**UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549**

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**FORM 10-Q**

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

**For the quarterly period ended March29, 2007**

**Commission file number 001-31315**

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**Regal Entertainment Group** (Exact name of Registrant as Specified in Its Charter)

| **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 Area Code: (**865) 922-1123**

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Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or15(d) of the Securities and Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required tofile such reports), and (2) has been subject to such filing requirements forthe past 90 days: Yes x   No o

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, or a non-accelerated filer. Seedefinition of “accelerated filer and larger accelerated filer” inRule 12b-2 of the Exchange Act.(Check one):
| Large accelerated  filer x | Accelerated  filer o | Non-accelerated  filer o |
|---------------------------------|---------------------------|-------------------------------|

 

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

Class A Common Stock—129,016,549 sharesoutstanding at May 4, 2007

Class B Common Stock—23,708,639 sharesoutstanding at May 4, 2007

 

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**TABLE OF CONTENTS**
| PART I—FINANCIAL INFORMATION |   |                                                                                        |
|-----------------------------------|--------|---------------------------------------------------------------------------------------------|
|                              |   |                                                                                        |   |   |
| Item 1.                           |   | FINANCIAL STATEMENTS                                                                        |   |   |
|                              |   |                                                                                        |   |   |
|                              |   | UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS                                             |   |   |
|                              |   |                                                                                        |   |   |
|                              |   | UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME                                       |   |   |
|                              |   |                                                                                        |   |   |
|                              |   | 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 2.                           |   | UNREGISTERED  SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                                |   |   |
|                              |   |                                                                                        |   |   |
| Item  6.                          |   | EXHIBITS                                                                                    |   |   |
|                              |   |                                                                                        |   |   |
| SIGNATURES                        |   |                                                                                        |

 

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**PARTI—FINANCIAL INFORMATION**

**Item 1.    FINANCIAL STATEMENTS**

**REGAL ENTERTAINMENT GROUP**

**UNAUDITEDCONDENSED CONSOLIDATED BALANCE SHEETS(in millions, except share data)**
| ** **                                                                                                                                                                                          | ** ** | **March 29, 2007** | ** ** | **December 28, 2006** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|---------------------------------|------------|
| **ASSETS**                                                                                                                                                                                          |       |                         |       |                            |       |
| CURRENT ASSETS:                                                                                                                                                                                     |       |                         |       |                            |       |
| Cash and cash equivalents                                                                                                                                                                           |       | $                            | 807.7      |                            | $          | 162.2 |   |
| Trade and other  receivables, net                                                                                                                                                                   |       | 21.3                         |       | 59.8                            |       |
| Inventories                                                                                                                                                                                         |       | 8.4                          |       | 8.0                             |       |
| Prepaid expenses and  other current assets                                                                                                                                                          |       | 11.8                         |       | 1.8                             |       |
| Assets held for sale                                                                                                                                                                                |       | 6.7                          |       | 8.6                             |       |
| Deferred income tax  asset                                                                                                                                                                          |       | 0.8                          |       | 0.6                             |       |
| TOTAL CURRENT ASSETS                                                                                                                                                                                |       | 856.7                        |       | 241.0                           |       |
| PROPERTY AND EQUIPMENT:                                                                                                                                                                             |       |                         |       |                            |       |
| Land                                                                                                                                                                                                |       | 133.2                        |       | 133.2                           |       |
| Buildings and leasehold  improvements                                                                                                                                                               |       | 1,668.5                      |       | 1,667.3                         |       |
| Equipment                                                                                                                                                                                           |       | 852.8                        |       | 852.6                           |       |
| Construction in  progress                                                                                                                                                                           |       | 34.4                         |       | 31.7                            |       |
| Total property and  equipment                                                                                                                                                                       |       | 2,688.9                      |       | 2,684.8                         |       |
| Accumulated  depreciation and amortization                                                                                                                                                          |       | (799.7                       | )          | (763.0                          | )          |
| TOTAL PROPERTY AND  EQUIPMENT, NET                                                                                                                                                                  |       | 1,889.2                      |       | 1,921.8                         |       |
| GOODWILL                                                                                                                                                                                            |       | 188.4                        |       | 214.9                           |       |
| DEFERRED INCOME TAX  ASSET                                                                                                                                                                          |       | 85.8                         |       | 21.4                            |       |
| OTHER NON-CURRENT  ASSETS                                                                                                                                                                           |       | 64.8                         |       | 69.7                            |       |
| TOTAL ASSETS                                                                                                                                                                                        |       | $                            | 3,084.9    |                            | $          | 2,468.8 |   |
| **LIABILITIES  AND STOCKHOLDERS’ DEFICIT**                                                                                                                                                     |       |                         |       |                            |       |
| CURRENT LIABILITIES:                                                                                                                                                                                |       |                         |       |                            |       |
| Current portion of debt  obligations                                                                                                                                                                |       | $                            | 146.1      |                            | $          | 146.2 |   |
| Accounts payable                                                                                                                                                                                    |       | 148.0                        |       | 168.1                           |       |
| Accrued expenses                                                                                                                                                                                    |       | 47.9                         |       | 61.1                            |       |
| Income taxes payable                                                                                                                                                                                |       | 185.1                        |       | 52.3                            |       |
| Deferred revenue                                                                                                                                                                                    |       | 129.4                        |       | 99.4                            |       |
| Dividends payable                                                                                                                                                                                   |       | 302.0                        |       | —                          |       |
| Interest payable                                                                                                                                                                                    |       | 29.4                         |       | 29.2                            |       |
| TOTAL CURRENT  LIABILITIES                                                                                                                                                                          |       | 987.9                        |       | 556.3                           |       |
| LONG-TERM DEBT                                                                                                                                                                                      |       | 1,731.0                      |       | 1,735.3                         |       |
| LEASE FINANCING  ARRANGEMENTS                                                                                                                                                                       |       | 84.8                         |       | 85.8                            |       |
| CAPITAL LEASE  OBLIGATIONS                                                                                                                                                                          |       | 19.8                         |       | 20.6                            |       |
| NON-CURRENT DEFERRED  REVENUE                                                                                                                                                                       |       | 278.3                        |       | —                          |       |
| OTHER NON-CURRENT LIABILITIES                                                                                                                                                                       |       | 112.8                        |       | 91.1                            |       |
| TOTAL LIABILITIES                                                                                                                                                                                   |       | 3,214.6                      |       | 2,489.1                         |       |
| MINORITY INTEREST                                                                                                                                                                                   |       | 1.9                          |       | 1.9                             |       |
| STOCKHOLDERS’ DEFICIT:                                                                                                                                                                         |       |                         |       |                            |       |
| Class A common  stock, $0.001 par value; 500,000,000 shares authorized, 127,268,879 and  126,448,479 shares issued and outstanding at March 29, 2007 and  December 28, 2006, respectively |       | 0.1                          |       | 0.1                             |       |
| Class B common  stock, $0.001 par value; 200,000,000 shares authorized, 23,708,639 and  23,908,639 shares issued and outstanding at March 29, 2007 and  December 28, 2006, respectively   |       | —                       |       | —                          |       |
| Preferred stock, $0.001  par value; 50,000,000 shares authorized; none issued and outstanding                                                                                                       |       | —                       |       | —                          |       |
| Additional paid-in  capital (deficit)                                                                                                                                                               |       | (148.0                       | )          | (66.1                           | )          |
| Retained earnings                                                                                                                                                                                   |       | 5.8                          |       | 30.2                            |       |
| Accumulated other  comprehensive income, net                                                                                                                                                        |       | 10.5                         |       | 13.6                            |       |
| TOTAL STOCKHOLDERS’  DEFICIT                                                                                                                                                                   |       | (131.6                       | )          | (22.2                           | )          |
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT                                                                                                                                                    |       | $                            | 3,084.9    |                            | $          | 2,468.8 |   |

 

See accompanying notes to unaudited condensedconsolidated financial statements.

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**REGAL ENTERTAINMENT GROUP**

**UNAUDITEDCONDENSED CONSOLIDATED STATEMENTS OF INCOME(in millions, except share and per share data)**
| ** **                                                                                                                                                         | ** ** | **Quarter Ended  March 29, 2007** | ** ** | **Quarter  Ended  March 30, 2006** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------------|------------|
| REVENUES:                                                                                                                                                          |       |                                             |       |                                                   |       |
| Admissions                                                                                                                                                         |       | $                                                | 426.7      |                                                   | $          | 392.0 |   |
| Concessions                                                                                                                                                        |       | 168.3                                            |       | 158.6                                                  |       |
| Other operating revenue                                                                                                                                            |       | 30.0                                             |       | 34.5                                                   |       |
| TOTAL REVENUE                                                                                                                                                      |       | 625.0                                            |       | 585.1                                                  |       |
| OPERATING  EXPENSES:                                                                                                                                               |       |                                             |       |                                                   |       |
| Film rental and advertising costs                                                                                                                                  |       | 218.0                                            |       | 197.0                                                  |       |
| Cost of concessions                                                                                                                                                |       | 25.0                                             |       | 24.1                                                   |       |
| Rent expense                                                                                                                                                       |       | 81.0                                             |       | 77.6                                                   |       |
| Other operating expenses                                                                                                                                           |       | 164.9                                            |       | 158.6                                                  |       |
| General and administrative expenses (including  share-based compensation of $2.1 and $2.0 for the quarters ended March 29,  2007 and March 30, 2006, respectively) |       | 16.0                                             |       | 15.9                                                   |       |
| Depreciation and amortization                                                                                                                                      |       | 46.3                                             |       | 49.7                                                   |       |
| Net loss on disposal and impairment of operating  assets                                                                                                           |       | 5.4                                              |       | 5.7                                                    |       |
| Equity in earnings of joint venture including former  employee compensation                                                                                        |       | 3.4                                              |       | 5.8                                                    |       |
| TOTAL OPERATING  EXPENSES                                                                                                                                          |       | 560.0                                            |       | 534.4                                                  |       |
| INCOME FROM  OPERATIONS                                                                                                                                            |       | 65.0                                             |       | 50.7                                                   |       |
| OTHER EXPENSE  (INCOME):                                                                                                                                           |       |                                             |       |                                                   |       |
| Interest expense, net                                                                                                                                              |       | 31.0                                             |       | 31.1                                                   |       |
| Gain on NCM transaction (Note 3)                                                                                                                                   |       | (350.7                                           | )          | —                                                 |       |
| Loss on extinguishment of debt                                                                                                                                     |       | —                                           |       | 0.9                                                    |       |
| TOTAL OTHER  EXPENSE (INCOME), NET                                                                                                                                 |       | (319.7                                           | )          | 32.0                                                   |       |
| INCOME BEFORE  INCOME TAXES                                                                                                                                        |       | 384.7                                            |       | 18.7                                                   |       |
| PROVISION FOR  INCOME TAXES                                                                                                                                        |       | 155.6                                            |       | 7.5                                                    |       |
| NET INCOME                                                                                                                                                         |       | $                                                | 229.1      |                                                   | $          | 11.2 |   |
| EARNINGS PER  SHARE:                                                                                                                                               |       |                                             |       |                                                   |       |
| Basic                                                                                                                                                              |       | $                                                | 1.52       |                                                   | $          | 0.08 |   |
| Diluted                                                                                                                                                            |       | $                                                | 1.46       |                                                   | $          | 0.07 |   |
| AVERAGE SHARES  OUTSTANDING (in thousands)                                                                                                                         |       |                                             |       |                                                   |       |
| Basic                                                                                                                                                              |       | 150,296                                          |       | 147,767                                                |       |
| Diluted                                                                                                                                                            |       | 157,201                                          |       | 154,038                                                |       |

 

See accompanying notes to unaudited condensedconsolidated financial statements.

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**REGAL ENTERTAINMENT GROUP**

**UNAUDITEDCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(in millions)**
| ** **                                                                       | ** ** | **Quarter Ended  March 29, 2007** | ** ** | **Quarter Ended  March 30, 2006** | ** ** |
|----------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                           |       |                                             |       |                                             |       |
| Net income                                                                       |       | $                                                | 229.1      |                                             | $          | 11.2 |   |
| Adjustments to reconcile net income to cash provided  by operating activities:   |       |                                             |       |                                             |       |
| Depreciation and amortization                                                    |       | 46.3                                             |       | 49.7                                             |       |
| Share-based compensation expense                                                 |       | 2.1                                              |       | 2.0                                              |       |
| Deferred income tax benefit                                                      |       | (44.8                                            | )          | (1.1                                             | )          |
| Net loss on disposal and impairment of operating  assets                         |       | 5.4                                              |       | 5.7                                              |       |
| Equity in earnings of joint venture including former  employee compensation      |       | 3.4                                              |       | 5.8                                              |       |
| Non-cash gain on NCM transaction                                                 |       | (3.4                                             | )          | —                                           |       |
| Loss on extinguishment of debt                                                   |       | —                                           |       | 0.9                                              |       |
| Non-cash rent expense                                                            |       | 2.4                                              |       | 2.7                                              |       |
| Changes in operating assets and liabilities  (excluding effects of acquisition): |       |                                             |       |                                             |       |
| Trade and other receivables                                                      |       | 38.5                                             |       | 31.0                                             |       |
| Inventories                                                                      |       | (0.4                                             | )          | (0.1                                             | )          |
| Prepaid expenses and other current assets                                        |       | (7.3                                             | )          | (3.5                                             | )          |
| Accounts payable                                                                 |       | (20.0                                            | )          | (42.3                                            | )          |
| Income taxes payable                                                             |       | 160.4                                            |       | (44.7                                            | )          |
| Deferred revenue                                                                 |       | 308.3                                            |       | 22.7                                             |       |
| Accrued expenses and other liabilities                                           | ** ** | (10.0                                            | )          | (19.1                                            | )          |
| NET CASH  PROVIDED BY OPERATING ACTIVITIES                                       |       | 710.0                                            |       | 20.9                                             |       |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                           |       |                                             |       |                                             |       |
| Capital expenditures                                                             |       | (19.9                                            | )          | (18.5                                            | )          |
| Proceeds from disposition of assets                                              |       | 3.1                                              |       | 1.9                                              |       |
| Investment in joint ventures                                                     |       | (1.5                                             | )          | —                                           |       |
| NET CASH USED IN  INVESTING ACTIVITIES                                           |       | (18.3                                            | )          | (16.6                                            | )          |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                           |       |                                             |       |                                             |       |
| Cash used to pay dividends                                                       |       | (45.3                                            | )          | (44.6                                            | )          |
| Proceeds from stock option exercises                                             |       | 3.2                                              |       | 6.2                                              |       |
| Net payments on long term obligations                                            |       | (6.2                                             | )          | (5.0                                             | )          |
| Cash used to settle conversions of convertible notes                             |       | —                                           |       | (5.3                                             | )          |
| Net proceeds attributable to convertible note hedge  and warrant                 |       | —                                           |       | 0.7                                              |       |
| Excess tax benefits from share-based payment  arrangements                       |       | 2.2                                              |       | 5.4                                              |       |
| Payment of debt acquisition costs and other                                      |       | (0.1                                             | )          | (1.4                                             | )          |
| NET CASH USED IN  FINANCING ACTIVITIES                                           |       | (46.2                                            | )          | (44.0                                            | )          |
| NET INCREASE  (DECREASE) IN CASH AND CASH EQUIVALENTS                            |       | 645.5                                            |       | (39.7                                            | )          |
| CASH AND CASH  EQUIVALENTS AT BEGINNING OF PERIOD                                |       | 162.2                                            |       | 196.3                                            |       |
| CASH AND CASH  EQUIVALENTS AT END OF PERIOD                                      |       | $                                                | 807.7      |                                             | $          | 156.6 |   |
| SUPPLEMENTAL  CASH FLOW INFORMATION:                                             |       |                                             |       |                                             |       |
| Cash paid for income taxes, net of refunds received                              |       | $                                                | 32.9       |                                             | $          | 48.2 |   |
| Cash paid for  interest                                                          |       | $                                                | 32.2       |                                             | $          | 29.7 |   |
| SUPPLEMENTAL NON-CASH  FINANCING ACTIVITIES:                                     |       |                                             |       |                                             |       |
| Declaration of  extraordinary dividend                                           |       | $                                                | 302.0      |                                             | $          | — |   |

 

See accompanying notes to unaudited condensedconsolidated financial statements.

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**REGAL ENTERTAINMENT GROUP**

**NOTES TOUNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

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

Regal Entertainment Group (the “Company,” “Regal,” “we”or “us”) is the parent company of Regal Entertainment Holdings, Inc. (“REH”),which is the parent company of Regal Cinemas Corporation (“Regal Cinemas”) andits subsidiaries. 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, United Artists,Edwards, Regal CineMedia and Hoyts shall be deemed to include the respectivesubsidiaries of such entities when used in discussions included hereinregarding the current operations or assets of such entities.

Regal operates the largest theatre circuit in theUnited States, consisting of 6,340 screens in 529 theatres in 39 states and theDistrict of Columbia as of March 29, 2007.  The Company formally operateson a 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 results in a 53-week fiscalyear.  As of March 29, 2007, the Company managed its business under onereportable segment: theatre exhibition operations.

For a discussion of the series of events leading tothe formation of the Company and other significant transactions which haveoccurred through December 28, 2006, please refer to Note 1 to theconsolidated financial statements included in Part II, Item 8 of ourannual report on Form 10-K filed on February 26, 2007 with theSecurities and Exchange Commission (the “Commission”) (File No. 001-31315)for the fiscal year ended December 28, 2006.

On March 29, 2005, Regal and AMCEntertainment Inc. (“AMC”) announced the combination of the operations ofRCM and AMC’s subsidiary, National Cinema Network, Inc. (“NCN”), into anew joint venture company known as National CineMedia, LLC (“National CineMedia”).On July 15, 2005, Cinemark, Inc. (“Cinemark”), through a wholly ownedsubsidiary, acquired a 20.7% interest in National CineMedia. OnFebruary 13, 2007, National CineMedia, Inc. (“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., Regal CineMedia Holdings, LLC (“RCH”), a wholly ownedsubsidiary of RCM, AMC and Cinemark amended and restated the OperatingAgreement and the other ancillary agreements. As discussed 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 the quarterended March 29, 2007. 

During the quarter ended March 29, 2007, Regal paidone quarterly cash dividend of $0.30 on each outstanding share of the Company’sClass A and Class B common stock, including outstanding restrictedstock (see Note 6—“Capital Stock and Share-Based Compensation”), or approximately$45.3 million in the aggregate.

In addition, on March 5, 2007, Regal declared anextraordinary cash dividend of $2.00 per share on each outstanding share of itsClass A and Class B common stock, including outstanding restricted stock.Stockholders of record at the close of business on March 28, 2007 were paidthis dividend on April 13, 2007. The dividend was recorded as a $302.0 millionincrease to stockholders’ deficit upon declaration.

Total comprehensive income for the quarters endedMarch 29, 2007 and March 30, 2006 was $226.0 million and $18.2 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 ended March 29, 2007 and

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March30, 2006. The Company’s interest rate swap arrangements are further describedin Note 4—“Debt Obligations.”

The Company has prepared the unaudited condensed consolidatedbalance sheet as of March 29, 2007 and the unaudited condensed consolidatedstatements of income and cash flows in accordance with accounting principlesgenerally accepted in the United States of America for interim financialinformation and the rules and regulations of the Commission. Accordingly,certain information and footnote disclosures typically included in an annualreport have been condensed or omitted for this quarterly report. In the opinionof management, all adjustments (which include only normal recurringadjustments) necessary to present fairly in all material respects the financialposition, results of operations and cash flows for all periods presented havebeen made. The December 28, 2006 unaudited condensed consolidated balancesheet information is derived from the audited consolidated financial statementsof the Company included in its annual report on Form 10-K for the fiscalyear ended December 28, 2006. These unaudited condensed consolidatedfinancial statements should be read in conjunction with the auditedconsolidated financial statements and notes thereto. The results of operationsfor the quarter ended March 29, 2007 are not necessarily indicative of theoperating results that may be achieved for the full 2007 fiscal year.

Certain reclassifications have been made to the 2006financial statements to conform to the 2007 presentation.

**2. RECENT ACQUISITIONS**

***Acquisition of fourAMC Entertainment Inc. Theatres***

On September 15, 2006, the Company acquired fourtheatres with a total of 58 screens from AMC.  The Company purchased twoof these AMC theatres representing 26 screens for approximately $34.1 millionin cash, subject to post-closing adjustments, and acquired the other two AMCtheatres representing 32 screens in exchange for two Regal theatres consistingof 32 screens.  As of the acquisition date, the exchanged Regal theatreshad a net book value of approximately $5.4 million.  The Company accountedfor the exchanged theatre assets as a non-monetary transaction in accordance withFAS 153, “Exchanges of Nonmonetary Assets—an amendment of APB Opinion No. 29”and as such, allocated the net book value of the Regal theatres to theexchanged AMC theatres.  Total cash paid of approximately $34.1 millionwas directly allocated to the other two AMC theatres using the purchase methodof accounting.  Accordingly, the total cash purchase price was allocatedto the assets acquired and liabilities assumed for both of the respectivetheatre locations based on management’s judgment of the estimated fair valuesat the date of acquisition. The results of operations of the four acquiredtheatres have been included in the Company’s consolidated financial statementsfor periods subsequent to the acquisition date.

The following is a summary of the preliminaryallocation of the aggregate cash purchase price to the estimated fair values ofthe assets acquired and liabilities assumed at the respective dates ofacquisition (in millions):
| Property and equipment, net |   | $      | 36.4   |   |
|-----------------------------|--------|--------|--------|--------|
| Current liabilities         |   | (2.3   | )      |
|                        |   |   |   |
| Total purchase price        |   | $      | 34.1   |   |

 

**3. INVESTMENTIN NATIONAL CINEMEDIA, LLC**

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

On March 29, 2005, Regal and AMC announced thecombination of the operations of RCM and AMC’s subsidiary, NCN, into a newjoint venture company known as National CineMedia. On July 15, 2005,Cinemark, through a wholly owned subsidiary, acquired a 20.7% interest inNational CineMedia.  National CineMediafocuses on the expansion of in-theatre advertising and the creation ofcomplementary 

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business lines thatleverage the existing operating personnel, asset and customer bases of itstheatrical exhibition partners, which includes us, AMC and Cinemark. NationalCineMedia is, subject to limited exceptions, the exclusive provider ofadvertising and event services to Regal, AMC and Cinemark. 

As part of the joint venture transaction, onMarch 29, 2005, RCM and NCN entered into a Contribution and Unit HoldersAgreement with National CineMedia pursuant to which, among other things, RCMand NCN agreed to contribute assets to National CineMedia and NationalCineMedia agreed to assume specified liabilities of RCM and NCN inconsideration for the issuance of equity units by National CineMedia to RCH andNCN, respectively. The assets contributed to National CineMedia by RCM includedfixed assets and agreements as well as approximately $1.3 million in cash.The Company accounts for its investment in National CineMedia using the equitymethod of accounting and did not recognize any gain or loss resulting from theinitial formation of National CineMedia due to the Company’s continuedinvolvement in the operations of National CineMedia. 

Pursuant to the other documents entered into inconnection with the joint venture transaction, AMC and Regal, through theirsubsidiaries, retained all advertising contracts signed on or before the closeof business on March 31, 2005, and Cinemark retained all advertisingcontracts signed on or before the close of business on July 15, 2005,subject to an administrative fee (32% during fiscal 2006 through the date ofthe IPO of NCM Inc.) payable to National CineMedia to service such contracts.For the period from December 29, 2006 through February 12, 2007 and the quarterended March 30, 2006, administrative fees paid to National CineMedia totaledless than $0.1 million (on less than $0.1 million of revenue) and$1.1 million (on $3.5 million of revenue), respectively.  Revenues and expenses attributable to theseadvertising contracts were recorded as a component of other operating revenuesand other operating expenses in the Company’s financial statements. Forcontracts signed by National CineMedia after the close of business onMarch 31, 2005, AMC and Regal, and with respect to advertising contractssigned after the close of business on July 15, 2005, Cinemark, throughtheir respective theatre exhibition subsidiaries, receive revenue from NationalCineMedia with respect to advertising and event services at their respectivetheatres through an agreed upon formula as well as equity in income/loss ofNational CineMedia. Such formula was based on the weighted average number ofscreens owned by and the number of theatre patrons of the applicable exhibitor’stheatres for any measurement period. During the period from December 29, 2006 through February 12, 2007, theCompany recorded $6.2 million of advertising revenues and$0.4 million****of otherrevenues derived from these contracts, which are presented as a component ofother operating revenues in the Company’s financial statements. During thequarter ended March 30, 2006, the Company recorded $7.6 million ofadvertising revenues and $0.6 million of other revenues derived from thesecontracts. For the period from December 29, 2006 through February 12, 2007 andthe quarter ended March 30, 2006, the Company recorded a loss of$2.0 million and $4.2 million, respectively, representing its share of thenet loss of National CineMedia. As of December 28, 2006, RCH owned 45.4%of the Class A Units of National CineMedia, AMC, as successor in interestto NCN, owned 26.3% of the Class A Units of National CineMedia andCinemark owned 28.3% of the Class A Units of National CineMedia.  See “Initial Public Offering of National CineMedia, Inc.and Other Developments” below for a discussion of related amounts for theperiod from February 13, 2007 through March 29, 2007.

As described in Note 4 to the consolidated financialstatements included in our annual report on Form 10-K for the fiscal yearended December 28, 2006, in connection with the formation of NationalCineMedia, on May 11, 2005, RCI adopted and approved the RCI SeverancePlan For Equity Compensation (the “Severance Plan”). Participation in theSeverance Plan is limited to employees of RCM who held an unvested option topurchase shares of Regal’s Class A common stock or unvested shares ofRegal’s restricted Class A common stock pursuant to the terms of theCompany’s 2002 Incentive Plan (the “Incentive Plan”) immediately prior to suchemployee’s termination of employment with RCM and commencement of employmentwith National CineMedia. Each employee’s termination of employment with RCM waseffective as of the close of business on May 24, 2005 and commencement ofemployment with National CineMedia was effective as of May 25, 2005. Underthe terms of and subject to the conditions of the Severance Plan, each eligibleemployee who participates in the Severance Plan (a “Participant”) is, at thetimes set forth in the Severance Plan, entitled to cash payments based on thevalue of Regal’s Class A common stock on May 24, 2005 as calculatedpursuant to the terms of the Severance 

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Plan.  As the Severance Plan provides for paymentsover future periods that are contingent upon continued employment with NationalCineMedia, the cost of the Severance Plan will be recorded as an expense overthe remaining required service periods. During the quarters ended March 29,2007 and March 30, 2006, the Company recorded total severance expense ofapproximately $1.4 million and $1.6 million, respectively, includingpayments in lieu of dividends, related to the Severance Plan.

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

On February 13, 2007, NCM Inc., a newly formedentity that serves as the sole manager of National CineMedia, completed an IPOof its common stock. NCM Inc. sold 38.0 million shares of its common stock for$21 per share in the IPO, less underwriting discounts and expenses. Because NCMInc.’s Certificate of Incorporation requires that NCM Inc. at all timesmaintain a one-to-one ratio between the number of common units of NationalCineMedia owned by NCM Inc. and the number of outstanding shares of commonstock of NCM Inc., NCM Inc. used a portion of the net proceeds from the IPO toacquire newly issued common units from National CineMedia.  As a result of the NCM, Inc.’sacquisition of common units in National CineMedia, the Company recognized achange in interest gain of approximately $182.7 million along with acorresponding increase in the Company’s equity investment in NationalCineMedia.  

In connection with the completion of the IPO, RCIamended and restated its existing exhibitor services agreement (“ESA”) withNational CineMedia, whereby in exchange for its pro rata share of the IPOproceeds (approximately $281.0 million), RCI agreed to a modification ofNational CineMedia’s payment obligation under the ESA. The modificationextended the term of the ESA to 30 years, provided National CineMedia with afive year right of first refusal beginning one year prior to the end of theterm and changed the basis upon which Regal is paid by National CineMedia froma percentage of revenues associated with advertising contracts entered into byNational CineMedia to a monthly theatre access fee. The theatre access fee iscomposed of a fixed $0.07 payment per patron which will increase by 8% everyfive years starting at the end of fiscal 2011 and a fixed $800 payment perdigital screen each year, which will increase by 5% annually starting at theend of fiscal 2007. Also, with respect to any on-screen advertising timeprovided to our beverage concessionaire, RCI is required to purchase such timefrom National CineMedia at a negotiated rate. In addition, after completion ofthe IPO, we expect to receive mandatory quarterly distributions of excess cashfrom National CineMedia. 

The amount we received for agreeing to the ESAmodification was approximately $281.0 million, which represents the estimatedfair value of the ESA modification payment. We estimated the fair value of the ESA payment based upon a valuationperformed by the Company with the assistance of third party specialists.  This amount has been recorded as deferredrevenue and will be amortized to advertising revenue over the 30 year termof the agreement following 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 the agreementand then applying that ratio to the current period’s expected decrease inrevenues due to entry into the new ESA. During the period from February 13,2007 through March 29, 2007, the Company recognized $0.3 million of advertisingrevenue utilizing the units of revenue amortization method.

At the closing of the IPO, the underwriters exercisedtheir over-allotment option to purchase an additional 4.0 million shares ofcommon stock of NCM Inc. at the initial offering price of $21 per share, lessunderwriting discounts and commissions. In connection with this over-allotmentoption exercise, Regal, AMC and Cinemark each sold to NCM Inc. common units ofNational CineMedia on a pro rata basis at the initial offering price of $21 pershare, less underwriting discounts and expenses. Regal sold approximately 1.6million common units to NCM Inc. for proceeds of approximately $32.2 millionand recognized a gain on the sale of such units of approximately $19.3million.  Upon completion of this sale of

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common units and as ofMarch 29, 2007, Regal held approximately 21.2 million common units of NationalCineMedia, or a 22.6% interest.  

Upon the closing of the IPO, National CineMediaentered into a $725 million term loan facility, the net 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 a result ofthe preferred unit redemption. Upon redemption by National CineMedia of thepreferred units, the Company applied such cash distributions from NationalCineMedia by (1) reducing its equity investment in National CineMedia fromapproximately $166.4 million to zero and (2) recording distributions in excessof the investment balance in National CineMedia of approximately $148.7 millionas a gain.  Because the investment (andnet advances) in National CineMedia has been reduced to zero, we will notprovide for any additional losses as we have not guaranteed obligations ofNational CineMedia and we are not otherwise committed to provide furtherfinancial support for National CineMedia. In addition, during futureperiods, the Company will not recognize its share of any undistributed equityin the earnings of National CineMedia until National CineMedia’sfuture net earnings equal or exceed the amount of the above excess distribution.  Until such time, equity earnings will berecognized only to the extent that the Company receives cash distributions fromNational CineMedia.  For the period from February 13, 2007through March 29, 2007, the Company received no cash distributions fromNational CineMedia.  As a result, no equity earnings were recognized during theperiod from February 13, 2007 through March 29, 2007.  

After the payment of current taxes, we estimate netproceeds from these transactions to total approximately $445.0 million. TheCompany used a portion of the net proceeds to fund an extraordinary cashdividend of $2.00 per share on each outstanding share of its Class A andClass B common stock, or approximately $302.0 million in the aggregate.Stockholders of record at the close of business on March 28, 2007 were paidthis dividend on April 13, 2007. 

As of March 29, 2007, we continue to account for ourinvestment in National CineMedia following the equity method ofaccounting.  The changes in the carryingamount of our investment in National CineMedia for the quarter ended March 29,2007 (in millions): 
| ** **                                                                              | ** ** | **Investment in  National CineMedia, LLC** | ** ** |
|-----------------------------------------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| Balance as of  December 28, 2006                                                        |       | $                                                         | (1.5       | ) |
| Equity in  earnings of National CineMedia (December 29, 2006 through February 12, 2007) |       | (2.0                                                      | )          |
| Gain on change  in interest                                                             |       | 182.7                                                     |       |
| Net book value  of units sold in over-allotment                                         |       | (12.8                                                     | )          |
| Redemption of  preferred units                                                          |       | (166.4                                                    | )          |
| Equity in  earnings of National CineMedia (February 13, 2007 through March 29, 2007)    |       | —                                                    |       |
|                                                                                    |       |                                                      |       |
| Balance as of March 29,  2007                                                           |       | $                                                         | —     |   |

 

As a result of the ESA amendment and related modificationpayment, for the period from February 13, 2007 through March 29, 2007, theatreaccess fees and other revenues received from National CineMedia, offset by thepurchase of on-screen advertising time from National CineMedia for on-screenadvertising time provided to our beverage concessionaire, totaled approximately$0.3 million.  This amount is presentedas a component of other operating revenues in the Company’s financialstatements.  As of March 29, 2007,approximately $3.9 million and $4.5 million due from/to National CineMediawere included in “Trade and other receivables, net” and “Accounts payable,”respectively.  As of December 28,2006, approximately $25.4 million and $0.7 million due from/to NationalCineMedia were included in “Trade and other receivables, net” and “Accountspayable,” respectively.   

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On February 12, 2007, we, along with AMC andCinemark entered into a joint venture company known as Digital CinemaImplementation Partners, LLC, a Delaware limited liability company (“DCIP”), toexplore the possibility of implementing digital cinema in our theatres and tocreate a financing model and establish agreements with major motion picturestudios for the implementation of digital cinema. Travis Reid, former presidentand chief executive officer of Loews Theatres, is the chief executive officerof DCIP and DCIP has engaged J.P. Morgan Securities Inc. to assist with thereview of a business plan for digital cinema and with identifying andevaluating potential financing and capital structure alternatives. Futuredigital cinema developments will be managed by DCIP, subject to the approval ofus, AMC and Cinemark.  The Company’sinvestment (consisting of contributed cash) in DCIP totaled approximately $1.5million as of March 29, 2007.

**4. DEBT OBLIGATIONS**

Debt obligations at March 29, 2007 andDecember 28, 2006 consist of the following (in millions):
| ** **                                                                                                                           | ** ** | **March 29, 2007** | ** ** | **December 28, 2006** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|---------------------------------|------------|
| Regal 33¤4%  Convertible Senior Notes                                                                                           |       | $                            | 123.7      |                            | $          | 123.7 |   |
| Regal Cinemas  Senior Credit Facility                                                                                                |       | 1,695.7                      |       | 1,700.0                         |       |
| Regal Cinemas 93¤8%  Senior Subordinated Notes                                                                                  |       | 51.5                         |       | 51.5                            |       |
| Lease financing  arrangements, weighted average interest rate of 11.15%, maturing in various  installments through January 2021 |       | 88.6                         |       | 89.4                            |       |
| Capital lease  obligations, 8.5% to 10.3%, maturing in various installments through  December 2017                              |       | 21.3                         |       | 22.4                            |       |
| Other                                                                                                                                |       | 0.9                          |       | 0.9                             |       |
|                                                                                                                                 |       |                         |       |                            |       |
| Total debt  obligations                                                                                                              |       | 1,981.7                      |       | 1,987.9                         |       |
| Less current  portion                                                                                                                |       | (146.1                       | )          | (146.2                          | )          |
|                                                                                                                                 |       |                         |       |                            |       |
| Total debt obligations,  net of current maturities                                                                                   |       | $                            | 1,835.6    |                            | $          | 1,841.7 |   |

 

***Regal 33⁄4% Convertible Senior Notes***—OnMay 28, 2003, Regal issued $240.0 million aggregate principal amountof 33⁄4% Convertible Senior Notes due May 15, 2008 (the “Convertible SeniorNotes”). Interest on the Convertible Senior Notes is payable semi-annually inarrears on May 15 and November 15 of each year, beginningNovember 15, 2003. The Convertible Senior Notes are senior unsecuredobligations of Regal and rank on parity with all of our existing and futuresenior unsecured indebtedness and prior to all of our subordinatedindebtedness. The Convertible Senior Notes are effectively subordinated to allof our future secured indebtedness to the extent of the assets securing thatindebtedness and to any indebtedness and other liabilities of our subsidiaries.None of our subsidiaries have guaranteed any of our obligations with respect tothe Convertible Senior Notes. On or after May 15, 2007, our note holderswill have the option to convert their Convertible Senior Notes, in whole or inpart, 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 change in control, at the then existingconversion price per share.  Prior to May 15, 2007, our note holdershave the right, at their option, to convert their Convertible Senior Notes, inwhole or in part, into shares of our Class A common stock, subject tocertain limitations, unless previously purchased by us at the note holder’soption upon a change in control, at the then existing conversion price pershare, subject to further adjustments described below, if:

·                  the closing saleprice of our Class A common stock on the previous trading day was 110% ormore of the then current conversion price;

·                  we distribute toall or substantially all holders of our common stock certain rights entitlingthem to purchase common stock at less than the closing sale price of ourClass A common stock on the day preceding the declaration of suchdistribution;

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·                  otherthan the extraordinary dividend paid on July 1, 2003, we distribute to allor substantially all holders of our common stock cash or other assets, debtsecurities or certain rights to purchase our securities, which distribution hasa per share value as determined by our board of directors exceeding 10% of theclosing sale price of our Class A common stock on the day preceding thedeclaration of such distribution;

·                  webecome a party to a consolidation, merger or sale of all or substantially allof our assets or a change in control occurs, in each case, pursuant to whichour common stock would be converted into cash, stock or other property unless,in the case of a consolidation or merger, all of the consideration, excludingcash payments for fractional shares and cash payments made pursuant todissenters’ appraisal rights, in such merger or consolidation consists ofshares of common stock, American Depositary Shares or other certificatesrepresenting common equity interests traded on a United States nationalsecurities exchange or quoted on The NASDAQ Stock Market, or will be so tradedor quoted when issued or exchanged in connection with such merger orconsolidation, and as a result of such merger or consolidation the ConvertibleSenior Notes become convertible solely into such common stock or othercertificates representing common equity interests; or

·                  afterany five consecutive trading-day period in which the average of the tradingprices for the Convertible Senior Notes for that five trading-day period wasless than 100% of the average of the conversion values for the ConvertibleSenior Notes during that period.

On March 29, 2007, at the then current conversionprice of $13.0075 per share (which conversion price has been and may be furtheradjusted pursuant to the antidilution provisions of the Convertible SeniorNotes in connection with the payment by Regal of dividends on its commonstock), each $1,000 of aggregate principal amount of Convertible Senior Notesis convertible into approximately 76.8787 shares of our Class A commonstock. Upon conversion, we may elect to deliver cash in lieu of shares ofClass A common stock or a combination of cash and shares of Class Acommon stock. As explained below, with respect to the par amount of theconversion obligation, we intend to deliver cash to note holders uponconversion. The conversion price and the number of shares delivered onconversion are subject to adjustment upon certain events.

In connection with the issuance of the ConvertibleSenior Notes, we used approximately $18.8 million of the net proceeds ofthe offering to enter into convertible note hedge and warrant transactions withrespect to our Class A common stock to reduce the potential dilution fromconversion of the Convertible Senior Notes. Under the terms of the convertiblenote hedge arrangement (the “Convertible Note Hedge”) with Credit Suisse FirstBoston (“CSFB”), we paid $36.2 million for a forward purchase option contractunder which we are entitled to purchase from CSFB a fixed number of shares ofour Class A common stock (at March 29, 2007 at a price per share of$13.0075). In the event of the conversion of the Convertible Senior Notes, thisforward purchase option contract allows us to purchase, at a fixed price equalto the implicit conversion price of shares issued under the Convertible SeniorNotes, a number of shares equal to the shares that we issue to a note holderupon conversion. Settlement terms of this forward purchase option allow theCompany to elect cash or share settlement based on the settlement option itchooses in settling the conversion feature of the Convertible Senior Notes. Weaccounted for the Convertible Note Hedge pursuant to the guidance in EITF00-19, “Accounting for Derivative Financial Instruments Indexed to, andPotentially Settled in a Company’s Own Stock.” Accordingly, the$36.2 million purchase price of the forward stock purchase option contractwas recorded as an increase to consolidated stockholders’ deficit.

We also sold to CSFB a warrant (the “Warrant”) topurchase shares of our Class A common stock. The Warrant is currentlyexercisable for 9,509,884 shares of our Class A common stock at a March29, 2007 exercise price of $15.0087 per share (which exercise price has beenand may be further adjusted pursuant to the antidilution provisions of theWarrant in connection with the payment by Regal of 

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dividendson its common stock). We received $17.4 million in cash from CSFB inreturn for the sale of this forward share purchase option contract. CSFB cannotexercise the Warrant unless and until a conversion event occurs. We have theoption of settling the Warrant in cash or shares of our Class A commonstock. We accounted for the sale of the Warrant as the sale of a permanentequity instrument pursuant to the guidance in EITF 00-19. Accordingly, the$17.4 million sales price of the forward stock purchase option contractwas recorded as a debit to consolidated stockholders’ deficit.

The Convertible Note Hedge and the Warrant allow us toacquire sufficient Class A common shares from CSFB to meet our obligationto deliver Class A common shares upon conversion by the note holder,unless the Class A common share price exceeds $15.0087 (as of March 29,2007). When the fair value of our Class A common shares exceeds suchprice, the equity contracts no longer have an offsetting economic impact, andaccordingly will no longer be effective as a hedge of the dilutive impact ofpossible conversion.

The Convertible Senior Notes allow us to settle anyconversion, and we intend to settle any conversion, by remitting to the noteholder the accreted value of the note in cash plus the conversion spread (theexcess conversion value over the accreted value) in either cash, shares of ourClass A common stock or a combination of stock and cash. The accountingfor convertible debt with such settlement features is addressed in theconsensus reached by the EITF with respect to the accounting for Instrument Cas set forth in EITF 90-19, “Convertible Bonds with Issuer Option to Settle forCash Upon Conversion.” It is our intent to settle the Convertible Senior Notes’conversion obligations consistent with Instrument C. Because the accreted valueof the Convertible Senior Notes will be settled in cash upon the conversion,only the conversion spread (the excess conversion value over the accretedvalue), which may be settled in stock, will result in potential dilution in ourearnings-per-share computations.

On March 29, 2007, the closing sale price of ourClass A common stock was $19.70, which exceeded 110% of the then currentconversion price of $13.0075. Accordingly, as of March 29, 2007, our noteholders had the right, at their option, to convert their Convertible Senior Notes,in whole or in part, into shares of our Class A common stock, subject tocertain limitations, at the current conversion price of $13.0075. Thisconversion option, coupled with the Company’s stated policy to settle anyconversion by remitting to the note holder the accreted value of the note incash, resulted in the classification of the $123.7 million principalamount of the Convertible Senior Notes as a current liability on theaccompanying unaudited condensed consolidated balance sheet as of March 29,2007. The future balance sheet classification of this liability (i.e., currentversus non-current presentation) will be monitored at each quarterly reportingdate, and will be determined based on an analysis of the various conversionrights described above.

During the quarter ended March 30, 2006, holders of$4.4 million in principal amount of Convertible Senior Notes exercisedtheir conversion rights. The Company elected to settle these conversionsentirely in cash for approximately $5.3 million. As a result of theseconversions, the Company recorded a $0.9 million****loss on debt extinguishment during the quarter ended March30, 2006. 

In connection with the above conversions, the Companyreceived net proceeds of approximately $0.7 million for the quarter ended March30, 2006 from CSFB attributable to the Convertible Note Hedge and theWarrant.  Such proceeds were recorded as an increase to additional paid-incapital.

***Regal Cinemas FifthAmended and Restated Credit Agreement***—On October 27,2006, Regal Cinemas entered into a fifth amended and restated credit agreement(the “Amended Senior Credit Facility”) with Credit Suisse, Cayman IslandsBranch (as successor to Credit Suisse First Boston), as Administrative Agentand the other lenders party thereto, which consists of a term loan facility(the “Term Facility”) in an aggregate original principal amount of $1,700.0 millionand a revolving credit facility (the “Revolving Facility”) in an aggregateprincipal amount of up to $100.0 million. The Revolving Facility has a separatesublimit of $10.0 million for short-term loans and a sublimit of $30.0 millionfor letters of credit. The principal balance of the Term Facility in theAmended Senior Credit Facility was higher than the term loan balance in theprior credit facility, and such higher principal balance resulted in netproceeds of $21.2 million from the Amended Senior Credit Facility which wereset aside for general corporate purposes. Upon the execution 

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of theAmended Senior Credit Facility, Regal recognized a loss on debt extinguishmentof approximately $2.3 million, including $0.8 million of third party costs. Inaddition, approximately $19.2 million of new debt acquisition costs wererecorded in connection with consummation of the Amended Senior Credit Facility.

The Term Facility will mature on October 27, 2013and the Revolving Facility will mature on October 27, 2011. Interest ispayable (a) in the case of base rate loans, quarterly in arrears, and(b) in the case of Eurodollar rate loans, at the end of each interestperiod, but in no event less often than every 3 months. The Term Facilityamortizes in equal quarterly installments in an aggregate annual amount equalto 1.0% of the original principal amount of the Term Facility during the firstsix years thereof, with the balance payable in two equal installments, thefirst on June 30, 2013 and the second on October 27, 2013.

Borrowings under the Amended Senior Credit Facilitybear interest, at Regal Cinemas’ option, at either a base rate or an AdjustedEurodollar Rate (as defined in the Amended Senior Credit Facility) plus, ineach case, an applicable margin. As of March 29, 2007 and December 28,2006, borrowings of $1,695.7 million and $1,700.0 million,respectively, were outstanding under the Term Facility at an effective interestrate of 6.23% (as of March 29, 2007 and December 28, 2006), after the impact ofthe interest rate swaps is taken into account.

Under the Amended Senior Credit Facility, RegalCinemas also established an additional term loan (“New Incremental TermFacility”) which amends and restates the existing incremental term facility.Under the terms of the New Incremental Term Facility, Regal Cinemas may borrowup to $200.0 million in additional funds that would be treated as a term loanunder the Amended Senior Credit Facility without the need to obtain consentfrom any lender or any party to the Amended Senior Credit Facility. Borrowingunder the New Incremental Term Facility is subject to the satisfaction ofcertain conditions set forth in the facility, including, but not limited to,obtaining commitments from one or more lenders to fund such additional amounts.At Regal Cinemas’ option, borrowings under the New Incremental Term Facilitybear interest at an Adjusted Eurodollar Rate or a base rate plus, in eithercase, an applicable margin that is established at the time commitments for theNew Incremental Term Facility are obtained. Proceeds of Regal Cinemas’borrowings under the New Incremental Term Facility are to be used solely tofund, or reimburse Regal Cinemas for funding, distributions to the Company forthe purpose of redeeming, repurchasing, acquiring or otherwise settling theconversion of all or a portion of the Convertible Senior Notes.

The Amended Senior Credit Facility is furtherdescribed in Note 5 to the consolidated financial statements included inour annual report on Form 10-K for the fiscal year ended December 28,2006.

***Interest Rate Swaps***—Asdescribed in Note 5 to the consolidated financial statements included inour annual report on Form 10-K for the fiscal year ended December 28,2006, during 2004 and 2005, Regal Cinemas entered into a total of five hedgingrelationships via five distinct interest rate swap agreements to hedgeapproximately $1,100.0 million of variable rate liabilities.

As of March 29, 2007, the aggregate fair value of thefive interest rate swaps was determined to be approximately $17.4 million,which has been recorded as a component of “Other Non-Current Assets” with acorresponding amount of $10.5 million, net of tax, recorded to “AccumulatedOther Comprehensive Income.” The interest rate swaps exhibited noineffectiveness for the quarters ended March 29, 2007 and March 30, 2006.

***Other Long-Term Obligations***—All other long-term obligations(including the Regal Cinemas 93¤8%Senior Subordinated Notes) not explicitly discussed herein are described inNote 5 to the consolidated financial statements included in our annualreport on Form 10-K for the fiscal year ended December 28, 2006 andincorporated by reference herein.

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**5. INCOME TAXES**

Effective December 29, 2006, the Company adopted theprovisions of FASB Interpretation No. 48, “Accounting for Uncertainty in IncomeTaxes—an interpretation of FASB Statement No. 109” (“FIN 48”).  Relative to the implementation of FIN 48, theCompany recognized a $12.4 million reduction of its recorded liabilities with acorresponding $7.1 million decrease to non-current deferred tax assets, a $1.6million decrease to goodwill and a $3.7 million increase in retained earnings. 

As of March 29, 2007 and December 28, 2006, the grossamount of unrecognized tax benefits was $40.1 million and $32.5 million,respectively.  The increase in grossunrecognized tax benefits of $7.6 million during the quarter ended March 29,2007 relates to state tax positions that the Company anticipates taking onfuture tax returns relative to activity occurring during the quarter.  Additionally, exclusive of interest andpenalties, it is reasonably possible that gross unrecognized tax benefits associatedwith state tax positions will decrease between $0.5 million and $1.5 millionwithin the next 12 months due the expiration of the statute oflimitations.  Unrecognized tax benefitsthat would affect the effective tax rate if recognized were $11.3 million and$3.7 million as of March 29, 2007 and December 28, 2006, respectively.  The remaining unrecognized tax benefits as ofsuch dates would impact goodwill if recognized. 

The Company recognizes interest and penalties accruedrelated to unrecognized tax benefits as a component of income tax expense.Effective with the adoption of FIN 48, the Company accrued gross interest andpenalties of approximately $3.2 million.

The provision for income taxes of $155.6 million and$7.5 million for the quarters ended March 29, 2007 and March 30, 2006,respectively, reflect effective tax rates of approximately 40.4% and 40.1%,respectively.  The effective tax ratesfor the quarters ended March 29, 2007 and March 30, 2006 reflect the impact ofcertain non-deductible expenses.  Theincrease in the effective tax rate for the quarter ended March 29, 2007 isprimarily attributable to the state tax impact associated with the transactionscompleted in connection with the IPO of NCM Inc. (see Note 3—“Investment inNational CineMedia, LLC” for further discussion).

In assessing the realizable value of deferred taxassets, management considers whether it is more likely than not that someportion or all of the deferred tax assets will not be realized. The ultimaterealization of deferred tax assets is dependent upon the generation of futuretaxable income during the periods in which these temporary differences becomedeductible. The Company has recorded a valuation allowance against deferred taxassets, totaling $11.7 million and $36.6 million as of March 29, 2007 andDecember 28, 2006, respectively, as management believes it is more likely thannot that certain deferred tax assets will not be realized in future taxperiods. Approximately $8.8 million and $33.7 million of the valuationallowance relates to pre-acquisition deferred tax assets of Hoyts, Edwards andUnited Artists as of March 29, 2007 and December 28, 2006, respectively. Futurereductions in the valuation allowance associated with a change in management’sdetermination of the Company’s ability to realize these deferred tax assetswill reduce recorded goodwill related to such acquisitions.  During the quarter ended March 29, 2007, as aresult of the NCM Inc. IPO transaction described in Note 3—“Investment inNational CineMedia, LLC,” management determined that the Company would morelikely than not realize certain pre-acquisition deferred tax assets of UnitedArtists.  Accordingly, the valuationallowance associated with such pre-acquisition deferred tax assets and goodwillwere reduced by $24.9 million during the quarter ended March 29, 2007. 

The Company and its subsidiaries collectively fileincome tax returns in the U.S. federal jurisdiction and various statejurisdictions.  In June 2005, theCompany was notified that the Internal Revenue Service (“IRS”) would examineits 2002 and 2003 federal income tax returns. During October 2005, the IRScompleted its examination of the Company’s federal tax returns for such yearsand the Company and the IRS agreed to certain adjustments to the Company’s 2002and 2003 federal tax returns. Such adjustments did not have a material impacton the Company’s provision for income taxes. With limited exceptions, the Company is no longer subject to U.S.federal or state income tax examinations by tax authorities for years before2003.  However, the taxing authoritiesstill have the ability to review the propriety of tax attributes created inclosed tax years if such tax attributes are utilized in an open tax year.

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

***Capital Stock***

Asof March 29, 2007, the Company’s authorized capital stock consisted of:

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

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

·                  50,000,000shares of preferred stock, par value $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 ofMarch 29, 2007, 127,268,879****shares ofClass A common stock were outstanding. Of the authorized shares ofClass B common stock, 23,708,639 shares were outstanding as of March 29,2007, all of which are held by Anschutz Company (“Anschutz”). Each share ofClass B common stock converts into one share of Class A common stockat the option of the holder or upon certain transfers of a holder’sClass B common stock. Each holder of Class B common stock is entitledto ten votes for each outstanding share of Class B common stock owned bythat stockholder on every matter properly submitted to the stockholders fortheir vote. Of the authorized shares of the preferred stock, no shares wereissued and outstanding as of March 29, 2007. The Class A common stock is entitled to one vote for eachoutstanding share of Class A common stock on every matter properlysubmitted to the stockholders for a vote. Except as required by law, the Class Aand Class B common stock vote together as a single class on all matterssubmitted to the stockholders. The material terms and provisions of the Company’scertificate of incorporation affecting the relative rights of the Class Acommon stock and the Class B common stock are described in Note 9 tothe financial statements included in our annual report on Form 10-K forthe fiscal year ended December 28, 2006.

***Share RepurchaseProgram***

During 2004, the Company’s board of directorsauthorized a share repurchase program, which provided for the authorization torepurchase up to $50.0 million of the Company’s outstanding Class Acommon stock within a twelve month period. During the quarter ended June 30,2005, the Company repurchased 520,386 shares of its outstanding Class Acommon stock at an aggregate cost of approximately $10.0 million. The Company’s board of directors extended the share repurchase program duringthe years ended December 28, 2006 and December 29, 2005 for additional twelvemonth periods. Accordingly, the Company can repurchase up to an additional$40.0 million under the share repurchase program throughSeptember 2007. The Company made no repurchases of its outstandingClass A common stock during the quarters ended March 29, 2007 and March30, 2006. Repurchases can be made from time to time as market conditionswarrant, through open market purchases, negotiated transactions, or in such amanner deemed appropriate by the Company. Treasury shares are retired uponrepurchase. At retirement, the Company records treasury stock purchases at costwith any excess of cost over par value recorded as a reduction of additionalpaid-in capital.

***Warrants***

Other than disclosed in Note 4—“Debt Obligations”and Note 9—“Earnings Per Share,” no warrants to acquire the Company’scommon stock were outstanding as of March 29, 2007.

***Share-BasedCompensation***

In 2002, the Company established the Incentive Planwhich provides for the granting of incentive stock options and non-qualifiedstock options to officers, employees and consultants of the Company. Asdescribed below under “Restricted Stock” and “Performance Share Units” theIncentive Plan also provides for grants of restricted stock and performanceshares that are subject to restrictions and risks of forfeiture. Readers shouldrefer to Note 9 to the financial statements included in our annual reporton Form 10-K for 

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thefiscal year ended December 28, 2006 for additional information related tothese awards and the Incentive Plan.

Effective December 30, 2005, the Company adoptedStatement of Financial Accounting Standards No. 123 (revised), “Share-BasedPayment” (SFAS 123R) utilizing the modified prospective approach. 

*Stock Options*

On March 5, 2007, Regal declared an extraordinarycash dividend of $2.00 per share on each outstanding share of its Class Aand Class B common stock. Stockholders of record at the close of businesson March 28, 2007 were paid this dividend on April 13, 2007.   In connection with the extraordinary cashdividend and pursuant to the antidilution adjustment terms of the IncentivePlan, the exercise price and the number of shares of Class A common stocksubject to options held by the Company’s option holders were adjusted toprevent dilution and restore their economic position to that existing immediatelybefore the extraordinary dividend. The antidilution adjustments made withrespect to such options resulted in a decrease in the range of exercise prices,from $2.4407 to $16.1768 per share, an increase in the aggregate number ofshares issuable upon exercise of such options by 269,213, and an increase inthe total number of authorized shares under the Plan to 18,269,213. As of March29, 2007 and after giving effect to the antidilution adjustments, the Companyhad outstanding options to purchase a total of 2,903,492 shares of Class Acommon stock under the Incentive Plan, and 3,063,103 shares remaining availablefor future issuance under the Incentive Plan. Stock option informationpresented herein has been adjusted to give effect to the extraordinarydividend. There were no accounting consequences for changes made to reduce theexercise prices and increase the number of shares underlying options as aresult of the extraordinary cash dividend because (1) the aggregateintrinsic value of the awards immediately after the extraordinary dividend wasnot greater than the aggregate intrinsic value of the awards immediately beforethe extraordinary dividend 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 thequarters ended March 29, 2007 and March 30, 2006.  During the quarters ended March 29, 2007 andMarch 30, 2006, the Company recognized approximately $0.9 million and $1.8 millionof share-based compensation expense related to stock options.  Suchexpense is presented as a component of general and administrative expenses forthe quarters ended March 29, 2007 and March 30, 2006. At March 29, 2007, therewas $0.9 million of unrecognized compensation cost related to theseshare-based payments.

We receive a tax deduction for certain stock optionexercises during the period the options are exercised, generally for the excessof the price at which the stock is sold over the exercise price of theoptions.  Prior to adoption of SFAS 123R, we reported all tax benefitsresulting from the exercise of stock options as operating cash flows in ourconsolidated statements of cash flows. In accordance with SFAS 123R, we arerequired to report excess tax benefits from the award of equity instruments asfinancing cash flows.  Excess tax benefits are recorded when a deductionreported for tax return purposes for an award of equity instruments exceeds thecumulative compensation cost for the instruments recognized for financial reportingpurposes.  For the quarter ended March 29, 2007, our unaudited condensedconsolidated statement of cash flows reflects $2.2 million of excess taxbenefits as financing cash flows. Net cash proceeds from the exercise ofstock options were $3.2 million for the quarter ended March 29, 2007. Theactual income tax benefit realized from stock option exercises is $2.7 millionfor the same period.

The following table represents stock option activityfor the quarter ended March 29, 2007:

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| ** **                                                                                                                                            | ** ** | **Number of  Shares** | ** ** | **Weighted-  Average  Exercise Price** | ** ** | **Weighted-  Average  Contract Life** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------|------------|---------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                                                                            | ** ** | ** **                 | ** ** | ** **                                  | ** ** | ** **                                 | ** ** |
| Outstanding  options at beginning of period                                                                                                           |       | 3,095,601                  |       | $                                           | 7.03       |                                       | 5.48  Yrs  |   |
| Granted                                                                                                                                               |       | —                     |       | —                                      |       |                                       |       |
| Exercised                                                                                                                                             |       | (458,593                   | )          | 5.82                                        |       |                                       |       |
| Forfeited                                                                                                                                             |       | (2,729                     | )          | 17.38                                       |       |                                       |       |
| Antidilution adjustments made to outstanding options  in connection with the extraordinary dividend declared during the quarter  ended March 29, 2007 |       | 269,213                    |       | 6.36                                        |       |                                       |       |
| Outstanding  options at end of period                                                                                                                 |       | 2,903,492                  |       | $                                           | 6.36       |                                       | 5.23  Yrs  |   |
| Exercisable options at  end of period                                                                                                                 |       | 2,602,764                  |       | $                                           | 5.53       |                                       | 5.14 Yrs   | ** ** |

 

*Restricted Stock*

As described in Note 9 to the financial statementsincluded in our annual report on Form 10-K for the fiscal year endedDecember 28, 2006, the Company maintains a restricted stock program whichprovides for restricted stock awards to officers, directors and key employees.Under the restricted stock program, common stock of the Company may be grantedat nominal cost to officers, directors and key employees, subject to acontinued employment restriction. On January 10, 2007, 164,647 shares weregranted under the restricted stock program at nominal cost to officers, keyemployees and certain directors.  The closing price of our Class A commonstock on the date of grant was $22.25 per share. 

During quarters ended March 29, 2007 and March 30,2006, the Company recognized approximately $0.8 million and $0.2 million,respectively, of share-based compensation expense related to restricted sharegrants.  Such expense is presented as a component of general andadministrative expenses for the quarters ended March 29, 2007 and March 30,2006.  The compensation expense for these awards was determined based onthe market price of our stock at the date of grant applied to the total numbersof shares that were anticipated to fully vest. 

The following table represents the shares ofrestricted stock that were granted and outstanding as of March 29, 2007 andMarch 30, 2006:
| ** **                       | ** ** | **Quarter ended  March 29, 2007** | ** ** | **Quarter ended  March 30, 2006** | ** ** |
|----------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
|                             |       |                                             |       |                                             |       |
| Restricted  stock:               |       |                                             |       |                                             |       |
| Granted during  the period ended |       | 164,647                                          |       | 169,689                                          |       |
| Outstanding, as of               |       | 484,499                                          |       | 321,449                                          |       |

 

During the quarter ended March 29, 2007, the Companypaid one cash dividend of $0.30 on each share of outstanding restricted stocktotaling approximately $0.1 million. In addition, on March 5, 2007, Regal declared an extraordinary cashdividend of $2.00 per share on each outstanding restricted share. Restrictedstockholders of record at the close of business on March 28, 2007 were paidthis dividend on April 13, 2007.  Therestricted stock dividend was recorded as a $1.0 million increase tostockholders’ deficit upon declaration.

*Performance Share Units*

As described in Note 9 to the financial statementsincluded in our annual report on Form 10-K for the fiscal year endedDecember 28, 2006, the Incentive Plan also provides for grants in the formof performance share units to officers, directors and key employees.Performance share agreements are entered into between the Company and eachgrantee of performance share units. Pursuant to the terms and conditions of thePerformance Agreement, grantees will be issued shares of restricted commonstock of the Company in an amount determined by the attainment of Companyperformance criteria set forth in the Performance Agreement. The shares ofrestricted common stock received upon attainment of the performance criteriawill be subject to further vesting over a period of time, provided the granteeremains a service provider to the Company during such period.  

On January 10, 2007, 188,789 performance shares weregranted under our restricted stock program at nominal cost to officers and keyemployees.  The closing price of our Class A common stock on the date ofgrant was $22.25 per share. Each performance share represents the right to receivefrom 0% to 

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175% ofthe target numbers of shares of restricted common stock. The number of sharesof restricted common stock earned will be determined by comparing the actualaverage annual total shareholder return (stock price appreciation plus dividendyield) attained (“TSRA”) on Regal’s Class A common stock on January 10,2010 (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 the2007 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 the followingschedule:
| **Average Annual Shareholder Return** | ** ** | **Target Shares of Restricted Stock** | ** ** |
|------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| 12.5% < TSRA < 15.0%                           |       | 50%  of Target LTI                                        |       |
|                                                 |       |                                                      |       |
| 15.0% < TSRA < 17.5%                           |       | 100%  of Target LTI                                       |       |
|                                                 |       |                                                      |       |
| 17.5% < TSRA < 20.0%                           |       | 125%  of Target LTI                                       |       |
|                                                 |       |                                                      |       |
| 20.0% < TSRA < 25.0%                           |       | 150%  of Target LTI                                       |       |
|                                                 |       |                                                      |       |
| 25.0% < TSRA                                      |       | 175% of Target LTI                                        |       |

 

Since the performance shares contain a marketcondition which should be reflected in the grant date fair value of an award inaccordance with the provisions of SFAS 123R, the performance shares weremeasured on the date of grant using a Monte Carlo simulation model. The MonteCarlo simulation model utilizes multiple input variables that determine theprobability of satisfying the market condition stipulated in the award grantand calculates the fair market value for the performance shares granted. OnJanuary 10, 2007, the aggregate fair value of the 2007 performance shareawards was determined to be $1.8 million, which includes related dividendson shares ultimately earned and paid on January 10, 2010. The fair value of theperformance share awards will be amortized as compensation expense over theexpected term of the awards. The key assumptions used for valuing performanceshares follow:
| ** **                            | ** ** | **Quarter Ended  March 29, 2007** | ** ** |
|---------------------------------------|------------|--------------------------------------------------|------------|
| Measurement date                      |       | 1/10/2007                                        |       |
| Measurement date  closing stock price |       | $                                                | 22.25      |   |
| Expected  volatility                  |       | 18.3                                             | %          |
| Risk-free  interest rate              |       | 4.72                                             | %          |
| Expected  dividend yield              |       | 5.39                                             | %          |
|                                       |            |                                                  |            |  |

 

Expected volatility is based on historical volatilityof the Company’s dividend adjusted common stock price measured daily over athree year period ending on January 10, 2007.  The risk-free interest rateis set equal to the yield on three-year (constant maturity) U.S. Governmentbonds as of January 10, 2007. The expected dividend yield assumption is basedon the Company’s history and expectation of future dividend payouts. Thedividend yield is included in the calculation of returns for measurementagainst the performance goals defined above.

No performance shares were granted or outstandingduring the quarter ended March 30, 2006. During the quarter ended March 29,2007, the Company recognized approximately $0.4 million of share-basedcompensation expense related to performance share grants.  Such expense ispresented as a component of general and administrative expenses for the quarterended March 29, 2007. The following tables summarize information about theCompany’s performance shares activity:

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| ** **                        | ** ** | **Quarter Ended  March 29, 2007** | ** ** |
|-----------------------------------|------------|--------------------------------------------------|------------|
| Number of  performance shares:    |       |                                             |       |
| Outstanding at  beginning of year |       | 383,310                                          |       |
| Granted (based  on target TSRA)   |       | 188,789                                          |       |
| Forfeited                         |       | —                                           |       |
| Outstanding as of March  29, 2007 |       | 572,099                                          |       |

 

The above table does not reflect the maximum orminimum number of shares of restricted stock contingently issuable. Anadditional 429,074 shares of restricted stock could be issued providing themaximum TSRA is met. 

**7. COMMITMENTS AND CONTINGENCIES**

***Sale-Leaseback Transactions***

The Company’s sale-leaseback transactions aredescribed in Note 6 to the consolidated financial statements included inour annual report on Form 10-K for the fiscal year ended December 28,2006.

***Other***

On March 18, 2003, ReadingInternational, Inc., Citadel Cinemas, Inc. and Sutton Hill Capital,LLC (collectively, the “Plaintiffs”) filed a complaint and demand for jurytrial in the United States District Court for the Southern District of New Yorkagainst Oaktree Capital Management LLC, Onex Corporation (“Loews”), Regal,United Artists, United Artists Theatre Circuit, Inc., Loews CineplexEntertainment Corporation, Columbia Pictures Industries, Inc., The WaltDisney Company, Universal Studios, Inc., Paramount Pictures Corporation,Metro-Goldwyn-Mayer Distribution Company, Fox Entertainment Group, Inc.,Dreamworks LLC, Stephen Kaplan and Bruce Karsh (collectively, the “Defendants”)alleging various violations by the Defendants of federal and state antitrustlaws and New York common law. The Plaintiffs allege, among other things, thatthe consolidation of the theatre industry and alleged agreements between andamong Regal, movie distributors, and Loews, have adversely impacted theirability to exhibit first-run industry-anticipated top-grossing commercial filmsat their Village East theatre in Lower Manhattan, and are seeking, among otherthings, a declaration that the Defendants’ conduct is in violation of antitrustlaws, damages, and equitable relief enjoining Defendants from engaging infuture anticompetitive conduct. On December 10, 2003, the court grantedDefendants’ motion to dismiss in part, thereby dismissing several ofPlaintiffs’ claims and dismissing Sutton Hill as a plaintiff. OnDecember 24, 2003, Plaintiffs amended their complaint to add Village EastLimited Partnership as a Plaintiff. On July 29, 2005, Regal filed a motionfor summary judgement as to all counts asserted against it. On January 8,2007, the court granted Regal’s motion for summary judgement in its entiretyand dismissed the Plaintiffs claims with prejudice.

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

In prior years, private litigants and the Departmentof Justice (the “DOJ”) had filed claims against Regal or its subsidiariesalleging that a number of our theatres with stadium seating violated the ADAbecause these theatres allegedly failed to provide wheelchair-bound patronswith lines of sight comparable to those available to other members of thegeneral public and denied persons in wheelchairs access to the stadium portionof the theatres. On June 8, 2005, Regal reached an agreement with the DOJresolving and dismissing the private litigants’ claims and all claims made bythe United States under the ADA. Over the next four years, the Company anticipatesthat it will incur capital costs to modify its theatres in accordance with theDOJ settlement arrangements in the aggregate of up to $5.0 million. Fromtime to time, we receive claims that the stadium seating offered by ourtheatres allegedly violates the ADA. In these instances, we seek to resolve ordismiss these claims based on the terms of the DOJ settlement or underapplicable ADA standards. 

In addition, we, from time to time, receive lettersfrom the attorneys general of states in which we operate theatres regardinginvestigation into the accessibility of our theatres to persons with visual orhearing impairments. We believe we provide the members of the visually andhearing impaired communities with reasonable access to the movie-goingexperience.

We believe that we are in substantial compliance withall current applicable regulations relating to accommodations for the disabled.We intend to comply with future regulations in this regard, and except as setforth above, we do not currently anticipate that compliance will require us toexpend substantial funds. Our theatre operations are also subject to federal,state and local laws governing such matters as wages, working conditions,citizenship and health and sanitation requirements. We believe that we are insubstantial compliance with all of such laws.

On or about January 3, 2007, suit was initiatedagainst the Company in Federal Court, Central District of California, styled, *Bateman, individually and on behalf of all otherssimilarly situated, v. Regal Cinemas, Inc. and United Artists TheatreCircuit, Inc., et al.,* alleging violations of the Fair andAccurate 

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Transaction Act, forallegedly printing expiration dates and credit card numbers on customerreceipts. The plaintiff seeks to represent a class of individuals allegedlyharmed by this alleged practice. The complaint seeks actual damages and/orstatutory damages of at least one hundred dollars or up to one thousand dollarsper violation, and attorney fees and costs. We believe we are in substantialcompliance with all applicable federal and state laws governing these tradepractices.

RCI is a defendant in a few remaining claims arisingfrom its decision to file voluntary petitions for bankruptcy relief. We and ourvarious subsidiary 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 suchmatters. Management believes any additional liability with respect to theseclaims and disputes will not be material in the aggregate to our consolidatedfinancial position, results of operations or cash flows.

**8.RELATED PARTY TRANSACTIONS**

During the quarters ended March 29, 2007 and March 30,2006, Regal Cinemas, incurred approximately $1.0 million and$0.8 million, respectively, of expenses payable to an Anschutz affiliate,Qwest Communications and its subsidiaries, for telecommunication services. Inaddition, Regal Cinemas incurred approximately $0.1 million of expensespayable to Anschutz affiliates for certain advertising services during thequarters ended March 29, 2007 and March 30, 2006. 

During the quarters ended March 29, 2007 and March 30,2006, Regal Cinemas received less than $0.1 million from an Anschutzaffiliate for rent and other expenses related to a theatre facility.  In addition, during the quarter ended March30, 2006, Regal received less than $0.1 million for travel costs incurredduring 2005 on behalf of an Anschutz affiliate. 

During 2005 and 2006, National CineMedia entered intovarious lease assignment and sublease arrangements with RCM pursuant to whichNational CineMedia leases its regional offices in Eden Prairie, Minnesota,Chicago, Illinois and New York, New York. The amounts paid by National CineMedia under these arrangements totaledapproximately $0.2 million for the quarter ended March 29, 2007.  Relatedparty amounts for these arrangements for the quarter ended March 30, 2006 werecomparable to the 2007 amounts.

**9. EARNINGS PER SHARE**

Basic earnings per share is computed on the basis ofthe weighted average number of the common shares outstanding. Diluted earningsper share is computed on the basis of the weighted average number of commonshares outstanding plus the effect of potentially dilutive common stockoptions, the Convertible Note Hedge and Warrant and restricted stock using thetreasury stock method. The components of basic and diluted earnings per shareare as follows (in millions, except per share data):
|                                                      | ** ** | **Quarter Ended  March 29, 2007** | ** ** | **Quarter Ended  March 30, 2006** | ** ** |
|------------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| Net income                                           |       | $                                                | 229.1      |                                             | $          | 11.2 |   |
| Weighted average  shares outstanding (in thousands): |       |                                             |       |                                             |       |
| Basic:                                               |       | 150,296                                          |       | 147,767                                          |       |
| Add common stock equivalents                         |       | 6,905                                            |       | 6,271                                            |       |
|                                                 |       |                                             |       |                                             |       |
| Diluted:                                             |       | 157,201                                          |       | 154,038                                          |       |
| Earnings per  share                                  |       |                                             |       |                                             |       |
| Basic:                                               |       | $                                                | 1.52       |                                             | $          | 0.08 |   |
| Diluted:                                             |       | $                                                | 1.46       |                                             | $          | 0.07 |   |

 

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Common stock equivalents consist principally of stockoptions, warrants and restricted stock. There were no antidilutive stockoptions, warrants or restricted stock outstanding as of March 29, 2007 andMarch 30, 2006.

The Convertible Senior Notes discussed in Note 4—“Debt Obligations” allow us to settle any conversion, and we intend to settleany conversion, by remitting to the note holder the accreted value of the notein cash, while settling the conversion spread in either cash, shares of ourClass A common stock or a combination of stock and cash. The accountingfor convertible debt with such settlement features is addressed in theconsensus reached by the EITF with respect to the accounting for Instrument Cas set forth in EITF 90-19, “Convertible Bonds with Issuer Option to Settle forCash Upon Conversion.” It is our intent to settle the Convertible Senior Notes’conversion obligations consistent with Instrument C. Because the accreted valueof the Convertible Senior Notes will be settled in cash upon the conversion,only the conversion spread, which may be settled in stock, will result inpotential dilution in our earnings-per-share computations under currentaccounting standards. On March 29, 2007, the closing sale price of our Class Acommon stock was $19.70, which exceeded 110% of the then current conversionprice of $13.0075 on the Convertible Senior Notes. Accordingly, as of March 29,2007, our note holders had the right, at their option, to convert theirConvertible Senior Notes, in whole or in part, into shares of our Class Acommon stock, subject to certain limitations, at the then conversion price of$13.0075. Utilizing the treasury stock method, the conversion spread resultedin dilution of approximately 2.9 million shares and 3.0 million shares inour diluted earnings per share computations for the quarters ended March 29,2007 and March 30, 2006.

In addition, as described in Note 4—“DebtObligations,” we entered into the Convertible Note Hedge and sold the Warrantwhich, in combination, have the effect of reducing the dilutive impact of theConvertible Senior Notes by increasing the effective conversion price for thesenotes from our economic perspective to $15.0087 at March 29, 2007. Statement ofFinancial Accounting Standards (“SFAS”) No. 128, “Earnings Per Share,”however, requires us to analyze the impact of the Convertible Note Hedge andWarrant on diluted earnings per share separately. As a result, the purchase ofthe Convertible Note Hedge is excluded because its impact will always beantidilutive. SFAS No. 128 further requires that the impact of the sale ofthe Warrant be computed using the treasury stock method. The Warrant resultedin dilution of approximately 2.0 million shares and 1.0 millionshares in our diluted earnings per share computations for the quarters endedMarch 29, 2007 and March 30, 2006, respectively. As of March 29, 2007, themaximum number of shares that could potentially be included under the Warrantis 9.5 million.

**10. RECENT ACCOUNTING PRONOUNCEMENTS**

During June 2006, the FASB issued FIN 48. ThisInterpretation clarifies the accounting for uncertainty in income taxesrecognized in an enterprise’s financial statements in accordance with FASBStatement No. 109, “Accounting for Income Taxes” and prescribes guidanceon the financial statement recognition and measurement of a tax position takenor expected to be taken in a tax return. FIN 48 requires that we recognize inthe financial statements the impact of a tax position if that position morelikely than not will be sustained on an audit, based on the technical merits ofthe position. This Interpretation also provides guidance on derecognition,classification, interest and penalties, accounting in interim periods,disclosure, and transition. As discussed further in Note 5—“Income Taxes,”the Company adopted the provisions of this Interpretation effective December29, 2006.

In September 2006, the FASB issued SFAS No. 157(“SFAS 157”), “Fair Value Measurements.” 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. SFAS 157 is effective beginning the first fiscal year that beginsafter November 15, 2007. The Company continues to evaluate the adoption ofSFAS 157 and its impact on the Company’s consolidated financial position, cashflows and results of operations.

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

**11. SUBSEQUENT EVENTS**

On April 26, 2007, the Company declared a cashdividend of $0.30 per share on each share of the Company’s Class A andClass B common stock (including outstanding restricted stock), payable onJune 21, 2007, to stockholders of record on June 13, 2007.

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

*Some of theinformation in this Quarterly Report on Form 10-Q includes “forward-lookingstatements” within the meaning of Section 27A of the Securities Act of1933, as amended, and Section 21E of the Securities Exchange Act of 1934,as amended. All statements other than statements of historical facts includedin this Form 10-Q, including, without limitation, certain statements under“Management’s Discussion and Analysis of Financial Condition and Results ofOperations”, may constitute forward-looking statements. In some cases you canidentify these “forward-looking statements” by words like “may,” “will,” “should,”“expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential”or “continue” or the negative of those words and other comparable words. Theseforward-looking statements involve risks and uncertainties. Our actual resultscould differ materially from those indicated in these statements as a result ofcertain factors as more fully discussed under the heading “Risk Factors”contained in our annual report on Form 10-K filed on February 26,2007 with the Commission (File No. 001-31315) for the Company’s fiscalyear ended December 28, 2006. The following discussion and analysis should beread in conjunction with the unaudited condensed consolidated financialstatements and notes thereto included herein.*

***The Company***

We conduct our operations primarily through our whollyowned subsidiaries. We operate the largest and most geographically diversetheatre circuit in the United States, consisting of 6,340 screens in 529theatres in 39 states and the District of Columbia as of March 29, 2007. Webelieve the size, reach and quality of our theatre circuit provide anexceptional platform to realize economies of scale from our theatreoperations.  We also maintain aninvestment in National CineMedia, which has primarily concentrated its efforts onthe expansion of in-theatre advertising and the creation of complementarybusiness lines that leverage the existing operating personnel, asset andcustomer bases of its theatrical exhibition partners, which includes us, AMCand Cinemark.  The Company manages itsbusiness under one reportable segment: theatre exhibition operations.

We generate revenues primarily from admissions andconcession sales. Additional revenues are generated by our vendor marketingprograms and electronic video games located adjacent to the lobbies of certainof our theatres. In addition, National CineMedia provides us with revenues fromits sale of on-screen advertising, rental of theatres for business meetings andconcerts and other events. Film rental costs depend on a variety of factorsincluding the prospects of a film and the popularity of a film and such film 

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rentalcosts generally increase as the admissions revenues generated by a filmincrease. Because we purchase certain concession items, such as fountain drinksand popcorn, in bulk and not pre-packaged for individual servings, we are ableto improve our margins by negotiating volume discounts. Other operatingexpenses consist primarily of theatre labor and occupancy costs.

As described in further detail in Note 1 to the consolidatedfinancial statements included Part II, Item 8 of our annual report onForm 10-K for the fiscal year ended December 28, 2006, the Company’sfinancial statements reflect the results of operations from the dates theAnschutz Corporation and its subsidiaries acquired its controlling equityinterests in United Artists, Edwards and Regal Cinemas and includes subsequentacquisitions, which have been included in the Company’s financial statementsfor periods subsequent to the respective acquisition dates.

On March 29, 2005, Regal and AMC announced thecombination of the operations of RCM and AMC’s subsidiary, NCN, into a newjoint venture company, National CineMedia. On July 15, 2005, Cinemark,through a wholly owned subsidiary, acquired a 20.7% interest in NationalCineMedia. 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 IPO of NCM Inc., RCH, AMC and Cinemarkamended and restated the Operating Agreement and the other ancillaryagreements.  As discussed further in Note3—“Investment in National CineMedia, LLC,” as a result of the transactionscompleted in connection with the IPO, the Company recognized a gain ofapproximately $350.7 million during the quarter ended March 29, 2007. 

For a summary of industry trends as well as otherrisks and uncertainties relevant to the Company, see “Business—IndustryOverview and Trends” and “Risk Factors” contained in our annual report on Form10-K for the fiscal year ended December 28, 2006 and “Results of Operations”below.

**Results of Operations**

The first fiscal quarter of 2007 was a solid quarterfor the industry and the Company.  Based on our review of industrysources, national box office revenues were estimated to have increased byapproximately 7.0% to 8.0% during the first fiscal quarter of 2007 incomparison to the first fiscal quarter of 2006.  The industry achievedthese results with ticket price increases and attendance growth from key 2007film releases, such as *300, Wild Hogs and GhostRider* and the carryover success of December 2006 releases, such as *Night at the Museum*.  

Our total revenue for the quarter ended March 29, 2007(“Q1 2007 Period”) was $625.0 million, consisting of $426.7 million ofadmissions revenues, $168.3 million from concessions revenues and $30.0 millionof other operating revenues, and represented a 6.8% increase over totalrevenues of $585.1 million for the quarter ended March 30, 2006 (“Q1 2006Period”).

Our Q1 2007 Period admissions revenues were favorablyimpacted by a 1.1% increase in attendance, coupled with a 7.7% increase inaverage ticket prices. The increase in the Q1 2007 Period attendance wasprimarily attributable to a strong box office led by key Q1 2007 Period films,such as *300, Wild Hogs and Ghost Rider* and thecarryover success of December 2006 releases. Our Q1 2007 Period attendance also benefited from approximately 97new screens added since the end of the Q1 2006 Period and the 58 screensacquired from AMC during the third fiscal quarter of 2006, partially offset bythe closure of approximately 230 underperforming screens subsequent to the endof the Q1 2006 period.  The increase inthe Q1 2007 Period average ticket price was primarily attributable to periodicpricing reviews conducted by the Company, which includes analysis of variousfactors, including general inflationary trends and local market conditions,coupled with the film product mix exhibited during the Q1 2007 Period, which includedthe R-rated film, *300*.  Based on our review of certain industrysources, the increase in our admissions revenues was in line with the industry’sresults for the Q1 2007 Period as compared to the Q1 2006 Period.

In addition, during the Q1 2007 Period, we experiencedgrowth in average concession revenues per patron and a decline in otheroperating revenues. The growth in average concession revenues per patron

24

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wasprimarily attributable to price increases and concession-friendly filmsexhibited during the Q1 2007 Period.  Thedecrease in other operating revenues in the Q1 2007 Period was primarilyattributable to a modification of the payment arrangement with NationalCineMedia (effective upon consummation of the IPO of NCM Inc. on February 13,2007) described in further detail under Note 3—“Investment in NationalCineMedia, LLC.” Such decrease was partially offset by increased othertheatre revenues.

Income from operations increased 28.2% to$65.0 million for the Q1 2007 Period compared to $50.7 million in theQ1 2006 Period. The net increase in income from operations during the Q1 2007Period was primarily attributable to incremental admissions and concessionsrevenues described above, partially offset by lower other operating revenuesand increases in certain operating expense items described in further detailbelow. Net income increased to $229.1 million in the Q1 2007 Periodcompared to net income of $11.2 million in the Q1 2006 Period. Earningsper diluted share also increased to $1.46 for the Q1 2007 Period compared to$0.07 during the Q1 2006 Period.  Theincrease in net income and earnings per diluted share are primarily due to a$350.7 million gain ($209.0 million after related tax effects) resulting fromtransactions completed in connection with the IPO of NCM Inc. (see Note 3—“Investmentin National CineMedia, LLC” for further discussion), coupled with incrementaladmissions and concessions revenues, partially offset by decreases in other operatingrevenues and increases in certain expense items described in further detailbelow.  During the Q1 2007 Period, wecontinued to make progress with respect to the following strategic initiatives:

·                  OnFebruary 13, 2007, NCM Inc., a newly formed entity that serves as the solemanager of  National CineMedia, completedan IPO of its common stock. NCM Inc. sold 38.0 million shares of its commonstock for $21 per share in the IPO, less underwriting discounts andexpenses.  NCM Inc. used a portion of thenet proceeds from the IPO to acquire newly issued common units from NationalCineMedia. In turn, National CineMedia paid the net proceeds to each of Regal,AMC and Cinemark in exchange for modifying payment obligations for access totheir respective theatres, for which Regal received a payment of approximately $281.0million. Upon the closing of the IPO, National CineMedia entered into a $725million term loan facility, the net proceeds of which were used to redeempreferred units issued to each of Regal, AMC and Cinemark on a pro rata basispursuant to a recapitalization of National CineMedia prior to completion of theIPO. As discussed in Note 3—“Investment in National CineMedia, LLC,” wereceived approximately $315.1 million as a result of the preferred unitredemption.  At the closing of the IPO,the underwriters exercised their over-allotment option to purchase anadditional 4.0 million shares of common stock of NCM Inc. at the initialoffering price of $21 per share, less underwriting discounts and commissions.In connection with this over-allotment option exercise, Regal, AMC and Cinemarkeach sold to NCM Inc. common units of National CineMedia on a pro rata basis atthe initial offering price of $21 per share, less underwriting discounts andexpenses. Regal sold approximately 1.6 million common units to NCM Inc. forproceeds of approximately $32.2 million, and upon completion of this sale ofcommon units, Regal held approximately 21.2 million common units of NationalCineMedia, or a 22.6% interest.  Afterthe payment of current taxes, we estimate net proceeds from these transactionsto total approximately $445.0 million.  TheCompany used a portion of the net proceeds to fund an extraordinary cashdividend of $2.00 per share (declared on March 5, 2007) on each outstandingshare of its Class A and Class B common stock, including outstandingrestricted stock, or approximately $302.0 million in the aggregate.  We are currently exploring alternatives foruse of the remaining proceeds, and may use some or all of the remainingproceeds for strategic acquisitions, stock repurchases or other corporateuses.  See Note 3—“Investment inNational CineMedia, LLC” for additional discussion of these transactions. 

·                  Wedemonstrated our commitment to providing incremental value to our stockholders.Total cash dividends distributed to our stockholders during the Q1 2007 Periodtotaled approximately $45.3 million. As described above, on March 5, 2007, Regal declared an extraordinarycash dividend of $2.00 per share on each outstanding share of its Class A andClass B common stock, including outstanding restricted stock. Stockholders of

25

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recordat the close of business on March 28, 2007 were paid this $302.0 milliondividend on April 13, 2007. 

·                  We opened 1 newtheatre with 15 screens, added 1 screen through expansion of an existingtheatre and closed 11 underperforming theatres with 79 screens, ending the Q12007 Period with 529 theaters and 6,340 screens.

The following table sets forth the percentage of totalrevenues represented by certain items included in our consolidated statementsof income for the Q1 2007 Period and the Q1 2006 Period (dollars and attendancein millions, except average ticket prices and average concession per patron): 
| ** **                                                                                                                                                         | ** ** | **Q1 2007 Period** | ** ** | **Q1 2006 Period** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **                                                                                                                                                         | ** ** | **$**                        | ** ** | **% of  Revenue**       | ** ** | **$** | ** ** | **% of  Revenue** | ** ** |
| Revenues:                                                                                                                                                          |       |                         |       |                         |       |   |   |   |   |
| Admissions                                                                                                                                                         |       | $                            | 426.7      |                         | 68.3       | % | $ | 392.0 |   | 67.0 | % |
| Concessions                                                                                                                                                        |       | 168.3                        |       | 26.9                         |       | 158.6 |   | 27.1 |   |
| Other operating revenue                                                                                                                                            |       | 30.0                         |       | 4.8                          |       | 34.5 |   | 5.9 |   |
|                                                                                                                                                               |       |                         |       |                         |       |   |   |   |   |
| Total revenue                                                                                                                                                      |       | 625.0                        |       | 100.0                        |       | 585.1 |   | 100.0 |   |
| Operating  expenses:                                                                                                                                               |       |                         |       |                         |       |   |   |   |   |
| Film rental and advertising costs(1)                                                                                                                               |       | 218.0                        |       | 51.1                         |       | 197.0 |   | 50.3 |   |
| Cost of concessions(2)                                                                                                                                             |       | 25.0                         |       | 14.9                         |       | 24.1 |   | 15.2 |   |
| Rent expense(3)                                                                                                                                                    |       | 81.0                         |       | 13.0                         |       | 77.6 |   | 13.3 |   |
| Other operating expenses(3)                                                                                                                                        |       | 164.9                        |       | 26.4                         |       | 158.6 |   | 27.1 |   |
| General and administrative expenses (including  share-based compensation expense of $2.1 and $2.0 for the Q1 2007 Period and  the Q1 2006 Period, respectively)(3) |       | 16.0                         |       | 2.6                          |       | 15.9 |   | 2.7 |   |
| Depreciation and amortization(3)                                                                                                                                   |       | 46.3                         |       | 7.4                          |       | 49.7 |   | 8.5 |   |
| Net loss on disposal and impairment of operating  assets(3)                                                                                                        |       | 5.4                          |       | 0.9                          |       | 5.7 |   | 1.0 |   |
| Equity in earnings of joint venture including former  employee compensation(3)                                                                                     |       | 3.4                          |       | 0.5                          |       | 5.8 |   | 1.0 |   |
|                                                                                                                                                               |       |                         |       |                         |       |   |   |   |   |
| Total operating expenses(3)                                                                                                                                        |       | 560.0                        |       | 89.6                         |       | 534.4 |   | 91.3 |   |
|                                                                                                                                                               |       |                         |       |                         |       |   |   |   |   |
| Income from operations(3)                                                                                                                                          |       | 65.0                         |       | 10.4                         |       | 50.7 |   | 8.7 |   |
| Interest expense, net(3)                                                                                                                                           |       | 31.0                         |       | 5.0                          |       | 31.1 |   | 5.3 |   |
| Gain on NCM transaction(3)                                                                                                                                         |       | 350.7                        |       | 56.1                         |       | — |   | — |   |
| Provision for income taxes(3)                                                                                                                                      |       | 155.6                        |       | 24.9                         |       | 7.5 |   | 1.3 |   |
| Net income(3)                                                                                                                                                      |       | 229.1                        |       | 36.7                         |       | 11.2 |   | 1.9 |   |
| Attendance                                                                                                                                                         |       | 58.6                         |       | *                            |       | 58.0 |   | * |   |
| Average ticket price(4)                                                                                                                                            |       | $                            | 7.28       |                         | *          |   | $ | 6.76 |   | * |   |
| Average concession per patron(5)                                                                                                                                   |       | $                            | 2.87       |                         | *          |   | $ | 2.74 |   | * |   |

 

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*                                         *Not meaningful*

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

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

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

(4)                                  Calculated as admissions revenue/attendance.

(5)                                  Calculated as concessions revenue/attendance.

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***Q1 2007 Period Compared to Q1 2006 Period***

***Admissions***

During the Q1 2007 Period, total admissions revenuesincreased $34.7 million, or 8.9%, to $426.7 million, from$392.0 million for the Q1 2006 Period. Our Q1 2007 Period box officeresults were favorably impacted by a 1.1% increase in attendance, coupled with a7.7% increase in average ticket prices. The increase in the Q1 2007 Periodattendance was primarily attributable to a strong box office led by key Q1 2007Period films, such as *300, Wild Hogs and GhostRider* and the carryover success of December 2006 releases.  Our Q1 2007 Period attendance also benefitedfrom approximately 97 new screens added since the end of the Q1 2006 Period andthe 58 screens acquired from AMC during the third fiscal quarter of 2006,partially offset by the closure of approximately 230 underperforming screenssubsequent to the end of the Q1 2006 Period. The increase in the Q1 2007 Period average ticket price was primarilyattributable to periodic pricing reviews conducted by the Company, whichincludes analysis of various factors, including general inflationary trends andlocal market conditions, coupled with the film product mix exhibited during theQ1 2007 Period, which included the R-rated film, *300*.  Based on our review of certain industrysources, the increase in our admissions revenues was in line with the industry’sresults for the Q1 2007 Period as compared to the Q1 2006 Period.

***Concessions***

Total concessions revenues increased$9.7 million, or 6.1%, to $168.3 million for the Q1 2007 Period, from$158.6 million for the Q1 2006 Period. The increase in concessionsrevenues in the Q1 2007 Period compared to the Q1 2006 Period was due to a 4.7%increase in average concessions per patron, coupled with the aforementioned Q12007 Period increase in attendance. The increase in the Q1 2007 Periodconcessions revenue and average concessions per patron was primarilyattributable to increases in concession prices and concession-friendly filmsexhibited during the Q1 2007 Period.

***Other Operating Revenues***

Total other operating revenues decreased$4.5 million, or 13.0%, to $30.0 million for the Q1 2007 Period, from$34.5 million for the Q1 2006 Period. Included in other operating revenuesare on-screen advertising revenues, the other activities of National CineMedia,marketing revenues from our vendor marketing programs and other theatrerevenues. The decrease in other operating revenues in the Q1 2007 Period wasprimarily attributable to a modification of the payment arrangement withNational CineMedia (effective upon consummation of the IPO of NCM Inc. onFebruary 13, 2007) described in further detail under Note 3—“Investment inNational CineMedia, LLC.” Such decreases were partially offset byincreased other theatre revenues.

***Film Rental and Advertising Costs***

During the Q1 2007 Period, film rental and advertisingcosts as a percentage of admissions revenues increased to 51.1% as compared to50.3% in the Q1 2006 Period. The increases in film rental and advertising costsas a percentage of box office revenues during the Q1 2007 Period was primarilythe result of a higher percentage of box office revenues generated by the top10 films exhibited during the Q1 2007 Period (approximately 48%) as compared tothe Q1 2006 Period (approximately 36%). 

***Cost of Concessions***

Cost of concessions as a percentage of concessionsrevenues decreased to 14.9% in the Q1 2007 Period as compared to 15.2% in theQ1 2006 Period. The decrease in the cost of concessions as a percentage ofconcession revenues was primarily related to increases in concession pricesduring the Q1 

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2007Period.

***Rent Expense***

During the Q1 2007 Period, rent expense increased$3.4 million, or 4.4%, to $81.0 million in the Q1 2007 Period,from $77.6 million in the Q1 2006 Period. The increase in rent expense inthe Q1 2007 Period was primarily attributable to general inflationary increasesalong with incremental rent from the inclusion of 97 new screens added sincethe end of the Q1 2006 Period and the 58 screens acquired from AMC during thethird fiscal quarter of 2006, partially offset by the closure of approximately230 underperforming screens subsequent to the end of the Q1 2006 Period. 

***Other OperatingExpenses***

Other operating expenses increased approximately $6.3million or 4.0% to $164.9 million in the Q1 2007 Period, from $158.6 million inthe Q1 2006 Period. The increase in total other operating expenses during theQ1 2007 Period was primarily attributable to an increase in labor and non-rentoccupancy costs, partially offset by a decrease in expenses of NationalCineMedia, due to a modification of the payment arrangement with NationalCineMedia (effective upon consummation of the IPO of NCM Inc. on February 13,2007) described in further detail under Note 3—“Investment in NationalCineMedia, LLC.”  Increases in laborcosts were the result of state minimum wage increases, coupled with normalinflationary increases.

***General andAdministrative Expenses***

General and administrative expenses increased$0.1 million, or 0.6%, to $16.0 million during the Q1 2007 Period,from $15.9 million in the Q1 2006 Period. As a percentage of totalrevenues, general and administrative expenses decreased to 2.6% in the Q1 2007Period, from 2.7% in the Q1 2006 Period. The decrease in general and administrativeexpenses as a percentage of total revenues during the Q1 2007 Period ascompared to the Q1 2006 Period was primarily attributable to the overallincrease in total revenues during the Q1 2007 Period.

***Depreciation andAmortization***

For the Q1 2007 Period, depreciation and amortizationdecreased $3.4 million, or 6.8%, to $46.3 million, from$49.7 million in the Q1 2006 Period. The decrease in depreciation andamortization expense during the Q1 2007 Period was primarily due to a greater percentageof fully depreciated fixed assets during the Q1 2007 Period as compared to theQ1 2006 Period.

***Income from Operations***

Income from operations totaled approximately$65.0 million for the Q1 2007 Period, which represents an increase of$14.3 million, or 28.2%, from $50.7 million in the Q1 2006 Period.The net increase in income from operations during the Q1 2007 Period wasprimarily attributable to incremental admissions and concessions revenuesdescribed above coupled with decreases in certain operating expense items suchas depreciation and amortization and equity in earnings of joint ventureincluding former employee compensation, partially offset by decreases in otheroperating revenues and increases in film and advertising costs, rent expense, andother operating expenses.

***Interest Expense,net***

Net interest expense decreased $0.1 million, or0.3%, to $31.0 million in the Q1 2007 Period, from $31.1 million inthe Q1 2006 Period. The decrease in net interest expense during theQ1 2007 Period as compared to the Q1 2006 Period was principally due toincremental interest income from a higher 

28

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outstandingcash balance during the Q1 2007 Period resulting from transactions completed inconnection with the IPO of NCM Inc. (see Note 3—“Investment in NationalCineMedia, LLC” for further discussion).

***Income Taxes***

The provision for income taxes of $155.6 million and$7.5 million for the Q1 2007 Period and the Q1 2006 Period, respectively,reflect effective tax rates of approximately 40.4% and 40.1%, respectively. Theincrease in the effective tax rates for Q1 2007 Period is primarilyattributable to the state tax impact associated with the transactions completedin connection with the IPO of NCM Inc. (see Note 3—“Investment in NationalCineMedia, LLC” and Note  5—“Income Taxes”for further discussion).

***Net Income***

During the Q1 2007 Period, net income totaled$229.1 million, which represents an increase of $217.9 million, from$11.2 million in the Q1 2006 Period. The increase in net income for the Q12007 Period was primarily attributable to an approximate $209.0 million gain, net of related tax effects,****recorded in the Q1 2007 Periodresulting from transactions completed in connection with the IPO of NCM Inc.(see Note 3—“Investment in National CineMedia, LLC” for furtherdiscussion).

***Cash Flows***

The following table summarizes certain cash flow datafor the Q1 2007 Period and the Q1 2006 Period (in millions):
|                                                       | ** ** | **Q1 2007 Period** | ** ** | **Q1 2006 Period** | ** ** |
|-------------------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| Net cash  provided by operating activities            |       | $                            | 710.0      |                         | $          | 20.9 |   |
| Net cash used in  investing activities                |       | (18.3                        | )          | (16.6                        | )          |
| Net cash used in  financing activities                |       | (46.2                        | )          | (44.0                        | )          |
|                                                  |       |                         |       |                         |       |
| Net increase (decrease)  in cash and cash equivalents |       | $                            | 645.5      |                         | $          | (39.7 | ) |

 

*Q1 2007 Period Compared to Q1 2006 Period*

Net cash flows generated from operating activities increasedby approximately $689.1 million to approximately $710.0 million forthe Q1 2007 Period from approximately $20.9 million for theQ1 2006 Period.  The increase in netcash flows generated from operating activities for the Q1 2007 Period wasprimarily attributable to the transactions completed in connection with the IPOof NCM Inc. (see Note 3—“Investment in National CineMedia, LLC” for furtherdiscussion).  The $628.3 million of grossproceeds received in connection with the NCM Inc. IPO transaction resulted inan increase in net income of approximately $209.0 million, a non-cash gain ofapproximately $3.4 million, an increase in deferred revenue ofapproximately $281.0 million, an increase in deferred income tax benefit of approximately$43.0 million and an increase in income taxes payable of approximately $184.7million.  In addition to these changes incash flows from operating activities, the timing of Q1 2007 Period vendorpayments also contributed to the net increase in net cash provided by operatingactivities.

Net cash flows used in investing activities totaledapproximately $18.3 million for the Q1 2007 Period compared to cash flowsused in investing activities of approximately $16.6 million for the Q12006 Period. Contributing to the increase in cash flows used in investingactivities was a $1.4 million increase in capital expenditures during theQ1 2007 Period, which was primarily attributable to the timing of capitalprojects during the Q1 2007 Period, coupled with a $1.5 million investment inthe DCIP joint venture during the Q1 2007 Period, partially offset by greaterproceeds from the disposition of assets effected during the Q1 2007 Period ascompared the Q1 2006 Period.

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Net cash flows used in financing activities wereapproximately $46.2 million for the Q1 2007 Period compared to cash flowsused in financing activities of approximately $44.0 million for the Q12006 Period. The net increase in cash flows used in financing activities duringthe Q1 2007 Period was primarily attributable to fewer proceeds from stockoption exercises and fewer excess tax benefits from share-based paymentarrangements, partially offset by less net cash used to settle conversions ofthe Company’s Convertible Senior Notes during the Q1 2007 Period as compared tothe Q1 2006 Period.

**Liquidity and Capital Resources**

On a consolidated basis, we expect our primary uses ofcash to be for operating expenses, capital expenditures, general corporatepurposes related to corporate operations, debt service, share repurchases andthe Company’s quarterly dividend payments. The principal sources of liquidityare cash generated from operations, cash on hand, and borrowings under ourAmended Senior Credit Facility described below. Under the terms of the AmendedSenior Credit Facility, Regal Cinemas is restricted as to how much it canadvance or distribute to Regal, its indirect parent. Since Regal is a holdingcompany with no significant assets other than the stock of its subsidiaries,this restriction could impact Regal’s ability to effect future debt or dividendpayments, pay corporate expenses or redeem or convert for cash its ConvertibleSenior Notes.

Our revenues are generally collected in cash throughadmissions and concessions revenues. Our operating expenses are primarilyrelated to film and advertising costs, rent and occupancy, and payroll. Filmcosts are ordinarily paid to distributors within 30 days following receiptof admissions revenues and the cost of the Company’s concessions are generallypaid to vendors approximately 30 days from purchase. Our currentliabilities generally include items that will become due within twelvemonths.  In addition, from time to time,we use cash from operations and borrowings to fund dividends in excess of netincome and cash flows from operating activities less cash flows from investingand 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 internallygenerated cash flows, cash on hand, proceeds from disposition of assets andfinancing activities. Our capital requirements have historically arisenprincipally in connection with acquisitions of theatres, new theatreconstruction, adding new screens to existing theatres, upgrading the Company’stheatre facilities and replacing equipment. We intend to continue to grow ourtheatre circuit through selective expansion and acquisition opportunities. TheCompany has a formal and intensive review procedure for the authorization ofcapital projects, with the most important financial measure of acceptabilityfor a discretionary non-maintenance capital project being whether its projecteddiscounted cash flow return on investment meets or exceeds the Company’s internalrate of return targets. We currently expect capital expenditures for theatredevelopment, replacement, expansion, upgrading and replacements to be in therange of approximately $120.0 million to $140.0 million in fiscalyear 2007, exclusive of acquisitions. Such capital expenditures are expected tobe partially funded through asset dispositions conducted during the normalcourse of our business. During the Q1 2007 Period, we invested approximately$19.9 million in capital expenditures.

For a discussion of the series of significantfinancing transactions which have occurred through December 28, 2006,please refer to “Management’s Discussion and Analysis of Financial Conditionand Results of Operations—Liquidity and Capital Resources” contained in Part II,Item 7 of our annual report on Form 10-K filed on February 26, 2007 withthe Commission (File No. 001-31315) for the fiscal year ended December 28,2006.

As described in Note 3—“Investment in NationalCineMedia, LLC,” in connection with the formation of National CineMedia, onMay 11, 2005, RCI adopted and approved a Severance Plan  for RCM employees who held an unvested optionto purchase shares of Regal’s Class A common stock or shares of Regal’srestricted Class A common stock pursuant to the terms of the IncentivePlan immediately prior to such employee’s termination of employment with RCMand commencement of employment with National CineMedia. During the Q1 2007Period, the Company recorded total severance expense of approximately$1.4 million, including payments in lieu of dividends, related to theSeverance Plan.

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On February 13, 2007, NCM Inc., a newly formedentity that serves as the sole manager of National CineMedia, completed an IPOof its common stock. NCM Inc. sold 38.0 million shares of its common stock for$21 per share in the IPO, less underwriting discounts and expenses.  NCM Inc. used a portion of the net proceedsfrom the IPO to acquire newly issued common units from National CineMedia.  

In connection with the completion of the IPO, RCIamended and restated its ESA with National CineMedia, whereby in exchange forits pro rata share of the IPO proceeds, RCI agreed to a modification ofNational CineMedia’s payment obligation under the existing services agreement.The modification 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 Regal 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% annuallystarting at the end of fiscal 2007. Also, with respect to any on-screen advertisingtime provided to our beverage concessionaire, Regal is required to purchasesuch time from National CineMedia at a negotiated rate. In addition, aftercompletion of the IPO, we expect to receive mandatory quarterly distributionsof excess cash from National CineMedia. In addition, National CineMedia paidthe net proceeds to each of Regal, AMC and Cinemark in exchange for modifyingpayment obligations for access to their respective theatres, for which Regalreceived a payment of approximately $281.0 million, which represents theestimated fair value of the ESA modification payment.  We estimated the fair value of the ESApayment based upon a valuation performed by the Company with the assistance ofthird party specialists.  This amount hasbeen recorded as deferred revenue and will be amortized to advertising revenueover the 30 year term of the agreement following the units of revenuemethod.

At the closing of the IPO, the underwriters exercisedtheir over-allotment option to purchase an additional 4.0 million shares ofcommon stock of NCM Inc. at the initial offering price of $21 per share, lessunderwriting discounts and commissions. In connection with this over-allotmentoption exercise, Regal, AMC and Cinemark each sold to NCM Inc. common units ofNational CineMedia on a pro rata basis at the initial offering price of $21 pershare, less underwriting discounts and expenses. Regal sold approximately 1.6million common units to NCM Inc. for proceeds of approximately $32.2million.  Upon completion of this sale ofcommon units and as of March 29, 2007, Regal held approximately 21.2 millioncommon units of National CineMedia, or a 22.6% interest.

Upon the closing of the IPO, National CineMediaentered into a $725 million term loan facility, the net 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 a result ofthe preferred unit redemption. 

After the payment of current taxes, we estimate netproceeds from these transactions to total approximately $445.0 million. TheCompany used a portion of the net proceeds to fund an extraordinary cashdividend of $2.00 per share on each outstanding share of its Class A andClass B common stock, or approximately $302.0 million in the aggregate.Stockholders of record at the close of business on March 28, 2007 were paidthis dividend on April 13, 2007.  TheCompany is currently exploring alternatives for use of the remaining proceeds,and may use some or all of the remaining proceeds for strategic acquisitions,stock repurchases or other corporate uses.

Regal paid one quarterly cash dividend of $0.30 pershare on each outstanding share of the Company’s Class A and Class Bcommon stock, including outstanding restricted stock (see Note 6—“CapitalStock and Share-Based Compensation”), or approximately $45.3 million inthe aggregate, during the quarter ended March 29, 2007.  In addition, onMarch 5, 2007, Regal declared an extraordinary cash dividend of $2.00 per shareon each outstanding share of its Class A and Class B common stock, includingoutstanding restricted stock. Stockholders of record at the close of businesson March 28, 2007 were paid this dividend on April 13, 2007.  Finally, on April 26, 2007, the Companydeclared a cash dividend of 

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$0.30per share on each share of the Company’s Class A and Class B commonstock (including outstanding restricted stock), payable on June 21, 2007, tostockholders of record on June 13, 2007. These dividends have been or will be funded through cash flow fromoperations and available cash on hand.**** We, at the discretion of the board ofdirectors and subject to applicable law, anticipate paying regular quarterlydividends on our Class A and Class B common stock for the foreseeablefuture. The amount, if any, of the dividends to be paid in the future willdepend upon our then available cash, anticipated cash needs, overall financialcondition, loan agreement restrictions, future prospects for earnings and cashflows, as well as other relevant factors. 

As of March 29, 2007, the holders of our ConvertibleSenior Notes had the right, at their option, to convert their ConvertibleSenior Notes, in whole or in part, into shares of our Class A commonstock, subject to certain limitations, at the then existing conversion priceper share. The Convertible Senior Notes allow us to settle any conversion, andwe have the ability and intent to settle any conversion, by remitting to thenote holder the accreted value of the note in cash plus the conversion spread(the excess conversion value over the accreted value) in either cash, shares ofour Class A common stock or a combination of stock and cash.

On October 27, 2006, Regal Cinemas entered intothe Amended Senior Credit Facility with Credit Suisse, Cayman Islands Branch(as successor to Credit Suisse First Boston), as Administrative Agent and theother lenders party thereto, which consists of the Term Facility in anaggregate original principal amount of $1,700.0 million and the RevolvingFacility in an aggregate principal amount of up to $100.0 million. TheRevolving Facility has a separate sublimit of $10.0 million for short-termloans and a sublimit of $30.0 million for letters of credit. The Term Facilitywill mature on October 27, 2013 and the Revolving Facility will mature onOctober 27, 2011. 

The terms of the Amended Senior Credit Facilityinclude an option for Regal Cinemas to request the establishment of the NewIncremental Term Loan in a principal amount of up to $200.0 million.  TheNew Incremental Term Loan is only available if Regal is able to obtain thecommitments of new or existing lenders that are willing to provide funding forsuch New Incremental Term Loan and Regal Cinemas is able to satisfy certainconditions set forth in the Amended Senior Credit Facility. Any suchcommitments that are obtained and the loans thereunder would be treated as asecured term loan under the Amended Senior Credit Facility without the need toobtain consent from any lender or any party to the Amended Senior CreditFacility. Proceeds of Regal Cinemas’ borrowings under the New Incremental TermLoan are to be used solely to fund, or reimburse Regal Cinemas for funding,distributions to the Company for the purpose of redeeming, repurchasing,acquiring or otherwise settling the conversion of all or a portion of theConvertible Senior Notes. For a detailed summary of other material terms of theAmended Senior Credit Facility, please refer to the information provided underNote 5 to the consolidated financial statements included in Part II, Item8 of our annual report on Form 10-K for the fiscal year ended December 28,2006.

As of March 29, 2007, we had approximately $1,695.7million aggregate principal amount outstanding under the Term Facility, $123.7million aggregate principal amount outstanding under Convertible Senior Notesand $51.5 million aggregate principal amount outstanding under the RegalCinemas 93¤8%Senior Subordinated Notes. As of March 29, 2007, we had approximately $0.8million outstanding in letters of credit, leaving approximately $99.2 millionavailable for drawing under the Revolving Facility.

EBITDA (earnings before interest, taxes, depreciationand amortization) was approximately $462.0 million, or 73.9% of totalrevenues, for the Q1 2007 Period and $99.5 million, or 17.0% of totalrevenues, for the Q1 2006 Period. The increase in EBITDA for the Q1 2007 Periodwas primarily attributable to a $350.7 million gain resulting from transactionscompleted in connection with the IPO of NCM Inc. (see Note 3—“Investmentin National CineMedia, LLC” for further discussion).  The Company usesEBITDA as a supplemental liquidity measure because we find it useful to understandand evaluate our capacity, excluding the impact of interest, taxes, andnon-cash depreciation and amortization charges, for servicing our debt, payingdividends and otherwise meeting our cash needs, prior to our consideration ofthe impacts of other potential sources and uses of cash, such as workingcapital items. We believe that 

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EBITDAis useful to investors for these purposes as well.  EBITDA should not be considered analternative to, or more meaningful than, net cash provided by operating activities,as determined in accordance with accounting principles generally accepted inthe United States of America (GAAP), since it omits the impact of interest,taxes and changes in working capital that use or provide cash (such asreceivables, payables and inventories) as well as the sources or uses of cashassociated with changes in other balance sheet items (such as long-term lossaccruals and deferred items).  BecauseEBITDA excludes depreciation and amortization, EBITDA does not reflect any cashrequirements for the replacement of the assets being depreciated and amortized,which assets will often have to be replaced in the future. Further, EBITDA,because it also does not reflect the impact of debt service, cash dividends,capital expenditures and other cash commitments from time to time as describedin more detail elsewhere in this quarterly report on Form 10-Q, doesnot represent how much discretionary cash we have available for otherpurposes.  Nonetheless, EBITDA is a keymeasure expected by and useful to our fixed income investors, rating agenciesand the banking community all of whom believe, and we concur, that thesemeasures 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, maynot be comparable to similarly titled measures reported by other companies. Areconciliation of EBITDA to net cash provided by operating activities iscalculated as follows (in millions): 
|                                              | ** ** | **Quarter Ended  March 29, 2007** | ** ** | **Quarter Ended  March 30, 2006** | ** ** |
|----------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| EBITDA                                       |       | $                                                | 462.0      |                                             | $          | 99.5 |   |
| Interest  expense, net                       |       | (31.0                                            | )          | (31.1                                            | )          |
| Provision for  income taxes                  |       | (155.6                                           | )          | (7.5                                             | )          |
| Deferred income  taxes                       |       | (44.8                                            | )          | (1.1                                             | )          |
| Changes in  operating assets and liabilities |       | 469.5                                            |       | (56.0                                            | )          |
| Loss on debt  extinguishment                 |       | —                                           |       | 0.9                                              |       |
| Other items, net                             |       | 9.9                                              |       | 16.2                                             |       |
|                                         |       |                                             |       |                                             |       |
| Net cash provided by  operating activities   |       | $                                                | 710.0      |                                             | $          | 20.9 |   |

 

**Contractual Cash Obligations and Commitments**

For a summary of our contractual cash obligations andcommitments as of December 28, 2006, please refer to Item 7, “Management’sDiscussion and Analysis of Financial Condition and Results ofOperations—Contractual Cash Obligations and Commitments” contained in ourannual report on Form 10-K for the fiscal year ended December 28,2006. As of March 29, 2007, there were no material changes outside the ordinarycourse of our business in our contractual cash obligations and commitments. Webelieve that the amount of cash and cash equivalents on hand, cash flowexpected from operations and availability under our Revolving Facility will beadequate for the Company to execute its business strategy and meet anticipatedrequirements for lease obligations, capital expenditures, working capital anddebt service for the next twelve months.

**Critical Accounting Estimates**

For a discussion of accounting policies that weconsider critical to our business operations and the understanding of ourresults of operations and affect the more significant judgments and estimatesused in the preparation of our unaudited condensed consolidated financialstatements, please refer to Item 7, “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations—Critical Accounting Estimates”contained in our annual report on Form 10-K for the fiscal year endedDecember 28, 2006 and incorporated by reference herein. As of March 29,2007, there were no significant changes in our critical accounting policies orestimation procedures.

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**RecentAccounting Pronouncements**

For a discussion of the recent accountingpronouncements relevant to our operations, please refer to the informationprovided under Note 10—“Recent Accounting Pronouncements” to the accompanyingunaudited condensed consolidated financial statements, which information is incorporatedby reference herein.

**Seasonality**

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

**Item 3. QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK**

The Company’s market risk is confined to interest rateexposure of its and its wholly owned subsidiaries’ debt obligations that bearinterest based on floating rates. The Amended Senior Credit Facility providesvariable rate interest that could be adversely affected by an increase ininterest rates. Borrowings under the prior term facility bore and the TermFacility bear interest, at Regal Cinemas’ option, at either an AdjustedEurodollar Rate or the base rate plus, in each case, an applicable margin.

During the years ended December 29, 2005 and December30, 2004, Regal Cinemas entered into five distinct hedging relationships viafive separate interest rate swap agreements with final maturity terms rangingfrom three to five years for the purpose of hedging an aggregate of approximately$1,100.0 million of  its variablerate debt obligations. Under the terms of the interest rate swap agreements,Regal Cinemas pays interest at various fixed rates ranging from 3.49%—4.337%and receives interest at a variable rate based on the 3-month LIBOR. For afurther description of the swap agreements, see Note 5 to the consolidatedfinancial statements included in Part II, Item 8 of our annual reporton Form 10-K for the fiscal year ended December 28, 2006, which isincorporated herein by reference.

As of March 29, 2007 and December 28, 2006,borrowings of $1,695.7 million and $1,700.0 million, respectivelywere outstanding under the Term Facility and the prior term facility,respectively, at an effective interest rate of 6.23% (as of March 29, 2007 andDecember 28, 2006), after the impact of the interest rate swaps is taken intoaccount. A hypothetical change of 10% in the Company’s effective interest rateunder the Term Facility as of March 29, 2007, would increase or decreaseinterest expense by $2.6 million for the quarter ended March 29, 2007.

**Item 4. CONTROLS AND PROCEDURES**

We maintain disclosure controls and procedures thatare designed to ensure that information required to be disclosed by us in thereports that we file or submit to the Securities and Exchange Commission underthe Securities Exchange Act of 1934, as amended (the “Exchange Act”), isrecorded, processed, summarized and reported within the time periods specifiedby the Commission’s rules and forms, and that information is accumulated andcommunicated to our management, including our principal executive, principalfinancial and principal accounting officers (whom we refer to in this periodicreport as our Certifying Officers), as appropriate to allow timely decisionsregarding required disclosure. Our management evaluated, with the participationof our Certifying Officers, the effectiveness of our disclosure controls andprocedures as of March 29, 2007, pursuant to Rule 13a-15(b) under theExchange Act. Based upon that evaluation, our Certifying Officers concludedthat, as of March 29, 2007, our disclosure controls and procedures wereeffective.

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There were no changes in our internal control overfinancial reporting that occurred during our most recently completed fiscalquarter that have materially affected, or are reasonably likely to materiallyaffect, our internal control over financial reporting.

**PARTII—OTHER INFORMATION**

**Item 1. LEGAL PROCEEDINGS**

Information required to be furnished by us under thisPart II, Item 1 (Legal Proceedings) is incorporated by reference toNote 7—“Commitments and Contingencies” of our notes to the accompanyingunaudited condensed consolidated financial statements included in Part I,Item 1 (Financial Statements) of this quarterly report on Form 10-Q.

**Item 1A. RISK FACTORS**

There have been no material changes from risk factorsas previously disclosed in our annual report on Form 10-K filed onFebruary 26, 2007 with the Commission (File No. 001-31315) for the fiscalyear ended December 28, 2006.

**Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OFPROCEEDS**

On March 9, 2007, the Company issued an aggregate of200,000 shares of Class A common stock of the Company, to OCM PrincipalOpportunities Fund II, L.P. (“Oaktree”) upon the conversion by Oaktree of anequal number of shares of Class B common stock of the Company.  The sharesof Class A common stock issued by the Company upon the conversion are exemptfrom registration under the Securities Act of 1933, as amended, pursuant toSection 3(a)(9) thereof.

Shares of Class B common stock may be converted at anytime into shares of Class A common stock on a one-for-one basis by the holderand are automatically converted into shares of Class A common stock on aone-for-one basis upon a transfer that is not a “Permitted Transfer.” Eachholder of Class A common stock is entitled to one vote for each outstandingshare of Class A common stock and each holder of Class B common stock isentitled to ten votes for each outstanding share of Class B common stock. Other than the number of votes per share, Class A and Class B common stock haveidentical material terms and provisions.

**Item 6. EXHIBITS**
| Exhibit No. | ** ** | **Exhibit Description**                                                                                                                                                                                                                                                                                                                                                                                             | ** ** |
|------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| 10.1             |       | Third Amended and Restated Limited Liability Company  Operating Agreement, dated as of February 13, 2007, by and among American  Multi-Cinema, Inc., CineMark Media, Inc., Regal CineMedia Holdings, LLC and  National CineMedia, Inc. (filed as exhibit 10.1 to National CineMedia, Inc.’s  Current Report on Form 8-K (Commission File No. 001-33296) on February 16,  2007 and incorporated herein by reference) |       |
|             |       |                                                                                                                                                                                                                                                                                                                                                                                                                     |       |
| 10.2*            |       | Exhibitor Services Agreement, dated as of February  13, 2007, by and between National CineMedia, LLC and Regal Cinemas, Inc.                                                                                                                                                                                                                                                                                             |       |
|             |       |                                                                                                                                                                                                                                                                                                                                                                                                                     |       |
| 31.1             |       | Rule 13a-14(a) Certification of Chief  Executive Officer of Regal.                                                                                                                                                                                                                                                                                                                                             |       |
|             |       |                                                                                                                                                                                                                                                                                                                                                                                                                     |       |
| 31.2             |       | Rule 13a-14(a) Certification of Chief  Financial Officer of Regal.                                                                                                                                                                                                                                                                                                                                             |       |
|             |       |                                                                                                                                                                                                                                                                                                                                                                                                                     |       |
| 32               |       | Section 1350 Certifications.                                                                                                                                                                                                                                                                                                                                                                                        |       |

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*                                         Portionsof this Exhibit have been omitted pursuant to a request for confidential treatmentfiled with the Securities and Exchange Commission.  Omitted portions havebeen filed separately with the Commission. 

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**SIGNATURES**

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.
|                   | ** ** | ** ** | **REGAL ENTERTAINMENT GROUP**                                                                       |
|-------------------|------------|------------|-----------------------------------------------------------------------------------------------------|
|              |       |       |                                                                                                |
| Date: May 8, 2007 |       | By:        | /s/  MICHAEL L. CAMPBELL                                                                  |
|              |       | * *   | Michael L. Campbell*Chief Executive Officer (Principal  Executive Officer)*                         |
|              |       |       |                                                                                                |
| Date: May 8, 2007 |       | By:        | /s/  AMY E. MILES                                                                         |
|              |       | * *   | Amy E. Miles*Executive Vice President and Chief  Financial Officer (Principal Financial  Officer)*  |
|              |       |       |                                                                                                |
| Date: May 8, 2007 |       | By:        | /s/  DAVID H. OWNBY                                                                       |
|              |       | * *   | David H. Ownby*Senior Vice President and Chief  Accounting Officer (Principal Accounting  Officer)* |

 

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**REGAL ENTERTAINMENT GROUP**

**Exhibit Index**

**Item 6. EXHIBITS**
| Exhibit No. | ** ** | **Exhibit Description**                                                                                                                                                                                                                                                                                                                                                                                             | ** ** |
|------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| 10.1             |       | Third Amended and Restated Limited Liability Company  Operating Agreement, dated as of February 13, 2007, by and among American  Multi-Cinema, Inc., CineMark Media, Inc., Regal CineMedia Holdings, LLC and  National CineMedia, Inc. (filed as exhibit 10.1 to National CineMedia, Inc.’s  Current Report on Form 8-K (Commission File No. 001-33296) on February 16,  2007 and incorporated herein by reference) |       |
|             |       |                                                                                                                                                                                                                                                                                                                                                                                                                     |       |
| 10.2*            |       | Exhibitor Services Agreement, dated as of February  13, 2007, by and between National CineMedia, LLC and Regal Cinemas, Inc.                                                                                                                                                                                                                                                                                             |       |
|             |       |                                                                                                                                                                                                                                                                                                                                                                                                                     |       |
| 31.1             |       | Rule 13a-14(a) Certification of Chief  Executive Officer of Regal.                                                                                                                                                                                                                                                                                                                                             |       |
|             |       |                                                                                                                                                                                                                                                                                                                                                                                                                     |       |
| 31.2             |       | Rule 13a-14(a) Certification of Chief  Financial Officer of Regal.                                                                                                                                                                                                                                                                                                                                             |       |
|             |       |                                                                                                                                                                                                                                                                                                                                                                                                                     |       |
| 32               |       | Section 1350 Certifications.                                                                                                                                                                                                                                                                                                                                                                                        |       |

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*                                         Portionsof this Exhibit have been omitted pursuant to a request for confidentialtreatment filed with the Securities and Exchange Commission.  Omittedportions have been filed separately with the Commission.

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