Table of Contents

 

 

 

**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 September 25, 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—129,802,512 shares outstanding at October 31,2008

 

Class B Common Stock—23,708,639 shares outstanding at October 31,2008

 

 

 

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Tableof Contents

 

**TABLE OF CONTENTS**

 
| PART I—FINANCIAL  INFORMATION |                                                                                        |
|-----------------------------------------|---------------------------------------------------------------------------------------------|
|                                    |                                                                                        |
| Item 1.                                 | FINANCIAL STATEMENTS                                                                        |   |
|                                    |                                                                                        |   |
|                                    | UNAUDITED  CONDENSED CONSOLIDATED BALANCE SHEETS                                            |   |
|                                    |                                                                                        |   |
|                                    | UNAUDITED  CONDENSED CONSOLIDATED STATEMENTS OF INCOME                                      |   |
|                                    |                                                                                        |   |
|                                    | 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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Table of Contents

 

**PART I—FINANCIALINFORMATION**

 

**Item 1.    FINANCIALSTATEMENTS**

 

**REGALENTERTAINMENT GROUP**

 

**UNAUDITEDCONDENSED CONSOLIDATED BALANCE SHEETS**

**(inmillions, except share data)**

 
| ** **                                                                                                                                                                                                   | ** ** | **September 25, 2008** | ** ** | **December 27, 2007** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| **ASSETS**                                                                                                                                                                                                   |       |                             |       |                            |       |
| CURRENT ASSETS:                                                                                                                                                                                              |       |                             |       |                            |       |
| Cash and cash equivalents                                                                                                                                                                                    |       | $                                | 113.1      |                            | $          | 435.2 |   |
| Trade and other receivables, net                                                                                                                                                                             |       | 40.8                             |       | 73.5                            |       |
| Inventories                                                                                                                                                                                                  |       | 7.7                              |       | 8.1                             |       |
| Prepaid expenses and other current assets                                                                                                                                                                    |       | 14.3                             |       | 7.1                             |       |
| Assets held for sale                                                                                                                                                                                         |       | 0.9                              |       | 1.6                             |       |
|                                                                                                                                                                                                         |       |                             |       |                            |       |
| TOTAL CURRENT ASSETS                                                                                                                                                                                         |       | 176.8                            |       | 525.5                           |       |
|                                                                                                                                                                                                         |       |                             |       |                            |       |
| PROPERTY AND EQUIPMENT:                                                                                                                                                                                      |       |                             |       |                            |       |
| Land                                                                                                                                                                                                         |       | 118.6                            |       | 121.8                           |       |
| Buildings and leasehold improvements                                                                                                                                                                         |       | 1,898.9                          |       | 1,701.6                         |       |
| Equipment                                                                                                                                                                                                    |       | 956.8                            |       | 886.5                           |       |
| Construction in progress                                                                                                                                                                                     |       | 29.4                             |       | 24.2                            |       |
|                                                                                                                                                                                                         |       |                             |       |                            |       |
| Total property and equipment                                                                                                                                                                                 |       | 3,003.7                          |       | 2,734.1                         |       |
| Accumulated depreciation and amortization                                                                                                                                                                    |       | (1,038.6                         | )          | (912.5                          | )          |
|                                                                                                                                                                                                         |       |                             |       |                            |       |
| TOTAL PROPERTY AND EQUIPMENT, NET                                                                                                                                                                            |       | 1,965.1                          |       | 1,821.6                         |       |
| GOODWILL                                                                                                                                                                                                     |       | 180.0                            |       | 181.7                           |       |
| INTANGIBLE ASSETS, NET                                                                                                                                                                                       |       | 16.5                             |       | —                          |       |
| DEFERRED INCOME TAX ASSET                                                                                                                                                                                    |       | 103.0                            |       | 64.0                            |       |
| OTHER NON-CURRENT ASSETS                                                                                                                                                                                     |       | 116.1                            |       | 42.1                            |       |
|                                                                                                                                                                                                         |       |                             |       |                            |       |
| TOTAL ASSETS                                                                                                                                                                                                 |       | $                                | 2,557.5    |                            | $          | 2,634.9 |   |
|                                                                                                                                                                                                         |       |                             |       |                            |       |
| **LIABILITIES  AND STOCKHOLDERS’ DEFICIT**                                                                                                                                                              |       |                             |       |                            |       |
| CURRENT LIABILITIES:                                                                                                                                                                                         |       |                             |       |                            |       |
| Current portion of debt obligations                                                                                                                                                                          |       | $                                | 23.2       |                            | $          | 146.5 |   |
| Accounts payable                                                                                                                                                                                             |       | 103.5                            |       | 183.0                           |       |
| Accrued expenses                                                                                                                                                                                             |       | 55.4                             |       | 54.7                            |       |
| Deferred revenue                                                                                                                                                                                             |       | 83.9                             |       | 113.9                           |       |
| Interest payable                                                                                                                                                                                             |       | 22.2                             |       | 28.9                            |       |
| Deferred income tax liability                                                                                                                                                                                |       | 0.5                              |       | 0.5                             |       |
|                                                                                                                                                                                                         |       |                             |       |                            |       |
| TOTAL CURRENT LIABILITIES                                                                                                                                                                                    |       | 288.7                            |       | 527.5                           |       |
| LONG-TERM DEBT                                                                                                                                                                                               |       | 1,905.1                          |       | 1,718.2                         |       |
| LEASE FINANCING ARRANGEMENTS                                                                                                                                                                                 |       | 78.5                             |       | 81.8                            |       |
| CAPITAL LEASE OBLIGATIONS                                                                                                                                                                                    |       | 17.6                             |       | 19.0                            |       |
| NON-CURRENT DEFERRED REVENUE                                                                                                                                                                                 |       | 341.2                            |       | 279.8                           |       |
| OTHER NON-CURRENT LIABILITIES                                                                                                                                                                                |       | 150.3                            |       | 127.4                           |       |
|                                                                                                                                                                                                         |       |                             |       |                            |       |
| TOTAL LIABILITIES                                                                                                                                                                                            |       | 2,781.4                          |       | 2,753.7                         |       |
| MINORITY INTEREST                                                                                                                                                                                            |       | (0.2                             | )          | 0.5                             |       |
| STOCKHOLDERS’ DEFICIT:                                                                                                                                                                                  |       |                             |       |                            |       |
| Class A common stock, $0.001 par value;  500,000,000 shares authorized, 129,796,761 and 129,518,587 shares issued and  outstanding at September 25, 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 September 25, 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)                                                                                                                                                                         |       | (211.6                           | )          | (160.4                          | )          |
| Retained earnings (accumulated deficit)                                                                                                                                                                      |       | (5.4                             | )          | 42.6                            |       |
| Accumulated other comprehensive loss, net                                                                                                                                                                    |       | (6.8                             | )          | (1.6                            | )          |
|                                                                                                                                                                                                         |       |                             |       |                            |       |
| TOTAL STOCKHOLDERS’ DEFICIT                                                                                                                                                                             |       | (223.7                           | )          | (119.3                          | )          |
|                                                                                                                                                                                                         |       |                             |       |                            |       |
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT                                                                                                                                                             |       | $                                | 2,557.5    |                            | $          | 2,634.9 |   |

 

See accompanying notes to unaudited condensedconsolidated financial statements.

 

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Table of Contents

 

**REGALENTERTAINMENT GROUP**

 

**UNAUDITEDCONDENSED CONSOLIDATED STATEMENTS OF INCOME**

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

 
| ** **                                                                                                                                                                                                                                                                                               | ** ** | **Quarter Ended  September 25, 2008** | ** ** | **Quarter Ended  September 27, 2007** | ** ** | **Three Quarters  Ended  September 25, 2008** | ** ** | **Three Quarters  Ended  September 27, 2007** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|------------------------------------------------------|------------|--------------------------------------------------------------|------------|--------------------------------------------------------------|------------|
| REVENUES:                                                                                                                                                                                                                                                                                                |       |                                                 |       |                                                 |       |                                                         |       |                                                         |       |
| Admissions                                                                                                                                                                                                                                                                                               |       | $                                                    | 516.8      |                                                 | $          | 515.8                                                        |       | $                                                            | 1,404.5    |   | $ | 1,400.4 |   |
| Concessions                                                                                                                                                                                                                                                                                              |       | 209.6                                                |       | 210.9                                                |       | 564.6                                                        |       | 576.6                                                        |       |
| Other operating revenue                                                                                                                                                                                                                                                                                  |       | 31.2                                                 |       | 26.2                                                 |       | 91.1                                                         |       | 84.3                                                         |       |
| TOTAL REVENUES                                                                                                                                                                                                                                                                                           |       | 757.6                                                |       | 752.9                                                |       | 2,060.2                                                      |       | 2,061.3                                                      |       |
| OPERATING EXPENSES:                                                                                                                                                                                                                                                                                      |       |                                                 |       |                                                 |       |                                                         |       |                                                         |       |
| Film rental and advertising costs                                                                                                                                                                                                                                                                        |       | 282.0                                                |       | 279.4                                                |       | 744.9                                                        |       | 749.8                                                        |       |
| Cost of concessions                                                                                                                                                                                                                                                                                      |       | 30.4                                                 |       | 29.3                                                 |       | 78.6                                                         |       | 82.2                                                         |       |
| Rent expense                                                                                                                                                                                                                                                                                             |       | 94.1                                                 |       | 85.6                                                 |       | 267.4                                                        |       | 249.9                                                        |       |
| Other operating expenses                                                                                                                                                                                                                                                                                 |       | 197.2                                                |       | 183.8                                                |       | 546.3                                                        |       | 524.9                                                        |       |
| General and administrative expenses  (including share-based compensation of $1.4 and $1.1 for the quarters ended  September 25, 2008 and September 27, 2007, respectively, and $4.3  and $4.6 for the three quarters ended September 25, 2008 and  September 27, 2007, respectively) |       | 15.5                                                 |       | 15.3                                                 |       | 46.3                                                         |       | 48.1                                                         |       |
| Depreciation and amortization                                                                                                                                                                                                                                                                            |       | 51.1                                                 |       | 45.6                                                 |       | 147.3                                                        |       | 138.0                                                        |       |
| Net loss (gain) on disposal and impairment  of operating assets                                                                                                                                                                                                                                          |       | 11.5                                                 |       | (3.6                                                 | )          | 16.0                                                         |       | (0.8                                                         | )          |
| Equity in earnings of joint venture  including former employee compensation                                                                                                                                                                                                                              |       | 0.1                                                  |       | 0.1                                                  |       | 0.4                                                          |       | 3.8                                                          |       |
| TOTAL OPERATING EXPENSES                                                                                                                                                                                                                                                                                 |       | 681.9                                                |       | 635.5                                                |       | 1,847.2                                                      |       | 1,795.9                                                      |       |
| INCOME FROM OPERATIONS                                                                                                                                                                                                                                                                                   |       | 75.7                                                 |       | 117.4                                                |       | 213.0                                                        |       | 265.4                                                        |       |
| OTHER EXPENSE (INCOME):                                                                                                                                                                                                                                                                                  |       |                                                 |       |                                                 |       |                                                         |       |                                                         |       |
| Interest expense, net                                                                                                                                                                                                                                                                                    |       | 29.0                                                 |       | 27.8                                                 |       | 88.7                                                         |       | 84.3                                                         |       |
| Earnings recognized from NCM                                                                                                                                                                                                                                                                             |       | (7.1                                                 | )          | (7.1                                                 | )          | (21.4                                                        | )          | (9.3                                                         | )          |
| Loss on extinguishment of debt                                                                                                                                                                                                                                                                           |       | —                                               |       | —                                               |       | 70.5                                                         |       | —                                                       |       |
| Gain on NCM transaction                                                                                                                                                                                                                                                                                  |       | —                                               |       | —                                               |       | —                                                       |       | (350.7                                                       | )          |
| Gain on sale of Fandango interest                                                                                                                                                                                                                                                                        |       | —                                               |       | (0.3                                                 | )          | —                                                       |       | (28.6                                                        | )          |
| Minority interest in earnings of  consolidated subsidiaries and other                                                                                                                                                                                                                                    |       | 0.6                                                  |       | 0.2                                                  |       | 1.8                                                          |       | 0.4                                                          |       |
| TOTAL OTHER EXPENSE (INCOME), NET                                                                                                                                                                                                                                                                        |       | 22.5                                                 |       | 20.6                                                 |       | 139.6                                                        |       | (303.9                                                       | )          |
| INCOME BEFORE INCOME TAXES                                                                                                                                                                                                                                                                               |       | 53.2                                                 |       | 96.8                                                 |       | 73.4                                                         |       | 569.3                                                        |       |
| PROVISION FOR INCOME TAXES                                                                                                                                                                                                                                                                               |       | 21.6                                                 |       | 38.8                                                 |       | 31.0                                                         |       | 229.5                                                        |       |
|                                                                                                                                                                                                                                                                                                     |       |                                                 |       |                                                 |       |                                                         |       |                                                         |       |
| NET INCOME                                                                                                                                                                                                                                                                                               |       | $                                                    | 31.6       |                                                 | $          | 58.0                                                         |       | $                                                            | 42.4       |   | $ | 339.8 |   |
| EARNINGS PER SHARE OF CLASS A AND  CLASS B COMMON STOCK (Note 9):                                                                                                                                                                                                                              |       |                                                 |       |                                                 |       |                                                         |       |                                                         |       |
| Basic                                                                                                                                                                                                                                                                                                    |       | $                                                    | 0.21       |                                                 | $          | 0.38                                                         |       | $                                                            | 0.28       |   | $ | 2.24 |   |
| Diluted                                                                                                                                                                                                                                                                                                  |       | $                                                    | 0.21       |                                                 | $          | 0.36                                                         |       | $                                                            | 0.28       |   | $ | 2.13 |   |
| AVERAGE SHARES OUTSTANDING (in thousands):                                                                                                                                                                                                                                                               |       |                                                 |       |                                                 |       |                                                         |       |                                                         |       |
| Basic                                                                                                                                                                                                                                                                                                    |       | 152,864                                              |       | 152,683                                              |       | 152,841                                                      |       | 151,590                                                      |       |
| Diluted                                                                                                                                                                                                                                                                                                  |       | 153,839                                              |       | 160,532                                              |       | 153,799                                                      |       | 159,297                                                      |       |
| DIVIDENDS DECLARED PER COMMON SHARE                                                                                                                                                                                                                                                                      |       | $                                                    | 0.30       |                                                 | $          | 0.30                                                         |       | $                                                            | 0.90       |   | $ | 2.90 |   |

 

See accompanying notes to unaudited condensedconsolidated financial statements.

 

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Tableof Contents

 

**REGALENTERTAINMENT GROUP**

 

**UNAUDITEDCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(inmillions)**

 
| ** **                                                                              | ** ** | **Three Quarters  Ended  September 25, 2008** | ** ** | **Three Quarters  Ended  September 27, 2007** | ** ** |
|-----------------------------------------------------------------------------------------|------------|--------------------------------------------------------------|------------|--------------------------------------------------------------|------------|
| CASH FLOWS FROM OPERATING ACTIVITIES:                                                   |       |                                                         |       |                                                         |       |
| Net income                                                                              |       | $                                                            | 42.4       |                                                         | $          | 339.8 |   |
| Adjustments to reconcile net income to net  cash provided by operating activities:      |       |                                                         |       |                                                         |       |
| Depreciation and amortization                                                           |       | 147.3                                                        |       | 138.0                                                        |       |
| Share-based compensation expense                                                        |       | 4.3                                                          |       | 4.6                                                          |       |
| Change in fair value of interest rate swap                                              |       | (0.5                                                         | )          | —                                                       |       |
| Minority interest in earnings of  consolidated subsidiaries                             |       | (0.2                                                         | )          | 0.1                                                          |       |
| Deferred income tax benefit                                                             |       | (27.9                                                        | )          | (46.1                                                        | )          |
| Net loss (gain) on disposal and impairment  of operating assets                         |       | 16.0                                                         |       | (0.8                                                         | )          |
| Equity in earnings of non-consolidated  entities                                        |       | 0.4                                                          |       | —                                                       |       |
| Equity in earnings of joint venture  including former employee compensation             |       | 0.4                                                          |       | 3.8                                                          |       |
| Excess cash distribution on additional  shares in NCM                                   |       | 1.0                                                          |       | —                                                       |       |
| Gain on sale of Fandango interest                                                       |       | —                                                       |       | (28.6                                                        | )          |
| Non-cash gain on NCM transaction                                                        |       | —                                                       |       | (3.4                                                         | )          |
| Net loss on purchase of partnership  interests                                          |       | —                                                       |       | 0.2                                                          |       |
| Loss on extinguishment of debt                                                          |       | 70.5                                                         |       | —                                                       |       |
| Non-cash rent expense                                                                   |       | 6.1                                                          |       | 6.9                                                          |       |
| Changes in operating assets and  liabilities, excluding the impact of acquisitions:     |       |                                                         |       |                                                         |       |
| Trade and other receivables                                                             |       | 10.4                                                         |       | 51.1                                                         |       |
| Inventories                                                                             |       | 0.9                                                          |       | 0.1                                                          |       |
| Intangible assets                                                                       |       | 1.2                                                          |       | —                                                       |       |
| Prepaid expenses and other current assets                                               |       | (1.4                                                         | )          | (7.1                                                         | )          |
| Accounts payable                                                                        |       | (82.0                                                        | )          | (59.8                                                        | )          |
| Income taxes payable                                                                    |       | (5.2                                                         | )          | 15.6                                                         |       |
| Deferred revenue                                                                        |       | (37.7                                                        | )          | 270.0                                                        |       |
| Accrued expenses and other liabilities                                                  |       | (18.9                                                        | )          | (11.0                                                        | )          |
| NET CASH PROVIDED BY OPERATING ACTIVITIES                                               |       | 127.1                                                        |       | 673.4                                                        |       |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                                   |       |                                                         |       | —                                                       |       |
| Capital expenditures                                                                    |       | (99.1                                                        | )          | (82.0                                                        | )          |
| Proceeds from disposition of assets                                                     |       | 3.6                                                          |       | 31.9                                                         |       |
| Purchase of Consolidated Theatres, net of  cash acquired                                |       | (209.3                                                       | )          | —                                                       |       |
| Purchase of partnership interests, net of  cash acquired                                |       | —                                                       |       | (1.1                                                         | )          |
| Dividends received from partnership                                                     |       | —                                                       |       | 0.3                                                          |       |
| Investment in DCIP                                                                      |       | (2.5                                                         | )          | (1.5                                                         | )          |
| Distributions to partnership                                                            |       | (0.4                                                         | )          | —                                                       |       |
| Proceeds from sale of Fandango interest                                                 |       | —                                                       |       | 28.6                                                         |       |
| NET CASH USED IN INVESTING ACTIVITIES                                                   |       | (307.7                                                       | )          | (23.8                                                        | )          |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                                   |       |                                                         |       |                                                         |       |
| Cash used to pay dividends                                                              |       | (138.1                                                       | )          | (439.1                                                       | )          |
| Proceeds from stock option exercises                                                    |       | 0.5                                                          |       | 15.3                                                         |       |
| 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                                                   |       | (17.2                                                        | )          | (17.0                                                        | )          |
| Cash used to redeem 33⁄4% Convertible Senior  Notes                                  |       | (194.1                                                       | )          | (0.1                                                         | )          |
| Net proceeds from 33⁄4% Convertible Senior  Notes convertible note hedge and warrant |       | 18.9                                                         |       | —                                                       |       |
| Excess tax benefits from share-based  payment arrangements                              |       | 0.2                                                          |       | 14.4                                                         |       |
| Payment of debt acquisition costs and other                                             |       | (5.1                                                         | )          | (2.6                                                         | )          |
| NET CASH USED IN FINANCING ACTIVITIES                                                   |       | (141.5                                                       | )          | (429.1                                                       | )          |
| NET INCREASE (DECREASE) IN CASH AND CASH  EQUIVALENTS                                   |       | (322.1                                                       | )          | 220.5                                                        |       |
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                        |       | 435.2                                                        |       | 162.2                                                        |       |
| CASH AND CASH EQUIVALENTS AT END OF PERIOD                                              |       | $                                                            | 113.1      |                                                         | $          | 382.7 |   |
| SUPPLEMENTAL CASH FLOW INFORMATION:                                                     |       |                                                         |       |                                                         |       |
| Cash paid for income taxes, net of refunds  received                                    |       | $                                                            | 90.1       |                                                         | $          | 240.5 |   |
| Cash paid for interest                                                                  |       | $                                                            | 96.6       |                                                         | $          | 96.0 |   |
| SUPPLEMENTAL NON-CASH FINANCING ACTIVITIES:                                             |       |                                                         |       |                                                         |       |
| Additional investment in NCM (Note 3)                                                   |       | $                                                            | 73.4       |                                                         | $          | — |   |

 

See accompanying notes to unaudited condensedconsolidated financial statements.

 

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 **REGALENTERTAINMENT GROUP**

 

**NOTES TOUNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

 

**SEPTEMBER25, 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, RegalCineMedia or RCM, Hoyts and United Artists shall be deemed to include therespective subsidiaries of such entities when used in discussions includedherein regarding the current operations or assets of such entities.

 

Regal operates the largest theatre circuit in the United States,consisting of 6,782 screens in 551 theatres in 39 states and the District ofColumbia as of September 25, 2008.  The Company formally operates ona 52-week fiscal year with each quarter generally consisting of 13 weeks,unless otherwise noted. The Company’s fiscal year ends on the first Thursdayafter December 25, which in certain years (such as fiscal 2008)results in a 53-week fiscal year.  As of September 25, 2008, theCompany managed its business under one reportable segment: theatre exhibitionoperations.

 

In March 2005, Regal and AMC Entertainment Inc. (“AMC”)announced the combination of the operations of RCM and AMC’s subsidiary,National Cinema Network, Inc. (“NCN”), into a new joint venture companyknown as National CineMedia, LLC (“National CineMedia”). In July 2005,Cinemark, Inc. (“Cinemark”), through a wholly owned subsidiary, acquiredan interest in National CineMedia. On February 13, 2007, National CineMedia, Inc.(“NCM, Inc.”), a newly formed entity that serves as the sole manager ofNational CineMedia, completed an initial public offering, or IPO, of its commonstock. In connection with the IPO of NCM, Inc., RCM, through its whollyowned subsidiary Regal CineMedia Holdings, LLC (“RCH”), AMC and Cinemarkamended and restated the operating agreement of National CineMedia and otherancillary agreements. In connection with the series of transactions completedin connection with the IPO, Regal received gross cash proceeds totalingapproximately $628.3 million and retained a 22.6% interest in NCM, Inc.After the payment of current taxes, net cash proceeds from these transactionstotaled approximately $447.4 million. The Company used a portion of thenet cash proceeds to fund an extraordinary cash dividend of $2.00 per share oneach outstanding share of its Class A and Class B common stock,including outstanding restricted stock, or approximately $302.0 million inthe aggregate. Stockholders of record at the close of business on March 28,2007 were paid this $302.0 million dividend on April 13, 2007. Asdiscussed further in Note 3—“Investment in National CineMedia, LLC,”as a result of the transactions completed in connection with the IPO, theCompany recognized a gain of approximately $350.7 million during thequarter ended March 29, 2007.

 

On February 12, 2007, we, along with AMC and Cinemark, formed ajoint venture company known as Digital Cinema ImplementationPartners, LLC, a Delaware limited liability company (“DCIP”), to explorethe possibility of implementing digital cinema in our theatres and to create afinancing model and establish agreements with major motion picture studios forthe implementation of digital cinema. The Company’s year-to-date cash investmentin DCIP totaled approximately $2.5 million as of September 25, 2008.We account for our investment in DCIP following the equity method ofaccounting.  For the three quarters ended September 25, 2008, theCompany recorded a loss of $2.3 million representing its share of the netloss of DCIP. Such loss is presented as a component of “Minority interest inearnings of consolidated subsidiaries and other.”

 

During the three quarters ended September 27, 2007, the Companysold its equity interest in Fandango, Inc. (“Fandango”) for proceeds of$28.6 million.  As a result of this transaction, the Company recognized again on the

 

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saleof approximately $28.6 million ($17.2 million after tax).  In connectionwith the sale, the Company agreed to amend its existing contract with Fandangoin exchange for an amendment fee totaling $5.5 million. This amount has beenrecorded as deferred revenue and will be amortized to revenue on astraight-line basis over the six year term of the amendment.

 

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

 

On March 10, 2008, Regal issued $200.0 million aggregateprincipal amount of 61⁄4% Convertible Senior Notes due March 15, 2011 (the “61⁄4%Convertible Senior Notes”). Concurrent with the issuance of the 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 intoshares of our Class A common stock. The net cost of the convertible notehedge and warrant transactions was approximately $6.6 million and isincluded as a component of equity in the accompanying unaudited condensedconsolidated balance sheet as of September 25, 2008. See Note 4—“DebtObligations” for further description of the 61⁄4% Convertible Senior Notes andthe related convertible note hedge and warrant transactions. The Company usedcash on hand and a portion of the net proceeds from the issuance of the 61⁄4% ConvertibleSenior Notes to redeem approximately $90.0 million principal amount of Regal’s33⁄4% Convertible Senior Notes due May 15, 2008 (the “33⁄4% Convertible SeniorNotes”), 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.  Inconnection with the early redemption, the Company received net proceeds ofapproximately $13.7 million from Credit Suisse International (“Credit Suisse”)attributable to the convertible note hedge and warrant transactions associatedwith the 33⁄4% Convertible Senior Notes described further in Note 4—“DebtObligations.” Such proceeds were recorded as an increase to additional paid-incapital. In connection with the final maturity of the 33⁄4% ConvertibleSenior Notes on May 15, 2008, holders of the remaining $33.7 million inprincipal amount exercised their conversion rights. The Company elected tosettle these conversions entirely in cash for approximately $51.4 millionusing the remaining proceeds from the issuance of the 61⁄4% Convertible SeniorNotes. As a result of these conversions, the Company recorded a$17.7 million loss on debt extinguishment during the quarter ended June 26,2008.  In connection with these conversions, the Company received netproceeds of approximately $5.2 million from Credit Suisse attributable tothe convertible note hedge and warrant transactions associated with the 33⁄4%Convertible Senior Notes. Such proceeds were also recorded as an increase toadditional paid-in capital. See Note 4—“Debt Obligations” for furtherdiscussion of this transaction.

 

On April 30, 2008, the Company acquired Consolidated Theatres Holdings,G.P. (“Consolidated Theatres”), which holds a total of 28 theatres with 400screens in Georgia, Maryland, North Carolina, South Carolina, Tennessee andVirginia.  The total net cash purchase price for the acquisition wasapproximately $209.3 million, subject to post-closing adjustments. Theresults of operations of the acquired theatres have been included in theCompany’s consolidated financial statements for periods subsequent to theacquisition date. In conjunction with the closing, we entered into a finaljudgment with the Antitrust Division of the United States Department of Justice(“DOJ”), which requires us to hold separate and divest ourselves of fourtheaters comprising 52 screens in North Carolina.  During the quarter ended September 25,2008, the Company entered into an agreement to sell three of the fourtheatres.  As a result, the Companyrecorded impairment charges of approximately $7.9 million during thequarter ended September 25, 2008 related to these theatres.   See Note 2—“Recent Acquisitions” for furtherdiscussion of this transaction.

 

As described more fully in Note 3—“Investment in NationalCineMedia, LLC,” on April 9, 2008, we received approximately 0.8million additional common units of National CineMedia in accordance with theannual adjustment provisions of the Common Unit Adjustment Agreement dated asof February 13, 2007, by and among National CineMedia, NCM, Inc.,RCH, RCI and other parties thereto (the “Common Unit Adjustment Agreement”). On May 29, 2008, we received an additional 2.9 million common units ofNational CineMedia in accordance with the adjustment provisions of the CommonUnit Adjustment Agreement for our acquisition of Consolidated Theatres. These adjustments increased the number of National CineMedia common units heldby us to 

 

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approximately24.9 million and as a result, on a fully diluted basis, we own a 25.1% interestin NCM, Inc. as of September 25, 2008.

 

During the three quarters ended September 25, 2008, Regal paidthree quarterly cash dividends of $0.30 on each outstanding share of theCompany’s Class A and Class B common stock, or approximately$138.1 million in the aggregate.

 

Total comprehensive income for the quarter ended September 25,2008 and September 27, 2007 was $34.5 million and $48.9 million,respectively. Total comprehensive income for the three quarters ended September 25,2008 and September 27, 2007 was $37.2 million and $329.9 million,respectively. Total comprehensive income consists of net income and othercomprehensive income (loss), net of tax, related to the change in the aggregateunrealized gain (loss) on the Company’s interest rate swap arrangements duringeach of the quarters and three quarters ended September 25, 2008 and September 27,2007. The Company’s interest rate swap arrangements are further described inNote 4—“Debt Obligations.”

 

The Company has prepared the unaudited condensed consolidated balancesheet as of September 25, 2008 and the unaudited condensed consolidatedstatements of income and cash flows in accordance with U.S. generally acceptedaccounting principles for interim financial information and the rules andregulations of the Commission. Accordingly, certain information and footnote disclosurestypically included in an annual report have been condensed or omitted for thisquarterly report. In the opinion of management, all adjustments (which includeonly normal recurring adjustments) necessary to present fairly in all materialrespects the financial position, results of operations and cash flows for allperiods presented have been made. The December 27, 2007 unauditedcondensed consolidated balance sheet information is derived from the auditedconsolidated financial statements of the Company included in its annual reporton Form 10-K for the fiscal year ended December 27, 2007. Theseunaudited condensed consolidated financial statements should be read inconjunction with the audited consolidated financial statements and notesthereto. The results of operations for the quarter and three quarters ended September 25,2008 are not necessarily indicative of the operating results that may beachieved for the full 2008 fiscal year.

 

**2. RECENT ACQUISITIONS**

 

***Acquisition of Consolidated Theatres***

 

On April 30, 2008, the Company acquired Consolidated Theatres,which holds a total of 28 theatres with 400 screens in Georgia, Maryland, NorthCarolina, South Carolina, Tennessee and Virginia. The total net cash purchaseprice for the acquisition was approximately $209.3 million, subject topost-closing adjustments. In conjunction with the closing, we entered into afinal judgment with the Antitrust Division of the DOJ, which requires us tohold separate and divest ourselves of four theaters comprising 52 screens inNorth Carolina.  During the quarter endedSeptember 25, 2008, the Company entered into an agreement to sell three ofthe four theatres.  As a result, theCompany recorded impairment charges of approximately $7.9 million duringthe quarter ended September 25, 2008 related to these theatres.  As described further in Note 11—“SubsequentEvents,” on October 23, 2008 the Company completed its divestiture of thethree theatres.

 

The acquisition has been accounted for using the purchase method ofaccounting and, accordingly, the purchase price has been allocated to theassets acquired and liabilities assumed for each of the respective theatrelocations based on their estimated fair values at the date of acquisition. Theallocation of the purchase price is based on management’s judgment afterevaluating several factors, including an independent third partyvaluation.  The results of operations of the acquired theatres have beenincluded in the Company’s consolidated financial statements for periods subsequentto the acquisition date.

 

The following is a summary of the preliminary allocation of the cashpurchase price to the estimated fair values of the assets acquired andliabilities assumed at the date of acquisition (in millions):

 
| Current assets              |   | $     | 1.4    |   |
|-----------------------------|--------|-------|--------|--------|
| Property and equipment, net |   | 209.9 |   |
| Intangible assets           |   | 18.1  |   |
| Current liabilities         |   | (11.2 | )      |
| Long-term liabilities       |   | (8.9  | )      |
| Total purchase price        |   | $     | 209.3  |   |

 

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The transaction included the acquisition of certain identifiableintangible assets, including $9.9 million related to favorable leases with aweighted average amortization period of 13.1 years and approximately $8.2million related to an on-screen advertising contract which will be amortized ona straight-line basis through January 2011.  During the quarter andthree quarters ended September 25, 2008, the Company recognized $1.1million and $1.6 million, respectively, of amortization related to theseintangible assets.

 

The following unaudited pro forma results of operations for the quarterended September 27, 2007 and the three quarters ended September 25,2008 and September 27, 2007, respectively, assume the above acquisitionoccurred as of the beginning of fiscal 2007. Pro forma results were omitted forthe quarter ended September 25, 2008 since actual reported results werethe same as the pro forma results. The pro forma results have been prepared forcomparative purposes only and do not purport to indicate the results ofoperations which would actually have occurred had the combination been ineffect on the dates indicated, or which may occur in the future.

 
| ** **                                                         | ** ** | **Quarter Ended  September 27, 2007**                | ** ** | **Three Quarters  Ended  September 25, 2008** | ** ** | **Three Quarters  Ended  September 27, 2007** | ** ** |
|--------------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|--------------------------------------------------------------|------------|--------------------------------------------------------------|------------|
| ** **                                                         | ** ** | **(in millions except per share amounts)** | ** ** |
| Revenues                                                           |       | $                                                                   | 795.0      |                                                         | $          | 2,101.4                                                      |       | $ | 2,168.7 |   |
| Income from operations                                             |       | 121.1                                                               |       | 211.0                                                        |       | 269.3                                                        |       |
| Net income                                                         |       | 60.2                                                                |       | 41.2                                                         |       | 342.2                                                        |       |
| Earnings per share of Class A and  Class B common stock: |       |                                                                |       |                                                         |       |                                                         |       |
| Basic                                                              |       | 0.39                                                                |       | 0.27                                                         |       | 2.26                                                         |       |
| Diluted                                                            |       | 0.38                                                                |       | 0.27                                                         |       | 2.15                                                         |       |
|                                                                    |            |                                                                     |            |                                                              |            |                                                              |            |  |  |  |

 

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

 

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

 

In March 2005, Regal and AMC announced the combination of theoperations of RCM and AMC’s subsidiary, NCN, into a new joint venture companyknown as National CineMedia. In July 2005, Cinemark, through a whollyowned subsidiary, acquired an interest in National CineMedia. NationalCineMedia focuses on the expansion of in-theatre advertising and the creationof complementary 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 andCinemark.

 

As part of the March 2005 joint venture transaction, RCM and NCNentered into a Contribution and Unit Holders Agreement with National CineMediapursuant to which, among other things, RCM and NCN agreed to contribute assetsto National CineMedia and National CineMedia agreed to assume specifiedliabilities of RCM and NCN in consideration for the issuance of equity units byNational CineMedia to RCM’s wholly-owned subsidiary, RCH and NCN, respectively.The assets contributed to National CineMedia by RCM included fixed assets andagreements as well as approximately $1.3 million in cash. The Companyaccounts for its investment in National CineMedia using the equity method ofaccounting and did not recognize any gain or loss resulting from the initialformation of National CineMedia due to the Company’s continued involvement inthe operations of National CineMedia.

 

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

 

On February 13, 2007, NCM, Inc., a newly formed entity thatserves as the sole manager of National CineMedia, completed an IPO of itscommon stock. NCM, Inc. sold 38.0 million shares of its common stockfor $21 per share in the IPO, less underwriting discounts and expenses. NCM, Inc.used a portion of the net cash proceeds

 

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fromthe IPO to acquire newly issued common units from National CineMedia. As aresult of the NCM, Inc.’s acquisition of common units in NationalCineMedia, the Company recognized a change in interest gain of approximately$182.7 million along with a corresponding increase in the Company’s equityinvestment in National CineMedia.

 

In connection with the completion of the IPO, the joint venturepartners, including RCI, amended and restated their exhibitor servicesagreements (“ESA”) with National CineMedia, whereby in exchange for its pro ratashare of the IPO proceeds (approximately $281.0 million), RCI agreed to amodification of National CineMedia’s payment obligation under the ESA. Themodification extended the term of the ESA to 30 years, provided NationalCineMedia with a five year right of first refusal beginning one year prior tothe end of the term and changed the basis upon which RCI is paid by NationalCineMedia from a percentage of revenues associated with advertising contractsentered into by National CineMedia to a monthly theatre access fee. The theatreaccess fee is composed of a fixed $0.07 payment per patron which will increaseby 8% every five years starting at the end of fiscal 2011 and a fixed $800payment per digital screen each year, which will increase by 5% annually startingat the end of fiscal 2007. Pursuant to our Common Unit Adjustment Agreement,from time to time, common units of National CineMedia held by the joint venturepartners will be adjusted through a formula primarily based on the number oftheatres operated and theatre attendance generated by each joint venturepartner. On-screen advertising time provided to our beverage concessionaire isprovided by National CineMedia under the terms of our agreement. In addition,we receive mandatory quarterly distributions of any excess cash from NationalCineMedia.

 

The amount we received for agreeing to the ESA modification wasapproximately $281.0 million, which represents the estimated fair value ofthe ESA modification payment. We estimated the fair value of the ESA paymentbased upon a valuation performed by the Company with the assistance of thirdparty specialists. This amount has been recorded as deferred revenue and willbe amortized 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.

 

At the closing of the IPO, the underwriters exercised theirover-allotment option to purchase an additional 4.0 million shares ofcommon stock of NCM, Inc. at the initial offering price of $21 per share,less underwriting discounts and commissions. In connection with thisover-allotment option exercise, Regal, AMC and Cinemark each sold to NCM, Inc.common units of National CineMedia on a pro rata basis at the initial offeringprice of $21 per share, less underwriting discounts and expenses. Regal soldapproximately 1.6 million common units to NCM, Inc. for proceeds ofapproximately $32.2 million and recognized a gain on the sale of suchunits of approximately $19.3 million. Upon completion of this sale ofcommon units, Regal held approximately 21.2 million common units ofNational CineMedia. Such common units are immediately redeemable on a one-to-onebasis for shares of NCM, Inc. common stock.  We account for ourinvestment in National CineMedia following the equity method of accounting.

 

Upon the closing of the IPO, National CineMedia entered into a$725.0 million term loan facility, the net cash proceeds of which wereused to redeem preferred units issued to each of Regal, AMC and Cinemark on apro rata basis pursuant to a recapitalization of National CineMedia prior tocompletion of the IPO. We received approximately $315.1 million as aresult of the preferred unit redemption. The Company recognized such cashdistributions from National CineMedia by (1) reducing its equityinvestment in National CineMedia from approximately $166.4 million to zeroand (2) recording distributions in excess of the investment balance inNational CineMedia of approximately $148.7 million as a gain. Because theinvestment (and net advances) in National CineMedia has been reduced to zero,we will not provide for any additional losses as we have not guaranteedobligations of National CineMedia and we are not otherwise committed to providefurther financial support for National CineMedia. In addition, during futureperiods, the Company will not recognize its share of any undistributed equityin the earnings of National CineMedia from the Company’s initial investment inNational CineMedia until National CineMedia’s future net earnings equal orexceed the amount of the above excess distribution. Until such time, equityearnings related to the Company’s initial investment in National CineMedia willbe recognized only to the extent that the Company receives cash distributionsfrom National CineMedia.  During the quarters ended September 25,2008 and September 27, 2007, the Company received $6.8 million and$7.1 million, respectively, in cash distributions from National CineMedia.During the three quarters ended September 25, 2008

 

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andSeptember 27, 2007, the Company received $20.6 million and $9.3million, respectively, in cash distributions from National CineMedia**.**  Approximately $1.0million of cash distributions received during the quarter ended September 25,2008 were recognized as a reduction in our investment in NationalCineMedia.  The remaining amounts wererecognized in equity earnings during each of these periods and have beenincluded as component of “Earnings recognized from NCM” in the accompanyingunaudited condensed consolidated financial statements.

 

After the payment of current taxes, net cash proceeds from thesetransactions totaled approximately $447.4 million. The Company used aportion 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, or approximately $302.0 million in the aggregate.Stockholders of record at the close of business on March 28, 2007 werepaid this dividend on April 13, 2007.

 

On April 9, 2008, we received approximately 0.8 million additionalcommon units of National CineMedia in accordance with the annual adjustmentprovisions of the Common Unit Adjustment Agreement.  On May 29, 2008,we received an additional 2.9 million common units of National CineMedia inaccordance with the adjustment provisions of the Common Unit AdjustmentAgreement for our acquisition of Consolidated Theatres.  These adjustmentsincreased the number of National CineMedia common units held by us toapproximately 24.9 million and as a result, on a fully diluted basis, we own a25.1% interest in NCM, Inc. as of September 25, 2008.   TheCompany recorded the additional units at fair value using the available closingstock prices of NCM, Inc. as of the dates at which the units werereceived.  Since the additional common units received do not represent thefunding of prior losses of National CineMedia, the fair value of such unitswere recorded as separate investment tranches in National CineMedia. Accordingly, the Company recorded a $73.4 million increase in its investment inNational CineMedia during the quarter ended June 26, 2008.  SinceConsolidated Theatres maintains an existing agreement with an on-screenadvertising provider, National CineMedia will not be provided access to suchtheatre locations until expiration of the related advertising contract. In accordance with the Common Unit Adjustment Agreement, Regal agreed to payNational CineMedia an amount that approximates the earnings before interest,taxes, depreciation and amortization that would have been generated by NationalCineMedia if it were able to sell on-screen advertising in the acquired theatrelocations on an exclusive basis.  The fair value of such payment wasapproximately $8.0 million and was accrued by the Company during the quarterended June 26, 2008.  Such amount was determined by the present valueof the ultimate amount estimated to be paid to National CineMedia(approximately $8.9 million) through expiration of the on-screen advertisingcontract.  The accretion associated with this obligation will be reflectedin interest expense over the life of the related obligation.  The Companyrecorded the remaining $65.4 million as an increase to deferred revenue. Thisamount will be amortized to advertising revenue over the remaining term of theESA (approximately 29 years) following the units of revenue method.

 

Since the additional common units received represent separateinvestment tranches in National CineMedia, any undistributed equity in theearnings of National CineMedia pertaining to these tranches will be recognizedunder the equity method of accounting.  As a result, the Company’s sharein the net income of National CineMedia with respect to these tranches totaled$1.3 million and $1.8 million, respectively, during the quarter and threequarters ended September 25, 2008. Such amounts have been included as a component of “Earnings recognized from NCM”in the accompanying unaudited condensed consolidated financial statements.

 

As a result of the ESA amendment and related modification payment, forthe quarters ended September 25, 2008 and September 27,2007, theatre access fees and other revenues received from NationalCineMedia, net of payments for on-screen advertising time provided to ourbeverage concessionaire, totaled approximately $2.6 million and$1.2 million, respectively.  For the three quarters ended September 25,2008 and for the period from February 13, 2007 through September 27,2007, such amounts totaled approximately $8.3 million and$3.8 million, respectively. These amounts are presented as a component ofother operating revenues in the Company’s financial statements.  Duringthe quarters ended September 25, 2008 and September 27, 2007, theCompany recognized $0.9 million and $0.6 million, respectively, ofadvertising revenue utilizing the units of revenue amortization method. Duringthe three quarters ended September 25, 2008 and the period from February 13,2007 through September 27, 2007, the Company recognized $2.3 million and$1.5 million, respectively, of advertising revenue utilizing the units ofrevenue amortization method.** **Asof September 25, 2008, approximately $1.4 million and$1.0 million due from/to National CineMedia were included in “Trade andother receivables, net” and “Accounts payable,” respectively.  As of December 27,2007, approximately $2.0 million and $2.2 million due

 

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from/toNational CineMedia were included in “Trade and other receivables, net” and “Accountspayable,” respectively.

 

Summarizedunaudited condensed income statement information for National CineMedia for thequarter and two quarters ended June 26, 2008 is as follows (in millions):

* *

| ** **             | ** ** | **Quarter Ended  June 26, 2008** | ** ** | **Two Quarters  Ended  June 26, 2008** | ** ** |
|------------------------|------------|-------------------------------------------------|------------|-------------------------------------------------------|------------|
| Revenues               |       | $                                               | 86.7       |                                                  | $          | 149.4 |   |
| Income from operations |       | 39.1                                            |       | 56.8                                                  |       |
| Net income             |       | 4.3                                             |       | 3.9                                                   |       |
|                        |            |                                                 |            |                                                       |            |  |  |

 

As of the date of thisquarterly report on Form 10-Q, no summarized financial information for NationalCineMedia was available for the quarter and three quarters ended September 25,2008. 

 

**4. DEBT OBLIGATIONS**

 

Debt obligations at September 25, 2008and December 27, 2007 consist of the following (in millions):

 
|                                                                                                                                 | ** ** | **September 25, 2008** | ** ** | **December 27, 2007** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| Regal 61⁄4% Convertible Senior Notes                                                                                              |       | $                                | 200.0      |                            | $          | — |   |
| Regal 33⁄4% Convertible Senior Notes                                                                                              |       | —                           |       | 123.7                           |       |
| Regal Cinemas Senior Credit Facility                                                                                                 |       | 1,670.3                          |       | 1,683.0                         |       |
| Regal Cinemas 93/8% Senior  Subordinated Notes                                                                                       |       | 51.5                             |       | 51.5                            |       |
| Lease financing arrangements, weighted  average interest rate of 11.18%, maturing in various installments through  January 2021 |       | 82.8                             |       | 85.8                            |       |
| Capital lease obligations, 8.5% to 10.3%,  maturing in various installments through December 2017                               |       | 19.3                             |       | 20.6                            |       |
| Other                                                                                                                                |       | 0.5                              |       | 0.9                             |       |
| Total debt obligations                                                                                                               |       | 2,024.4                          |       | 1,965.5                         |       |
| Less current portion                                                                                                                 |       | 23.2                             |       | 146.5                           |       |
| Total debt obligations, less current  portion                                                                                        |       | $                                | 2,001.2    |                            | $          | 1,819.0 |   |

 

***Regal 61⁄4% Convertible Senior Notes—*** On March 10, 2008, Regal issued$200.0 million aggregate principal amount of the 61⁄4% Convertible SeniorNotes. Interest on the 61⁄4% Convertible Senior Notes is payable semi-annually inarrears on March 15 and September 15 of each year, beginning September 15,2008. The 61⁄4% Convertible Senior Notes are senior unsecured obligations ofRegal and rank on parity with all of our existing and future senior unsecuredindebtedness and prior to all of our subordinated indebtedness. The 61⁄4%Convertible Senior Notes are effectively subordinated to all of our futuresecured indebtedness to the extent of the assets securing that indebtedness andto any indebtedness and other liabilities of our subsidiaries. None of oursubsidiaries have guaranteed any of our obligations with respect to the 61⁄4%Convertible Senior Notes. On or after December 15, 2010, our note holderswill have the option to convert their 61⁄4% Convertible Senior Notes, in whole orin part, into shares of our Class A common stock at any time prior tomaturity, subject to certain limitations, unless previously purchased by us atthe note holder’s option upon a fundamental change (as defined in the indentureto the 61⁄4% Convertible Senior Notes dated March 10, 2008) at thethen-existing conversion price per share.  Prior to December 15,2010, our note holders have the right, at their option, to convert their 61⁄4%Convertible Senior Notes, in whole or in part, into shares of our Class Acommon stock, subject to certain limitations, unless previously purchased by usat the note holder’s option upon a fundamental change, at the then existingconversion price per share, subject to further adjustments described below, if:

 

·     during any calendar quarter commencing after June 30,2008, and only during such calendar quarter, if the last reported sale priceper share of Class A common stock for at least 20 trading days in theperiod of 30 consecutive trading days ending on the last trading day of theimmediately preceding calendar quarter exceeds 130% of the conversion price pershare of Class A common stock for the 61⁄4% Convertible Senior Notes on thelast trading day of such immediately preceding calendar quarter;

 

·     during the five consecutive business daysimmediately after any ten consecutive trading day period (such 10 consecutivetrading day period, the “Note Measurement Period”) in which the trading price(calculated using the trading price for each of the trading days in the NoteMeasurement Period) per $1,000 principal amount of the 61⁄4% Convertible SeniorNotes was less than 95% of the product of the last reported sale price pershare of Class A common stock and the conversion rate for each day of theNote Measurement Period as determined following a request by a holder of thenotes in accordance with the procedures described more fully in the 61⁄4%Convertible Senior Notes indenture;

 

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·     during certain periods if specified corporatetransactions occur or specified distributions to holders of common stock aremade, each as set forth in the 61⁄4% Convertible Senior Notes indenture(excluding certain distributions and excluding quarterly dividends not inexcess of the base dividend amount (as defined in the 61⁄4% Convertible SeniorNotes indenture)), in which case, the conversion price per share will beadjusted as set forth in the 61⁄4% Convertible Senior Notes indenture; or

 

·     a fundamental change (as defined in the 61⁄4%Convertible Senior Notes indenture) occurs, a note holder may elect to convertall or a portion of its notes at any time 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 the fundamentalchange repurchase date and (ii) 30 days following the effective date ofsuch transaction (but in any event prior to the close of business on thebusiness day prior to the maturity date), in which case we will increase theconversion rate for the notes surrendered for conversion by a number ofadditional shares of Class A common stock, as set forth in the table inthe 61⁄4% Convertible Senior Notes indenture.

 

On September 25, 2008,at the then-current conversion price of $23.0336 per share (which conversionprice may be adjusted pursuant to the certain events described further in the61⁄4% 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.

 

In connection with the issuance of the 61⁄4% Convertible Senior Notes, weused approximately $6.6 million of the net proceeds of the offering toenter into convertible note hedge and warrant transactions with respect to our Class Acommon stock to reduce the potential dilution from conversion of the 61⁄4%Convertible Senior Notes. Under the terms of the convertible note hedgearrangement (the “2008 Convertible Note Hedge”) with Credit Suisse, we paid$12.6 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 September 25, 2008,at a price per share of $23.0336). In the event of the conversion of the 61⁄4%Convertible Senior Notes, this forward purchase option contract allows us topurchase, 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 ACommon stock equal to the shares that we issue to a note holder uponconversion. Settlement terms of this forward purchase option allow the Companyto elect cash or share settlement based on the settlement option it chooses insettling the conversion feature of the 61⁄4% Convertible Senior Notes. Weaccounted for the 2008 Convertible Note Hedge pursuant to the guidance inEmerging Issues Task Force (“EITF”) 00-19, “Accounting for DerivativeFinancial Instruments Indexed to, and Potentially Settled in a Company’s OwnStock.” Accordingly, the $12.6 million purchase price of the forward stockpurchase option contract was recorded as an increase to consolidatedstockholders’ deficit.

 

We also sold to Credit Suisse a warrant (the “2008 Warrant”) topurchase shares of our Class A common stock. The 2008 Warrant is currentlyexercisable for approximately 8.7 million shares of our Class Acommon stock at a September 25, 2008exercise 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.

 

The 2008 Convertible Note Hedge and the 2008 Warrant allow us toacquire sufficient Class A common shares from Credit Suisse to meet ourobligation to deliver Class A common shares upon conversion by the noteholder, unless the Class A common share price exceeds $25.376 (as of September 25, 2008). Whenthe fair value 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.

 

The 61⁄4% Convertible Senior Notes allow us to settle any conversion byremitting to the note holder the accreted value of the note in cash plus theconversion spread (the excess conversion value over the accreted value) in 

 

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eithercash, shares of our Class A common stock or a combination of stock andcash. The accounting for convertible debt with such settlement features isaddressed in the consensus reached by the EITF with respect to the accountingfor Instrument B as set forth in EITF 90-19, “Convertible Bonds withIssuer Option to Settle for Cash upon Conversion.”  Because the accretedvalue of the 61⁄4% Convertible Senior Notes may be settled in cash, shares of ourClass A common stock or a combination of stock and cash, the accretedvalue of the 61⁄4% Convertible Senior Notes is assumed to be settled in sharesand will result in dilution in our earnings per share computations using theif-converted method, if the effect is dilutive (see Note 10—“RecentAccounting Pronouncements”).

 

***Regal 33⁄4% Convertible Senior Notes***—As further 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 May 28, 2003, Regalissued $240.0 million aggregate principal amount of the 33⁄4% ConvertibleSenior Notes.

 

In connection with the issuance of the 61⁄4% Convertible Senior Notesdescribed above, on March 5, 2008 and March 10, 2008, we redeemed atotal of approximately $90.0 million principal amount of the 33⁄4% ConvertibleSenior Notes, in a series of privately negotiated transactions.  As aresult of the early redemption, the Company recorded a $52.8 million loss ondebt extinguishment during the quarter ended March 27, 2008.  Inconnection with the early redemption, the Company received net proceeds ofapproximately $13.7 million from Credit Suisse attributable to the convertiblenote hedge (the “2003 Convertible Note Hedge”) and the warrant (the “2003 Warrant”)associated with the 33⁄4% Convertible Senior Notes.  Such proceeds wererecorded as an increase to additional paid-in capital. In connection with thefinal maturity of the 33⁄4% Convertible Senior Notes on May 15, 2008,holders of the remaining $33.7 million in principal amount exercised theirconversion rights. The Company elected to settle these conversions entirely incash for approximately $51.4 million using the remaining proceeds from theissuance of the 61⁄4% Convertible Senior Notes. As a result of these conversions,the Company recorded a $17.7 million loss on debt extinguishment duringthe quarter ended June 26, 2008.  In connection with theseconversions, the Company received net proceeds of approximately$5.2 million from Credit Suisse attributable to the convertible note hedgeand warrant transactions associated with the 33⁄4% Convertible Senior Notes. Suchproceeds were also recorded as an increase to additional paid-in capital.

 

***Regal Cinemas Fifth Amended andRestated Credit Agreement***— On October 27, 2006, Regal Cinemas entered into a fifth amendedand restated credit agreement (the “Amended Senior Credit Facility”) withCredit 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.  Due to the of recent bankruptcy filings byLehman Brothers Holdings Inc. (“Lehman”) and certain of its affiliates and thesudden deterioration in the credit standing of the Lehman affiliate party toour Revolving Facility, the aggregate principal amount available for drawingunder the Revolving Facility was reduced by $5.0 million to $95.0 million.  The Revolving Facility has a separatesublimit of $10.0 million for short-term loans and a sublimit of $30.0 millionfor letters of credit.

 

The Term Facility will mature on October 27, 2013 and theRevolving Facility will mature on October 27, 2011. Interest is payable (a) inthe case of 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 September 25, 2008and December 27, 2007, borrowings of $1,670.3 million and$1,683.0 million, respectively, were outstanding under the Term Facilityat an effective interest rate of 4.95% (as of September 25, 2008) and 6.09% (as of December 27,2007), after the impact of the interest rate swaps described below is takeninto account.

 

Under the Amended Senior Credit Facility, Regal Cinemas alsoestablished an additional term loan facility (“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 

 

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33⁄4%Convertible Senior Notes.  The Incremental Term Facility expired on May 15,2008, the date at which the 33⁄4% Convertible Senior Notes matured.

 

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 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. On June 30, 2008,two of our interest rate swaps designated to hedge $300.0 million of variablerate debt obligations matured.

 

OnSeptember 15, 2008, because of the sudden deterioration in the creditstanding of the Lehman counterparty to an interest rate swap agreement designedto hedge approximately $100.0 million of variable rate debt obligations, theCompany concluded that the hedging relationship was no longer expected to behighly effective in achieving offsetting cash flows.  As a result, on September 15, 2008, thehedging relationship ceased to qualify for hedge accounting under Statement ofFinancial Accounting Standards (“SFAS”) No. 133, “Accounting forDerivative Instruments and Hedging Activities” (“SFAS 133”). As of September 25,2008, the fair value of this interest rate swap was determined to beapproximately $(2.1) million, which has been recorded as a component of “OtherNon-Current Liabilities” with an offsetting amount of approximately$(1.6) million, net of tax, recorded to “Accumulated Other ComprehensiveLoss.”  For the period from September 15,2008 through September 25, 2008, the Company recognized $0.5 million (thechange in fair value of the former hedging derivative) as a reduction ofinterest expense in the accompanying unaudited condensed financial statements.  As described further in Note 11—“SubsequentEvents,” on October 3, 2008, the interest rate swap effectivelyterminated.

 

As of September 25, 2008,the aggregate fair value of the other interest rate swaps was determined to beapproximately $(8.6 million), which has been recorded as a component of “AccruedExpenses” with a corresponding amount of $(5.2 million), net of tax,recorded to “Accumulated Other Comprehensive Loss.” These interest rate swapsexhibited no ineffectiveness for the quarters and three quarters ended September 25, 2008 and September 27, 2007.

 

***Other Long-Term Obligations—***All other long-term obligations (includingthe Regal Cinemas 93/8 % Senior Subordinated Notes) notexplicitly discussed herein are described in Note 5 to the consolidatedfinancial statements included in our annual report on Form 10-K for thefiscal year ended December 27, 2007 and incorporated by reference herein.

 

**5. INCOME TAXES**

 

The provision for income taxes of $21.6 million and $38.8 million forthe quarters ended September 25, 2008 and September 27, 2007,respectively, reflect effective tax rates of approximately 40.6% and 40.1%,respectively.  The provision for income taxes of $31.0 million and $229.5million for the three quarters ended September 25, 2008 and September 27,2007, respectively, reflect effective tax rates of approximately 42.2% and40.3%, respectively.  The effective tax rates for the quarters and threequarters ended September 25, 2008 and September 27, 2007 reflect theimpact of certain non-deductible expenses.  The increase in the effectivetax rate for the quarter ended September 25, 2008 is primarilyattributable to an increase in interest accrued relative to uncertain state taxpositions during the quarter ended September 25, 2008. The increase in theeffective tax rate for the three quarters ended September 25, 2008 isprimarily attributable to the state tax effects of the $70.5 million loss($44.1 million after related tax effects) on debt extinguishment recorded inthe three quarters ended September 25, 2008 in connection with theredemption of approximately $123.7 million principal amount of the 33⁄4%Convertible Senior Notes and, to a lesser extent, other state tax matters.

 

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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 September 25, 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 September 25, 2008 and December 27, 2007,approximately $8.0 million of the valuation allowance relates topre-acquisition deferred tax assets of Edwards and United Artists. Accordingly,future reductions in the valuation allowance associated with a change inmanagement’s determination of the Company’s ability to realize these deferredtax assets will reduce recorded goodwill related to such acquisitions (seeNote 10—“Recent Accounting Pronouncements”).

 

During the three quarters ended September 25, 2008, the Companyreached agreement with certain state taxing authorities regarding an uncertaintax position.  Settlements of theuncertain tax position resulted in payments to the taxing authorities totalingapproximately $0.5 million, a reduction in the gross unrecognized tax benefitsof approximately $1.6 million and a reduction in the total net unrecognized taxbenefits that would affect the effective tax rate if recognized of $0.4million.  In addition, during the quarterended September 25, 2008, the Company reduced gross unrecognized taxbenefits by approximately $0.3 million as a result of the lapse of the statuteof limitations on certain tax returns. As of September 25, 2008 and December 27,2007, gross unrecognized tax benefits were $36.0 million and $37.9 million,respectively, and the total net unrecognized tax benefits that would affect theeffective tax rate if recognized were $5.3 million and $5.7 million,respectively.

 

In conjunction with the settlements of the uncertain tax position, theCompany reduced accrued gross interest and penalties by approximately $2.0million during the three quarters ended September 25, 2008.  Coupled with a $1.1 million accrual ofinterest on other uncertain tax positions and a reversal of accrued interest of$0.1 million associated with the lapse of the statute of limitations, thereduction in interest and penalties for the settlements has resulted in accruedgross interest and penalties of approximately $2.8 million as of September 25,2008.  As of December 27, 2007,accrued gross interest and penalties totaled approximately $3.8 million.

 

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 before2005, and with limited exceptions, is no longer subject to state income taxexaminations before 2004.  However, thetaxing authorities still have the ability to review the propriety of taxattributes created in closed tax years if such tax attributes are utilized inan open tax year.

 

**6. CAPITAL STOCK AND SHARE-BASEDCOMPENSATION**

 

***Capital Stock***

 

As of September 25, 2008,the Company’s authorized capital stock consisted of:

 

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

 

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

 

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

 

Of the authorized shares of Class A common stock,18.0 million shares were sold in connection with the Company’s initialpublic offering in May 2002. The Company’s Class A common stock islisted on the New York Stock Exchange under the trading symbol “RGC.” As of September 25, 2008, 129,796,761shares of Class A common stock were outstanding. Of the authorized sharesof Class B common stock, 23,708,639 shares were outstanding as of September 25, 2008, all ofwhich are held by Anschutz Company (“Anschutz”). Each share of 

 

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Class Bcommon stock converts into one share of Class A common stock at the optionof the holder or upon certain transfers of a holder’s Class B commonstock. Each holder of Class B common stock is entitled to ten votes foreach outstanding share of Class B common stock owned by that stockholderon every matter properly submitted to the stockholders for their vote. Of theauthorized shares of the preferred stock, no shares were issued and outstandingas of September 25, 2008.The Class A common stock is entitled to one vote for each outstandingshare of Class A common stock on every matter properly submitted to thestockholders for a vote. Except as required by law, the Class A and Class Bcommon stock vote together as a single class on all matters submitted to thestockholders. The material terms and provisions of the Company’s certificate ofincorporation affecting the relative rights of the Class A common stockand the Class B common stock are described in Note 10 to thefinancial statements included in our annual report on Form 10-K for thefiscal 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. The sharerepurchase program expired on September 30, 2008.  The Company made no repurchases of itsoutstanding Class A common stock during the quarters and three quartersended September 25, 2008and September 27, 2007.Treasury shares are retired upon repurchase. At retirement, the Company recordstreasury stock purchases at cost with any excess of cost over par valuerecorded as a reduction of additional paid-in capital.

 

***Warrants***

 

Other than disclosed in Note 4—“Debt Obligations” and Note 9—“EarningsPer Share,” no warrants to acquire the Company’s Class A or Class Bcommon stock were outstanding as of September 25, 2008.

 

***Share-Based Compensation***

 

In 2002, the Company established the 2002 Stock Incentive Plan (the “IncentivePlan”) for a total of 11,194,354 authorized shares, which provides for thegranting of incentive stock options and non-qualified stock options toofficers, employees and consultants of the Company. As described below under “RestrictedStock” and “Performance Share Units,” the Incentive Plan also provides forgrants of restricted stock and performance shares that are subject torestrictions and risks of forfeiture. Readers should refer to Note 10 tothe financial statements included in our annual report on Form 10-Kfor the fiscal year ended December 27, 2007 for additional informationrelated to these awards and the Incentive Plan.

 

*Stock Options*

 

In connection 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 September 25, 2008and after giving effect to the antidilution adjustments and the May 11,2005 amendment to the Incentive Plan, options to purchase a total of 593,264shares of Class A common stock were outstanding under the Incentive Plan,and 2,652,546 shares remain available for future issuance under the IncentivePlan. Stock option information presented herein has been adjusted to giveeffect to the extraordinary dividends. There were no accounting consequencesfor changes made to reduce the exercise prices and increase the number ofshares underlying options 

 

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asa result of the extraordinary cash dividends because (1) the aggregateintrinsic value of the awards immediately after the extraordinary dividends wasnot greater than the aggregate intrinsic value of the awards immediately beforethe extraordinary dividends and (2) the ratio of the exercise price pershare to the market value per share was not reduced.

 

There were no stock options granted during the quarters and threequarters ended September 25, 2008 and September 27, 2007. During the quarters ended September 25, 2008 and September 27, 2007,the Company recognized approximately $0.1 million of share-based compensationexpense related to stock options.  During the three quarters ended September 25,2008 and September 27, 2007, the Company recognized approximately $0.2million and $1.3 million, respectively, of share-based compensation expenserelated to stock options. Such expense is presented as a component ofgeneral and administrative expenses for the quarters and three quarters ended September 25,2008 and September 27, 2007.  At September 25, 2008, there was$0.3 million of unrecognized compensation cost related to share-basedpayments.

 

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 SFAS No. 123R (revised), “Shared-Based Payment” (“SFAS123R”), we are required to report excess tax benefits from the award of equityinstruments as financing cash flows.  Excess tax benefits are recordedwhen a deduction reported for tax return purposes for an award of equityinstruments exceeds the cumulative compensation cost for the instrumentsrecognized for financial reporting purposes.  For the three quarters endedSeptember 25, 2008, our unaudited condensed consolidated statement of cashflows reflects $0.2 million of excess tax benefits as financing cashflows. Net cash proceeds from the exercise of stock options were$0.5 million for the three quarters ended September 25,2008. The actual income tax benefit realized from stock option exerciseswas $0.2 million for the same period.  For the three quarters ended September 27,2007, our unaudited condensed consolidated statement of cash flows reflects$14.4 million of excess tax benefits as financing cash flows. Netcash proceeds from the exercise of stock options were $15.3 million forthe three quarters ended September 27, 2007. The actual income tax benefitrealized from stock option exercises was $17.0 million for the same period.

 

The following table represents stock option activity for the threequarters ended September 25, 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                                  |       | (58,895                    | )          | 8.46                                           |       |                                                      |       |
| Forfeited                                  |       | (3,806                     | )          | 16.18                                          |       |                                                      |       |
| Outstanding options at end of period       |       | 593,264                    |       | 9.34                                           |       | 4.05                                                      |       |
| Exercisable options at end of period       |       | 567,534                    |       | 9.03                                           |       | 3.97                                                      |       |
|                                            |            |                            |            |                                                |            |                                                           |            |  |

 

*Restricted Stock*

 

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 Company maintains the Incentive Plan which provides for restrictedstock awards to officers, directors and key employees. Under the IncentivePlan, shares of Class A common stock of the Company may be granted atnominal cost to officers, directors and key employees, subject to a continuedemployment restriction. On January 16, 2008, 229,572 shares were grantedunder the Incentive Plan at nominal cost to officers, key employees and certaindirectors.  The closing price of our Class A common stock on the dateof grant was $17.07 per share.

 

During the quarters ended September 25, 2008 and September 27,2007, the Company recognized approximately $0.9 million and $0.7 million,respectively, of share-based compensation expense related to restricted sharegrants.  During the three quarters ended September 25, 2008 and September 27,2007, the Company recognized approximately $2.8 million and $2.2 million,respectively, of share-based compensation expense related to restricted sharegrants. Such expense is presented as a component of general andadministrative expenses. The compensation expense for these awards wasdetermined based on the market price of our stock at the date of grant 

 

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applied to the total numbers of shares thatwere anticipated to fully vest.  As of September 25, 2008, we haveunrecognized compensation expense of $6.3 million associated with restrictedstock awards.

 

The following table represents the restricted stock activity forthe three quarters ended September 25, 2008:

 
| ** **                      | ** ** | **Three Quarters  Ended  September 25, 2008** | ** ** |
|---------------------------------|------------|--------------------------------------------------------------|------------|
| Unvested at beginning of period |       | 459,848                                                      |       |
| Granted during the period       |       | 229,572                                                      |       |
| Vested during the period        |       | (40,284                                                      | )          |
| Forfeited during the period     |       | (10,293                                                      | )          |
|                            |       |                                                         |       |
| Unvested at end of period       |       | 638,843                                                      |       |

 

During the three quarters ended September 25, 2008,the Company paid three cash dividends of $0.30 on each share of outstandingrestricted stock totaling approximately $0.6 million.  During thethree quarters ended September 27, 2007,the Company paid three cash dividends of $0.30 on each share of outstandingrestricted stock totaling approximately $0.4 million. In addition, onMarch 5, 2007, Regal declared an extraordinary cash dividend of $2.00 pershare on each outstanding restricted share. Restricted stockholders of recordat the close of 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% to 175%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                                        |       |

 

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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      | %      |
|                                      |        |           |        |  |

 

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 the quarters ended September 25, 2008 and September 27,2007, the Company recognized approximately $0.5 million and $0.3 million,respectively, of share-based compensation expense related to performance sharegrants.  During the three quarters ended September 25, 2008 and September 27,2007, the Company recognized approximately $1.3 million and $1.1 million,respectively, of share-based compensation expense related to performance sharegrants.  Such expense is presented as a component of general andadministrative expenses.

 

The following table summarizes information about the Company’s numberof performance shares for the three quarters ended September 25, 2008:

 
| ** **                      | ** ** | **Three Quarters  Ended  September 25, 2008** | ** ** |
|---------------------------------|------------|--------------------------------------------------------------|------------|
| Unvested at beginning of period |       | 567,632                                                      |       |
| Granted (based on target TSRA)  |       | 252,721                                                      |       |
| Forfeited                       |       | (25,712                                                      | )          |
|                            |       |                                                         |       |
| Unvested at end of period       |       | 794,641                                                      |       |

 

The above table does not reflect the maximum or minimum number ofshares of restricted stock contingently issuable. An additional 595,980 sharesof restricted stock could be issued providing the maximum TSRA is met.

 

**7. COMMITMENTS AND CONTINGENCIES**

 

***Acquisition of Consolidated Theatres***

 

As described in Note 2—“Recent Acquisitions,” in conjunction with theclosing of Consolidated Theatres, we entered into a final judgment with theAntitrust Division of the DOJ, which requires us to hold separate and divestourselves of four theaters comprising 52 screens in North Carolina.  During the quarter ended September 25,2008, the Company entered into an agreement to sell three of the fourtheatres.  As described further in Note11—“Subsequent Events,” on October 23, 2008 the Company completed itsdivestiture of the three theatres.

 

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

 

In prior years, private litigants and the DOJ had filed claims againstus or our subsidiaries alleging that a number of our theatres with stadiumseating violated the ADA because these theatres allegedly failed to providewheelchair-bound patrons with lines of sight comparable to those available toother members of the general public and denied persons in wheelchairs access tothe stadium portion of the theatres. On June 8, 2005, Regal reached anagreement with the DOJ resolving and dismissing the private litigants’ claimsand all claims made by the United States under the ADA. From time to time, wereceive claims that the stadium seating offered by our theatres allegedlyviolates the ADA. In these instances, we seek to resolve or dismiss theseclaims based on the terms of the DOJ settlement or under applicable ADAstandards.

 

In addition, we, from time to time, receive letters from the attorneysgeneral of states 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.

 

We believe that we are in substantial compliance with all currentapplicable regulations relating to accommodations for the disabled. We intendto comply with future regulations in this regard, and except as set forthabove, we do not currently anticipate that compliance will require us to expendsubstantial funds.

 

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

 

On or about January 3, 2007, suit was initiated against theCompany in Federal 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.

 

RCI is a defendant in a few remaining claims arising from its decisionto file voluntary petitions for bankruptcy relief. We and our varioussubsidiary corporations are also presently involved in various legalproceedings arising in the ordinary course of our business operations,including personal injury claims, employment and contractual matters and otherdisputes. We believe we have adequately provided for the settlement of such matters.Management believes any additional liability with respect to these claims anddisputes will not be material in the aggregate to our consolidated financialposition, results of operations or cash flows.

 

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**8. RELATED PARTY TRANSACTIONS**

 

During the quarter ended September 25, 2008, Regal Cinemasincurred capitalized costs of $0.1 million to an Anschutz affiliate, QwestCommunications and its subsidiaries, for network infrastructure upgrades. During the quarters ended September 25, 2008 and September 27, 2007,Regal Cinemas incurred approximately $1.3 million and $1.0 million,respectively, of expenses payable to Qwest Communications and its subsidiariesfor telecommunication and network monitoring services. In addition, RegalCinemas incurred approximately $0.1 million of expenses payable toAnschutz affiliates for certain advertising services during the quarters ended September 25,2008 and September 27, 2007. Also during the quarters ended September 25,2008 and September 27, 2007, Regal Cinemas received less than$0.1 million from an Anschutz affiliate for rent and other expensesrelated to a theatre facility.

 

During the three quarters ended September 25, 2008, Regal Cinemasincurred capitalized costs of $12.2 million to Qwest Communications and itssubsidiaries for network infrastructure upgrades. Regal Cinemas incurredapproximately $4.1 million and $3.1 million, respectively, of expensespayable to Qwest Communications and its subsidiaries for telecommunication andnetwork monitoring services during the three quarters ended September 25,2008 and September 27, 2007.  In addition, Regal Cinemas incurredapproximately $0.2 million of expenses payable to Anschutz affiliates forcertain advertising services during the three quarters ended September 25,2008 and September 27, 2007. Also during the three quarters ended September 25,2008 and September 27, 2007, Regal Cinemas received less than$0.1 million from an Anschutz affiliate for rent and other expensesrelated to a theatre facility.

 

During the quarter ended June 26, 2008, Regal entered into amanagement agreement with an Anschutz affiliate to manage a Los Angeles,California theatre site on their behalf. The ultimate financial terms of themanagement agreement were approved by the Company’s board of directors, and themanagement fee payable to Regal will be based on a percentage of revenuesgenerated by the theatre, subject to a minimum annual fee payable to Regalregardless of revenues generated. The theatre is scheduled to open in late2009.

 

**9.EARNINGS PER SHARE**

 

We compute net income 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 incomeper share is computed using the weighted average number of common sharesoutstanding during the period.  Diluted net income per share is computedusing the weighted average number of common shares and, if dilutive, commonstock equivalents outstanding during the period. Potential common stockequivalents consist of the incremental common shares issuable upon the exerciseof common stock options, restricted stock and performance shares, theconversion spread on the 33⁄4% Convertible Senior Notes, the 2003 Warrant, theassumed conversion of the 61⁄4% Convertible Senior Notes and the 2008 Warrantissued in connection with the 61⁄4% Convertible Senior Notes.   Thedilutive effect of outstanding stock options, restricted shares and performanceshares, the conversion spread on the 33⁄4% Convertible Senior Notes, the 2003Warrant and the 2008 Warrant issued in connection with the 61⁄4% ConvertibleSenior Notes is reflected in diluted earnings per share by application of thetreasury-stock method.  The dilutive effect of assumed conversion of the61⁄4% Convertible Senior Notes is reflected in diluted earnings per share byapplication of the if-converted method.  In addition, the computation ofthe diluted net income per share of Class A common stock assumes theconversion of Class B common stock, while the diluted net income per shareof Class B common stock does not assume the conversion of those shares.

 

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 accordance with EITF 03-6, “ParticipatingSecurities and the Two-Class Method under FASB Statement No. 128,”the undistributed 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 pershare of Class A common stock, the undistributed earnings are equal to netincome for that computation.

 

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

 

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| ** **                                                                                                | ** ** | **Quarter ended  September 25, 2008** | ** ** | **Quarter ended  September 27, 2007** | ** ** | **Three Quarters  Ended  September 25, 2008** | ** ** | **Three Quarters  Ended  September 27, 2007** | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|------------------------------------------------------|------------|--------------------------------------------------------------|------------|--------------------------------------------------------------|------------|
| ** **                                                                                                | ** ** | **Class A**                                     | ** ** | **Class B**                                     | ** ** | **Class A**                                             | ** ** | **Class B**                                             | ** ** | **Class A** | ** ** | **Class B** | ** ** | **Class A** | ** ** | **Class B** | ** ** |
| Basic net income  per share:                                                                              |       |                                                 |       |                                                 |       |                                                         |       |                                                         |       |   |   |   |   |   |   |   |   |
| Numerator:                                                                                                |       |                                                 |       |                                                 |       |                                                         |       |                                                         |       |   |   |   |   |   |   |   |   |
| Allocation of  undistributed earnings                                                                     |       | $                                                    | 26.7       |                                                 | $          | 4.9                                                          |       | $                                                            | 49.0       |   | $ | 9.0 |   | $ | 35.8 |   | $ | 6.6 |   | $ | 286.5 |   | $ | 53.3 |   |
|                                                                                                      |       |                                                 |       |                                                 |       |                                                         |       |                                                         |       |   |   |   |   |   |   |   |   |
| Denominator:                                                                                              |       |                                                 |       |                                                 |       |                                                         |       |                                                         |       |   |   |   |   |   |   |   |   |
| Weighted average  common shares outstanding (in thousands)                                                |       | 129,155                                              |       | 23,709                                               |       | 128,974                                                      |       | 23,709                                                       |       | 129,132 |   | 23,709 |   | 127,830 |   | 23,760 |   |
|                                                                                                      |       |                                                 |       |                                                 |       |                                                         |       |                                                         |       |   |   |   |   |   |   |   |   |
| Basic net income  per share                                                                               |       | $                                                    | 0.21       |                                                 | $          | 0.21                                                         |       | $                                                            | 0.38       |   | $ | 0.38 |   | $ | 0.28 |   | $ | 0.28 |   | $ | 2.24 |   | $ | 2.24 |   |
| Diluted net  income per share:                                                                            |       |                                                 |       |                                                 |       |                                                         |       |                                                         |       |   |   |   |   |   |   |   |   |
| Numerator:                                                                                                |       |                                                 |       |                                                 |       |                                                         |       |                                                         |       |   |   |   |   |   |   |   |   |
| Allocation of  undistributed earnings for basic computation                                               |       | $                                                    | 26.7       |                                                 | $          | 4.9                                                          |       | $                                                            | 49.0       |   | $ | 9.0 |   | $ | 35.8 |   | $ | 6.6 |   | $ | 286.5 |   | $ | 53.3 |   |
| Reallocation of  undistributed earnings as a result of conversion of Class B to  Class A shares |       | 4.9                                                  |       | —                                               |       | 9.0                                                          |       | —                                                       |       | 6.6 |   | — |   | 53.3 |   | — |   |
| Reallocation of  undistributed earnings to Class B shares for effect of other dilutive  securities   |       | —                                               |       | —                                               |       | —                                                       |       | (0.4                                                         | )          | — |   | — |   | — |   | (2.6 | ) |
| Interest expense  on 61⁄4% Convertible Senior Notes                                                    |       | —                                               | (1)        | —                                               |       | —                                                       |       | —                                                       |       | — | (1) | — |   | — |   | — |   |
| Allocation of  undistributed earnings                                                                     |       | $                                                    | 31.6       |                                                 | $          | 4.9                                                          |       | $                                                            | 58.0       |   | $ | 8.6 |   | $ | 42.4 |   | $ | 6.6 |   | $ | 339.8 |   | $ | 50.7 |   |
| Denominator:                                                                                              |       |                                                 |       |                                                 |       |                                                         |       |                                                         |       |   |   |   |   |   |   |   |   |
| Number of shares  used in basic computation (in thousands)                                                |       | 129,155                                              |       | 23,709                                               |       | 128,974                                                      |       | 23,709                                                       |       | 129,132 |   | 23,709 |   | 127,830 |   | 23,760 |   |
| Weighted average  effect of dilutive securities (in thousands)                                            |       |                                                 |       |                                                 |       |                                                         |       |                                                         |       |   |   |   |   |   |   |   |   |
| Add:                                                                                                      |       |                                                 |       |                                                 |       |                                                         |       |                                                         |       |   |   |   |   |   |   |   |   |
| Conversion of  Class B to Class A common shares outstanding                                     |       | 23,709                                               |       | —                                               |       | 23,709                                                       |       | —                                                       |       | 23,709 |   | — |   | 23,760 |   | — |   |
| Stock options                                                                                             |       | 185                                                  |       | —                                               |       | 267                                                          |       | —                                                       |       | 133 |   | — |   | 825 |   | — |   |
| Restricted stock  and performance shares                                                                  |       | 790                                                  |       | —                                               |       | 600                                                          |       | —                                                       |       | 534 |   | — |   | 633 |   | — |   |
| Conversion spread  on 33⁄4% Convertible Senior Notes and the 2003 Warrant                              |       | —                                               |       | —                                               |       | 6,982                                                        |       | —                                                       |       | 291 |   | — |   | 6,249 |   | — |   |
| Conversion of 61⁄4%  Convertible Senior Notes                                                          |       | —                                               | (1)        | —                                               |       | —                                                       |       | —                                                       |       | — | (1) | — |   | — |   | — |   |
|                                                                                                      |       |                                                 |       |                                                 |       |                                                         |       |                                                         |       |   |   |   |   |   |   |   |   |
| Number of shares  used in per share computations (in thousands)                                           |       | 153,839                                              |       | 23,709                                               |       | 160,532                                                      |       | 23,709                                                       |       | 153,799 |   | 23,709 |   | 159,297 |   | 23,760 |   |
| Diluted net  income per share                                                                             |       | $                                                    | 0.21       |                                                 | $          | 0.21                                                         |       | $                                                            | 0.36       |   | $ | 0.36 |   | $ | 0.28 |   | $ | 0.28 |   | $ | 2.13 |   | $ | 2.13 | ** ** |

 

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(1)                                  No amount reported as the impact on netincome per share of Class A common stock would have beenantidilutive.  There were no antidilutive common stock equivalentsoutstanding as of September 27, 2007.

 

**10. RECENT ACCOUNTING PRONOUNCEMENTS**

 

In September 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.

 

In February 2007, the FASB issued SFAS No. 159, “The FairValue Option for 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 fairvalue option would be required to recognize changes in fair value in earningsand to expense upfront cost and fees associated with the item for which thefair value option is elected. Entities electing the fair value option arerequired to distinguish, on the face of the statement 

 

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offinancial position, the fair value of assets and liabilities for which the fairvalue option has been elected and similar assets and liabilities measured usinganother measurement attribute. The adoption of SFAS 159 did not have amaterial impact on the Company’s consolidated financial position, cash flowsand results of operations.

 

In December 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, the FASB issued SFAS No. 160, “NoncontrollingInterest in Consolidated Financial Statements” (“SFAS 160”). SFAS 160establishes new accounting and reporting standards for the noncontrollinginterest in a subsidiary and for the deconsolidation of a subsidiary.Specifically, this statement requires the recognition of a noncontrollinginterest (minority interest) as equity in the consolidated financial statementsand separate from the parent’s equity. The amount of net income attributable tothe noncontrolling interest will be included in consolidated net income on theface of the income statement. SFAS 160 clarifies that changes in a parent’sownership interest in a subsidiary that do not result in deconsolidation areequity transactions 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. Earlieradoption is prohibited. The Company is evaluating the adoption of SFAS 160and its impact on the Company’s consolidated financial position, cash flows andresults of operations.

 

InMarch 2008, the FASB issued SFAS No. 161, “Disclosures about DerivativeInstruments and Hedging Activities” (“SFAS 161”) which amends SFAS 133, andrequires companies with derivative instruments to disclose information abouthow and why a company uses derivative instruments, how derivative instrumentsand related hedged items are accounted for under SFAS 133, and how derivativeinstruments and related hedged items affect a company’s financial position,financial performance, and cash flows. The required disclosures include thefair value of derivative instruments and their gains or losses in tabularformat, information about credit-risk-related contingent features in derivativeagreements, counterparty credit risk, and the company’s strategies andobjectives for using derivative instruments. The Statement expands the currentdisclosure framework in SFAS 133. SFAS 161 is effective prospectively forannual or interim reporting periods beginning on or after November 15,2008.

 

In May 2008, the FASB issued FASB Staff Position APB 14-a, “Accountingfor Convertible Debt Instruments That May Be Settled in Cash UponConversion (Including Partial Cash Settlement)” (“FSP 14-a”).  FSP 14-aspecifies that issuers of such instruments should separately account for theliability and equity components in a manner that will reflect the entity’snonconvertible debt borrowing rate on the instrument’s issuance date wheninterest cost is recognized in subsequent periods. The 61⁄4% Convertible SeniorNotes and the 33⁄4% Convertible Senior Notes are within the scope of FSP 14-a;therefore, we will be required to record the debt portions of the 61⁄4%Convertible Senior Notes and the 33⁄4% Convertible Senior Notes at their fairvalues as of the dates of issuance and amortize the discount into interestexpense over the life of the debt during the periods in which the debtinstruments are outstanding.  However, there will be no effect on our cashinterest payments. A cumulative effect of a change in accounting principle onperiods prior to those presented shall be recognized as of the beginning of thefirst period presented with an offsetting adjustment to retained earnings. FSP14-a is effective for financial statements issued for fiscal years beginningafter December 15, 2008, and interim periods within those fiscal years,and will be applied retrospectively to all periods presented. Accordingly, theadoption of FSP 14-a will be reflected in our consolidated financial statementsbeginning with the first fiscal quarter of 2009.  The Company is currentlyevaluating the adoption of FSP 14-a and its impact on its consolidatedfinancial position, cash flows and results of operations.

 

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**11. SUBSEQUENT EVENTS**

 

On October 3, 2008, the Lehman counterparty to an interest rate swapagreement designed to hedge approximately $100.0 million of variable rate debtobligations filed for bankruptcy protection under Chapter 11 of the U.S.Bankruptcy Code.  As a result, an eventof default occurred under the provisions of the interest rate swap agreement betweenus and the Lehman counterparty, which effectively terminated the interest rateswap.  The Company is in the process ofdetermining a final termination value associated with the interest rate swap,but does not expect the termination value to be materially different from theliability recorded (approximately $2.1 million) as of September 25, 2008. 

 

On October 23, 2008, the Company declared a cash dividend of $0.30per share on each share of the Company’s Class A and Class B commonstock (including outstanding restricted stock), payable on December 18,2008, to stockholders of record on December 10, 2008.

 

Also on October 23, 2008, the Company completed its divestiture ofthree theatres comprising 42 screens in North Carolina pursuant to a finaljudgment with the DOJ described further in Note 2—“Recent Acquisitions.”

 

**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**

 

We conduct our operations through our wholly owned subsidiaries. Weoperate the largest and most geographically diverse theatre circuit in theUnited States, consisting of 6,782 screens in 551 theatres in 39 states and theDistrict of Columbia as of September 25, 2008.We believe the size, reach and quality of our theatre circuit provide anexceptional platform to realize economies of scale from our theatre operations.We also maintain an investment in National CineMedia, which has primarilyconcentrated its efforts on the expansion of in-theatre advertising and the creationof complementary business lines that leverage the existing operating personnel,asset and customer bases of its theatrical exhibition partners, which includesus, AMC and Cinemark. The Company manages its business under one reportablesegment: theatre exhibition operations.

 

We generate revenues primarily from admissions and concession sales.Additional revenues are generated by our vendor marketing programs andelectronic video games located adjacent to the lobbies of certain of ourtheatres. In addition, National CineMedia provides us with a theatre access feeassociated with revenues generated from its sale of on-screen advertising,rental of theatres for business meetings and concerts and other events. Filmrental costs depend on a variety of factors including the prospects of a filmand the popularity of a film and such film rental costs generally increase asthe admissions revenues generated by a film increase. Because we purchasecertain concession items, such as fountain drinks and popcorn, in bulk and notpre-packaged for individual servings, we are able to improve our margins bynegotiating volume discounts. Other operating expenses consist primarily oftheatre labor and occupancy costs.

 

On February 12, 2007, we, along with AMC and Cinemark, formed ajoint venture company DCIP, to explore the possibility of implementing digitalcinema in our theatres and to create a financing model and establish agreementswith major motion picture studios for the implementation of digital cinema.Future digital cinema 

 

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developmentswill be managed by DCIP, subject to the approval of us, AMC and Cinemark. Eachof Regal, AMC and Cinemark has an equal ownership interest in DCIP. DCIP iscontinuing to work with film studios and financial institutions to negotiateand finalize the related financing plans that would provide for astudio-financed conversion to digital projection. Upon completion of therelated studio agreements and financing, we are prepared to begin convertingour existing theatres from 35 mm film projection to digital projection andintend to complete the conversion of our entire circuit in approximately threeto four years.

 

On February 13, 2007, NCM, Inc., a newly formed entity thatserves as the sole manager of National CineMedia, completed an IPO of itscommon stock. In connection with the series of transactions completed inconnection with the IPO, Regal received gross cash proceeds totalingapproximately $628.3 million and retained a 22.6% interest in NCM, Inc.After the payment of current taxes, net cash proceeds from these transactionstotaled approximately $447.4 million.  As discussed further in Note 3—“Investmentin National CineMedia, LLC,” as a result of the transactions completed inconnection with the IPO, the Company recognized a gain of approximately$350.7 million during the quarter ended March 29, 2007.

 

During the three quarters ended September 27, 2007, the Companysold its equity interest in Fandango for proceeds of $28.6 million.  As aresult of this transaction, the Company recognized a gain on the sale ofapproximately $28.6 million ($17.2 million after tax).  In connection withthe sale, the Company agreed to amend its existing contract with Fandango inexchange for an amendment fee totaling $5.5 million.  This amount has beenrecorded as deferred revenue and will be amortized to revenue on astraight-line basis over the six year term of the amendment.

 

On March 10, 2008, Regal issued $200.0 million aggregateprincipal amount of the 61⁄4% Convertible Senior Notes. Concurrent with theissuance of the 61⁄4% Convertible Senior Notes, we entered into simultaneousconvertible note hedge and warrant transactions with respect to our Class Acommon stock in order to reduce the potential dilution from conversion of the61⁄4% Convertible Senior Notes into shares of our Class A common stock. Thenet 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 September 25, 2008. SeeNote 4—“Debt Obligations” for further description of the 61⁄4% ConvertibleSenior Notes and the related convertible note hedge and warrant transactions.The Company used cash on hand and a portion of the net proceeds from theissuance of the 61⁄4% Convertible Senior Notes to redeem approximately $90.0million principal amount of the 33⁄4% Convertible Senior Notes, in a series ofprivately negotiated transactions.  As a result of the early redemption,the Company recorded a $52.8 million loss on debt extinguishment during thequarter ended March 27, 2008.  In connection with the early redemption,the Company received net proceeds of approximately $13.7 million from CreditSuisse attributable to the convertible note hedge and warrant transactionsassociated with the 33⁄4% Convertible Senior Notes described further inNote 4—“Debt Obligations.”  Such proceeds were recorded as anincrease to additional paid-in capital.  In connection with the finalmaturity of the 33⁄4% Convertible Senior Notes on May 15, 2008, holders ofthe remaining $33.7 million in principal amount exercised their conversionrights. The Company elected to settle these conversions entirely in cash forapproximately $51.4 million using the remaining proceeds from the issuanceof the 61⁄4% Convertible Senior Notes. As a result of these conversions, theCompany recorded a $17.7 million loss on debt extinguishment during thequarter ended June 26, 2008.  In connection with these conversions,the Company received net proceeds of approximately $5.2 million fromCredit Suisse attributable to the convertible note hedge and warranttransactions associated with the 33⁄4% Convertible Senior Notes. Such proceedswere also recorded as an increase to additional paid-in capital. See Note4—“Debt Obligations” for further discussion of this transaction.

 

On April 30, 2008, the Company acquired Consolidated Theatres,which holds a total of 28 theatres with 400 screens in Georgia, Maryland, NorthCarolina, South Carolina, Tennessee and Virginia.  The total net cashpurchase price for the acquisition was approximately $209.3 million,subject to post-closing adjustments. The results of operations of the acquiredtheatres have been included in the Company’s consolidated financial statementsfor periods subsequent to the acquisition date. In conjunction with theclosing, we entered into a final judgment with the Antitrust Division of theDOJ, which requires us to hold separate and divest ourselves of four theaterscomprising 52 screens in North Carolina. During the quarter ended September 25, 2008, the Company enteredinto an agreement to sell three of the four theatres.  As a result, the Company recorded impairmentcharges of approximately $7.9 million during the quarter ended September 25,2008 related to these theatres.  See Note2—“Recent Acquisitions” for further discussion of this acquisition.

 

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As described more fully in Note 3—“Investment in NationalCineMedia, LLC,” on April 9, 2008, we received approximately 0.8 millionadditional common units of National CineMedia in accordance with the annualadjustment provisions of the Common Unit Adjustment Agreement.  On May 29,2008, we received an additional 2.9 million common units of National CineMediain accordance with the adjustment provisions of the Common Unit AdjustmentAgreement for our acquisition of Consolidated Theatres. These adjustmentsincreased the number of National CineMedia common units held by us toapproximately 24.9 million and as a result, on a fully diluted basis, we own a25.1% interest in NCM, Inc. as of September 25, 2008.

 

During the three quarters ended September 25, 2008, Regal paidthree quarterly cash dividends of $0.30 on each outstanding share of theCompany’s Class A and Class B common stock, or approximately$138.1 million in the aggregate.

 

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**

 

Based on our review of industry sources, national box office revenuesfor the time period that corresponds to Regal’s third fiscal quarter of 2008were estimated to have decreased by approximately 3% in comparison to the thirdfiscal quarter of 2007.  The industry’s box office results were negativelyimpacted by difficult comparisons generated by high profile films released inthe third quarter of 2007, including*Transformers, Harry Potter & the Order of The Phoenix, The BourneUltimatum* and*Ratatouille*, partially offset by ticket priceincreases and strong attendance from key third quarter 2008 film releases, suchas *The Dark Knight*.

 

Our total revenues for the quarter ended September 25, 2008 (“Q32008 Period”) were $757.6 million and consisted of $516.8 million ofadmissions revenues, $209.6 million of concessions revenues and $31.2million of other operating revenues, and increased slightly from total revenuesof $752.9 million for the quarter ended September 27, 2007 (“Q3 2007Period”).

 

Our Q3 2008 Period admissions revenues increased 0.2% from the Q3 2007Period. A 4.0% increase in our average ticket price, largely offset by anattendance decrease of 3.6%, led to the slight net increase in the Q3 2008Period admissions revenues.  We believe that the overall decrease inattendance during the Q3 2008 Period was primarily a result of the decline inattendance among the top tier films exhibited during the period. Attendance forthe Q3 2008 Period was bolstered by the addition of 523 new screens added sincethe end of the Q3 2007 Period, including the 400 screens acquired withConsolidated Theatres on April 30, 2008, partially offset by the closureof 96****underperforming screenssubsequent to the end of the Q3 2007 period.   Price increasesidentified during our ongoing periodic pricing reviews (which include analysisof various factors including general inflationary trends and local market conditions)along with the mix of film product exhibited during the Q3 2008 Period were theprimary drivers of the increase in our Q3 2008 Period average ticketprice.  Based on our review of certainindustry sources, the decrease in our admissions revenues on a per screen basiswas slightly greater than the industry’s results for the Q3 2008 Period ascompared to the Q3 2007 Period. We believe the greater than industry declinein admissions revenues on a per screen basis was primarily attributable to theCompany’s out-performance on high profile films exhibited during the Q3 2007Period, our increase in ticket prices as compared to the industry during the Q32008 Period and the Q3 2007 Period, partially offset by greater than industry boxoffice per screen growth from premium priced films exhibited during the Q3 2008Period.

 

In addition, during the Q3 2008 Period, we experienced a slight declinein concessions revenues and an increase in other operating revenues. Thedecrease in concessions revenues during the Q3 2008 Period was due to theaforementioned Q3 2008 Period decrease in attendance, partially offset by anincrease in average concessions revenues per patron.  Average concessionsrevenues per patron during the Q3 2008 Period were positively impacted by priceincreases effected during the Q3 2008 Period. The increase in other operatingrevenues during the Q3 2008 Period was primarily attributable to an increase inNational CineMedia revenues and an increase in revenues related to unredeemedgift certificates and discount tickets.

 

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Income from operations totaled $75.7 million during the Q3 2008Period, which represents a decrease of $41.7 million, or 35.5%, from$117.4 million in the Q3 2007 Period.  The decrease in income fromoperations during the Q3 2008 Period was primarily attributable to increases incertain operating expense items described in further detail below, partiallyoffset by an increase in other operating revenues.  The Company reportednet income of $31.6 million in the Q3 2008 Period compared to net incomeof $58.0 million in the Q3 2007 Period. Diluted earnings per share of Class Aand Class B common stock was $0.21 in the Q3 2008 Period compared to $0.36during the Q3 2007 Period. The decreases in net income and diluted earnings pershare of Class A and Class B common stock were primarily due to thedecline in operating income during the Q3 2008 Period.

 

During the Q3 2008 Period and the three quarters ended September 25,2008 (the “Fiscal 2008 Period”), we continued to make progress with respect tothe following strategic initiatives:

 
| · |   | We  demonstrated our commitment to providing incremental value to our stockholders.  Total cash dividends distributed to our stockholders during the Fiscal 2008  Period totaled approximately $138.1 million.                                                                                                                                                                                                                                 |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| · |   | On  April 30, 3008, the Company acquired Consolidated Theatres which holds a  total of 28 theatres with 400 screens in Georgia, Maryland, North Carolina,  South Carolina, Tennessee and Virginia, for a total net cash purchase price  of approximately $209.3 million, subject to post-closing adjustments.                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| · |   | In  addition to the acquisition of Consolidated Theatres during the Fiscal 2008  Period, we opened 5 new theatres with 65 screens, added 12 screens through  expansion and closed 9 underperforming theatres with 83 screens, ending the  Fiscal 2008 Period with 551 theaters and 6,782 screens.                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| · |   | Finally,  we entered into an agreement to expand our IMAX presence by agreeing to  install 31 additional IMAX digital projection systems by the end of  2010.  We continue to remain optimistic regarding the benefits of  digital cinema primarily as it relates to future growth potential associated  with 3D film product and other 3D content and are pleased to see continued  support of 3D and IMAX film product by the major studios. |

 

The following table sets forth the percentage of total revenuesrepresented by certain items included in our unaudited condensed consolidatedstatements of income for the Q3 2008 Period, the Q3 2007 Period, the Fiscal2008 Period and the three quarters ended September 27, 2007 (the “Fiscal2007 Period”) (dollars and attendance in millions, except average ticket pricesand average concessions per patron):

 
| ** **                                                                                                                                                                                                                                                 | ** ** | **Q3 2008 Period** | ** ** | **Q3 2007 Period** | ** ** | **Fiscal 2008  Period** | ** ** | **Fiscal 2007  Period** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|------------------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **                                                                                                                                                                                                                                                 | ** ** | **$**                        | ** ** | **% of  Revenue**       | ** ** | **$**                        | ** ** | **% of  Revenue**       | ** ** | **$** | ** ** | **% of  Revenue** | ** ** | **$** | ** ** | **% of  Revenue** | ** ** |
| Revenues:                                                                                                                                                                                                                                                  |       |                         |       |                         |       |                         |       |                         |       |   |   |   |   |   |   |   |   |
| Admissions                                                                                                                                                                                                                                                 |       | $                            | 516.8      |                         | 68.2       | %                            | $          | 515.8                        |       | 68.5 | % | $ | 1,404.5 |   | 68.2 | % | $ | 1,400.4 |   | 67.9 | % |
| Concessions                                                                                                                                                                                                                                                |       | 209.6                        |       | 27.7                         |       | 210.9                        |       | 28.0                         |       | 564.6 |   | 27.4 |   | 576.6 |   | 28.0 |   |
| Other operating revenues                                                                                                                                                                                                                                   |       | 31.2                         |       | 4.1                          |       | 26.2                         |       | 3.5                          |       | 91.1 |   | 4.4 |   | 84.3 |   | 4.1 |   |
| Total revenues                                                                                                                                                                                                                                             |       | 757.6                        |       | 100.0                        |       | 752.9                        |       | 100.0                        |       | 2,060.2 |   | 100.0 |   | 2,061.3 |   | 100.0 |   |
| Operating expenses:                                                                                                                                                                                                                                        |       |                         |       |                         |       |                         |       |                         |       |   |   |   |   |   |   |   |   |
| Film rental and advertising costs(1)                                                                                                                                                                                                                       |       | 282.0                        |       | 54.6                         |       | 279.4                        |       | 54.2                         |       | 744.9 |   | 53.0 |   | 749.8 |   | 53.5 |   |
| Cost of concessions(2)                                                                                                                                                                                                                                     |       | 30.4                         |       | 14.5                         |       | 29.3                         |       | 13.9                         |       | 78.6 |   | 13.9 |   | 82.2 |   | 14.3 |   |
| Rent expense(3)                                                                                                                                                                                                                                            |       | 94.1                         |       | 12.4                         |       | 85.6                         |       | 11.4                         |       | 267.4 |   | 13.0 |   | 249.9 |   | 12.1 |   |
| Other operating expenses(3)                                                                                                                                                                                                                                |       | 197.2                        |       | 26.0                         |       | 183.8                        |       | 24.4                         |       | 546.3 |   | 26.5 |   | 524.9 |   | 25.5 |   |
| General and administrative expenses  (including share-based compensation expense of $1.4 and $1.1 for the Q3 2008  Period and the Q3 2007 Period, respectively, and $4.3 and $4.6 for the Fiscal  2008 Period and the Fiscal 2007 Period, respectively)(3) |       | 15.5                         |       | 2.0                          |       | 15.3                         |       | 2.0                          |       | 46.3 |   | 2.2 |   | 48.1 |   | 2.3 |   |
| Depreciation and amortization(3)                                                                                                                                                                                                                           |       | 51.1                         |       | 6.7                          |       | 45.6                         |       | 6.1                          |       | 147.3 |   | 7.1 |   | 138.0 |   | 6.7 |   |
|                                                                                                                                                                                                                                                            |            |                              |            |                              |            |                              |            |                              |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

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| Net loss (gain) on disposal and impairment  of operating assets(3)             |   | 11.5   |   | 1.5    |   | (3.6   | )      | (0.5   | )      | 16.0    |   | 0.8    |   | (0.8    | )      | — |   |
|--------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|---------|--------|--------|--------|---------|--------|--------|--------|
| Equity in earnings of joint venture  including former employee compensation(3) |   | 0.1    |   | — |   | 0.1    |   | — |   | 0.4     |   | — |   | 3.8     |   | 0.2    |   |
| Total operating expenses(3)                                                    |   | 681.9  |   | 90.0   |   | 635.5  |   | 84.4   |   | 1,847.2 |   | 89.7   |   | 1,795.9 |   | 87.1   |   |
|                                                                           |   |   |   |   |   |   |   |   |   |    |   |   |   |    |   |   |   |
| Income from operations(3)                                                      |   | 75.7   |   | 10.0   |   | 117.4  |   | 15.6   |   | 213.0   |   | 10.3   |   | 265.4   |   | 12.9   |   |
| Interest expense, net(3)                                                       |   | 29.0   |   | 3.8    |   | 27.8   |   | 3.7    |   | 88.7    |   | 4.3    |   | 84.3    |   | 4.1    |   |
| Earnings recognized from NCM(3)                                                |   | (7.1   | )      | (0.9   | )      | (7.1   | )      | (0.9   | )      | (21.4   | )      | (1.0   | )      | (9.3    | )      | (0.5   | )      |
| Loss on debt extinguishment(3)                                                 |   | — |   | — |   | — |   | — |   | 70.5    |   | 3.4    |   | —  |   | — |   |
| Gain on NCM transaction(3)                                                     |   | — |   | — |   | — |   | — |   | —  |   | — |   | (350.7  | )      | (17.0  | )      |
| Gain on sale of Fandango interest(3)                                           |   | — |   | — |   | (0.3   | )      | — |   | —  |   | — |   | (28.6   | )      | (1.4   | )      |
| Provision for income taxes(3)                                                  |   | 21.6   |   | 2.9    |   | 38.8   |   | 0.5    |   | 31.0    |   | 1.5    |   | 229.5   |   | 11.1   |   |
| Net income(3)                                                                  |   | $      | 31.6   |   | 4.2    |   | $      | 58.0   |   | 7.7     |   | $      | 42.4   |    | 2.1    |   | $      | 339.8 |   | 16.5 |   |
| Attendance                                                                     |   | 66.8   |   |   | *      | 69.3   |   |   | *      | 183.4   |   |   | *      | 189.6   |   |   | *      |
| Average ticket price(4)                                                        |   | $      | 7.74   |   |   | *      | $      | 7.44   |   |    | *      | $      | 7.66   |    |   | *      | $      | 7.39 |   |   | * |
| Average concessions per patron(5)                                              |   | $      | 3.14   |   |   | *      | $      | 3.04   |   |    | *      | $      | 3.08   |    |   | *      | $      | 3.04 |   |   | * |

 

----

*  *Not meaningful*

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

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

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

(4) Calculatedas admissions revenues/attendance.

(5) Calculatedas concessions revenues/attendance.

 

***Q3 2008 Period Compared to Q3 2007 Periodand Fiscal 2008 Period Compared to Fiscal 2007 Period***

 

***Admissions***

 

Total admissions revenues increased $1.0 million during the Q32008 Period, or 0.2%, to $516.8 million, from $515.8 million for theQ3 2007 Period.  During the Fiscal 2008 Period, total admissions revenuesincreased $4.1 million, or 0.3%, to $1,404.5 million, from$1,400.4 million for the Fiscal 2007 Period.   An increase inour average ticket price of 4.0%, partially offset by an attendance decrease of3.6% led to the slight net increase in the Q3 2008 Period admissionsrevenues.  Our Fiscal 2008 Period admissions revenues were also favorablyimpacted by a 3.7% increase in average ticket prices, partially offset by a3.3% decline in attendance.  We believe that the overall decrease inattendance during the Q3 2008 Period and the Fiscal 2008 Period was primarily aresult of the decline in attendance among the top tier films exhibited duringthese periods. Attendance for the Q3 2008 Period and Fiscal 2008 Period wasbolstered by the addition of 523 new screens added since the end of the Q3 2007Period, including the 400 screens acquired with Consolidated Theatres on April 30,2008, partially offset by the closure of 96****underperformingscreens subsequent to the end of the Q3 2007 Period.  Price increases identified during our ongoingperiodic pricing reviews (which include analysis of various factors includinggeneral inflationary trends and local market conditions) along with the mix offilm product exhibited during the Q3 2008 Period and the Fiscal 2008 Periodwere the primary drivers of the increase in our Q3 2008 Period and Fiscal 2008Period average ticket prices. Based on our review of certain industry sources,the decrease in our admissions revenues on a per screen basis was slightlygreater than the industry’s results for the Q3 2008 Period and Fiscal 2008Period as compared to the Q3 2007 Period and the Fiscal 2007 Period. Webelieve the greater than industry decline in admissions revenues on a perscreen basis was primarily attributable to the Company’s out-performance ontop-tier films exhibited during the Q3 2007 Period, our increase in ticketprices as compared to the industry during the Q3 2008 Period and the Q3 2007Period, partially offset by greater than industry box office per screen growthfrom premium priced films exhibited during the Q3 2008 Period.

 

***Concessions***

 

During the Q3 2008 Period, total concessions revenues decreased$1.3 million, or 0.6%, to $209.6 million, from $210.9 millionfor the Q3 2007 Period.  During the Fiscal 2008 Period, total concessionsrevenues decreased $12.0 million, or 2.1%, to $564.6 million, from$576.6 million for the Fiscal 2007 Period.  The decrease in totalconcessions revenues during the Q3 2008 Period and the Fiscal 2008 Period was duethe aforementioned Q3 2008 

 

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Periodand Fiscal 2008 Period decrease in attendance, partially offset by slightincreases in average concessions revenues per patron.  Average concessionsrevenues per patron during the Q3 2008 Period was positively impacted by priceincreases effected during the Q3 2008 Period. Average concessions revenues perpatron during the Fiscal 2008 Period was positively impacted by priceincreases, partially offset by a decrease in attendance from fewerconcession-friendly films exhibited during the Fiscal 2008 Period in comparisonto the Fiscal 2007 Period.

 

***Other Operating Revenues***

 

Total other operating revenues increased $5.0 million, or 19.1%,to $31.2 million for the Q3 2008 Period, from $26.2 million for theQ3 2007 Period.  During the Fiscal 2008 Period, total other operatingrevenues increased $6.8 million, or 8.1%, to $91.1 million, from $84.3 millionfor the Fiscal 2007 Period. Included in other operating revenues are thetheatre access fees paid by National CineMedia (net of payments for on-screenadvertising time provided to our beverage concessionaire), marketing revenuesfrom our vendor marketing programs and other theatre revenues, includingrevenue related to unredeemed gift certificates and discount tickets. Theincrease in other operating revenues in the Q3 2008 Period was primarilyattributable to an increase in National CineMedia revenues and an increase inrevenues related to unredeemed gift certificates and discount tickets.  The increase in other operating revenuesduring the Fiscal 2008 Period was primarily attributable to an increase inrevenues related to unredeemed gift certificates and discount tickets,partially offset by 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 3—“Investment in NationalCineMedia, LLC.”

 

***Film Rental and Advertising Costs***

 

During the Q3 2008 Period, film rental and advertising costs as apercentage of admissions revenues increased to 54.6% as compared to 54.2% inthe Q3 2007 Period.  Film rental and advertising costs as a percentage ofadmissions revenues decreased to 53.0% during the Fiscal 2008 Period ascompared to 53.5% in the Fiscal 2007 Period.  The increase in film rentaland advertising costs as a percentage of box office revenues during the Q3 2008Period was primarily attributable to higher film costs associated with thesuccess of *The Dark Knight*.  The decrease in film rental and advertisingcosts as a percentage of box office revenues during the Fiscal 2008 Period wasprimarily the result of a lower percentage of box office revenues generated bythe top tier films exhibited during the Fiscal 2008 Period and a decline inadvertising expense during the period.

 

***Cost of Concessions***

 

During the Q3 2008 Period, cost of concessions increased $1.1 million,or 3.8%, from the Q3 2007 Period. Cost of concessions declined $3.6 million, or4.4%, during the Fiscal 2008 Period as compared to Fiscal 2007 Period. Cost ofconcessions as a percentage of concessions revenues increased 60 basis pointsto 14.5% during the Q3 2008 Period as compared to 13.9% in the Q3 2007Period.  During the Fiscal 2008 Period, cost of concessions as apercentage of concessions revenues decreased 40 basis points to 13.9% from14.3% in the Fiscal 2007 Period.  The increase in cost of concessions andin cost of concessions as a percentage of concessions revenues during the Q32008 Period was primarily related to slightly higher food costs, partiallyoffset by a change in a vendor marketing program. The decrease in cost ofconcessions and in cost of concessions as a percentage of concessions revenuesduring the Fiscal 2008 Period was primarily related to a change in a vendormarketing program, price increases in our concession products effected duringthe Fiscal 2008 Period, partially offset by slightly higher food costs.

 

***Rent Expense***

 

Rent expense increased $8.5 million, or 9.9%, to$94.1 million in the Q3 2008 Period, from $85.6 million in the Q32007 Period. During the Fiscal 2008 Period, rent expense increased $17.5million, or 7.0%, to $267.4 million, from $249.9 million in the Fiscal 2007Period.  The increase in rent expense in the Q3 2008 Period and the Fiscal2008 Period was primarily attributable to incremental rent from the inclusionof 523 new screens added since the end of the Q3 2007 Period, including the 400screens acquired with Consolidated Theatres, partially offset by the closure of96****underperforming screenssubsequent to the end of the Q3 2007 period.

 

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***Other Operating Expenses***

 

Other operating expenses increased $13.4 million, or 7.3%, to$197.2 million in the Q3 2008 Period, from $183.8 million in the Q32007 Period.  During the Fiscal 2008 Period, other operating expensesincreased $21.4 million, or 4.1%, to $546.3 million, from $524.9 million in theFiscal 2007 Period.  The increase in other operating expenses during theQ3 2008 Period and the Fiscal 2008 Period was primarily attributable toincreases in non-rent occupancy and other fixed costs due to the inclusion of523 new screens added since the end of the Q3 2007 Period, including the 400screens acquired with Consolidated Theatres, partially offset by the closure of96****underperforming screenssubsequent to the end of the Q3 2007 period.

 

***General and Administrative Expenses***

 

During the Q3 2008 Period, general and administrative expensesincreased $0.2 million, or 1.3%, to $15.5 million, from$15.3 million in the Q3 2007 Period.   General andadministrative expenses decreased $1.8 million, or 3.7%, to $46.3 millionduring the Fiscal 2008 Period as compared to $48.1 million in the Fiscal 2007Period.  As a percentage of total revenues, general and administrativeexpenses for the Q3 2008 Period and the Fiscal 2008 Period remained consistentwith that of the Q3 2007 Period and the Fiscal 2007 Period.  The increasein general and administrative expenses during the Q3 2008 Period was primarilyattributable to a slight increase in share-based compensation expense duringthe period.  The decrease in general andadministrative expenses during the Fiscal 2008 Period was primarilyattributable to a reduction of legal and professional fees and share-basedcompensation expense during the period.

 

***Depreciation and Amortization***

 

For the Q3 2008 Period, depreciation and amortization increased$5.5 million, or 12.1%, to $51.1 million, from $45.6 million inthe Q3 2007 Period.  Depreciation and amortization increased$9.3 million, or 6.7%, to $147.3 million during the Fiscal 2008Period, from $138.0 million in the Fiscal 2007 Period.  The increasein depreciation and amortization expense during the Q3 2008 Period and theFiscal 2008 Period was primarily related to incremental depreciation and amortizationfrom the inclusion of 523 new screens added since the end of the Q3 2007Period, including the 400 screens acquired with Consolidated Theatres,partially offset by the closure of 96****underperformingscreens subsequent to the end of the Q3 2007 Period.

 

***Income from Operations***

 

Income from operations totaled $75.7 million during the Q3 2008Period, which represents a decrease of $41.7 million, or 35.5%, from$117.4 million in the Q3 2007 Period. During the Fiscal 2008 Period,income from operations decreased $52.4 million, or 19.7%, to $213.0 million,from $265.4 million for the Fiscal 2007 Period.  The decrease in incomefrom operations during the Q3 2008 Period and the Fiscal 2008 Period wasprimarily attributable to a reduction in concessions revenues, coupled withincreases in certain operating expense items such as rent expense, otheroperating expenses, depreciation and amortization and net loss on disposal andimpairment of operating assets, partially offset by increases in otheroperating revenues.

 

***Interest Expense, net***

 

Net interest expense increased $1.2 million, or 4.3%, to$29.0 million in the Q3 2008 Period, from $27.8 million in the Q32007 Period. During the Fiscal 2008 Period, net interest expense increased $4.4million, or 5.2%, to $88.7 million, from $84.3 million in the Fiscal 2007Period.  The increase in net interest expense during the Q3 2008 Periodand Fiscal 2008 Period was principally due to less interest income($1.0 million and $5.4 million, respectively, for the Q3 2008 Periodand the Q3 2007 Period and $5.7 million and $15.3 million, respectively, forthe Fiscal 2008 Period and Fiscal 2007 Period) from a lower average cashbalance outstanding as a result of the $209.3 million acquisition ofConsolidated Theatres and incremental interest expense from the issuance of the$200.0 million 61⁄4% Convertible Senior Notes, largely offset by a lowereffective interest rate on our Term Facility during the Q3 2008 Period andFiscal 2008 Period.

 

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***Earnings Recognized from NCM***

 

During the Q3 2008 Period and the Q3 2007 Period, the Company received$5.8 million and $7.1 million, respectively, in cash distributions fromNational CineMedia.  The Company received $19.6 million and $9.3million, respectively, in cash distributions from National CineMedia during theFiscal 2008 Period and Fiscal 2007 Period.  In addition, during the Q32008 Period and Fiscal 2008 Period, the Company recorded an additional $1.3million and $1.8 million, respectively, of equity earnings with respect toadditional investments in National CineMedia during such period.  As aresult, during the Q3 2008 Period, the Q3 2007 Period, the Fiscal 2008 Periodand the Fiscal 2007 Period, the Company recognized $7.1 million, $7.1million, $21.4 million and $9.3 million, respectively, of earnings fromNational CineMedia.  Such amounts are presented as “Earnings recognizedfrom NCM” in the unaudited condensed consolidated financial statements.

 

During the first quarter of 2007, the Company recorded a loss of$2.0 million, representing its pre-IPO 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.

 

***Income Taxes***

 

The provision for income taxes of $21.6 million and $38.8 million forthe Q3 2008 Period and the Q3 2007 Period, respectively, reflect effective taxrates of approximately 40.6% and 40.1%, respectively.  The provision forincome taxes of $31.0 million and $229.5 million for the Fiscal 2008 Period andthe Fiscal 2007 Period, respectively, reflect effective tax rates of approximately42.2% and 40.3%, respectively.  The increase in the effective tax rate forthe Q3 2008 Period was primarily attributable to the accrual of interestrelative to uncertain state tax positions during the during the Q3 2008 Period.The increase in the effective tax rate for the Fiscal 2008 Period was primarilyattributable to the state tax effects of the $70.5 million loss ($44.1 millionafter related tax effects) on debt extinguishment recorded in the Fiscal 2008Period in connection with the redemption of approximately $123.7 millionprincipal amount of the 33⁄4% Convertible Senior Notes and, to a lesser extent,other state tax matters.  The effectivetax rates for the Q3 2008 Period, the Q3 2007 Period, the Fiscal 2008 Period,and the Fiscal 2007 Period reflect the impact of certain non-deductibleexpenses.

 

***Net Income***

 

During the Q3 2008 Period, net income totaled $31.6 million, whichrepresents a decrease of $26.4 million, from net income of$58.0 million in the Q3 2007 Period.  Net income decreased $297.4million to $42.4 million during the Fiscal 2008 Period, from $339.8 million forthe Fiscal 2007 Period.  The decrease in net income for the Q3 2008 Periodas compared to the Q3 2007 Period was primarily attributable to the decline inoperating income described above.  The decrease in net income for theFiscal 2008 Period as compared to the Fiscal 2007 Period was primarilyattributable to a $350.7 million gain ($209.0 million after relatedtax effects) resulting from transactions completed in connection with theFiscal 2007 Period IPO of NCM, Inc., the impact of a $70.5 millionloss ($44.1 million after related tax effects) on debt extinguishmentrecorded in the Fiscal 2008 Period in connection with the redemption ofapproximately $123.7 million principal amount of the 33⁄4% Convertible SeniorNotes, the $28.6 million gain ($17.2 million after related tax effects)recorded in connection with the sale of the Company’s equity interest inFandango during the Fiscal 2007 Period and a decrease in operating income,partially offset by the impact of incremental earnings recognized from NationalCineMedia described above.

 

***Cash Flows***

 

The following table summarizes certain cash flow data for the Fiscal2008 Period and the Fiscal 2007 Period (in millions):

 
| ** **                                            | ** ** | **Fiscal 2008 Period** | ** ** | **Fiscal 2007 Period** | ** ** |
|-------------------------------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| Net cash provided by operating activities             |       | $                                | 127.1      |                             | $          | 673.4 |   |
| Net cash used in investing activities                 |       | (307.7                           | )          | (23.8                            | )          |
| Net cash used in financing activities                 |       | (141.5                           | )          | (429.1                           | )          |
|                                                  |       |                             |       |                             |       |
| Net (decrease) increase in cash and cash  equivalents |       | $                                | (322.1     | )                                | $          | 220.5 |   |

 

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*Fiscal 2008 Period Compared to Fiscal 2007 Period*

 

Net cash flows provided by operating activities decreased byapproximately $546.3 million to approximately $127.1 million for theFiscal 2008 Period from approximately $673.4 million for the Fiscal 2007Period. The decrease in net cash flows generated from operating activities forthe Fiscal 2008 Period was primarily attributable to the transactions completedin the Fiscal 2007 Period in connection with the IPO of NCM, Inc.(Note 3—“Investment in National CineMedia, LLC” for furtherdiscussion). These transactions resulted in approximately $489.2 million of netcash provided by operating activities in the Fiscal 2007 Period.  Inaddition to the changes in cash flows related to the IPO of NCM, Inc., thetiming of other Fiscal 2008 Period vendor payments negatively impacted cashflows from operating activities.

 

Net cash flows used in investing activities totaled approximately$307.7 million for the Fiscal 2008 Period compared to cash flows used ininvesting activities of approximately $23.8 million for the Fiscal 2007Period. Contributing to the increase in cash flows used in investing activitieswas the $209.3 million acquisition of Consolidated Theatres during the Fiscal2008 Period, incremental capital expenditures of approximately$17.1 million coupled with fewer proceeds from the disposition of assetsof approximately $28.3 million during the Fiscal 2008 Period as comparedto the Fiscal 2007 Period and the impact of the $28.6 million of proceedsreceived in connection with the sale of the Company’s equity interest inFandango during the Fiscal 2007 Period.

 

Net cash flows used in financing activities were approximately$141.5 million for the Fiscal 2008 Period compared to cash flows used infinancing activities of approximately $429.1 million for the Fiscal 2007Period. The net decrease in cash flows used in financing activities during theFiscal 2008 Period was primarily attributable to a $301.0 million reduction ofdividends paid to shareholders during the Fiscal 2008 Period as compared to theFiscal 2007 Period, the proceeds received in connection with the issuance of$200.0 million 61⁄4% Convertible Senior Notes during the Fiscal 2008 Period,partially offset by net cash used to redeem approximately $123.7 millionprincipal amount of the 33⁄4% Convertible Senior Notes, net cash used inconnection with the 2008 Convertible Note Hedge and 2008 Warrant transactionsduring the Fiscal 2008 Period, fewer proceeds from stock option exercises andfewer excess tax benefits from share-based payment arrangements during theFiscal 2008 Period as compared to the Fiscal 2007 Period.

 

**Liquidity and Capital Resources**

 

On a consolidated basis, we expect our primary uses of cash to be foroperating expenses, capital expenditures, general corporate purposes related tocorporate operations, debt service and the Company’s quarterly dividendpayments. The principal sources of liquidity are cash generated fromoperations, cash on hand and borrowings under the Amended Senior CreditFacility described below. Under the terms of the Amended Senior CreditFacility, Regal Cinemas is restricted as to how much it can advance ordistribute to Regal, its indirect parent. Since Regal is a holding company withno significant assets other than the stock of subsidiaries, this restrictioncould impact Regal’s ability to effect future debt or dividend payments, paycorporate expenses or redeem or convert for cash its 61⁄4% Convertible SeniorNotes.

 

Our revenues are generated principally through admissions andconcessions sales with proceeds received in cash or via credit card at thepoint of sale. Our operating expenses are primarily related to film andadvertising costs, rent and occupancy, and payroll. Film costs are ordinarilypaid to distributors within 30 days following receipt of admissionsrevenues and the cost of the Company’s concessions are generally paid tovendors approximately 30 days from purchase. Our current liabilitiesgenerally include items that will become due within twelve months. In addition,from time to time, we use cash from operations and borrowings to fund dividendsin excess of net income and cash flows from operating activities less cashflows from investing and financing activities. As a result, at any given time,our balance sheet may reflect a working capital deficit.

 

We fund the cost of capital expenditures through internally generatedcash flows, cash on hand, proceeds from disposition of assets and financingactivities. Our capital requirements have historically arisen principally inconnection with acquisitions of theatres, new theatre construction, adding newscreens to existing theatres, 

 

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upgradingthe Company’s theatre facilities (including digital 3D and IMAX screens) andreplacing equipment. Should the conversion process to digital cinema rapidlyaccelerate and the major studios not cover the cost of the conversion asexpected, we may have to incur additional capital expenditures associated withthis potential change. We intend to continue to grow our theatre circuitthrough selective expansion and acquisition opportunities. The Company has aformal and intensive review procedure for the authorization of capitalprojects, with the most important financial measure of acceptability for adiscretionary non-maintenance capital project being whether its projecteddiscounted cash flow return on investment meets or exceeds the Company’sinternal rate of return targets. We currently expect capital expenditures fortheatre development, replacement, expansion, upgrading and replacements to bein the range of approximately $120.0 million to $140.0 million infiscal year 2008, exclusive of acquisitions. Such capital expenditures areexpected to be partially funded through asset dispositions conducted during thenormal course of our business. During the Fiscal 2008 Period, we investedapproximately $99.1 million in capital expenditures.

 

As described more fully in Note 3—“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 used the remaining net cash proceeds along with additional cash onhand for the acquisition of Consolidated Theatres as more fully described belowand in Note 2—“Recent Acquisitions.”

 

During the three quarters ended September 27, 2007, the Companysold its equity interest in Fandango for proceeds of $28.6 million.  As aresult of this transaction, the Company recognized a gain on the sale ofapproximately $28.6 million ($17.2 million after tax).  In connection withthe sale, the Company agreed to amend its existing contract with Fandango inexchange for an amendment fee totaling $5.5 million.  This amount has beenrecorded as deferred revenue and will be amortized to revenue on astraight-line basis over the six-year term of the amendment.

 

For a discussion of other significant financing transactions which haveoccurred through December 27, 2007, please refer to “Management’sDiscussion and Analysis of Financial Condition and Results ofOperations—Liquidity and Capital Resources” contained in Part II, Item 7of our annual report on Form 10-K for the fiscal year ended December 27,2007.

 

On March 10, 2008, Regal issued $200.0 million aggregateprincipal amount of the 61/4% Convertible Senior Notes. Concurrent withthe issuance of the 61/4% Convertible Senior Notes, we entered intosimultaneous convertible note hedge and warrant transactions with respect toour Class A common stock in order to reduce the potential dilution fromconversion of the 61/4% Convertible Senior Notes into shares of ourClass A common stock. The net cost of the convertible note hedge andwarrant transactions was approximately $6.6 million and is included as acomponent of equity in the accompanying unaudited condensed consolidatedbalance sheet as of September 25, 2008. See Note 4—“DebtObligations” for further description of the 61/4% Convertible Senior Notes and the relatedconvertible note hedge and warrant transactions. The Company used cash on handand a portion of the net proceeds from the issuance of the 61/4% ConvertibleSenior Notes to redeem approximately $90.0 million principal amount of the 33/4% ConvertibleSenior Notes in a series of privately negotiated transactions.  As aresult of the early redemption, the Company recorded a $52.8 million loss ondebt extinguishment during the quarter ended March 27, 2008.  Inconnection with the early redemption, the Company received net proceeds ofapproximately $13.7 million from Credit Suisse attributable to the convertiblenote hedge and warrant transactions associated with the 33/4% Convertible Senior Notes described furtherin Note 4—“Debt Obligations.” Such proceeds were recorded as an increaseto additional paid-in capital.  In connection with the final maturity ofthe 33/4% Convertible Senior Notes on May 15, 2008, holders of theremaining $33.7 million in principal amount exercised their conversion rights.The Company elected to settle these conversions entirely in cash forapproximately $51.4 million using the remaining proceeds from the issuanceof the 61/4% Convertible Senior Notes. As a result of these conversions, theCompany 

 

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recordeda $17.7 million loss on debt extinguishment during the quarter ended June 26,2008.  In connection with these conversions, the Company received netproceeds of approximately $5.2 million from Credit Suisse attributable tothe convertible note hedge and warrant transactions associated with the 33/4% ConvertibleSenior Notes. Such proceeds were also recorded as an increase to additionalpaid-in capital. See Note 4—“Debt Obligations” for further discussion ofthis transaction.

 

On April 30, 2008, the Company acquired Consolidated Theatres,which holds a total of 28 theatres with 400 screens in Georgia, Maryland, NorthCarolina, South Carolina, Tennessee and Virginia.  The total net cashpurchase price for the acquisition was approximately $209.3 million,subject to post-closing adjustments. The results of operations of the acquiredtheatre operations have been included in the Company’s consolidated financialstatements for periods subsequent to the acquisition date. In conjunction withthe closing, we entered into a final judgment with the Antitrust Division ofthe DOJ, which requires us to hold separate and divest ourselves of fourtheaters comprising 52 screens in North Carolina.  During the quarter ended September 25,2008, the Company entered into an agreement to divest of three of the fourtheatres.  As a result, the Companyrecorded impairment charges of approximately $7.9 million during thequarter ended September 25, 2008 related to these theatres.  See Note 2—“Recent Acquisitions” for furtherdiscussion of this acquisition.

 

As described more fully in Note 3—“Investment in NationalCineMedia, LLC,” on April 9, 2008, we received approximately 0.8million additional common units of National CineMedia in accordance with theannual adjustment provisions of the Common Unit Adjustment Agreement.  On May 29,2008, we received an additional 2.9 million common units of National CineMediain accordance with the adjustment provisions of the Common Unit AdjustmentAgreement for our acquisition of Consolidated Theatres.  These adjustmentsincreased the number of National CineMedia common units held by us toapproximately 24.9 million and as a result, on a fully diluted basis, we own a25.1% interest in NCM, Inc. as of September 25, 2008.

 

Regal Cinemas maintains its Amended Senior Credit Facility, whichconsists of the Term 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. Due to the of recent bankruptcy filings byLehman and certain of its affiliates and the sudden deterioration in the creditstanding of the Lehman affiliate party to our Revolving Facility, the aggregateprincipal amount available for drawing under the Revolving Facility was reducedby $5.0 million to $95.0 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. The TermFacility will mature on October 27, 2013 and the Revolving Facility willmature on October 27, 2011.

 

As of September 25, 2008, we had approximately$1,670.3 million aggregate principal amount outstanding under the TermFacility, $200.0 million aggregate principal amount outstanding under the 61/4% ConvertibleSenior Notes, and $51.5 million aggregate principal amount outstandingunder the Regal Cinemas 93/2% Senior Subordinated Notes. As of September 25, 2008, we hadapproximately $2.5 million outstanding in letters of credit, leavingapproximately $92.5 million available for drawing under the RevolvingFacility.

 

As described in Note 5 to the consolidated financial statementsincluded in our 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 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. On June 30, 2008,two of our interest rate swaps designated to hedge $300.0 million of variablerate debt obligations matured. On September 15, 2008, because of thesudden deterioration in the credit standing of the Lehman counterparty to aninterest rate swap agreement designed to hedge approximately $100.0 million ofvariable rate debt obligations, the Company concluded that the hedgingrelationship was no longer expected to be highly effective in achievingoffsetting cash flows.  As a result, on September 15,2008, the hedging relationship ceased to qualify for hedge accounting underSFAS 133. As described further in Note 11—“Subsequent Events,” onOctober 3, 2008, the interest rate swap effectively terminated. For afurther description of 

 

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theswap agreements, see Note 5 to the consolidated financial statements includedin Part II, Item 8 of our annual report on Form 10-K for the fiscalyear ended December 27, 2007.

 

Regal paid three quarterly cash dividends of $0.30 per share on eachoutstanding share of the Company’s Class A and Class B common stock,or approximately $138.1 million in the aggregate, during the Fiscal 2008Period.  Further, on October 23, 2008, the Company declared a cashdividend of $0.30 per share on each share of the Company’s Class A and Class Bcommon stock (including outstanding restricted stock), payable on December 18,2008, to stockholders of record on December 10, 2008.  Thesedividends have been or will be funded through cash flow from operations andavailable cash on hand. We, at the discretion of the board of directors andsubject to applicable law, anticipate paying regular quarterly dividends on ourClass A and Class B common stock for the foreseeable future. Theamount, if any, of the dividends to be paid in the future will depend upon ourthen available cash, anticipated cash needs, overall financial condition, loanagreement restrictions, future prospects for earnings and cash flows, as wellas other relevant factors.

 

EBITDA (earnings before interest, taxes, depreciation, andamortization) was approximately $133.3 million, or 17.6% of totalrevenues, for the Q3 2008 Period and $170.2 million, or 22.6% of totalrevenues, for the Q3 2007 Period. EBITDA was approximately $309.4 million,or 15.0% of total revenues, for the Fiscal 2008 Period and $791.6 million,or 38.4% of total revenues, for the Fiscal 2007 Period.  The net decreasein EBITDA in the Q3 2008 Period from the Q3 2007 Period was primarilyattributable to a decline in operating income during the Q3 2008Period. The net decrease in EBITDA in the Fiscal 2008 Period from theFiscal 2007 Period was primarily attributable to the $350.7 million gainrecorded in the Fiscal 2007 Period resulting from transactions completed inconnection with the IPO of NCM, Inc. (see Note 3—“Investment inNational CineMedia, LLC,” for further discussion), the impact of a$70.5 million loss on debt extinguishment recorded in the Fiscal 2008Period in connection with the redemption of approximately $123.7 million principalamount of the 33⁄4% Convertible Senior Notes, the $28.6 million gain inconnection with the sale of the Company’s equity interest in Fandango duringthe Fiscal 2007 Period and a decline in operating income during the Fiscal 2008Period, partially offset by the incremental earnings recognized from NationalCineMedia. The Company uses EBITDA as a supplemental liquidity measure becausewe find it useful to understand and evaluate our capacity, excluding the impactof interest, taxes, and non-cash depreciation and amortization charges, forservicing our debt, paying dividends and otherwise meeting our cash needs,prior to our consideration of the impacts of other potential sources and usesof cash, such as working capital items. We believe that EBITDA is useful toinvestors for these purposes as well. EBITDA should not be considered analternative to, or more meaningful than, net cash provided by operatingactivities, as determined in accordance with U.S. generally accepted accountingprinciples (“GAAP”), since it omits the impact of interest, taxes and changesin working capital that use or provide cash (such as receivables, payables andinventories) as well as the sources or uses of cash associated with changes inother balance sheet items (such as long-term loss accruals and deferred items).Because EBITDA excludes depreciation and amortization, EBITDA does not reflectany cash requirements for the replacement of the assets being depreciated andamortized, which assets will often have to be replaced in the future. Further,EBITDA, because it also does not reflect the impact of debt service, incometaxes, cash dividends, capital expenditures and other cash commitments fromtime to time as described in more detail elsewhere in thisquarterly report on Form 10-Q, does not represent how muchdiscretionary cash we have available for other purposes. Nonetheless, EBITDA isa key measure expected by and useful to our fixed income investors, ratingagencies and the banking community all of whom believe, and we concur, thatthese measures are critical to the capital markets’ analysis of our ability toservice debt, fund capital expenditures, pay dividends and otherwise meet cashneeds, respectively. We also evaluate EBITDA because it is clear that movementsin these non-GAAP measures impact our ability to attract financing and paydividends. EBITDA, as calculated, may not be comparable to similarly titledmeasures reported by other companies. A reconciliation of EBITDA to net cashprovided by (used in) operating activities is calculated as follows (inmillions):

 
| ** **                                           | ** ** | **Q3 2008 Period** | ** ** | **Q3 2007 Period** | ** ** | **Fiscal 2008  Period** | ** ** | **Fiscal 2007  Period** | ** ** |
|------------------------------------------------------|------------|------------------------------|------------|------------------------------|------------|------------------------------|------------|------------------------------|------------|
| EBITDA                                               |       | $                            | 133.3      |                         | $          | 170.2                        |       | $                            | 309.4      |   | $ | 791.6 |   |
| Interest expense, net                                |       | (29.0                        | )          | (27.8                        | )          | (88.7                        | )          | (84.3                        | )          |
| Provision for income taxes                           |       | (21.6                        | )          | (38.8                        | )          | (31.0                        | )          | (229.5                       | )          |
| Deferred income taxes                                |       | (1.7                         | )          | 0.7                          |       | (27.9                        | )          | (46.1                        | )          |
| Changes in operating assets and liabilities          |       | (125.7                       | )          | (74.0                        | )          | (132.7                       | )          | 258.9                        |       |
| Loss on debt extinguishment                          |       | —                       |       | —                       |       | 70.5                         |       | —                       |       |
| Gain on sale of Fandango interest                    |       | —                       |       | (0.3                         | )          | —                       |       | (28.6                        | )          |
| Other items, net                                     |       | 15.3                         |       | 0.1                          |       | 27.5                         |       | 11.4                         |       |
| Net cash provided by (used in) operating  activities |       | $                            | (29.4      | )                            | $          | 30.1                         |       | $                            | 127.1      |   | $ | 673.4 |   |

 

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**Contractual Cash Obligations and Commitments**

 

The Company has assumed long-term contractual obligations andcommitments in the normal course of business, primarily debt obligations andnon-cancelable operating leases. Other than operating leases which are detailedbelow, the Company does not utilize variable interest entities or any otherform of off-balance sheet financing. As of September 25, 2008, the Company’sestimated contractual cash obligations and commercial commitments over the nextseveral periods are as follows (in millions):

 
| ** **                                           | ** ** | **Payments Due By Period** | ** ** |
|------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                           | ** ** | **Total**                                 | ** ** | **Current** | ** ** | **13-36 months** | ** ** | **37-60 months** | ** ** | **After 60 months** | ** ** |
| Contractual Cash Obligations:                        |       |                                      |       |   |   |   |   |   |   |   |   |
| Debt obligations(1)                                  |       | $                                         | 1,922.2    |   | $ | 17.1 |   | $ | 230.0 |   | $ | 876.1 |   | $ | 799.0 |   |
| Future interest on debt obligations(2)               |       | 498.5                                     |       | 133.5 |   | 179.4 |   | 172.0 |   | 13.6 |   |
| Capital lease obligations, including  interest(3)    |       | 28.2                                      |       | 3.4 |   | 6.8 |   | 6.9 |   | 11.1 |   |
| Lease financing arrangements, including  interest(3) |       | 144.0                                     |       | 13.5 |   | 27.6 |   | 27.7 |   | 75.2 |   |
| Bankruptcy claims and liabilities(4)                 |       | 0.7                                       |       | 0.7 |   | — |   | — |   | — |   |
| Operating leases(5)                                  |       | 3,874.4                                   |       | 344.6 |   | 692.9 |   | 669.1 |   | 2,167.8 |   |
| FIN 48 liabilities (6)                          |       | 0.5                                       |       | — |   | 0.5 |   | — |   | — |   |
| Other long-term liabilities                          |       | 10.1                                      |       | 4.6 |   | 4.7 |   | 0.6 |   | 0.2 |   |
|                                                 |       |                                      |       |   |   |   |   |   |   |   |   |
| Total                                                |       | $                                         | 6,478.6    |   | $ | 517.4 |   | $ | 1,141.9 |   | $ | 1,752.4 |   | $ | 3,066.9 |   |
|                                                      |            |                                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                      | ** ** | **Amount of Commitment Expiration per Period** | ** ** |
|---------------------------------|------------|-------------------------------------------------------------------------|------------|
| ** **                      | ** ** | **Total  Amounts  Available**                                           | ** ** | **Current** | ** ** | **13-36 months** | ** ** | **37-60 months** | ** ** | **After 60 months** | ** ** |
| Other Commercial Commitments(7) |       | $                                                                       | 95.0       |   | $ | — |   | $ | — |   | $ | 95.0 |   | $ | — |   |
|                                 |            |                                                                         |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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(1)                                  These amounts are included on our unauditedcondensed consolidated balance sheet as of September 25, 2008. Our AmendedSenior Credit Facility provides for mandatory prepayments under certainscenarios. See Note 5 to the consolidated financial statements included inPart II, Item 8 of our annual report on Form 10-K for the fiscalyear ended December 27, 2007 for additional information about ourlong-term debt obligations and related matters.

 

(2)                                  Future interest payments on the Company’sunhedged debt obligations (consisting of approximately $970.3 million ofvariable interest rate borrowings under the Term Facility, $200.0 millionoutstanding under the 6 1/4% Convertible Senior Notes, approximately$51.5 million due under the 93/8% Senior Subordinated Notes and approximately$0.4 million of other debt obligations) are based on the stated fixedrates or in the case of the $970.3 million of variable interest rateborrowings under the Term Facility, the current interest rate as of September 25,2008 (4.3%). Future interest payments on the Company’s hedged indebtedness asof September 25, 2008 (the remaining $700.0 million of borrowingsunder the Term Facility) are based on (1) the applicable margin (asdefined in Note 5 to the consolidated financial statements included in Part II,Item 8 of our annual report on Form 10-K for the fiscal year ended December 27,2007) as of September 25, 2008****(1.50%) and (2) theexpected fixed interest payments under the Company’s interest rate swapagreements, which are described in further detail under Note 5 to theconsolidated financial statements included in Part II, Item 8 of ourannual report on Form 10-K for the fiscal year ended December 27,2007.

 

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(3)                                  The present value of these obligations,excluding interest, is included on our unaudited condensed consolidated balancesheet as of September 25, 2008. Future interest payments are calculatedbased on interest rates implicit in the underlying leases, which have aweighted average interest rate of 11.18%, maturing in various installmentsthrough 2021. Refer to Note 5 to the consolidated financial statementsincluded in Part II, Item 8 of our annual report on Form 10-Kfor the fiscal year ended December 27, 2007 for additional informationabout our capital lease obligations and lease financing arrangements.

 

(4)                                  These amounts are included on our unauditedcondensed consolidated balance sheet as of September 25, 2008. Refer toNote 8 to the consolidated financial statements included in Part II,Item 8 of our annual report on Form 10-K for the fiscal year ended December 27,2007 for additional information about our bankruptcy related matters.

 

(5)                                  We enter into operating leases in the normalcourse of business. Such lease agreements provide us with the option to renewthe leases at defined or then fair value rental rates for various periods. Ourfuture operating lease obligations would change if we exercised these renewaloptions or if we enter into additional operating lease agreements. Ouroperating lease obligations are further described in Note 6 to theconsolidated financial statements included in Part II, Item 8 of ourannual report on Form 10-K for the fiscal year ended December 27,2007.

 

(6)                                  These amounts are included on our unauditedcondensed consolidated balance sheet as of September 25, 2008 andrepresent liabilities associated with unrecognized tax benefits. The table doesnot include approximately $23.3 million of recorded liabilities associatedwith unrecognized tax benefits for which we do not believe that the amount andtiming of the payments are reasonably estimable.

 

(7)                                  As of September 25, 2008, Regal Cinemashad approximately $92.5 million available for drawing under the RevolvingFacility. Regal Cinemas also maintains a sublimit within the Revolving Facilityof $10.0 million for short-term loans and $30.0 million for lettersof credit.

 

We believe that the amount of cash and cash equivalents on hand, cashflow expected from operations and availability under our Revolving Facilitywill be adequate for the Company to execute its business strategy and meetanticipated requirements for lease obligations, capital expenditures, workingcapital and debt service for the next 12 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 September 25, 2008, there were no significant changesin our critical accounting policies or estimation procedures.

 

**Recent Accounting Pronouncements**

 

For a discussion of the recent accounting pronouncements relevant toour operations, please refer to the information provided under Note 10—“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 canalter the 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 

 

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pictureexhibition, however, has become less pronounced as studios are releasing motionpictures somewhat more evenly throughout the year.

 

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

 

The Company’s market risk is confined to interest rate exposure of itsand its wholly owned subsidiaries’ debt obligations that bear interest based onfloating rates. The original senior credit facility provided for and the AmendedSenior Credit Facility provides variable rate interest that could be adverselyaffected by an increase in interest rates. Borrowings under the prior termfacility bore and the Term Facility bear interest, at Regal Cinemas’ option, ateither an adjusted Eurodollar rate (as defined in the Amended Senior CreditFacility) or the base rate plus, in each case, an applicable margin.

 

During 2004 and 2005, Regal Cinemas entered into five distinct hedgingrelationships via five separate interest rate swap agreements with finalmaturity terms ranging from three to five years for the purpose of hedging anaggregate of approximately $1,100.0 million of its variable rate debtobligations. Under the terms of the interest rate swap agreements, RegalCinemas pays interest at various fixed rates ranging from 3.49%—4.337% andreceives interest at a variable rate based on the 3-month LIBOR. 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 eachand require Regal Cinemas to pay interest at a fixed rate of 4.944% and receiveinterest at a variable rate. These interest rate swaps were designated to hedgeapproximately $200.0 million of variable rate debt obligations. On June 30,2008, two of our interest rate swaps designated to hedge $300.0 million ofvariable rate debt obligations matured. On September 15, 2008, because of the sudden deterioration in thecredit standing of the Lehman counterparty to an interest rate swap agreementdesigned to hedge approximately $100.0 million of variable rate debtobligations, the Company concluded that the hedging relationship was no longerexpected to be highly effective in achieving offsetting cash flows.  As a result, on September 15, 2008, thehedging relationship ceased to qualify for hedge accounting under SFAS No. 133,“Accounting for Derivative Instruments and Hedging Activities.” As describedfurther in Note 11—“Subsequent Events,” on October 3, 2008, theinterest rate swap effectively terminated. For a further description of theswap agreements, see Note 5 to the consolidated financial statements includedin Part II, Item 8 of our annual report on Form 10-K for the fiscalyear ended December 27, 2007.

 

As of September 25, 2008 and December 27, 2007, borrowings of$1,670.3 million and $1,683.0 million, respectively, were outstandingunder the Term Facility and the prior term facility, respectively, at aneffective interest rate of 4.95% (as of September 25, 2008) and 6.09% (asof December 27, 2007), after the impact of the interest rate swaps istaken into account. A hypothetical change of 10% in the Company’s effectiveinterest rate under the Term Facility as of September 25, 2008, wouldincrease or decrease interest expense by $2.1 million for the quarterended September 25, 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 September 25,2008, pursuant to Rule 13a-15(b) under the Exchange Act. Based uponthat evaluation, our Certifying Officers concluded that, as of September 25,2008, our disclosure controls and procedures were effective.

 

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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.

 

**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 7—“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**

 

**EXHIBITINDEX**

 
| **Exhibit  Number** | ** ** | **Description**                                                             |
|---------------------|------------|-----------------------------------------------------------------------------|
| 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                                           |

 

 

**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:  November 4, 2008 | By:                           | /s/  MICHAEL  L. CAMPBELL |
|                         |                          | Michael  L. Campbell |
|                         |                          | *Chief Executive Officer (Principal* |
|                         |                          | *Executive Officer)* |
|                         |                          |   |
| Date:  November 4, 2008 | By:                           | /s/  AMY  E. MILES |
|                         |                          | Amy  E. Miles |
|                         |                          | *Executive Vice President and Chief* |
|                         |                          | *Financial Officer (Principal Financial* |
|                         |                          | *Officer)* |
|                         |                          |   |
| Date:  November 4, 2008 | By:                           | /s/  DAVID  H. OWNBY |
|                         |                          | David  H. Ownby |
|                         |                          | *Senior Vice President and Chief* |
|                         |                          | *Accounting Officer (Principal Accounting* |
|                         |                          | *Officer)* |

 

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**EXHIBITINDEX**

 
| **Exhibit  Number** | ** ** | **Description**                                                             |
|---------------------|------------|-----------------------------------------------------------------------------|
| 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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