed to ensure that information required to be disclosed by us in thereports that we file or submit to the Securities and Exchange Commission underthe Securities Exchange Act of 1934 (“Exchange Act”), as amended, is recorded,processed, summarized and reported within the time periods specified by theCommission’s rules and forms, and that information is accumulated andcommunicated to our management, including our principal executive and principalfinancial officers (whom we refer to in this periodic report as our CertifyingOfficers), as appropriate to allow timely decisions regarding requireddisclosure. Our management evaluated, with the participation of our CertifyingOfficers, the effectiveness of our disclosure controls and procedures as of December 27,2007, pursuant to Rule 13a-15(b) underthe Exchange Act. Based upon that evaluation, our Certifying Officers concludedthat, as of December 27, 2007, our disclosure controls and procedures wereeffective. ***Management’sReport on Internal Control Over Financial Reporting***

 

Our management’s report on internal controlover financial reporting is included in Part II, Item 8, on page 26of this Form 10-K, which is incorporated herein by reference.

 

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

 

There were nochanges in our internal control over financial reporting that occurred duringour fiscal quarter ended December 27, 2007 that have materially affected, or are reasonably likely to materiallyaffect, our internal control over financial reporting. 

 

***Limitations on the Effectiveness of Controls***

*** ***

Management isresponsible for the preparation and fair presentation of the consolidatedfinancial statements included in this annual report. The consolidated financialstatements have been prepared in conformity with accounting principles generallyaccepted in the United States of America 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.  OTHER INFORMATION**

 

None.

 

 

45

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** **

**PART III**

 

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

 

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

 

**Item 11.  EXECUTIVECOMPENSATION**

 

Under the reduceddisclosure format permitted by General Instruction I(2) of Form 10-Kfor wholly ownedsubsidiaries, the information otherwise required by this item has beenomitted.

 

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

 

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

 

**Item 13. CERTAIN RELATIONSHIPS AND RELATED TRAN****SACTIONS AND DIRECTOR INDEPENDECE**

 

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

 

**Item 14.  PRINCIPALACCOUNTING FEES AND SERVICES**

**Independent Auditors**

 

KPMG, LLP served as our independent auditors for the fiscal years ended December 27, 2007 and December 28,2006. For such fiscal years we paid fees for services from KPMG as discussedbelow.

 

·                                          *Audit Fees*. Theaggregate fees billed for professional services rendered by KPMG for the auditof our annual financial statements included in our Form 10-K and thereview of the financial statements included in our Forms 10-Q wereapproximately $94,050 for the fiscal year ended December 27, 2007 and $117,300for the fiscal year ended December 28, 2006.

 

·                                          *Audit-RelatedFees*. The Company did not incur anyaggregate fees for professional services rendered by KPMG for assurances andrelated services that are reasonably related to the performance of the audit orreview of our financial statements for the fiscal year ended December 27,2007 and for thefiscal year ended December 28, 2006.

 

·                                          *Tax Fees*. The Company did not incur any aggregate feesbilled for professional services rendered by KPMG related to federal andstate tax compliance, tax advice and tax planning for the fiscal year ended December 27,2007 and for thefiscal year ended December 28, 2006. All of theseservices are permitted non-audit services.

 

·                                          *All Other Fees.*The Company did not incur any aggregate fees forall other services rendered by KPMG for the fiscal year ended December 27,2007 and for thefiscal year ended December 28, 2006.

 

**Boardof Directors Pre-Approval Policy**

 

Our Board of Directors pre-approves all audit andpermissible non-audit services provided by the independent auditors on acase-by-case basis.  These services mayinclude audit services, audit related services, tax services and otherservices.  Our Vice President andTreasurer is responsible for presenting the board with an overview of allproposed audit, audit related, tax or other non-audit services to be performedby the independent auditors.  Thepresentation must 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.

 

 

46

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**PART IV**

 

 

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

 

 

(a)          The followingdocuments are filed as a part of this report on Form 10-K:

 

(1)                  Consolidatedfinancial statements of United Artists Theatre Circuit, Inc.:

 

Management’sReport on Internal Control over Financial Reporting

 

Reportof Independent Registered Public Accounting Firm - Consolidated FinancialStatements

 

UATC’sConsolidated Balance Sheets as of December 27, 2007 and December 28, 2006

 

UATC’s ConsolidatedStatements of Operations for the fiscal years ended December 27, 2007, December 28, 2006 andDecember 29, 2005

 

UATC’s ConsolidatedStatements of Stockholder’s Equity and Comprehensive Income for the fiscalyears ended December 27, 2007, December 28, 2006 andDecember 29, 2005 UATC’s Consolidated Statements of Cash Flows for the fiscal years ended December 27,2007, December 28,2006 andDecember 29,2005

 

Notesto UATC’s Consolidated Financial Statements

 

(2)                  FinancialStatement Schedules have been omitted because of the absence of conditionsunder which they are required, or because the information is shown elsewhere inthis Form 10-K.

 

(3)                  Exhibits: Thefollowing 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, 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                                                                                                                                                                                                                                                                                                                                                                                                                    |

 

 

47

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|        |   | 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* |   | Employment Agreement,  dated May 3, 2002, between Regal Entertainment Group and Michael L.  Campbell (filed as exhibit 10.4 to Amendment No. 2 to the Registration  Statement of Regal Entertainment Group on Form S-1 (Commission File  No. 333-84096) on May 6, 2002, and incorporated herein by  reference)                                                                                                                                                                                                                                      |

 

48

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|  10.5* |   | Employment Agreement,  dated May 3, 2002, between Regal Entertainment Group and Gregory W. Dunn  (filed as exhibit 10.7 to Amendment No. 2 to the Registration Statement  of Regal Entertainment Group on Form S-1 (Commission File  No. 333-84096) on May 6, 2002, and incorporated herein by  reference)                                                   |
|-------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |   |                                                                                                                                                                                                                                                                                                                                                                                  |
|  10.6* |   | Employment Agreement,  dated May 3, 2002, between Regal Entertainment Group and Amy E. Miles  (filed as exhibit 10.6 to Amendment No. 2 to the Registration Statement  of Regal Entertainment Group on Form S-1 (Commission File  No. 333-84096) on May 6, 2002, and incorporated herein by  reference)                                                      |
|        |   |                                                                                                                                                                                                                                                                                                                                                                                  |
|  10.7  |   | Purchase and Sale  Agreement by and between United Artists Theatre Circuit, Inc., as  seller, and Boardwalk Ventures, LLC, as purchaser, dated as of  October 11, 2005 (filed as exhibit 10.7 to United Artists Theatre  Circuit, Inc.’s Form 10-K (Commission File No. 033-49598)  filed on March 29, 2006, and incorporated herein by reference) |
|        |   |                                                                                                                                                                                                                                                                                                                                                                                  |
|  31.1  |   | Rule 13(a)-14(a) Certification  of Principal Executive Officer                                                                                                                                                                                                                                                                                                              |
|        |   |                                                                                                                                                                                                                                                                                                                                                                                  |
|  31.2  |   | Rule 13(a)-14(a) Certification  of Principal Financial Officer                                                                                                                                                                                                                                                                                                              |

----

*              Identifies each managementcontract or compensatory plan or arrangement.

 

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

 

(c)           Not applicable.

 

 

49

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**SIGNATURES**

 

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

 
|                      | UNITED ARTISTS THEATRE CIRCUIT, INC. |
|---------------------------|--------------------------------------|
|                      |                                 |
|  March 12, 2008 | By:                                  | /s/  MICHAEL  L. CAMPBELL |
|                      |                                 | Michael L. Campbell |
|                      |                                 | *President* |

 

                Pursuant to the requirements ofthe Securities Exchange Act 1934, this report has been signed below by thefollowing persons on behalf of the registrant and in the capacities and on thedates indicated.

 
| **Signature**                       | ** ** | **Title**                                                       | ** ** | **Date**            |
|-------------------------------------|------------|-----------------------------------------------------------------|------------|---------------------|
|                                |       |                                                            |       |                |
| /s/  MICHAEL  L. CAMPBELL |       | President and Chairman of the Board                             |       | March 12, 2008 |
| Michael L.  Campbell                |       |  (Principal  Executive Officer)                            |       |                |
|                                |       |                                                            |       |                |
| /s/  AMY  E. MILES        |       | Director, Vice President and Treasurer                     |       | March 12, 2008 |
| Amy E. Miles                        |       | (Principal Financial Officer and Principal Accounting  Officer) |       |                |
|                                |       |                                                            |       |                |
| /s/  GREGORY  W. DUNN     |       | Director                                                        |       | March 12, 2008 |
| Gregory W. Dunn                     |       |                                                            |       |                |

 

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

 

                The registrant has not sent toits sole stockholder an annual report to security holders covering theregistrant’s last fiscal year or any proxy statement, form of proxy or otherproxy soliciting material with respect to any annual or other meeting ofsecurity holders.

 

 

50

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**Exhibit Index**

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

 

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| 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*  |   | Employment Agreement,  dated May 3, 2002, between Regal Entertainment Group and Michael L.  Campbell (filed as exhibit 10.4 to Amendment No. 2 to the Registration  Statement of Regal Entertainment Group on Form S-1 (Commission File  No. 333-84096) on May 6, 2002, and incorporated herein by  reference)                                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.5*  |   | Employment Agreement,  dated May 3, 2002, between Regal Entertainment Group and Gregory W. Dunn  (filed as exhibit 10.7 to Amendment No. 2 to the Registration Statement  of Regal Entertainment Group on Form S-1 (Commission File  No. 333-84096) on May 6, 2002, and incorporated herein by  reference)                                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.6*  |   | Employment Agreement,  dated May 3, 2002, between Regal Entertainment Group and Amy E. Miles  (filed as exhibit 10.6 to Amendment No. 2 to the Registration Statement  of Regal Entertainment Group on Form S-1 (Commission File  No. 333-84096) on May 6, 2002, and incorporated herein by  reference)                                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.7   |   | Purchase and Sale  Agreement by and between United Artists Theatre Circuit, Inc., as  seller, and Boardwalk Ventures, LLC, as purchaser, dated as of  October 11, 2005 (filed as exhibit 10.7 to United Artists Theatre  Circuit, Inc.’s Form 10-K (Commission File No. 033-49598)  filed on March 29, 2006, and incorporated herein by reference)                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 31.1   |   | Rule 13(a)-14(a) Certification  of Principal Executive Officer                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 31.2   |   | Rule 13(a)-14(a) Certification  of Principal Financial Officer                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |

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*              Identifies each managementcontract or compensatory plan or arrangement.

 

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

 

(c)           Not applicable.

 

 

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