**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

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**FORM 10-Q**

 

**QUARTERLY REPORT PURSUANT TO SECTION 13OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934**

 

**For thequarterly period ended March 27, 2008**

 

**Commissionfile number: 001-31315**

 

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**Regal Entertainment Group**

(Exact name of Registrant as Specified in itsCharter)

 

| **Delaware**                              | ** ** | **02-0556934**                   |
|-------------------------------------------|------------|----------------------------------|
| (State or Other  Jurisdiction of          |       | (Internal Revenue Service        |
| Incorporation or  Organization)           |       | 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**

 

Indicate by check mark whether the registrant (1) has filed allreports required to be filed by Section 13 or 15(d) of the Securitiesand Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past90 days: Yes x   No o

 

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

 

| Large  accelerated filer x                     |   | Accelerated  filer o         |
|------------------------------------------------|--------|-----------------------------------|
|                                           |   |                              |
| Non-accelerated  filer o                       |   | Smaller  reporting company o |
| (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

 

Class A Common Stock—129,771,365 shares outstanding at May 1,2008

 

Class B Common Stock—23,708,639 shares outstanding at May 1,2008

 

 

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**TABLE OF CONTENTS**

 
| PART I—FINANCIAL  INFORMATION |                                                                                        |   |
|-----------------------------------------|---------------------------------------------------------------------------------------------|--------|
|                                    |                                                                                        |   |   |
| Item 1.                                 | FINANCIAL STATEMENTS                                                                        |   |   |
|                                    |                                                                                        |   |   |
|                                    | UNAUDITED  CONDENSED CONSOLIDATED BALANCE SHEETS                                            |   |   |
|                                    |                                                                                        |   |   |
|                                    | UNAUDITED  CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)                               |   |   |
|                                    |                                                                                        |   |   |
|                                    | UNAUDITED  CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS                                  |   |   |
|                                    |                                                                                        |   |   |
|                                    | NOTES TO  UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                             |   |   |
|                                    |                                                                                        |   |   |
| Item 2.                                 | MANAGEMENT’S DISCUSSION AND ANALYSIS OF  FINANCIAL CONDITION AND RESULTS OF OPERATIONS |   |   |
|                                    |                                                                                        |   |   |
| Item 3.                                 | QUANTITATIVE AND QUALITATIVE DISCLOSURES  ABOUT MARKET RISK                                 |   |   |
|                                    |                                                                                        |   |   |
| Item 4.                                 | CONTROLS AND PROCEDURES                                                                     |   |   |
|                                    |                                                                                        |   |   |
| PART II—OTHER INFORMATION     |                                                                                        |   |
|                                    |                                                                                        |   |   |
| Item 1.                                 | LEGAL PROCEEDINGS                                                                           |   |   |
|                                    |                                                                                        |   |   |
| Item 1A.                                | RISK FACTORS                                                                                |   |   |
|                                    |                                                                                        |   |   |
| Item 6.                                 | EXHIBITS                                                                                    |   |   |
|                                    |                                                                                        |   |   |
| SIGNATURES                              |                                                                                        |   |

 

2

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**PART I—FINANCIALINFORMATION**

 

**Item 1.    FINANCIALSTATEMENTS**

 

**REGALENTERTAINMENT GROUP**

 

**UNAUDITEDCONDENSED CONSOLIDATED BALANCE SHEETS(in millions, except share data)**

 

 
| ** **                                                                                                                                                                                               | ** ** | **March 27, 2008 ** | ** ** | **December 27, 2007** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------|------------|---------------------------------|------------|
| **ASSETS**                                                                                                                                                                                               |       |                               |       |                            |       |
| CURRENT ASSETS:                                                                                                                                                                                          |       |                               |       |                            |       |
| Cash and cash equivalents                                                                                                                                                                                |       | $                                  | 487.8      |                            | $          | 435.2 |   |
| Trade and other receivables, net                                                                                                                                                                         |       | 23.9                               |       | 73.5                            |       |
| Inventories                                                                                                                                                                                              |       | 7.8                                |       | 8.1                             |       |
| Prepaid expenses and other current assets                                                                                                                                                                |       | 11.1                               |       | 7.1                             |       |
| Assets held for sale                                                                                                                                                                                     |       | 0.9                                |       | 1.6                             |       |
|                                                                                                                                                                                                     |       |                               |       |                            |       |
| TOTAL CURRENT ASSETS                                                                                                                                                                                     |       | 531.5                              |       | 525.5                           |       |
|                                                                                                                                                                                                     |       |                               |       |                            |       |
| PROPERTY AND EQUIPMENT:                                                                                                                                                                                  |       |                               |       |                            |       |
| Land                                                                                                                                                                                                     |       | 121.8                              |       | 121.8                           |       |
| Buildings and leasehold improvements                                                                                                                                                                     |       | 1,717.1                            |       | 1,701.6                         |       |
| Equipment                                                                                                                                                                                                |       | 902.2                              |       | 886.5                           |       |
| Construction in progress                                                                                                                                                                                 |       | 16.6                               |       | 24.2                            |       |
|                                                                                                                                                                                                     |       |                               |       |                            |       |
| Total property and equipment                                                                                                                                                                             |       | 2,757.7                            |       | 2,734.1                         |       |
| Accumulated depreciation and amortization                                                                                                                                                                |       | (958.2                             | )          | (912.5                          | )          |
|                                                                                                                                                                                                     |       |                               |       |                            |       |
| TOTAL PROPERTY AND EQUIPMENT, NET                                                                                                                                                                        |       | 1,799.5                            |       | 1,821.6                         |       |
| GOODWILL                                                                                                                                                                                                 |       | 181.7                              |       | 181.7                           |       |
| DEFERRED INCOME TAX ASSET                                                                                                                                                                                |       | 75.1                               |       | 64.0                            |       |
| OTHER NON-CURRENT ASSETS                                                                                                                                                                                 |       | 45.7                               |       | 42.1                            |       |
|                                                                                                                                                                                                     |       |                               |       |                            |       |
| TOTAL ASSETS                                                                                                                                                                                             |       | $                                  | 2,633.5    |                            | $          | 2,634.9 |   |
|                                                                                                                                                                                                     |       |                               |       |                            |       |
| **LIABILITIES  AND STOCKHOLDERS’ DEFICIT**                                                                                                                                                          |       |                               |       |                            |       |
| CURRENT LIABILITIES:                                                                                                                                                                                     |       |                               |       |                            |       |
| Current portion of debt obligations                                                                                                                                                                      |       | $                                  | 56.7       |                            | $          | 146.5 |   |
| Accounts payable                                                                                                                                                                                         |       | 120.7                              |       | 183.0                           |       |
| Accrued expenses                                                                                                                                                                                         |       | 43.6                               |       | 54.7                            |       |
| Deferred revenue                                                                                                                                                                                         |       | 130.7                              |       | 113.9                           |       |
| Interest payable                                                                                                                                                                                         |       | 26.5                               |       | 28.9                            |       |
| Deferred income tax liability                                                                                                                                                                            |       | 0.5                                |       | 0.5                             |       |
|                                                                                                                                                                                                     |       |                               |       |                            |       |
| TOTAL CURRENT LIABILITIES                                                                                                                                                                                |       | 378.7                              |       | 527.5                           |       |
| LONG-TERM DEBT                                                                                                                                                                                           |       | 1,913.9                            |       | 1,718.2                         |       |
| LEASE FINANCING ARRANGEMENTS                                                                                                                                                                             |       | 80.7                               |       | 81.8                            |       |
| CAPITAL LEASE OBLIGATIONS                                                                                                                                                                                |       | 18.1                               |       | 19.0                            |       |
| NON-CURRENT DEFERRED REVENUE                                                                                                                                                                             |       | 278.9                              |       | 279.8                           |       |
| OTHER NON-CURRENT LIABILITIES                                                                                                                                                                            |       | 149.0                              |       | 127.4                           |       |
|                                                                                                                                                                                                     |       |                               |       |                            |       |
| TOTAL LIABILITIES                                                                                                                                                                                        |       | 2,819.3                            |       | 2,753.7                         |       |
| MINORITY INTEREST                                                                                                                                                                                        |       | —                             |       | 0.5                             |       |
| STOCKHOLDERS’ DEFICIT:                                                                                                                                                                              |       |                               |       |                            |       |
| Class A common stock, $0.001 par  value; 500,000,000 shares authorized, 129,771,029 and 129,518,587 shares  issued and outstanding at March 27, 2008 and December 27, 2007,  respectively |       | 0.1                                |       | 0.1                             |       |
| Class B common stock, $0.001 par  value; 200,000,000 shares authorized, 23,708,639 shares issued and  outstanding at March 27, 2008 and December 27, 2007                                 |       | —                             |       | —                          |       |
| Preferred stock, $0.001 par value;  50,000,000 shares authorized; none issued and outstanding                                                                                                            |       | —                             |       | —                          |       |
| Additional paid-in capital (deficit)                                                                                                                                                                     |       | (165.9                             | )          | (160.4                          | )          |
| Retained earnings (accumulated deficit)                                                                                                                                                                  |       | (6.3                               | )          | 42.6                            |       |
| Accumulated other comprehensive loss, net                                                                                                                                                                |       | (13.7                              | )          | (1.6                            | )          |
|                                                                                                                                                                                                     |       |                               |       |                            |       |
| TOTAL STOCKHOLDERS’ DEFICIT                                                                                                                                                                         |       | (185.8                             | )          | (119.3                          | )          |
|                                                                                                                                                                                                     |       |                               |       |                            |       |
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT                                                                                                                                                         |       | $                                  | 2,633.5    |                            | $          | 2,634.9 |   |

 

See accompanying notes to unaudited condensedconsolidated financial statements.

 

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**REGALENTERTAINMENT GROUP**

 

**UNAUDITEDCONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)**

**(in millions,except per share data)**

 
| ** **                                                                                                                                                                   | ** ** | **Quarter Ended  March 27, 2008** | ** ** | **Quarter Ended  March 29, 2007** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| REVENUES:                                                                                                                                                                    |       |                                             |       |                                             |       |
| Admissions                                                                                                                                                                   |       | $                                                | 432.0      |                                             | $          | 426.7 |   |
| Concessions                                                                                                                                                                  |       | 166.1                                            |       | 168.3                                            |       |
| Other operating revenue                                                                                                                                                      |       | 28.7                                             |       | 30.0                                             |       |
| TOTAL REVENUES                                                                                                                                                               |       | 626.8                                            |       | 625.0                                            |       |
| OPERATING EXPENSES:                                                                                                                                                          |       |                                             |       |                                             |       |
| Film rental and advertising costs                                                                                                                                            |       | 215.9                                            |       | 218.0                                            |       |
| Cost of concessions                                                                                                                                                          |       | 22.7                                             |       | 25.0                                             |       |
| Rent expense                                                                                                                                                                 |       | 83.3                                             |       | 81.0                                             |       |
| Other operating expenses                                                                                                                                                     |       | 168.6                                            |       | 164.9                                            |       |
| General and administrative expenses  (including share-based compensation of $1.4 and $2.1 for the quarters ended  March 27, 2008 and March 29, 2007, respectively) |       | 15.0                                             |       | 16.0                                             |       |
| Depreciation and amortization                                                                                                                                                |       | 46.3                                             |       | 46.3                                             |       |
| Net loss on disposal and impairment of  operating assets                                                                                                                     |       | 2.2                                              |       | 5.4                                              |       |
| Equity in earnings of joint venture  including former employee compensation                                                                                                  |       | 0.2                                              |       | 3.4                                              |       |
| TOTAL OPERATING EXPENSES                                                                                                                                                     |       | 554.2                                            |       | 560.0                                            |       |
| INCOME FROM OPERATIONS                                                                                                                                                       |       | 72.6                                             |       | 65.0                                             |       |
| OTHER EXPENSE (INCOME):                                                                                                                                                      |       |                                             |       |                                             |       |
| Interest expense, net                                                                                                                                                        |       | 29.7                                             |       | 31.0                                             |       |
| Gain on NCM transaction                                                                                                                                                      |       | —                                           |       | (350.7                                           | )          |
| Earnings recognized from NCM                                                                                                                                                 |       | (8.4                                             | )          | —                                           |       |
| Loss on extinguishment of debt                                                                                                                                               |       | 52.8                                             |       | —                                           |       |
| Minority interest in earnings of consolidated  subsidiaries and other                                                                                                        |       | 0.6                                              |       | —                                           |       |
| TOTAL OTHER EXPENSE (INCOME), NET                                                                                                                                            |       | 74.7                                             |       | (319.7                                           | )          |
| INCOME (LOSS) BEFORE INCOME TAXES                                                                                                                                            |       | (2.1                                             | )          | 384.7                                            |       |
| PROVISION FOR INCOME TAXES                                                                                                                                                   |       | (0.9                                             | )          | (155.6                                           | )          |
| NET INCOME (LOSS)                                                                                                                                                            |       | $                                                | (3.0       | )                                                | $          | 229.1 |   |
| EARNINGS (LOSS) PER SHARE OF CLASS A  AND CLASS B COMMON STOCK (Note 8):                                                                                           |       |                                             |       |                                             |       |
| Basic                                                                                                                                                                        |       | $                                                | (0.02      | )                                                | $          | 1.52 |   |
| Diluted                                                                                                                                                                      |       | $                                                | (0.02      | )                                                | $          | 1.46 |   |
| DIVIDENDS DECLARED PER COMMON SHARE                                                                                                                                          |       | $                                                | 0.30       |                                             | $          | 2.30 |   |

 

See accompanying notes to unaudited condensedconsolidated financial statements.

 

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 **REGALENTERTAINMENT GROUP**

 

**UNAUDITEDCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(inmillions)**

 
| ** **                                                                              | ** ** | **Quarter  Ended  March 27, 2008** | ** ** | **Quarter  Ended  March 29, 2007** | ** ** |
|-----------------------------------------------------------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|
| CASH FLOWS FROM OPERATING ACTIVITIES:                                                   |       |                                         |       |                                         |       |
| Net income (loss)                                                                       |       | $                                            | (3.0       | )                                            | $          | 229.1 |   |
| Adjustments to reconcile net income (loss)  to cash provided by operating activities:   |       |                                         |       |                                         |       |
| Depreciation and amortization                                                           |       | 46.3                                         |       | 46.3                                         |       |
| Share-based compensation expense                                                        |       | 1.4                                          |       | 2.1                                          |       |
| Deferred income tax expense (benefit)                                                   |       | 1.4                                          |       | (44.8                                        | )          |
| Net loss on disposal and impairment of  operating assets                                |       | 2.2                                          |       | 5.4                                          |       |
| Equity loss from DCIP investment                                                        |       | 0.6                                          |       | —                                       |       |
| Equity in earnings of joint venture  including former employee compensation             |       | 0.2                                          |       | 3.4                                          |       |
| Non-cash gain on NCM transaction                                                        |       | —                                       |       | (3.4                                         | )          |
| Loss on extinguishment of debt                                                          |       | 52.8                                         |       | —                                       |       |
| Non-cash rent expense                                                                   |       | 1.6                                          |       | 2.4                                          |       |
| Changes in operating assets and  liabilities:                                           |       |                                         |       |                                         |       |
| Trade and other receivables                                                             |       | 33.5                                         |       | 38.5                                         |       |
| Inventories                                                                             |       | 0.2                                          |       | (0.4                                         | )          |
| Prepaid expenses and other current assets                                               |       | (2.1                                         | )          | (7.3                                         | )          |
| Accounts payable                                                                        |       | (62.4                                        | )          | (20.0                                        | )          |
| Income taxes payable                                                                    |       | (2.6                                         | )          | 160.4                                        |       |
| Deferred revenue                                                                        |       | 15.8                                         |       | 308.3                                        |       |
| Accrued expenses and other liabilities                                                  |       | (14.7                                        | )          | (10.0                                        | )          |
| NET CASH PROVIDED BY OPERATING ACTIVITIES                                               |       | 71.2                                         |       | 710.0                                        |       |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                                   |       |                                         |       |                                         |       |
| Capital expenditures                                                                    |       | (24.8                                        | )          | (19.9                                        | )          |
| Proceeds from disposition of assets                                                     |       | —                                       |       | 3.1                                          |       |
| Investment in DCIP                                                                      |       | (1.0                                         | )          | (1.5                                         | )          |
| Distributions to partnership                                                            |       | (0.4                                         | )          | —                                       |       |
| NET CASH USED IN INVESTING ACTIVITIES                                                   |       | (26.2                                        | )          | (18.3                                        | )          |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                                   |       |                                         |       |                                         |       |
| Cash used to pay dividends                                                              |       | (46.0                                        | )          | (45.3                                        | )          |
| Proceeds from stock option exercises                                                    |       | 0.2                                          |       | 3.2                                          |       |
| Proceeds from issuance of 61⁄4% Convertible  Senior Notes                            |       | 200.0                                        |       | —                                       |       |
| Net cash paid for 61⁄4% Convertible Senior  Notes convertible note hedge and warrant |       | (6.6                                         | )          | —                                       |       |
| Net payments on long-term obligations                                                   |       | (6.1                                         | )          | (6.2                                         | )          |
| Cash used to redeem 33⁄4% Convertible Senior  Notes                                  |       | (142.7                                       | )          | —                                       |       |
| Net proceeds from 33⁄4% Convertible Senior  Notes convertible note hedge and warrant |       | 13.7                                         |       | —                                       |       |
| Excess tax benefits from share-based  payment arrangements                              |       | 0.1                                          |       | 2.2                                          |       |
| Payment of debt acquisition costs and other                                             |       | (5.0                                         | )          | (0.1                                         | )          |
| NET CASH PROVIDED BY (USED IN) FINANCING  ACTIVITIES                                    |       | 7.6                                          |       | (46.2                                        | )          |
| NET INCREASE IN CASH AND CASH EQUIVALENTS                                               |       | 52.6                                         |       | 645.5                                        |       |
| CASH AND CASH EQUIVALENTS AT BEGINNING OF  PERIOD                                       |       | 435.2                                        |       | 162.2                                        |       |
| CASH AND CASH EQUIVALENTS AT END OF PERIOD                                              |       | $                                            | 487.8      |                                         | $          | 807.7 |   |
| SUPPLEMENTAL CASH FLOW INFORMATION:                                                     |       |                                         |       |                                         |       |
| Cash paid for income taxes, net of refunds  received                                    |       | $                                            | 2.1        |                                         | $          | 32.9 |   |
| Cash paid for interest                                                                  |       | $                                            | 33.5       |                                         | $          | 32.2 |   |
| SUPPLEMENTAL NON-CASH FINANCING ACTIVITIES:                                             |       |                                         |       |                                         |       |
| Declaration of extraordinary dividend                                                   |       | $                                            | —     |                                         | $          | 302.0 |   |

 

See accompanying notes to unaudited condensed consolidated financialstatements.

 

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**REGALENTERTAINMENT GROUP**

 

**NOTES TOUNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

** **

**MARCH 27,2008**

 

**1. THE COMPANY AND BASIS OF PRESENTATION**

 

Regal Entertainment Group (the “Company,” “Regal,” “we” or “us”) is theparent company of Regal Entertainment Holdings, Inc. (“REH”), which is theparent company of Regal Cinemas Corporation (“Regal Cinemas”) and itssubsidiaries. Regal Cinemas’ subsidiaries include Regal Cinemas, Inc. (“RCI”)and its subsidiaries, which include Edwards Theatres, Inc. (“Edwards”),Regal CineMedia Corporation (“Regal CineMedia” or “RCM”), Hoyts CinemasCorporation (“Hoyts”) and United Artists Theatre Company (“United Artists”).The terms Regal or the Company, REH, Regal Cinemas, RCI, Edwards, Regal CineMediaor RCM, Hoyts and United Artists shall be deemed to include the respectivesubsidiaries of such entities when used in discussions included hereinregarding the current operations or assets of such entities.

 

Regal operates the largest theatre circuit in the United States,consisting of 6,385 screens in 525 theatres in 39 states and the District ofColumbia as of March 27, 2008.  The Company formally operates on a52-week fiscal year with each quarter generally consisting of 13 weeks, unlessotherwise noted. The Company’s fiscal year ends on the first Thursday after December 25,which in certain years (such as fiscal 2008) results in a 53-week fiscalyear.  As of March 27, 2008, the Company managed its business underone reportable segment: theatre exhibition operations.

 

In March 2005, Regal andAMC Entertainment Inc. (“AMC”) announced the combination of the operationsof RCM and AMC’s subsidiary, National Cinema Network, Inc. (“NCN”), into anew joint venture company known as National CineMedia, LLC (“NationalCineMedia”). In July 2005, Cinemark, Inc. (“Cinemark”), through awholly owned subsidiary, acquired an interest in National CineMedia. On February 13,2007, National CineMedia, Inc. (“NCM, Inc.”), a newly formed entitythat serves as the sole manager of National CineMedia, completed an initialpublic offering, or IPO, of its common stock. In connection with the IPO of NCM, Inc.,RCM, through its wholly owned subsidiary Regal CineMedia Holdings, LLC (“RCH”),AMC and Cinemark amended and restated the operating agreement of NationalCineMedia and other ancillary agreements. In connection with the series oftransactions completed in connection with the IPO, Regal received gross cashproceeds totaling approximately $628.3 million and retained a 22.6% interestin NCM, Inc. After the payment of current taxes, net cash proceeds fromthese transactions totaled approximately $447.4 million. The Company useda portion of the net cash proceeds to fund an extraordinary cash dividend of$2.00 per share on each outstanding share of its Class A and Class Bcommon stock, including outstanding restricted stock, or approximately$302.0 million in the aggregate. Stockholders of record at the close ofbusiness on March 28, 2007 were paid this $302.0 million dividend on April 13,2007. As discussed further in Note 2—“Investment in NationalCineMedia, LLC,” as a result of the transactions completed in connectionwith the IPO, the Company recognized a gain of approximately$350.7 million during the quarter ended March 29, 2007.

 

OnFebruary 12, 2007, we, along with AMC and Cinemark, formed a joint venturecompany known as Digital Cinema Implementation Partners, LLC, a Delawarelimited liability company (“DCIP”), to explore the possibility of implementingdigital cinema in our theatres and to create a financing model and establishagreements with major motion picture studios for the implementation of digitalcinema. The Company’s cash investment in DCIP totaled approximately$2.5 million as of March 27, 2008. We account for our investment inDCIP following the equity method of accounting. For the quarter ended March 27, 2008, the Company recorded a lossof $0.6 million representing its share of the net loss of DCIP. Such lossis presented as a component of “Minority interest in earnings of consolidatedsubsidiaries and other.”

 

For a discussion of the series of events leading to the formation ofthe Company and other significant transactions which have occurred through December 27,2007, please refer to Note 1 to the 

 

6

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consolidatedfinancial statements included in Part II, Item 8 of our annual report on Form 10-Kfiled on February 26, 2008 with the Securities and Exchange Commission(the “Commission”) (File No. 001-31315) for the fiscal year ended December 27,2007.

 

OnJanuary 14, 2008, the Company entered into an agreement to acquireConsolidated Theatres, L.L.C., consisting of a total of 28 theatres with 400screens in Georgia, Maryland, North Carolina, South Carolina, Tennessee andVirginia. As described further in Note 10—“Subsequent Events,” the Companyconsummated the transaction on April 30, 2008 for a total cash purchaseprice of $210.0 million, subject to post-closing adjustments.

 

On March 10, 2008, Regal issued $200.0 million aggregateprincipal amount of 61⁄4% Convertible Senior Notes due March 15, 2011. Concurrent with theissuance of Regal’s 61⁄4% ConvertibleSenior Notes, we entered into simultaneous convertible note hedge and warranttransactions with respect to our Class A common stock in order to reducethe potential dilution from conversion of the 61⁄4% Convertible Senior Notes into shares of our Class Acommon stock. The net cost of the convertible note hedge and warranttransactions was approximately $6.6 million and is included as a componentof equity in the accompanying unaudited condensed consolidated balance sheet asof March 27, 2008.  The Company used cash on hand and a portion ofthe net proceeds from the issuance of Regal’s 61⁄4% Convertible Senior Notes to redeem approximately$90.0 million principal amount of Regal’s 33⁄4% Convertible Senior Notes due May 15,2008, in a series of privately negotiated transactions.  As a result ofthe early redemption, the Company recorded a $52.8 million loss on debtextinguishment during the quarter ended March 27, 2008.  In connection with the early redemption, theCompany received net proceeds of approximately $13.7 million from Credit SuisseInternational (“Credit Suisse”) attributable to the convertible note hedge andwarrant transactions associated with the 33⁄4% Convertible Senior Notes describedfurther in Note 3—“Debt Obligations.”  Such proceeds were recorded asan increase to additional paid-in capital. See Note 3—“Debt Obligations” for further description of Regal’s 61⁄4%Convertible Senior Notes and therelated convertible note hedge and warrant transactions.

 

During the quarter ended March 27, 2008, Regal paid one quarterlycash dividend of $0.30 on each outstanding share of the Company’s Class Aand Class B common stock, or approximately $46.0 million in theaggregate.

 

Total comprehensive income (loss) for the quarters ended March 27,2008 and March 29, 2007 was $(15.1 million) and $226.0 million,respectively. Total comprehensive income (loss) consists of net income(loss) and other comprehensive income (loss), net of tax, related to the changein the aggregate unrealized gain (loss) on the Company’s interest rate swaparrangements during each of the quarters ended March 27, 2008 and March 29,2007. The Company’s interest rate swap arrangements are further described inNote 3—“Debt Obligations.”

 

The Company has prepared the unaudited condensed consolidated balancesheet as of March 27, 2008 and the unaudited condensed consolidatedstatements of income (loss) and cash flows in accordance with U.S. generallyaccepted accounting principles for interim financial information and the rules andregulations of the Commission. Accordingly, certain information and footnotedisclosures typically included in an annual report have been condensed oromitted for this quarterly report. In the opinion of management, alladjustments (which include only normal recurring adjustments) necessary topresent fairly in all material respects the financial position, results ofoperations and cash flows for all periods presented have been made. The December 27,2007 unaudited condensed consolidated balance sheet information is derived fromthe audited consolidated financial statements of the Company included in itsannual report on Form 10-K for the fiscal year ended December 27,2007. These unaudited condensed consolidated financial statements should beread in conjunction with the audited consolidated financial statements andnotes thereto. The results of operations for the quarter ended March 27,2008 are not necessarily indicative of the operating results that may beachieved for the full 2008 fiscal year.

 

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Certain reclassifications have been made to the 2007 financialstatements to conform to the 2008 presentation.

 

**2. INVESTMENT IN NATIONAL CINEMEDIA, LLC**

 

***Formation of National CineMedia, LLC***

 

InMarch 2005, Regal and AMC announced the combination of the operations ofRCM and AMC’s subsidiary, NCN, into a new joint venture company known asNational CineMedia. In July 2005, Cinemark, through a wholly ownedsubsidiary, acquired an interest in National CineMedia. National CineMediafocuses on the expansion of in-theatre advertising and the creation ofcomplementary business lines that leverage the existing operating personnel,asset and customer bases of its theatrical exhibition partners, which includesus, AMC and Cinemark. National CineMedia is, subject to limited exceptions, theexclusive provider of advertising and event services to Regal, AMC and Cinemark.

 

Aspart of the March 2005 joint venture transaction, RCM and NCN entered intoa Contribution and Unit Holders Agreement with National CineMedia pursuant towhich, among other things, RCM and NCN agreed to contribute assets to NationalCineMedia and National CineMedia agreed to assume specified liabilities of RCMand NCN in consideration for the issuance of equity units by National CineMediato RCM’s wholly-owned subsidiary, RCH and NCN, respectively. The assetscontributed to National CineMedia by RCM included fixed assets and agreementsas well as approximately $1.3 million in cash. The Company accounts forits investment in National CineMedia using the equity method of accounting anddid not recognize any gain or loss resulting from the initial formation ofNational CineMedia due to the Company’s continued involvement in the operationsof National CineMedia.

 

Pursuantto the other documents entered into in connection with the joint venturetransaction, AMC and Regal, through their subsidiaries, retained alladvertising contracts signed on or before the close of business on March 31,2005, and Cinemark retained all advertising contracts signed on or before theclose of business on July 15, 2005, subject to an administrative fee (32%during fiscal 2006 through the date of the IPO of NCM, Inc.) payable toNational CineMedia to service such contracts. For the period from December 29,2006 through February 12, 2007, administrative fees paid to NationalCineMedia with respect to these contracts totaled less than $0.1 million(on less than $0.1 million of revenue). Revenues and expenses attributableto these advertising contracts were recorded as a component of other operatingrevenues and other operating expenses in the Company’s financial statements.For contracts signed by National CineMedia after the close of business on March 31,2005 through February 12, 2007, AMC and Regal, and with respect tocontracts signed after the close of business on July 15, 2005 through February 12,2007, Cinemark, through their respective subsidiaries, received revenue fromNational CineMedia with respect to advertising and event services at theirrespective theatres through an agreed upon formula as well as equity inincome/loss of National CineMedia. Such formula was based on the weightedaverage number of screens owned by and the number of theatre patrons of theapplicable exhibitor’s theatres for any measurement period. During the periodfrom December 29, 2006 through February 12, 2007, the Companyrecorded $6.2 million of advertising revenues and $0.4 million ofother revenues derived from these contracts, which are presented as a componentof other operating revenues in the Company’s financial statements. For theperiod from December 29, 2006 through February 12, 2007, the Companyrecorded a loss of $2.0 million, representing its share of the net loss ofNational CineMedia.  See “Initial PublicOffering of National CineMedia, Inc.” below for a discussion of relatedamounts for the period from February 13, 2007 through March 27, 2008.

 

Inconnection with the formation of National CineMedia, on May 11, 2005, RCIadopted and approved the RCI Severance Plan For Equity Compensation (the “SeverancePlan”). Participation in the Severance Plan is limited to employees of RCM whoheld an unvested option to purchase shares of Regal’s Class A common stockor unvested shares of Regal’s restricted Class A common stock pursuant tothe terms of the Company’s 2002 Incentive Plan (the “Incentive Plan”)immediately prior to such employee’s termination of employment with RCM andcommencement of employment with National CineMedia. Each employee’s terminationof employment with RCM was effective as of the close of business on May 24,

 

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2005and commencement of employment with National CineMedia was effective as of May 25,2005. Under the terms of and subject to the conditions of the Severance Plan,each eligible employee who participates in the Severance Plan is, at the timesset forth in the Severance Plan, entitled to cash payments based on the valueof Regal’s Class A common stock on May 24, 2005 as calculatedpursuant to the terms of the Severance Plan. As the Severance Plan provides forpayments over future periods that are contingent upon continued employment withNational CineMedia, the cost of the Severance Plan will be recorded as anexpense over the remaining required service periods. During the quarters ended March 27,2008, and March 29, 2007, the Company recorded total severance expense ofapproximately $0.2 million and $1.4 million, respectively, includingpayments in lieu of dividends, related to the Severance Plan.

 

***Initial Public Offering of National CineMedia, Inc.***

 

OnFebruary 13, 2007, NCM, Inc., a newly formed entity that serves as thesole manager of National CineMedia, completed an IPO of its common stock. NCM, Inc.sold 38.0 million shares of its common stock for $21 per share in the IPO,less underwriting discounts and expenses. NCM, Inc. used a portion of thenet cash proceeds from the IPO to acquire newly issued common units fromNational CineMedia. As a result of the NCM, Inc.’s acquisition of commonunits in National CineMedia, the Company recognized a change in interest gainof approximately $182.7 million along with a corresponding increase in theCompany’s equity investment in National CineMedia.

 

Inconnection with the completion of the IPO, the joint venture partners,including RCI, amended and restated their exhibitor services agreements (“ESA”)with National CineMedia, whereby in exchange for its pro rata share of the IPOproceeds (approximately $281.0 million), RCI agreed to a modification ofNational CineMedia’s payment obligation under the ESA. The modificationextended the term of the ESA to 30 years, provided National CineMedia witha five year right of first refusal beginning one year prior to the end of theterm and changed the basis upon which RCI is paid by National CineMedia from apercentage of revenues associated with advertising contracts entered into byNational CineMedia to a monthly theatre access fee. The theatre access fee iscomposed of a fixed $0.07 payment per patron which will increase by 8% everyfive years starting at the end of fiscal 2011 and a fixed $800 payment perdigital screen each year, which will increase by 5% annually starting at theend of fiscal 2007. Pursuant to our Common Unit Adjustment Agreement, from timeto time, common units of National CineMedia held by the joint venture partnerswill be adjusted through a formula primarily based on theatre attendancegenerated by each joint venture partner. On-screen advertising time provided toour beverage concessionaire is provided by National CineMedia under the termsof our agreement. In addition, we receive mandatory quarterly distributions ofany excess cash from National CineMedia.

 

Theamount we received for agreeing to the ESA modification was approximately$281.0 million, which represents the estimated fair value of the ESAmodification payment. We estimated the fair value of the ESA payment based upona valuation performed by the Company with the assistance of third partyspecialists. This amount has been recorded as deferred revenue and will beamortized to advertising revenue over the 30 year term of the agreementfollowing the units of revenue method. Under the units of revenue method,amortization for a period is calculated by computing a ratio of the proceedsreceived from the ESA modification payment to the total expected decrease inrevenues due to entry into the new ESA over the 30 year term of theagreement and then applying that ratio to the current period’s expecteddecrease in revenues due to entry into the new ESA. During the quarter ended March 27,2008 and the period from February 13, 2007 through March 29, 2007,the Company recognized $0.6 million and $0.3 million, respectively, ofadvertising revenue utilizing the units of revenue amortization method.

 

Atthe closing of the IPO, the underwriters exercised their over-allotment optionto purchase an additional 4.0 million shares of common stock of NCM, Inc.at the initial offering price of $21 per share, less underwriting discounts andcommissions. In connection with this over-allotment option exercise, Regal, AMCand Cinemark each sold to NCM, Inc. common units of National CineMedia ona pro rata basis at the initial offering price of $21 per share, lessunderwriting discounts and expenses. Regal sold approximately 1.6 millioncommon units to NCM, Inc. for proceeds of approximately $32.2 millionand recognized a gain on the sale of such units of approximately$19.3 million. Upon completion of this sale of 

 

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commonunits and as of March 27, 2008, Regal held approximately 21.2 millioncommon units of National CineMedia. Such common units are immediatelyredeemable on a one-to-one basis for shares of NCM, Inc. Common Stock. Asa result, we own, on a fully diluted basis, a 22.6% interest in NCM, Inc.as of March 27, 2008.  We accountfor our investment in National CineMedia following the equity method ofaccounting.  As described further in Note10—“Subsequent Events,” on April 9, 2008, we received approximately 0.8million additional common units of National CineMedia in accordance with theannual common unit adjustment provisions of the Common Unit AdjustmentAgreement.  Such adjustment had theeffect of increasing our interest in NCM, Inc. to approximately 22.8%.

 

Uponthe closing of the IPO, National CineMedia entered into a $725.0 millionterm loan facility, the net cash proceeds of which were used to redeempreferred units issued to each of Regal, AMC and Cinemark on a pro rata basispursuant to a recapitalization of National CineMedia prior to completion of theIPO. We received approximately $315.1 million as a result of the preferredunit redemption. The Company recognized such cash distributions from NationalCineMedia by (1) reducing its equity investment in National CineMedia fromapproximately $166.4 million to zero and (2) recording distributionsin excess of the investment balance in National CineMedia of approximately$148.7 million as a gain. Because the investment (and net advances) inNational CineMedia has been reduced to zero, we will not provide for anyadditional losses as we have not guaranteed obligations of National CineMediaand we are not otherwise committed to provide further financial support forNational CineMedia. In addition, during future periods, the Company will notrecognize its share of any undistributed equity in the earnings of NationalCineMedia until National CineMedia’s future net earnings equal or exceed theamount of the above excess distribution. Until such time, equity earnings willbe recognized only to the extent that the Company receives cash distributionsfrom National CineMedia. During the quarter ended March 27, 2008, theCompany received $8.4 million in cash distributions from NationalCineMedia. As a result, $8.4 million in equity earnings were recognizedduring the quarter ended March 27, 2008.

 

Afterthe payment of current taxes, net cash proceeds from these transactions totaledapproximately $447.4 million. The Company used a portion of the net cashproceeds to fund an extraordinary cash dividend of $2.00 per share on eachoutstanding share of its Class A and Class B common stock, or approximately$302.0 million in the aggregate. Stockholders of record at the close ofbusiness on March 28, 2007 were paid this dividend on April 13, 2007.

 

Asa result of the ESA amendment and related modification payment, for the quarterended March 27, 2008 and the period from February 13, 2007 through March 29,2007, theatre access fees and other revenues received from National CineMedia,net of payments for on-screen advertising time provided to our beverageconcessionaire, totaled approximately $2.0 million and $0.3 million,respectively. This amount is presented as a component of other operatingrevenues in the Company’s financial statements. As of March 27, 2008,approximately $1.9 million and $1.6 million due from/to NationalCineMedia were included in “Trade and other receivables, net” and “Accountspayable,” respectively.   Asof December 27, 2007, approximately $2.0 million and$2.2 million due from/to National CineMedia were included in “Trade andother receivables, net” and “Accounts payable,” respectively.

** **

**3. DEBT OBLIGATIONS**

 

Debt obligations at March 27, 2008 and December 27, 2007consist of the following (in millions):

 
| ** **                                                                                                                          | ** ** | **March 27, 2008** | ** ** | **December 27, 2007** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|---------------------------------|------------|
| Regal 61⁄4 % Convertible Senior Notes                                                                                            |       | $                            | 200.0      |                            | $          | — |   |
| Regal 33⁄4% Convertible Senior Notes                                                                                             |       | 33.7                         |       | 123.7                           |       |
| Regal  Cinemas Senior Credit Facility                                                                                               |       | 1,678.8                      |       | 1,683.0                         |       |
| Regal  Cinemas 93/8% Senior Subordinated Notes                                                                                      |       | 51.5                         |       | 51.5                            |       |
| Lease financing arrangements, weighted  average interest rate of 11.15%, maturing in various installments through January 2021 |       | 84.8                         |       | 85.8                            |       |
| Capital lease obligations, 8.5% to 10.3%,  maturing in various installments through December 2017                              |       | 19.8                         |       | 20.6                            |       |
| Other                                                                                                                               |       | 0.8                          |       | 0.9                             |       |
|                                                                                                                                |       |                         |       |                            |       |
| Total debt obligations                                                                                                              |       | 2,069.4                      |       | 1,965.5                         |       |
| Less current portion                                                                                                                |       | 56.7                         |       | 146.5                           |       |
|                                                                                                                                |       |                         |       |                            |       |
| Total debt obligations, net of current  maturities                                                                                  |       | $                            | 2,012.7    |                            | $          | 1,819.0 |   |

 

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***Regal******61⁄4%******Convertible Senior Notes******—*** OnMarch 10, 2008, Regal issued $200.0 million aggregate principalamount of 61⁄4% Convertible Senior Notes due March 15, 2011 (the “61⁄4%Convertible Senior Notes”). Interest on the 61⁄4% Convertible Senior Notes ispayable semi-annually in arrears on March 15 and September 15 of eachyear, beginning September 15, 2008. The 61⁄4% Convertible Senior Notes aresenior unsecured obligations of Regal and rank on parity with all of ourexisting and future senior unsecured indebtedness and prior to all of oursubordinated indebtedness. The 61⁄4% Convertible Senior Notes are effectivelysubordinated to all of our future secured indebtedness to the extent of theassets securing that indebtedness and to any indebtedness and other liabilitiesof our subsidiaries. None of our subsidiaries have guaranteed any of ourobligations with respect to the 61⁄4% Convertible Senior Notes. On or after December 15,2010, our note holders will have the option to convert their 61⁄4% ConvertibleSenior Notes, in whole or in part, into shares of our Class A common stockat any time prior to maturity, subject to certain limitations, unlesspreviously purchased by us at the note holder’s option upon a fundamentalchange (as defined in the indenture to the 61⁄4% Convertible Senior Notes dated March 10,2008 and filed as an exhibit to this quarterly report on Form 10-Q), atthe then-existing conversion price per share. Prior to December 15, 2010, our note holders have the right, attheir option, to convert their 61⁄4% Convertible Senior Notes, in whole or inpart, into shares of our Class A common stock, subject to certainlimitations, unless previously purchased by us at the note holder’s option upona fundamental change, at the then existing conversion price per share, subjectto further adjustments described below, if:

 

·                  during anycalendar quarter commencing after June 30, 2008, and only during suchcalendar quarter, if the last reported sale price per share of Class Acommon stock for at least 20 trading days in the period of 30 consecutivetrading days ending on the last trading day of the immediately precedingcalendar quarter exceeds 130% of the conversion price per share of Class Acommon stock for the 61⁄4% Convertible Senior Notes on the last trading day ofsuch immediately preceding calendar quarter;

 

·                  during the five consecutive businessdays immediately after any ten consecutive trading day period (such 10consecutive trading day period, the “Note Measurement Period”) in which thetrading price (calculated using the trading price for each of the trading daysin the Note Measurement Period) per $1,000 principal amount of the 61⁄4%Convertible Senior Notes was less than 95% of the product of the last reportedsale price per share of Class A common stock and the conversion rate foreach day of the Note Measurement Period as determined following a request by a holder of the notes in accordancewith the procedures described more fully in the 61⁄4% Convertible Senior Notesindenture;

 

·                  duringcertain periods if specified corporate transactions occur or specifieddistributions to holders of common stock are made, each as set forth in the 61⁄4%Convertible Senior Notes indenture (excluding certain distributions andexcluding quarterly dividends not in excess of the base dividend amount (asdefined in the 61⁄4% Convertible Senior Notes indenture)), in which case, theconversion price per share will be adjusted as set forth in the 61⁄4% ConvertibleSenior Notes indenture; or

 

·                  afundamental change (as defined in the 61⁄4% Convertible Senior Notes indenture)occurs, a note holder may elect to convert all or a portion of its notes at anytime commencing on the effective date ofsuch transaction or 15 days prior to the anticipated effective date (in certaincircumstances) until the latter of: (i) the day before thefundamental change repurchase date and (ii) 30 days following theeffective date of such transaction (but in any event prior to the close ofbusiness on the business day prior to the maturity date), in which case we willincrease the conversion rate for the notes 

 

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surrendered for conversion by anumber of additional shares of Class A common stock, as set forth in thetable in the 61⁄4% Convertible Senior Notes indenture.

 

On March 27, 2008, at thethen-current conversion price of $23.0336 per share (which conversion price maybe adjusted pursuant to the certain events described further in the 61⁄4%Convertible Senior Notes indenture), each $1,000 of aggregate principal amountof 61⁄4% Convertible Senior Notes is convertible into approximately 43.4148shares of our Class A common stock. Upon conversion, we may elect todeliver cash in lieu of shares of Class A common stock or a combination ofcash and shares of Class A common stock. The conversion price and thenumber of shares delivered on conversion are subject to adjustment upon certainevents.

 

Inconnection with the issuance of the 61⁄4% Convertible Senior Notes, we used approximately$6.6 million of the net proceeds of the offering to enter into convertiblenote hedge and warrant transactions with respect to our Class A commonstock to reduce the potential dilution from conversion of the 61⁄4% ConvertibleSenior Notes. Under the terms of the convertible note hedge arrangement (the “2008Convertible Note Hedge”) with Credit Suisse, we paid $12.6 million for aforward purchase option contract under which we are entitled to purchase fromCredit Suisse a fixed number of shares of our Class A common stock (at March 27,2008, at a price per share of $23.0336). In the event of the conversion of the61⁄4% Convertible Senior Notes, this forward purchase option contract allows usto purchase, at a fixed price equal to the implicit conversion price of sharesissued under the 61⁄4% Convertible Senior Notes, a number of shares of Class A Commonstock equal to the shares that we issue to a note holder upon conversion.Settlement terms of this forward purchase option allow the Company to elect cashor share settlement based on the settlement option it chooses in settling theconversion feature of the 61⁄4% Convertible Senior Notes. We accounted for the2008 Convertible Note Hedge pursuant to the guidance in Emerging Issues TaskForce (“EITF”) 00-19, “Accounting for Derivative Financial InstrumentsIndexed to, and Potentially Settled in a Company’s Own Stock.” Accordingly, the$12.6 million purchase price of the forward stock purchase option contractwas recorded as an increase to consolidated stockholders’ deficit.

 

Wealso sold to Credit Suisse a warrant (the “2008 Warrant”) to purchase shares ofour Class A common stock. The 2008 Warrant is currently exercisable forapproximately 8.7 million shares of our Class A common stock at a March 27,2008 exercise price of $25.376 per share (which exercise price may be adjustedpursuant to the provisions of the 2008 Warrant). We received $6.0 millionin cash from Credit Suisse in return for the sale of this forward sharepurchase option contract. Credit Suisse cannot exercise the 2008 Warrant unlessand until a conversion event occurs. We have the option of settling the 2008Warrant in cash or shares of our Class A common stock. We accounted forthe sale of the 2008 Warrant as the sale of a permanent equity instrumentpursuant to the guidance in EITF 00-19. Accordingly, the $6.0 millionsales price of the forward stock purchase option contract was recorded as adebit to consolidated stockholders’ deficit.

 

The2008 Convertible Note Hedge and the 2008 Warrant allow us to acquire sufficientClass A common shares from Credit Suisse to meet our obligation to deliverClass A common shares upon conversion by the note holder, unless the Class Acommon share price exceeds $25.376 (as of March 27, 2008). When the fairvalue of our Class A common shares exceeds such price, the equitycontracts no longer have an offsetting economic impact, and accordingly will nolonger be effective as a share-for-share hedge of the dilutive impact ofpossible conversion.

 

The61⁄4% Convertible Senior Notes allow us to settle any conversion by remitting tothe note holder the accreted value of the note in cash plus the conversionspread (the excess conversion value over the accreted value) in either cash,shares of our Class A common stock or a combination of stock and cash. Theaccounting for convertible debt with such settlement features is addressed inthe consensus reached by the EITF with respect to the accounting forInstrument B as set forth in EITF 90-19, “Convertible Bonds withIssuer Option to Settle for Cash upon Conversion.”  Because the accreted value of the 61⁄4%Convertible Senior Notes may be settled in cash, shares of our Class Acommon stock or a combination of stock and cash, the accreted value of the 61⁄4%Convertible Senior Notes is assumed to be settled in shares 

 

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andwill result in dilution in our earnings per share computations using theif-converted method, if the effect is dilutive.

 

***Regal******33⁄4%******Convertible Senior Notes***—OnMay 28, 2003, Regal issued $240.0 million aggregate principal amountof 33⁄4% Convertible Senior Notes due May 15, 2008 (the “3 3⁄4% ConvertibleSenior Notes”). Interest on the 33⁄4% Convertible Senior Notes is payablesemi-annually in arrears on May 15 and November 15 of each year,beginning November 15, 2003. The 33⁄4% Convertible Senior Notes are seniorunsecured obligations of Regal and rank on parity with all of our existing andfuture senior unsecured indebtedness and prior to all of our subordinatedindebtedness. The 33⁄4% Convertible Senior Notes are effectively subordinated toall of our future secured indebtedness to the extent of the assets securingthat indebtedness and to any indebtedness and other liabilities of oursubsidiaries. None of our subsidiaries have guaranteed any of our obligationswith respect to the 33⁄4% Convertible Senior Notes. Our note holders have theoption to convert their 33⁄4% Convertible Senior Notes, in whole or in part, intoshares of our Class A common stock at any time prior to maturity, subjectto certain limitations, unless previously purchased by us at the note holder’soption upon a change in control, at the then existing conversion price pershare.

 

OnMarch 27, 2008, at the then current conversion price of $12.4688 per share(which conversion price has been and may be further adjusted pursuant to theantidilution provisions of the 33⁄4% Convertible Senior Notes in connection withthe payment by Regal of dividends on its common stock), each $1,000 ofaggregate principal amount of 33⁄4% Convertible Senior Notes is convertible intoapproximately 80.2 shares of our Class A common stock. Upon conversion, wehave elected to deliver cash in lieu of shares of Class A common stock ora combination of cash and shares of Class A common stock. As explainedbelow, with respect to the par amount of the conversion obligation and theconversion spread (the excess conversion value over the accrued rate), weintend to deliver cash to note holders upon conversion. The conversion priceand the number of shares delivered on conversion are subject to adjustment uponcertain events.

 

Inconnection with the issuance of the 33⁄4% Convertible Senior Notes, we usedapproximately $18.8 million of the net proceeds of the offering to enterinto convertible note hedge and warrant transactions with respect to our Class Acommon stock to reduce the potential dilution from conversion of the 33⁄4%Convertible Senior Notes. Under the terms of the convertible note hedgearrangement (the “2003 Convertible Note Hedge”) with Credit Suisse, we paid$36.2 million for a forward purchase option contract under which we areentitled to purchase from Credit Suisse a fixed number of shares of our Class Acommon stock (at March 27, 2008, at a price per share of $12.4688). In theevent of the conversion of the 33⁄4% Convertible Senior Notes, this forwardpurchase option contract allows us to purchase, at a fixed price equal to theimplicit conversion price of shares issued under the 33⁄4% Convertible SeniorNotes, a number of shares of Class A common stock equal to the shares that weissue to a note holder upon conversion. Settlement terms of this forwardpurchase option allow the Company to elect cash or share settlement based onthe settlement option it chooses in settling the conversion feature of the 33⁄4%Convertible Senior Notes. We accounted for the 2003 Convertible Note Hedgepursuant to the guidance in EITF 00-19. Accordingly, the$36.2 million purchase price of the forward stock purchase option contractwas recorded as an increase to consolidated stockholders’ deficit.

 

Wealso sold to Credit Suisse a warrant (the “2003 Warrant”) to purchase shares ofour Class A common stock. The 2003 Warrant is currently exercisable forapproximately 2.7 million shares of our Class A common stock at a March 27,2008 exercise price of $14.3871 per share (which exercise price has been andmay be further adjusted pursuant to the antidilution provisions of the 2003Warrant in connection with the payment by Regal of dividends on its commonstock). We received $17.4 million in cash from Credit Suisse in return forthe sale of this forward share purchase option contract. Credit Suisse cannotexercise the 2003 Warrant unless and until a conversion event occurs. We havethe option of settling the 2003 Warrant in cash or shares of our Class Acommon stock. We accounted for the sale of the 2003 Warrant as the sale of apermanent equity instrument pursuant to the guidance in EITF 00-19.Accordingly, the $17.4 million sales price of the forward stock purchaseoption contract was recorded as a debit to consolidated stockholders’ deficit.

 

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The2003 Convertible Note Hedge and the 2003 Warrant allow us to acquire sufficientClass A common shares from Credit Suisse to meet our obligation to deliverClass A common shares upon conversion by the note holder, unless the Class Acommon share price exceeds $14.3871 (as of March 27, 2008). When the fairvalue of our Class A common shares exceeds such price, the equitycontracts no longer have an offsetting economic impact, and accordingly will nolonger be effective as a share-for-share hedge of the dilutive impact ofpossible conversion.

 

The33⁄4% Convertible Senior Notes allow us to settle any conversion, and we intendto settle any conversion, by remitting to the note holder the accreted value ofthe note plus the conversion spread (the excess conversion value over theaccreted value) in cash. The accounting for convertible debt with suchsettlement features is addressed in the consensus reached by the EITF withrespect to the accounting for Instrument C as set forth in EITF 90-19.It is our intent to settle the 33⁄4% Convertible Senior Notes’ conversionobligations consistent with Instrument C. Because the accreted value ofthe 33⁄4% Convertible Senior Notes will be settled in cash upon the conversion,only the conversion spread (the excess conversion value over the accretedvalue) will result in potential dilution in our earnings-per-sharecomputations.

 

In connection with the issuance of our 61⁄4% Convertible Senior Notes described above, on March 5,2008 and March 10, 2008, we redeemed a total of approximately $90.0million principal amount of the 33⁄4% Convertible Senior Notes, in a series of privately negotiatedtransactions.  As a result of the early redemption, the Company recorded a$52.8 million loss on debt extinguishment during the quarter ended March 27,2008.  In connection with the earlyredemption, the Company received net proceeds of approximately $13.7 millionfrom Credit Suisse attributable to the 2003 Convertible Note Hedge and the 2003Warrant.  Such proceedswere recorded as an increase to additional paid-in capital.

 

Asof March 27, 2008, our note holders had the right, at their option, toconvert their 33⁄4% Convertible Senior Notes, in whole or in part, into shares ofour Class A common stock, subject to certain limitations, at the currentconversion price of $12.4688. This conversion option, coupled with the Company’sstated policy to settle any conversion by remitting to the note holder theaccreted value of the note in cash, resulted in the classification of the$33.7 million principal amount of the 33⁄4% Convertible Senior Notes as acurrent liability on the accompanying consolidated balance sheet as of March 27,2008.

 

***Regal Cinemas Fifth Amended andRestated Credit Agreement***— On October 27, 2006, Regal Cinemas entered into a fifthamended and restated credit agreement (the “Amended Senior Credit Facility”)with Credit Suisse, Cayman Islands Branch (as successor to Credit Suisse FirstBoston), as Administrative Agent and the other lenders party thereto, whichconsists of a term loan facility (the “Term Facility”) in an aggregate originalprincipal amount of $1,700.0 million and a revolving credit facility (the “RevolvingFacility”) in an aggregate principal amount of up to $100.0 million. TheRevolving Facility has a separate sublimit of $10.0 million for short-termloans and a sublimit of $30.0 million for letters of credit.

 

TheTerm Facility will mature on October 27, 2013 and the Revolving Facilitywill mature on October 27, 2011. Interest is payable (a) in the caseof base rate loans, quarterly in arrears, and (b) in the case ofEurodollar rate loans, at the end of each interest period, but in no event lessoften than every three months. The Term Facility amortizes in equalquarterly installments in an aggregate annual amount equal to 1.0% of theoriginal principal amount of the Term Facility during the first six yearsthereof, with the balance payable in two equal installments, the first on June 30,2013 and the second on October 27, 2013.

 

Borrowings under the Amended Senior Credit Facility bear interest, atRegal Cinemas’ option, at either a base rate or an Adjusted Eurodollar Rate (asdefined in the Amended Senior Credit Facility) plus, in each case, anapplicable margin. As of March 27, 2008 and December 27, 2007,borrowings of $1,678.8 million and $1,683.0 million, respectively,were outstanding under the Term Facility at an effective interest rate of 5.96%(as of March 27, 2008) and 6.09% (as of December 27, 2007), after the

 

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impactof the interest rate swaps described below is taken into account.

 

Under the Amended Senior Credit Facility, Regal Cinemas alsoestablished an additional term loan facility (“New Incremental Term Facility”)solely to fund, or reimburse Regal Cinemas for funding, distributions to theCompany for the purpose of redeeming, repurchasing, acquiring or otherwisesettling the conversion of all or a portion of the 33⁄4%Convertible Senior Notes.  The New Incremental Term Facility expires whenthe 33⁄4%Convertible Senior Notes mature.

 

The Amended Senior Credit Facility is further described in Note 5to the consolidated financial statements included in our annual report on Form 10-Kfor the fiscal year ended December 27, 2007.

 

***Interest Rate Swaps***—As described in Note 5 to theconsolidated financial statements included in our annual report on Form 10-Kfor the fiscal year ended December 27, 2007, on July 13, 2004, RegalCinemas entered into four hedging relationships via four distinct interest rateswap agreements with final maturity terms ranging from three to five yearseach. On September 8, 2005, Regal Cinemas entered into an additionalhedging relationship via a distinct interest rate swap agreement with amaturity term of four years. These interest rate swaps were designated to hedgeapproximately $1,100.0 million of its variable rate debt obligations. On June 30,2007, one of our interest rate swaps designated to hedge approximately$200.0 million of variable rate debt obligations matured. On August 9,2007, Regal Cinemas entered into two additional hedging relationships via twodistinct interest rate swap agreements with maturity terms of two years each.These interest rate swaps were designated to hedge approximately$200.0 million of variable rate debt obligations.

 

 As of March 27, 2008, the aggregate fair value of theinterest rate swaps was determined to be approximately ($22.5 million),which has been recorded as a component of “Other Non-Current Liabilities” witha corresponding amount of ($13.7 million), net of tax, recorded to “AccumulatedOther Comprehensive Loss.” The interest rate swaps exhibited no ineffectivenessfor the quarters ended March 27, 2008 and March 29, 2007.

 

***Other Long-Term Obligations—***All other long-term obligations (includingthe Regal Cinemas 93/8%Senior Subordinated Notes) not explicitly discussed herein are described inNote 5 to the consolidated financial statements included in our annualreport on Form 10-K for the fiscal year ended December 27, 2007 andincorporated by reference herein.

 

**4. INCOME TAXES**

 

Theprovision for income taxes of $0.9 million and $155.6 million for thequarter ended March 27, 2008 and March 29, 2007, respectively,reflect effective tax rates of approximately (42.9)% and 40.4%, respectively.The change in the tax rate for the quarter ended March 27, 2008 isprimarily attributable to the state tax effects of the $52.8 million loss($33.0 million after related tax effects) on debt extinguishment recordedin the quarter ended March 27, 2008 in connection with the earlyredemption of approximately $90.0 million principal amount of the 33⁄4%Convertible Senior Notes and, to a lesser extent, other state tax matters.  The effective tax rates for the quartersended March 27, 2008 and March 29, 2007 reflect the impact of certainnon-deductible expenses.

 

In assessing the realizable value of deferred tax assets, managementconsiders whether it is more likely than not that some portion or all of thedeferred tax assets will not be realized. The ultimaterealization of deferred tax assets isdependent upon the generation of future taxable income during the periods inwhich these temporary differences become deductible. The Company has recorded avaluation allowance against deferred tax assets at March 27, 2008 and December 27,2007, totaling $10.5 million as management believes it is more likely thannot that certain deferred tax assets will not be realized in future taxperiods. As of March 27, 2008 and December 27, 2007, approximately$8.0 million of the valuation allowance relates to pre-acquisitiondeferred tax assets of Edwards and United Artists. Accordingly, futurereductions in the valuation allowance associated with a change in management’sdetermination of the 

 

15

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Company’sability to realize these deferred tax assets will reduce recorded goodwillrelated to such acquisitions.

 

The Company and its subsidiaries collectively file income tax returnsin the U.S. federal jurisdiction and various state jurisdictions.  In June 2005,the Company was notified that the Internal Revenue Service (“IRS”) wouldexamine its 2002 and 2003 federal income tax returns. During October 2005,the IRS completed its examination of the Company’s federal tax returns for suchyears, and the Company and the IRS agreed to certain adjustments to the Company’s2002 and 2003 federal tax returns. Such adjustments did not have a materialimpact on the Company’s provision for income taxes.  The Company is nolonger subject to U.S. federal examinations by tax authorities for years before2004, and with limited exceptions, is no longer subject to state income taxexaminations for years before 2003.  However, the taxing authorities stillhave the ability to review the propriety of tax attributes created in closedtax years if such tax attributes are utilized in an open tax year.

 

**5. CAPITAL STOCK AND SHARE-BASED COMPENSATION**

 

***Capital Stock***

 

As of March 27, 2008, theCompany’s authorized capital stock consisted of:

 

·500,000,000 shares of Class A common stock, par value $0.001 per share;

 

·200,000,000 shares of Class B common stock, par value $0.001 per share;and

 

·50,000,000 shares of preferred stock, par value $0.001 per share.

 

Of the authorized shares of Class Acommon stock, 18.0 million shares were sold in connection with the Company’sinitial public offering in May 2002. The Company’s Class A commonstock is listed on the New York Stock Exchange under the trading symbol “RGC.”As of March 27, 2008, 129,771,029 shares of Class A common stock wereoutstanding. Of the authorized shares of Class B common stock, 23,708,639shares were outstanding as of March 27, 2008, all of which are held by theAnschutz Company (“Anschutz”). Each share of Class B common stock convertsinto one share of Class A common stock at the option of the holder or uponcertain transfers of a holder’s Class B common stock. Each holder of Class Bcommon stock is entitled to ten votes for each outstanding share of Class Bcommon stock owned by that stockholder on every matter properly submitted tothe stockholders for their vote. Of the authorized shares of the preferredstock, no shares were issued and outstanding as of March 27, 2008. The Class Acommon stock is entitled to one vote for each outstanding share of Class Acommon stock on every matter properly submitted to the stockholders for a vote.Except as required by law, the Class A and Class B common stock votetogether as a single class on all matters submitted to the stockholders. The materialterms and provisions of the Company’s certificate of incorporation affectingthe relative rights of the Class A common stock and the Class Bcommon stock are described in Note 9 to the financial statements includedin our annual report on Form 10-K for the fiscal year ended December 27,2007.

 

***Share Repurchase Program***

 

During 2004, the Company’s board of directors authorized a sharerepurchase program, which provided for the authorization to repurchase up to$50.0 million of the Company’s outstanding Class A common stockwithin a twelve month period. During the quarter ended June 30, 2005, theCompany repurchased 520,386 shares of its outstanding Class A common stockat an aggregate cost of approximately $10.0 million. The Company’s boardof directors extended the share repurchase program during the fiscal year endedDecember 27, 2007 for an additional twelve month period. Accordingly, theCompany can repurchase up to an additional $40.0 million under the sharerepurchase program through September 2008. The Company made no repurchasesof its outstanding Class A common stock during the quarters ended March 27,2008 and March 29, 2007. Repurchases can be made from time to time asmarket conditions warrant, through open market purchases, negotiated transactions,or in such a manner deemed appropriate 

 

16

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bythe Company. Treasury shares are retired upon repurchase. At retirement, theCompany records treasury stock purchases at cost with any excess of cost overpar value recorded as a reduction of additional paid-in capital.

 

***Warrants***

 

Other than disclosed in Note 3—“Debt Obligations” and Note 8—“EarningsPer Share,” no warrants to acquire the Company’s Class A or Class Bcommon stock were outstanding as of March 27, 2008.

 

***Share-Based Compensation***

 

In 2002, the Company established the Incentive Plan for a total of11,194,354 authorized shares, which provides for the granting of incentivestock options and non-qualified stock options to officers, employees and consultantsof the Company. As described below under “Restricted Stock” and “PerformanceShare Units” the Incentive Plan also provides for grants of restricted stockand performance shares that are subject to restrictions and risks offorfeiture. Readers should refer to Note 9 to the financial statementsincluded in our annual report on Form  10-K for the fiscal yearended December 27, 2007 for additional information related to these awardsand the Incentive Plan.

 

*Stock Options*

 

Inconnection with the July 1, 2003, June 2, 2004 and April 13,2007 extraordinary cash dividends and pursuant to the antidilution adjustmentterms of the Incentive Plan, the exercise price and the number of shares of Class Acommon stock subject to options held by the Company’s option holders wereadjusted to prevent dilution and restore their economic position to thatexisting immediately before the extraordinary dividends. The antidilutionadjustments made with respect to such options resulted in a decrease in therange of exercise prices, from $2.4407 to $16.1768 per share, an increase inthe aggregate number of shares issuable upon exercise of such options by5,185,100, and an increase in the total number of authorized shares under theIncentive Plan to 18,269,213 (after giving effect to the May 11, 2005amendment to the Incentive Plan, which increased the total number of shares of Class Acommon stock authorized for issuance under the Incentive Plan by 1,889,759shares). As of March 27, 2008 and after giving effect to the antidilutionadjustments and the May 11, 2005 amendment to the Incentive Plan, optionsto purchase a total of 628,531 shares of Class A common stock wereoutstanding under the Incentive Plan, and 2,604,176 shares remain available forfuture issuance under the Incentive Plan. Stock option information presentedherein has been adjusted to give effect to the extraordinary dividends. Therewere no accounting consequences for changes made to reduce the exercise pricesand increase the number of shares underlying options as a result of theextraordinary cash dividends because (1) the aggregate intrinsic value ofthe awards immediately after the extraordinary dividends was not greater thanthe aggregate intrinsic value of the awards immediately before theextraordinary dividends and (2) the ratio of the exercise price per shareto the market value per share was not reduced.

 

There were no stock options granted during the quarters ended March 27,2008 and March 29, 2007.  During the quarters ended March 27,2008 and March 29, 2007, the Company recognized approximately $0.1 millionand $0.9 million, respectively, of share-based compensation expense related tostock options.  Such expense is presented as a component of general andadministrative expenses for the quarters ended March 27, 2008 and March 29,2007.  At March 27, 2008, there was $0.4 million of unrecognizedcompensation cost related to share-based payments.

 

We receive a tax deduction for certain stock option exercises duringthe period the options are exercised, generally for the excess of the price atwhich the stock is sold over the exercise price of the options.  Inaccordance with Statement of Financial Accounting Standards (“SFAS”) No. 123R(revised), “Shared-Based Payment” (“SFAS 123R”), we are required to reportexcess tax benefits from the award of equity instruments as financing cashflows.  Excess tax benefits are recorded when a deduction reported for taxreturn purposes for an award of equity instruments exceeds the cumulativecompensation cost for the instruments recognized for financial reportingpurposes.  For the quarter ended March 27, 2008, our 

 

17

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unauditedcondensed consolidated statement of cash flows reflects $0.1 million ofexcess tax benefits as financing cash flows. Net cash proceeds from theexercise of stock options were $0.2 million for the quarter ended March 27,2008. The actual income tax benefit realized from stock option exerciseswas $0.1 million for the same period.  For the quarter ended March 29,2007, our unaudited condensed consolidated statement of cash flows reflects$2.2 million of excess tax benefits as financing cash flows. Net cashproceeds from the exercise of stock options were $3.2 million for thequarter ended March 29, 2007. The actual income tax benefit realized fromstock option exercises is $2.7 million for the same period.

 

The following table represents stock option activity for the quarterended March 27, 2008:

 
| ** **                                 | ** ** | **Number of  Shares** | ** ** | **Weighted Average  Exercise Price** | ** ** | **Weighted Average  Contract Life (Yrs.)** | ** ** |
|--------------------------------------------|------------|----------------------------|------------|------------------------------------------------|------------|-----------------------------------------------------------|------------|
| Outstanding options at beginning of period |       | 655,965                    |       | $                                              | 9.30       |                                                      | 4.78       |   |
| Granted                                    |       | —                     |       | —                                         |       |                                                      |       |
| Exercised                                  |       | (24,128                    | )          | 9.29                                           |       |                                                      |       |
| Forfeited                                  |       | (3,306                     | )          | 16.18                                          |       |                                                      |       |
| Outstanding options at end of period       |       | 628,531                    |       | 9.27                                           |       | 4.52                                                      |       |
| Exercisable options at end of period       |       | 551,926                    |       | 8.40                                           |       | 4.32                                                      |       |
|                                            |            |                            |            |                                                |            |                                                           |            |  |

 

*Restricted Stock*

 

Asdescribed in Note 9 to the financial statements included in our annual reporton Form 10-K for the fiscal year ended December 27, 2007, the Companymaintains the Incentive Plan which provides for restricted stock awards toofficers, directors and key employees. Under the Incentive Plan, shares of Class Acommon stock of the Company may be granted at nominal cost to officers,directors and key employees, subject to a continued employment restriction. On January 16,2008, 229,572 shares were granted under the Incentive Plan at nominal cost toofficers, key employees and certain directors.  The closing price of our Class Acommon stock on the date of grant was $17.07 per share.

 

During the quarters ended March 27, 2008 and March 29, 2007,the Company recognized approximately $0.9 million and $0.8 million,respectively, of share-based compensation expense related to restricted sharegrants.  Such expense is presented as acomponent of general and administrative expenses. The compensation expensefor these awards was determined based on the market price of our stock at thedate of grant applied to the total numbers of shares that were anticipated tofully vest.  As of March 27, 2008,we have unrecognized compensation expense of $8.2 million associated withrestricted stock awards.

 

The following table represents therestricted stock activity for the quarters ended March 27, 2008 and March 29,2007:

 
| ** **                      | ** ** | **Quarter Ended  March 27, 2008** | ** ** | **Quarter Ended  March 29, 2007** | ** ** |
|---------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| Unvested at beginning of period |       | 459,848                                          |       | 322,692                                          |       |
| Granted during the period       |       | 229,572                                          |       | 164,647                                          |       |
| Vested during the period        |       | (25,721                                          | )          | (13,659                                          | )          |
| Forfeited during the period     |       | (1,258                                           | )          | (2,840                                           | )          |
|                            |       |                                             |       |                                             |       |
| Unvested at end of period       |       | 662,441                                          |       | 470,840                                          |       |

 

During the quarter ended March 27, 2008, the Company paid one cashdividend of $0.30 on each share of outstanding restricted stock totalingapproximately $0.2 million.  Duringthe quarter ended March 29, 2007, the Company paid one cash dividend of$0.30 on each share of outstanding restricted stock totaling approximately$0.1 million.  In addition, on March 5,2007, Regal declared an extraordinary cash dividend of $2.00 per share on eachoutstanding restricted share. Restricted stockholders of record at the 

 

18

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closeof business on March 28, 2007 were paid this dividend on April 13,2007.  The restricted stock dividend was recorded as a $1.0 millionincrease to stockholders’ deficit upon declaration.

 

*Performance Share Units*

 

As described in Note 9 to the financial statements included in ourannual report on Form 10-K for the fiscal year ended December 27,2007, the Incentive Plan also provides for grants in the form of performanceshare units to officers, directors and key employees. Performance shareagreements are entered into between the Company and each grantee of performanceshare units (each a “Performance Agreement”). Pursuant to the terms andconditions of the Performance Agreement, grantees will be issued shares ofrestricted common stock of the Company in an amount determined by theattainment of Company performance criteria set forth in the PerformanceAgreement. The shares of restricted common stock received upon attainment ofthe performance criteria will be subject to further vesting over a period oftime, provided the grantee remains a service provider to the Company duringsuch period.

 

On January 16, 2008, 252,721 performance shares were granted underthe Incentive Plan at nominal cost to officers and key employees.  Theclosing price of our Class A common stock on the date of grant was $17.07per share. Each performance share represents the right to receive from 0% to175% of the target numbers of shares of restricted common stock. The number ofshares of restricted common stock earned will be determined by comparing theactual average annual total shareholder return (stock price appreciation plusdividend yield) attained (“TSRA”) on Regal’s Class A common stock on January 16,2011 (the third anniversary of the grant date) to the target TSRA set forth inthe Performance Agreement. A target number of shares of restricted common stockto be earned by each eligible grantee has been established with respect to the2008 performance share grants and is primarily based on the grantee’s employeeclassification and base compensation, referred to as “target long-termincentive” (“Target LTI”) below. In addition, these awards are subject to anadditional one-year vesting requirement. The Company has developed aperformance range around the target TSRA and the number of shares of restrictedstock that will be issued will be based on actual TSRA, according to thefollowing schedule:

 
| **Average Annual Shareholder Return** | ** ** | **Target Shares of Restricted Stock** | ** ** |
|------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| 12.5% <  TSRA < 15.0%                          |       | 50% of Target LTI                                         |       |
|                                                 |       |                                                      |       |
| 15.0% <  TSRA < 17.5%                          |       | 100% of Target LTI                                        |       |
|                                                 |       |                                                      |       |
| 17.5% <  TSRA < 20.0%                          |       | 125% of Target LTI                                        |       |
|                                                 |       |                                                      |       |
| 20.0% <  TSRA < 25.0%                          |       | 150% of Target LTI                                        |       |
|                                                 |       |                                                      |       |
| 25.0% <  TSRA                                     |       | 175 %of Target LTI                                        |       |

 

Since the performance shares contain a market condition which should bereflected in the grant date fair value of an award in accordance with theprovisions of SFAS 123R, the performance shares were measured on the date ofgrant using a Monte Carlo simulation model. The Monte Carlo simulation modelutilizes multiple input variables that determine the probability of satisfyingthe market condition stipulated in the award grant and calculates the fairmarket value for the performance shares granted. On January 16, 2008, theaggregate fair value of the 2008 performance share awards was determined to be$1.6 million, which includes related dividends on shares ultimately earnedand paid on January 16, 2011. The fair value of the performance shareawards will be amortized as compensation expense over the expected term of theawards. The key assumptions used for valuing the 2008 performance share awardsfollow:

 
| Measurement date                     |   | 1/16/2008 |   |
|--------------------------------------|--------|-----------|--------|
| Measurement date closing stock price |   | $         | 17.07  |   |
| Expected volatility                  |   | 19.98     | %      |
| Risk-free interest rate              |   | 2.55      | %      |
| Expected dividend yield              |   | 7.03      | %      |
|                                      |        |           |        |  |

 

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Expected volatility is based on historical volatility of the Company’sdividend adjusted common stock price measured daily over a three year periodending on January 16, 2008.  The risk-free interest rate is set equalto the yield on three-year (constant maturity) U.S. Government bonds as of January 16,2008. The expected dividend yield assumption is based on the Company’s historyand expectation of future dividend payouts. The dividend yield is included inthe calculation of returns for measurement against the performance goalsdefined above.

 

During each of the quarters ended March 27, 2008 and March 29,2007, the Company recognized approximately $0.4 million of share-basedcompensation expense related to performance share grants.  Such expense is presented as a component ofgeneral and administrative expenses.

 

Thefollowing table summarizes information about the Company’s number of performanceshares:

 
| ** **                      | ** ** | **Quarter Ended  March 27, 2008** | ** ** | **Quarter Ended  March 29, 2007** | ** ** |
|---------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| Unvested at beginning of period |       | 567,632                                          |       | 383,310                                          |       |
| Granted (based on target TSRA)  |       | 252,721                                          |       | 188,789                                          |       |
| Forfeited                       |       | (4,977                                           | )          | —                                           |       |
|                            |       |                                             |       |                                             |       |
| Unvested at end of period       |       | 815,376                                          |       | 572,099                                          |       |

 

The above table does not reflect the maximum or minimum number ofshares of restricted stock contingently issuable. An additional 611,532 sharesof restricted stock could be issued providing the maximum TSRA is met.

 

**6. COMMITMENTS AND CONTINGENCIES**

 

***Sale-Leaseback Transactions***

 

The Company’s sale-leaseback transactions are described in Note 6to the consolidated financial statements included in our annual report on Form 10-Kfor the fiscal year ended December 27, 2007.

 

***Other***

 

Our theatres must comply with TitleIII of the Americans with Disabilities Act of 1990 (the “ADA”) to the extentthat such properties are “public accommodations” and/or “commercial facilities”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.

 

Inprior years, private litigants and the Department of Justice (the “DOJ”) hadfiled claims against us or our subsidiaries alleging that a number of ourtheatres with stadium seating violated the ADA because these theatres allegedlyfailed to provide wheelchair-bound patrons with lines of sight comparable tothose available to other members of the general public and denied persons inwheelchairs access to the stadium portion of the theatres. On June 8,2005, Regal reached an agreement with the DOJ resolving and dismissing theprivate litigants’ claims and all claims made by the United States under theADA. From time to time, we receive claims that the stadium seating offered byour theatres allegedly violates the ADA. In these instances, we seek to resolveor dismiss these claims based on the terms of the DOJ settlement or underapplicable ADA standards.

 

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Inaddition, we, from time to time, receive letters from the attorneys general ofstates in which we operate theatres regarding investigation into theaccessibility of our theatres to persons with visual or hearing impairments. Webelieve we provide the members of the visually and hearing impaired communitieswith reasonable access to the movie-going experience.

 

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

 

Onor about January 3, 2007, suit was initiated against the Company inFederal Court, Central District of California, styled, *Bateman, individually and on behalf of all otherssimilarly situated, v. Regal Cinemas, Inc. and United Artists TheatreCircuit, Inc., et al.,* alleging violations of the Fair andAccurate Transaction Act, for allegedly printing expiration dates and creditcard numbers on customer receipts. The plaintiff seeks to represent a class ofindividuals allegedly harmed by this alleged practice. The complaint seeksactual damages and/or statutory damages of at least one hundred dollars or upto one thousand dollars per violation, and attorney fees and costs. We believewe are in substantial compliance with all applicable federal and state lawsgoverning these trade practices. 

 

RCIis a defendant in a few remaining claims arising from its decision to filevoluntary petitions for bankruptcy relief. We and our various subsidiarycorporations are also presently involved in various legal proceedings arisingin the ordinary course of our business operations, including personal injury claims,employment and contractual matters and other disputes. We believe we haveadequately provided for the settlement of such matters. Management believes anyadditional liability with respect to these claims and disputes will not bematerial in the aggregate to our consolidated financial position, results ofoperations or cash flows.

 

**7. RELATED PARTY TRANSACTIONS**

 

Duringthe quarter ended March 27, 2008, Regal Cinemas incurred approximately$1.0 million of expenses payable to an Anschutz affiliate, QwestCommunications and its subsidiaries, for telecommunication services. Inaddition, Regal Cinemas incurred approximately $0.1 million of expensespayable to Anschutz affiliates for certain advertising services during thequarter ended March 27, 2008.  Duringthe quarter ended March 27, 2008, Regal Cinemas received less than$0.1 million from an Anschutz affiliate for rent and other expensesrelated to a theatre facility.  Relatedparty amounts for the quarter ended March 29, 2007 were comparable to the2008 amounts.

 

Regalhas held ongoing discussions with an Anschutz affiliate regarding a new theatredevelopment located in Los Angeles, California. As of March 27, 2008,Regal contemplates entering into a management agreement with the Anschutzaffiliate to manage the theatre site on their behalf. The ultimate financialterms of the management agreement will be approved by the Company’s board ofdirectors.

 

**8. EARNINGS (LOSS) PER SHARE**

** **

Wecompute net income (loss) per share of Class A and Class B commonstock in accordance with SFAS No. 128, “Earnings per Share” (“SFAS 128”) using the two class method.Under the provisions of SFAS 128, basic net income (loss) per share is computedusing the weighted average number of common shares outstanding during theperiod.  Diluted net income (loss) pershare is computed using the weighted average number of common shares and, ifdilutive, common stock equivalents outstanding during the period. Potentialcommon stock equivalents consist of the incremental common shares issuable uponthe exercise of common stock options, restricted stock and performance shares,the conversion spread on the 33⁄4% Convertible Senior Notes, the 2003 Warrant,the assumed conversion of the 61⁄4% Convertible Senior 

 

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Notes and the 2008 Warrantissued in connection with the 61⁄4% Convertible Senior Notes.   The dilutive effect of outstanding stockoptions, restricted shares and performance shares, the conversion spread on the33⁄4% Convertible Senior Notes, the 2003 Warrant and the 2008 Warrant issued inconnection with the 61⁄4% Convertible Senior Notes is reflected in dilutedearnings per share by application of the treasury stock method.  The dilutive effect of assumed conversion ofthe 61⁄4% Convertible Senior Notes is reflected in diluted earnings per share byapplication of the if-converted method. In addition, the computation of the diluted net income (loss) per shareof Class A common stock assumes the conversion of Class B commonstock, while the diluted net income (loss) per share of Class B commonstock does not assume the conversion of those shares.  Since the Company reported a net loss of $3.0million for the quarter ended March 27, 2008, the impact of potentialcommon stock equivalents described above were not included in the computationof diluted net loss per common share because the effect would have beenantidilutive.  There were no antidilutivecommon stock equivalents outstanding as of March 29, 2007.

 

The rights, including the liquidation and dividend rights, of theholders of our Class A and Class B common stock are identical, exceptwith respect to voting.  In accordancewith EITF 03-6, “ParticipatingSecurities and the Two-Class Method under FASB Statement No. 128,” theundistributed earnings for the periods presented are allocated based on thecontractual participation rights of the Class A and Class B commonshares as if the earnings for the periods presented had been distributed. Asthe liquidation and dividend rights are identical, the undistributed earningsare allocated on a proportionate basis. Further, as we assume the conversion ofClass B common stock in the computation of the diluted net income (loss)per share of Class A common stock, the undistributed earnings are equal tonet income (loss) for that computation.

 

The following table sets forth the computation of basic and diluted netincome (loss) per share of Class A and Class B common stock (inmillions, except share and per share data):

 
| ** **                                                                                                      | ** ** | **Quarter ended  March 27, 2008** | ** ** | **Quarter ended  March 29, 2007** | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                                                      | ** ** | **Class A**                                 | ** ** | **Class B**                                 | ** ** | **Class A** | ** ** | **Class B** | ** ** |
| Basic net income (loss) per share:                                                                              |       |                                             |       |                                             |       |   |   |   |   |
| Numerator:                                                                                                      |       |                                             |       |                                             |       |   |   |   |   |
| Allocation of undistributed earnings (loss)                                                                     |       | $                                                | (2.5       | )                                                | $          | (0.5 | ) | $ | 192.8 |   | $ | 36.3 |   |
|                                                                                                            |       |                                             |       |                                             |       |   |   |   |   |
| Denominator:                                                                                                    |       |                                             |       |                                             |       |   |   |   |   |
| Weighted average common shares outstanding  (in thousands)                                                      |       | 129,093                                          |       | 23,709                                           |       | 126,433 |   | 23,863 |   |
|                                                                                                            |       |                                             |       |                                             |       |   |   |   |   |
| Basic net income (loss) per share                                                                               |       | $                                                | (0.02      | )                                                | $          | (0.02 | ) | $ | 1.52 |   | $ | 1.52 |   |
|                                                                                                            |       |                                             |       |                                             |       |   |   |   |   |
| Diluted net income (loss) per share:                                                                            |       |                                             |       |                                             |       |   |   |   |   |
| Numerator:                                                                                                      |       |                                             |       |                                             |       |   |   |   |   |
| Allocation of undistributed earnings (loss)  for basic computation                                              |       | $                                                | (2.5       | )                                                | $          | (0.5 | ) | $ | 192.8 |   | $ | 36.3 |   |
|                                                                                                            |       |                                             |       |                                             |       |   |   |   |   |
| Reallocation of undistributed earnings  (loss) as a result of conversion of Class B to Class A shares |       | (0.5                                             | )          | —                                           |       | 36.3 |   | — |   |
| Reallocation of undistributed earnings  (loss) to Class B shares for effect of other dilutive securities   |       | —                                           |       | —                                           |       | — |   | (1.5 | ) |
| Interest expense on 61⁄4%  Convertible Senior Notes                                                          |       | —                                           | (1)        | —                                           |       | — |   | — |   |
|                                                                                                            |       |                                             |       |                                             |       |   |   |   |   |
| Allocation of undistributed earnings                                                                            |       | $                                                | (3.0       | )                                                | $          | (0.5 | ) | $ | 229.1 |   | $ | 34.8 |   |
|                                                                                                            |       |                                             |       |                                             |       |   |   |   |   |
| Denominator:                                                                                                    |       |                                             |       |                                             |       |   |   |   |   |
| Number of shares used in basic computation  (in thousands)                                                      |       | 129,093                                          |       | 23,709                                           |       | 126,433 |   | 23,863 |   |
| Weighted average effect of dilutive  securities (in thousands)                                                  |       |                                             |       |                                             |       |   |   |   |   |
| Add:                                                                                                            |       |                                             |       |                                             |       |   |   |   |   |
| Conversion of Class B to Class A  common shares outstanding                                           |       | 23,709                                           |       | —                                           |       | 23,863 |   | — |   |
| Stock options                                                                                                   |       | —                                           | (1)        | —                                           |       | 1,285 |   | — |   |
| Restricted stock and performance shares                                                                         |       | —                                           | (1)        | —                                           |       | 744 |   | — |   |
| Conversion spread on 33⁄4%  Convertible Senior Notes and the 2003 Warrant                                    |       | —                                           | (1)        | —                                           |       | 4,876 |   | — |   |
| Conversion of 61⁄4% Convertible Senior Notes                                                                 |       | —                                           | (1)        | —                                           |       | — |   | — |   |
|                                                                                                            |       |                                             |       |                                             |       |   |   |   |   |
| Number of shares used in per share  computations (in thousands)                                                 |       | 152,802                                          |       | 23,709                                           |       | 157,201 |   | 23,863 |   |
|                                                                                                            |       |                                             |       |                                             |       |   |   |   |   |
| Diluted net income (loss) per share                                                                             |       | $                                                | (0.02      | )                                                | $          | (0.02 | ) | $ | 1.46 |   | $ | 1.46 |   |

 

22

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(1)                               No amount reported as the impact on the netloss per diluted share of Class A common stock computation for the quarterended March 27, 2008 would have been antidilutive.

 

**9. RECENT ACCOUNTING PRONOUNCEMENTS**

 

InSeptember 2006, the FASB issued SFAS No. 157, “Fair ValueMeasurements” (“SFAS 157”). Among other requirements, SFAS 157defines fair value and establishes a framework for measuring fair value andalso expands disclosure about the use of fair value to measure assets andliabilities. The adoption of SFAS 157 did not have a material impact onthe Company’s consolidated financial position, cash flows and results ofoperations.

 

InFebruary 2007, the FASB issued SFAS No. 159, “The Fair Value Optionfor Financial Assets and Financial Liabilities” (“SFAS 159”).SFAS 159 permits entities to choose to measure certain financialinstruments and other eligible items at fair value when the items are nototherwise currently required to be measured at fair value. Under SFAS 159,the decision to measure items at fair value is made at specified election dateson an irrevocable instrument-by-instrument basis. Entities electing the fair valueoption would be required to recognize changes in fair value in earnings and toexpense upfront cost and fees associated with the item for which the fair valueoption is elected. Entities electing the fair value option are required todistinguish, on the face of the statement of financial position, the fair valueof assets and liabilities for which the fair value option has been elected andsimilar assets and liabilities measured using another measurement attribute.The adoption of SFAS 159 did not have a material impact on the Company’sconsolidated financial position, cash flows and results of operations.

 

InDecember 2007, the FASB issued SFAS No. 141(R), “BusinessCombinations” (“SFAS 141(R)”). SFAS 141(R) requires all businesscombinations completed after the effective date to be accounted for by applyingthe acquisition method (previously referred to as the purchase method).SFAS 141(R) expands the definition of transactions and events thatqualify as business combinations; requires that the acquired assets andliabilities, including contingencies, be recorded at the fair value determinedon the acquisition date and changes thereafter reflected in revenue, notgoodwill; changes the recognition timing for restructuring costs; and requiresacquisition costs to be expensed as incurred. Adoption of SFAS 141(R) isrequired for combinations after December 15, 2008. Early adoption andretroactive application of SFAS 141(R) to fiscal years preceding theeffective date are not permitted. The Company is evaluating the adoption ofSFAS 141(R) and its impact on the Company’s consolidated financialposition, cash flows and results of operations.

 

In December 2007, theFASB issued SFAS No. 160, “Noncontrolling Interest in ConsolidatedFinancial Statements” (“SFAS 160”). SFAS 160 establishes newaccounting and reporting standards for the noncontrolling interest in asubsidiary and for the deconsolidation of a subsidiary. Specifically, thisstatement requires the recognition of a noncontrolling interest (minorityinterest) as equity in the consolidated financial statements and separate fromthe parent’s equity. The amount of net income attributable to thenoncontrolling interest will be included in consolidated net income on the faceof the income statement. SFAS 160 clarifies that changes in a parent’sownership interest in a subsidiary that do 

 

23

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not result in deconsolidation are equitytransactions if the parent retains it controlling financial interest. Inaddition, this statement requires that a parent recognize a gain or loss in netincome when a subsidiary is deconsolidated. Such gain or loss will be measuredusing the fair value of the noncontrolling equity investment on thedeconsolidation date. SFAS 160 also includes expanded disclosurerequirements regarding the interests of the parent and its noncontrollinginterest. SFAS 160 is effective for fiscal years, and interim periodswithin those fiscal years, beginning on or after December 15, 2008.Earlier adoption is prohibited. The Company is evaluating the adoption ofSFAS 160 and its impact on the Company’s consolidated financial position,cash flows and results of operations.

 

**10. SUBSEQUENT EVENTS**

 

On April 9, 2008, wereceived approximately 0.8 million additional common units of NationalCineMedia in accordance with the annual common unit adjustment provisions ofour Common Unit Adjustment Agreement with National CineMedia.  Such adjustment increased the total number ofcommon units of National CineMedia held by us to approximately 22.0million.  These common units areimmediately redeemable on a one-to-one basis for shares of NCM, Inc.  As a result, we own, on a fully dilutedbasis, a 22.8% interest in NCM, Inc. as of the date of this quarterly report onForm 10-Q.

 

On April 24, 2008, the Company declareda cash dividend of $0.30 per share on each share of the Company’s Class Aand Class B common stock (including outstanding restricted stock), payableon June 24, 2008, to stockholders of record on June 16, 2008.

 

OnJanuary 14, 2008, the Company entered into an agreement to acquireConsolidated Theatres, L.L.C., consisting of a total of 28 theatres with 400screens in Georgia, Maryland, North Carolina, South Carolina, Tennessee andVirginia.  The Company consummated the transactionon April 30, 2008 for a total cash purchase price of $210.0 million,subject to post-closing adjustments.  Inconjunction with the closing, we entered into a final judgment with the Antitrust Division ofthe United States Department of Justice, which requires us to hold separate anddivest ourselves of fourtheaters comprising 52 screens in North Carolina within 90 days of closing.

 

**Item 2. MANAGEMENT’S DISCUSSION ANDANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

*Some of the information in this Quarterly Report on Form 10-Qincludes “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-Q, including, withoutlimitation, certain statements under “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations”, may constitute forward-lookingstatements. In some cases 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 thosewords and other comparable words. These forward-looking statements involverisks and uncertainties. Our actual results could differ materially from thoseindicated in these statements as a result of certain factors as more fullydiscussed under the heading “Risk Factors” contained in our annual report on Form 10-Kfiled on February 26, 2008 with the Commission (File No. 001-31315)for the Company’s fiscal year ended December 27, 2007. The followingdiscussion**and analysis should be read in conjunction with theunaudited condensed consolidated financial statements and notes theretoincluded herein.*

* *

**The Company**

 

Weconduct our operations through our wholly owned subsidiaries. We operate thelargest and

 

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mostgeographically diverse theatre circuit in the United States, consisting of6,385 screens in 525 theatres in 39 states and the District of Columbia as of March 27,2008. We believe the size, reach and quality of our theatrecircuit provide an exceptional platform to realize economies of scale from ourtheatre operations. We also maintain an investment in National CineMedia, whichhas primarily concentrated its efforts on the expansion of in-theatreadvertising and the creation of complementary business lines that leverage theexisting operating personnel, asset and customer bases of its theatricalexhibition partners, which includes us, AMC and Cinemark. The Company managesits business under one reportable segment: theatre exhibition operations.

 

We generate revenuesprimarily from admissions and concession sales. Additional revenues aregenerated by our vendor marketing programs and electronic video games locatedadjacent to the lobbies of certain of our theatres. In addition, NationalCineMedia provides us with a theatre access fee associated with revenuesgenerated from its sale of on-screen advertising, rental of theatres forbusiness meetings and concerts and other events. Film rental costs depend on avariety of factors including the prospects of a film and the popularity of afilm and such film rental costs generally increase as the admissions revenuesgenerated by a film increase. Because we purchase certain concession items,such as fountain drinks and popcorn, in bulk and not pre-packaged forindividual servings, we are able to improve our margins by negotiating volumediscounts. Other operating expenses consist primarily of theatre labor andoccupancy costs.

 

OnFebruary 12, 2007, we, along with AMC and Cinemark, formed a joint venturecompany DCIP, to explore the possibility of implementing digital cinema in ourtheatres and to create a financing model and establish agreements with majormotion picture studios for the implementation of digital cinema. Travis Reid,the former president and chief executive officer of Loews Theatres, serves as thechief executive officer of DCIP and DCIP has engaged J.P. MorganSecurities Inc. to assist with the review of a business plan for digitalcinema and with identifying and evaluating potential financing and capitalstructure alternatives. Future digital cinema developments will be managed byDCIP, subject to the approval of us, AMC and Cinemark. Each of Regal, AMC andCinemark has an equal ownership interest in DCIP. We expect to begin convertingour existing theatres from 35 mm film projection to digital projection duringthe second half of 2008 and intend to complete the conversion of our entirecircuit in approximately three to four years. DCIP is continuing to work withfilm studios and financial institutions to negotiate and finalize the relatedfinancing plans that would provide for a studio-financed conversion to digitalprojection.

 

On February 13, 2007, NCM, Inc.,a newly formed entity that serves as the sole manager of National CineMedia,completed an IPO of its common stock. In connection with the series oftransactions completed in connection with the IPO, Regal received gross cashproceeds totaling approximately $628.3 million and retained a 22.6%interest in NCM, Inc. After the payment of current taxes, net cashproceeds from these transactions totaled approximately$447.4 million.  As discussedfurther in Note 2—“Investment in National CineMedia, LLC,” as aresult of the transactions completed in connection with the IPO, the Companyrecognized a gain of approximately $350.7 million during the quarter endedMarch 29, 2007.

 

OnJanuary 14, 2008, the Company entered into an agreement to acquireConsolidated Theatres, L.L.C., consisting of a total of 28 theatres with 400screens in Georgia, Maryland, North Carolina, South Carolina, Tennessee and Virginia.As described further in Note 10—“Subsequent Events,” the Company consummatedthe transaction on April 30, 2008 for a total cash purchase price of$210.0 million, subject to post-closing adjustments.

 

On March 10, 2008, Regal issued $200.0 million aggregateprincipal amount of 61⁄4% Convertible Senior Notes. Concurrent with the issuance of the 61⁄4%Convertible Senior Notes, weentered into simultaneous convertible note hedge and warrant transactions withrespect to our Class A common stock in order to reduce the potentialdilution from conversion of the 61⁄4% Convertible Senior Notes into shares of our Class A common stock.The net cost of the convertible note hedge and warrant transactions wasapproximately $6.6 million and is included as a component of equity in theaccompanying unaudited condensed consolidated balance 

 

25

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sheetas of March 27, 2008.  The Company used cash on hand and a portion ofthe net proceeds from the issuance of the 61⁄4% Convertible Senior Notes to redeemapproximately $90.0 million principal amount of the 33⁄4%Convertible Senior Notes, in aseries of privately negotiated transactions.  As a result of the earlyredemption, the Company recorded a $52.8 million loss on debt extinguishment duringthe quarter ended March 27, 2008. In connection with the early redemption, the Company received netproceeds of approximately $13.7 million from Credit Suisse attributable to the2003 Convertible Note Hedge and the 2003 Warrant.  Such proceeds wererecorded as an increase to additional paid-in capital.  See Note 3—“Debt Obligations” forfurther description of the 61⁄4% Convertible Senior Notes and the related convertible note hedge andwarrant transactions.

 

During the quarter ended March 27, 2008, Regal paid one quarterlycash dividend of $0.30 on each outstanding share of the Company’s Class Aand Class B common stock, or approximately $46.0 million in theaggregate.

 

For a summary of industry trends as well as other risks anduncertainties relevant to the Company, see “Business—Industry Overview andTrends” and “Risk Factors” contained in our annual report on Form 10-K forthe fiscal year ended December 27, 2007 and “Results of Operations” below.

 

**Results of Operations**

** **

The first fiscal quarter of 2008 was a successful quarter for both theindustry and the Company. Based on our review of industry sources, national boxoffice revenues for the time period that corresponds to Regal’s first fiscalquarter of 2008 were estimated to have increased by approximately 3-5% incomparison to the first fiscal quarter of 2007. The industry’s success was driven primarily by ticket price increases,premium pricing opportunities, solid performances from the first quarter 2008film slate and the carryover success of certain December 2007 releases,such as *National Treasure: Book of Secrets*and*Juno.*

 

Our total revenues for the quarter ended March 27, 2008 (“Q1 2008Period”) were $626.8 million and consisted of $432.0 million ofadmissions revenues, $166.1 million of concessions revenues and $28.7million of other operating revenues, and increased slightly from total revenuesof $625.0 million for the quarter ended March 29, 2007 (“Q1 2007Period”).

 

Our Q1 2008 Period admissions revenues increased 1.2% over the Q1 2007Period. Price increases identified during our ongoing periodic pricing reviews(which include analysis of various factors including general inflationarytrends and local market conditions) and the premium pricing associated with thefilm, *Hannah Montana/Miley Cyrus: Best of Both WorldsConcert Tour* were the primary drivers of a 4.3% increase in ouraverage ticket price and led to the increase in Q1 2008 Period admissionsrevenues, despite a 2.9% decline in attendance. We believe that the decrease inattendance was primarily a result of the decline in attendance among the toptier films exhibited during the Q1 2008 Period. Based on our review of certain industry sources, the increase in ouradmissions revenues was slightly lower than the industry’s results for the Q12008 Period as compared to the Q1 2007 Period. This decline is primarily attributable to higher estimated box officeper screen growth experienced by the Company relative to the industry duringthe Q1 2007 Period associated with the performance of the film, *300*.

 

In addition, during the Q1 2008 Period, we experienced growth inaverage concessions revenues per patron and a decline in other operatingrevenues. The growth in average concessions revenues per patron was primarilyattributable to price increases, concession-friendly films exhibited during theQ1 2008 Period, such as *National Treasure: Book ofSecrets, Dr. Seuss’ Horton Hears a Who!*and *Hannah Montana/Miley Cyrus: Best of Both Worlds Concert Tour,*and a favorable mix of concession products sold during the Q1 2008 Period. Thedecrease in other operating revenues in the Q1 2008 Period was primarilyattributable to a modification of the payment arrangement with NationalCineMedia (effective upon consummation of the IPO of NCM, Inc. on February 13,2007) described in further detail under Note 2—“Investment in NationalCineMedia, LLC.”

 

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Income from operations increased 11.7% to $72.6 million for the Q12008 Period compared to $65.0 million in the Q1 2007 Period. The increasein income from operations during the Q1 2008 Period was primarily attributableto incremental admissions revenues described above coupled with decreases invarious operating expense items described in further detail below, partiallyoffset by slightly lower concessions revenues and other operating revenues. TheCompany reported a net loss of $3.0 million in the Q1 2008 Period comparedto net income of $229.1 million in the Q1 2007 Period. Earnings (loss) pershare of Class A and Class B common stock was $(0.02) in the Q1 2008Period compared to $1.46 during the Q1 2007 Period. The decreases in net incomeand earnings per share of Class A and Class B common stock wereprimarily due to a $350.7 million gain ($209.0 million after relatedtax effects) resulting from transactions completed in connection with the Q12007 Period IPO of NCM, Inc. and the impact of a $52.8 million loss($33.0 million after related tax effects) on debt extinguishment recordedin the Q1 2008 Period in connection with the early redemption of approximately$90.0 million principal amount of the 33⁄4% Convertible Senior Notes, partiallyoffset by the increase in operating income as described above, the impact ofearnings recognized from NCM and a reduction of net interest expense.

 

During the Q1 2008 Period, we continued to make progress with respectto the following strategic initiatives:

 

·                  Wedemonstrated our commitment to providing incremental value to our stockholders.Total cash dividends distributed to our stockholders during the Q1 2008 Periodtotaled approximately $46.0 million.

 

·                  OnJanuary 14, 2008, the Company entered into an agreement to acquireConsolidated Theatres, L.L.C., consisting of a total of 28 theatres with 400screens in Georgia, Maryland, North Carolina, South Carolina, Tennessee andVirginia. As described further in Note 10—“Subsequent Events,” the Companyconsummated the transaction on April 30, 2008 for a total cash purchaseprice of $210.0 million, subject to post-closing adjustments.

 

·                  We opened 1 new theatre with 16 screens,added 4 screens through expansion and closed 3 underperforming theatres with 23screens, ending the Q1 2008 Period with 525 theaters and 6,385 screens.

 

·                  Finally,we continued to expand our IMAX presence by agreeing to install 31 additionalIMAX digital projection systems by the end of 2010.  We continue to remain optimistic regardingthe benefits of digital cinema primarily as it relates to future growthpotential associated with 3D film product and other 3D content and are pleasedto see continued support of 3D and IMAX film product by the major studios.

 

Thefollowing table sets forth the percentage of total revenues represented bycertain items included in our consolidated statements of income (loss) for theQ1 2008 Period and the Q1 2007 Period (dollars and attendance in millions,except average ticket prices and average concession per patron):

 

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| ** **                                                                                                                                                         | ** ** | **Q1 2008 Period** | ** ** | **Q1 2007 Period** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **                                                                                                                                                         | ** ** | **$**                        | ** ** | **% of Revenue**   | ** ** | **$** | ** ** | **% of Revenue** | ** ** |
| Revenues:                                                                                                                                                          |       |                         |       |                         |       |   |   |   |   |
| Admissions                                                                                                                                                         |       | $                            | 432.0      |                         | 68.9       | % | $ | 426.7 |   | 68.3 | % |
| Concessions                                                                                                                                                        |       | 166.1                        |       | 26.5                         |       | 168.3 |   | 26.9 |   |
| Other operating revenue                                                                                                                                            |       | 28.7                         |       | 4.6                          |       | 30.0 |   | 4.8 |   |
|                                                                                                                                                               |       |                         |       |                         |       |   |   |   |   |
| Total revenues                                                                                                                                                     |       | 626.8                        |       | 100.0                        |       | 625.0 |   | 100.0 |   |
| Operating expenses:                                                                                                                                                |       |                         |       |                         |       |   |   |   |   |
| Film rental and advertising costs(1)                                                                                                                               |       | 215.9                        |       | 50.0                         |       | 218.0 |   | 51.1 |   |
| Cost of concessions(2)                                                                                                                                             |       | 22.7                         |       | 13.7                         |       | 25.0 |   | 14.9 |   |
| Rent expense(3)                                                                                                                                                    |       | 83.3                         |       | 13.3                         |       | 81.0 |   | 13.0 |   |
| Other operating expenses(3)                                                                                                                                        |       | 168.6                        |       | 26.9                         |       | 164.9 |   | 26.4 |   |
| General and administrative expenses  (including share-based compensation expense of $1.4 and $2.1 for the Q1 2008  Period and the Q1 2007 Period, respectively)(3) |       | 15.0                         |       | 2.4                          |       | 16.0 |   | 2.6 |   |
| Depreciation and amortization(3)                                                                                                                                   |       | 46.3                         |       | 7.4                          |       | 46.3 |   | 7.4 |   |
| Net loss on disposal and impairment of  operating assets(3)                                                                                                        |       | 2.2                          |       | 0.4                          |       | 5.4 |   | 0.9 |   |
| Equity in earnings of joint venture  including former employee compensation(3)                                                                                     |       | 0.2                          |       | —                       |       | 3.4 |   | 0.5 |   |
|                                                                                                                                                               |       |                         |       |                         |       |   |   |   |   |
| Total operating expenses(3)                                                                                                                                        |       | 554.2                        |       | 88.4                         |       | 560.0 |   | 89.6 |   |
|                                                                                                                                                               |       |                         |       |                         |       |   |   |   |   |
| Income from operations(3)                                                                                                                                          |       | 72.6                         |       | 11.6                         |       | 65.0 |   | 10.4 |   |
| Interest expense, net(3)                                                                                                                                           |       | 29.7                         |       | 4.7                          |       | 31.0 |   | 5.0 |   |
| Earnings recognized from NCM(3)                                                                                                                                    |       | (8.4                         | )          | 1.3                          |       | — |   | — |   |
| Gain on NCM transaction(3)                                                                                                                                         |       | —                       |       | —                       |       | (350.7 | ) | 56.1 |   |
| Loss on debt extinguishment(3)                                                                                                                                     |       | 52.8                         |       | 8.4                          |       | — |   | — |   |
| Provision for income taxes(3)                                                                                                                                      |       | 0.9                          |       | 0.1                          |       | 155.6 |   | 24.9 |   |
| Net income (loss)(3)                                                                                                                                               |       | (3.0                         | )          | 0.5                          |       | 229.1 |   | 36.7 |   |
| Attendance                                                                                                                                                         |       | 56.9                         |       | *                            |       | 58.6 |   | * |   |
| Average ticket price(4)                                                                                                                                            |       | $                            | 7.59       |                         | *          |   | $ | 7.28 |   | * |   |
| Average concessions per patron(5)                                                                                                                                  |       | $                            | 2.92       |                         | *          |   | $ | 2.87 |   | * |   |

 

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*              *Notmeaningful*

 

(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.

 

(4)                                  Calculated as admissions revenue/attendance.

 

(5)                                  Calculated as concessions revenue/attendance.

 

***Q1 2008 Period Compared to Q1 2007 Period***

*** ***

***Admissions***

*** ***

Total admissions revenues increased $5.3 million during the Q12008 Period, or 1.2%, to $432.0 million, from $426.7 million for theQ1 2007 Period.  Price increasesidentified during our ongoing periodic pricing reviews (which include analysisof various factors including general inflationary trends and local marketconditions) and the premium pricing associated with the film, *Hannah Montana/Miley Cyrus: Best of Both Worlds Concert Tour*were the primary drivers of a 4.3% increase in our average ticket price and ledto the increase in Q1 2008 Period admissions revenues, despite a 2.9% declinein attendance. We believe that the decrease in attendance was primarily aresult of the decline in attendance among the top tier films exhibited duringthe Q1 2008 Period.  Based on our reviewof certain industry sources, the increase in our admissions revenues wasslightly lower than the industry’s results for the Q1 2008 Period as comparedto the Q1 2007 Period.  This decline isprimarily attributable to higher estimated box office per screen growthexperienced by the Company relative to the industry during the Q1 2007 Periodassociated with the performance of the film, *300*.

 

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***Concessions***

*** ***

During the Q1 2008 Period, total concessions revenues decreased$2.2 million, or 1.3%, to $166.1 million, from $168.3 millionfor the Q1 2007 Period. The decrease in concessions revenues in the Q1 2008Period was due to the aforementioned Q1 2008 Period decrease in attendance,partially offset by a 1.7% increase in average concessions revenues per patron.The growth in average concessions revenues per patron was primarilyattributable to price increases, concession-friendly films exhibited during theQ1 2008 Period, such as *National Treasure: Book ofSecrets, Dr. Seuss’ Horton Hears a Who!*and *Hannah Montana/Miley Cyrus: Best of Both Worlds Concert Tour,*and a favorable mix of concession products sold during the Q1 2008 Period.

 

***Other Operating Revenues***

*** ***

Total other operating revenues decreased $1.3 million, or 4.3%, to$28.7 million for the Q1 2008 Period, from $30.0 million for the Q12007 Period. Included in other operating revenues are the theatre access feespaid by National CineMedia (net of payments for on-screen advertising timeprovided to our beverage concessionaire), marketing revenues from our vendormarketing programs and other theatre revenues, including revenue related tounredeemed gift certificates and discount tickets. The decrease in otheroperating revenues in the Q1 2008 Period was primarily attributable to amodification of the payment arrangement with National CineMedia (effective uponconsummation of the IPO of NCM, Inc. on February 13, 2007) describedin further detail under Note 2—“Investment in National CineMedia, LLC,”partially offset by increases in other theatre revenues.

 

***Film Rental and Advertising Costs***

*** ***

Film rental and advertising costs as a percentage of admissionsrevenues decreased to 50.0% during the Q1 2008 Period as compared to 51.1% inthe Q1 2007 Period. The decrease in film rental and advertising costs as apercentage of box office revenues during the Q1 2008 Period was primarily theresult of a lower percentage of box office revenues generated by the top tierfilms exhibited during the Q1 2008 Period and a decline in advertising expense.

 

***Cost of Concessions***

*** ***

Duringthe Q1 2008 Period, cost of concessions remained relatively consistent withthat of the Q1 2007 Period. Cost of concessions as a percentage of concessionsrevenues decreased to 13.7% during the Q1 2008 Period as compared to 14.9% inthe Q1 2007 Period. The decrease in the cost of concessions as a percentage ofconcessions revenues during the Q1 2008 Period was primarily related to achange in a vendor marketing program, which resulted in a reduction of cost ofconcessions during the Q1 2008 Period.

 

***Rent Expense***

*** ***

Rent expense increased $2.3 million, or 2.8%, to$83.3 million in the Q1 2008 Period, from $81.0 million in the Q12007 Period. The increase in rent expense in the Q1 2008 Period was primarilyattributable to general inflationary increases along with incremental rent fromthe inclusion of 193 new screens added since the end of the Q1 2007 Period,partially offset by the closure of 148 underperforming screens subsequent tothe end of the Q1 2007 Period.

 

***Other Operating Expenses***

*** ***

Other operating expenses increased approximately $3.7 million, or2.2%, to $168.6 million in the Q1 2008 Period, from $164.9 million inthe Q1 2007 Period. The increase in total other operating expenses during theQ1 2008 Period was primarily attributable to increases in non-rent occupancycosts due to the inclusion of 193 new screens added since the end of the Q12007 Period, partially offset by the closure of 148 underperforming screenssubsequent to the end of the Q1 2007 Period.

 

29

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***General and Administrative Expenses***

 

During the Q1 2008 Period, general and administrative expensesdecreased $1.0 million, or 6.3%, to $15.0 million, from$16.0 million in the Q1 2007 Period. As a percentage of total revenues,general and administrative expenses decreased to 2.4% in the Q1 2008 Periodfrom 2.6% in the Q1 2007 Period. The decrease in general and administrativeexpenses during the Q1 2008 Period as compared to the Q1 2007 Period wasprimarily attributable to a reduction of share-based compensation expenseduring the Q1 2008 Period.

 

***Depreciation and Amortization***

 

During the Q1 2008 Period, depreciation and amortization was consistentwith that of the Q1 2007 Period.

 

***Income from Operations***

 

Duringthe Q1 2008 Period, income from operations totaled approximately$72.6 million, which represents an increase of $7.6 million, or11.7%, from $65.0 million in the Q1 2007 Period. The increase in incomefrom operations during the Q1 2008 Period was primarily attributable toincremental admissions revenues, coupled with decreases in certain operatingexpense items such as film rental and advertising, cost of concessions, equityin earnings of joint venture including former employee compensation and netloss on disposal and impairment of operating assets, partially offset bydecreases in concessions revenues and other operating revenues and increases inrent expense and other operating expenses.

 

***Interest Expense, net***

 

Net interest expense decreased $1.3 million, or 4.2%, to$29.7 million in the Q1 2008 Period, from $31.0 million in the Q12007 Period. The decrease in net interest expense during the Q1 2008 Period ascompared to the Q1 2007 Period was principally due to incremental interestincome ($3.0 million and $2.5 million, respectively, for the Q1 2008Period and the Q1 2007 Period) from a higher average cash balance outstandingduring the Q1 2008 Period resulting from transactions completed in connectionwith the IPO of NCM, Inc. and a lower effective interest rate on our TermFacility, partially offset by incremental interest expense associated with ahigher average debt balance outstanding during the Q1 2008 Period resultingfrom the issuance of the $200.0 million 61/4%Convertible Senior Notes.

 

***Income Taxes***

 

The provision for income taxes of $0.9 million and$155.6 million for the Q1 2008 Period and the Q1 2007 Period,respectively, reflect effective tax rates of approximately (42.9)% and 40.4%,respectively. The change in the tax rate for the Q1 2008 Period is primarilyattributable to the state tax effects of the $52.8 million loss($33.0 million after related tax effects) on debt extinguishment recordedin the Q1 2008 Period in connection with the early redemption of approximately$90.0 million principal amount of the 33⁄4% Convertible Senior Notes and, to alesser extent, other state tax matters. The effective tax rates for the Q1 2008 Period and the Q1 2007 Periodreflect the impact of certain non-deductible expenses.

 

***Earnings Recognized from NCM***

 

During the Q1 2008 Period, the Company received $8.4 million incash distributions from National CineMedia. As a result, $8.4 million inequity earnings were recognized from NCM during the Q1 2008 Period. Such amountis presented as a component of “Earnings recognized from NCM” in the unauditedcondensed consolidated financial statements. As a result of the IPO of NCM, Inc. described in  Note 2—“Investment in NationalCineMedia, LLC,” the Company will not recognize its share of anyundistributed equity in the earnings of National CineMedia until NationalCineMedia’s future net earnings equal or exceed the amount of the excessdistribution received in connection with the IPO. Until such time, equityearnings will be recognized only to the extent that the Company receives cashdistributions from 

 

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NationalCineMedia.  During the Q1 2007 Period,the Company did not receive any cash distributions from National CineMedia.

 

During the Q1 2007 Period, the Company recorded a loss of$2.0 million, representing its share of the net loss of NationalCineMedia. Such amounts are presented as a component of “Equity in earnings ofjoint venture including former employee compensation” in the unauditedcondensed consolidated financial statements.

 

***Net Income (Loss)***

 

During the Q1 2008 Period, net loss totaled $3.0 million, whichrepresents a decrease of $232.1 million, from net income of$229.1 million in the Q1 2007 Period. The decrease in net income for theQ1 2008 Period was primarily attributable to a $350.7 million gain($209.0 million after related tax effects) resulting from transactionscompleted in connection with the Q1 2007 Period IPO of NCM, Inc. and theimpact of a $52.8 million loss ($33.0 million after related taxeffects) on debt extinguishment recorded in the Q1 2008 Period in connectionwith the early redemption of approximately $90.0 million principal amount ofthe 33⁄4% Convertible Senior Notes, partially offset by the increase in operatingincome, the impact of earnings recognized from NCM and a reduction of netinterest expense described above.

 

***Cash Flows***

 

The following table summarizes certain cash flow data for the Q1 2008Period and the Q1 2007 Period (in millions):

 
| ** **                                           | ** ** | **Q1 2008 Period** | ** ** | **Q1 2007 Period** | ** ** |
|------------------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| Net cash provided by operating activities            |       | $                            | 71.2       |                         | $          | 710.0 |   |
| Net cash used in investing activities                |       | (26.2                        | )          | (18.3                        | )          |
| Net cash provided by (used in) financing  activities |       | 7.6                          |       | (46.2                        | )          |
|                                                 |       |                         |       |                         |       |
| Net increase in cash and cash equivalents            |       | $                            | 52.6       |                         | $          | 645.5 |   |

 

*Q1 2008 Period Compared to Q1 2007 Period*

 

Net cash flows provided byoperating activities decreased by approximately $638.8 million toapproximately $71.2 million for the Q1 2008 Period from approximately$710.0 million for the Q1 2007 Period. The decrease in net cash flowsgenerated from operating activities for the Q1 2008 Period was primarilyattributable to the transactions completed in connection with the IPO of NCM, Inc.(Note 2—“Investmentin National CineMedia, LLC” for further discussion). Thesetransactions resulted in an increase in net cash provided by operatingactivities for the Q1 2007 Period of approximately $628.3 million.  In addition to the changes in cash flowsrelated to the IPO of NCM, Inc., the decrease in net income and the timingof other Q1 2008 Period vendor payments negatively impacted cash flows fromoperating activities and resulted in a $638.8 million decrease in net cashprovided by operating activities for the Q1 2008 Period.

 

Net cash flows used in investingactivities totaled approximately $26.2 million for the Q1 2008 Periodcompared to cash flows used in investing activities of approximately$18.3 million for the Q1 2007 Period. Contributing to the increase in cashflows used in investing activities was incremental capital expenditures ofapproximately $4.9 million, coupled with fewer proceeds from thedisposition of assets of approximately $3.1 million during the Q1 2008Period as compared to the Q1 2007 Period.

 

Netcash flows provided by financing activities were approximately$7.6 million for the Q1 2008 Period compared to cash flows used infinancing activities of approximately $46.2 million for the Q1 2007Period. The net increase in cash flows from financing activities during the Q12008 Period was primarily 

 

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attributableto the proceeds received in connection with the issuance of $200.0 million61⁄4% Convertible Senior Notes during the Q1 2008 Period, partially offset by netcash used to redeem approximately $90.0 million principal amount of the 33⁄4%Convertible Senior Notes and net cash used in connection with the 2008Convertible Note Hedge and 2008 Warrant transactions during the Q1 2008 Period.

 

**Liquidity and Capital Resources**

 

Ona consolidated basis, we expect our primary uses of cash to be for operating expenses,capital expenditures, general corporate purposes related to corporateoperations, debt service, share repurchases and the Company’s quarterlydividend payments. The principal sources of liquidity are cash generated fromoperations, cash on hand and borrowings under the Amended Senior CreditFacility with Credit Suisse, Cayman Island Branch as Administrative Agent andother lenders party thereto, described below. Under the terms of the AmendedSenior Credit Facility, Regal Cinemas is restricted as to how much it canadvance or distribute to Regal, its indirect parent. Since Regal is a holdingcompany with no significant assets other than the stock of subsidiaries, thisrestriction could impact Regal’s ability to effect future debt or dividendpayments, pay corporate expenses or redeem or convert for cash its 33⁄4%Convertible Senior Notes and 61⁄4% Convertible Senior Notes.

 

Ourrevenues are generally collected in cash through admissions and concessionsrevenues. Our operating expenses are primarily related to film and advertisingcosts, rent and occupancy, and payroll. Film costs are ordinarily paid todistributors within 30 days following receipt of admissions revenues andthe cost of the Company’s concessions are generally paid to vendorsapproximately 30 days from purchase. Our current liabilities generallyinclude items that will become due within twelve months. In addition, from timeto time, we use cash from operations and borrowings to fund dividends in excessof net income and cash flows from operating activities less cash flows frominvesting and financing activities. As a result, at any given time, our balancesheet may reflect a working capital deficit.

 

Wefund the cost of capital expenditures through internally generated cash flows,cash on hand, proceeds from disposition of assets and financing activities. Ourcapital requirements have historically arisen principally in connection withacquisitions of theatres, new theatre construction, adding new screens toexisting theatres, upgrading the Company’s theatre facilities (includingdigital 3D and IMAX screens) and replacing equipment. Should the conversionprocess to digital cinema rapidly accelerate and the major studios not coverthe cost of the conversion as expected, we may have to incur additional capitalexpenditures associated with this potential change. We intend to continue togrow our theatre circuit through selective expansion and acquisitionopportunities. The Company has a formal and intensive review procedure for theauthorization of capital projects, with the most important financial measure ofacceptability for a discretionary non-maintenance capital project being whetherits projected discounted cash flow return on investment meets or exceeds theCompany’s internal rate of return targets. We currently expect capitalexpenditures for theatre development, replacement, expansion, upgrading andreplacements to be in the range of approximately $120.0 million to$140.0 million in fiscal year 2008, exclusive of acquisitions. Suchcapital expenditures are expected to be partially funded through assetdispositions conducted during the normal course of our business. During the Q12008 Period, we invested approximately $24.8 million in capitalexpenditures.

 

Asdescribed more fully in Note 2—“Investment in NationalCineMedia, LLC,” on February 13, 2007, NCM, Inc., a newly formedentity that serves as the sole manager of National CineMedia, completed aninitial public offering, or IPO, of its common stock. In connection with theIPO of NCM, Inc., RCH, AMC and Cinemark amended and restated the operatingagreement of National CineMedia and other ancillary agreements. In connectionwith the series of transactions completed in connection with the IPO, Regalreceived gross cash proceeds totaling approximately $628.3 million andretained a 22.6% interest in NCM, Inc. After the payment of current taxes,net cash proceeds from these transactions totaled approximately$447.4 million. The Company used a portion of the net cash proceeds tofund an extraordinary cash dividend of $2.00 per share on each outstandingshare of its Class A and Class B common stock, or approximately$302.0 million in the aggregate. Stockholders of record at the close ofbusiness on March 28, 2007 were paid this dividend on April 13, 2007.The Company expects to use the 

 

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remainingnet cash proceeds along with additional cash on hand for the acquisition ofConsolidated Theatres, L.L.C. as more fully described in Note 1—“TheCompany and Basis of Presentation” and Note 10—“Subsequent Events.”  We own, on a fully diluted basis, a 22.6%interest in NCM, Inc. as of March 27, 2008.

 

Fora discussion of other significant financing transactions which have occurredthrough December 27, 2007, please refer to “Management’s Discussion andAnalysis of Financial Condition and Results of Operations—Liquidity and CapitalResources” contained in Part II, Item 7 of our annual report on Form 10-Kfor the fiscal year ended December 27, 2007.

 

OnJanuary 14, 2008, the Company entered into an agreement to acquireConsolidated Theatres, L.L.C., consisting of a total of 28 theatres with 400screens in Georgia, Maryland, North Carolina, South Carolina, Tennessee andVirginia. As described further in Note 10—“Subsequent Events,” the Companyconsummated the transaction on April 30, 2008 for a total cash purchaseprice of $210.0 million, subject to post-closing adjustments.

 

OnMarch 10, 2008, Regal issued $200.0 million aggregate principalamount of 61⁄4% ConvertibleSenior Notes. Concurrent with the issuance of the 61⁄4%Convertible Senior Notes, weentered into simultaneous convertible note hedge and warrant transactions withrespect to our Class A common stock in order to reduce the potentialdilution from conversion of the 61⁄4% Convertible Senior Notes into shares of our Class A common stock.The net cost of the convertible note hedge and warrant transactions wasapproximately $6.6 million and is included as a component of equity in theaccompanying unaudited condensed consolidated balance sheet as of March 27,2008.  The Company used cash on hand anda portion of the net proceeds from the issuance of the 61⁄4%Convertible Senior Notes toredeem approximately $90.0 million principal amount of the 33⁄4%Convertible Senior Notes, in aseries of privately negotiated transactions. As a result of the early redemption, the Company recorded a $52.8million loss on debt extinguishment during the quarter ended March 27,2008.  In connection with the earlyredemption, the Company received net proceeds of approximately $13.7 millionfrom Credit Suisse attributable to the 2003 Convertible Note Hedge and the 2003Warrant.  Such proceeds were recorded as an increase to additional paid-incapital.  See Note 3—“DebtObligations” for further description of the 61⁄4% Convertible Senior Notes and the relatedconvertible note hedge and warrant transactions.

 

As of March 27, 2008,the holders of our 33⁄4% Convertible Senior Notes had the right, at their option, to converttheir 33⁄4% ConvertibleSenior Notes, in whole or in part, into shares of our Class A commonstock, subject to certain limitations, at the then existing conversion priceper share. The 33⁄4% ConvertibleSenior Notes allow us to settle any conversion, and we have the ability andintent to settle any conversion, by remitting to the note holder the accretedvalue of the note in cash plus the conversion spread (the excess conversionvalue over the accreted value) in cash.

 

RegalCinemas maintains its Amended Senior Credit Facility, which consists of theTerm Facility in an aggregate original principal amount of$1,700.0 million and the Revolving Facility in an aggregate principalamount of up to $100.0 million. The Revolving Facility has a separatesublimit of $10.0 million for short-term loans and a sublimit of$30.0 million for letters of credit. The Term Facility will mature on October 27,2013 and the Revolving Facility will mature on October 27, 2011.

 

Theterms of the Amended Senior Credit Facility include an option for Regal Cinemasto request the establishment of the New Incremental Term Loan to fund, orreimburse Regal Cinemas for funding, distributions to the Company for thepurpose of redeeming, repurchasing, acquiring or otherwise settling theconversion of all or a portion of the 33⁄4% Convertible Senior Notes.  TheNew Incremental Term Facility will expire when the 33⁄4%Convertible Senior Notes mature.  For a detailed summary of other materialterms of the Amended Senior Credit Facility, including the New Incremental TermLoan, please refer to the information provided under Note 5 to the consolidatedfinancial statements included in Part II, Item 8 of our annual report on Form 10-Kfor the fiscal year ended December 27, 2007.

 

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Asdescribed in Note 5 to the consolidated financial statements included inour annual report on Form 10-K for the fiscal year ended December 27,2007, on July 13, 2004, Regal Cinemas entered into four hedgingrelationships via four distinct interest rate swap agreements with finalmaturity terms ranging from three to five years each. On September 8,2005, Regal Cinemas entered into an additional hedging relationship via adistinct interest rate swap agreement with a maturity term of four years. Theseinterest rate swaps were designated to hedge approximately$1,100.0 million of its variable rate debt obligations. On June 30,2007, one of our interest rate swaps designated to hedge approximately$200.0 million of variable rate debt obligations matured. On August 9,2007, Regal Cinemas entered into two additional hedging relationships via twodistinct interest rate swap agreements with maturity terms of two years each.These interest rate swaps were designated to hedge approximately$200.0 million of variable rate debt obligations.

 

Asof March 27, 2008, we had approximately $1,678.8 million aggregateprincipal amount outstanding under the Term Facility, $200.0 million aggregateprincipal amount outstanding under its 61⁄4% Convertible Senior Notes,$33.7 million aggregate principal amount outstanding under its 33⁄4%Convertible Senior Notes and $51.5 million aggregate principal amountoutstanding under the Regal Cinemas 93/8% Senior Subordinated Notes.As of March 27, 2008, we had approximately $0.8 million outstandingin letters of credit, leaving approximately $99.2 million available fordrawing under the Revolving Facility.

 

Regal paid one quarterly cash dividend of $0.30 per share on eachoutstanding share of the Company’s Class A and Class B common stock,or approximately $46.0 million in the aggregate, during the Q1 2008Period.  Further, on April 24, 2008,the Company declared a cash dividend of $0.30 per share on each share of theCompany’s Class A and Class B common stock (including outstandingrestricted stock), payable on June 24, 2008, to stockholders of record on June 16,2008.  These dividends have been or willbe funded through cash flow from operations and available cash on hand. We, atthe discretion of the board of directors and subject to applicable law, anticipatepaying regular quarterly dividends on our Class A and Class B commonstock for the foreseeable future. The amount, if any, of the dividends to bepaid in the future will depend upon our then available cash, anticipated cashneeds, overall financial condition, loan agreement restrictions, futureprospects for earnings and cash flows, as well as other relevant factors.

 

EBITDA (earnings before interest,taxes, depreciation, and amortization) was approximately $73.9 million, or11.8% of total revenues for the Q1 2008 Period and $462.0 million, or73.9% of total revenues, for the Q1 2007 Period.  The net decrease in EBITDA from the Q1 2007Period was primarily attributable to the $350.7 million gain recorded inthe Q1 2007 Period resulting from transactions completed in connection with theIPO of NCM, Inc. (see Note 2—“Investment in NationalCineMedia, LLC,” for further discussion) and the impact of a$52.8 million loss on debt extinguishment recorded in the Q1 2008 Periodin connection with theearly redemption of approximately $90.0 million principal amount of the 33⁄4%Convertible Senior Notes. The Company uses EBITDA as asupplemental liquidity measure because we find it useful to understand andevaluate our capacity, excluding the impact of interest, taxes, and non-cashdepreciation and amortization charges, for servicing our debt, paying dividendsand otherwise meeting our cash needs, prior to our consideration of the impactsof other potential sources and uses of cash, such as working capital items. Webelieve that EBITDA is useful to investors for these purposes as well. EBITDAshould not be considered an alternative to, or more meaningful than, net cashprovided by operating activities, as determined in accordance with accountingprinciples generally accepted in the United States of America (“GAAP”), sinceit omits the impact of interest, taxes and changes in working capital that useor provide cash (such as receivables, payables and inventories) as well as thesources or uses of cash associated with changes in other balance sheet items(such as long-term loss accruals and deferred items). Because EBITDA excludesdepreciation and amortization, EBITDA does not reflect any cash requirementsfor the replacement of the assets being depreciated and amortized, which assetswill often have to be replaced in the future. Further, EBITDA, because it alsodoes not reflect the impact of debt service, income taxes, cash dividends,capital expenditures and other cash commitments from time to time as describedin more detail elsewhere in this quarterly report on Form 10-Q, does notrepresent how much discretionary cash we have available for other purposes.Nonetheless, EBITDA is a key measure expected by and useful to our fixed incomeinvestors, rating agencies and the banking 

 

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community all of whom believe, andwe concur, that these measures are critical to the capital markets’ analysis ofour ability to service debt, fund capital expenditures, pay dividends and otherwisemeet cash needs, respectively. We also evaluate EBITDA because it is clear thatmovements in these non-GAAP measures impact our ability to attract financingand pay dividends. EBITDA, as calculated, may not be comparable to similarlytitled measures reported by other companies. A reconciliation of EBITDA to netcash provided by operating activities is calculated as follows (in millions):

 
| ** **                                  | ** ** | **Q1 2008 Period** | ** ** | **Q1 2007 Period** | ** ** |
|---------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| EBITDA                                      |       | $                            | 73.9       |                         | $          | 462.0 |   |
| Interest expense, net                       |       | (29.7                        | )          | (31.0                        | )          |
| Provision for income taxes                  |       | (0.9                         | )          | (155.6                       | )          |
| Deferred income taxes                       |       | 1.4                          |       | (44.8                        | )          |
| Changes in operating assets and liabilities |       | (32.3                        | )          | 469.5                        |       |
| Loss on debt extinguishment                 |       | 52.8                         |       | —                       |       |
| Other items, net                            |       | 6.0                          |       | 9.9                          |       |
|                                        |       |                         |       |                         |       |
| Net cash provided by operating activities   |       | $                            | 71.2       |                         | $          | 710.0 |   |

 

**Contractual Cash Obligations and Commitments**

 

For a summary of our contractual cash obligations and commitments as ofDecember 27, 2007, please refer to Item 7, “Management’s Discussion andAnalysis of Financial Condition and Results of Operations—Contractual CashObligations and Commitments” contained in our annual report on Form 10-Kfor the fiscal year ended December 27, 2007.  Other than the Q1 2008 Period issuance of the$200.0 million 61⁄4 % Convertible Senior Notes and the early redemption of approximately$90.0 million principal amount of the 33⁄4% Convertible Senior Notes, as of March 27,2008, there were no material changes outside the ordinary course of ourbusiness in our contractual cash obligations and commitments. We believe thatthe amount of cash and cash equivalents on hand, cash flow expected fromoperations and availability under our Revolving Facility will be adequate forthe Company to execute its business strategy and meet anticipated requirementsfor lease obligations, capital expenditures, working capital and debt servicefor the next twelve months.

 

**Critical Accounting Estimates**

 

For a discussion of accounting policies that we consider critical toour business operations and the understanding of our results of operations andaffect the more significant judgments and estimates used in the preparation ofour unaudited condensed consolidated financial statements, please refer to Item7, “Management’s Discussion and Analysis of Financial Condition and Results ofOperations—Critical Accounting Estimates” contained in our annual report on Form 10-Kfor the fiscal year ended December 27, 2007 and incorporated by referenceherein.  As of March 27, 2008, therewere no significant changes in our critical accounting policies or estimationprocedures.

 

**Recent Accounting Pronouncements**

 

For a discussion of the recent accounting pronouncements relevant toour operations, please refer to the information provided under Note 9—“RecentAccounting Pronouncements” to the accompanying unaudited condensed consolidatedfinancial statements, which information is incorporated by reference herein.

 

**Seasonality**

 

The Company’s revenues are usually seasonal, coinciding with the timingof releases of motion pictures by the major distributors. Generally, studiosrelease the most marketable motion pictures during the summer and the holidayseasons. The unexpected emergence of a “hit” film during other periods can 

 

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alterthe traditional pattern. The timing of movie releases can have a significanteffect on the Company’s results of operations, and the results of one quarterare not necessarily indicative of the results for the next or any otherquarter. The seasonality of motion picture exhibition, however, has become lesspronounced as studios are releasing motion pictures somewhat more evenlythroughout the year.

 

**Item 3. QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

TheCompany’s market risk is confined to interest rate exposure of its and itswholly owned subsidiaries’ debt obligations that bear interest based onfloating rates. The original senior credit facility provided for and theAmended Senior Credit Facility provides variable rate interest that could beadversely affected by an increase in interest rates. Borrowings under the priorterm facility bore and the Term Facility bear interest, at Regal Cinemas’option, at either an adjusted Eurodollar rate (as defined in the Amended SeniorCredit Facility) or the base rate plus, in each case, an applicable margin.

 

Duringthe years ended December 29, 2005 and December 30, 2004, RegalCinemas entered into five distinct hedging relationships via five separateinterest rate swap agreements with final maturity terms ranging from three tofive years for the purpose of hedging an aggregate of approximately$1,100.0 million of its variable rate debt obligations. Under the terms ofthe interest rate swap agreements, Regal Cinemas pays interest at various fixedrates ranging from 3.49%—4.337% and receives interest at a variable rate basedon the 3-month LIBOR. On June 30, 2007, one of our interest rate swapsdesignated to hedge approximately $200.0 million of variable rate debtobligations matured. On August 9, 2007, Regal Cinemas entered into two additionalhedging relationships via two distinct interest rate swap agreements withmaturity terms of two years each and require Regal Cinemas to pay interest at afixed rate of 4.944% and receive interest at a variable rate. These interestrate swaps were designated to hedge approximately $200.0 million ofvariable rate debt obligations. For a further description of the swapagreements, see Note 5 tothe consolidated financial statements included in Part II, Item 8 of ourannual report on Form 10-K for the fiscal year ended December 27,2007.

 

Asof March 27, 2008 and December 27, 2007, borrowings of $1,678.8million and $1,683.0 million, respectively, were outstanding under theTerm Facility and the prior term facility, respectively, at an effectiveinterest rate of 5.96% (as of March 27, 2008) and 6.09% (as of December 27,2007), after the impact of the interest rate swaps is taken into account. Ahypothetical change of 10% in the Company’s effective interest rate under theTerm Facility as of March 27, 2008, would increase or decrease interestexpense by $2.5 million for the quarter ended March 27, 2008.

 

**Item 4. CONTROLS AND PROCEDURES**

 

We maintain disclosure controls and procedures that are designed toensure that information required to be disclosed by us in the reports that wefile or submit to the Commission under the Securities Exchange Act of 1934, asamended (the “Exchange Act”), is recorded, processed, summarized and reportedwithin the time periods specified by the Commission’s rules and forms, andthat information is accumulated and communicated to our management, includingour principal executive, principal financial and principal accounting officers(whom we refer to in this periodic report as our Certifying Officers), asappropriate to allow timely decisions regarding required disclosure. Ourmanagement evaluated, with the participation of our Certifying Officers, theeffectiveness of our disclosure controls and procedures as of March 27,2008, pursuant to Rule 13a-15(b) under the Exchange Act. Based uponthat evaluation, our Certifying Officers concluded that, as of March 27,2008, our disclosure controls and procedures were effective.

 

There were no changes in our internal control over financial reportingthat occurred during our most recently completed fiscal quarter that havematerially affected, or are reasonably likely to materially affect, ourinternal control over financial reporting.

 

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**PART II—OTHERINFORMATION**

 

**Item 1. LEGAL PROCEEDINGS**

 

Information required to be furnished by us under this Part II,Item 1 (Legal Proceedings) is incorporated by reference to Note 6—“Commitmentsand Contingencies” of our notes to the accompanying unaudited condensedconsolidated financial statements included in Part I, Item 1 (FinancialStatements) of this quarterly report on Form 10-Q.

 

**Item 1A. RISK FACTORS**

 

There have been no material changes from risk factors as previouslydisclosed in our annual report on Form 10-K filed on February 26, 2008 with the Commission (File No. 001-31315)for the fiscal year ended December 27, 2007.

 

**Item 6. EXHIBITS**

 
| **Exhibit No.** | ** ** | **Exhibit Description**                                                                                                                                                                                                                                                                                                                                                                                       |
|----------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.1                  |       | Indenture, dated March 10, 2008, by and between Regal  Entertainment Group and U.S. Bank National Association, including the form of  61⁄4% Convertible Senior Note due 2011 (included as Exhibit A to the  Indenture) (filed as exhibit 4.1 to Registrant’s Current Report on  Form 8-K (Commission File No. 001-31315) on March 10, 2008 and  incorporated herein by reference) |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.1                 |       | Purchase  Agreement, dated March 5, 2008, among Regal Entertainment Group and  Credit Suisse Securities (USA) LLC, as representatives of the initial  purchasers listed on Schedule A thereto (filed as exhibit 10.1 to  Registrant’s Current Report on Form 8-K (Commission File  No. 001-31315) on March 10, 2008 and incorporated herein by  reference)                                |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.2                 |       | Confirmation  of Convertible Note Hedge, dated as of March 5, 2008, by and between  Regal Entertainment Group and Credit Suisse Capital LLC (filed as exhibit  10.2 to Registrant’s Current Report on Form 8-K (Commission File  No. 001-31315) on March 10, 2008 and incorporated herein by  reference)                                                                                  |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.3                 |       | Confirmation of Convertible Note Warrant Transaction, dated as of  March 5, 2008, by and between Regal Entertainment Group and Credit  Suisse Capital LLC (filed as exhibit 10.3 to Registrant’s Current Report on  Form 8-K (Commission File No. 001-31315) on March 10, 2008 and  incorporated herein by reference)                                                                     |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.4                 |       | Purchase Agreement, dated as of January 14, 2008, among Consolidated  Theatres, LLC and the Sellers named therein and Regal Cinemas, Inc.                                                                                                                                                                                                                                                                |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 31.1                 |       | Rule 13a-14(a) Certification  of Chief Executive Officer of Regal.                                                                                                                                                                                                                                                                                                                                       |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 31.2                 |       | Rule 13a-14(a) Certification  of Chief Financial Officer of Regal.                                                                                                                                                                                                                                                                                                                                       |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 32                   |       | Section 1350  Certifications.                                                                                                                                                                                                                                                                                                                                                                                 |

 

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**SIGNATURES**

 

Pursuant to the requirements of the Securities Exchange Act of 1934,the registrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

 
| ** **              | **REGAL ENTERTAINMENT GROUP** |
|-------------------------|-------------------------------|
|                    |                          |   |
| Date:  May 6, 2008 | By:                           | /s/  MICHAEL  L. CAMPBELL |
|                    | * *                      | Michael  L. Campbell |
|                    |                          | *Chief Executive Officer (Principal* |
|                    |                          | *Executive Officer)* |
|                    |                          |   |
| Date:  May 6, 2008 | By:                           | /s/  AMY  E. MILES |
|                    |                          | Amy  E. Miles |
|                    | * *                      | *Executive Vice President and Chief* |
|                    | * *                      | *Financial Officer (Principal Financial* |
|                    | * *                      | *Officer)* |
|                    |                          |   |
| Date:  May 6, 2008 | By:                           | /s/  DAVID  H. OWNBY |
|                    |                          | David  H. Ownby |
|                    |                          | *Senior Vice President and Chief* |
|                    | * *                      | *Accounting Officer (Principal Accounting* |
|                    |                          | *Officer)* |

 

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**REGALENTERTAINMENT GROUP**

 

**Exhibit Index**

** **
| **Exhibit No.** | ** ** | **Exhibit Description**                                                                                                                                                                                                                                                                                                                                                                                       |
|----------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.1                  |       | Indenture, dated March 10, 2008, by and between Regal  Entertainment Group and U.S. Bank National Association, including the form of  61⁄4% Convertible Senior Note due 2011 (included as Exhibit A to the  Indenture) (filed as exhibit 4.1 to Registrant’s Current Report on  Form 8-K (Commission File No. 001-31315) on March 10, 2008 and  incorporated herein by reference) |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.1                 |       | Purchase  Agreement, dated March 5, 2008, among Regal Entertainment Group and  Credit Suisse Securities (USA) LLC, as representatives of the initial  purchasers listed on Schedule A thereto (filed as exhibit 10.1 to  Registrant’s Current Report on Form 8-K (Commission File No. 001-31315)  on March 10, 2008 and incorporated herein by reference)                                 |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.2                 |       | Confirmation  of Convertible Note Hedge, dated as of March 5, 2008, by and between  Regal Entertainment Group and Credit Suisse Capital LLC (filed as exhibit  10.2 to Registrant’s Current Report on Form 8-K (Commission File  No. 001-31315) on March 10, 2008 and incorporated herein by  reference)                                                                                  |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.3                 |       | Confirmation of Convertible Note Warrant Transaction, dated as of  March 5, 2008, by and between Regal Entertainment Group and Credit  Suisse Capital LLC (filed as exhibit 10.3 to Registrant’s Current Report on  Form 8-K (Commission File No. 001-31315) on March 10, 2008 and  incorporated herein by reference)                                                                     |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.4                 |       | Purchase Agreement, dated as of January 14, 2008, among  Consolidated Theatres, LLC and the Sellers named therein and Regal  Cinemas, Inc.                                                                                                                                                                                                                                                               |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 31.1                 |       | Rule 13a-14(a) Certification  of Chief Executive Officer of Regal.                                                                                                                                                                                                                                                                                                                                       |

 

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| 31.2   |   | Rule 13a-14(a) Certification  of Chief Financial Officer of Regal. |
|--------|--------|------------------------------------------------------------------------------|
|   |   |                                                                         |
| 32     |   | Section 1350  Certifications.                                           |

 

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