Table ofContents

 

 

 

**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,DC 20549**

 

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**FORM 10-Q**

 

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

 

**For thequarterly period ended April 1, 2010**

 

**Commissionfile number: 001-31315**

 

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**RegalEntertainment Group**

(Exact name of Registrantas Specified in its Charter)

 

| **Delaware**                              | ** ** | **02-0556934**      |
|-------------------------------------------|------------|---------------------|
| (State or Other  Jurisdiction of          |       | (I.R.S. Employer    |
| Incorporation or  Organization)           |       | Identification No.) |
|                                      |       |                |
| **7132  Regal Lane**                      |       |                |
| **Knoxville,  TN**                        | ** ** | **37918**           |
| (Address of Principal  Executive Offices) |       | (Zip Code)          |

 

Registrant’s TelephoneNumber, Including Area Code: **865-922-1123**

 

Indicate by check mark whether the registrant: (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days. Yes x No o

 

Indicate by check mark whether the registrant hassubmitted electronically and posted on its corporate Web site, if any, everyInteractive Data File required to be submitted and posted pursuant to Rule 405of Regulation S-T (§ 232.405 of this chapter) during the preceding 12months (or for such shorter period that the registrant was required to submitand post such files). Yes o No o

 

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

 

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

 

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

 

Class A Common Stock—130,566,879 sharesoutstanding at April 28, 2010

 

Class B Common Stock—23,708,639 sharesoutstanding at April 28, 2010

 

 

 

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**TABLE OF CONTENTS**

 
| PART I—FINANCIAL  INFORMATION | 3      |
|-----------------------------------------|--------|
|                                    |   |
| Item 1.                                 |   | FINANCIAL  STATEMENTS | 3 |
|                                    |   |   |   |
|                                    |   | UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS | 3 |
|                                    |   |   |   |
|                                    |   | UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME | 4 |
|                                    |   |   |   |
|                                    |   | UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH  FLOWS | 5 |
|                                    |   |   |   |
|                                    |   | NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL  STATEMENTS | 6 |
|                                    |   |   |   |
| Item  2.                                |   | MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 30 |
|                                    |   |   |   |
| Item  3.                                |   | QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 40 |
|                                    |   |   |   |
| Item  4.                                |   | CONTROLS  AND PROCEDURES | 40 |
|                                    |   |   |   |
| PART II—OTHER  INFORMATION    | 40     |
|                                    |   |   |   |
| Item  1.                                |   | LEGAL  PROCEEDINGS | 40 |
|                                    |   |   |   |
| Item  1A.                               |   | RISK  FACTORS | 40 |
|                                    |   |   |   |
| Item  2.                                |   | UNREGISTERED  SALES OF EQUITY SECURITY AND USE OF PROCEEDS | 41 |
|                                    |   |   |   |
| Item  6.                                |   | EXHIBITS | 41 |
|                                    |   |   |   |
| SIGNATURES                              | 42     |

 

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**PART I—FINANCIALINFORMATION**

 

**Item 1.    FINANCIALSTATEMENTS**

 

**REGALENTERTAINMENT GROUP**

 

**UNAUDITEDCONDENSED CONSOLIDATED BALANCE SHEETS**

**(inmillions, except share data)**

 
| ** **                                                                                                                                                                                              | ** ** | **April 1,  2010** | ** ** | **December 31,  2009** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| **ASSETS**                                                                                                                                                                                              |       |                    |       |                        |       |
| CURRENT ASSETS:                                                                                                                                                                                         |       |                    |       |                        |       |
| Cash and cash  equivalents                                                                                                                                                                              |       | $                       | 321.6      |                        | $          | 328.1 |   |
| Trade and other  receivables                                                                                                                                                                            |       | 22.0                    |       | 69.0                        |       |
| Inventories                                                                                                                                                                                             |       | 13.5                    |       | 12.3                        |       |
| Prepaid expenses and  other current assets                                                                                                                                                              |       | 12.1                    |       | 8.6                         |       |
| Assets held for sale                                                                                                                                                                                    |       | 0.6                     |       | 0.6                         |       |
| Deferred income tax  asset                                                                                                                                                                              |       | 10.3                    | ** ** | 10.3                        |       |
| TOTAL CURRENT ASSETS                                                                                                                                                                                    |       | 380.1                   | ** ** | 428.9                       |       |
| PROPERTY AND EQUIPMENT:                                                                                                                                                                                 |       |                    |       |                        |       |
| Land                                                                                                                                                                                                    |       | 118.6                   |       | 118.6                       |       |
| Buildings and leasehold  improvements                                                                                                                                                                   |       | 1,924.5                 |       | 1,921.4                     |       |
| Equipment                                                                                                                                                                                               |       | 1,002.5                 |       | 1,016.3                     |       |
| Construction in  progress                                                                                                                                                                               |       | 11.3                    |       | 8.8                         |       |
| Total property and  equipment                                                                                                                                                                           |       | 3,056.9                 |       | 3,065.1                     |       |
| Accumulated  depreciation and amortization                                                                                                                                                              |       | (1,294.0                | )          | (1,246.4                    | )          |
| TOTAL PROPERTY AND  EQUIPMENT, NET                                                                                                                                                                      |       | 1,762.9                 |       | 1,818.7                     |       |
| GOODWILL                                                                                                                                                                                                |       | 178.8                   |       | 178.8                       |       |
| INTANGIBLE ASSETS, NET                                                                                                                                                                                  |       | 10.8                    |       | 11.7                        |       |
| DEFERRED INCOME TAX  ASSET                                                                                                                                                                              |       | 86.7                    | ** ** | 78.1                        |       |
| OTHER NON-CURRENT  ASSETS                                                                                                                                                                               |       | 169.6                   |       | 121.5                       |       |
| TOTAL ASSETS                                                                                                                                                                                            |       | $                       | 2,588.9    |                        | $          | 2,637.7 |   |
| **LIABILITIES AND DEFICIT**                                                                                                                                                                             |       |                    |       |                        |       |
| CURRENT LIABILITIES:                                                                                                                                                                                    |       |                    |       |                        |       |
| Current portion of debt  obligations                                                                                                                                                                    |       | $                       | 216.3      |                        | $          | 17.1 |   |
| Accounts payable                                                                                                                                                                                        |       | 156.2                   |       | 198.5                       |       |
| Accrued expenses                                                                                                                                                                                        |       | 58.7                    | ** ** | 65.2                        |       |
| Deferred revenue                                                                                                                                                                                        |       | 108.6                   |       | 93.9                        |       |
| Interest payable                                                                                                                                                                                        |       | 9.2                     |       | 21.8                        |       |
| TOTAL CURRENT  LIABILITIES                                                                                                                                                                              |       | 549.0                   | ** ** | 396.5                       |       |
| LONG-TERM DEBT, LESS  CURRENT PORTION                                                                                                                                                                   |       | 1,691.7                 |       | 1,892.6                     |       |
| LEASE FINANCING  ARRANGEMENTS, LESS CURRENT PORTION                                                                                                                                                     |       | 70.6                    |       | 72.0                        |       |
| CAPITAL LEASE  OBLIGATIONS, LESS CURRENT PORTION                                                                                                                                                        |       | 14.3                    |       | 15.4                        |       |
| NON-CURRENT DEFERRED  REVENUE                                                                                                                                                                           |       | 345.6                   |       | 341.2                       |       |
| OTHER NON-CURRENT  LIABILITIES                                                                                                                                                                          |       | 178.4                   |       | 166.9                       |       |
| TOTAL LIABILITIES                                                                                                                                                                                       |       | 2,849.6                 |       | 2,884.6                     |       |
| DEFICIT:                                                                                                                                                                                                |       |                    |       |                        |       |
| Class A common  stock, $0.001 par value; 500,000,000 shares authorized, 130,561,991 and  130,292,790 shares issued and outstanding at April 1, 2010 and  December 31, 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 1, 2010 and December 31, 2009                                 |       | —                  |       | —                      |       |
| Preferred stock, $0.001  par value; 50,000,000 shares authorized; none issued and outstanding                                                                                                           |       | —                  |       | —                      |       |
| Additional paid-in  capital (deficit)                                                                                                                                                                   |       | (281.4                  | )          | (282.9                      | )          |
| Retained earnings                                                                                                                                                                                       |       | 35.6                    |       | 47.0                        |       |
| Accumulated other  comprehensive loss, net                                                                                                                                                              |       | (13.9                   | )          | (10.3                       | )          |
| TOTAL STOCKHOLDERS’  DEFICIT OF REGAL ENTERTAINMENT GROUP                                                                                                                                          |       | (259.6                  | )          | (246.1                      | )          |
| Noncontrolling interest                                                                                                                                                                                 |       | (1.1                    | )          | (0.8                        | )          |
| TOTAL DEFICIT                                                                                                                                                                                           |       | (260.7                  | )          | (246.9                      | )          |
| TOTAL LIABILITIES AND  DEFICIT                                                                                                                                                                          |       | $                       | 2,588.9    |                        | $          | 2,637.7 |   |

 

See accompanying notes tounaudited condensed consolidated financial statements.

 

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**REGALENTERTAINMENT GROUP**

**UNAUDITEDCONDENSED CONSOLIDATED STATEMENTS OF INCOME**

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

** **
| ** **                                                                                                                                                                  | ** ** | **Quarter Ended  April 1, 2010** | ** ** | **Quarter Ended  April 2, 2009** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|-------------------------------------------------|------------|
| REVENUES:                                                                                                                                                                   |       |                                            |       |                                            |       |
| Admissions                                                                                                                                                                  |       | $                                               | 506.0      |                                            | $          | 459.5 |   |
| Concessions                                                                                                                                                                 |       | 185.0                                           |       | 179.4                                           |       |
| Other operating revenue                                                                                                                                                     |       | 28.8                                            |       | 26.7                                            |       |
| TOTAL REVENUES                                                                                                                                                              |       | 719.8                                           |       | 665.6                                           |       |
| OPERATING EXPENSES:                                                                                                                                                         |       |                                            |       |                                            |       |
| Film rental and  advertising costs                                                                                                                                          |       | 266.7                                           |       | 229.7                                           |       |
| Cost of concessions                                                                                                                                                         |       | 26.7                                            |       | 24.0                                            |       |
| Rent expense                                                                                                                                                                |       | 94.7                                            |       | 92.9                                            |       |
| Other operating expenses                                                                                                                                                    |       | 198.9                                           |       | 185.9                                           |       |
| General and  administrative expenses (including share-based compensation of $1.5 and $1.6  for the quarters ended April 1, 2010 and April 2, 2009,  respectively) |       | 15.9                                            |       | 15.3                                            |       |
| Depreciation and  amortization                                                                                                                                              |       | 56.2                                            |       | 49.9                                            |       |
| Net loss on disposal  and impairment of operating assets                                                                                                                    |       | 13.1                                            |       | 5.4                                             |       |
| TOTAL OPERATING  EXPENSES                                                                                                                                                   |       | 672.2                                           |       | 603.1                                           |       |
| INCOME FROM OPERATIONS                                                                                                                                                      |       | 47.6                                            |       | 62.5                                            |       |
| OTHER EXPENSE (INCOME):                                                                                                                                                     |       |                                            |       |                                            |       |
| Interest expense, net                                                                                                                                                       |       | 36.0                                            |       | 37.2                                            |       |
| Earnings recognized  from NCM                                                                                                                                               |       | (16.7                                           | )          | (10.6                                           | )          |
| Other, net                                                                                                                                                                  |       | 0.8                                             |       | 0.2                                             |       |
| TOTAL OTHER EXPENSE,  NET                                                                                                                                                   |       | 20.1                                            |       | 26.8                                            |       |
| INCOME BEFORE INCOME  TAXES                                                                                                                                                 |       | 27.5                                            |       | 35.7                                            |       |
| PROVISION FOR INCOME  TAXES                                                                                                                                                 |       | 11.1                                            | ** ** | 14.4                                            |       |
| NET INCOME                                                                                                                                                                  |       | 16.4                                            | ** ** | 21.3                                            |       |
| NONCONTROLLING  INTEREST, NET OF TAX                                                                                                                                        |       | 0.1                                             |       | —                                          |       |
| NET INCOME ATTRIBUTABLE  TO CONTROLLING INTEREST                                                                                                                            |       | $                                               | 16.5       | ** **                                      | $          | 21.3 |   |
| EARNINGS PER SHARE OF  CLASS A AND CLASS B COMMON STOCK:                                                                                                          |       |                                            |       |                                            |       |
| Basic                                                                                                                                                                       |       | $                                               | 0.11       | ** **                                      | $          | 0.14 |   |
| Diluted                                                                                                                                                                     |       | $                                               | 0.11       | ** **                                      | $          | 0.14 |   |
| AVERAGE SHARES  OUTSTANDING (in thousands):                                                                                                                                 |       |                                            |       |                                            |       |
| Basic                                                                                                                                                                       |       | 153,364                                         |       | 153,045                                         |       |
| Diluted                                                                                                                                                                     |       | 154,769                                         |       | 154,093                                         |       |
| DIVIDENDS DECLARED PER  COMMON SHARE                                                                                                                                        |       | $                                               | 0.18       |                                            | $          | 0.18 |   |

 

See accompanying notes tounaudited condensed consolidated financial statements.

 

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**REGALENTERTAINMENT GROUP**

**UNAUDITEDCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(inmillions)**

 
| ** **                                                                         | ** ** | **Quarter  Ended  April 1, 2010** | ** ** | **Quarter  Ended  April 2, 2009** | ** ** |
|------------------------------------------------------------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                             |       |                                   |       |                                   |       |
| Net income                                                                         |       | $                                      | 16.4       |                                   | $          | 21.3 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |       |                                   |       |                                   |       |
| Depreciation and  amortization                                                     |       | 56.2                                   |       | 49.9                                   |       |
| Amortization of debt  discount                                                     |       | 1.3                                    |       | 1.0                                    |       |
| Amortization of debt  acquisition costs                                            |       | 2.1                                    |       | 2.3                                    |       |
| Share-based  compensation expense                                                  |       | 1.5                                    |       | 1.6                                    |       |
| Deferred income tax  benefit                                                       |       | (6.2                                   | )          | (1.6                                   | )          |
| Net loss on disposal  and impairment of operating assets                           |       | 13.1                                   |       | 5.4                                    |       |
| Equity in loss of  non-consolidated entities and other                             |       | 0.2                                    |       | 0.5                                    |       |
| Excess cash  distribution on NCM shares                                            |       | 3.3                                    |       | 1.8                                    |       |
| Non-cash rent expense                                                              |       | 0.6                                    |       | 1.8                                    |       |
| Changes in operating  assets and liabilities:                                      |       |                                   |       |                                   |       |
| Trade and other  receivables                                                       |       | 46.8                                   |       | 50.1                                   |       |
| Inventories                                                                        |       | (1.2                                   | )          | (1.4                                   | )          |
| Prepaid expenses and  other assets                                                 |       | (2.7                                   | )          | (9.5                                   | )          |
| Accounts payable                                                                   |       | (42.3                                  | )          | (42.3                                  | )          |
| Income taxes payable                                                               |       | 6.1                                    |       | 0.1                                    |       |
| Deferred revenue                                                                   |       | 13.1                                   |       | 26.4                                   |       |
| Accrued expenses and  other liabilities                                            |       | (30.4                                  | )          | (19.0                                  | )          |
| NET CASH PROVIDED BY  OPERATING ACTIVITIES                                         |       | 77.9                                   |       | 88.4                                   |       |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                             |       |                                   |       |                                   |       |
| Capital expenditures                                                               |       | (21.1                                  | )          | (27.9                                  | )          |
| Proceeds from  disposition of assets                                               |       | 0.1                                    |       | 0.4                                    |       |
| Investment in DCIP                                                                 |       | (29.6                                  | )          | —                                 |       |
| Distributions to  partnership                                                      |       | (0.1                                   | )          | —                                 |       |
| NET CASH USED IN  INVESTING ACTIVITIES                                             |       | (50.7                                  | )          | (27.5                                  | )          |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                             |       |                                   |       |                                   |       |
| Cash used to pay  dividends                                                        |       | (27.8                                  | )          | (27.7                                  | )          |
| Net payments on  long-term obligations                                             |       | (5.5                                   | )          | (6.3                                   | )          |
| Cash used to purchase  treasury shares and other                                   |       | (0.9                                   | )          | (0.5                                   | )          |
| Proceeds from stock  option exercises                                              |       | 0.5                                    |       | —                                 |       |
| Payment of debt  acquisition costs and other                                       |       | —                                 |       | (9.6                                   | )          |
| NET CASH USED IN  FINANCING ACTIVITIES                                             |       | (33.7                                  | )          | (44.1                                  | )          |
| NET INCREASE (DECREASE)  IN CASH AND CASH EQUIVALENTS                              |       | (6.5                                   | )          | 16.8                                   |       |
| CASH AND CASH  EQUIVALENTS AT BEGINNING OF PERIOD                                  |       | 328.1                                  |       | 170.2                                  |       |
| CASH AND CASH  EQUIVALENTS AT END OF PERIOD                                        |       | $                                      | 321.6      |                                   | $          | 187.0 |   |
| SUPPLEMENTAL CASH FLOW  INFORMATION:                                               |       |                                   |       |                                   |       |
| Cash paid for income  taxes, net of refunds received                               |       | $                                      | 8.2        |                                   | $          | 0.7 |   |
| Cash paid for interest                                                             |       | $                                      | 45.6       |                                   | $          | 36.8 |   |
| SUPPLEMENTAL NON-CASH  INVESTING ACTIVITIES:                                       |       |                                   |       |                                   |       |
| Investment in NCM                                                                  |       | $                                      | 5.9        |                                   | $          | 7.0 |   |
| Investment in DCIP                                                                 |       | $                                      | 12.6       |                                   | $          | — |   |

 

See accompanying notes tounaudited condensed consolidated financial statements.

 

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**REGALENTERTAINMENT GROUP**

**NOTESTO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

 

**APRIL 1,2010 AND APRIL 2, 2009**

 

**1. THE COMPANY AND BASIS OFPRESENTATION**

 

Regal Entertainment Group (the “Company,” “Regal,” “we”or “us”) is the parent company of Regal Entertainment Holdings, Inc. (“REH”),which is the parent company of Regal Cinemas Corporation (“Regal Cinemas”) andits subsidiaries. Regal Cinemas’ subsidiaries include Regal Cinemas, Inc.(“RCI”) and its subsidiaries, which include Edwards Theatres, Inc. (“Edwards”),Hoyts Cinemas 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 the largest theatre circuit in theUnited States, consisting of 6,739 screens in 545 theatres in 38 states and theDistrict of Columbia as of April 1, 2010.  The Company formallyoperates on a 52-week fiscal year with each quarter generally consisting of 13weeks, unless otherwise noted. The Company’s fiscal year ends on the firstThursday after December 25, which in certain years results in a53-week fiscal year.  As of April 1, 2010, the Company managed itsbusiness under one reportable segment: theatre exhibition operations.

 

On July 15, 2009, Regal Cinemas issued $400.0million in aggregate principal amount of 85/8% Senior Notes due 2019 (the “85/8% SeniorNotes”) at a price equal to 97.561% of their face value in a transaction exemptfrom registration under the Securities Act of 1933, as amended (the “SecuritiesAct”). The net proceeds from the offering, after deducting the initial purchasediscount and offering expenses paid by the Company, were approximately $381.3million. The Company used all of the net proceeds to repay a portion of theAmended Senior Credit Facility (as defined herein). As a result of thisrepayment, the Company recorded a loss on debt extinguishment of approximately$7.4 million, representing the pro-rata write off of unamortized debt issuecosts under the Amended Senior Credit Facility.  See Note 3—“DebtObligations” for further discussion of this transaction.

 

For a discussion of other significant transactionswhich have occurred through December 31, 2009, please refer to Note 1to the consolidated financial statements included in Part II, Item 8 ofour annual report on Form 10-K filed on March 1, 2010 with theSecurities and Exchange Commission (the “Commission”) (File No. 001-31315)for the fiscal year ended December 31, 2009 (the “2009 AuditedConsolidated Financial Statements”).

 

On February 12, 2007, we, along with AMCEntertainment, Inc. (“AMC”) and Cinemark, Inc. (“Cinemark”) formed ajoint venture company known as Digital Cinema ImplementationPartners, LLC, a Delaware limited liability company (“DCIP”), to create afinancing model and establish agreements with major motion picture studios forthe implementation of digital cinema in our theatres.  As further described in Note 2—”Investments,”on March 10, 2010, DCIP completed the execution of definitive agreementsand related financing transactions in connection with the conversion to digitalprojection.  As part of the closing, theCompany made equity contributions to DCIP of approximately of approximately$41.7 million, consisting of $29.1 million in cash and 200 existing

 

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digital projection systems with a fair value ofapproximately $12.6 million.  Inconnection with the contribution of its 200 existing digital projectionsystems, the Company recorded a loss on the contribution of $2.0 million basedon the excess of the carrying value of the digital projection systemscontributed over the $12.6 million fair value of such equipment. After givingeffect to the equity contributions, the Company holds a 46.7% economic interestin DCIP as of April 1, 2010, while continuing to maintain aone-third voting interest along with AMC and Cinemark.

 

As discussed further in Note 2—“Investments,” inaccordance with the annual adjustment provisions of the Common Unit AdjustmentAgreement with National CineMedia, LLC (“National CineMedia”), on March 17,2010, we received from National CineMedia approximately 0.3 million newlyissued common units of National CineMedia.  This adjustment increased thenumber of National CineMedia common units held by us to approximately25.8 million and as a result, on a fully diluted basis, we own a 24.8%interest in National CineMedia, Inc. (“NCM, Inc.”) as of April 1,2010.

 

During the quarter ended April 1, 2010, Regalpaid one quarterly cash dividend of $0.18 on each outstanding share of theCompany’s Class A and Class B common stock, or approximately$27.8 million in the aggregate.

 

Total comprehensive income for the quarters ended April 1,2010 and April 2, 2009 was $12.9 million and $15.9 million,respectively.  Total comprehensive income consists of net incomeattributable to controlling interest and other comprehensive loss, net of tax,related to the change in the aggregate unrealized loss on the Company’sinterest rate swap arrangements during each of the quarters April 1, 2010and April 2, 2009. The Company’s interest rate swap arrangements arefurther described in Note 3—“Debt Obligations.”

 

The Company has prepared the unaudited condensedconsolidated balance sheet as of April 1, 2010 and the unaudited condensedconsolidated statements of income and cash flows for the quarters ended April 1,2010 and April 2, 2009 in accordance with U.S. generally acceptedaccounting principles for interim financial information and the rules andregulations of the Commission. Accordingly, certain information and footnotedisclosures typically included in an annual report have been condensed oromitted for this quarterly report. In the opinion of management, alladjustments (which include only normal recurring adjustments) necessary topresent fairly in all material respects the financial position, results ofoperations and cash flows for all periods presented have been made. The December 31,2009 unaudited condensed consolidated balance sheet information is derived fromthe 2009 Audited Consolidated Financial Statements. These unaudited condensedconsolidated financial statements should be read in conjunction with theaudited consolidated financial statements and notes thereto. The results ofoperations for the quarter ended April 1, 2010 are not necessarilyindicative of the operating results that may be achieved for the full 2010fiscal year.

 

**2. INVESTMENTS**

 

*Investment in Digital CinemaImplementation Partners*

 

On February 12, 2007, we, along with AMC andCinemark, formed DCIP, to create a financing model and establish agreementswith major motion picture studios for the implementation of digital cinema inour theatres.  On March 10, 2010,DCIP completed the execution of definitive agreements and related financingtransactions in connection with the conversion to digital projection.  DCIP’s completed financing raised anaggregate of approximately $660.0 million, consisting of approximately $445.0million in senior bank debt, approximately $135.0 million in additional juniorcapital and approximately $80.0 million in equity contributions (consisting ofcash and existing digital projection systems) from us, AMC and Cinemark.  Concurrent with closing, the Company enteredinto a master equipment lease agreement (the “Master Lease”) and other relatedagreements (collectively the “Digital Cinema Agreements”) with Kasima, LLCa wholly owned subsidiary of DCIP and related party to the Company.  Upon execution of the Digital CinemaAgreements, the Company made equity contributions to DCIP of approximately$41.7 million, consisting of $29.1 million in cash and 200 existingdigital projection systems with a fair value of approximately $12.6 million(collectively the “DCIP Contributions”). The Company recorded such DCIPContributions as an increase in its investment in DCIP.  In connection with the contribution of its200 existing digital projection systems, the Company recorded a loss on thecontribution of $2.0 million based on the excess of the carrying value of thedigital projection systems contributed over the $12.6 million fair value (asdetermined by an independent appraisal) of such equipment.  Such amount has been presented as a componentof “Net loss on

 

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disposal and impairment of operating assets” in theaccompanying unaudited condensed consolidated statement of income for thequarter ended April 1, 2010.

 

After giving effect to the DCIP Contributions, theCompany holds a 46.7% economic interest in DCIP as of April 1, 2010, whilecontinuing to maintain a one-third voting interest along with AMC andCinemark. Since the Company determined that it is not the primary beneficiaryof DCIP or any of its subsidiaries, it will continue to account for itsinvestment in DCIP under the equity method of accounting.  The Company’s investment in DCIP is includedas a component of “Other non-current assets” in the accompanying unauditedcondensed consolidated balance sheets. The changes in the carrying amount of our investment in DCIP for thequarter ended April 1, 2010 are as follows (in millions):

 
| Balance as of  December 31, 2009 |   | $    | 0.7    |   |
|---------------------------------------|--------|------|--------|--------|
| Equity contributions  (1)             |   | 42.2 |   |
| Equity in loss of  DCIP(2)            |   | (0.8 | )      |
| Balance as of  April 1, 2010     |   | $    | 42.1   |   |

 

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(1)                                  In addition to acash investment in DCIP of $0.5 million in January 2010, upon execution ofthe Digital Cinema Agreements, the Company effected additional equitycontributions to DCIP of approximately $41.7 million, consisting of cashand existing digital projection systems.

 

(2)                                  For the quartersended April 1, 2010 and April 2, 2009, the Company recorded losses of$0.8 million and $0.6 million, respectively, representing its shareof the net loss of DCIP. Such amounts are presented as a component of “Other,net” in the accompanying unaudited condensed consolidated statements of income.

 

We expect DCIP to fund the cost of conversionprincipally through the collection of virtual print fees from motion picturestudios and equipment lease payments from participating exhibitors. In accordancewith the Master Lease, the digital projection systems are leased fromKasima, LLC under a 12-year term with 10 one-year fair value renewaloptions. The Master Lease also contains a fair value purchase option. Under theMaster Lease, the Company pays annual minimum rent of $1,000 per digitalprojection system for the first six and half years from the effective date ofthe agreement and is, upon certain conditions, subject to minimum annual rentof $3,000 per digital projection system beginning at six and half years fromthe effective date of the agreement through the end of the lease term. TheCompany is also subject to various types of other rent if such digitalprojection systems do not meet minimum performance requirements as outlined inthe Master Lease. Certain of the other rent payments are subject to either amonthly or an annual maximum. The Company accounts for the Master Lease as anoperating lease for accounting purposes.

 

During the early stage of deployment, the Companyexpects to focus on an accelerated deployment of 3D compatible digitalprojection systems to a majority of its first run U.S. theatres. With respectto the Company’s existing 35mm projection equipment that is scheduled to bereplaced with digital projection systems, the Company has begun to acceleratedepreciation on such 35 mm projection equipment over the expecteddeployment schedule (approximately 3-4 years) since the Company plans todispose of such equipment prior to the end of their useful lives. To that end,during the quarter ended April 1, 2010, the Company recorded approximately$7.0 million of accelerated depreciation related to such 35mm projectionequipment.  As of April 1, 2010, weoperated 543 screens outfitted with digital projection systems, 527 of whichare digital 3D capable.

 

*Investment in National CineMedia,LLC*

 

In March 2005, Regal and AMC announced thecombination of the operations of Regal CineMedia Corporation (“RCM”), and AMC’ssubsidiary, National Cinema Network, Inc., into a new joint venture companyknown 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 and Cinemark.The Company did not recognize any gain or loss resulting from the initialformation of National CineMedia due to the Company’s continued involvement inthe operations of National CineMedia. Pursuant to the other documents enteredinto in connection with the joint venture

 

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transaction, AMC and Regal, through theirsubsidiaries, retained all advertising contracts signed on or before the closeof business on March 31, 2005, and Cinemark retained all advertisingcontracts signed on or before the close of business on July 15, 2005,subject to an administrative fee payable to National CineMedia to service suchcontracts.

 

On February 13, 2007, NCM, Inc., a newlyformed entity that serves as the sole manager of National CineMedia, completedan initial public offering, or IPO, of its common stock. In connection with theIPO of NCM, Inc., RCM, through its wholly owned subsidiary Regal CineMediaHoldings, LLC, AMC and Cinemark amended and restated the operating agreement ofNational CineMedia and other ancillary agreements. In connection with theseries of transactions completed in connection with the IPO, Regal receivedgross cash proceeds totaling approximately $628.3 million and retained a 22.6%interest in NCM, Inc. After the payment of current taxes, net cashproceeds from these transactions totaled approximately $447.4 million. TheCompany used a portion of the net cash proceeds to fund an extraordinary cashdividend of $2.00 per share on each outstanding share of its Class A and Class Bcommon stock, including outstanding restricted stock, or approximately$302.0 million in the aggregate. Stockholders of record at the close ofbusiness on March 28, 2007 were paid this $302.0 million dividend on April 13,2007.  As a result of the transactions completed in connection with theIPO, the Company recognized a gain of approximately $350.7 million duringfiscal 2007.

 

In connection with the IPO, the joint venture partnersentered into a Common Unit Adjustment Agreement with National CineMedia. TheCommon Unit Adjustment Agreement was created to account for changes in thenumber of theatre screens operated by each of the joint venture partners.Pursuant to our Common Unit Adjustment Agreement, from time to time, commonunits of National CineMedia held by the joint venture partners will be adjustedup or down through a formula (“common unit adjustment”) primarily based onincreases or decreases in the number of theatre screens operated and theatreattendance generated by each joint venture partner. The common unit adjustmentis computed annually, except that an earlier common unit adjustment will occurfor a joint venture partner if its acquisition or disposition of theatres, in asingle transaction or cumulatively since the most recent common unitadjustment, will cause a change of two percent or more in the total annualattendance of all of the joint venture partners.  The formation of National CineMedia, relatedIPO of NCM, Inc. and other related transactions are further described inNote 4 to the 2009 Audited Consolidated Financial Statements.

 

We account for our investment in National CineMediafollowing the equity method of accounting and such investment is included as acomponent of “Other non-current assets” in the accompanying unaudited condensedconsolidated balance sheets.  The changesin the carrying amount of our investment in National CineMedia for the quarterended April 1, 2010 are as follows (in millions):

 
| Balance as of  December 31, 2009               |   | $     |  79.1 |   |
|-----------------------------------------------------|--------|-------|------------|--------|
| Receipt of common  units(1)                         |   | 5.9   |       |
| Equity in earnings  attributable to common units(2) |   | 0.6   |       |
| Earnings recognized  from National CineMedia(3)     |   | 16.1  |       |
| Distributions received  from National CineMedia(3)  |   | (19.4 | )          |
| Balance as of  April 1, 2010                   |   | $     |  82.3 |   |

 

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(1)                                  As a result ofthe annual adjustment provisions of the Common Unit Adjustment Agreement, on March 17,2010, we received from National CineMedia approximately 0.3 million newlyissued common units of National CineMedia. This adjustment increased the number of National CineMedia common unitsheld by us to approximately 25.8 million and as a result, on a fullydiluted basis, we own a 24.8% interest in NCM, Inc. as of April 1,2010. The Company recorded the additional units at fair value using the availableclosing stock price of NCM, Inc. on March 17, 2010. Since theadditional common units received do not represent the funding of prior lossesof National CineMedia, the fair value of such units were recorded as a separateinvestment tranche in National CineMedia. As a result of these adjustments, theCompany recorded an increase of $5.9 million to its investment in NationalCineMedia during the quarter ended April 1, 2010.  With respect to the common units received on March 17,2010, the Company recorded a corresponding $5.9 million increase todeferred revenue. This amount is being amortized to advertising revenue overthe remaining term of the exhibitor services agreement (“ESA”) following theunits of revenue method.

 

(2)                                  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 

 

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CineMedia with respect tothese tranches totaled $0.6 million during the quarter ended April 1,2010.  The Company’s share in the netincome of National CineMedia with respect to these tranches totaled less than$0.1 million during the quarter April 2, 2009.  Such amounts have been included as acomponent of “Earnings recognized from NCM” in the accompanying unauditedcondensed consolidated statements of income.

 

(3)                                  During thequarter ended April 1, 2010, the Company received $19.4 million incash distributions from National CineMedia. Approximately $3.3 million ofthese cash distributions received during the quarter ended April 1, 2010were attributable to the receipt of additional common units pursuant to theCommon Unit Adjustment Agreement and were recognized as a reduction in ourinvestment in National CineMedia. During the quarter ended April 2, 2009,the Company received $12.4 million in cash distributions from NationalCineMedia. Approximately $1.8 million of these cash distributions receivedduring the quarter ended April 2, 2009 were recognized as a reduction inour investment in National CineMedia. The remaining amounts were recognized inequity earnings during each of these periods and have been included ascomponent of “Earnings recognized from NCM” in the accompanying unauditedcondensed consolidated statements of income.

 

As a result of the amendment to the ESA and relatedmodification payment, the Company recognizes various types of other revenuefrom National CineMedia, including per patron and per digital screen theatreaccess fees, net of payments for on-screen advertising time provided to ourbeverage concessionaire, other NCM revenue and amortization of upfront ESAmodification fees utilizing the units of revenue amortization method. Theserevenues are presented as a component of other operating revenues in theCompany’s financial statements and consist of the following amounts (inmillions):

 
| ** **                                        | ** ** | **Quarter  Ended  April 1, 2010** | ** ** | **Quarter  Ended  April 2, 2009** | ** ** |
|---------------------------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|
| Theatre access fees per  patron                   |       | $                                      | 3.7        |                                   | $          | 3.8 |   |
| Theatre access fees per  digital screen           |       | 1.4                                    |       | 1.3                                    |       |
| Other NCM revenue                                 |       | 0.6                                    |       | 0.7                                    |       |
| Amortization of ESA  modification fees            |       | 1.1                                    |       | 0.9                                    |       |
| Payments for beverage  concessionaire advertising |       | (3.7                                   | )          | (3.5                                   | )          |
| Total                                             |       | $                                      | 3.1        |                                   | $          | 3.2 |   |

 

As of April 1, 2010, approximately$2.0 million and $1.9 million due from/to National CineMedia were includedin “Trade and other receivables, net” and “Accounts payable,”respectively.  As of December 31,2009, approximately $2.1 million due from/to National CineMedia wereincluded in both “Trade and other receivables, net” and “Accounts payable.”

 

Summarized unaudited condensed consolidated statementof income information for National CineMedia for the quarters ended December 31,2009 and January 1, 2009 is as follows (in millions):

* *

| ** **             | ** ** | **Quarter Ended  December 31, 2009** | ** ** | **Quarter Ended  January 1, 2009** | ** ** |
|------------------------|------------|------------------------------------------------|------------|----------------------------------------------|------------|
| Revenues               |       | $                                              | 118.5      |                                         | $          | 112.4 |   |
| Income from operations |       | 59.7                                           |       | 58.6                                         |       |
| Net income             |       | 50.8                                           |       | 17.4                                         |       |
|                        |            |                                                |            |                                              |            |  |  |

 

Summarized unaudited consolidated balance sheetinformation for National CineMedia as of December 31, 2009 and January 1,2009 is as follows (in millions):

 
| ** **                             | ** ** | **December 31,  2009** | ** ** | **January 1,  2009** | ** ** |
|----------------------------------------|------------|-----------------------------|------------|---------------------------|------------|
| Current assets                         |       | $                           | 128.9      |                      | $          | 128.2 |   |
| Noncurrent assets                      |       | 175.5                       |       | 151.7                     |       |
| Total assets                           |       | 304.4                       |       | 279.9                     |       |
| Current liabilities                    |       | 90.1                        |       | 74.3                      |       |
| Noncurrent liabilities                 |       | 853.9                       |       | 891.2                     |       |
| Total liabilities                      |       | 944.0                       |       | 965.5                     |       |
| Members’ deficit                  |       | (639.6                      | )          | (685.6                    | )          |
| Liabilities and  members’ deficit |       | 304.4                       |       | 279.9                     |       |
|                                        |            |                             |            |                           |            |  |  |

 

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As of the date of this quarterly report on Form 10-Q(this “Form 10-Q), no summarized financial information for NationalCineMedia was available for the quarter ended April 1, 2010.

 

**3. DEBT OBLIGATIONS**

 

Debt obligations at April 1, 2010 and December 31,2009 consist of the following (in millions):

 
| ** **                                                                                                                           | ** ** | **April 1,  2010** | ** ** | **December 31,  2009** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| Regal Cinemas 85/8% Senior  Notes, net of debt discount                                                                              |       | $                       | 391.0      |                        | $          | 390.7 |   |
| Regal 61⁄4% Convertible  Senior Notes, net of debt discount                                                                       |       | 195.7                   |       | 194.6                       |       |
| Regal Cinemas Amended  Senior Credit Facility                                                                                        |       | 1,262.1                 |       | 1,265.4                     |       |
| Regal Cinemas 93/8% Senior  Subordinated Notes                                                                                       |       | 51.5                    |       | 51.5                        |       |
| Lease financing  arrangements, weighted average interest rate of 11.22%, maturing in various  installments through January 2021 |       | 76.0                    |       | 77.2                        |       |
| Capital lease  obligations, 8.5% to 10.3%, maturing in various installments through  December 2017                              |       | 16.3                    |       | 17.3                        |       |
| Other                                                                                                                                |       | 0.3                     |       | 0.4                         |       |
| Total debt obligations                                                                                                               |       | 1,992.9                 |       | 1,997.1                     |       |
| Less current portion                                                                                                                 |       | 216.3                   |       | 17.1                        |       |
| Total debt obligations,  less current portion                                                                                        |       | $                       | 1,776.6    |                        | $          | 1,980.0 |   |

 

***Regal Cinemas 8******5******/******8******%Senior Notes—***OnJuly 15, 2009, Regal Cinemas issued $400.0 million in aggregate principalamount of the 85/8%Senior Notes at a price equal to 97.561% of their face value in a transactionexempt from registration under the Securities Act.  Interest on the 85/8% SeniorNotes is payable semi-annually in arrears on July 15 and January 15of each year, beginning on January 15, 2010.  The 85/8% SeniorNotes will mature on July 15, 2019.

 

The net proceeds from the offering, after deductingthe initial purchase discount (approximately $9.8 million) and offeringexpenses paid by the Company, were approximately $381.3 million. The Companyused all of the net proceeds of the offering to repay a portion of the AmendedSenior Credit Facility as described further below.

 

The 85/8% Senior Notes are Regal Cinemas’ general seniorunsecured obligations and rank equally in right of payment with all of itsexisting and future senior unsecured indebtedness; and senior in right ofpayment to all of Regal Cinemas’ existing and future subordinated indebtedness,including the existing Regal Cinemas 93/8% Senior Subordinated Notes (the “Senior SubordinatedNotes”).  The 85/8% SeniorNotes are effectively subordinated to all of Regal Cinemas’ existing and futuresecured indebtedness, including all borrowings under the Amended Senior CreditFacility, to the extent of the value of the collateral securing suchindebtedness, and are structurally subordinated to all existing and futureindebtedness and other liabilities of any of Regal Cinemas’ subsidiaries thatare not guarantors of the 85/8% Senior Notes.

 

The 85/8% Senior Notes are fully and unconditionallyguaranteed on a joint and several senior unsecured basis by Regal and all ofRegal Cinemas’ existing and future domestic restricted subsidiaries that guaranteeits other indebtedness (collectively, with Regal, the “Guarantors”). Theguarantees of the 85/8%Senior Notes are the Guarantors’ general senior unsecured obligations and rankequally in right of payment with all of the Guarantors’ existing and futuresenior unsecured indebtedness, including Regal’s 61⁄4% Convertible Senior Notes,and rank senior in right of payment to all of the Guarantors’ existing andfuture subordinated indebtedness, including the guarantees of the SeniorSubordinated Notes.   The 85/8% Senior Notes are effectively subordinated to all ofthe Guarantors’ existing and future secured indebtedness, including theguarantees under the Amended Senior Credit Facility, to the extent of the valueof the collateral securing such indebtedness, and are structurally subordinatedto all existing and future indebtedness and other liabilities of any of theGuarantors’ subsidiaries that is not a guarantor of the 85/8% SeniorNotes.

 

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***Regal 61⁄4%Convertible Senior Notes—*** On March 10, 2008, Regal issued$200.0 million aggregate principal amount of the 61⁄4% Convertible SeniorNotes due March 15, 2011 (the “61⁄4% Convertible Senior Notes”). Interest onthe 61⁄4% Convertible Senior Notes is payable semi-annually in arrears on March 15and September 15 of each year, beginning September 15, 2008. The 61⁄4%Convertible Senior Notes are senior unsecured obligations of Regal and rank onparity with all of our existing and future senior unsecured indebtedness andprior to all of our subordinated indebtedness. The 61⁄4% Convertible Senior Notesare effectively 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 orafter December 15, 2010, note holders will have the option to converttheir 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 SeniorNotes dated March 10, 2008), at the then-existing conversion price pershare. Prior to December 15, 2010, note holders have the right, at theiroption, to convert their 61⁄4% Convertible Senior Notes, in whole or in part,into shares of our Class A common stock, subject to certain limitations,unless previously purchased by us at the note holder’s option upon afundamental change, at the then existing conversion price per share, subject tofurther adjustments described below, if:

 

·                  during any calendar quarter commencingafter June 30, 2008, and only during such calendar quarter, if the lastreported sale price per share of Class A common stock for at least 20trading days in the period of 30 consecutive trading days ending on the lasttrading day of the immediately preceding calendar quarter exceeds 130% of theconversion price per share of Class A common stock for the 61⁄4% ConvertibleSenior Notes on the last trading day of such immediately preceding calendarquarter;

 

·                  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 than 95% of theproduct of the last reported sale price per share of Class A common stockand the conversion rate for each day of the Note Measurement Period asdetermined following a request by a holder of the notes in accordance with theprocedures described more fully in the 61⁄4% Convertible Senior Notes indenture;

 

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

 

·                  a fundamental change (as defined in the61⁄4% Convertible Senior Notes indenture) occurs, a note holder may elect toconvert all or a portion of its notes at any time commencing on the effectivedate of such transaction or 15 days prior to the anticipated effectivedate (in certain circumstances) until the latter of: (i) the day beforethe fundamental change repurchase date and (ii) 30 days following theeffective date of such transaction (but in any event prior to the close ofbusiness on the business day prior to the maturity date), in which case we willincrease the conversion rate for the notes surrendered for conversion by anumber of additional shares of Class A common stock, as set forth in thetable in the 61⁄4% Convertible Senior Notes indenture.

 

On April 1, 2010, at the then-current conversionprice of $23.0336 per share (which conversion price may be adjusted pursuant tothe certain events described further in the 61⁄4% Convertible Senior Notesindenture), each $1,000 of aggregate principal amount of 61⁄4% Convertible SeniorNotes is convertible into approximately 43.4148 shares of our Class Acommon stock. Upon conversion, we may elect to deliver cash in lieu of sharesof Class 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 with the issuance of the 61⁄4% ConvertibleSenior Notes, we used approximately $6.6 million of the net proceeds ofthe offering to enter into convertible note hedge and warrant transactions withrespect to our Class A common stock to reduce the potential dilution fromconversion of the 61⁄4% Convertible Senior Notes. 

 

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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 1, 2010, 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 SeniorNotes, a number of shares of Class A common stock equal to the shares thatwe issue to a note holder upon conversion. Settlement terms of this forwardpurchase option allow the Company to elect cash or share settlement based onthe settlement option it chooses in settling the conversion feature of the 61⁄4%Convertible Senior Notes. We accounted for the 2008 Convertible Note Hedgepursuant to the guidance enumerated in FASB Accounting Standards Codification (“ASC”)Subtopic 815-40, *Derivatives andHedging—Contracts in Equity’s Own Equity*.  Accordingly, the$12.6 million purchase price of the forward stock purchase option contractwas recorded as an increase to consolidated deficit.

 

In 2008, we also sold to Credit Suisse a warrant (the “2008Warrant”) to purchase shares of our Class A common stock. The 2008 Warrantis currently exercisable for approximately 8.7 million shares of our Class Acommon stock at the April 1, 2010 exercise price of $25.376 per share(which exercise price may be adjusted pursuant to the provisions of the 2008Warrant). We received $6.0 million in cash from Credit Suisse in returnfor the sale of this forward share purchase option contract. Credit Suissecannot exercise the 2008 Warrant unless and until a conversion event occurs. Wehave the option of settling the 2008 Warrant in cash or shares of our Class Acommon stock. We accounted for the sale of the 2008 Warrant as the sale of apermanent equity instrument pursuant to the guidance in ASC Subtopic 815-40, *Derivatives and Hedging—Contracts in Entity’s OwnEquity*.  Accordingly, the$6.0 million sales price of the forward stock purchase option contract wasrecorded as a decrease to consolidated deficit.

 

The 2008 Convertible Note Hedge and the 2008 Warrantallow us to acquire sufficient Class A common shares from Credit Suisse tomeet our obligation to deliver Class A common shares upon conversion bythe note holder, unless the Class A common share price exceeds $25.376 (asof April 1, 2010). When the fair value of our Class A common sharesexceeds such price, the equity contracts no longer have an offsetting economicimpact, and accordingly will no longer be effective as a share-for-share hedgeof the dilutive impact of possible conversion.

 

The 61⁄4% Convertible Senior Notes allow us to settleany conversion by remitting to the note holder the accreted value of the notein cash plus the conversion spread (the excess conversion value over theaccreted value) in either cash, shares of our Class A common stock or acombination of stock and cash. The accounting for convertible debt with suchsettlement features is addressed in the consensus reached with respect to theaccounting for Instrument B as set forth in ASC Subtopic 815-15, *Derivatives and Hedging—Embedded Derivatives*.  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 to besettled in shares and will result in dilution in our earnings per sharecomputations using the if-converted method, if the effect is dilutive.

 

***Application of ASCSubtopic 470-20***

 

Effective January 2, 2009, the Companyretrospectively adopted certain provisions of ASC Subtopic 470-20, *Debt—Debt with Conversion and Other Options*,related to the requirement that issuers of convertible debt instruments that maybe settled in cash upon conversion (including partial cash settlement) shouldseparately account for the liability and equity (conversion feature) componentsof such instruments. As a result, interest expense should be imputed andrecognized based upon the entity’s nonconvertible debt borrowing rate, whichwill result in incremental non-cash interest expense. Prior to the guidance inASC Subtopic 470-20, U.S. generally accepted accounting principles providedthat no portion of the proceeds from the issuance of the instrument should beattributable to the conversion feature.  Our 61⁄4% Convertible Senior Notesare subject to ASC Subtopic 470-20.

 

We have determined that if the liability and equitycomponent of the 61⁄4% Convertible Senior Notes had been separately valued at thetime of their issuance on March 10, 2008, the amount allocated tolong-term debt would have been $187.4 million and the amount allocated toequity would have been $12.6 million. The effective interest rate on the 61⁄4% Convertible Senior Notes (basedupon the Company’s estimated nonconvertible debt borrowing rate at the time ofissuance) would have been approximately 8.7%.

 

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During the quarters ended April 1, 2010 and April 2,2009, the Company recorded approximately $1.1 million and $1.0 million,respectively, of non-cash interest expense on the 61⁄4% Convertible Senior Notes.The amount of contractual coupon interest recognized on the 61⁄4% ConvertibleSenior Notes during each of these periods was approximately $3.1 million.

 

As of April 1, 2010 and December 31, 2009,the carrying amounts of the $200.0 million 61⁄4% Convertible Senior Notes wereapproximately $195.7 million and $194.6 million, respectively, and the carryingamount of the related equity component (conversion feature) was $12.6million.  We anticipate recording additional non-cash interest expense onthe 61⁄4% Convertible Senior Notes in the amount of $4.3 million (the unamortizeddiscount as of April 1, 2010) through the March 2011 maturity date ofthe 61⁄4% Convertible Senior Notes, thereby increasing the carrying value to$200.0 million.  As of April 1, 2010, the if-converted value of the61⁄4% Convertible Senior Notes was approximately $200.0 million.

 

***Regal Cinemas FifthAmended and Restated Credit Agreement***—On October 27, 2006, Regal Cinemas entered intoa fifth amended and restated credit agreement (the “Amended Senior CreditFacility”) with Credit Suisse, Cayman Islands Branch (as successor to CreditSuisse First Boston), as Administrative Agent and the other lenders partythereto, which consists of a term loan facility (the “Term Facility”) in anaggregate 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 September 2008 bankruptcy filings byLehman Brothers Holdings, Inc. (“Lehman”) and certain of its affiliatesand the sudden deterioration in the credit standing of the Lehman affiliateparty to our Revolving Facility, the aggregate principal amount available fordrawing under the Revolving Facility was reduced by $5.0 million to$95.0 million during the year ended January 1, 2009. The RevolvingFacility has a separate sublimit of $10.0 million for short-term loans anda sublimit of $30.0 million for letters of credit.

 

The Term Facility will mature on October 27, 2013and the Revolving Facility will mature on October 27, 2011. Interest ispayable (a) in the case of base rate loans, quarterly in arrears, and (b) inthe case of Eurodollar rate loans, at the end of each interest period, but inno event less often than every three months. The Term Facility amortizes inequal quarterly installments in an aggregate annual amount equal to 1.0% of theoriginal principal amount of the Term Facility during the first six yearsthereof, with the balance payable in two equal installments, the first on June 30,2013 and the second on October 27, 2013. The Amended Senior Credit Facility is further described in Note 5 to the2009 Audited Consolidated Financial Statements.

 

As further described in Note 5 to the 2009 AuditedConsolidated Financial Statements, on January 20, 2009, Regal Cinemasentered into the First Amendment (the “Amendment”) to the Amended Senior CreditFacility. Upon the execution of the Amendment to the Amended Senior CreditFacility, Regal recorded approximately $9.6 million of new debtacquisition costs and incurred approximately $0.8 million of other thirdparty costs.

 

In connection with the offering of the Regal Cinemas 85/8% SeniorNotes described above, on July 15, 2009, the Company used all of the netproceeds (approximately $381.3 million) to repay a portion of the AmendedSenior Credit Facility. As a result of this repayment, the Company recorded aloss on debt extinguishment of approximately $7.4 million, representingthe pro-rata write off of unamortized debt issue costs under the Amended SeniorCredit Facility.

 

As of April 1, 2010 and December 31, 2009,borrowings of $1,262.1 million and $1,265.4 million, respectively,were outstanding under the Term Facility at an effective interest rate of 5.40%(as of April 1, 2010) and 5.38% (as of December 31, 2009), after theimpact of the interest rate swaps described below is taken into account.

 

***Interest Rate Swaps***

 

As described in Note 5 to the 2009 AuditedConsolidated Financial Statements, 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, which 

 

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require Regal Cinemas to pay interest at fixed ratesranging from 2.15% to 2.53% and receive interest at a variable rate. Theseinterest rate swaps were designated to hedge approximately$1,000.0 million of variable rate debt obligations and became effectiveduring the year ended December 31, 2009. These four interest rate swap agreements hedge an aggregate ofapproximately $1,000.0 million of variable rate debt obligations at aneffective rate of approximately 5.82% as of April 1, 2010 and December 31,2009.

 

Under the terms of the Company’s effective interestrate swap agreements as of April 1, 2010, Regal Cinemas pays interest atvarious fixed rates ranging from 2.15% to 2.53% and receives interest at avariable rate based on the 3-month LIBOR. The 3-month LIBOR rate on each resetdate determines the variable portion of the interest rate-swaps for thefollowing three-month period. The interest rate swaps settle any accruedinterest for cash on the last day of each calendar quarter, until expiration.At such dates, the differences to be paid or received on the interest rateswaps will be included in interest expense. No premium or discount was incurredupon the Company entering into the interest rate swaps, because the pay andreceive rates on the interest rate swaps represented prevailing rates for eachcounterparty at the time the interest rate swaps were entered into. Theinterest rate swaps qualify for cash flow hedge accounting treatment and assuch, the Company has effectively hedged its exposure to variability in thefuture cash flows attributable to the 3-month LIBOR on approximately$1,000.0 million of variable rate obligations. The change in the fairvalues of the interest rate swaps is recorded on the Company’s consolidatedbalance sheet as an asset or liability with the effective portion of theinterest rate swaps’ gains or losses reported as a component of othercomprehensive income (loss) and the ineffective portion reported in earnings(interest expense). As interest expense is accrued on the debt obligation,amounts in accumulated other comprehensive income (loss) related to thedesignated hedging instruments (the four interest rate swaps) will bereclassified into earnings to obtain a net cost on the debt obligation equal tothe effective yield of the fixed rate of each swap.

 

As of April 1, 2010, the aggregate fair value theCompany’s four interest rate swaps was determined to be approximately $(22.9)million, which was recorded as a component of “Other non-current liabilities”with a corresponding amount of $(13.9) million, net of tax, recorded to “AccumulatedOther Comprehensive Loss, Net.”  As of December 31,2009, the aggregate fair value the Company’s four interest rate swaps wasdetermined to be approximately $(16.8) million, which was recorded as acomponent of “Other non-current liabilities” with a corresponding amount of$(10.3) million, net of tax, recorded to “Accumulated Other Comprehensive Loss,Net.”  These interest rate swapsexhibited no ineffectiveness during the quarters ended April 1, 2010 and April 2,2009 and accordingly, the net losses on the swaps of $3.6 million and $5.8 million,respectively, were reported as a component of other comprehensive loss for thequarters ended April 1, 2010 and April 2, 2009. The fair value of theCompany’s interest rate swaps is based on level 2 inputs as described inASC Topic 820, *Fair Value Measurements andDisclosures*, which include observable inputs such as dealer quotedprices for similar assets or liabilities, and represents the estimated amountRegal Cinemas would receive or pay to terminate the agreements taking intoconsideration various factors, including current interest rates, credit riskand counterparty credit risk. The counterparties to the Company’s interest rateswaps are major financial institutions. The Company evaluates the bond ratingsof the financial institutions and believes that credit risk is at an acceptablylow level.

 

***Other Long-TermObligations—***Allother long-term obligations (including the Senior Subordinated Notes) notexplicitly discussed herein are described in Note 5 to the 2009 AuditedConsolidated Financial Statements and incorporated by reference herein.

 

**4. INCOME TAXES**

 

The provision for income taxes of $11.1 million and$14.4 million for the quarters ended April 1, 2010 and April 2, 2009,respectively, reflect effective tax rates of approximately 40.4% and 40.3%,respectively.  The effective tax rates for the quarters ended April 1,2010 and April 2, 2009 reflect the impact of certain non-deductibleexpenses.

 

In assessing the realizable value of deferred taxassets, management considers whether it is more likely than not that someportion or all of the deferred tax assets will not be realized. The ultimaterealization of deferred tax assets is dependent upon the generation of futuretaxable income during the periods in which these temporary differences becomedeductible. The Company has recorded a valuation allowance against deferred taxassets at April 1, 2010 and December 31, 2009, totaling $13.1 millionas management believes it is more likely than not that 

 

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certain deferred tax assets will not be realized infuture tax periods. Future reductions in the valuation allowance associatedwith a change in management’s determination of the Company’s ability to realizethese deferred tax assets will result in a decrease in the provision for incometaxes.

 

The Company and its subsidiaries collectively fileincome tax returns in the U.S. federal jurisdiction and various statejurisdictions.  The Company is not subject to U.S. federal examinations bytax authorities for years before 2006, and with limited exceptions, is notsubject to state income tax examinations for years before 2005. However, thetaxing authorities still have the ability to review the propriety of taxattributes created in closed tax years if such tax attributes are utilized inan open tax year. 

 

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

 

***Capital Stock***

 

As of April 1, 2010, the Company’s authorizedcapital stock consisted of:

 

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

 

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

 

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

 

Of the authorized shares of Class A common stock,18.0 million shares were sold in connection with the Company’s initialpublic offering in May 2002. The Company’s Class A common stock islisted on the New York Stock Exchange under the trading symbol “RGC.” As of April 1,2010, 130,561,991 shares of Class A common stock were outstanding. Of theauthorized shares of Class B common stock, 23,708,639 shares wereoutstanding as of April 1, 2010, all of which are held by Anschutz Company(“Anschutz”). Each share of Class B common stock converts into one shareof Class A common stock at the option of the holder or upon certaintransfers 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 1, 2010. 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 9 to the 2009 Audited ConsolidatedFinancial Statements.

 

***Share RepurchaseProgram***

 

During 2004, the Company’s board of directorsauthorized a share repurchase program, which provided for the authorization torepurchase up to $50.0 million of the Company’s outstanding Class Acommon stock within a twelve month period. The share repurchase program expiredin November 2009. Under the program, repurchases could be made from timeto time as market conditions warranted, through open market purchases,negotiated transactions, or in such a manner deemed appropriate by the Company.Treasury shares were retired upon repurchase. At retirement, the Companyrecorded treasury stock purchases at cost with any excess of cost over parvalue recorded as a reduction of additional paid-in capital. During 2005, theCompany repurchased 520,386 shares of its outstanding Class A common stockat an aggregate cost of approximately $10.0 million. The Company made norepurchases of its outstanding Class A common stock under the programduring the quarters ended April 1, 2010 and April 2, 2009.

 

***Warrants***

 

Other than disclosed in Note 3—“Debt Obligations”and Note 8—“Earnings Per Share,” no warrants to acquire the Company’s Class Aor Class B common stock were outstanding as of April 1, 2010.

 

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***Share-BasedCompensation***

 

In 2002, the Company established the 2002 StockIncentive Plan (the “Incentive Plan”) for a total of 11,194,354 authorizedshares, which provides for the granting of incentive stock options andnon-qualified stock options to officers, employees and consultants of theCompany. As described below under “Restricted Stock” and “Performance ShareUnits,” the Incentive Plan also provides for grants of restricted stock andperformance shares that are subject to restrictions and risks of forfeiture.Readers should refer to Note 9 to the 2009 Audited Consolidated FinancialStatements for additional information related to these awards and the IncentivePlan.

 

*Stock Options*

 

In connection with the July 1, 2003, June 2,2004 and April 13, 2007 extraordinary cash dividends and pursuant to theantidilution adjustment terms of the Incentive Plan, the exercise price and thenumber of shares of Class A common stock subject to options held by theCompany’s option holders were adjusted to prevent dilution and restore theireconomic position to that existing immediately before the extraordinarydividends. The antidilution adjustments made with respect to such optionsresulted in a decrease in the range of exercise prices, to $2.4407 to $16.1768per share, an increase in the aggregate number of shares issuable upon exerciseof such 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 1, 2010 and after giving effect tothe antidilution adjustments and the May 11, 2005 amendment to theIncentive Plan, options to purchase a total of 527,929 shares of Class Acommon stock were outstanding under the Incentive Plan, and 1,306,770 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 no stock options granted during thequarters ended April 1, 2010 and April 2, 2009.  During thequarter ended April 2, 2009, the Company recognized less than $0.1 millionof share-based compensation expense related to stock options.  Such expense is presented as a component of “Generaland administrative expenses.”  Noshare-based compensation expense was recognized during the quarter ended April 1,2010.

 

We receive a tax deduction for certain stock optionexercises during the period the options are exercised, generally for the excessof the price at which the stock is sold over the exercise price of theoptions.  We are required to report excess tax benefits from the award ofequity instruments as financing cash flows.  Excess tax benefits arerecorded when a deduction reported for tax return purposes for an award ofequity instruments exceeds the cumulative compensation cost for the instrumentsrecognized for financial reporting purposes. For the quarter ended April 1,2010, our unaudited condensed consolidated statement of cash flows reflectsless than $0.1 million of excess tax benefits as financing cashflows. Net cash proceeds from the exercise of stock options were$0.5 million for the quarter ended April 1, 2010. The actual incometax benefit realized from stock option exercises was approximately$0.1 million for the same period.  There were no exercises of stockoptions during the quarter ended April 2, 2009.

 

The following table represents stock option activityfor the quarter ended April 1, 2010:

 
| ** **                                   | ** ** | **Number of  Shares** | ** ** | **Weighted Average  Exercise Price** | ** ** | **Weighted Average  Contract Life (Yrs.)** | ** ** |
|----------------------------------------------|------------|----------------------------|------------|------------------------------------------------|------------|-----------------------------------------------------------|------------|
| Outstanding options at  beginning of quarter |       | 569,757                    |       | $                                              | 9.43       |                                                      | 2.78       |   |
| Granted                                      |       | —                     |       | —                                         |       |                                                      |       |
| Exercised                                    |       | (41,828                    | )          | 12.23                                          |       |                                                      |       |
| Forfeited                                    |       | —                     |       | —                                         |       |                                                      |       |
| Outstanding options at  end of quarter       |       | 527,929                    |       | 9.21                                           |       | 2.56                                                      |       |
| Exercisable options at  end of quarter       |       | 527,929                    |       | 9.21                                           |       | 2.56                                                      |       |
|                                              |            |                            |            |                                                |            |                                                           |            |  |

 

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*Restricted Stock*

 

As described in Note 9 to the 2009 AuditedConsolidated Financial Statements, the Company maintains the Incentive Planwhich provides for restricted stock awards to officers, directors and keyemployees. Under the Incentive Plan, shares of Class A common stock of theCompany may be granted at nominal cost to officers, directors and keyemployees, subject to a continued employment restriction.  On January 13,2010, 289,679 restricted shares were granted under the Incentive Plan atnominal cost to officers, directors and key employees.  These awards vest 25% at the end of each yearfor four years in the case of officers and key employees and vest 100% at theend of one year in the case of directors. The closing price of our Class Acommon stock on the date of this grant was $14.72 per share.

 

During the quarter ended April 1, 2010, theCompany withheld approximately 61,266 shares of restricted stock at anaggregate cost of approximately $0.9 million, as permitted by the applicableequity award agreements, to satisfy employee tax withholding requirementsrelated to the vesting of 279,680 restricted stock awards.

 

During each of the quarters ended April 1, 2010and April 2, 2009, the Company recognized approximately $1.1 million and$0.9 million, respectively, of share-based compensation expense related torestricted share grants. Such expense is presented as a component of “Generaland administrative expenses.” The compensation expense for these awardswas determined based on the market price of our stock at the date of grantapplied to the total numbers of shares that were anticipated to fullyvest.  As of April 1, 2010, we have unrecognized compensation expenseof $10.4 million associated with restricted stock awards.

 

The following table represents the restricted stockactivity for the quarter ended April 1, 2010:

 

| ** **                        | ** ** | **Quarter  Ended  April 1, 2010** | ** ** |
|-----------------------------------|------------|----------------------------------------|------------|
| Unvested at beginning  of quarter |       | 971,568                                |       |
| Granted during the  quarter       |       | 289,679                                |       |
| Vested during the  quarter        |       | (279,680                               | )          |
| Forfeited during the  quarter     |       | (1,040                                 | )          |
| Unvested at end of  quarter       |       | 980,527                                |       |

 

During each of the quarters ended April 1, 2010and April 2, 2009, the Company paid one cash dividend of $0.18 on eachshare of outstanding restricted stock totaling approximately $0.2 million.

 

*Performance Share Units*

 

The Incentive Plan also provides for grants in theform of performance share units to officers, directors and key employees.Performance share agreements are entered into between the Company and eachgrantee of performance share units (each a “Performance Agreement”).  Our2006 Performance 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 2009 Audited Consolidated FinancialStatements.

 

In 2009, we adopted an amended and restated form ofPerformance Agreement.  On January 13, 2010, 311,953 performanceshares were granted under our Incentive Plan at nominal cost to officers andkey employees. Under the 2009 Performance Agreement, which is described in thesection entitled “Compensation Discussion and Analysis — Elements ofCompensation — Performance Shares,” of our 2009 proxy statement, eachperformance share represents the right to receive from 0% to 150% of the targetnumbers of shares of restricted Class A common stock. The number of sharesof restricted common stock earned will be determined based on the attainment ofspecified performance goals by January 13, 2013 (the third anniversary ofthe grant date) set forth in the Performance Agreement.  Such performance shares vest on January 13,2014 (the fourth anniversary of the grant date).  The shares are subject to the terms andconditions of the Incentive Plan. The closing price of our Class A commonstock on the date of this grant was $14.72 per share which approximates thegrant date for fair value of the awards.

 

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Pursuant to the terms and conditions of the 2006 and2009 Performance Agreements, grantees will be issued shares of restrictedcommon stock of the Company in an amount determined by the attainment ofCompany performance criteria set forth in such Performance Agreement. Theshares of restricted common stock received upon attainment of the performancecriteria will be subject to further vesting over a period of time, provided thegrantee remains a service provider to the Company during such period.

 

During the quarters ended April 1, 2010 and April 2,2009, the Company recognized approximately $0.4 million and $0.7 million,respectively, of share-based compensation expense related to performance sharegrants.  Such expense is presented as a component of “General andadministrative expenses.”

 

The following table summarizes information about theCompany’s number of performance shares for the quarter ended April 1,2010:

 
| ** **                        | ** ** | **Quarter  Ended  April 1, 2010** | ** ** |
|-----------------------------------|------------|----------------------------------------|------------|
| Unvested at beginning  of quarter |       | 999,330                                |       |
| Granted (based on  target)        |       | 311,953                                |       |
| Cancelled/forfeited               |       | (1,930                                 | )          |
| Unvested at end of  quarter       |       | 1,309,353                              |       |

 

The above table does not reflect the maximum orminimum number of shares of restricted stock contingently issuable. Anadditional 0.8 million shares of restricted stock could be issued providing theperformance criteria maximums are met.

 

**6. COMMITMENTS AND CONTINGENCIES**

 

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

 

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

 

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

 

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

 

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We and certain of our subsidiary corporations are alsopresently involved in various legal proceedings arising in the ordinary courseof our business operations, including, but not limited to, personal injuryclaims, employment and contractual matters. We believe we have adequatelyprovided for the settlement of such matters. Management believes any additionalliability with respect to these claims and disputes will not be material in theaggregate to our consolidated financial position, results of operations or cashflows.

 

**7. RELATED PARTY TRANSACTIONS**

 

During each of the quarters ended April 1, 2010and April 2, 2009, Regal Cinemas incurred less than $0.1 million ofexpenses payable to Anschutz affiliates for certain advertising services. Alsoduring the quarters ended April 1, 2010 and April 2, 2009, RegalCinemas received less than $0.1 million from an Anschutz affiliate forrent and other expenses related to a theatre facility.

 

During fiscal 2006, Regal entered into a managementagreement with an Anschutz affiliate to manage a Los Angeles, Californiatheatre site on their behalf.  Duringfiscal 2009, the ultimate financial terms of the management agreement were approvedby the Company’s board of directors, which included a management fee payable toRegal based on a percentage of revenues generated by the theatre, subject to aminimum annual fee payable to Regal. The theatre opened in October 2009.During the quarter ended April 1, 2010, the Company received approximately$0.1 million from the Anschutz affiliate for management fees related tothe theatre site. Finally, as of December 31, 2009, the Company was dueapproximately $0.6 million from the Anschutz affiliate related to certainreimbursable costs (primarily pre-opening costs) associated with thetheatre.   This amount was paid to Regalduring the quarter ended April 1, 2010.

 

**8. EARNINGS PER SHARE**

 

We compute earnings per share of Class A and Class Bcommon stock using the two-class method. Basic earnings per share is computedusing the weighted average number of common shares outstanding during theperiod. Diluted earnings per share is computed using the weighted averagenumber of common shares and, if dilutive, common stock equivalents outstanding duringthe period. Potential common stock equivalents consist of the incrementalcommon shares issuable upon the exercise of common stock options, restrictedstock and performance shares, the assumed conversion of the 61⁄4% ConvertibleSenior Notes and the 2008 Warrant issued in connection with the 61⁄4% ConvertibleSenior Notes. The dilutive effect of outstanding stock options, restrictedshares and performance shares and the 2008 Warrant issued in connection withthe 61⁄4% Convertible Senior Notes is reflected in diluted earnings per share byapplication of the treasury-stock method. The dilutive effect of assumedconversion of the 61⁄4% Convertible Senior Notes is reflected in diluted earningsper share by application of the if-converted method. In addition, the computationof the diluted earnings per share of Class A common stock assumes theconversion of Class B common stock, while the diluted earnings per shareof Class B common stock does not assume the conversion of those shares.

 

The rights, including the liquidation and dividendrights, of the holders of our Class A and Class B common stock areidentical, except with respect to voting. The undistributed earnings for theperiods presented are allocated based on the contractual participation rightsof the Class A and Class B common shares as if the earnings for theperiods presented had been distributed. As the liquidation and dividend rightsare identical, the undistributed earnings are allocated on a proportionatebasis. Further, as we assume the conversion of Class B common stock in thecomputation of the diluted earnings per share of Class A common stock, theundistributed earnings are equal to net income attributable to controllinginterest for that computation.

 

The following table sets forth the computation ofbasic and diluted earnings per share of Class A and Class B commonstock (in millions, except share and per share data):

 

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| ** **                                                                                                | ** ** | **Quarter ended  April 1, 2010** | ** ** | **Quarter ended  April 2, 2009** | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                                | ** ** | **Class A**                           | ** ** | **Class B**                           | ** ** | **Class A** | ** ** | **Class B** | ** ** |
| Basic earnings per  share:                                                                                |       |                                       |       |                                       |       |   |   |   |   |
| Numerator:                                                                                                |       |                                       |       |                                       |       |   |   |   |   |
| Allocation of  undistributed earnings                                                                     |       | $                                          | 13.9       |                                       | $          | 2.6 |   | $ | 18.0 |   | $ | 3.3 |   |
| Denominator:                                                                                              |       |                                       |       |                                       |       |   |   |   |   |
| Weighted average common  shares outstanding (in thousands)                                                |       | 129,655                                    |       | 23,709                                     |       | 129,336 |   | 23,709 |   |
| Basic earnings per  share                                                                                 |       | $                                          | 0.11       |                                       | $          | 0.11 |   | $ | 0.14 |   | $ | 0.14 |   |
| Diluted earnings per  share:                                                                              |       |                                       |       |                                       |       |   |   |   |   |
| Numerator:                                                                                                |       |                                       |       |                                       |       |   |   |   |   |
| Allocation of  undistributed earnings for basic computation                                               |       | $                                          | 13.9       |                                       | $          | 2.6 |   | $ | 18.0 |   | $ | 3.3 |   |
| Reallocation of  undistributed earnings as a result of conversion of Class B to  Class A shares |       | 2.6                                        |       | —                                     |       | 3.3 |   | — |   |
| Reallocation of  undistributed earnings to Class B shares for effect of other dilutive securities    |       | —                                     |       | —                                     |       | — |   | — |   |
| Interest expense on 61⁄4%  Convertible Senior Notes                                                    |       | —                                     | (1)        | —                                     |       | — | (1) | — |   |
| Allocation of  undistributed earnings                                                                     |       | $                                          | 16.5       |                                       | $          | 2.6 |   | $ | 21.3 |   | $ | 3.3 |   |
| Denominator:                                                                                              |       |                                       |       |                                       |       |   |   |   |   |
| Number of shares used  in basic computation (in thousands)                                                |       | 129,655                                    |       | 23,709                                     |       | 129,336 |   | 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                                                                                             |       | 171                                        |       | —                                     |       | 123 |   | — |   |
| Restricted stock and  performance shares                                                                  |       | 1,234                                      |       | —                                     |       | 925 |   | — |   |
| Conversion of 61⁄4%  Convertible Senior Notes                                                          |       | —                                     | (1)        | —                                     |       | — | (1) | — |   |
| Number of shares used  in per share computations (in thousands)                                           |       | 154,769                                    |       | 23,709                                     |       | 154,093 |   | 23,709 |   |
| Diluted earnings per  share                                                                               |       | $                                          | 0.11       |                                       | $          | 0.11 |   | $ | 0.14 |   | $ | 0.14 |   |

 

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(1)                                  No amountreported as the impact on earnings per share of Class A common stock wouldhave been antidilutive.

 

**9. RECENT ACCOUNTING PRONOUNCEMENTS**

 

During June 2009, the FASB issued SFAS No. 167,Amendments to FASB Interpretation No. 46(R) which is to be adopted asof the beginning of its first annual reporting period that begins after November 15,2009, and interim and annual reporting periods thereafter. SFAS No. 167amends FASB Interpretation No. 46(R), Consolidation of Variable InterestEntities an interpretation of ARB No. 51 (“FIN 46(R)”) to require anenterprise to perform an analysis to determine whether the enterprise’svariable interest or interests give it a controlling financial interest in avariable interest entity. This analysis identifies the primary beneficiary of avariable interest entity as the enterprise that has both of the followingcharacteristics:

 

a.               The power to direct the activities of a variableinterest entity that most significantly impact the entity’s economicperformance; and

 

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b.              The obligation to absorb losses of the entity thatcould potentially be significant to the variable interest entity or the rightto receive benefits from the entity that could potentially be significant tothe variable interest entity.

 

Additionally, an enterprise is required to assesswhether it has an implicit financial responsibility to ensure that a variableinterest entity operates as designed when determining whether it has the powerto direct the activities of the variable interest entity that mostsignificantly impact the entity’s economic performance. SFAS No. 167amends FIN 46(R) to require ongoing reassessments of whether anenterprise is the primary beneficiary of a variable interest entity. SFAS No. 167amends FIN 46(R) to add an additional reconsideration event fordetermining whether an entity is a variable interest entity when any changes infacts and circumstances occur such that the holders of the equity investment atrisk, as a group, lose the power from voting rights or similar rights of thoseinvestments to direct the activities of the entity that most significantlyimpact the entity’s economic performance. SFAS No. 167 amends FIN 46(R) torequire enhanced disclosures that will provide users of financial statementswith more transparent information about an enterprise’s involvement in avariable interest entity. The enhanced disclosures are required for anyenterprise that holds a variable interest in a variable interest entity. Theadoption of SFAS No. 167 had no impact on the Company’s consolidatedfinancial position, cash flows and results of operations.

 

In January 2010, the FASB issued AccountingStandards Update (“ASU”) No. 2010-06, *FairValue Measurements and Disclosures (Topic 820)—Improving Disclosures about FairValue Measurements*, (“ASU 2010-06”). This Update provides a greaterlevel of disaggregated information and enhanced disclosures about valuationtechniques and inputs to fair value measurements. ASU 2010-06 is effective forinterim and annual reporting periods beginning after December 15, 2009 andis effective for the Company as of April 1, 2010 except for certaindisclosure requirements.  Disclosuresabout purchases, sales, issuances, and settlements in the roll forward ofactivity in Level 3 fair value measurements are effective for fiscal yearsbeginning after December 15, 2010, and for interim periods within thosefiscal years and is effective for the Company as of the beginning of fiscal2011.

 

**10. FAIR VALUE OF FINANCIALINSTRUMENTS**

 

The methods and assumptions used to estimate the fairvalue of each class of financial instrument (see Note 3—“Debt Obligations”for discussion of the Company’s interest rate swap arrangements, including fairvalue estimation methods and assumptions) are as follows:

 

*Cash and cash equivalents, accountsreceivable, accounts payable and accrued liabilities:*

 

The carrying amounts approximate fair value because ofthe short maturity of these instruments.

 

*Long term obligations, excludingcapital lease obligations and lease financing arrangements:*

 

The fair value of the Amended Senior Credit Facilitydescribed in Note 3—“Debt Obligations,” which consists of the TermFacility and the Revolving Facility, is estimated based on quoted prices(Level 2 inputs as described in ASC Topic 820) as of April 1, 2010and December 31, 2009. The associated interest rates are based on floatingrates identified by reference to market rates and are assumed to approximatefair value. The fair values of the 85/8% Senior Notes and the 61⁄4% Convertible Senior Notesare estimated based on quoted prices (Level 1 inputs as described in ASCTopic 820) for these issuances as of April 1, 2010 and December 31,2009. The fair value of the Senior Subordinated Notes is estimated based onquoted prices (Level 2 inputs as described in ASC Topic 820) for thisissuance as of April 1, 2010 and December 31, 2009.  The aggregate carrying amounts and fairvalues of long-term debt at April 1, 2010 and December 31, 2009consist of the following:

 
| ** **      | ** ** | **April 1, 2010** | ** ** | **December 31, 2009** | ** ** |
|-----------------|------------|------------------------|------------|----------------------------|------------|
| ** **      | ** ** | **(In millions)**      | ** ** |
| Carrying amount |       | $                      | 1,900.3    |                       | $          | 1,902.2 |   |
| Fair value      |       | $                      | 1,938.1    |                       | $          | 1,923.1 |   |

 

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**11. SUBSEQUENT EVENTS**

 

On April 29, 2010, the Company declared a cashdividend of $0.18 per share on each share of the Company’s Class A and Class Bcommon stock (including outstanding restricted stock), payable on June 15,2010, to stockholders of record on June 3, 2010.

 

**12. CONDENSED CONSOLIDATING FINANCIALINFORMATION**

 

On July 15, 2009, Regal Cinemas issued $400.0million in aggregate principal amount of the 85/8% Senior Notes.  The 85/8% Senior Notes are fully and unconditionallyguaranteed on a joint and several senior unsecured basis by Regal and all ofRegal Cinemas’ existing and future domestic restricted subsidiaries thatguarantee Regal Cinemas’ other indebtedness (the “Subsidiary Guarantors”).

 

The following condensed consolidating financialinformation, which has been prepared in accordance with the requirements forpresentation of Rule 3-10(d) of Regulation S-X promulgated by theCommission, presents the condensed consolidating financial informationseparately for:

 

(i)             Regal, which is a guarantor of the 85/8% SeniorNotes;

 

(ii)          Regal Cinemas, which is the issuer of the 85/8% SeniorNotes;

 

(iii)       The Subsidiary Guarantors, on a combined basis, whichare guarantors of the 85/8%Senior Notes;

 

(iv)      The non-guarantor subsidiaries, on a combined basis,which are not guarantors of the 85/8% Senior Notes;

 

(v)   Consolidating entries and eliminationsrepresenting adjustments to (a) eliminate intercompany transactionsbetween or among Regal, Regal Cinemas, the Subsidiary Guarantors and thenon-guarantor subsidiaries, (b) eliminate the investments in oursubsidiaries and (c) record consolidating entries; and

 

(vi)      Regal and its subsidiaries on a consolidated basis.

 

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**CONDENSEDCONSOLIDATING BALANCE SHEET INFORMATION**

**APRIL 1,2010**

**(inmillions)**

 
| ** **                                                        | ** ** | **Regal** | ** ** | **Regal  Cinemas** | ** ** | **Subsidiary  Guarantors** | ** ** | **Non-  Guarantor  Subsidiaries** | ** ** | **Consolidating  Adjustments** | ** ** | **Consolidated** | ** ** |
|-------------------------------------------------------------------|------------|-----------|------------|--------------------|------------|----------------------------|------------|-----------------------------------|------------|--------------------------------|------------|------------------|------------|
| **ASSETS**                                                        |       |      |       |               |       |                       |       |                              |       |                           |       |             |       |
| CURRENT ASSETS:                                                   |       |      |       |               |       |                       |       |                              |       |                           |       |             |       |
| Cash and cash  equivalents                                        |       | $         | —     |               | $          | —                     |       | $                                 | 270.8      |                           | $          | 50.8             |       | $ | — |   | $ | 321.6 |   |
| Trade and other receivables,  net                                 |       | —    |       | —             |       | 20.8                       |       | 1.2                               |       | —                         |       | 22.0             |       |
| Other current assets                                              |       | —    |       | —             |       | 29.6                       |       | 6.9                               |       | —                         |       | 36.5             |       |
| TOTAL CURRENT ASSETS                                              |       | —    |       | —             |       | 321.2                      |       | 58.9                              |       | —                         |       | 380.1            |       |
| Property and equipment,  net                                      |       | —    |       | —             |       | 1,725.4                    |       | 49.8                              |       | (12.3                          | )          | 1,762.9          |       |
| Goodwill                                                          |       | —    |       | —             |       | 171.7                      |       | 7.1                               |       | —                         |       | 178.8            |       |
| Intangible assets, net                                            |       | —    |       | —             |       | 10.8                       |       | —                            |       | —                         |       | 10.8             |       |
| Deferred income tax  asset                                        |       | 2.1       |       | —             |       | 107.9                      |       | —                            |       | (23.3                          | )          | 86.7             |       |
| Other non-current  assets                                         |       | 1.5       |       | 1,599.5            |       | 319.1                      |       | 67.2                              |       | (1,817.7                       | )          | 169.6            |       |
| TOTAL ASSETS                                                      |       | $         | 3.6        |               | $          | 1,599.5                    |       | $                                 | 2,656.1    |                           | $          | 183.0            |       | $ | (1,853.3 | ) | $ | 2,588.9 |   |
|                                                              |       |      |       |               |       |                       |       |                              |       |                           |       |             |       |
| **LIABILITIES  AND EQUITY (DEFICIT)**                             |       |      |       |               |       |                       |       |                              |       |                           |       |             |       |
| CURRENT LIABILITIES:                                              |       |      |       |               |       |                       |       |                              |       |                           |       |             |       |
| Current portion of debt  obligations                              |       | $         | 195.7      |               | $          | 13.0                       |       | $                                 | —     |                           | $          | 13.4             |       | $ | (5.8 | ) | $ | 216.3 |   |
| Accounts payable                                                  |       | 0.1       |       | —             |       | 146.5                      |       | 9.6                               |       | —                         |       | 156.2            |       |
| Accrued expenses and  other liabilities                           |       | 67.4      |       | 8.5                |       | 158.6                      |       | 8.7                               |       | (66.7                          | )          | 176.5            |       |
| TOTAL CURRENT  LIABILITIES                                        |       | 263.2     |       | 21.5               |       | 305.1                      |       | 31.7                              |       | (72.5                          | )          | 549.0            |       |
| Long-term debt, less  current portion                             |       | —    |       | 1,691.6            |       | 0.1                        |       | —                            |       | —                         |       | 1,691.7          |       |
| Lease financing  arrangements, less current portion               |       | —    |       | —             |       | 70.6                       |       | —                            |       | —                         |       | 70.6             |       |
| Capital lease  obligations, less current portion                  |       | —    |       | —             |       | 12.9                       |       | 1.4                               |       | —                         |       | 14.3             |       |
| Deferred income tax  liability                                    |       | —    |       | —             |       | —                     |       | 23.3                              |       | (23.3                          | )          | —           |       |
| Other liabilities                                                 |       | —    |       | 0.1                |       | 496.0                      |       | 27.9                              |       | —                         |       | 524.0            |       |
| TOTAL LIABILITIES                                                 |       | 263.2     |       | 1,713.2            |       | 884.7                      |       | 84.3                              |       | (95.8                          | )          | 2,849.6          |       |
| EQUITY (DEFICIT):                                                 |       |      |       |               |       |                       |       |                              |       |                           |       |             |       |
| Stockholders’ equity  (deficit) of Regal Entertainment Group |       | (259.6    | )          | (113.7             | )          | 1,772.7                    |       | 98.5                              |       | (1,757.5                       | )          | (259.6           | )          |
| Noncontrolling interest                                           |       | —    |       | —             |       | (1.3                       | )          | 0.2                               |       | —                         |       | (1.1             | )          |
| TOTAL EQUITY (DEFICIT)                                            |       | (259.6    | )          | (113.7             | )          | 1,771.4                    |       | 98.7                              |       | (1,757.5                       | )          | (260.7           | )          |
| TOTAL LIABILITIES  AND  EQUITY (DEFICIT)                     |       | $         | 3.6        |               | $          | 1,599.5                    |       | $                                 | 2,656.1    |                           | $          | 183.0            |       | $ | (1,853.3 | ) | $ | 2,588.9 |   |

 

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**CONDENSEDCONSOLIDATING BALANCE SHEET INFORMATION**

**DECEMBER31, 2009**

**(inmillions)**

 
| ** **                                                        | ** ** | **REG  Parent  Company** | ** ** | **RCC  Parent  Company** | ** ** | **Subsidiary  Guarantors** | ** ** | **Subsidiary  Non-Guarantors** | ** ** | **Consolidating  Adjustments** | ** ** | **Consolidated** | ** ** |
|-------------------------------------------------------------------|------------|--------------------------|------------|--------------------------|------------|----------------------------|------------|--------------------------------|------------|--------------------------------|------------|------------------|------------|
| **ASSETS**                                                        |       |                     |       |                     |       |                       |       |                           |       |                           |       |             |       |
| CURRENT ASSETS:                                                   |       |                     |       |                     |       |                       |       |                           |       |                           |       |             |       |
| Cash and cash  equivalents                                        |       | $                        | —     |                     | $          | —                     |       | $                              | 267.7      |                           | $          | 60.4             |       | $ | — |   | $ | 328.1 |   |
| Trade and other  receivables, net                                 |       | —                   |       | —                   |       | 66.9                       |       | 2.1                            |       | —                         |       | 69.0             |       |
| Other current assets                                              |       | —                   |       | 6.7                      |       | 15.2                       |       | 1.7                            |       | 8.2                            |       | 31.8             |       |
| TOTAL CURRENT ASSETS                                              |       | —                   |       | 6.7                      |       | 349.8                      |       | 64.2                           |       | 8.2                            |       | 428.9            |       |
| Property and equipment,  net                                      |       | —                   |       | —                   |       | 1,778.2                    |       | 52.8                           |       | (12.3                          | )          | 1,818.7          |       |
| Goodwill and other  intangible assets                             |       | —                   |       | —                   |       | 183.4                      |       | 7.1                            |       | —                         |       | 190.5            |       |
| Deferred income tax  asset                                        |       | 1.8                      |       | —                   |       | 104.3                      |       | —                         |       | (28.0                          | )          | 78.1             |       |
| Other non-current  assets                                         |       | 1.9                      |       | 1,638.3                  |       | 218.1                      |       | 59.5                           |       | (1,796.3                       | )          | 121.5            |       |
| TOTAL ASSETS                                                      |       | $                        | 3.7        |                     | $          | 1,645.0                    |       | $                              | 2,633.8    |                           | $          | 183.6            |       | $ | (1,828.4 | ) | $ | 2,637.7 |   |
|                                                              |       |                     |       |                     |       |                       |       |                           |       |                           |       |             |       |
| **LIABILITIES  AND EQUITY (DEFICIT)**                             |       |                     |       |                     |       |                       |       |                           |       |                           |       |             |       |
| CURRENT LIABILITIES:                                              |       |                     |       |                     |       |                       |       |                           |       |                           |       |             |       |
| Current portion of debt  obligations                              |       | $                        | —     |                     | $          | 9.8                        |       | $                              | —     |                           | $          | 13.1             |       | $ | (5.8 | ) | $ | 17.1 |   |
| Accounts payable                                                  |       | 0.3                      |       | —                   |       | 185.0                      |       | 13.2                           |       | —                         |       | 198.5            |       |
| Accrued expenses and  other liabilities                           |       | 54.9                     |       | 17.8                     |       | 153.6                      |       | 5.9                            |       | (51.3                          | )          | 180.9            |       |
| TOTAL CURRENT  LIABILITIES                                        |       | 55.2                     |       | 27.6                     |       | 338.6                      |       | 32.2                           |       | (57.1                          | )          | 396.5            |       |
| Long-term debt, less  current portion                             |       | 194.6                    |       | 1,697.8                  |       | 0.2                        |       | —                         |       | —                         |       | 1,892.6          |       |
| Lease financing  arrangements, less current portion               |       | —                   |       | —                   |       | 72.0                       |       | —                         |       | —                         |       | 72.0             |       |
| Capital lease  obligations, less current portion                  |       | —                   |       | —                   |       | 13.9                       |       | 1.5                            |       | —                         |       | 15.4             |       |
| Deferred income tax  liability                                    |       | —                   |       | —                   |       | —                     |       | 19.8                           |       | (19.8                          | )          | —           |       |
| Other liabilities                                                 |       | —                   |       | 17.0                     |       | 462.2                      |       | 28.9                           |       | —                         |       | 508.1            |       |
| TOTAL LIABILITIES                                                 |       | 249.8                    |       | 1,742.4                  |       | 886.9                      |       | 82.4                           |       | (76.9                          | )          | 2,884.6          |       |
| EQUITY (DEFICIT):                                                 |       |                     |       |                     |       |                       |       |                           |       |                           |       |             |       |
| Stockholders’ equity  (deficit) of Regal Entertainment Group |       | (246.1                   | )          | (97.4                    | )          | 1,748.0                    |       | 100.9                          |       | (1,751.5                       | )          | (246.1           | )          |
| Noncontrolling interest                                           |       | —                   |       | —                   |       | (1.1                       | )          | 0.3                            |       | —                         |       | (0.8             | )          |
| TOTAL EQUITY (DEFICIT)                                            |       | (246.1                   | )          | (97.4                    | )          | 1,746.9                    |       | 101.2                          |       | (1,751.5                       | )          | (246.9           | )          |
| TOTAL LIABILITIES AND  EQUITY (DEFICIT)                           |       | $                        | 3.7        |                     | $          | 1,645.0                    |       | $                              | 2,633.8    |                           | $          | 183.6            |       | $ | (1,828.4 | ) | $ | 2,637.7 |   |

 

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**CONDENSEDCONSOLIDATING STATEMENT OF INCOME INFORMATION**

**QUARTERENDED APRIL 1, 2010**

**(inmillions)**

 
| ** **                                               | ** ** | **Regal** | ** ** | **Regal   Cinemas** | ** ** | **Subsidiary  Guarantors** | ** ** | **Non-  Guarantor Subsidiaries** | ** ** | **Consolidating  Adjustments** | ** ** | **Consolidated** | ** ** |
|----------------------------------------------------------|------------|-----------|------------|--------------------------|------------|----------------------------|------------|----------------------------------|------------|--------------------------------|------------|------------------|------------|
| REVENUES                                                 |       | $         | —     |                     | $          | —                     |       | $                                | 665.4      |                           | $          | 55.9             |       | $ | (1.5 | ) | $ | 719.8 |   |
| OPERATING EXPENSES:                                      |       |      |       |                     |       |                       |       |                             |       |                           |       |             |       |
| Film rental and  advertising costs                       |       | —    |       | —                   |       | 247.1                      |       | 19.6                             |       | —                         |       | 266.7            |       |
| Cost of concessions                                      |       | —    |       | —                   |       | 24.2                       |       | 2.5                              |       | —                         |       | 26.7             |       |
| Rent expense                                             |       | —    |       | —                   |       | 84.8                       |       | 9.9                              |       | —                         |       | 94.7             |       |
| Other operating  expenses                                |       | —    |       | —                   |       | 180.0                      |       | 18.9                             |       | —                         |       | 198.9            |       |
| General and  administrative expenses                     |       | 0.1       |       | —                   |       | 15.6                       |       | 1.7                              |       | (1.5                           | )          | 15.9             |       |
| Depreciation and  amortization                           |       | —    |       | —                   |       | 53.1                       |       | 3.1                              |       | —                         |       | 56.2             |       |
| Net loss on disposal  and impairment of operating assets |       | —    |       | —                   |       | 10.3                       |       | 2.8                              |       | —                         |       | 13.1             |       |
| TOTAL OPERATING  EXPENSES                                |       | 0.1       |       | —                   |       | 615.1                      |       | 58.5                             |       | (1.5                           | )          | 672.2            |       |
| INCOME (LOSS) FROM  OPERATIONS                           |       | (0.1      | )          | —                   |       | 50.3                       |       | (2.6                             | )          | —                         |       | 47.6             |       |
| OTHER EXPENSE (INCOME):                                  |       |      |       |                     |       |                       |       |                             |       |                           |       |             |       |
| Interest expense, net                                    |       | 4.7       |       | 29.2                     |       | 1.9                        |       | 0.2                              |       | —                         |       | 36.0             |       |
| Earnings recognized  from NCM                            |       | —    |       | —                   |       | (16.7                      | )          | —                           |       | —                         |       | (16.7            | )          |
| Other, net                                               |       | (19.2     | )          | (36.8                    | )          | (20.2                      | )          | —                           |       | 77.0                           |       | 0.8              |       |
| TOTAL OTHER EXPENSE  (INCOME), NET                       |       | (14.5     | )          | (7.6                     | )          | (35.0                      | )          | 0.2                              |       | 77.0                           |       | 20.1             |       |
| INCOME (LOSS) BEFORE  INCOME TAXES                       |       | 14.4      |       | 7.6                      |       | 85.3                       |       | (2.8                             | )          | (77.0                          | )          | 27.5             |       |
| PROVISION FOR (BENEFIT  FROM) INCOME TAXES               |       | (1.9      | )          | (11.6                    | )          | 25.3                       |       | (0.7                             | )          | —                         |       | 11.1             |       |
| NET INCOME (LOSS)                                        |       | 16.3      |       | 19.2                     |       | 60.0                       |       | (2.1                             | )          | (77.0                          | )          | 16.4             |       |
| NONCONTROLLING  INTEREST, NET OF TAX                     |       | —    |       | —                   |       | 0.1                        |       | —                           |       | —                         |       | 0.1              |       |
| NET INCOME (LOSS)  ATTRIBUTABLE TO CONTROLLING INTEREST  |       | $         | 16.3       |                     | $          | 19.2                       |       | $                                | 60.1       |                           | $          | (2.1             | )          | $ | (77.0 | ) | $ | 16.5 |   |

 

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**CONDENSEDCONSOLIDATING STATEMENT OF INCOME INFORMATION**

**QUARTERENDED APRIL 2, 2009**

**(inmillions)**

 
| ** **                                                      | ** ** | **Regal** | ** ** | **Regal  Cinemas** | ** ** | **Subsidiary  Guarantors** | ** ** | **Non-  Guarantor Subsidiaries** | ** ** | **Consolidating  Adjustments** | ** ** | **Consolidated** | ** ** |
|-----------------------------------------------------------------|------------|-----------|------------|--------------------|------------|----------------------------|------------|----------------------------------|------------|--------------------------------|------------|------------------|------------|
| REVENUES                                                        |       | $         | —     |               | $          | —                     |       | $                                | 613.0      |                           | $          | 54.2             |       | $ | (1.6 | ) | $ | 665.6 |   |
| OPERATING EXPENSES:                                             |       |      |       |               |       |                       |       |                             |       |                           |       |             |       |
| Film rental and  advertising costs                              |       | —    |       | —             |       | 211.6                      |       | 18.1                             |       | —                         |       | 229.7            |       |
| Cost of concessions                                             |       | —    |       | —             |       | 21.8                       |       | 2.2                              |       | —                         |       | 24.0             |       |
| Rent expense                                                    |       | —    |       | —             |       | 83.4                       |       | 9.5                              |       | —                         |       | 92.9             |       |
| Other operating  expenses                                       |       | —    |       | —             |       | 168.2                      |       | 17.7                             |       | —                         |       | 185.9            |       |
| General and  administrative expenses                            |       | 0.1       |       | —             |       | 15.0                       |       | 1.8                              |       | (1.6                           | )          | 15.3             |       |
| Depreciation and  amortization                                  |       | —    |       | —             |       | 46.9                       |       | 3.0                              |       | —                         |       | 49.9             |       |
| Net loss (gain) on  disposal and impairment of operating assets |       | —    |       | —             |       | 3.8                        |       | 1.6                              |       | —                         |       | 5.4              |       |
| TOTAL OPERATING  EXPENSES                                       |       | 0.1       |       | —             |       | 550.7                      |       | 53.9                             |       | (1.6                           | )          | 603.1            |       |
| INCOME (LOSS) FROM  OPERATIONS                                  |       | (0.1      | )          | —             |       | 62.3                       |       | 0.3                              |       | —                         |       | 62.5             |       |
| OTHER EXPENSE (INCOME):                                         |       |      |       |               |       |                       |       |                             |       |                           |       |             |       |
| Interest expense, net                                           |       | 4.7       |       | 30.1               |       | 2.4                        |       | (0.1                             | )          | 0.1                            |       | 37.2             |       |
| Earnings recognized  from NCM                                   |       | —    |       | —             |       | (10.6                      | )          | —                           |       | —                         |       | (10.6            | )          |
| Other, net                                                      |       | (24.1     | )          | (54.4              | )          | (16.0                      | )          | —                           |       | 94.7                           |       | 0.2              |       |
| TOTAL OTHER EXPENSE  (INCOME), NET                              |       | (19.4     | )          | (24.3              | )          | (24.2                      | )          | (0.1                             | )          | 94.8                           |       | 26.8             |       |
| INCOME BEFORE INCOME  TAXES                                     |       | 19.3      |       | 24.3               |       | 86.5                       |       | 0.4                              |       | (94.8                          | )          | 35.7             |       |
| PROVISION FOR (BENEFIT  FROM) INCOME TAXES                      |       | (2.0      | )          | —             |       | 15.9                       |       | 0.5                              |       | —                         |       | 14.4             |       |
| NET INCOME (LOSS)                                               |       | 21.3      |       | 24.3               |       | 70.6                       |       | (0.1                             | )          | (94.8                          | )          | 21.3             |       |
| NONCONTROLLING  INTEREST, NET OF TAX                            |       | —    |       | —             |       | —                     |       | —                           |       | —                         |       | —           |       |
| NET INCOME (LOSS)  ATTRIBUTABLE TO CONTROLLING INTEREST         |       | $         | 21.3       |               | $          | 24.3                       |       | $                                | 70.6       |                           | $          | (0.1             | )          | $ | (94.8 | ) | $ | 21.3 |   |

 

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**CONDENSEDCONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION**

**QUARTERENDED APRIL 1, 2010**

**(inmillions)**

 
| ** **                                            | ** ** | **Regal** | ** ** | **Regal  Cinemas** | ** ** | **Subsidiary  Guarantors** | ** ** | **Non-  Guarantor  Subsidiaries** | ** ** | **Consolidating  Adjustments** | ** ** | **Consolidated** | ** ** |
|-------------------------------------------------------|------------|-----------|------------|--------------------|------------|----------------------------|------------|-----------------------------------|------------|--------------------------------|------------|------------------|------------|
| NET CASH PROVIDED BY  (USED IN) OPERATING ACTIVITIES  |       | $         | (5.8       | )                  | $          | —                     |       | $                                 | 92.1       |                           | $          | (8.4             | )          | $ | — |   | $ | 77.9 |   |
| Cash Flows from  Investing Activities:                |       |      |       |               |       |                       |       |                              |       | —                         |       |             |       |
| Capital expenditures                                  |       | —    |       | —             |       | (19.9                      | )          | (1.2                              | )          | —                         |       | (21.1            | )          |
| Proceeds from  disposition of assets                  |       | —    |       | —             |       | 0.1                        |       | —                            |       | —                         |       | 0.1              |       |
| Investment in DCIP and  other                         |       | —    |       | —             |       | (29.7                      | )          | —                            |       | —                         |       | (29.7            | )          |
| NET CASH USED IN  INVESTING ACTIVITIES                |       | —    |       | —             |       | (49.5                      | )          | (1.2                              | )          |                           |       | (50.7            | )          |
| Cash Flows from  Financing Activities:                |       |      |       |               |       |                       |       |                              |       |                           |       |             |       |
| Cash used to pay  dividends                           |       | (27.8     | )          | —             |       | —                     |       | —                            |       | —                         |       | (27.8            | )          |
| Cash received (paid)  to/from REG Parent Company      |       | 34.0      |       | (34.0              | )          | —                     |       | —                            |       | —                         |       | —           |       |
| Cash received (paid)  to/from subsidiary              |       | —    |       | 34.0               |       | (34.0                      | )          | —                            |       | —                         |       | —           |       |
| Net payments on  long-term obligations                |       | —    |       | —             |       | (5.5                       | )          | —                            |       | —                         |       | (5.5             | )          |
| Cash used to purchase  treasury shares and other      |       | (0.9      | )          | —             |       | —                     |       | —                            |       | —                         |       | (0.9             | )          |
| Proceeds from stock  option exercises                 |       | 0.5       |       | —             |       | —                     |       | —                            |       | —                         |       | 0.5              |       |
| NET CASH PROVIDED BY  (USED IN) FINANCING ACTIVITIES  |       | 5.8       |       | —             |       | (39.5                      | )          | —                            |       | —                         |       | (33.7            | )          |
| NET INCREASE (DECREASE)  IN CASH AND CASH EQUIVALENTS |       | —    |       | —             |       | 3.1                        |       | (9.6                              | )          | —                         |       | (6.5             | )          |
| CASH AND CASH  EQUIVALENTS AT BEGINNING OF PERIOD     |       | —    |       | —             |       | 267.7                      |       | 60.4                              |       | —                         |       | 328.1            |       |
| CASH AND CASH  EQUIVALENTS AT END OF PERIOD           |       | $         | —     |               | $          | —                     |       | $                                 | 270.8      |                           | $          | 50.8             |       | $ | — |   | $ | 321.6 |   |

 

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**CONDENSEDCONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION**

**QUARTERENDED APRIL 2, 2009**

**(inmillions)**

 
| ** **                                            | ** ** | **Regal** | ** ** | **Regal  Cinemas** | ** ** | **Subsidiary  Guarantors** | ** ** | **Non-  Guarantor  Subsidiaries** | ** ** | **Consolidating  Adjustments** | ** ** | **Consolidated** | ** ** |
|-------------------------------------------------------|------------|-----------|------------|--------------------|------------|----------------------------|------------|-----------------------------------|------------|--------------------------------|------------|------------------|------------|
| NET CASH PROVIDED BY  (USED IN) OPERATING ACTIVITIES  |       | $         | (6.2       | )                  | $          | —                     |       | $                                 | 98.3       |                           | $          | (3.7             | )          | $ | — |   | $ | 88.4 |   |
| Cash Flows from  Investing Activities:                |       |      |       |               |       |                       |       |                              |       |                           |       |             |       |
| Capital expenditures                                  |       | —    |       | —             |       | (25.3                      | )          | (2.6                              | )          | —                         |       | (27.9            | )          |
| Proceeds from  disposition of assets                  |       | —    |       | —             |       | 0.2                        |       | 0.2                               |       | —                         |       | 0.4              |       |
| NET CASH USED IN  INVESTING ACTIVITIES                |       | —    |       | —             |       | (25.1                      | )          | (2.4                              | )          | —                         |       | (27.5            | )          |
| Cash Flows from  Financing Activities:                |       |      |       |               |       |                       |       |                              |       |                           |       |             |       |
| Cash used to pay  dividends                           |       | (27.7     | )          | —             |       | —                     |       | —                            |       | —                         |       | (27.7            | )          |
| Cash received (paid)  to/from REG Parent Company      |       | 34.4      |       | (34.4              | )          | —                     |       | —                            |       | —                         |       | —           |       |
| Cash received (paid)  to/from subsidiary              |       | —    |       | 34.4               |       | (34.4                      | )          | —                            |       | —                         |       | —           |       |
| Net payments on  long-term obligations                |       | —    |       | —             |       | (6.2                       | )          | (0.1                              | )          | —                         |       | (6.3             | )          |
| Cash used to purchase  treasury shares and other      |       | (0.5      | )          | —             |       | —                     |       | —                            |       | —                         |       | (0.5             | )          |
| Payment of debt  acquisition costs and other          |       | —    |       | —             |       | (9.6                       | )          | —                            |       | —                         |       | (9.6             | )          |
| NET CASH PROVIDED BY  (USED IN) FINANCING ACTIVITIES  |       | 6.2       |       | —             |       | (50.2                      | )          | (0.1                              | )          | —                         |       | (44.1            | )          |
| NET INCREASE (DECREASE)  IN CASH AND CASH EQUIVALENTS |       | —    |       | —             |       | 23.0                       |       | (6.2                              | )          | —                         |       | 16.8             |       |
| CASH AND CASH  EQUIVALENTS AT BEGINNING OF PERIOD     |       | —    |       | —             |       | 117.1                      |       | 53.1                              |       | —                         |       | 170.2            |       |
| CASH AND CASH  EQUIVALENTS AT END OF PERIOD           |       | $         | —     |               | $          | —                     |       | $                                 | 140.1      |                           | $          | 46.9             |       | $ | — |   | $ | 187.0 |   |

 

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

 

*Some of the information in thisQuarterly Report on Form 10-Q includes “forward-looking**statements”within the meaning of Section 27A of the Securities and Section 21Eof the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Allstatements other than statements of historical facts included in this 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 1, 2010 with the Commission (File No. 001-31315)for the Company’s fiscal year ended December 31, 2009. The followingdiscussion**and analysis should beread in conjunction with the unaudited condensed consolidated financialstatements and notes thereto included herein.*

 

**The Company**

 

We conduct our operations through our wholly ownedsubsidiaries. We operate the largest and most geographically diverse theatrecircuit in the United States, consisting of 6,739 screens in 545 theatres in 38states and the District of Columbia as of April 1, 2010. We believe thesize, reach and quality of our theatre circuit provide an exceptional platformto realize economies of scale from our theatre operations. We also maintain aninvestment in National CineMedia, which concentrates on in-theatre advertisingand creating complementary business lines that leverage the operatingpersonnel, asset and customer bases of its theatrical exhibition partners,which include us, AMC and Cinemark. The Company manages its business under onereportable segment: theatre exhibition operations.

 

We generate revenues primarily from admissions andconcession sales. Additional revenues are generated by our vendor marketingprograms, our gift card and discount ticket programs and various otheractivities in our theatres. In addition, National CineMedia provides us with atheatre access fee associated with revenues generated from its sale ofon-screen advertising, rental of theatres for meetings and concerts and otherevents. Film rental costs depend on a variety of factors including theprospects of a film, the popularity and box office revenues of a film, and suchfilm rental costs generally increase as the admissions revenues generated by afilm increase. Because we purchase certain concession items, such as fountaindrinks and popcorn, in bulk and not pre-packaged for individual servings, weare able to improve our margins by negotiating volume discounts. Otheroperating expenses consist primarily of theatre labor and occupancy costs.

 

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On July 15, 2009, Regal Cinemas issued$400.0 million in aggregate principal amount of the 85/8% SeniorNotes at a price equal to 97.561% of their face value in a transaction exemptfrom registration under the Securities Act. Interest on the 85/8% SeniorNotes is payable semi-annually in arrears on July 15 and January 15of each year, beginning on January 15, 2010. The 85/8% SeniorNotes will mature on July 15, 2019. The net proceeds from the offering,after deducting the initial purchase discount (approximately $9.8 million)and offering expenses paid by the Company, were approximately$381.3 million. The Company used all of the net proceeds of the offeringto repay a portion of the Amended Senior Credit Facility.  As a result of this repayment, the Companyrecorded a loss on debt extinguishment of approximately $7.4 million,representing the pro-rata write off of unamortized debt issue costs under theAmended Senior Credit Facility. See Note 3—”Debt Obligations” for furtherdiscussion of this transaction.

 

On February 12, 2007, we, along with AMC andCinemark formed DCIP, to create a financing model and establish agreements withmajor motion picture studios for the implementation of digital cinema in ourtheatres.  As further described in Note 2—”Investments,”on March 10, 2010, DCIP completed the execution of definitive agreementsand related financing transactions in connection with the conversion to digitalprojection.  As part of the closing, theCompany made the DCIP Contributions.  Inconnection with the contribution of its 200 existing digital projectionsystems, the Company recorded a loss on the contribution of $2.0 million basedon the excess of the carrying value of the digital projection systemscontributed over the $12.6 million fair value of such equipment. Such amounthas been presented as a component of “Net loss on disposal and impairment ofoperating assets” in the accompanying unaudited condensed consolidatedstatement of income for the quarter ended April 1, 2010.  During the quarters ended April 1, 2010and April 2, 2009, the Company recorded losses of $0.8 million and $0.6million, respectively, representing its share of the net loss of DCIP.  Such amounts are presented as a component of “Other,net” in the accompanying unaudited condensed consolidated statements ofincome.  After giving effect to the DCIPContributions, the Company holds a 46.7% economic interest in DCIP as of April 1,2010, while continuing to maintain a one-third voting interest along withAMC and Cinemark.

 

On March 17, 2010, we received from NationalCineMedia approximately 0.3 million newly issued common units of NationalCineMedia.  This adjustment increased the number of National CineMediacommon units held by us to approximately 25.8 million and as a result, ona fully diluted basis, we own a 24.8% interest in NCM, Inc. as of April 1,2010.

 

For a summary of industry trends as well as otherrisks and uncertainties relevant to the Company, see “Business—IndustryOverview and Trends” and “Risk Factors” contained in our annual report on Form 10-Kfor the fiscal year ended December 31, 2009 and “Results of Operations”below.

 

**Results of Operations**

 

Based on our review of industry sources, national boxoffice revenues for the time period that corresponds to Regal’s first fiscalquarter of 2010 were estimated to have increased by approximately 11% incomparison to the first fiscal quarter of 2009. The industry’s box officeresults were positively impacted by ticket price increases, growth inattendance from premium-priced IMAX® and 3D films, including the record-breakingperformance of *Avatar*.

 

Our total revenues for the quarter ended April 1,2010 (“Q1 2010 Period”) were $719.8 million and consisted of$506.0 million of admissions revenues, $185.0 million of concessionsrevenues and $28.8 million of other operating revenues, and increasedapproximately 8.1% from total revenues of $665.6 million for the quarterended April 2, 2009 (“Q1 2009 Period”).

 

Total admissions revenues increased $46.5 millionduring the Q1 2010 Period, or 10.1%, to $506.0 million, from$459.5 million in the Q1 2009 Period primarily due to a 9.2% increase inaverage ticket prices and a 0.7% increase in attendance.  The overall increase in attendance during theQ1 2010 Period was primarily a result of incremental attendance from filmsexhibited in IMAX® and 3D formats, such as *Avatar* and *Alice in Wonderland*. Price increases identified during our ongoing periodic pricing reviews(which include analysis of various factors such as general inflationary trendsand local market conditions) along with an increase in the percentage of ouradmissions revenues generated by premium priced IMAX® and 3D films exhibited during the Q1 2010Period were 

 

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the primary drivers of the increase in our Q1 2010Period average ticket prices. Based on our review of certain industry sources,the 10.7% increase in our admissions revenues on a per screen basis was in linewith the industry’s results for the Q1 2010 Period as compared to Q1 2009Period.

 

During the Q1 2010 Period, we continued to makeprogress with respect to the following strategic initiatives:

 

·                  We demonstrated our commitment to providing incremental value to ourstockholders. Total cash dividends distributed to our stockholders during theQ1 2010 Period totaled approximately $27.8 million.

 

·                  We continued to expand our use of new technologies to enhance themovie-going experience and broaden our content offerings. Specifically, theinstallation of digital projection systems, when combined with 3D technology orIMAX® theatre systems, allow us to offer our patronspremium 3D and large format movie experiences that we believe generateincremental revenue for the Company. As of April 1, 2010, we operated 43IMAX® screens and operated 543 additional screensoutfitted with digital projection systems, 527 of which are digital 3D capable.In addition, we ultimately expect to outfit all of our screens with digitalprojection systems, with at least 1,500 screens being digital 3D capable. 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 motion picture studios.

 

·                  Finally, we closed three underperforming theatres and 29 screens,ending the Q1 2010 Period with 545 theatres and 6,739 screens.

 

The following table sets forth the percentage of totalrevenues represented by certain items included in our consolidated statementsof income for the Q1 2010 Period and the Q1 2009 Period (dollars and attendancein millions, except average ticket prices and average concession per patron):

 
| ** **                                                                                                                                                         | ** ** | **Q1 2010 Period** | ** ** | **Q1 2009 Period** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **                                                                                                                                                         | ** ** | **$**                        | ** ** | **% of  Revenue**       | ** ** | **$** | ** ** | **% of  Revenue** | ** ** |
| Revenues:                                                                                                                                                          |       |                         |       |                         |       |   |   |   |   |
| Admissions                                                                                                                                                         |       | $                            | 506.0      |                         | 70.3       | % | $ | 459.5 |   | 69.0 | % |
| Concessions                                                                                                                                                        |       | 185.0                        |       | 25.7                         |       | 179.4 |   | 27.0 |   |
| Other operating revenue                                                                                                                                            |       | 28.8                         |       | 4.0                          |       | 26.7 |   | 4.0 |   |
| Total revenues                                                                                                                                                     |       | 719.8                        |       | 100.0                        |       | 665.6 |   | 100.0 |   |
| Operating expenses:                                                                                                                                                |       |                         |       |                         |       |   |   |   |   |
| Film rental and  advertising costs(1)                                                                                                                              |       | 266.7                        |       | 52.7                         |       | 229.7 |   | 50.0 |   |
| Cost of concessions(2)                                                                                                                                             |       | 26.7                         |       | 14.4                         |       | 24.0 |   | 13.4 |   |
| Rent expense(3)                                                                                                                                                    |       | 94.7                         |       | 13.2                         |       | 92.9 |   | 14.0 |   |
| Other operating  expenses(3)                                                                                                                                       |       | 198.9                        |       | 27.6                         |       | 185.9 |   | 27.9 |   |
| General and  administrative expenses (including share-based compensation expense of $1.5  and $1.6 for the Q1 2010 Period and the Q1 2009 Period, respectively (3) |       | 15.9                         |       | 2.2                          |       | 15.3 |   | 2.3 |   |
| Depreciation and  amortization(3)                                                                                                                                  |       | 56.2                         |       | 7.8                          |       | 49.9 |   | 7.5 |   |
| Net loss on disposal  and impairment of operating assets(3)                                                                                                        |       | 13.1                         |       | 1.8                          |       | 5.4 |   | 0.8 |   |
| Total operating  expenses(3)                                                                                                                                       |       | 672.2                        |       | 93.4                         |       | 603.1 |   | 90.6 |   |
| Income from operations(3)                                                                                                                                          |       | 47.6                         |       | 6.6                          |       | 62.5 |   | 9.4 |   |
| Interest expense, net(3)                                                                                                                                           |       | 36.0                         |       | 5.0                          |       | 37.2 |   | 5.6 |   |
| Earnings recognized  from NCM(3)                                                                                                                                   |       | (16.7                        | )          | 2.3                          |       | (10.6 | ) | 1.6 |   |
| Provision for income  taxes(3)                                                                                                                                     |       | 11.1                         |       | 1.5                          |       | 14.4 |   | 2.2 |   |
| Net income attributable  to controlling interest(3)                                                                                                                |       | $                            | 16.5       |                         | 2.3        |   | $ | 21.3 |   | 3.2 |   |
| Attendance                                                                                                                                                         |       | 58.6                         |       | *                            |       | 58.2 |   | * |   |
| Average ticket price(4)                                                                                                                                            |       | $                            | 8.63       |                         | *          |   | $ | 7.90 |   | * |   |
| Average concessions  revenues per patron(5)                                                                                                                        |       | $                            | 3.16       |                         | *          |   | $ | 3.08 |   | * |   |

 

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----

*              *Not meaningful*

 

(1)           Percentage of revenues calculated as a percentage ofadmissions 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 2010 Period Compared to Q1 2009 Period***

 

***Admissions***

 

Total admissions revenues increased $46.5 millionduring the Q1 2010 Period, or 10.1%, to $506.0 million, from$459.5 million in the Q1 2009 Period primarily due to a 9.2% increase inaverage ticket prices and a 0.7% increase in attendance.  The overall increase in attendance during theQ1 2010 Period was primarily a result of incremental attendance from filmsexhibited in IMAX® and 3D formats, such as *Avatar*and*Alice in Wonderland*.  Priceincreases identified during our ongoing periodic pricing reviews (which includeanalysis of various factors such as general inflationary trends and localmarket conditions) along with an increase in the percentage of our admissionsrevenues generated by premium priced IMAX® and 3D films exhibited during the Q1 2010Period were the primary drivers of the increase in our Q1 2010 Period averageticket prices. Based on our review of certain industry sources, the 10.7%increase in our admissions revenues on a per screen basis was in line with theindustry’s results for the Q1 2010 Period as compared to Q1 2009 Period.

 

***Concessions***

 

During the Q1 2010 Period, total concessions revenuesincreased $5.6 million, or 3.1%, to $185.0 million, from$179.4 million for the Q1 2009 Period. Average concessions revenues perpatron during the Q1 2010 Period increased 2.6%, to $3.16, from $3.08 for theQ1 2009 Period. The increase in total concessions revenues during the Q1 2010Period was attributable to an increase in average concessions revenues perpatron and a slight increase in attendance during the period. The increase inaverage concessions revenues per patron for the Q1 2010 Period were primarily aresult of price increases and also benefitted from the concession friendly mixof film product exhibited during the Q1 2010 Period.

 

***Other OperatingRevenue***

 

Other operating revenue increased $2.1 million,or 0.8%, to $28.8 million for the Q1 2010 Period, from $26.7 millionfor the Q1 2009 Period. Included in other operating revenue are the theatreaccess fees paid by National CineMedia (net of payments for onscreen advertisingtime provided to our beverage concessionaire), marketing revenues from ourvendor marketing programs and other theatre revenues, including revenue relatedto our gift card and discount ticket programs. The increase in other operatingrevenue during the Q1 2010 Period was primarily driven by increases in othertheatre revenues, revenues related to our gift card and discount ticketprograms and marketing revenues from our vendor marketing programs.

 

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***Film Rental andAdvertising Costs***

 

Film rental and advertising costs as a percentage ofadmissions revenues increased to 52.7% during the Q1 2010 Period from 50.0% inthe Q1 2009 Period. The increase in film rental and advertising costs as apercentage of box office revenues during the Q1 2010 Period was primarilyattributable to higher film costs associated with the success of *Avatar*, partially offset by a reduction innewspaper advertising costs during the Q1 2010 Period.

 

***Cost of Concessions***

 

During the Q1 2010 Period, cost of concessionsincreased $2.7 million, or 11.3% as compared to the Q1 2009 Period. Costof concessions as a percentage of concessions revenues for the Q1 2010 Periodwas approximately 14.4% compared to 13.4% for the Q1 2009 Period. The increasein cost of concessions as a percentage of concessions revenues during the Q12010 Period was primarily related to a shift in the mix of products comprisingour concessions revenue.

 

***Rent Expense***

 

Rent expense increased by $1.8 million, or 1.9%to $94.7 million in the Q1 2010 Period, from $92.9 million in the Q12009 Period. The increase in rent expense during the Q1 2010 Period wasprimarily due to increases in contingent rent associated with the increase intotal revenues.

 

***Other OperatingExpenses***

 

Other operating expenses increased $13.0 million,or 7.0%, to $198.9 million in the Q1 2010 Period, from $185.9 millionin the Q1 2009 Period. The increase in other operating expenses during the Q12010 Period as compared to the Q1 2009 Period was attributable to increasedcosts associated with higher IMAX® and 3D film revenues, inflationary increasesin theatre-level payroll and non-rent occupancy costs and increases in creditcard processing fees.

 

***General andAdministrative Expenses***

 

For the Q1 2010 Period, general and administrativeexpenses increased $0.6 million, or 3.9%, to $15.9 million ascompared to $15.3 million in the Q1 2009 Period. As a percentage of totalrevenues, general and administrative expenses remained relatively consistentduring the Q1 2010 Period and the Q1 2009 Period. The slight increase ingeneral and administrative expenses during the Q1 2010 Period was primarilyattributable to increases in corporate payroll costs, partially offset by aslight reduction in legal and professional fees during such period.

 

***Depreciation andAmortization***

 

Depreciation and amortization expense increased$6.3 million, or 12.6%, to $56.2 million for the Q1 2010 Period, from$49.9 million in the Q1 2009 Period. The increase in depreciation andamortization expense during the Q1 2010 Period as compared to the Q1 2009Period was primarily due to accelerated depreciation of $7.0 million related tothe replacement of 35mm projectors in connection with our conversion to digitalprojection systems, partially offset by lower capital expenditures during theQ1 2010 Period.

 

***Income fromOperations***

 

During the Q1 2010 Period, income from operationsdecreased $14.9 million, or 23.8%, to $47.6 million, from$62.5 million in the Q1 2009 Period. The overall decrease in income fromoperations during the Q1 2010 Period as compared to the Q1 2009 Period wasprimarily driven by the increase in film rental and advertising costs and to a lesserextent, increases in cost of concessions, rent expense, other operatingexpenses, general and 

 

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administrative expenses, depreciation and amortizationexpenses and net loss on disposal and impairment of operating assets($13.1 million and $5.4 million, respectively, for the Q1 2010 Periodand Q1 2009 Period).

 

***Interest Expense,net***

 

Net interest expense totaled $36.0 million forthe Q1 2010 Period, which represents a decrease of $1.2 million, or 3.2%,from that of the Q1 2009 Period. The decrease in net interest expense duringthe Q1 2010 Period was principally due to a lower effective interest rate onour Term Facility as a result of a change in our interest rate swap portfolioduring fiscal 2009 and incremental interest income ($0.7 million and$0.3 million, respectively, for the Q1 2010 Period and the Q1 2009 Period)during such period, partially offset by incremental interest expense related tothe fiscal 2009 issuance of the 85/8% Senior Notes.

 

***Earnings Recognizedfrom NCM***

 

The Company received $19.4 million and$12.4 million, respectively, in cash distributions from National CineMediaduring the Q1 2010 Period and Q1 2009 Period. Approximately $3.3 millionand $1.8 million, respectively, of these cash distributions receivedduring the Q1 2010 Period and the Q1 2009 Period were recognized as a reductionin our investment in National CineMedia. In addition, during the Q1 2010 Periodand the Q1 2009 Period, the Company recorded approximately $0.6 millionand less than $0.1 million, respectively, of equity earnings with respectto newly issued common units received from National CineMedia.  As a result, during the Q1 2010 Period andthe Q1 2009 Period, the Company recognized $16.7 million and$10.6 million, respectively, of earnings from National CineMedia. Suchamounts are presented as “Earnings recognized from NCM” in the accompanyingunaudited condensed consolidated statements of income. The increase in earningsrecognized from National CineMedia during the Q1 2010 Period was primarilyattributable to incremental earnings of National CineMedia and the timing intheir contractually committed cash distributions to the Company.

 

***Income Taxes***

 

The provision for income taxes of $11.1 million and$14.4 million for the Q1 2010 Period and the Q1 2009 Period, respectively,reflect effective tax rates of approximately 40.4% and 40.3%,respectively.   The effective tax ratesfor the Q1 2010 Period and the Q1 2009 Period reflect the impact of certainnon-deductible expenses.

 

***Net IncomeAttributable to Controlling Interest***

 

During the Q1 2010 Period, net income attributable tocontrolling interest totaled $16.5 million, which represents a decrease of$4.8 million, from net income attributable to controlling interest of$21.3 million in the Q1 2009 Period. The decrease in net incomeattributable to controlling interest for the Q1 2010 Period was primarilyattributable to a decrease in operating income partially offset by less netinterest expense and incremental earnings recognized from National CineMediadescribed above.

 

***Cash Flows***

 

The following table summarizes certain cash flow datafor the Q1 2010 Period and the Q1 2009 Period (in millions):

 
| ** **                                            | ** ** | **Q1 2010  Period** | ** ** | **Q1 2009  Period** | ** ** |
|-------------------------------------------------------|------------|---------------------|------------|---------------------|------------|
| Net cash provided by  operating activities            |       | $                   | 77.9       | ** **          | **$**      | 88.4 | ** ** |
| Net cash used in  investing activities                |       | (50.7               | )          | (27.5               | )          |
| Net cash used in  financing activities                |       | (33.7               | )          | (44.1               | )          |
| Net increase (decrease)  in cash and cash equivalents |       | $                   | (6.5       | )                   | $          | 16.8 |   |

 

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*Q1 2010 Period Compared to Q1 2009Period*

 

Net cash flows provided by operating activitiesdecreased by approximately $10.5 million to approximately$77.9 million for the Q1 2010 Period from approximately $88.4 million forthe Q1 2009 Period. The decrease in net cash flows generated from operatingactivities for the Q1 2010 Period was primarily attributable to an increase inworking capital, primarily due to the timing of certain Q1 2010 Period vendorpayments.

 

Net cash flows used in investing activities totaledapproximately $50.7 million for the Q1 2010 Period compared to cash flowsused in investing activities of approximately $27.5 million for the Q12009 Period. Contributing to the increase in cash flows used in investingactivities during the Q1 2010 Period was the impact of approximately $29.6million of cash contributions effected to DCIP during the Q1 2010 Period,partially offset by lower capital expenditures during the Q1 2010 Period.

 

Net cash flows used in financing activities wereapproximately $33.7 million for the Q1 2010 Period compared to cash flowsused in financing activities of approximately $44.1 million for the Q12009 Period. The net decrease in cash flows used in financing activities duringthe Q1 2010 Period was primarily attributable to approximately $9.6 million ofdebt acquisition costs incurred during the Q1 2009 Period related to theAmendment to the Amended Senior Credit Facility.

 

**Liquidity and Capital Resources**

 

On a consolidated basis, we expect our primary uses ofcash to be for operating expenses, capital expenditures, investments, generalcorporate purposes related to corporate operations, debt service and theCompany’s quarterly dividend payments. The principal sources of liquidity arecash generated from operations, cash on hand and borrowings under the AmendedSenior Credit Facility described below. Under the terms of the Amended SeniorCredit Facility and the 85/8% Senior Notes issued during fiscal 2009, RegalCinemas is restricted as to how much it can advance or distribute to Regal, itsindirect parent. Since Regal is a holding company with no significant assetsother than the stock of its subsidiaries, this restriction could impact Regal’sability to effect future debt or dividend payments, pay corporate expenses orredeem or convert for cash its 61⁄4% Convertible Senior Notes.

 

Our revenues are generated principally throughadmissions and concessions sales with proceeds received in cash or via creditcards at the point of sale. Our operating expenses are primarily related tofilm and advertising costs, rent and occupancy, and payroll. Film costs areordinarily paid to distributors within 30 days following receipt ofadmissions revenues and the cost of the Company’s concessions are generallypaid to vendors approximately 30 to 35 days from purchase. Our currentliabilities generally include items that will become due within 12 months.In addition, from time to time, we use cash from operations and borrowings tofund dividends in excess of net income (loss) attributable to controllinginterest and cash flows from operating activities less cash flows frominvesting and other financing activities. As a result, at any given time, ourbalance sheet may reflect a working capital deficit.

 

We fund the cost of capital expenditures throughinternally generated cash flows, cash on hand, proceeds from disposition ofassets and financing activities. Our capital requirements have historicallyarisen principally in connection with acquisitions of theatres, new theatreconstruction, adding new screens to existing theatres, upgrading the Company’stheatre facilities (including digital 3D and IMAX® screens) and replacingequipment.

 

We intend to continue to grow our theatre circuitthrough selective expansion and acquisition opportunities. The Company has aformal and intensive review procedure for the authorization of capitalprojects, with the most important financial measure of acceptability for adiscretionary non-maintenance capital project being whether its projecteddiscounted cash flow return on investment meets or exceeds the Company’sinternal rate of return targets. The credit crisis of late 2008 and early 2009negatively impacted real estate development and has caused a temporary slowdownin our building program. As a result, we currently expect capital expendituresfor theatre development, replacement, expansion, upgrading and replacements tobe below our historical levels and in the range of approximately$75.0 million to $90.0 million in fiscal year 2010, exclusive ofacquisitions. Such capital expenditures are expected to be partially funded throughasset dispositions conducted during the normal course of our business. Duringthe Q1 2010 Period, we invested approximately $21.1 million in capitalexpenditures.

 

On March 10, 2010, DCIP completed the executionof definitive agreements and related financing transactions in connection withthe conversion to digital projection. DCIP’s completed financing raised an 

 

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aggregate of $660.0 million, consisting of $445.0million in senior bank debt, $135.0 million in additional junior capital andapproximately $80.0 million in equity contributions (consisting of cash andexisting digital projection systems) from us, AMC and Cinemark.  Concurrent with closing, the Company enteredinto the Digital Cinema Agreements with Kasima, LLC. and made the DCIPContributions. The Company recorded such DCIP Contributions as an increase inits investment in DCIP, which included the fair value of the 200 existingdigital projection systems, as determined by an independent appraisal.  In connection with the contribution of its200 existing digital projection systems, the Company recorded a loss on thecontribution of $2.0 million based on the excess of the carrying value of thedigital projection systems contributed over the $12.6 million fair value ofsuch equipment.  After giving effect tothe DCIP Contributions, the Company holds a 46.7% economic interest in DCIP asof April 1, 2010, while continuing to maintain a one-third votinginterest along with AMC and Cinemark. Since the Company determined that it isnot the primary beneficiary of DCIP or any of its subsidiaries, it willcontinue to account for its investment in DCIP under the equity method ofaccounting.

 

The costs of implementing digital projection in ourtheatres will be substantially funded by DCIP. We expect DCIP to fund the costof conversion principally through the collection of virtual print fees frommotion picture studios and equipment lease payments from participatingexhibitors. We will bear operating and maintenance costs with respect todigital projection systems in our theatres, which we expect to be relativelycomparable to what we currently spend on our conventional film projectors.  In accordance with the Master Lease, thedigital projection systems are leased from Kasima, LLC under a 12-yearterm with 10 one-year fair value renewal options. The Master Lease also containsa fair value purchase option. Under the Master Lease, the Company pays annualminimum rent of $1,000 per digital projection system for the first six and halfyears from the effective date of the agreement and is, upon certain conditions,subject to minimum annual rent of $3,000 per digital projection systembeginning at six and half years from the effective date of the agreementthrough the end of the lease term. The Company is also subject to various typesof other rent if such digital projection systems do not meet minimumperformance requirements as outlined in the Master Lease. Certain of the otherrent payments are subject to either a monthly or an annual maximum. The Companyaccounts for the Master Lease as an operating lease for accounting purposes.The completed financing is expected to cover the cost of conversion forapproximately 70% of our circuit’s screens. We ultimately expect to outfit allof our screens with digital projection systems, with at least 1,500 screensbeing digital 3D capable and intend to complete the conversion of our entirecircuit in approximately three to four years. As of April 1, 2010, we operated 543 screens outfitted with digitalprojection systems, 527 of which are digital 3D capable.

 

During the early stage of deployment, the Companyexpects to focus on an accelerated deployment of 3D compatible digitalprojection systems to a majority of its first run U.S. theatres. We believe theinstallation of digital projection systems, when combined with 3D technology orIMAX® theatre systems, will allow us to offer our patrons premium 3D and largeformat movie experiences, which we believe will generate incremental revenuefor the Company. We remain optimistic about the benefits of digital cinemaprimarily as it relates to future growth potential associated with 3D filmproduct and other 3D content and are pleased to see growing support of3D and IMAX® film product by the major motion picture studios.

 

As described more fully in Note 2—”Investments,”on March 17, 2010, we received from National CineMedia approximately 0.3 millionnewly issued common units of National CineMedia in accordance with the annualadjustment provisions of the Common Unit Adjustment Agreement. This adjustmentincreased the number of National CineMedia common units held by us toapproximately 25.8 million and as a result, on a fully diluted basis, weown a 24.8% interest in NCM, Inc. as of April 1, 2010.

 

Regal Cinemas maintains its Amended Senior CreditFacility, which consists of the Term Facility in an aggregate originalprincipal amount of $1,700.0 million and the Revolving Facility in anaggregate principal amount of up to $95.0 million. The Revolving Facilityhas a separate sublimit of $10.0 million for short-term loans and asublimit of $30.0 million for letters of credit. The Term Facility willmature on October 27, 2013 and the Revolving Facility will mature on October 27,2011.

 

As described more fully in Note 5 to the 2009Audited Consolidated Financial Statements, on January 20, 2009, RegalCinemas entered into the Amendment to the Amended Senior Credit Facility. Underthe Amendment, (i) the Applicable Margin, as defined in the Amendment, forrevolving loans under the Revolving Facility and for 

 

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term loans under the Term Facility (each of which aredetermined by reference to the then-applicable Consolidated Leverage Ratio) wasincreased by 2.0%, (ii) Regal Cinemas’ ability to elect interest periodsfor LIBOR borrowings was limited to interest periods of 2, 3, 6 or (ifavailable to all lenders) 12 months, with 1 month interest periods nolonger being 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.

 

On July 15, 2009, Regal Cinemas Corporationissued $400.0 million in aggregate principal amount of 85/8% SeniorNotes at a price equal to 97.561% of their face value in a transaction exemptfrom registration under the Securities Act. The 85/8% Senior Notes bear interest at a rate of 85/8% per year,payable semiannually in arrears in cash on July 15 and January 15 ofeach year, commencing on January 15, 2010. The 85/8% SeniorNotes will mature on July 15, 2019. The net proceeds from the offering,after deducting the initial purchase discount and offering expenses paid by theCompany, were approximately $381.3 million. The Company used all of thenet proceeds to repay a portion of the Amended Senior Credit Facility. As aresult of this repayment, the Company recorded a loss on debt extinguishment ofapproximately $7.4 million, representing the pro-rata write off ofunamortized debt issue costs under the Amended Credit Facility. See Note 3—”DebtObligations” for further discussion of this transaction.

 

As of April 1, 2010, we had approximately$1,262.1 million aggregate principal amount outstanding under the TermFacility, $391.0 million aggregate principal amount outstanding (net ofdebt discount) under the 85/8% Senior Notes, $195.7 million aggregateprincipal amount outstanding (net of debt discount) under the 61⁄4% ConvertibleSenior Notes, and $51.5 million aggregate principal amount outstandingunder the Senior Subordinated Notes. As of April 1, 2010, we hadapproximately $2.7 million outstanding in letters of credit, leavingapproximately $92.3 million available for drawing under the Revolving Facility.

 

During the Q1 2010 Period, Regal paid one quarterlycash dividend of $0.18 per share on each outstanding share of the Company’s Class Aand Class B common stock, or approximately $27.8 million in theaggregate. Further, on April 29, 2010, the Company declared a cashdividend of $0.18 per share on each share of the Company’s Class A and Class Bcommon stock (including outstanding restricted stock), payable on June 15,2010, to stockholders of record on June 3, 2010. These dividends have beenor will be funded through cash flow from operations and available cash on hand.We, at the 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*

 

Earnings before interest, taxes, depreciation, andamortization (“EBITDA”) was approximately $119.8 million and$122.8 million for the Q1 2010 Period and the Q1 2009 Period,respectively. The decrease in EBITDA during the Q1 2010 Period was primarilyattributable to a decrease in operating income during such period.  TheCompany uses EBITDA as a supplemental liquidity measure because we find ituseful to understand and evaluate our capacity, excluding the impact of interest,taxes, and non-cash depreciation and amortization charges, for servicing ourdebt, paying dividends and otherwise meeting our cash needs, prior to ourconsideration of the impacts of other potential sources and uses of cash, suchas working capital items. We believe that EBITDA is useful to investors forthese purposes as well. EBITDA should not be considered an alternative to, ormore meaningful than, net cash provided by operating activities, as determinedin accordance with U.S. generally accepted accounting principles (“GAAP”),since it omits the impact of interest, taxes and changes in working capitalthat use or provide cash (such as receivables, payables and inventories) aswell as the sources or uses of cash associated with changes in other balance sheetitems (such as long-term loss accruals and deferred items). Because EBITDAexcludes depreciation and amortization, EBITDA does not reflect any cashrequirements for the replacement of the assets being depreciated and amortized,which assets will often have to be replaced in the future. Further, EBITDA,because it also does not reflect the impact of debt service, income taxes, cashdividends, capital expenditures and other cash commitments from time to time asdescribed in more detail elsewhere in this Form 10-Q, does not representhow much discretionary cash we have available for other purposes. Nonetheless,EBITDA is a key measure expected by and useful to our fixed income investors,rating agencies and the banking community all of

 

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whom believe, and we concur, that these measures arecritical to the capital markets’ analysis of our ability to service debt, fundcapital expenditures, pay dividends and otherwise meet cash needs,respectively. We also evaluate EBITDA because it is clear that movements inthese non-GAAP measures impact our ability to attract financing and paydividends. EBITDA, as calculated, may not be comparable to similarly titledmeasures reported by other companies.  Areconciliation of EBITDA to net cash provided by (used in) operating activitiesis calculated as follows (in millions):

 
| ** **                                   | ** ** | **Q1 2010 Period** | ** ** | **Q1 2009 Period** | ** ** |
|----------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| EBITDA                                       |       | $                            | 119.8      |                         | $          | 122.8 |   |
| Interest expense, net                        |       | (36.0                        | )          | (37.2                        | )          |
| Provision for income  taxes                  |       | (11.1                        | )          | (14.4                        | )          |
| Deferred income taxes                        |       | (6.2                         | )          | (1.6                         | )          |
| Changes in operating  assets and liabilities |       | (10.6                        | )          | 4.4                          |       |
|                                         |       |                         |       |                         |       |
| Other items, net                             |       | 22.0                         |       | 14.4                         |       |
| Net cash provided by  operating activities   |       | $                            | 77.9       |                         | $          | 88.4 |   |

 

**Contractual Cash Obligations andCommitments**

 

For a summary of our contractual cash obligations andcommitments and off-balance sheet arrangements as of December 31, 2009,please refer to Item 7, “Management’s Discussion and Analysis of FinancialCondition and Results of Operations—Contractual Cash Obligations andCommitments” contained in our annual report on Form 10-K for the fiscalyear ended December 31, 2009 and incorporated by reference herein.  As of April 1, 2010, there were nomaterial changes outside the ordinary course of our business in our contractualcash obligations and commitments.  We believe that the amount of cash andcash equivalents on hand, cash flow expected from operations and availabilityunder our Revolving Facility will be adequate for the Company to execute itsbusiness strategy and meet anticipated requirements for lease obligations,capital expenditures, working capital and debt service for the next12 months.

 

**Critical Accounting Estimates**

 

For a discussion of accounting policies that weconsider critical to our business operations and the understanding of ourresults of operations and affect the more significant judgments and estimatesused in the preparation of our unaudited condensed consolidated financialstatements, please refer to Item 7, “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations—Critical Accounting Estimates”contained in our annual report on Form 10-K for the fiscal year ended December 31,2009 and incorporated by reference herein.  As of April 1, 2010,there were no significant changes in our critical accounting policies orestimation procedures.

 

**Recent Accounting Pronouncements**

 

For a discussion of the recent accountingpronouncements relevant to our operations, please refer to the informationprovided under Note 9—“Recent Accounting Pronouncements” of our notes to theaccompanying unaudited condensed consolidated financial statements included in Part I,Item 1 (Financial Statements) of this Form 10-Q, which information isincorporated by reference herein.

 

**Seasonality**

 

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

 

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

 

The Company’s market risk is confined to interest rateexposure of its and its wholly owned subsidiaries’ debt obligations that bearinterest based on floating rates. The Amended Senior Credit Facility providesvariable rate interest that could be adversely affected by an increase ininterest rates. Borrowings under the Term Facility bear interest, at RegalCinemas’ option, at either an adjusted Eurodollar rate (as defined in theAmended Senior Credit Facility) or the base rate plus, in each case, anapplicable margin.

 

Under the terms of the Company’s effective interestrate swap agreements (which hedge an aggregate of approximately $1,000.0million of variable rate debt obligations as of April 1, 2010) describedin Note 3—“Debt Obligations,” Regal Cinemas pays interest at various fixedrates ranging from 2.15% to 2.53% and receives interest at a variable ratebased on the 3-month LIBOR.

 

As of April 1, 2010 and December 31, 2009,borrowings of $1,262.1 million and $1,265.4 million, respectively,were outstanding under the Term Facility at an effective interest rate of 5.40%(as of April 1, 2010) and 5.38% (as of December 31, 2009), after theimpact of the interest rate swaps is taken into account. A hypothetical changeof 10% in the Company’s effective interest rate under the Term Facility as of April 1,2010, would increase or decrease interest expense by $1.7 million****for the quarter ended April 1, 2010.

 

**Item 4. CONTROLS AND PROCEDURES**

 

We maintain disclosure controls and procedures thatare designed to ensure that information required to be disclosed by us in thereports that we file or submit to the Commission under the Exchange Act, isrecorded, processed, summarized and reported within the time periods specifiedby the Commission’s rules and forms, and that information is accumulatedand communicated to our management, including our principal executive,principal financial and principal accounting officers (whom we refer to in thisperiodic report as our Certifying Officers), as appropriate to allow timelydecisions regarding required disclosure. Our management evaluated, with theparticipation of our Certifying Officers, the effectiveness of our disclosurecontrols and procedures as of April 1, 2010, pursuant to Rule 13a-15(b) underthe Exchange Act. Based upon that evaluation, our Certifying Officers concludedthat, as of April 1, 2010, our disclosure controls and procedures wereeffective.

 

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

 

**PART II—OTHERINFORMATION**

 

**Item 1. LEGAL PROCEEDINGS**

 

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

 

**Item 1A. RISK FACTORS**

 

There have been no material changes from risk factorsas previously disclosed in our annual report on Form 10-K filed on March 1,2010 with the Commission (File No. 001-31315) for the fiscal year ended December 31,2009.

 

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

 

**ISSUERPURCHASES OF EQUITY SECURITIES FOR THE QUARTER ENDED APRIL 1, 2010**

 
| **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 1,  2010 – January 31, 2010   |       | 20,376                                     |       | $                                       | 14.84      |                                                                                                      | —     |                                                                                                                                             | $          | — |   |
| February 1,  2010 – February 28, 2010 |       | —                                     |       | —                                  |       | —                                                                                                    |       | —                                                                                                                                           |       |
| March 1,  2010 – April 1, 2010        |       | 40,890                                     |       | 15.22                                   |       | —                                                                                                    |       | —                                                                                                                                           |       |
| **Total**                                            |       | 61,266                                     |       | $                                       | 15.09      |                                                                                                      | —     |                                                                                                                                             | $          | — |   |

 

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(1)                                  During thequarter ended April 1, 2010, the Company withheld approximately 61,266shares of restricted stock at an aggregate cost of approximately $0.9 millionas permitted by the applicable equity award agreements, to satisfy employee taxwithholding requirements related to the vesting of restricted stock awards.

 

**Item 6. EXHIBITS**

 
| **Exhibit  Number** | ** ** | **Description**                                                                                                                                                                                                                                                                                              |
|---------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1                |       | Employment Agreement, dated January 13, 2010,  by and between Regal Entertainment Group and Peter B. Brandow (filed as  Exhibit 10.1 to the Company’s Current Report on Form 8-K  (Commission File No. 001-31315) on January 19, 2010, and  incorporated herein by reference). |
|                |       |                                                                                                                                                                                                                                                                                                         |
| 10.2(1)(2)          |       | Equipment Contribution Agreement by and between the  Company, Digital Cinema Implementation Partners, LLC, Kasima, LLC, Kasima  Parent Holdings, LLC, and Kasima Holdings, LLC, dated March 10, 2010.                                                                                                   |
|                |       |                                                                                                                                                                                                                                                                                                         |
| 10.3(1)(2)          |       | Amended and Restated Limited Liability Company  Agreement of Digital Cinema Implementation Partners, LLC, dated as of  March 10, 2010.                                                                                                                                                                  |
|                |       |                                                                                                                                                                                                                                                                                                         |
| 31.1(2)             |       | Rule 13a-14(a) Certification of Chief  Executive Officer of Regal.                                                                                                                                                                                                                                 |
|                |       |                                                                                                                                                                                                                                                                                                         |
| 31.2(2)             |       | Rule 13a-14(a) Certification of Chief  Financial Officer of Regal.                                                                                                                                                                                                                                 |
|                |       |                                                                                                                                                                                                                                                                                                         |
| 32(2)               |       | Section 1350 Certifications.                                                                                                                                                                                                                                                                            |

 

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(1) Portions of this Exhibit have been omittedpursuant to a request for confidential treatment filed with the Securities andExchange Commission.  Omitted portionshave been filed separately with the Commission.

 

(2)  Filed herewith.

 

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**SIGNATURES**

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.

 
|                   | **REGAL ENTERTAINMENT GROUP** |
|------------------------|-------------------------------|
|                   | ** **                    |
|                   |                          |   |
| Date: May 4, 2010 | By:                           | /s/  AMY E. MILES |
|                   |                          | Amy E. Miles |
|                   |                          | *Chief Executive Officer (Principal  Executive Officer)* |
|                   |                          |   |
|                   |                          |   |
| Date: May 4, 2010 | By:                           | /s/  DAVID H. OWNBY |
|                   |                          | David H. Ownby |
|                   |                          | *Executive Vice President, Chief* |
|                   |                          | *Financial Officer and Treasurer  (Principal Financial Officer and Principal Accounting Officer)* |

 

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**EXHIBITINDEX**

 
| **Exhibit  Number** | ** ** | **Description**                                                                                                                                                                                                                                                                                              |
|---------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1                |       | Employment Agreement, dated January 13, 2010,  by and between Regal Entertainment Group and Peter B. Brandow (filed as  Exhibit 10.1 to the Company’s Current Report on Form 8-K  (Commission File No. 001-31315) on January 19, 2010, and incorporated  herein by reference). |
|                |       |                                                                                                                                                                                                                                                                                                         |
| 10.2(1)(2)          |       | Equipment Contribution Agreement by and between the  Company, Digital Cinema Implementation Partners, LLC, Kasima, LLC, Kasima  Parent Holdings, LLC, and Kasima Holdings, LLC, dated March 10, 2010.                                                                                                   |
|                |       |                                                                                                                                                                                                                                                                                                         |
| 10.3(1)(2)          |       | Amended and Restated Limited Liability Company  Agreement of Digital Cinema Implementation Partners, LLC, dated as of  March 10, 2010.                                                                                                                                                                  |
|                |       |                                                                                                                                                                                                                                                                                                         |
| 31.1(2)             |       | Rule 13a-14(a) Certification of Chief  Executive Officer of Regal.                                                                                                                                                                                                                                 |
|                |       |                                                                                                                                                                                                                                                                                                         |
| 31.2(2)             |       | Rule 13a-14(a) Certification of Chief  Financial Officer of Regal.                                                                                                                                                                                                                                 |
|                |       |                                                                                                                                                                                                                                                                                                         |
| 32(2)               |       | Section 1350 Certifications.                                                                                                                                                                                                                                                                            |

 

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(1) Portions of this Exhibit have been omittedpursuant to a request for confidential treatment filed with the Securities andExchange Commission.  Omitted portions have been filed separately with theCommission.

 

(2) Filed herewith.

 

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