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**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

 

**Washington, D.C. 20549**

 

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**FORM 10-Q**

 

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

 

**For the quarterly period ended April 2,2009**

 

**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**

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities and Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days: Yes x   No o

 

Indicateby check mark whether the registrant has submitted electronically and posted onits corporate Web site, if any, every Interactive Data File required to be submittedand posted pursuant to Rule 405 of Regulation S-T during thepreceding 12 months (or for such shorter period that the registrant wasrequired to submit and post such files). Yes o No o

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer or a smaller reporting company. Seethe definitions of “large accelerated filer,” “accelerated filer” and “smallerreporting company” in Rule 12b-2 of the Exchange Act.

 

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

 

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

 

Class ACommon Stock—130,136,676 shares outstanding at May 7, 2009

 

Class BCommon Stock—23,708,639 shares outstanding at May 7, 2009

 

 

 

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Table of Contents

 

**TABLE OFCONTENTS**

 
| 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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**PART I—FINANCIAL INFORMATION**

 

**Item 1.    FINANCIAL STATEMENTS**

 

**REGAL ENTERTAINMENT GROUP**

 

**UNAUDITED CONDENSED CONSOLIDATEDBALANCE SHEETS**

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

 
| ** **                                                                                                                                                                                           | ** ** | **April 2, 2009** | ** ** | **January 1, 2009** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|--------------------------|------------|
| **ASSETS**                                                                                                                                                                                           |       |                   |       |                     |       |
| CURRENT ASSETS:                                                                                                                                                                                      |       |                   |       |                     |       |
| Cash and cash equivalents                                                                                                                                                                            |       | $                      | 187.0      |                     | $          | 170.2 |   |
| Trade and other receivables, net                                                                                                                                                                     |       | 23.1                   |       | 73.2                     |       |
| Inventories                                                                                                                                                                                          |       | 9.7                    |       | 8.3                      |       |
| Prepaid expenses and other current assets                                                                                                                                                            |       | 15.9                   |       | 6.1                      |       |
| Assets held for sale                                                                                                                                                                                 |       | 0.6                    |       | 0.9                      |       |
| Deferred income tax asset                                                                                                                                                                            |       | 13.4                   |       | 14.8                     |       |
| TOTAL CURRENT ASSETS                                                                                                                                                                                 |       | 249.7                  |       | 273.5                    |       |
| PROPERTY AND EQUIPMENT:                                                                                                                                                                              |       |                   |       |                     |       |
| Land                                                                                                                                                                                                 |       | 118.6                  |       | 118.6                    |       |
| Buildings and leasehold improvements                                                                                                                                                                 |       | 1,911.6                |       | 1,911.5                  |       |
| Equipment                                                                                                                                                                                            |       | 982.2                  |       | 974.5                    |       |
| Construction in progress                                                                                                                                                                             |       | 20.9                   |       | 14.1                     |       |
| Total property and equipment                                                                                                                                                                         |       | 3,033.3                |       | 3,018.7                  |       |
| Accumulated depreciation and amortization                                                                                                                                                            |       | (1,123.3               | )          | (1,082.2                 | )          |
| TOTAL PROPERTY AND EQUIPMENT, NET                                                                                                                                                                    |       | 1,910.0                |       | 1,936.5                  |       |
| GOODWILL                                                                                                                                                                                             |       | 178.8                  |       | 178.8                    |       |
| INTANGIBLE ASSETS, NET                                                                                                                                                                               |       | 14.6                   |       | 15.5                     |       |
| DEFERRED INCOME TAX ASSET                                                                                                                                                                            |       | 84.2                   |       | 78.2                     |       |
| OTHER NON-CURRENT ASSETS                                                                                                                                                                             |       | 125.7                  |       | 113.3                    |       |
| TOTAL ASSETS                                                                                                                                                                                         |       | $                      | 2,563.0    |                     | $          | 2,595.8 |   |
| **LIABILITIES AND DEFICIT**                                                                                                                                                                          |       |                   |       |                     |       |
| CURRENT LIABILITIES:                                                                                                                                                                                 |       |                   |       |                     |       |
| Current portion of debt obligations                                                                                                                                                                  |       | $                      | 23.6       |                     | $          | 23.4 |   |
| Accounts payable                                                                                                                                                                                     |       | 119.7                  |       | 162.0                    |       |
| Accrued expenses                                                                                                                                                                                     |       | 58.0                   |       | 77.8                     |       |
| Deferred revenue                                                                                                                                                                                     |       | 123.1                  |       | 95.6                     |       |
| Interest payable                                                                                                                                                                                     |       | 4.2                    |       | 7.4                      |       |
| TOTAL CURRENT LIABILITIES                                                                                                                                                                            |       | 328.6                  |       | 366.2                    |       |
| LONG-TERM DEBT, LESS CURRENT PORTION                                                                                                                                                                 |       | 1,883.7                |       | 1,887.0                  |       |
| LEASE FINANCING ARRANGEMENTS, LESS CURRENT PORTION                                                                                                                                                   |       | 76.0                   |       | 77.2                     |       |
| CAPITAL LEASE OBLIGATIONS, LESS CURRENT PORTION                                                                                                                                                      |       | 16.3                   |       | 17.3                     |       |
| NON-CURRENT DEFERRED REVENUE                                                                                                                                                                         |       | 345.5                  |       | 339.9                    |       |
| OTHER NON-CURRENT LIABILITIES                                                                                                                                                                        |       | 159.8                  |       | 144.1                    |       |
| TOTAL LIABILITIES                                                                                                                                                                                    |       | 2,809.9                |       | 2,831.7                  |       |
| DEFICIT:                                                                                                                                                                                             |       |                   |       |                     |       |
| Class A common stock, $0.001 par value; 500,000,000 shares  authorized, 130,131,890 and 129,801,284 shares issued and outstanding at  April 2, 2009 and January 1, 2009, respectively |       | 0.1                    |       | 0.1                      |       |
| Class B common stock, $0.001 par value; 200,000,000 shares  authorized, 23,708,639 shares issued and outstanding at April 2, 2009  and January 1, 2009                                |       | —                 |       | —                   |       |
| Preferred stock, $0.001 par value; 50,000,000 shares authorized; none  issued and outstanding                                                                                                        |       | —                 |       | —                   |       |
| Additional paid-in capital (deficit)                                                                                                                                                                 |       | (265.0                 | )          | (265.8                   | )          |
| Retained earnings                                                                                                                                                                                    |       | 33.7                   |       | 40.1                     |       |
| Accumulated other comprehensive loss, net                                                                                                                                                            |       | (15.3                  | )          | (9.9                     | )          |
| TOTAL STOCKHOLDERS’ DEFICIT OF REGAL ENTERTAINMENT GROUP                                                                                                                                        |       | (246.5                 | )          | (235.5                   | )          |
| Noncontrolling interest                                                                                                                                                                              |       | (0.4                   | )          | (0.4                     | )          |
| TOTAL DEFICIT                                                                                                                                                                                        |       | (246.9                 | )          | (235.9                   | )          |
| TOTAL LIABILITIES AND DEFICIT                                                                                                                                                                        |       | $                      | 2,563.0    |                     | $          | 2,595.8 |   |

 

See accompanying notes to unaudited condensed consolidated financialstatements.

 

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**REGAL ENTERTAINMENT GROUP**

 

**UNAUDITED CONDENSED CONSOLIDATEDSTATEMENTS OF INCOME**

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

** **
| ** **                                                                                                                                                    | ** ** | **Quarter Ended  April 2, 2009** | ** ** | **Quarter Ended  March 27, 2008** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|----------------------------------------|------------|
| REVENUES:                                                                                                                                                     |       |                                  |       |                                   |       |
| Admissions                                                                                                                                                    |       | $                                     | 459.5      |                                   | $          | 432.0 |   |
| Concessions                                                                                                                                                   |       | 179.4                                 |       | 166.1                                  |       |
| Other operating revenues                                                                                                                                      |       | 26.7                                  |       | 28.7                                   |       |
| TOTAL REVENUES                                                                                                                                                |       | 665.6                                 |       | 626.8                                  |       |
| OPERATING EXPENSES:                                                                                                                                           |       |                                  |       |                                   |       |
| Film rental and advertising costs                                                                                                                             |       | 229.7                                 |       | 215.9                                  |       |
| Cost of concessions                                                                                                                                           |       | 24.0                                  |       | 22.7                                   |       |
| Rent expense                                                                                                                                                  |       | 92.9                                  |       | 83.3                                   |       |
| Other operating expenses                                                                                                                                      |       | 185.9                                 |       | 168.6                                  |       |
| General and administrative expenses (including share-based  compensation of $1.6 and $1.4 for the quarters ended April 2, 2009 and  March 27, 2008) |       | 15.3                                  |       | 15.0                                   |       |
| Depreciation and amortization                                                                                                                                 |       | 49.9                                  |       | 46.3                                   |       |
| Net loss on disposal and impairment of operating assets                                                                                                       |       | 5.4                                   |       | 2.2                                    |       |
| Joint venture employee compensation                                                                                                                           |       | —                                |       | 0.2                                    |       |
| TOTAL OPERATING EXPENSES                                                                                                                                      |       | 603.1                                 |       | 554.2                                  |       |
| INCOME FROM OPERATIONS                                                                                                                                        |       | 62.5                                  |       | 72.6                                   |       |
| OTHER EXPENSE (INCOME):                                                                                                                                       |       |                                  |       |                                   |       |
| Interest expense, net                                                                                                                                         |       | 37.2                                  |       | 30.8                                   |       |
| Loss on extinguishment of debt                                                                                                                                |       | —                                |       | 3.0                                    |       |
| Earnings recognized from NCM                                                                                                                                  |       | (10.6                                 | )          | (8.4                                   | )          |
| Other, net                                                                                                                                                    |       | 0.2                                   |       | 0.6                                    |       |
| TOTAL OTHER EXPENSE, NET                                                                                                                                      |       | 26.8                                  |       | 26.0                                   |       |
| INCOME BEFORE INCOME TAXES                                                                                                                                    |       | 35.7                                  |       | 46.6                                   |       |
| PROVISION FOR INCOME TAXES                                                                                                                                    |       | 14.4                                  |       | 19.1                                   |       |
| NET INCOME AND NET INCOME ATTRIBUTABLE TO CONTROLLING INTEREST                                                                                                |       | $                                     | 21.3       |                                   | $          | 27.5 |   |
| EARNINGS PER SHARE OF CLASS A AND CLASS B COMMON STOCK:                                                                                             |       |                                  |       |                                   |       |
| Basic                                                                                                                                                         |       | $                                     | 0.14       |                                   | $          | 0.18 |   |
| Diluted                                                                                                                                                       |       | $                                     | 0.14       |                                   | $          | 0.17 |   |
| AVERAGE SHARES OUTSTANDING (in thousands):                                                                                                                    |       |                                  |       |                                   |       |
| Basic                                                                                                                                                         |       | 153,045                               |       | 152,802                                |       |
| Diluted                                                                                                                                                       |       | 154,093                               |       | 158,533                                |       |
| Dividends declared per common share                                                                                                                           |       | $                                     | 0.18       |                                   | $          | 0.30 |   |

 

See accompanying notes to unaudited condensed consolidated financialstatements.

 

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**REGAL ENTERTAINMENT GROUP**

 

**UNAUDITED CONDENSED CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**(in millions)**

 
| ** **                                                                                                              | ** ** | **Quarter Ended  April 2, 2009** | ** ** | **Quarter Ended  March 27, 2008** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|----------------------------------------|------------|
| CASH FLOWS FROM OPERATING ACTIVITIES:                                                                                   |       |                                  |       |                                   |       |
| Net income attributable to controlling interest                                                                         |       | $                                     | 21.3       |                                   | $          | 27.5 |   |
| Adjustments to reconcile net income attributable to controlling interest  to net cash provided by operating activities: |       |                                  |       |                                   |       |
| Depreciation and amortization                                                                                           |       | 49.9                                  |       | 46.3                                   |       |
| Amortization of debt discount                                                                                           |       | 1.0                                   |       | 1.1                                    |       |
| Amortization of debt acquisition costs                                                                                  |       | 2.3                                   |       | 1.6                                    |       |
| Share-based compensation expense                                                                                        |       | 1.6                                   |       | 1.4                                    |       |
| Noncontrolling interest                                                                                                 |       | (0.1                                  | )          | —                                 |       |
| Deferred income tax (benefit) expense                                                                                   |       | (1.6                                  | )          | 0.7                                    |       |
| Net loss on disposal and impairment of operating assets                                                                 |       | 5.4                                   |       | 2.2                                    |       |
| Equity in earnings of non-consolidated entities                                                                         |       | 0.6                                   |       | 0.6                                    |       |
| Joint venture employee compensation                                                                                     |       | —                                |       | 0.2                                    |       |
| Excess cash distribution on additional shares in NCM                                                                    |       | 1.8                                   |       | —                                 |       |
| Loss on extinguishment of debt                                                                                          |       | —                                |       | 3.0                                    |       |
| Non-cash rent expense                                                                                                   |       | 1.8                                   |       | 1.6                                    |       |
| Changes in operating assets and liabilities (excluding effects of  acquisitions):                                       |       |                                  |       |                                   |       |
| Trade and other receivables                                                                                             |       | 50.1                                  |       | 33.5                                   |       |
| Inventories                                                                                                             |       | (1.4                                  | )          | 0.2                                    |       |
| Prepaid expenses and other assets                                                                                       |       | (9.5                                  | )          | (3.7                                   | )          |
| Accounts payable                                                                                                        |       | (42.3                                 | )          | (62.4                                  | )          |
| Income taxes payable                                                                                                    |       | 0.1                                   |       | 16.2                                   |       |
| Deferred revenue                                                                                                        |       | 26.4                                  |       | 15.8                                   |       |
| Accrued expenses and other liabilities                                                                                  |       | (19.0                                 | )          | (14.6                                  | )          |
| NET CASH PROVIDED BY OPERATING ACTIVITIES                                                                               |       | 88.4                                  |       | 71.2                                   |       |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                                                                   |       |                                  |       |                                   |       |
| Capital expenditures                                                                                                    |       | (27.9                                 | )          | (24.8                                  | )          |
| Proceeds from disposition of assets                                                                                     |       | 0.4                                   |       | —                                 |       |
| Distributions to partnership                                                                                            |       | —                                |       | (0.4                                   | )          |
| Investment in DCIP                                                                                                      |       | —                                |       | (1.0                                   | )          |
| NET CASH USED IN INVESTING ACTIVITIES                                                                                   |       | (27.5                                 | )          | (26.2                                  | )          |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                                                                   |       |                                  |       |                                   |       |
| Cash used to pay dividends                                                                                              |       | (27.7                                 | )          | (46.0                                  | )          |
| Net payments on long-term obligations                                                                                   |       | (6.3                                  | )          | (6.1                                   | )          |
| Cash used to purchase treasury shares and other                                                                         |       | (0.5                                  | )          | —                                 |       |
| Payment of debt acquisition costs and other                                                                             |       | (9.6                                  | )          | (5.0                                   | )          |
| Proceeds from stock option exercises                                                                                    |       | —                                |       | 0.2                                    |       |
| Excess tax benefits from share-based payment arrangements                                                               |       | —                                |       | 0.1                                    |       |
| Net proceeds from 33⁄4% Convertible Senior Notes hedge and warrant                                                   |       | —                                |       | 13.7                                   |       |
| Proceeds from issuance of 61⁄4% Convertible Senior Notes                                                             |       | —                                |       | 200.0                                  |       |
| Net cash paid for 61⁄4% Convertible Senior Notes convertible note hedge  and warrant                                 |       | —                                |       | (6.6                                   | )          |
| Cash used to redeem 33⁄4% Convertible Senior Notes                                                                   |       | —                                |       | (142.7                                 | )          |
| NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES                                                                     |       | (44.1                                 | )          | 7.6                                    |       |
| NET INCREASE IN CASH AND CASH EQUIVALENTS                                                                               |       | 16.8                                  |       | 52.6                                   |       |
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                                                        |       | 170.2                                 |       | 435.2                                  |       |
| CASH AND CASH EQUIVALENTS AT END OF PERIOD                                                                              |       | $                                     | 187.0      |                                   | $          | 487.8 |   |
| SUPPLEMENTAL CASH FLOW INFORMATION:                                                                                     |       |                                  |       |                                   |       |
| Cash paid for income taxes, net of refunds received                                                                     |       | $                                     | 0.7        |                                   | $          | 2.1 |   |
| Cash paid for interest                                                                                                  |       | $                                     | 36.8       |                                   | $          | 33.5 |   |
| SUPPLEMENTAL NON-CASH INVESTING ACTIVITIES:                                                                             |       |                                  |       |                                   |       |
| Additional investment in NCM                                                                                            |       | $                                     | 7.0        |                                   | $          | — |   |

 

See accompanying notes to unaudited condensed consolidated financialstatements.

 

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**REGAL ENTERTAINMENT GROUP**

 

**NOTES TO UNAUDITED CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS**

 

**APRIL 2, 2009 AND MARCH 27, 2008**

 

**1. THECOMPANY AND BASIS OF PRESENTATION**

 

RegalEntertainment Group (the “Company,” “Regal,” “we” or “us”) is the parentcompany of Regal Entertainment Holdings, Inc. (“REH”), which is the parentcompany of Regal Cinemas Corporation (“Regal Cinemas”) and its subsidiaries.Regal Cinemas’ subsidiaries include Regal Cinemas, Inc. (“RCI”) and itssubsidiaries, which include Edwards Theatres, Inc. (“Edwards”), HoytsCinemas Corporation (“Hoyts”) and United Artists Theatre Company (“UnitedArtists”). The terms Regal or the Company, REH, Regal Cinemas, RCI, Edwards,Hoyts and United Artists shall be deemed to include the respective subsidiariesof such entities when used in discussions included herein regarding the currentoperations or assets of such entities.

 

Regal operates thelargest theatre circuit in the United States, consisting of 6,773 screens in549 theatres in 39 states and the District of Columbia as of April 2,2009.  The Company formally operates on a 52-week fiscal year with eachquarter generally consisting of 13 weeks, unless otherwise noted. The Company’sfiscal year ends on the first Thursday after December 25, which incertain years (such as fiscal 2008) results in a 53-week fiscalyear.  As of April 2, 2009, the Company managed its business underone reportable segment: theatre exhibition operations.

 

On February 12,2007, we, along with AMC Entertainment, Inc. (“AMC”) and Cinemark, Inc.(“Cinemark”) formed a joint venture company known as Digital CinemaImplementation Partners, LLC, a Delaware limited liability company (“DCIP”),to create a financing model and establish agreements with major motion picturestudios for the implementation of digital cinema. The Company’s cumulative cashinvestment in DCIP totaled approximately $5.5 million as of April 2,2009. Such investment is included as a component of “Other Non-current Assets”in the accompanying unaudited condensed consolidated balance sheets. We accountfor our investment in DCIP following the equity method of accounting. For eachof the quarters ended April 2, 2009 and March 27, 2008, the Companyrecorded a loss of $0.6 million, respectively, representing its share of thenet loss of DCIP. Such loss is presented as a component of “Other, net” in theaccompanying unaudited condensed consolidated statements of income.

 

On March 10,2008, Regal issued $200.0 million aggregate principal amount of 61/4%Convertible Senior Notes due March 15, 2011 (the “61/4%Convertible Senior Notes”). Concurrent with the issuance of the 61/4%Convertible Senior Notes, we entered into simultaneous convertible note hedgeand warrant transactions with respect to our Class A common stock in orderto reduce the potential dilution from conversion of the 61/4%Convertible Senior Notes into shares of our Class A common stock. The netcost of the convertible note hedge and warrant transactions was approximately$6.6 million and is included as a component of equity in the accompanyingunaudited condensed consolidated balance sheets. See Note 4—“DebtObligations” for further description of the 61/4% Convertible Senior Notes and therelated convertible note hedge and warrant transactions. The Company used cashon hand and a portion of the net proceeds from the issuance of the 61/4%Convertible Senior Notes to redeem approximately $90.0 million principal amountof Regal’s 33/4% Convertible Senior Notes due May 15,2008 (the “33/4% Convertible Senior Notes”), in a seriesof privately negotiated transactions.  As a result of the earlyredemption, the Company recorded a $3.0 million loss on debt extinguishment (asretrospectively adjusted for the adoption of FASB Staff Position No. APB14-1, *Accounting for Convertible Debt Instruments That May BeSettled in Cash Upon Conversion (Including Partial Cash Settlement)*(“FSP14-1”), described below and in Note 4—“Debt Obligations”) during thequarter ended March 27, 2008.  In connection with the earlyredemption, the Company received net proceeds of approximately $13.7 millionfrom Credit Suisse International (“Credit Suisse”) attributable to theconvertible note hedge and warrant transactions associated with the 33/4%Convertible Senior Notes described further in Note 4—“Debt Obligations.”Such proceeds were recorded as an increase to additional paid-incapital. In connection with the final maturity of the 33/4%Convertible Senior Notes on May 15, 2008, holders of the remaining $33.7million in principal amount exercised their conversion rights. The Companyelected to settle these conversions entirely in cash for approximately$51.4 million using the remaining proceeds from the issuance of the 61/4%Convertible 

 

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Senior Notes.  In connection with these conversions, theCompany received net proceeds of approximately $5.2 million from CreditSuisse attributable to the convertible note hedge and warrant transactionsassociated with the 33/4% Convertible Senior Notes. Such proceedswere also recorded as an increase to additional paid-in capital. See Note4—“Debt Obligations” for further discussion of this transaction.

 

On April 30,2008, the Company acquired Consolidated Theatres Holdings, G.P. (“ConsolidatedTheatres”), which holds a total of 28 theatres with 400 screens in Georgia,Maryland, North Carolina, South Carolina, Tennessee and Virginia. The total netcash purchase price for the acquisition was approximately $209.3 million.The results of operations of the acquired theatres have been included in theCompany’s consolidated financial statements for periods subsequent to theacquisition date. In conjunction with the closing, we entered into a finaljudgment with the Antitrust Division of the United States Department of Justice(“DOJ”), which required us to hold separate and divest ourselves of fourtheaters comprising 52 screens in North Carolina. During the quarter ended September 25,2008, the Company entered into an agreement to sell three of the four theatresand recorded impairment charges of approximately $7.9 million related to thesetheatres. On October 23, 2008, the Company completed its divestiture ofthe three theatres comprising 42 screens in North Carolina pursuant to a finaljudgment with the DOJ. In accordance with the final judgment, a court-appointedtrustee was selected to sell the last of the four theatres.  See Note 2—“Acquisition” for furtherdiscussion of this transaction.

 

For a discussionof other significant transactions which have occurred through January 1,2009, please refer to Note 1 to the consolidated financial statementsincluded in Part II, Item 8 of our annual report on Form 10-K filedon March 2, 2009 with the Securities and Exchange Commission (the “Commission”)(File No. 001-31315) for the fiscal year ended January 1, 2009.

 

As described morefully in Note 4—“Debt Obligations,” effective January 2, 2009, theCompany retrospectively adopted the provisions of FSP 14-1.  Our 61/4%Convertible Senior Notes and the 33/4% Convertible Senior Notes described inNote 4 are within the scope of FSP 14-1; therefore, we retrospectively recordedthe debt portions of the 61/4% Convertible Senior Notes and the 33/4%Convertible Senior Notes at their fair values as of the respective dates ofissuance and amortize the related debt discount into interest expense over thelife of each debt instrument during the periods in which the debt instrumentsare outstanding.  A cumulative effect ofa change in accounting principle in the amount of $8.9 million was recorded asof the beginning of fiscal 2007 (December 29, 2006) with an offsettingcredit to retained earnings.  Theaccompanying unaudited condensed consolidated balance sheet as of January 1,2009 and the unaudited condensed consolidated statement of income for thequarter ended March 27, 2008 presented herein have been retrospectivelyadjusted to give effect to the adoption of FSP 14-1.  Please refer to Note 4—“Debt Obligations”for further discussion of the adoption of FSP 14-1.

 

As discussedfurther in Note 3—“Investment in National CineMedia, LLC,” as aresult of the annual adjustment provisions of the Common Unit AdjustmentAgreement with National CineMedia, LLC (“National CineMedia”), on March 17,2009, we received from National CineMedia approximately 0.5 million newlyissued common units of National CineMedia in accordance therewith.  This adjustment increased the number ofNational CineMedia common units held by us to approximately 25.4 millionand as a result, on a fully diluted basis, we own a 25.0% interest in NationalCineMedia, Inc. (“NCM, Inc.”) as of April 2, 2009.

 

During the quarterended April 2, 2009, Regal paid one quarterly cash dividend of $0.18 oneach outstanding share of the Company’s Class A and Class B commonstock, or approximately $27.7 million in the aggregate.

 

Totalcomprehensive income for the quarters ended April 2, 2009 and March 27,2008 was $15.9 million and $15.4 million, respectively.  Totalcomprehensive income consists of net income and other comprehensive loss, netof tax, related to the change in the aggregate unrealized loss on the Company’sinterest rate swap arrangements during each of the quarters ended April 2,2009 and March 27, 2008. The Company’s interest rate swap arrangements arefurther described in Note 4—“Debt Obligations.”

 

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The Company hasprepared the unaudited condensed consolidated balance sheet as of April 2,2009 and the unaudited condensed consolidated statements of income and cashflows for the quarters ended April 2, 2009 and March 27, 2008 inaccordance with U.S. generally accepted accounting principles for interimfinancial information and the rules and regulations of the Commission.Accordingly, certain information and footnote disclosures typically included inan annual report have been condensed or omitted for this quarterly report. Inthe opinion of 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 January 1, 2009 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 January 1, 2009. 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 April 2, 2009 are not necessarily indicative of theoperating results that may be achieved for the full 2009 fiscal year.

 

**2.ACQUISITION**

 

***Acquisition of Consolidated Theatres***

 

On April 30,2008, the Company acquired Consolidated Theatres, which holds a total of 28theatres with 400 screens in Georgia, Maryland, North Carolina, South Carolina,Tennessee and Virginia. The total net cash purchase price for the acquisitionwas approximately $209.3 million. In conjunction with the closing, weentered into a final judgment with the DOJ, which required us to hold separateand divest ourselves of four theaters comprising 52 screens in North Carolina.Three of the four theatres subject to the judgment were existing Regalproperties and the fourth theatre was acquired from Consolidated Theatres.Because the fourth theatre had minimal and declining cash flows at theacquisition date, none of the purchase price was allocated to the long-livedassets associated with this theatre. Our impairment review during the quarterended June 26, 2008 did not result in any impairment charges related tothese four theatres on a stand alone basis. However, during the quarter ended September 25,2008, the Company made the decision to sell three of these four theatres (twoof the Regal theatres and the Consolidated theatre) together in order topartially satisfy our divestiture requirement. As a result of agreeing to sellthe theatres as a package, we were required to evaluate the theatres forimpairment as a disposal group (as opposed to the stand alone evaluation duringthe quarter ended June 26, 2008) and accordingly, we recorded animpairment charge of $7.9 million during the quarter ended September 25,2008. On October 23, 2008, the Company completed its divestiture of thethree theatres comprising 42 screens in North Carolina pursuant to a finaljudgment with the DOJ.  In accordancewith the final judgment, a court-appointed trustee was selected to sell thelast of the four theatres.  As describedin Note 11—“Subsequent Events,” on April 30, 2009, the last of thefour theatres was transferred to another theatre operator.

 

The acquisitionhas been accounted for using the purchase method of accounting and,accordingly, the purchase price has been allocated to the assets acquired andliabilities assumed for each of the respective theatre locations based on theirestimated fair values at the date of acquisition. The allocation of thepurchase price is based on management’s judgment after evaluating severalfactors, including an independent third party valuation. The results ofoperations of the acquired theatres have been included in the Company’sconsolidated financial statements for periods subsequent to the acquisitiondate.

 

The following is asummary of the preliminary allocation of the cash purchase price to theestimated fair values of the assets acquired and liabilities assumed at thedate of acquisition (in millions):

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

 

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The transactionincluded the acquisition of certain identifiable intangible assets, including$9.9 million related to favorable leases with a weighted averageamortization period of 13.1 years and approximately $8.2 millionrelated to an on-screen advertising contract which will be amortized on astraight-line basis through January 2011. During the quarter ended April 2, 2009, the Company recognized$1.0 million of amortization related to these intangible assets.

 

The followingunaudited pro forma results of operations for the quarter ended March 27,2008 assume the above acquisition occurred as of the beginning of fiscal2008.  Pro forma results were omitted forthe quarter ended April 2, 2009 since actual reported results were thesame as the pro forma results. The pro forma results have been prepared forcomparative purposes only and do not purport to indicate the results ofoperations which would actually have occurred had the combination been ineffect on the date indicated, or which may occur in the future (in millions,except per share data).

 
| ** **                                                        | ** ** | **Quarter Ended  March 27, 2008** | ** ** |
|-------------------------------------------------------------------|------------|---------------------------------------------|------------|
| Revenues                                                          |       | $                                           | 659.9      |   |
| Income from operations                                            |       | 72.4                                        |       |
| Net income attributable to controlling interest                   |       | 27.4                                        |       |
| Earnings per share of Class A and Class B common stock: |       |                                        |       |
| Basic                                                             |       | 0.18                                        |       |
| Diluted                                                           |       | 0.17                                        |       |
|                                                                   |            |                                             |            |  |

 

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

 

In March 2005,Regal and AMC announced the combination of the operations of Regal CineMediaCorporation (“RCM”) and AMC’s subsidiary, National Cinema Network, Inc. (“NCN”),into a new joint venture company known as National CineMedia. In July 2005,Cinemark, through a wholly owned subsidiary, acquired an interest in NationalCineMedia. National CineMedia concentrates on in-theatre advertising andcreating complementary business lines that leverage the operating personnel,asset and customer bases of its theatrical exhibition partners, which includesus, AMC and Cinemark. National CineMedia is, subject to limited exceptions, theexclusive provider of advertising and event services to Regal, AMC andCinemark.

 

As part of the March 2005joint venture transaction, RCM and NCN entered into a Contribution and UnitHolders Agreement with National CineMedia pursuant to which, among otherthings, RCM and NCN contributed assets to National CineMedia and NationalCineMedia assumed specified liabilities of RCM and NCN in consideration for theissuance of equity units by National CineMedia to RCM’s wholly-ownedsubsidiary, Regal CineMedia Holdings (“RCH”) and NCN, respectively. The assetscontributed to National CineMedia by RCM included fixed assets and agreementsas well as approximately $1.3 million in cash. The Company accounts forits investment in National CineMedia using the equity method of accounting anddid not recognize any gain or loss resulting from the initial formation ofNational CineMedia due to the Company’s continued involvement in the operationsof National CineMedia.

 

On February 13,2007, NCM, Inc., a newly formed entity that serves as the sole manager ofNational CineMedia, completed an initial public offering, or IPO, of its commonstock. In connection with the IPO of NCM, Inc., RCM, through its whollyowned subsidiary RCH, AMC and Cinemark amended and 

 

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restated the operatingagreement of National CineMedia and other ancillary agreements. In connectionwith the series of transactions completed in connection with the IPO, Regalreceived gross cash proceeds totaling approximately $628.3 million andretained a 22.6% interest in NCM, Inc. After the payment of current taxes,net cash proceeds from these transactions totaled approximately$447.4 million. The Company used a portion of the net cash proceeds tofund an extraordinary cash dividend of $2.00 per share on each outstandingshare of its Class A and Class B common stock, including outstandingrestricted stock, or approximately $302.0 million in the aggregate.Stockholders of record at the close of business on March 28, 2007 werepaid this $302.0 million dividend on April 13, 2007.  As a result of the transactions completed inconnection with the IPO, the Company recognized a gain of approximately$350.7 million during fiscal 2007. The formation of National CineMedia and related IPO of NCM, Inc.are further described in Note 4 to the consolidated financial statementsincluded in our annual report on Form 10-K for the fiscal year ended January 1,2009.

 

As furtherdescribed in Note 4 to the consolidated financial statements included inour annual report on Form 10-K for the fiscal year ended January 1,2009, in connection with the IPO, the joint venture partners entered into aCommon Unit Adjustment Agreement with National CineMedia. The Common Unit AdjustmentAgreement was created to account for changes in the number of theatre screensoperated by each of the joint venture partners. Pursuant to our Common UnitAdjustment Agreement, from time to time, common units of National CineMediaheld by the joint venture partners will be adjusted up or down through aformula (“common unit adjustment”) primarily based on increases or decreases inthe number of theatre screens operated and theatre attendance generated by eachjoint venture partner. The common unit adjustment is computed annually, exceptthat an earlier common unit adjustment will occur for a joint venture partnerif its acquisition or disposition of theatres, in a single transaction orcumulatively since the most recent common unit adjustment, will cause a changeof two percent or more in the total annual attendance of all of the jointventure partners.

 

As a result of theannual adjustment provisions of the Common Unit Adjustment Agreement, on April 9,2008, we received from National CineMedia approximately 0.8 million newlyissued common units of National CineMedia. On May 29, 2008, we received from National CineMedia approximately2.9 million newly issued common units of National CineMedia in accordancewith the adjustment provisions of the Common Unit Adjustment Agreement for ourincrease in our circuit in connection with our acquisition of ConsolidatedTheatres. Finally, on March 17, 2009, we received from National CineMediaapproximately 0.5 million newly issued common units of National CineMediain accordance with the annual adjustment provisions of the Common UnitAdjustment Agreement.  These adjustmentsincreased the number of National CineMedia common units held by us toapproximately 25.4 million and as a result, on a fully diluted basis, weown a 25.0% interest in NCM, Inc. as of April 2, 2009.  TheCompany recorded the additional units at fair value using the available closingstock prices of NCM, Inc. as of the dates at which the units werereceived. Since the additional common units received do not represent thefunding of prior losses of National CineMedia, the fair value of such unitswere recorded as separate investment tranches in National CineMedia. As aresult, the Company recorded a $7.0 million increase in its investment inNational CineMedia and a corresponding increase to deferred revenue during thequarter ended April 2, 2009.  Thisamount will be amortized to advertising revenue over the remaining term of the exhibitorservices agreements (“ESA”) following the units of revenue method.

 

Since theadditional common units received represent separate investment tranches inNational CineMedia, any undistributed equity in the earnings of NationalCineMedia pertaining to these tranches will be recognized under the equitymethod of accounting. As a result, the Company’s share in the net income ofNational CineMedia with respect to these tranches totaled less than$0.1 million during the quarter April 2, 2009. Such amount has beenincluded as a component of “Earnings recognized from NCM” in the unauditedcondensed consolidated financial statements. As of April 2, 2009 and January 1,2009, our investment in National CineMedia totaled approximately$78.3 million and $73.1 million, respectively.

 

The Company willnot recognize its share of any undistributed equity in the earnings of NationalCineMedia from the Company’s initial investment in National CineMedia untilNational CineMedia’s future net earnings equal or exceed the amount of theabove excess distribution. Until such time, equity earnings related to theCompany’s initial investment in National CineMedia will be recognized only tothe extent that the Company receives cash distributions from NationalCineMedia. During the quarters ended April 2, 

 

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2009 and March 27,2008, the Company received $12.4 million and $8.4 million, respectively,in cash distributions from National CineMedia. Approximately $1.8 millionof these cash distributions received during the quarter ended April 2,2009 were recognized as a reduction in our investment in National CineMedia.The remaining amounts were recognized in equity earnings during each of theseperiods and have been included as component of “Earnings recognized from NCM”in the accompanying unaudited condensed consolidated financial statements.

 

As a result of theamendment to the ESA and related modification payment, the Company recognizesvarious types of other revenue from National CineMedia, including per patronand per digital screen theatre access fees, net of payments for on-screenadvertising time provided to our beverage concessionaire, other NCM revenue andamortization of upfront ESA modification fees utilizing the units of revenueamortization method. These revenues are presented as a component of otheroperating revenues in the Company’s unaudited condensed consolidated financialstatements and consist of the following amounts (in millions):

 
| ** **                             | ** ** | **Quarter Ended  April 2, 2009** | ** ** | **Quarter Ended  March 27, 2008** | ** ** |
|----------------------------------------|------------|---------------------------------------|------------|----------------------------------------|------------|
| ** **                             | ** ** | ** **                            | ** ** | ** **                             | ** ** |
| Theatre access fees per patron         |       | $                                     | 3.8        |                                   | $          | 4.0 |   |
| Theatre access fees per digital screen |       | 1.3                                   |       | 1.2                                    |       |
| Other NCM revenue                      |       | 0.7                                   |       | 0.9                                    |       |
| Amortization of ESA modification fees  |       | 0.9                                   |       | 0.6                                    |       |
| Payments to beverage concessionaire    |       | (3.5                                  | )          | (3.2                                   | )          |
| Total                                  |       | $                                     | 3.2        |                                   | $          | 3.5 |   |

 

As of April 2,2009, approximately $2.4 million and $1.8 million due from/toNational CineMedia were included in “Trade and other receivables, net” and “Accountspayable,” respectively.  As of January 1,2009, approximately $2.3 million and $2.2 million due from/toNational CineMedia were included in “Trade and other receivables, net” and “Accountspayable,” respectively.

 

Summarized unauditedcondensed consolidated statement of income information for National CineMediafor the quarters ended January 1, 2009 and December 27, 2007 is as follows(in millions):

* *
| ** **             | ** ** | **Quarter Ended  January 1, 2009** | ** ** | **Quarter Ended  December 27, 2007** | ** ** |
|------------------------|------------|---------------------------------------------------|------------|-----------------------------------------------------|------------|
| Revenues               |       | $                                                 | 112.4      |                                                | $          | 94.5 |   |
| Income from operations |       | 58.6                                              |       | 50.5                                                |       |
| Net income             |       | 17.4                                              |       | 36.7                                                |       |
|                        |            |                                                   |            |                                                     |            |  |  |

 

As of the date ofthis quarterly report on Form 10-Q, no summarized financial informationfor National CineMedia was available for the quarter ended April 2, 2009.

 

**4. DEBTOBLIGATIONS**

 

Debt obligationsat April 2, 2009 and January 1, 2009 consist of the following (inmillions):

 
| ** **                                                                                                                          | ** ** | **April 2, 2009** | ** ** | **January 1, 2009** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|--------------------------|------------|
| Regal 61/4% Convertible Senior  Notes, net of debt discount                                                                         |       | $                      | 191.5      |                     | $          | 190.5 |   |
| Regal Cinemas Amended Senior Credit Facility                                                                                        |       | 1,657.5                |       | 1,661.8                  |       |
| Regal Cinemas 93/8% Senior  Subordinated Notes                                                                                      |       | 51.5                   |       | 51.5                     |       |
| Lease financing arrangements, weighted average interest rate of  11.19%, maturing in various installments through January 2021 |       | 80.7                   |       | 81.8                     |       |
| Capital lease obligations, 8.5% to 10.3%, maturing in various  installments through December 2017                              |       | 18.1                   |       | 19.0                     |       |
| Other                                                                                                                               |       | 0.3                    |       | 0.3                      |       |
| Total debt obligations                                                                                                              |       | 1,999.6                |       | 2,004.9                  |       |
| Less current portion                                                                                                                |       | 23.6                   |       | 23.4                     |       |
| Total debt obligations, net of current portion                                                                                      |       | $                      | 1,976.0    |                     | $          | 1,981.5 |   |

 

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***Regal 6*****1****/****4*****% Convertible Senior Notes—*** On March 10, 2008, Regal issued$200.0 million aggregate principal amount of the 61/4%Convertible Senior Notes. Interest on the 61/4% Convertible Senior Notes is payablesemi-annually in arrears on March 15 and September 15 of each year,beginning September 15, 2008. The 61/4% Convertible Senior Notes are seniorunsecured obligations of Regal and rank on parity with all of our existing andfuture senior unsecured indebtedness and prior to all of our subordinatedindebtedness. The 61/4% Convertible Senior Notes areeffectively subordinated to all of our future secured indebtedness to theextent of the assets securing that indebtedness and to any indebtedness andother liabilities of our subsidiaries. None of our subsidiaries have guaranteedany of our obligations with respect to the 61/4% Convertible Senior Notes. On or after December 15,2010, our note holders will have the option to convert their 61/4%Convertible Senior Notes, in whole or in part, into shares of our Class Acommon stock at any time prior to maturity, subject to certain limitations,unless previously purchased by us at the note holder’s option upon afundamental change (as defined in the indenture to the 61/4%Convertible Senior Notes dated March 10, 2008) at the then-existingconversion price per share. Prior to December 15, 2010, our note holdershave the right, at their option, to convert their 61/4% Convertible Senior Notes, in whole orin part, into shares of our Class A common stock, subject to certainlimitations, unless previously purchased by us at the note holder’s option upona fundamental change, at the then existing conversion price per share, subjectto further adjustments described below, if:

 

·                  during any calendar quarter commencing after June 30, 2008, andonly during such calendar quarter, if the last reported sale price per share ofClass A common stock for at least 20 trading days in the period of 30consecutive trading days ending on the last trading day of the immediatelypreceding calendar quarter exceeds 130% of the conversion price per share of Class Acommon stock for the 61/4% Convertible Senior Notes on the lasttrading day of such immediately preceding calendar quarter;

 

·                  during the five consecutive business days immediately after any tenconsecutive trading day period (such 10 consecutive trading day period, the “NoteMeasurement Period”) in which the trading price (calculated using the tradingprice for each of the trading days in the Note Measurement Period) per $1,000principal amount of the 61/4% Convertible Senior Notes was less than95% of the product of the last reported sale price per share of Class Acommon stock and the conversion rate for each day of the Note MeasurementPeriod as determined following a request by a holder of the notes in accordancewith the procedures described more fully in the 61/4% Convertible Senior Notes indenture;

 

·                  during certain periods if specified corporate transactions occur orspecified distributions to holders of common stock are made, each as set forthin the 61/4% Convertible Senior Notes indenture(excluding certain distributions and excluding quarterly dividends not inexcess of the base dividend amount (as defined in the 61/4%Convertible Senior Notes indenture)), in which case, the conversion price pershare will be adjusted as set forth in the 61/4% Convertible Senior Notes indenture; or

 

·                  a fundamental change (as defined in the 61/4% Convertible Senior Notes indenture)occurs, a note holder may elect to convert all or a portion of its notes at anytime commencing on the effective date of such transaction or 15 days priorto the anticipated effective date (in certain circumstances) until the latterof: (i) the day before the fundamental change repurchase date and (ii) 30 daysfollowing the effective date of such transaction (but in any event prior to theclose of business on the business day prior to the maturity date), in whichcase we will increase the conversion rate for the notes surrendered forconversion by a number of additional shares of Class A common stock, asset forth in the table in the 61/4% Convertible Senior Notes indenture.

 

On April 2, 2009,at the then-current conversion price of $23.0336 per share (which conversionprice may be adjusted pursuant to the certain events described further in the 61/4%Convertible Senior Notes indenture), each $1,000 of aggregate principal amountof 61/4% Convertible Senior Notes is convertibleinto approximately 43.4148 shares of our Class A common stock. Uponconversion, we may elect to deliver

 

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cash in lieu of shares ofClass A common stock or a combination of cash and shares of Class Acommon stock. The conversion price and the number of shares delivered onconversion are subject to adjustment upon certain events.

 

In connection withthe issuance of the 61/4% Convertible Senior Notes, we usedapproximately $6.6 million of the net proceeds of the offering to enterinto convertible note hedge and warrant transactions with respect to our Class Acommon stock to reduce the potential dilution from conversion of the 61/4%Convertible Senior Notes. Under the terms of the convertible note hedgearrangement (the “2008 Convertible Note Hedge”) with Credit Suisse, we paid$12.6 million for a forward purchase option contract under which we areentitled to purchase from Credit Suisse a fixed number of shares of our Class Acommon stock (at April 2, 2009, at a price per share of $23.0336). In theevent of the conversion of the 61/4% Convertible Senior Notes, this forwardpurchase option contract allows us to purchase, at a fixed price equal to theimplicit conversion price of shares issued under the 61/4%Convertible Senior Notes, a number of shares of Class A Common stock equalto the shares that we issue to a note holder upon conversion. Settlement termsof this forward purchase option allow the Company to elect cash or sharesettlement based on the settlement option it chooses in settling the conversionfeature of the 61/4% Convertible Senior Notes. We accountedfor the 2008 Convertible Note Hedge pursuant to the guidance in Emerging IssuesTask Force (“EITF”) 00-19, *Accounting forDerivative Financial Instruments Indexed to, and Potentially Settled in aCompany’s Own Stock* (“EITF 00-19”). Accordingly, the $12.6 million purchase price of the forward stockpurchase option contract was recorded as an increase to consolidatedstockholders’ deficit.

 

We also sold toCredit Suisse a warrant (the “2008 Warrant”) to purchase shares of our Class Acommon stock. The 2008 Warrant is currently exercisable for approximately8.7 million shares of our Class A common stock at a April 2,2009 exercise price of $25.376 per share (which exercise price may be adjustedpursuant to the provisions of the 2008 Warrant). We received $6.0 millionin cash from Credit Suisse in return for the sale of this forward sharepurchase option contract. Credit Suisse cannot exercise the 2008 Warrant unlessand until a conversion event occurs. We have the option of settling the 2008Warrant in cash or shares of our Class A common stock. We accounted forthe sale of the 2008 Warrant as the sale of a permanent equity instrumentpursuant to the guidance in EITF 00-19. Accordingly, the $6.0 millionsales price of the forward stock purchase option contract was recorded as a debitto consolidated stockholders’ deficit.

 

The 2008Convertible Note Hedge and the 2008 Warrant allow us to acquire sufficient Class Acommon shares from Credit Suisse to meet our obligation to deliver Class Acommon shares upon conversion by the note holder, unless the Class Acommon share price exceeds $25.376 (as of April 2, 2009). When the fairvalue of our Class A common shares exceeds such price, the equitycontracts no longer have an offsetting economic impact, and accordingly will nolonger be effective as a share-for-share hedge of the dilutive impact ofpossible conversion.

 

The 61/4%Convertible Senior Notes allow us 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. Theaccounting for convertible debt with such settlement features is addressed inthe consensus reached by the EITF with respect to the accounting forInstrument B as set forth in EITF 90-19, *Convertible Bonds with Issuer Option to Settle for Cash upon Conversion*.Because the accreted value of the 61/4% Convertible Senior Notes may be settledin cash, shares of our Class A common stock or a combination of stock andcash, the accreted value of the 61/4% Convertible Senior Notes is assumed tobe settled in shares and will result in dilution in our earnings per sharecomputations using the if-converted method, if the effect is dilutive (seeNote 10—“Recent Accounting Pronouncements”).

 

***Regal 3******3******/******4******%Convertible Senior Notes***—As further described in Note 5 to the consolidatedfinancial statements included in our annual report on Form 10-K for thefiscal year ended January 1, 2009, on May 28, 2003, Regal issued$240.0 million aggregate principal amount of the 33/4%Convertible Senior Notes due May 15, 2008.

 

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In connection withthe issuance of the 61⁄4% Convertible Senior Notes described above, on March 5,2008 and March 10, 2008, we redeemed a total of approximately $90.0million principal amount of the 33/4% Convertible Senior Notes, in a seriesof privately negotiated transactions.  As a result of the earlyredemption, the Company recorded a $3.0 million loss on debt extinguishment (asretrospectively adjusted for the adoption of FSP 14-1 described below) duringthe quarter ended March 27, 2008.  In connection with the earlyredemption, the Company received net proceeds of approximately $13.7 millionfrom Credit Suisse attributable to the convertible note hedge (the “2003Convertible Note Hedge”) and the warrant (the “2003 Warrant”) associated withthe 33/4% Convertible Senior Notes.  Suchproceeds were recorded as an increase to additional paid-in capital. Inconnection with the final maturity of the 33/4% Convertible Senior Notes on May 15,2008, holders of the remaining $33.7 million in principal amount exercisedtheir conversion rights. The Company elected to settle these conversionsentirely in cash for approximately $51.4 million using the remainingproceeds from the issuance of the 61⁄4% Convertible Senior Notes.  Inconnection with these conversions, the Company received net proceeds ofapproximately $5.2 million from Credit Suisse attributable to theconvertible note hedge and warrant transactions associated with the 33/4%Convertible Senior Notes. Such proceeds were also recorded as an increase toadditional paid-in capital.

 

***Adoptionof FSP 14-1***

 

Effective January 2,2009, the Company retrospectively adopted the provisions of FSP 14-1, whichrequires that issuers of convertible debt instruments that may be settled incash upon conversion (including partial cash settlement) should separatelyaccount for the liability and equity (conversion feature) components of suchinstruments. As a result, interest expense should be imputed and recognizedbased upon the entity’s nonconvertible debt borrowing rate, which will resultin incremental non-cash interest expense. Prior to FSP 14-1, AccountingPrinciples Board Opinion No. 14, *Accounting for ConvertibleDebt and Debt Issued with Stock Purchase Warrant*, provided that noportion of the proceeds from the issuance of the instrument should beattributable to the conversion feature. Our 61⁄4% Convertible Senior Notes and our 33/4% Convertible Senior Notes are subject toFSP 14-1.

 

We have determinedthat if the liability and equity components of the 61⁄4% Convertible Senior Notesand the 33/4% Convertible Senior Notes had beenseparately valued at the time of their issuances on March 10, 2008 and May 28,2003, respectively, the amounts allocated to long-term debt would have been$187.4 million (61⁄4% Convertible Senior Notes) and $203.8 million (33/4%Convertible Senior Notes), and the amounts allocated to equity would have been$12.6 million and $36.2 million, respectively. The effective interest rates onthe 61⁄4% Convertible Senior Notes and the 33/4% Convertible Senior Notes (based uponthe Company’s estimated nonconvertible debt borrowing rate at the time of eachrespective issuance) would have been approximately 8.7% and 6.8%, respectively.  Effective with the January 2, 2009adoption of  FSP 14-1, interest expense(amortization of debt discount) for fiscal 2003, 2004, 2005, 2006, 2007 and2008 were increased by non-cash amounts of approximately $3.3 million, $6.0million, $6.7 million, $5.7 million, $4.6 million and $4.2 million,respectively.  In addition, the Companyretrospectively reduced the previously recorded loss on debt extinguishmentresulting from the early extinguishments of the 33/4% Convertible Senior Notes that occurred duringfiscal 2006 and fiscal 2008 by approximately $35.1 million and $67.5 million,respectively.  After giving effect tothese adjustments and the application of the appropriate income tax benefitsthrough the fiscal year ended December 28, 2006, a cumulative effectadjustment of $8.9 million was recorded as of the beginning of fiscal 2007 (December 29,2006) with a corresponding credit to the opening balance of retained earnings.

 

During the quarterended April 2, 2009, the Company recorded approximately $1.0 million ofnon-cash interest expense (amortization of debt discount) on the 61⁄4%Convertible Senior Notes. The amount of contractual coupon interest recognizedon the 61⁄4% Convertible Senior Notes during the same period was approximately$3.1 million.  During the quarter ended March 27,2008, the Company retrospectively recorded approximately $1.1 million ofnon-cash interest expense (amortization of debt discount) for the 61⁄4%Convertible Senior Notes and the 33/4% Convertible Senior Notes. The amount ofcontractual coupon interest recognized on the 61⁄4% Convertible Senior Notes andthe 33/4% Convertible Senior Notes during thesame period was approximately $1.6 million. In addition, for the quarter ended March 27, 2008, amountspreviously recorded for loss on debt extinguishment and provision for incometaxes were retrospectively (reduced) increased by $(49.8) million and $18.2million, respectively.  The resulting 

 

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increase in net incomefrom the adoption of FSP 14-1 was approximately $30.5 million for the quarterended March 27, 2008. The accompanying unaudited condensed consolidatedstatement of income for the quarter ended March 27, 2008 presented hereinhas been retrospectively adjusted to give effect to these adjustments resultingfrom the adoption of FSP 14-1.  Inaddition, the accompanying unaudited condensed consolidated balance sheet as ofJanuary 1, 2009 presented herein has been retrospectively adjusted to giveeffect to the adoption of FSP 14-1 as follows (in millions):

 
| ** **                            | ** ** | **As of  January 1, 2009  (Previously Reported)** | ** ** | **Impact of FSP 14-1** | ** ** | **As of  January 1, 2009  (As Revised for FSP 14-1)** | ** ** |
|---------------------------------------|------------|--------------------------------------------------------|------------|------------------------|------------|------------------------------------------------------------|------------|
| ** **                            | ** ** | ** **                                             | ** ** | ** **             | ** ** | ** **                                                 | ** ** |
| Other assets                          |       | $                                                      | 113.5      |                   | $          | (0.2                                                       | )          | $ | 113.3 |   |
| Non-current deferred income tax asset |       | 81.7                                                   |       | (3.5                   | )          | 78.2                                                       |       |
| Long-term debt, less current portion  |       | 1,896.5                                                |       | (9.5                   | )          | 1,887.0                                                    |       |
| Additional paid-in capital (deficit)  |       | (256.1                                                 | )          | (9.7                   | )          | (265.8                                                     | )          |
| Retained earnings                     |       | 24.6                                                   |       | 15.5                   |       | 40.1                                                       |       |
|                                       |            |                                                        |            |                        |            |                                                            |            |  |  |  |

 

As of April 2,2009 and January 1, 2009, the carrying amounts of the $200.0 million 61⁄4%Convertible Senior Notes were approximately $191.5 million and $190.5 million,respectively, and the carrying amount of the related equity component (conversionfeature) was $12.6 million.  Weanticipate recording additional non-cash interest expense on the 61⁄4%Convertible Senior Notes in the amount of $8.5 million (the unamortizeddiscount as of April 2, 2009) through the March 2011 maturity date ofthe 61⁄4% Convertible Senior Notes, thereby increasing the carrying value to$200.0 million.  As of April 2,2009, the if-converted value of the 61⁄4% Convertible Senior Notes wasapproximately $200.0 million.

 

***Regal Cinemas Fifth Amended and Restated Credit Agreement***— On October 27, 2006, Regal Cinemasentered into a fifth amended and restated credit agreement (the “Amended SeniorCredit Facility”) with Credit Suisse, Cayman Islands Branch (as successor toCredit Suisse First Boston), as Administrative Agent and the other lendersparty thereto, which consists of a term loan facility (the “Term Facility”) inan aggregate original principal amount of $1,700.0 million and a revolvingcredit facility (the “Revolving Facility”) in an aggregate principal amount ofup to $100.0 million.  Due to the bankruptcy filings by LehmanBrothers Holdings Inc. (“Lehman”) and certain of its affiliates and the suddendeterioration in the credit standing of the Lehman affiliate party to ourRevolving Facility, the aggregate principal amount available for drawing underthe Revolving Facility was reduced by $5.0 million to $95.0 million during thefiscal year ended January 1, 2009.  The Revolving Facility has aseparate sublimit of $10.0 million for short-term loans 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 on October 27,2011. Interest is payable (a) in the case of base rate loans, quarterly inarrears, and (b) in the case of Eurodollar rate loans, at the end of eachinterest period, but in no event less often than every three months. TheTerm Facility amortizes in equal quarterly installments in an aggregate annualamount equal to 1.0% of the original principal amount of the Term Facilityduring the first six years thereof, with the balance payable in two equalinstallments, the first on June 30, 2013 and the second on October 27,2013. The Amended Senior Credit Facility is further described in Note 5 tothe consolidated financial statements included in our annual report on Form 10-Kfor the fiscal year ended January 1, 2009.

 

On January 20,2009, Regal Cinemas entered into the First Amendment (the “Amendment”) to theAmended Senior Credit Facility. As a result of the Amendment, either the Company,or its wholly-owned 

 

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subsidiary, REH, will bepermitted from time to time to purchase loans outstanding under the AmendedSenior Credit Facility. The Amendment provides that the aggregate principalamount of loans that can be repurchased shall not be more than$300.0 million and all such repurchases shall close on or before the datethat is 270 days after the First Amendment Effective Date (approximately October 17,2009), as defined in the Amendment, and sets forth the terms for implementingan offer to repurchase such loans (such repurchase being the “Dutch Auction.”)

 

Under theAmendment, (i) the Applicable Margin, as defined in the Amendment, forRevolving Loans under the Revolving Facility and for Term Loans under the TermFacility (each of which are determined by reference to the then-applicableConsolidated Leverage Ratio) is increased by 2.0%, (ii) Regal Cinemas’ability to elect interest periods for LIBOR borrowings is limited to interestperiods of 2, 3, 6 or (if available to all lenders) 12 months, with1 month interest periods no longer being available, and (iii) RegalCinemas may exclude a minimum of $100.0 million, but not more than$200.0 million, of Subordinated Debt, as defined in the Amendment, that isused to repay amounts outstanding under the Term Loan from certain financialcovenant calculations.

 

The Amendment alsomodifies other financial covenants to be less restrictive as follows:

 

·                  (i) extending the time period for which the Maximum ConsolidatedAdjusted Leverage Ratio, as defined in the Amendment, may not exceed 5.75:1.00until the 2nd fiscal quarter of 2011 and (ii) providingthat the Maximum Consolidated Adjusted Leverage Ratio may not exceed (x) 5.50:1.00from the 3rd fiscal quarter of 2011 through the4th fiscal quarter of 2011 and (y) 5.25:1.00from the 1st fiscal quarter of 2012 andthereafter; and

 

·                  (i) extending the time period for which the Maximum ConsolidatedLeverage Ratio, as defined in the Amendment, may not exceed 3.75:1.00 until the2nd fiscal quarter of 2011 and (ii) providingthat the Maximum Consolidated Leverage Ratio may not exceed (x) 3.50:1.00from the 3rd fiscal quarter of 2011 through the4th fiscal quarter of 2011 and (y) 3.25:1.00from the 1st fiscal quarter of 2012 andthereafter.

 

Upon the executionof the Amendment to the Amended Senior Credit Facility, Regal recordedapproximately $9.6 million of new debt acquisition costs and incurredapproximately $0.8 million of other third party costs.

 

Borrowings underthe Amended Senior Credit Facility bear interest, at Regal Cinemas’ option, ateither a base rate or an Adjusted Eurodollar Rate (as defined in the AmendedSenior Credit Facility) plus, in each case, an applicable margin.  As of April 2, 2009 and January 1,2009, borrowings of $1,657.5 million and $1,661.8 million,respectively, were outstanding under the Term Facility at an effective interestrate of 6.46% (as of April 2, 2009) and 4.42% (as of January 1,2009), after the impact of the interest rate swaps described below is takeninto account.

 

***Interest Rate Swaps***—As described in Note 5 to the consolidatedfinancial statements included in our annual report on Form 10-K for thefiscal year ended January 1, 2009, on July 13, 2004, Regal Cinemasentered into four hedging relationships via four distinct interest rate swapagreements with final maturity terms ranging from three to five years each. On September 8,2005, Regal Cinemas entered into an additional hedging relationship via adistinct interest rate swap agreement with a maturity term of four years.  These interest rate swaps were designated tohedge approximately $1,100.0 million of its variable rate debtobligations.  On June 30, 2007, oneof our interest rate swaps designated to hedge approximately$200.0 million of variable rate debt obligations matured. On August 9,2007, Regal Cinemas entered into two additional hedging relationships via twodistinct interest rate swap agreements with maturity terms of two years each.These interest rate swaps were designated to hedge approximately$200.0 million of variable rate debt obligations. On June 30, 2008,two of our interest rate swaps designated to hedge $300.0 million ofvariable rate debt obligations matured. On October 3, 2008, an interestrate swap agreement designated to hedge approximately $100.0 million ofvariable rate debt obligations effectively terminated.  During the quarter ended April 2, 2009,Regal Cinemas entered into four additional hedging relationships via fourdistinct interest rate swap agreements with maturity terms of two to threeyears each from the respective effective dates of the swaps and require RegalCinemas to pay interest at fixed rates ranging from 2.15% to 2.53% and receiveinterest at a variable rate. These interest rate swaps were 

 

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designated to hedgeapproximately $1.0 billion of variable rate debt obligations.  One of these interest rate swap agreements(designated to hedge approximately $250.0 million of variable rate debtobligations) became effective during the quarter ended April 2, 2009.  As a result, the Company’s effective interestrate swap agreements hedge an aggregate of approximately $950.0 million ofvariable rate debt obligations as of April 2, 2009.

 

On September 15,2008, because of the sudden deterioration in the credit standing of the Lehmancounterparty to an interest rate swap agreement designated to hedgeapproximately $100.0 million of variable rate debt obligations, theCompany concluded that the hedging relationship was no longer expected to behighly effective in achieving offsetting cash flows. As a result, on September 15,2008, the hedging relationship ceased to qualify for hedge accounting underStatement of Financial Accounting Standards (“SFAS”) No. 133, *Accounting for Derivative Instruments and Hedging Activities*(“SFASNo. 133”). For the period from September 15, 2008 through September 25,2008, the Company recognized $0.5 million (the change in fair value of theformer hedging derivative) as a reduction of interest expense in theconsolidated financial statements. On October 3, 2008, the Lehmancounterparty filed for bankruptcy protection under Chapter 11 of the U.S.Bankruptcy Code. As a result, an event of default occurred under the provisionsof the interest rate swap agreement between us and the Lehman counterparty,which effectively terminated the interest rate swap on October 3, 2008, asindicated above. Accordingly, $1.6 million of accumulated othercomprehensive loss as of October 3, 2008 will be reclassified intoearnings in the periods during which the hedged forecasted transaction affectsearnings (i.e., when interest payments are made on the variable rate debtobligations) as an adjustment to interest expense over the remaining life ofthe two-year original hedge as long as the variable rate debt obligationsremain outstanding. During the quarter ended April 2, 2009, the Companyreleased a portion of the deferred loss in accumulated other comprehensive lossby recording interest expense (net of related tax effects) of approximately$0.4 million and a corresponding $0.4 million reduction of othercomprehensive loss. The Company is in the process of determining a finaltermination value associated with the interest rate swap, but does not expectthe termination value to be materially different from the current liabilityrecorded (approximately $2.1 million) as of April 2, 2009.

 

Under the terms ofthe Company’s effective interest rate swap agreements as of April 2, 2009,Regal Cinemas pays interest at various fixed rates ranging from 2.353% to 4.994%and receives interest at a variable rate based on the 3-month LIBOR. The3-month LIBOR rate on each reset date determines the variable portion of theinterest rate-swaps for the following three-month period. The interest rateswaps settle any accrued interest for cash on the last day of each calendarquarter, until expiration. At such dates, the differences to be paid orreceived on the interest rate swaps will be included in interest expense. Nopremium or discount was incurred upon the Company entering into the interestrate swaps, because the pay and receive rates on the interest rate swapsrepresented prevailing rates for each counterparty at the time the interestrate swaps were entered into. The interest rate swaps qualify for cash flowhedge accounting treatment in accordance with SFAS No. 133 and as such,the Company has effectively hedged its exposure to variability in the futurecash flows attributable to the 3-month LIBOR on approximately$950.0 million of variable rate obligations. The change in the fair valuesof the interest rate swaps is recorded on the Company’s consolidated balancesheet as an asset or liability with the effective portion of the interest rateswaps’ gains or losses reported as a component of other comprehensive income(loss) and the ineffective portion reported in earnings (interest expense). Asinterest expense is accrued on the debt obligation, amounts in accumulatedother comprehensive income/loss related to the designated hedging instruments(the three interest rate swaps) will be reclassified into earnings to obtain anet cost on the debt obligation equal to the effective yield of the fixed rateof each swap.

 

As of April 2,2009, the aggregate fair value of all of the Company’s interest rate swaps wasdetermined to be approximately $(23.8) million, of which $(14.8) million hasrecorded as a component of “Other Non-Current Liabilities” and $(9.0) millionhas been recorded as a component of “Accrued Expenses” with a correspondingamount of $(14.5) million, net of tax, recorded to “Accumulated OtherComprehensive Loss.”  As of January 1,2009, the aggregate fair value of the remaining three interest rate swaps wasdetermined to be approximately $(14.2) million, which was recorded as acomponent of “Accrued Expenses” with a corresponding amount of $(8.7) million,net of tax, recorded to “Accumulated Other Comprehensive Loss.”  These interest rate swaps exhibited noineffectiveness during the quarters ended April 2, 2009 and March 27,2008 and accordingly, the net losses on the swaps of $5.8 million and $12.1million, respectively, were reported as a component of other comprehensive lossfor the quarters ended April 2, 2009 and March 27, 2008.  The fair 

 

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value of the Company’sinterest rate swaps is based on level 2 inputs, as described by SFAS No. 157,*Fair Value Measurements*, which includeobservable inputs such as dealer quoted prices for similar assets orliabilities, and represents the estimated amount Regal Cinemas would receive orpay to terminate the agreements taking into consideration various factors,including current interest rates, credit risk and counterparty credit risk.  The counterparties to the Company’s interestrate swaps are major financial institutions. The Company evaluates the bond ratings of the financial institutions andbelieves that credit risk is at an acceptably low level.

 

***Other Long-Term Obligations—***All other long-term obligations(including the Regal Cinemas 93/8% Senior Subordinated Notes) not explicitly discussedherein are described in Note 5 to the consolidated financial statementsincluded in our annual report on Form 10-K for the fiscal year ended January 1,2009 and incorporated by reference herein.

 

**5.INCOME TAXES**

 

The provision forincome taxes of $14.4 million and $19.1 million for the quarters ended April 2,2009 and March 27, 2008, respectively, reflect effective tax rates ofapproximately 40.3% and 41.0%, respectively.  The reduction in theeffective tax rate for the quarter ended April 2, 2009 is primarilyattributable to the tax effects of the resolution of a state tax issue duringthe quarter ended March 27, 2008. The effective tax rates for the quartersended April 2, 2009 and March 27, 2008 reflect the impact of certainnon-deductible expenses.

 

In assessing therealizable value of deferred tax assets, management considers whether it ismore likely than not that some portion or all of the deferred tax assets willnot be realized. The ultimate realization of deferred tax assets is dependentupon the generation of future taxable income during the periods in which thesetemporary differences become deductible. The Company has recorded a valuationallowance against deferred tax assets at April 2, 2009 and January 1,2009, totaling $12.1 million as management believes it is more likely than notthat certain deferred tax assets will not be realized in future tax periods.Future reductions in the valuation allowance associated with a change inmanagement’s determination of the Company’s ability to realize these deferredtax assets will result in a decrease in the provision for income taxes.

 

The Company and its subsidiaries collectively file income tax returnsin the U.S. federal jurisdiction and various state jurisdictions. In June 2005,the Company was notified that the Internal Revenue Service (“IRS”) wouldexamine its 2002 and 2003 federal income tax returns. During October 2005,the IRS completed its examination of the Company’s federal tax returns for suchyears and the Company and the IRS agreed to certain adjustments to the Company’s2002 and 2003 federal tax returns. Such adjustments did not have a materialimpact on the Company’s provision for income taxes. The Company is no longersubject to U.S. federal examinations by tax authorities for years before 2005,and with limited exceptions, is no longer subject to state income taxexaminations for years before 2004. However, the taxing authorities still havethe ability to review the propriety of tax attributes created in closed taxyears if such tax attributes are utilized in an open tax year.

 

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

 

***Capital Stock***

 

As of April 2,2009, the Company’s authorized capital stock consisted of:

 

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

 

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

 

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

 

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Of the authorized sharesof Class A common stock, 18.0 million shares were sold in connectionwith the Company’s initial public offering in May 2002. The Company’s Class Acommon stock is listed on the New York Stock Exchange under the trading symbol “RGC.”As of April 2, 2009, 130,131,890 shares of Class A common stock wereoutstanding. Of the authorized shares of Class B common stock, 23,708,639shares were outstanding as of April 2, 2009, all of which are held byAnschutz Company (“Anschutz”). Each share of Class B common stock convertsinto one share of Class A common stock at the option of the holder or uponcertain transfers of a holder’s Class B common stock. Each holder of Class Bcommon stock is entitled to ten votes for each outstanding share of Class Bcommon stock owned by that stockholder on every matter properly submitted tothe stockholders for their vote. Of the authorized shares of the preferredstock, no shares were issued and outstanding as of April 2, 2009. The Class Acommon stock is entitled to one vote for each outstanding share of Class Acommon stock on every matter properly submitted to the stockholders for a vote.Except as required by law, the Class A and Class B common stock votetogether as a single class on all matters submitted to the stockholders. Thematerial terms and provisions of the Company’s certificate of incorporationaffecting the relative rights of the Class A common stock and the Class Bcommon stock are described in Note 10 to the consolidated financialstatements included in our annual report on Form 10-K for the fiscal yearended January 1, 2009.

 

***Share Repurchase Program***

 

During 2004, theCompany’s board of directors authorized a share repurchase program, whichprovided for the authorization to repurchase up to $50.0 million of theCompany’s outstanding Class A common stock within a twelve month period.During 2005, the Company repurchased 520,386 shares of its outstanding Class Acommon stock at an aggregate cost of approximately $10.0 million. TheCompany’s board of directors extended the share repurchase program during thefiscal year ended January 1, 2009 for an additional twelve month period.Accordingly, the Company can repurchase up to an additional $40.0 millionunder the share repurchase program through November 2009.  The Company made no repurchases of itsoutstanding Class A common stock under the program during the quartersended April 2, 2009 and March 27, 2008.  Repurchases can be made from time to time asmarket conditions warrant, through open market purchases, negotiatedtransactions, or in such a manner deemed appropriate by the Company. Treasuryshares are retired upon repurchase. At retirement, the Company records treasurystock purchases at cost with any excess of cost over par value recorded as areduction of additional paid-in capital.

 

***Warrants***

 

Other thandisclosed in Note 4—“Debt Obligations” and Note 9—“Earnings PerShare,” no warrants to acquire the Company’s Class A or Class Bcommon stock were outstanding as of April 2, 2009.

 

***Share-Based Compensation***

 

In 2002, theCompany established the 2002 Stock Incentive Plan (the “Incentive Plan”) for atotal of 11,194,354 authorized shares, which provides for the granting ofincentive stock options and non-qualified stock options to officers, employeesand consultants of the Company. As described below under “Restricted Stock” and“Performance Share Units,” the Incentive Plan also provides for grants ofrestricted stock and performance shares that are subject to restrictions andrisks of forfeiture. Readers should refer to Note 10 to the consolidatedfinancial statements included in our annual report on Form 10-K forthe fiscal year ended January 1, 2009 for additional information relatedto these awards and the Incentive Plan.

 

*StockOptions*

 

In connection withthe July 1, 2003, June 2, 2004 and April 13, 2007 extraordinarycash dividends and pursuant to the antidilution adjustment terms of theIncentive Plan, the exercise price and the number of shares of Class Acommon stock subject to options held by the Company’s option holders wereadjusted to prevent dilution and restore their economic position to that existingimmediately before the extraordinary dividends. The antidilution adjustmentsmade with respect to such options resulted in a decrease in the range ofexercise prices, from $2.4407 to $16.1768 per share, an increase in theaggregate number of shares 

 

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issuable upon exercise ofsuch options by 5,185,100, and an increase in the total number of authorizedshares under the Incentive Plan to 18,269,213 (after giving effect to the May 11,2005 amendment to the Incentive Plan, which increased the total number ofshares of Class A common stock authorized for issuance under the IncentivePlan by 1,889,759 shares). As of April 2, 2009 and after giving effect tothe antidilution adjustments and the May 11, 2005 amendment to theIncentive Plan, options to purchase a total of 584,482 shares of Class Acommon stock were outstanding under the Incentive Plan, and 2,042,416 sharesremain available for future issuance under the Incentive Plan. Stock optioninformation presented herein has been adjusted to give effect to theextraordinary dividends. There were no accounting consequences for changes madeto reduce the exercise prices and increase the number of shares underlyingoptions as a result of the extraordinary cash dividends because (1) theaggregate intrinsic value of the awards immediately after the extraordinarydividends was not greater than the aggregate intrinsic value of the awardsimmediately before the extraordinary dividends and (2) the ratio of theexercise price per share to the market value per share was not reduced.

 

There were nostock options granted during the quarters ended April 2, 2009 and March 27,2008.  During the quarters ended April 2, 2009 and March 27,2008, the Company recognized less than $0.1 million of share-based compensationexpense related to stock options.  Such expense is presented as acomponent of general and administrative expenses for the quarters ended April 2,2009 and March 27, 2008.  At April 2, 2009, there was$0.2 million of unrecognized compensation cost related to share-basedpayments.

 

We receive a taxdeduction for certain stock option exercises during the period the options are exercised,generally for the excess of the price at which the stock is sold over theexercise price of the options.  In accordance with SFAS No. 123(R), *Share-Based Payment*, we are required to report excess taxbenefits from the award of equity instruments as financing cash flows. Excess tax benefits are recorded when a deduction reported for tax returnpurposes for an award of equity instruments exceeds the cumulative compensationcost for the instruments recognized for financial reporting purposes. There were no exercises of stock options during the quarter ended April 2,2009.  For the quarter ended March 27, 2008, our unaudited condensedconsolidated statement of cash flows reflects $0.1 million of excess taxbenefits as financing cash flows. Net cash proceeds from the exercise ofstock options were $0.2 million for the quarter ended March 27,2008. The actual income tax benefit realized from stock option exerciseswas $0.1 million for the same period.

 

The followingtable represents stock option activity for the quarter ended April 2,2009:

 
| ** **                                 | ** ** | **Number of  Shares** | ** ** | **Weighted Average  Exercise Price** | ** ** | **Weighted Average  Contract Life (Yrs.)** | ** ** |
|--------------------------------------------|------------|----------------------------|------------|------------------------------------------------|------------|-----------------------------------------------------------|------------|
| Outstanding options at beginning of period |       | 584,482                    |       | $                                              | 9.37       |                                                      | 3.78       |   |
| Granted                                    |       | —                     |       | —                                         |       |                                                      |       |
| Exercised                                  |       | —                     |       | —                                         |       |                                                      |       |
| Forfeited                                  |       | —                     |       | —                                         |       |                                                      |       |
| Outstanding options at end of period       |       | 584,482                    |       | 9.37                                           |       | 3.49                                                      |       |
| Exercisable options at end of period       |       | 559,358                    |       | 9.06                                           |       | 3.41                                                      |       |
|                                            |            |                            |            |                                                |            |                                                           |            |  |

 

*RestrictedStock*

 

As described inNote 9 to the consolidated financial statements included in our annual reporton Form 10-K for the fiscal year ended January 1, 2009, the Companymaintains the Incentive Plan which provides for restricted stock awards toofficers, directors and key employees. Under the Incentive Plan, shares of Class Acommon stock of the Company may be granted at nominal cost to officers,directors and key employees, subject to a continued employmentrestriction.  On January 14, 2009,371,129 restricted shares were granted under the Incentive Plan at nominal costto officers, directors and key employees. These awards vest 25% at the end ofeach year for four years in the case of officers and key employees and vest100% at the end of one year in the case of directors. The closing price of our Class Acommon stock on the date of this grant was $10.01 per share.

 

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During the quarterended April 2, 2009, the Company withheld approximately 37,576 shares ofrestricted stock at an aggregate cost of approximately $0.4 million, aspermitted by the applicable equity award agreements, to satisfy employee tax withholdingrequirements related to the vesting of restricted stock awards.

 

During each of thequarters ended April 2, 2009 and March 27, 2008, the Companyrecognized approximately $0.9 million of share-based compensation expenserelated to restricted share grants.  Such expense is presented as acomponent of general and administrative expenses. The compensation expensefor these awards was determined based on the market price of our stock at thedate of grant applied to the total numbers of shares that were anticipated tofully vest.  As of April 2, 2009, we have unrecognized compensationexpense of $8.2 million associated with restricted stock awards.

 

The followingtable represents the restricted stock activity for the quarter ended April 2,2009:

 
| ** **                      | ** ** | **Quarter Ended  April 2, 2009** | ** ** |
|---------------------------------|------------|---------------------------------------|------------|
| Unvested at beginning of period |       | 637,615                               |       |
| Granted during the period       |       | 371,129                               |       |
| Vested during the period        |       | (172,371                              | )          |
| Forfeited during the period     |       | (2,947                                | )          |
| Unvested at end of period       |       | 833,426                               |       |

 

During the quarterended April 2, 2009, the Company paid one cash dividend of $0.18 on eachshare of outstanding restricted stock totaling approximately$0.2 million.  During the quarter ended March 27, 2008, theCompany paid one cash dividend of $0.30 on each share of outstanding restrictedstock totaling approximately $0.2 million.

 

*PerformanceShare Units*

 

The Incentive Planalso provides for grants in the form of performance share units to officers,directors and key employees. Performance share agreements are entered intobetween the Company and each grantee of performance share units (each a“Performance Agreement”).  Our 2006Performance Agreement covered performance share grants in the fiscal yearsended December 28, 2006, December 27, 2007 and January 1, 2009,and is described in Note 9 to the consolidated financial statements included inour annual report on Form 10-K for the fiscal year ended January 1,2009.

 

In 2009, weadopted an amended and restated form of Performance Agreement.  On January 14, 2009, 401,907 performanceshares were granted pursuant to the 2009 Performance Agreement, at nominal costto officers and key employees. Under the 2009 Performance Agreement, which isdescribed in the section entitled “Compensation Discussion and Analysis –Elements of Compensation – Performance Shares,” of our 2009 proxy statement,each performance share represents the right to receive from 0% to 150% of thetarget numbers of shares of restricted Class A common stock. The number ofshares of restricted common stock earned will be determined based on theattainment of specified performance goals by January 14, 2012 (the thirdanniversary of the grant date) set forth in the Performance Agreement. Theshares are subject to the terms and conditions of the Incentive Plan. Theclosing price of our Class A common stock on the date of this grant was$10.01 per share.

 

Pursuant to theterms and conditions of the 2006 and 2009 Performance Agreements, grantees willbe issued shares of restricted common stock of the Company in an amountdetermined by the attainment of Company performance criteria set forth in suchPerformance Agreement. The shares of restricted common stock received uponattainment of the performance criteria will be subject to further vesting overa period of time, provided the grantee remains a service provider to theCompany during such period.

 

During thequarters ended April 2, 2009 and March 27, 2008, the Companyrecognized approximately $0.7 million and $0.4 million, respectively, ofshare-based compensation expense related to performance share grants.  Such expense is presented as a component ofgeneral and administrative expenses.

 

The followingtable summarizes information about the Company’s number of performance sharesfor the quarter ended April 2, 2009:

 

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| ** **                      | ** ** | **Quarter Ended  April 2, 2009** | ** ** |
|---------------------------------|------------|---------------------------------------|------------|
| Unvested at beginning of period |       | 793,005                               |       |
| Granted (based on target)       |       | 401,907                               |       |
| Forfeited                       |       | (6,552                                | )          |
| Unvested at end of period       |       | 1,188,360                             |       |

 

The above tabledoes not reflect the maximum or minimum number of shares of restricted stockcontingently issuable. An additional 790,949 shares of restricted stock couldbe issued providing the performance criteria maximums are met.

 

**7.COMMITMENTS AND CONTINGENCIES**

 

***Acquisition of Consolidated Theatres***

 

As described inNote 2—“Acquisition,” in conjunction with the closing of ConsolidatedTheatres, we entered into a final judgment with the DOJ, which requires us tohold separate and divest ourselves of four theaters comprising 52 screens inNorth Carolina. During the fiscal year ended January 1, 2009, the Companyentered into an agreement to sell three of the four theatres. On October 23,2008, the Company completed its divestiture of the three theatres. Inaccordance with the final judgment, a court-appointed trustee was selected tosell the last of the four theatres. 

 

***Other***

 

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

 

In prior years,private litigants and the DOJ had filed claims against us or our 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. From time to time, we receive claims that thestadium seating offered by our theatres allegedly violates the ADA. In theseinstances, we seek to resolve or dismiss these claims based on the terms of theDOJ settlement or under applicable ADA standards.

 

In addition, we,from time to time, receive letters from the attorneys general of states inwhich we operate theatres regarding investigation into the accessibility of ourtheatres to persons with visual or hearing impairments. We believe we providethe members of the visually and hearing impaired communities with reasonableaccess to the movie-going experience.

 

We believe that weare in substantial compliance with all current applicable regulations relatingto accommodations for the disabled. We intend to comply with future regulationsin this regard, and except as set forth above, we do not currently anticipatethat compliance will require us to expend substantial funds. Our theatreoperations are also subject to federal, state and local laws governing suchmatters as wages, working conditions, citizenship and health and sanitation requirements.We believe that we are in substantial compliance with all of such laws.

 

On or about January 3,2007, suit was initiated against the Company in Federal Court, Central Districtof California, styled, *Bateman, individuallyand on behalf of all others similarly situated, v. Regal Cinemas, Inc. andUnited Artists Theatre Circuit, Inc., et al.,* allegingviolations of the Fair and Accurate

 

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Transaction Act, forallegedly printing expiration dates and credit card numbers on customerreceipts. The plaintiff sought to represent a class of individuals allegedlyharmed by this alleged practice. The complaint sought 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. On November 21, 2008, the court entered an order of dismissal of thecomplaint in its entirety, without prejudice, with each party to bear their owncosts.

 

We and our varioussubsidiary corporations are also presently involved in various legalproceedings arising in the ordinary course of our business operations,including personal injury claims, employment and contractual matters and otherdisputes. We believe we have adequately provided for the settlement of 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 quarterended April 2, 2009, Regal Cinemas incurred capitalized costs of$0.1 million to Qwest Communications and its subsidiaries for networkinfrastructure upgrades. Regal Cinemas incurred approximately $2.0 millionof expenses payable to Qwest Communications and its subsidiaries fortelecommunication and network monitoring services during the quarter ended April 2,2009.  In addition, Regal Cinemasincurred less than $0.1 million of expenses payable to Anschutz affiliatesfor certain advertising services during the quarter ended April 2, 2009.Also, during the quarter ended April 2, 2009, Regal Cinemas received lessthan $0.1 million from an Anschutz affiliate for rent and other expensesrelated to a theatre facility.

 

During the quarterended March 27, 2008, Regal Cinemas incurred approximately$1.0 million of expenses payable to an Anschutz affiliate, QwestCommunications and its subsidiaries, for telecommunication services. Inaddition, Regal Cinemas incurred approximately $0.1 million of expensespayable to Anschutz affiliates for certain advertising services during thequarter ended March 27, 2008. During the quarter ended March 27,2008, Regal Cinemas received less than $0.1 million from an Anschutzaffiliate for rent and other expenses related to a theatre facility.

 

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

 

**9.EARNINGS PER SHARE**

 

We compute net incomeper share of Class A and Class B common stock in accordance with SFASNo. 128, *Earnings per Share*using the two-class method. Under the provisions of SFAS No. 128, basicnet income per share is computed using the weighted average number of commonshares outstanding during the period. Diluted net income per share is computedusing the weighted average number of common shares and, if dilutive, commonstock equivalents outstanding during the period. Potential common stockequivalents consist of the incremental common shares issuable upon the exerciseof common stock options, restricted stock and performance shares, theconversion spread on the 33/4% Convertible Senior Notes, the 2003 Warrant, theassumed conversion of the 61/4% Convertible Senior Notes and the 2008 Warrant issuedin connection with the 61/4%Convertible Senior Notes. The dilutive effect of outstanding stock options,restricted shares and performance shares, the conversion spread on the 33/4% Convertible Senior Notes, the 2003Warrant and the 2008 Warrant issued in connection with the 61/4% Convertible Senior Notes is reflectedin diluted earnings per share by application of the treasury-stock method. Thedilutive effect of assumed conversion of the 61/4% Convertible Senior Notes is reflected in dilutedearnings per share by application of the if-converted method. In addition, thecomputation of the diluted net income per share of Class A common stockassumes the conversion of Class B common stock,

 

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while the diluted netincome per share of Class B common stock does not assume the conversion ofthose shares.

 

The rights,including the liquidation and dividend rights, of the holders of our Class Aand Class B common stock are identical, except with respect to voting. Inaccordance with EITF 03-6, *ParticipatingSecurities and the Two-Class Method under FASB Statement No. 128,*the undistributed earnings for the periods presented are allocated based on thecontractual participation rights of the Class A and Class B commonshares as if the earnings for the periods presented had been distributed. Asthe liquidation and dividend rights are identical, the undistributed earningsare allocated on a proportionate basis. Further, as we assume the conversion ofClass B common stock in the computation of the diluted net income pershare of Class A common stock, the undistributed earnings are equal to netincome for that computation.

 

The followingtable sets forth the computation of basic and diluted net income per share of Class Aand Class B common stock (in millions, except share and per share data):

 
| ** **                                                                                               | ** ** | **Quarter ended  April 2, 2009** | ** ** | **Quarter ended  March 27, 2008** | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                                               | ** ** | **Class A**                                | ** ** | **Class B**                                 | ** ** | **Class A** | ** ** | **Class B** | ** ** |
| Basic net income per share:                                                                              |       |                                            |       |                                             |       |   |   |   |   |
| Numerator:                                                                                               |       |                                            |       |                                             |       |   |   |   |   |
| Allocation of undistributed earnings                                                                     |       | $                                               | 18.0       |                                             | $          | 3.3 |   | $ | 23.2 |   | $ | 4.3 |   |
|                                                                                                     |       |                                            |       |                                             |       |   |   |   |   |
| Denominator:                                                                                             |       |                                            |       |                                             |       |   |   |   |   |
| Weighted average common shares outstanding (in thousands)                                                |       | 129,336                                         |       | 23,709                                           |       | 129,093 |   | 23,709 |   |
|                                                                                                     |       |                                            |       |                                             |       |   |   |   |   |
| Basic net income per share                                                                               |       | $                                               | 0.14       |                                             | $          | 0.14 |   | $ | 0.18 |   | $ | 0.18 |   |
| Diluted net income per share:                                                                            |       |                                            |       |                                             |       |   |   |   |   |
| Numerator:                                                                                               |       |                                            |       |                                             |       |   |   |   |   |
| Allocation of undistributed earnings for basic computation                                               |       | $                                               | 18.0       |                                             | $          | 3.3 |   | $ | 23.2 |   | $ | 4.3 |   |
| Reallocation of undistributed earnings as a result of conversion of  Class B to Class A shares |       | 3.3                                             |       | —                                           |       | 4.3 |   | — |   |
| Reallocation of undistributed earnings to Class B shares for  effect of other dilutive securities   |       | —                                          |       | —                                           |       | — |   | (0.2 | ) |
| Interest expense on 61/4% Convertible Senior Notes                                                       |       | —                                          | (1)        | —                                           |       | — | (1) | — |   |
| Allocation of undistributed earnings                                                                     |       | $                                               | 21.3       |                                             | $          | 3.3 |   | $ | 27.5 |   | $ | 4.1 |   |
| Denominator:                                                                                             |       |                                            |       |                                             |       |   |   |   |   |
| Number of shares used in basic computation (in thousands)                                                |       | 129,336                                         |       | 23,709                                           |       | 129,093 |   | 23,709 |   |
| Weighted average effect of dilutive securities (in thousands)                                            |       |                                            |       |                                             |       |   |   |   |   |
| Add:                                                                                                     |       |                                            |       |                                             |       |   |   |   |   |
| Conversion of Class B to Class A common shares outstanding                                     |       | 23,709                                          |       | —                                           |       | 23,709 |   | — |   |
| Stock options                                                                                            |       | 123                                             |       | —                                           |       | 225 |   | — |   |
| Restricted stock and performance shares                                                                  |       | 925                                             |       | —                                           |       | 924 |   | — |   |
| Conversion spread on 33/4% Convertible Senior Notes and the 2003 Warrant                                 |       | —                                          |       | —                                           |       | 4,582 |   | — |   |
| Conversion of 61/4% Convertible Senior Notes                                                             |       | —                                          | (1)        | —                                           |       | — | (1) | — |   |
|                                                                                                     |       |                                            |       |                                             |       |   |   |   |   |
| Number of shares used in per share computations (in thousands)                                           |       | 154,093                                         |       | 23,709                                           |       | 158,533 |   | 23,709 |   |
| Diluted net income per share                                                                             |       | $                                               | 0.14       |                                             | $          | 0.14 |   | $ | 0.17 |   | $ | 0.17 |   |

 

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| (1) | No amount reported as  the impact on net income per share of Class A common stock would have  been antidilutive. |
|-----|-----------------------------------------------------------------------------------------------------------------------|

 

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**10.RECENT ACCOUNTING PRONOUNCEMENTS**

 

In December 2007,the FASB issued SFAS No. 141(R), *BusinessCombinations*(“SFAS No.141(R)”). SFAS No. 141(R) requires all business combinationscompleted after the effective date to be accounted for by applying theacquisition method (previously referred to as the purchase method). SFAS No. 141(R) expandsthe definition of transactions and events that qualify as businesscombinations; requires that the acquired assets and liabilities, includingcontingencies, be recorded at the fair value determined on the acquisition dateand changes thereafter reflected in revenue, not goodwill; changes therecognition timing for restructuring costs; and requires acquisition costs tobe expensed as incurred. Future reductions in the valuation allowance recordedrelative to pre-acquisition periods will result in a decrease in the provisionfor income taxes. In addition, with respect to uncertain tax positions, changesin the amount of tax benefit recognized relative to pre-acquisition periodswill result in an increase/decrease in the provision for income taxes (seeNote 5—“Income Taxes” for further discussion).  The adoption of SFAS No. 141(R) didnot have a material impact on the Company’s consolidated financial position,cash flows or results of operations during the quarter ended April 2,2009.

 

In December 2007,the FASB issued SFAS No. 160, *NoncontrollingInterest in Consolidated Financial Statements*(“SFAS No. 160”). SFAS No. 160establishes new accounting and reporting standards for the noncontrollinginterest in a subsidiary and for the deconsolidation of a subsidiary.Specifically, this statement requires the recognition of a noncontrollinginterest (minority interest) as equity in the consolidated financial statementsand separate from the parent’s equity. The amount of net income attributable tothe noncontrolling interest will be included in consolidated net income on theface of the income statement. SFAS No. 160 clarifies that changes in aparent’s ownership interest in a subsidiary that do not result indeconsolidation are equity transactions if the parent retains its controllingfinancial interest. In addition, this statement requires that a parentrecognize a gain or loss in net income when a subsidiary is deconsolidated.Such gain or loss will be measured using the fair value of the noncontrollingequity investment on the deconsolidation date. SFAS No. 160 also includesexpanded disclosure requirements regarding the interests of the parent and itsnoncontrolling interest. SFAS No. 160 is effective for fiscal years, andinterim periods within those fiscal years, beginning on or after December 15,2008. Earlier adoption is prohibited. The Company adopted SFAS No. 160 duringthe quarter ended April 2, 2009. The adoption had the effect of reclassifying amounts previouslyclassified under “minority interest” (approximately $(0.4) million as of January 1,2009) to a component of equity under “noncontrolling interest” in theaccompanying unaudited condensed consolidated balance sheets.  Amounts previously classified under “minorityinterest in earnings of consolidated subsidiaries” are now classified as “noncontrollinginterest” and presented net of tax below “net income” to arrive at “net incomeattributable to controlling interest” in the accompanying unaudited condensedstatements of income.

 

In March 2008,the FASB issued SFAS No. 161, *Disclosuresabout Derivative Instruments and Hedging Activities*(“SFAS No. 161”) which amends SFAS No. 133,and requires companies with derivative instruments to disclose informationabout how and why a company uses derivative instruments, how derivativeinstruments and related hedged items are accounted for under SFAS No. 133,and how derivative instruments and related hedged items affect a company’sfinancial position, financial performance, and cash flows. The requireddisclosures include the fair value of derivative instruments and their gains orlosses in tabular format, information about credit-risk-related contingentfeatures in derivative agreements, counterparty credit risk, and the company’sstrategies and objectives for using derivative instruments. The Statementexpands the current disclosure framework in SFAS No. 133.  The Company adopted SFAS No. 161 duringthe quarter ended April 2, 2009. The adoption of SFAS No. 161 had no impact on the Company’sconsolidated financial position, cash flows or results of operations during thequarter ended April 2, 2009.

 

**11.SUBSEQUENT EVENTS**

 

On April 30,2009, the Company declared a cash dividend of $0.18 per share on each share ofthe Company’s Class A and Class B common stock (including outstandingrestricted stock), payable on June 16, 2009, to stockholders of record on June 4,2009.

 

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On April 30, 2009,pursuant to a final judgment with the DOJ described further in Note2—“Acquisition,” the Company completed its divestiture of the last of the fourtheatres by transferring the theatre to another theatre operator.

 

On May 6,2009, the Company announced the following appointments, all of which areeffective as of June 30, 2009, with respect to the Company’s directors andexecutive officers, each of which was approved by the Company’s board ofdirectors on May 5, 2009:

 
| **Name, Age and Current Positions and Offices**                                     | ** ** | **New Positions and Offices as of June 30, 2009**                                                    |
|-------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------|
| Michael L. Campbell,  55, Chairman of the Board and Chief Executive Officer (Principal Executive  Officer)        |       | Executive Chairman of  the Board                                                                                                             |
|                                                                                                              |       |                                                                                                                                         |
| Amy E. Miles, 42,  Executive Vice President, Chief Financial Officer (Principal Financial  Officer) and Treasurer |       | Chief Executive Officer  (designated Principal Executive Officer)                                                                            |
|                                                                                                              |       |                                                                                                                                         |
| David H. Ownby, 39,  Senior Vice President (Principal Accounting Officer)                                         |       | Executive Vice  President, Chief Financial Officer (designated Principal Financial Officer  and Principal Accounting Officer), and Treasurer |

 

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Effective June 30,2009, the board of directors increased the size of the board to ten directorsand filled the vacancy on the board with the appointment of Amy E. Miles to theboard. Ms. Miles has not been named to any committees of the board norwill she receive additional compensation for her service on the board ofdirectors.

 

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**Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS**

 

*Someof the information 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 included inthis Form 10-Q, including, without limitation, certain statements under “Management’sDiscussion and Analysis of Financial Condition and Results of Operations”, mayconstitute forward-looking statements. In some cases you can identify these “forward-lookingstatements” by words like “may,” “will,” “should,” “expects,” “plans,” “anticipates,”“believes,” “estimates,” “predicts,” “potential” or “continue” or the negativeof those words and other comparable words. These forward-looking statementsinvolve risks and uncertainties. Our actual results could differ materiallyfrom those indicated in these statements as a result of certain factors as morefully discussed under the heading “Risk Factors” contained in our annual reporton Form 10-K filed on March 2, 2009 with the Commission (File No. 001-31315)for the Company’s fiscal year ended January 1, 2009. The followingdiscussion**and analysis should be read in conjunction with theunaudited condensed consolidated financial statements and notes theretoincluded herein.*

 

**TheCompany**

 

We conduct ouroperations through our wholly owned subsidiaries. We operate the largestand most geographically diverse theatre circuit in the United States,consisting of 6,773 screens in 549 theatres in 39 states and the District ofColumbia as of April 2, 2009. We believe the size, reach and qualityof our theatre circuit provide an exceptional platform to realize economies ofscale from our theatre operations. We also maintain an investment in NationalCineMedia, which concentrates on in-theatre advertising and creatingcomplementary business lines that leverage the operating personnel, asset andcustomer bases of its theatrical exhibition partners, which include us, AMC andCinemark. The Company manages its business under one reportable segment:theatre exhibition operations.

 

We generaterevenues primarily from admissions and concession sales. Additional revenuesare generated by our vendor marketing programs, unredeemed gift certificatesand various other activities in our theatres. In addition, National CineMediaprovides us with a theatre access fee associated with revenues generated 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, the popularity and box office revenues of afilm and such film rental costs generally increase as the admissions revenuesgenerated by a film increase. Because we purchase certain concession items,such as fountain drinks and popcorn, in bulk and not pre-packaged forindividual servings, we are able to improve our margins by negotiating volumediscounts. Other operating expenses consist primarily of theatre labor andoccupancy costs.

 

On February 12,2007, we, along with AMC and Cinemark, formed DCIP, to create a financing modeland establish agreements with major motion picture studios for theimplementation of digital cinema. Future digital cinema developments will bemanaged by DCIP, subject to the approval of us, AMC and Cinemark. Each ofRegal, AMC and Cinemark has an equal ownership and voting interest in DCIP.Recently, DCIP announced the execution of long-term deployment agreements withsix film studios. DCIP is continuing to work with film studios and financialinstitutions to negotiate and finalize the related financing plans that wouldprovide for a studio-financed conversion to digital projection. Uponcompletion, we are prepared to begin converting our existing theatres from 35mm film projection to digital projection and intend to complete the conversionof our entire circuit in approximately three to four years.

 

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As discussedfurther in Note 3—“Investment in National CineMedia, LLC,” as aresult of the annual adjustment provisions of the Common Unit AdjustmentAgreement with National CineMedia, on April 9, 2008, we received fromNational CineMedia approximately 0.8 million newly issued common units ofNational CineMedia. Further, on May 29, 2008, we received from NationalCineMedia approximately 2.9 million newly issued common units of NationalCineMedia in accordance with the adjustment provisions of the Common UnitAdjustment Agreement for our increase in our circuit in connection with ouracquisition of Consolidated Theatres. Finally, on March 17, 2009, wereceived from National CineMedia approximately 0.5 million newly issuedcommon units of National CineMedia in accordance with the annual adjustmentprovisions of the Common Unit Adjustment Agreement.  These adjustments increased the number ofNational CineMedia common units held by us to approximately 25.4 millionand as a result, on a fully diluted basis, we own a 25.0% interest in NCM, Inc.as of April 2, 2009.

 

On March 10,2008, Regal issued $200.0 million aggregate principal amount of 61/4% Convertible Senior Notes. Concurrentwith the issuance of the 61/4% Convertible Senior Notes, we entered into simultaneousconvertible note hedge and warrant transactions with respect to our Class Acommon stock in order to reduce the potential dilution from conversion of the 61/4% Convertible Senior Notes into shares ofour Class A common stock. The net cost of the convertible note hedge andwarrant transactions was approximately $6.6 million and is included as acomponent of equity in the accompanying unaudited condensed consolidatedbalance sheets. See Note 4—“Debt Obligations” for further descriptionof the 61/4% Convertible Senior Notes and therelated convertible note hedge and warrant transactions. The Company used cashon hand and a portion of the net proceeds from the issuance of the 61/4% Convertible Senior Notes to redeem approximately$90.0 million principal amount of Regal’s 33/4%Convertible Senior Notes due May 15, 2008, in a series of privatelynegotiated transactions.  As a result of the early redemption, the Companyrecorded a $3.0 million loss on debt extinguishment (as retrospectivelyadjusted for the adoption of FSP 14-1 described in Note 4—“DebtObligations”) during the quarter ended March 27, 2008.  In connectionwith the early redemption, the Company received net proceeds of approximately$13.7 million from Credit Suisse attributable to the convertible note hedge andwarrant transactions associated with the 33/4%Convertible Senior Notes described further in Note 4—“Debt Obligations.”Such proceeds were recorded as an increase to additional paid-incapital. In connection with the final maturity of the 33/4% Convertible Senior Notes on May 15, 2008,holders of the remaining $33.7 million in principal amount exercised theirconversion rights. The Company elected to settle these conversions entirely incash for approximately $51.4 million using the remaining proceeds from theissuance of the 61/4% Convertible Senior Notes.  In connection with these conversions, theCompany received net proceeds of approximately $5.2 million from CreditSuisse attributable to the convertible note hedge and warrant transactionsassociated with the 33/4% Convertible Senior Notes. Such proceedswere also recorded as an increase to additional paid-in capital. See Note4—“Debt Obligations” for further discussion of this transaction.

 

On April 30,2008, the Company acquired Consolidated Theatres, which holds a total of 28theatres with 400 screens in Georgia, Maryland, North Carolina, South Carolina,Tennessee and Virginia. The total net cash purchase price for the acquisitionwas approximately $209.3 million. The results of operations of theacquired theatres have been included in the Company’s consolidated financialstatements for periods subsequent to the acquisition date. In conjunction withthe closing, we entered into a final judgment with the DOJ, which required usto hold separate and divest ourselves of four theaters comprising 52 screens inNorth Carolina. During the quarter ended September 25, 2008, the Companyentered into an agreement to sell three of the four theatres and recordedimpairment charges of approximately $7.9 million related to thesetheatres. On October 23, 2008, the Company completed its divestiture ofthe three theatres comprising 42 screens in North Carolina pursuant to a finaljudgment with the DOJ. In accordance with the final judgment, a court-appointedtrustee was selected to sell the last of the four theatres.  See Note 2—“Acquisition” for furtherdiscussion of this transaction.

 

For a summary ofindustry trends as well as other risks and uncertainties relevant to theCompany, see “Business—Industry Overview and Trends” and “Risk Factors”contained in our annual report on Form 10-K for the fiscal year ended January 1,2009 and “Results of Operations” below.

 

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**Resultsof Operations**

 

Based on ourreview of industry sources, national box office revenues for the time periodthat corresponds to Regal’s first fiscal quarter of 2009 were estimated to haveincreased by approximately 2-3% in comparison to the first fiscal quarter of2008.  The industry’s box office results were positively impacted byticket price increases and the breadth of films released in the first quarter of2009, which included strong attendance from key releases such as*Gran Torino*,*Paul Blart: Mall Cop*,*Taken*and *Watchmen*.

 

Our total revenuesfor the quarter ended April 2, 2009 (“Q1 2009 Period”) were$665.6 million and consisted of $459.5 million of admissionsrevenues, $179.4 million of concessions revenues and $26.7 million ofother operating revenues, and increased 6.2% from total revenues of$626.8 million for the quarter ended March 27, 2008 (“Q1 2008 Period”).

 

During the Q1 2009Period, total admissions revenues increased $27.5 million, or 6.4%, to $459.5million from $432.0 million in the Q1 2008 Period due to a 4.1% increase inaverage ticket prices and a 2.3% increase in attendance. Price increasesidentified during our ongoing periodic pricing reviews (which include analysisof various factors including general inflationary trends and local marketconditions) along with the mix of film product (including incremental IMAX and3D film product) exhibited during the Q1 2009 Period were the primary driversof the increase in our Q1 2009 Period average ticket price. The Q1 2009 Periodbenefited from $25.6 million of admissions revenues and 3.4 million attendeesgenerated by the inclusion of 400 screens acquired from Consolidated Theatreson April 30, 2008, but was negatively impacted by a shift in our fiscalcalendar which resulted in the several days from the traditionally highattendance week between Christmas and New Years Day being included in the Q12008 Period, but not the Q1 2009 Period.

 

On a ‘comparablescreen’ basis (i.e., excluding the effect of the inclusion of ConsolidatedTheatres during the Q1 2009 Period), attendance for the Q1 2009 Period wasapproximately 54.8 million, a 3.7% decrease from the Q1 2008 Period andadmissions revenues for the Q1 2009 Period were approximately$433.9 million, an increase of 0.4% from the Q1 2008 Period. These resultswere primarily attributable to the timing of our Q1 2009 Period calendar ascompared to the Q1 2008 Period calendar, offset by a 4.3% increase incomparable screen average ticket prices. Based on our review of certainindustry sources, the increase in our admissions revenues on a comparablescreen basis was slightly less than the industry’s results for the Q1 2009Period as compared to the Q1 2008 Period. We believe the less than industryincrease in admissions revenues on a comparable screen basis was attributableto various factors including film product performance and geographicaldifferences, incremental screens from regional theatre circuits and ourallocation of capital during such periods.

 

In addition,during the Q1 2009 Period, on a comparable screen basis, we experienced anincrease in total concessions revenues and a slight decrease in other operatingrevenues.  On a comparable screen basis,total concessions revenues and average concessions revenues per patron duringthe Q1 2009 Period in comparison to the Q1 2008 Period were positively impactedby price increases and a concession friendly mix of film product exhibitedduring the Q1 2009 Period. The decrease in other operating revenues for the Q12009 Period was primarily attributable to decreases in revenues related tounredeemed gift certificates and discount tickets and other theatre revenues.

 

Income fromoperations totaled $62.5 million during the Q1 2009 Period, which represents adecrease of $10.1 million, or 13.9%, from $72.6 million in the Q1 2008Period.  On a comparable screen basis,during the Q1 2009 Period, income from operations decreased $11.7 million,or 16.1%, from the Q1 2008 Period. The decrease in income from operations on acomparable screen basis during the Q1 2009 Period was primarily attributable tothe shift in our fiscal calendar.  Inaddition, we experienced increases in film and advertising expense, rentexpense, other operating expenses and net loss on disposal and impairment ofoperating assets, partially offset by slight reductions in depreciation andamortization and cost of concessions. The Company reported net income of$21.3 million in the Q1 2009 Period compared to net income of$27.5 million in the Q1 2008 Period. Diluted earnings per share of Class Aand Class B common stock was $0.14 in the Q1 2009 Period compared to $0.17during the Q1 2008 Period. The 

 

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decreases in net incomeand diluted earnings per share of Class A and Class B common stockwere primarily due to a decrease in operating income and incremental interestexpense, partially offset by the impact of incremental earnings recognized fromNational CineMedia described below.

 

During the Q1 2009Period, we continued to make progress with respect to the following strategicinitiatives:

 

·                 We demonstrated our commitment to providingincremental value to our stockholders. Total cash dividends distributed to ourstockholders during the Q1 2009 Period totaled approximately$27.7 million.

 

·                 We closed 3 underperforming theatres with 28 screens,ending the Q1 2009 Period with 549 theaters and 6,773 screens.

 

·                 Finally, we continue to embrace newtechnologies to enhance the movie-going experience and broaden our contentofferings. Through April 2, 2009, we operated 256 digital screensoutfitted with digital projection systems, all of which are 3D capable.  With the rollout of digital cinema, we expectto increase our total digital 3D screen count to approximately 1,500.

 

The followingtable sets forth the percentage of total revenues represented by certain itemsincluded in our unaudited condensed consolidated statements of income for theQ1 2009 Period and the Q1 2008 Period (dollars and attendance in millions,except average ticket prices and average concessions per patron):

 
| ** **                                                                                                                                                         | ** ** | **Q1 2009 Period** | ** ** | **Q1 2008 Period** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **                                                                                                                                                         | ** ** | **$**                        | ** ** | **% of  Revenue**       | ** ** | **$** | ** ** | **% of  Revenue** | ** ** |
| Revenues:                                                                                                                                                          |       |                         |       |                         |       |   |   |   |   |
| Admissions                                                                                                                                                         |       | $                            | 459.5      |                         | 69.0       | % | $ | 432.0 |   | 68.9 | % |
| Concessions                                                                                                                                                        |       | 179.4                        |       | 27.0                         |       | 166.1 |   | 26.5 |   |
| Other operating revenues                                                                                                                                           |       | 26.7                         |       | 4.0                          |       | 28.7 |   | 4.6 |   |
| Total revenues                                                                                                                                                     |       | 665.6                        |       | 100.0                        |       | 626.8 |   | 100.0 |   |
| Operating expenses:                                                                                                                                                |       |                         |       |                         |       |   |   |   |   |
| Film rental and advertising costs(1)                                                                                                                               |       | 229.7                        |       | 50.0                         |       | 215.9 |   | 50.0 |   |
| Cost of concessions(2)                                                                                                                                             |       | 24.0                         |       | 13.4                         |       | 22.7 |   | 13.7 |   |
| Rent expense(3)                                                                                                                                                    |       | 92.9                         |       | 14.0                         |       | 83.3 |   | 13.3 |   |
| Other operating expenses(3)                                                                                                                                        |       | 185.9                        |       | 27.9                         |       | 168.6 |   | 26.9 |   |
| General and administrative expenses (including share-based  compensation expense of $1.6 and $1.4 for the Q1 2009 Period and the Q1 2008  Period, respectively)(3) |       | 15.3                         |       | 2.3                          |       | 15.0 |   | 2.4 |   |
| Depreciation and amortization(3)                                                                                                                                   |       | 49.9                         |       | 7.5                          |       | 46.3 |   | 7.4 |   |
| Net loss on disposal and impairment of operating assets(3)                                                                                                         |       | 5.4                          |       | 0.8                          |       | 2.2 |   | 0.4 |   |
| Joint venture employee compensation(3)                                                                                                                             |       | —                       |       | —                       |       | 0.2 |   | — |   |
| Total operating expenses(3)                                                                                                                                        |       | 603.1                        |       | 90.6                         |       | 554.2 |   | 88.4 |   |
| Income from operations(3)                                                                                                                                          |       | 62.5                         |       | 9.4                          |       | 72.6 |   | 11.6 |   |
| Interest expense, net(3)                                                                                                                                           |       | 37.2                         |       | 5.6                          |       | 30.8 |   | 4.9 |   |
| Earnings recognized from NCM(3)                                                                                                                                    |       | (10.6                        | )          | 1.6                          |       | (8.4 | ) | 1.3 |   |
| Loss on debt extinguishment(3)                                                                                                                                     |       | —                       |       | —                       |       | 3.0 |   | 0.5 |   |
| Provision for income taxes(3)                                                                                                                                      |       | 14.4                         |       | 2.2                          |       | 19.1 |   | 3.0 |   |
| Net income(3)                                                                                                                                                      |       | $                            | 21.3       |                         | 3.2        |   | $ | 27.5 |   | 4.4 |   |
| Attendance                                                                                                                                                         |       | 58.2                         |       | *                            |       | 56.9 |   | * |   |
| Average ticket price(4)                                                                                                                                            |       | $                            | 7.90       |                         | *          |   | $ | 7.59 |   | * |   |
| Average concessions per patron(5)                                                                                                                                  |       | $                            | 3.08       |                         | *          |   | $ | 2.92 |   | * |   |

 

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*   *Not meaningful*

(1) Percentage ofrevenues calculated as a percentage of admissions revenues.

(2) Percentage ofrevenues calculated as a percentage of concessions revenues.

(3) Percentage ofrevenues calculated as a percentage of total revenues.

(4) Calculated asadmissions revenues/attendance.

(5) Calculated asconcessions revenues/attendance.

 

***Q1 2009 Period Compared to Q1 2008 Period***

 

***Admissions***

 

During the Q1 2009Period, total admissions revenues increased $27.5 million, or 6.4%, to $459.5million from $432.0 million in the Q1 2008 Period due to a 4.1% increase inaverage ticket prices and a 2.3% increase in attendance. Price increasesidentified during our ongoing periodic pricing reviews (which include analysisof various factors including general inflationary trends and local marketconditions) along with the mix of film product (including incremental IMAX and3D film product) exhibited during the Q1 2009 Period were the primary driversof the increase in our Q1 2009 Period average ticket price. The Q1 2009 Periodbenefited from $25.6 million of admissions revenues and 3.4 million attendeesgenerated by the inclusion of 400 screens acquired from Consolidated Theatreson April 30, 2008, but was negatively impacted by a shift in our fiscalcalendar which resulted in the several days from the traditionally highattendance week between Christmas and New Years Day being included in the Q12008 Period, but not the Q1 2009 Period.

 

On a ‘comparablescreen’ basis, attendance for the Q1 2009 Period was approximately54.8 million, a 3.7% decrease from the Q1 2008 Period and admissionsrevenues for the Q1 2009 Period were approximately $433.9 million, anincrease of 0.4% from the Q1 2008 Period. These results were primarilyattributable to the timing of our Q1 2009 Period calendar as compared to the Q12008 Period calendar, offset by a 4.3% increase in comparable screen averageticket prices. Based on our review of certain industry sources, the increase inour admissions revenues on a comparable screen basis was slightly less than theindustry’s results for the Q1 2009 Period as compared to the Q1 2008 Period. Webelieve the less than industry increase in admissions revenues on a comparablescreen basis was attributable to various factors including film product performanceand geographical differences, incremental screens from regional theatrecircuits and our allocation of capital during such periods.

 

***Concessions***

 

During the Q1 2009Period, total concessions revenues increased $13.3 million, or 8.0%, to$179.4 million, from $166.1 million for the Q1 2008 Period.  Average concessions revenues during the Q12009 Period increased 5.5%, to $3.08, from $2.92 for the Q1 2008 Period.  On a comparable screen basis, total concessionsrevenues for the Q1 2009 Period increased by approximately $2.5 million, or1.5% from the Q1 2008 Period. The increases in comparable screen totalconcessions revenues and average concessions revenues per patron were primarilya result of price increases and the concession friendly mix of film productexhibited during the Q1 2009 Period.

 

***Other Operating Revenues***

 

Total otheroperating revenues decreased $2.0 million, or 7.0%, to $26.7 millionfor the Q1 2009 Period, from $28.7 million for the Q1 2008 Period.  Included in other operating revenues are thetheatre access fees paid by National CineMedia (net of payments for on-screenadvertising time provided to our beverage concessionaire), marketing revenuesfrom our vendor marketing programs and other theatre revenues, includingrevenue related to unredeemed gift certificates and discount tickets. Suchdecrease was primarily attributable to decreases in revenues related tounredeemed gift certificates and discount tickets and other theatre revenues.

 

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***Film Rental and Advertising Costs***

 

Film rental andadvertising costs as a percentage of admissions revenues was approximately50.0% during the Q1 2009 Period, which was consistent with that of the Q1 2008Period.

 

***Cost of Concessions***

 

Cost ofconcessions increased $1.3 million, or 5.7%, during the Q1 2009 Period ascompared to the Q1 2008 Period. Cost of concessions as a percentage of revenuesfor the Q1 2009 Period were approximately 13.4% compared to 13.7% for the Q12008 Period.  The decrease in cost ofconcessions as a percentage of revenues during the Q1 2009 Period was primarilyrelated to price increases in our concession products, partially offset byslightly higher food costs.

 

***Rent Expense***

 

During the Q1 2009Period, rent expense increased $9.6 million, or 11.5%, to$92.9 million, from $83.3 million in the Q1 2008 Period. Suchincrease was primarily due to the inclusion of Consolidated Theatres during theQ1 2009 Period. On a comparable screen basis, rent expense increased$1.8 million, or 2.2% during the Q1 2009 Period as compared to the Q1 2008Period.  The Q1 2009 Period increase inrent expense on a comparable screen basis was primarily attributable to generalinflationary increases.

 

***Other Operating Expenses***

 

Other operatingexpenses increased $17.3 million, or 10.3%, to $185.9 million in theQ1 2009 Period, from $168.6 million in the Q1 2008 Period. Such increasewas primarily due to the inclusion of Consolidated Theatres during the Q1 2009Period.  On a comparable screen basis,during the Q1 2009 Period, other operating expenses increased$7.9 million, or 4.7%, from the Q1 2008 Period. The increase in otheroperating expenses on a comparable screen basis during the Q1 2009 Period wasprimarily attributable to increases in payroll costs and other fixed costs.

 

***General and Administrative Expenses***

 

General andadministrative expenses increased $0.3 million, or 2.0%, to$15.3 million during the Q1 2009 Period as compared to $15.0 millionin the Q1 2008 Period. As a percentage of total revenues, general andadministrative expenses decreased to 2.3% during the Q1 2009 Period as comparedto 2.4% in the Q1 2008 Period. The slight increase in general andadministrative expenses during the Q1 2009 Period was primarily attributable toincreases in share-based compensation expense and legal and professional feesduring the period.

 

***Depreciation and Amortization***

 

For the Q1 2009Period, depreciation and amortization expense increased $3.6 million, or7.8%, to $49.9 million, from $46.3 million in the Q1 2008 Period.Such increase was primarily due to the impact of the inclusion of ConsolidatedTheatres during the Q1 2009 Period.  On acomparable screen basis, depreciation and amortization expense decreased$0.6 million, or 1.3%, during the Q1 2009 Period as compared to the Q12008 Period. On a comparable screen basis, the decrease in depreciation andamortization expense during the Q1 2009 Period was primarily related to ourequipment utilized in NCM’s digital content network.

 

***Income from Operations***

 

Income fromoperations totaled $62.5 million during the Q1 2009 Period, whichrepresents a decrease of $10.1 million, or 13.9%, from $72.6 millionin the Q1 2008 Period. On a comparable screen basis, during the Q1 2009 Period,income from operations decreased $11.7 million, or 16.1%, from the Q1 2008Period. The decrease in income from operations on a comparable screen basisduring the Q1 2009 Period was primarily attributable to the shift in our fiscalcalendar.  In addition, we experiencedincreases in film and advertising expense, rent expense, other operatingexpenses and net loss on disposal and impairment of operating assets, partiallyoffset by slight reductions in depreciation and amortization and cost ofconcessions.

 

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***Interest Expense, net***

 

During the Q1 2009Period, net interest expense increased $6.4 million, or 20.8%, to $37.2million, from $30.8 million in the Q1 2008 Period. The increase in netinterest expense during the Q1 2009 Period was principally due to less interestincome ($0.3 million and $3.0 million, respectively, for the Q1 2009Period and Q1 2008 Period) from a lower average cash balance outstanding as aresult of the $209.3 million acquisition of Consolidated Theatres duringthe second fiscal quarter of 2008, incremental interest expense from the Q12008 Period issuance of the $200.0 million 61/4% Convertible Senior Notes and a highereffective interest rate on our term facility as a result of the Amendment tothe Amended Senior Credit Facility during the Q1 2009 Period.

 

***Earnings Recognized from NCM***

 

The Companyrecorded $12.4 million and $8.4 million, respectively, in cashdistributions from National CineMedia during the Q1 2009 Period and Q1 2008Period. Approximately $1.8 million of these cash distributions receivedduring the Q1 2009 Period were recognized as a reduction in our investment inNational CineMedia. The remaining amounts were recognized in equity earningsduring each of these periods and have been included as a component of “Earningsrecognized from NCM” in the unaudited condensed consolidated financialstatements.

 

***Income Taxes***

 

The provision forincome taxes of $14.4 million and $19.1 million for the Q1 2009 Period and theQ1 2008 Period, respectively, reflect effective tax rates of approximately40.3% and 41.0%, respectively. The reduction in the effective tax rate for theQ1 2009 Period was primarily attributable to the tax effects of the resolutionof a state tax issue during the Q1 2008 Period. The effective tax rates for theQ1 2009 Period and the Q1 2008 Period reflect the impact of certainnon-deductible expenses.

 

***Net Income***

 

During the Q1 2009Period, net income totaled $21.3 million, which represents a decrease of$6.2 million, from net income of $27.5 million in the Q1 2008 Period.The decrease in net income for the Q1 2009 Period as compared to the Q1 2008 Periodwas primarily attributable to a decrease in operating income and incrementalinterest expense, partially offset by the impact of incremental earningsrecognized from National CineMedia described above.

 

***Cash Flows***

 

The followingtable summarizes certain cash flow data for the Q1 2009 Period and the Q1 2008Period (in millions):

 
| ** **                                          | ** ** | **Q1 2009 Period** | ** ** | **Q1 2008 Period** | ** ** |
|-----------------------------------------------------|------------|--------------------|------------|--------------------|------------|
| Net cash provided by operating activities           |       | $                  | 88.4       |               | $          | 71.2 |   |
| Net cash used in investing activities               |       | (27.5              | )          | (26.2              | )          |
| Net cash (used in) provided by financing activities |       | (44.1              | )          | 7.6                |       |
| Net increase in cash and cash equivalents           |       | $                  | 16.8       |               | $          | 52.6 |   |

 

*Q12009 Period Compared to Q1 2008 Period*

 

Net cash flowsprovided by operating activities increased by approximately $17.2 millionto approximately $88.4 million for the Q1 2009 Period from approximately$71.2 million for the Q1 2008 Period. The increase in net cash flowsgenerated from operating activities for the Q1 2009 Period was primarilyattributable to an increase in total revenues due primarily to increases inattendance coupled with increases in average ticket prices and averageconcessions per patron, offset by increases in certain expense items.  In addition to these changes in cash flows,the timing of other Q1 2009 Period vendor payments positively impacted cashflows from operating activities.

 

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Net cash flowsused in investing activities totaled approximately $27.5 million for theQ1 2009 Period compared to cash flows used in investing activities ofapproximately $26.2 million for the Q1 2008 Period. Contributing to theslight increase in cash flows used in investing activities during the Q1 2009 Periodwere incremental capital expenditures of approximately $3.1 million,partially offset by $0.4 million of proceeds from the disposition of assets andthe impact of the $1.0 million investment in DCIP during the Q1 2008 Period.

 

Net cash flowsused in financing activities were approximately $44.1 million for the Q12009 Period compared to cash flows provided by financing activities ofapproximately $7.6 million for the Q1 2008 Period. The net increase incash flows used in financing activities during the Q1 2009 Period was primarilyattributable to the impact of the proceeds received in connection with theissuance of $200.0 million 61/4% Convertible Senior Notes during the Q12008 Period, partially offset by net cash used to redeem approximately $123.7million principal amount of the 33/4% Convertible Senior Notes during the Q12008 Period, a $18.3 million reduction of dividends paid to shareholders duringthe Q1 2009 Period as compared to the Q1 2008 Period and net cash used inconnection with the 2008 Convertible Note Hedge and 2008 Warrant transactionsduring the Q1 2008 Period.

 

**Liquidityand Capital Resources**

 

On a consolidatedbasis, we expect our primary uses of cash to be for operating expenses, capitalexpenditures, general corporate purposes related to corporate operations, debtservice and the Company’s quarterly dividend payments. The principal sources ofliquidity are cash generated from operations, cash on hand and borrowings underthe Amended Senior Credit Facility described below. Under the terms of theAmended Senior Credit Facility, Regal Cinemas is restricted as to how much itcan advance or distribute to Regal, its indirect parent. Since Regal is aholding company with no significant assets other than the stock ofsubsidiaries, this restriction could impact Regal’s ability to effect futuredebt or dividend payments, pay corporate expenses or redeem or convert for cashits 61/4% ConvertibleSenior Notes.

 

Our revenues aregenerated principally through admissions and concessions sales with proceeds receivedin cash or via credit cards at the point of sale. Our operating expenses areprimarily related to film and advertising costs, rent and occupancy, andpayroll. Film costs are ordinarily paid to distributors within 30 daysfollowing receipt of admissions revenues and the cost of the Company’sconcessions are generally paid to vendors approximately 30 to 35 days frompurchase. Our current liabilities generally include items that will become duewithin twelve months. In addition, from time to time, we use cash fromoperations and borrowings to fund dividends in excess of net income and cashflows from operating activities less cash flows from investing and financingactivities. As a result, at any given time, our balance sheet may reflect aworking capital deficit.

 

We fund the costof capital expenditures through internally generated cash flows, cash on hand,proceeds from disposition of assets and financing activities. Our capitalrequirements have historically arisen principally in connection with acquisitionsof theatres, new theatre construction, adding new screens to existing theatres,upgrading the Company’s theatre facilities (including digital 3D and IMAX®screens) and replacing equipment.

 

The costs ofimplementing digital projection in our theatres will be substantially funded byDCIP.  DCIP and its members have yet toexecute definitive agreements concerning the extent of such funding, but basedon current negotiations, we expect DCIP to fund the implementation of digitalprojection through virtual print fees from motion picture studios. We will bearoperating and maintenance costs with respect to digital projection systems inour theatres, which we expect to be similar to what we currently spend on ourconventional film projectors. Should the conversion process to digital cinemarapidly accelerate and the major studios not cover the cost of the conversionas expected, we may have to incur additional capital expenditures associatedwith this potential change.  We believethe installation of digital projection systems, when combined with 3Dtechnology or IMAX® theatre systems, will allow us to offer our patrons premium3D and large format movie experiences, which we believe will generateincremental revenue for the Company.  Weremain optimistic regarding the benefits of digital cinema primarily as itrelates to future growth potential associated with 3D film product and other 3Dcontent and are pleased to see growing support of 3D and IMAX® film product bythe major studios.

 

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We intend tocontinue to grow our theatre circuit through selective expansion andacquisition opportunities. The Company has a formal and intensive reviewprocedure for the authorization of capital projects, with the most importantfinancial measure of acceptability for a discretionary non-maintenance capitalproject being whether its projected discounted cash flow return on investmentmeets or exceeds the Company’s internal rate of return targets. We currentlyexpect capital expenditures for theatre development, replacement, expansion,upgrading and replacements to be in the range of approximately$85.0 million to $100.0 million in fiscal year 2009, exclusive of acquisitions.Such capital expenditures are expected to be partially funded through assetdispositions conducted during the normal course of our business. During the Q12009 Period, we invested approximately $27.9 million in capitalexpenditures.

 

For a discussionof other significant financing transactions which have occurred through January 1,2009, please refer to “Management’s Discussion and Analysis of FinancialCondition and Results of Operations—Liquidity and Capital Resources” containedin Part II, Item 7 of our annual report on Form 10-K for the fiscalyear ended January 1, 2009.

 

On March 10,2008, Regal issued $200.0 million aggregate principal amount of 61/4% Convertible Senior Notes. Concurrentwith the issuance of the 61/4%Convertible Senior Notes, we entered into simultaneous convertible note hedgeand warrant transactions with respect to our Class A common stock in orderto reduce the potential dilution from conversion of the 61/4% Convertible Senior Notes into shares ofour Class A common stock. The net cost of the convertible note hedge andwarrant transactions was approximately $6.6 million and is included as acomponent of equity in the accompanying unaudited condensed consolidatedbalance sheets. See Note 4—“Debt Obligations” for further descriptionof the 61/4% Convertible Senior Notes and therelated convertible note hedge and warrant transactions. The Company used cashon hand and a portion of the net proceeds from the issuance of the 61/4%Convertible Senior Notes to redeem approximately $90.0 million principal amountof Regal’s 33/4% Convertible Senior Notes due May 15,2008, in a series of privately negotiated transactions.  As a result ofthe early redemption, the Company recorded a $3.0 million loss on debtextinguishment (as retrospectively adjusted for the adoption of FSP 14-1described in Note 4—“Debt Obligations”) during the quarter ended March 27,2008.  In connection with the early redemption, the Company received netproceeds of approximately $13.7 million from Credit Suisse attributable to theconvertible note hedge and warrant transactions associated with the 33/4%Convertible Senior Notes described further in Note 4—“Debt Obligations.”Such proceeds were recorded as an increase to additional paid-incapital. In connection with the final maturity of the 33/4%Convertible Senior Notes on May 15, 2008, holders of the remaining $33.7million in principal amount exercised their conversion rights. The Companyelected to settle these conversions entirely in cash for approximately $51.4 millionusing the remaining proceeds from the issuance of the 61/4%Convertible Senior Notes.  In connectionwith these conversions, the Company received net proceeds of approximately$5.2 million from Credit Suisse attributable to the convertible note hedgeand warrant transactions associated with the 33/4% Convertible Senior Notes. Such proceedswere also recorded as an increase to additional paid-in capital. See Note4—“Debt Obligations” for further discussion of this transaction.

 

On April 30,2008, the Company acquired Consolidated Theatres, which holds a total of 28theatres with 400 screens in Georgia, Maryland, North Carolina, South Carolina,Tennessee and Virginia. The total net cash purchase price for the acquisitionwas approximately $209.3 million. The results of operations of theacquired theatres have been included in the Company’s consolidated financialstatements for periods subsequent to the acquisition date. In conjunction withthe closing, we entered into a final judgment with the DOJ, which required usto hold separate and divest ourselves of four theaters comprising 52 screens inNorth Carolina. During the quarter ended September 25, 2008, the Companyentered into an agreement to sell three of the four theatres and recordedimpairment charges of approximately $7.9 million related to thesetheatres. On October 23, 2008, the Company completed its divestiture ofthe three theatres comprising 42 screens in North Carolina pursuant to a finaljudgment with the DOJ. In accordance with the final judgment, a court-appointedtrustee was selected to sell the last of the four theatres.  See Note 2—“Acquisition” for further discussion ofthis transaction.

 

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As described morefully in Note 3—“Investment in National CineMedia, LLC,” on April 9,2008, we received from National CineMedia approximately 0.8 million newlyissued common units of National CineMedia.  On May 29, 2008, we received fromNational CineMedia approximately 2.9 million newly issued common units ofNational CineMedia in accordance with the adjustment provisions of the CommonUnit Adjustment Agreement for our increase in screens in connection with ouracquisition of Consolidated Theatres. Finally, on March 17, 2009, wereceived from National CineMedia approximately 0.5 million newly issuedcommon units of National CineMedia in accordance with the annual adjustmentprovisions of the Common Unit Adjustment Agreement.  These adjustments increased the number ofNational CineMedia common units held by us to approximately 25.4 millionand as a result, on a fully diluted basis, we own a 25.0% interest in NCM, Inc.as of April 2, 2009.

 

Regal Cinemas maintainsits Amended Senior Credit Facility, 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. Due tothe bankruptcy filings by Lehman and certain of its affiliates and the suddendeterioration in the credit standing of the Lehman affiliate party to ourRevolving Facility, the aggregate principal amount available for drawing underthe Revolving Facility was reduced by $5.0 million to $95.0 millionduring fiscal 2008. The Revolving Facility has a separate sublimit of$10.0 million for short-term loans and a sublimit of $30.0 millionfor letters of credit. The Term Facility will mature on October 27, 2013and the Revolving Facility will mature on October 27, 2011.

 

As described morefully Note 4—“Debt Obligations,” on January 20, 2009, Regal Cinemasentered into the First Amendment to the Amended Senior Credit Facility. As aresult of the Amendment, either the Company, or its wholly-owned subsidiary,REH, will be permitted from time to time to purchase loans outstanding underthe Amended Senior Credit Facility. The Amendment provides that the aggregateprincipal amount of loans that can be repurchased shall not be more than $300.0 millionand all such repurchases shall close on or before approximately October 17,2009 and sets forth the terms for implementing a Dutch Auction. There can be noassurance that the Company will conduct a Dutch Auction or that, if the Companyconducts one, the Company will be able to successfully purchase loans at aprice less than their aggregate principal amount.  Under the Amendment, (i) the ApplicableMargin, as defined in the Amendment, for Revolving Loans under the RevolvingFacility and for Term Loans under the Term Facility (each of which aredetermined by reference to the then-applicable Consolidated Leverage Ratio) isincreased by 2.0%, (ii) Regal Cinemas’ ability to elect interest periodsfor LIBOR borrowings is limited to interest periods of 2, 3, 6 or (if availableto all lenders) 12 months, with 1 month interest periods no longerbeing available, and (iii) Regal Cinemas may exclude a minimum of$100.0 million, but not more than $200.0 million, of SubordinatedDebt, as defined in the Amendment, that is used to repay amounts outstandingunder the Term Loan from certain financial covenant calculations.

 

As of April 2,2009, we had approximately $1,657.5 million aggregate principal amountoutstanding under the Term Facility, $200.0 million aggregate principalamount outstanding under the 61/4%Convertible Senior Notes, and $51.5 million aggregate principal amountoutstanding under the Regal Cinemas 93/8% SeniorSubordinated Notes. As of April 2, 2009, we had approximately$2.7 million outstanding in letters of credit, leaving approximately$92.3 million available for drawing under the Revolving Facility.

 

As described inNote 5 to the consolidated financial statements included in our annualreport on Form 10-K for the fiscal year ended January 1, 2009, on July 13,2004, Regal Cinemas entered into four hedging relationships via four distinctinterest rate swap agreements with final maturity terms ranging from three tofive years each. On September 8, 2005, Regal Cinemas entered into anadditional hedging relationship via a distinct interest rate swap agreementwith a maturity term of four years. These interest rate swaps were designated to hedge approximately$1,100.0 million of its variable rate debt obligations. On June 30,2007, one of our interest rate swaps designated to hedge approximately$200.0 million of variable rate debt obligations matured. On August 9,2007, Regal Cinemas entered into two additional hedging relationships via twodistinct interest rate swap agreements with maturity terms of two years each.These interest rate swaps were designated to hedge approximately$200.0 million of variable rate debt obligations. On June 30, 2008,two of our interest rate swaps designated to hedge $300.0 million ofvariable rate debt obligations matured. On September 15, 2008, because ofthe sudden deterioration in the credit standing of the Lehman counterparty toan interest rate swap agreement designated to hedge approximately$100.0 million of variable rate debt obligations, the Company concludedthat the hedging relationship was 

 

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no longer expected to behighly effective in achieving offsetting cash flows. As a result, on September 15,2008, the hedging relationship ceased to qualify for hedge accounting underSFAS No. 133. On October 3, 2008, the Lehman counterparty filed forbankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code. As aresult, an event of default occurred under the provisions of the interest rateswap agreement between us and the Lehman counterparty, which effectivelyterminated the interest rate swap on October 3, 2008.

 

During the quarterended April 2, 2009, Regal Cinemas entered into four additional hedgingrelationships via four distinct interest rate swap agreements with maturityterms of two to three years each from the respective effective dates of theswaps and require Regal Cinemas to pay interest at a fixed rates ranging from2.15% to 2.53% and receive interest at a variable rate. These interest rateswaps were designated to hedge approximately $1.0 billion of variable ratedebt obligations.  One of these interestrate swap agreements (designated to hedge approximately $250.0 million ofvariable rate debt obligations) became effective during the quarter ended April 2,2009.  As a result, the Company’seffective interest rate swap agreements hedge an aggregate of approximately$950.0 million of variable rate debt obligations as of April 2, 2009.

 

Regal paid onequarterly cash dividend of $0.18 per share on each outstanding share of theCompany’s Class A and Class B common stock, or approximately $27.7 millionin the aggregate, during the Q1 2009 Period.  Further, on April 30, 2009,the Company declared a cash dividend of $0.18 per share on each share of theCompany’s Class A and Class B common stock (including outstandingrestricted stock), payable on June 16, 2009, to stockholders of record on June 4,2009.  These dividends have been or willbe funded through cash flow from operations and available cash on hand. We, atthe discretion of the board of directors and subject to applicable law,anticipate paying regular quarterly dividends on our Class A and Class Bcommon stock for the foreseeable future. The amount, if any, of the dividendsto be paid in the future will depend upon our then available cash, anticipatedcash needs, overall financial condition, loan agreement restrictions, futureprospects for earnings and cash flows, as well as other relevant factors.

 

EBITDA (earningsbefore interest, taxes, depreciation, and amortization) was approximately$122.8 million and $123.7 million for the Q1 2009 Period and the Q12008 Period, respectively. The slight decrease in EBITDA in the Q1 2009 Periodfrom the Q1 2008 Period was primarily attributable to a reduction in operatingincome during the Q1 2009 Period.  TheCompany uses EBITDA as a supplemental liquidity measure because we find ituseful to understand and evaluate our capacity, excluding the impact ofinterest, taxes, and non-cash depreciation and amortization charges, forservicing our debt, paying dividends and otherwise meeting our cash needs,prior to our consideration of the impacts of other potential sources and uses ofcash, such as working capital items. We believe that EBITDA is useful toinvestors for these purposes as well. EBITDA should not be considered analternative to, or more meaningful than, net cash provided by operatingactivities, as determined in accordance with U.S. generally accepted accountingprinciples (“GAAP”), since it omits the impact of interest, taxes and changesin working capital that use or provide cash (such as receivables, payables andinventories) as well as the sources or uses of cash associated with changes inother balance sheet items (such as long-term loss accruals and deferred items).Because EBITDA excludes depreciation and amortization, EBITDA does not reflectany cash requirements for the replacement of the assets being depreciated andamortized, which assets will often have to be replaced in the future. Further,EBITDA, because it also does not reflect the impact of debt service, incometaxes, cash dividends, capital expenditures and other cash commitments fromtime to time as described in more detail elsewhere in this quarterly report on Form 10-Q,does not represent how much discretionary cash we have available for otherpurposes. Nonetheless, EBITDA is a key measure expected by and useful to ourfixed income investors, rating agencies and the banking community all of whombelieve, and we concur, that these measures are critical to the capital markets’analysis of our ability to service debt, fund capital expenditures, paydividends and otherwise meet cash needs, respectively. We also evaluate EBITDAbecause it is clear that movements in these non-GAAP measures impact ourability to attract financing and pay dividends. EBITDA, as calculated, may notbe comparable to similarly titled measures reported by other companies. Areconciliation of EBITDA to net cash provided by operating activities iscalculated as follows (in millions):

 

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| ** **                                  | ** ** | **Q1 2009 Period** | ** ** | **Q1 2008 Period** | ** ** |
|---------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| EBITDA                                      |       | $                            | 122.8      |                         | $          | 123.7 |   |
| Interest expense, net                       |       | (37.2                        | )          | (30.8                        | )          |
| Provision for income taxes                  |       | (14.4                        | )          | (19.1                        | )          |
| Deferred income taxes                       |       | (1.6                         | )          | 0.7                          |       |
| Changes in operating assets and liabilities |       | 4.4                          |       | (15.0                        | )          |
| Loss on debt extinguishment                 |       | —                       |       | 3.0                          |       |
| Other items, net                            |       | 14.4                         |       | 8.7                          |       |
| Net cash provided by operating activities   |       | $                            | 88.4       |                         | $          | 71.2 |   |

 

**ContractualCash Obligations and Commitments**

 

For a summary ofour contractual cash obligations and commitments and off-balance sheetarrangements as of January 1, 2009, 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 January 1, 2009.  As of April 2, 2009, there were nomaterial changes outside the ordinary course of our business in our contractualcash obligations and commitments. We believe that the amount of cash and cashequivalents on hand, cash flow expected from operations and availability underour Revolving Facility will be adequate for the Company to execute its businessstrategy and meet anticipated requirements for lease obligations, capitalexpenditures, working capital and debt service for the next 12 months.

 

**CriticalAccounting Estimates**

 

For a discussionof accounting policies that we consider critical to our business operations andthe understanding of our results of operations and affect the more significantjudgments and estimates used in the preparation of our unaudited condensedconsolidated financial statements, please refer to Item 7, “Management’sDiscussion and Analysis of Financial Condition and Results ofOperations—Critical Accounting Estimates” contained in our annual report on Form 10-Kfor the fiscal year ended January 1, 2009 and incorporated by referenceherein.  As of April 2, 2009, there were no significant changes inour critical accounting policies or estimation procedures.

 

**RecentAccounting Pronouncements**

 

For a discussionof the recent accounting pronouncements relevant to our operations, pleaserefer to the information provided under Note 10—“Recent AccountingPronouncements” to the accompanying unaudited condensed consolidated financialstatements, which information is incorporated by reference herein.

 

**Seasonality**

 

The Company’srevenues are usually seasonal, coinciding with the timing of releases of motionpictures by the major distributors. Generally, studios release the mostmarketable motion pictures during the summer and the holiday seasons. Theunexpected emergence of a “hit” film during other periods can alter thetraditional pattern. The timing of movie releases can have a significant effecton the Company’s results of operations, and the results of one quarter are notnecessarily indicative of the results for the next or any other quarter. Theseasonality of motion picture exhibition, however, has become less pronouncedas studios are releasing motion pictures somewhat more evenly throughout theyear.

 

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**Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKETRISK**

 

The Company’smarket risk is confined to interest rate exposure of its and its wholly ownedsubsidiaries’ debt obligations that bear interest based on floating rates. TheAmended Senior Credit Facility provides variable rate interest that could beadversely affected by an increase in interest rates. Borrowings under the TermFacility bear interest, at Regal Cinemas’ option, at either an adjustedEurodollar rate (as defined in the Amended Senior Credit Facility) or the baserate plus, in each case, an applicable margin.

 

Under the terms ofthe Company’s effective interest rate swap agreements (which hedge an aggregateof approximately $950.0 million of variable rate debt obligations as of April 2,2009) described in Note 4—“Debt Obligations,” Regal Cinemas pays interestat various fixed rates ranging from 2.353% to 4.994% and receives interest at avariable rate based on the 3-month LIBOR. As of April 2, 2009 and January 1, 2009, borrowings of$1,657.5 million and $1,661.8 million, respectively, were outstandingunder the Term Facility and the prior term facility, respectively, at an effectiveinterest rate of 6.46% (as of April 2, 2009) and 4.42% (as of January 1,2009), after the impact of the interest rate swaps is taken into account. Ahypothetical change of 10% in the Company’s effective interest rate under theTerm Facility as of April 2, 2009, would increase or decrease interestexpense by $2.7 million for the quarter ended April 2, 2009.

 

**Item 4. CONTROLS AND PROCEDURES**

 

We maintaindisclosure controls and procedures that are designed to ensure that informationrequired to be disclosed by us in the reports that we file or submit to theCommission under the Securities Exchange Act of 1934, as amended (the “ExchangeAct”), is recorded, processed, summarized and reported within the time periodsspecified by the Commission’s rules and forms, and that information isaccumulated and communicated to our management, including our principalexecutive, principal financial and principal accounting officers (whom we referto in this periodic report as our Certifying Officers), as appropriate to allowtimely decisions regarding required disclosure. Our management evaluated, withthe participation of our Certifying Officers, the effectiveness of ourdisclosure controls and procedures as of April 2, 2009, pursuant to Rule 13a-15(b) underthe Exchange Act. Based upon that evaluation, our Certifying Officers concludedthat, as of April 2, 2009, our disclosure controls and procedures wereeffective.

 

There were nochanges in our internal control over financial reporting that occurred duringour most recently completed fiscal quarter that have materially affected, orare reasonably likely to materially affect, our internal control over financialreporting.

 

**PART II—OTHER INFORMATION**

 

**Item 1. LEGAL PROCEEDINGS**

 

Informationrequired to be furnished by us under this Part II, Item 1 (LegalProceedings) is incorporated by reference to Note 7—“Commitments andContingencies” of our notes to the accompanying unaudited condensedconsolidated financial statements included in Part I, Item 1 (FinancialStatements) of this quarterly report on Form 10-Q.

 

**Item 1A. RISK FACTORS**

 

There have been nomaterial changes from risk factors as previously disclosed in our annual reporton Form 10-K filed on March 2, 2009 with the Commission (File No. 001-31315)for the fiscal year ended January 1, 2009.

 

**Item 2.    UNREGISTERED SALES OF EQUITYSECURITIES AND USE OF PROCEEDS**

 

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ISSUER PURCHASESOF EQUITY SECURITIES FOR THE QUARTER ENDED APRIL 2, 2009

 
| **Period**                                          | ** ** | **(a)  Total Number of  Shares Purchased** | ** ** | **(b)  Average Price  Paid per Share** | ** ** | **(c)  Total Number of  Shares (or Units)  Purchased as Part of     Publicly Announced  Plans or Programs** | ** ** | **(d)  Maximum Number (or  Approximate Dollar Value)  of Shares (or Units) that  May Yet be Purchased Under  the Plans or Programs** | ** ** |
|-----------------------------------------------------|------------|--------------------------------------------|------------|----------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------|------------|
| January 2, 2009 – January 31, 2009   |       | 185                                        |       | $                                      | 10.80      |                                                                                                                  | —     |                                                                                                                                 | $          | 40,000,000 |   |
| February 1, 2009 – February 28, 2009 |       | 37,282                                     |       | 10.07                                  |       | —                                                                                                                |       | $                                                                                                                                    | 40,000,000 |   |
| March 1, 2009 – April 2, 2009        |       | 109                                        |       | 12.87                                  |       | —                                                                                                                |       | $                                                                                                                                    | 40,000,000 |   |
|                                                |       |                                       |       |                                   |       |                                                                                                                  |       |                                                                                                                                 |       |
| **Total**                                           | ** ** | 37,576                                     |       | $                                      | 10.08      |                                                                                                                  | —     |                                                                                                                                 |       |   |   |

 

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(1)   During the quarter ended April 2, 2009, theCompany withheld approximately 37,576 shares of restricted stock at anaggregate cost of approximately $0.4 million as permitted by the applicableequity award agreements, to satisfy employee tax withholding requirementsrelated to the vesting of restricted stock awards.

 

(2)   During 2004, the Company’sboard of directors authorized a share repurchase program, which provided forthe authorization to repurchase up to $50.0 million of the Company’soutstanding Class A common stock within a twelve month period.  During 2005, the Company repurchased 520,386shares of its outstanding Class A common stock at an aggregate cost ofapproximately $10.0 million.  On November5, 2008, the board of directors extended the share repurchase program throughNovember 2009 pursuant to which the company may repurchase up to $40.0 millionof the Company’s outstanding shares of Class A common stock.

 

**Item 6. EXHIBITS**

 

**EXHIBIT INDEX**

 
| **Exhibit  Number** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|---------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.1                 |       | First Amendment to  Fifth Amended and Restated Credit Agreement, dated as of January 20,  2009, by and among Regal Cinemas, certain affiliated entities of the Company  as Guarantors, and Credit Suisse Cayman Islands Branch, as Administrative  Agent (filed as exhibit 4.1 to Registrant’s Current Report on Form 8-K  (Commission File No. 001-31315) on January 21, 2009, and  incorporated by reference herein) |
| 4.2                 |       | First Amendment to Amended  and Restated Guaranty and Collateral Agreement, dated January 20, 2009,  among Regal Cinemas Corporation, each of the Guarantors party thereto and  Credit Suisse Cayman Islands Branch, as Administrative Agent                                                                                                                                                                                               |
| 31.1                |       | Rule 13a-14(a) Certification  of Chief Executive Officer of Regal                                                                                                                                                                                                                                                                                                                                                                     |
| 31.2                |       | Rule 13a-14(a) Certification  of Chief Financial Officer of Regal                                                                                                                                                                                                                                                                                                                                                                     |
| 32                  |       | Section 1350  Certifications                                                                                                                                                                                                                                                                                                                                                                                                               |

 

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**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 
| ** **              | **REGAL  ENTERTAINMENT GROUP** |
|-------------------------|--------------------------------|
|                    |                           |
| Date: May 12, 2009 | By:                            | /s/  MICHAEL  L. CAMPBELL |
|                    |                           | Michael L. Campbell |
|                    |                           | *Chief  Executive Officer (Principal* |
|                    |                           | *Executive  Officer)* |
|                    |                           |   |
| Date: May 12, 2009 | By:                            | /s/  AMY E.  MILES |
|                    |                           | Amy E. Miles |
|                    |                           | *Executive  Vice President and Chief* |
|                    |                           | *Financial  Officer (Principal Financial* |
|                    |                           | *Officer)* |
|                    |                           |   |
| Date: May 12, 2009 | By:                            | /s/  DAVID H.  OWNBY |
|                    |                           | David H. Ownby |
|                    |                           | *Senior  Vice President and Chief* |
|                    |                           | *Accounting  Officer (Principal Accounting* |
|                    |                           | *Officer)* |

 

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**EXHIBIT INDEX**

 
| **Exhibit  Number** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|---------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.1                 |       | First Amendment to  Fifth Amended and Restated Credit Agreement, dated as of January 20,  2009, by and among Regal Cinemas, certain affiliated entities of the Company  as Guarantors, and Credit Suisse Cayman Islands Branch, as Administrative  Agent (filed as exhibit 4.1 to Registrant’s Current Report on Form 8-K  (Commission File No. 001-31315) on January 21, 2009, and incorporated  by reference herein) |
| 4.2                 |       | First Amendment to  Amended and Restated Guaranty and Collateral Agreement, dated  January 20, 2009, among Regal Cinemas Corporation, each of the  Guarantors party thereto and Credit Suisse Cayman Islands Branch, as  Administrative Agent                                                                                                                                                                                              |
| 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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