Table ofContents

 

 

 

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

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**FORM 10-Q**

 

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

 

**For the quarterly period ended June 26,2008**

 

**Commission file number: 001-31315**

 

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**Regal Entertainment Group**

(Exact name of Registrant as Specified in its Charter)

 

| **Delaware**                             | ** ** | **02-0556934**                  |
|------------------------------------------|------------|---------------------------------|
| (State or Other Jurisdiction of          |       | (Internal Revenue Service       |
| Incorporation or Organization)           |       | Employer Identification Number) |
|                                     |       |                            |
| **7132 Regal Lane**                      |       |                            |
| **Knoxville, TN**                        | ** ** | **37918**                       |
| (Address of Principal Executive Offices) |       | (Zip Code)                      |

 

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

 

Indicate by checkmark whether the registrant (1) has filed all reports required to be filedby Section 13 or 15(d) of the Securities and Exchange Act of 1934during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days: Yes x   No o

 

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

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

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act): Yes o   No x

 

Class ACommon Stock—129,799,690 shares outstanding at August 1, 2008

 

Class BCommon Stock—23,708,639 shares outstanding at August 1, 2008

 

 

 

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Table ofContents

 

**TABLE OF CONTENTS**

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

 

2

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Table ofContents

 

**PART I—FINANCIAL INFORMATION**

 

**Item 1.    FINANCIAL STATEMENTS**

 

**REGAL ENTERTAINMENT GROUP**

 

**UNAUDITED CONDENSED CONSOLIDATEDBALANCE SHEETS(in millions, except share data)**

 
| ** **                                                                                                                                                                                             | ** ** | **June 26, 2008** | ** ** | **December 27, 2007** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|---------------------------------|------------|
| **ASSETS**                                                                                                                                                                                             |       |                        |       |                            |       |
| CURRENT ASSETS:                                                                                                                                                                                        |       |                        |       |                            |       |
| Cash and cash equivalents                                                                                                                                                                              |       | $                           | 223.8      |                            | $          | 435.2 |   |
| Trade and other receivables, net                                                                                                                                                                       |       | 29.0                        |       | 73.5                            |       |
| Inventories                                                                                                                                                                                            |       | 10.1                        |       | 8.1                             |       |
| Prepaid expenses and other current assets                                                                                                                                                              |       | 9.6                         |       | 7.1                             |       |
| Assets held for sale                                                                                                                                                                                   |       | 0.9                         |       | 1.6                             |       |
|                                                                                                                                                                                                   |       |                        |       |                            |       |
| TOTAL CURRENT ASSETS                                                                                                                                                                                   |       | 273.4                       |       | 525.5                           |       |
|                                                                                                                                                                                                   |       |                        |       |                            |       |
| PROPERTY AND EQUIPMENT:                                                                                                                                                                                |       |                        |       |                            |       |
| Land                                                                                                                                                                                                   |       | 121.0                       |       | 121.8                           |       |
| Buildings and leasehold improvements                                                                                                                                                                   |       | 1,904.9                     |       | 1,701.6                         |       |
| Equipment                                                                                                                                                                                              |       | 957.1                       |       | 886.5                           |       |
| Construction in progress                                                                                                                                                                               |       | 18.9                        |       | 24.2                            |       |
|                                                                                                                                                                                                   |       |                        |       |                            |       |
| Total property and equipment                                                                                                                                                                           |       | 3,001.9                     |       | 2,734.1                         |       |
| Accumulated depreciation and amortization                                                                                                                                                              |       | (1,002.1                    | )          | (912.5                          | )          |
|                                                                                                                                                                                                   |       |                        |       |                            |       |
| TOTAL PROPERTY AND EQUIPMENT, NET                                                                                                                                                                      |       | 1,999.8                     |       | 1,821.6                         |       |
| GOODWILL                                                                                                                                                                                               |       | 180.3                       |       | 181.7                           |       |
| INTANGIBLE ASSETS, NET                                                                                                                                                                                 |       | 17.6                        |       | —                          |       |
| DEFERRED INCOME TAX ASSET                                                                                                                                                                              |       | 99.8                        |       | 64.0                            |       |
| OTHER NON-CURRENT ASSETS                                                                                                                                                                               |       | 117.1                       |       | 42.1                            |       |
|                                                                                                                                                                                                   |       |                        |       |                            |       |
| TOTAL ASSETS                                                                                                                                                                                           |       | $                           | 2,688.0    |                            | $          | 2,634.9 |   |
|                                                                                                                                                                                                   |       |                        |       |                            |       |
| **LIABILITIES AND STOCKHOLDERS’  DEFICIT**                                                                                                                                                        |       |                        |       |                            |       |
| CURRENT LIABILITIES:                                                                                                                                                                                   |       |                        |       |                            |       |
| Current portion of debt obligations                                                                                                                                                                    |       | $                           | 23.0       |                            | $          | 146.5 |   |
| Accounts payable                                                                                                                                                                                       |       | 167.3                       |       | 183.0                           |       |
| Accrued expenses                                                                                                                                                                                       |       | 67.4                        |       | 54.7                            |       |
| Deferred revenue                                                                                                                                                                                       |       | 112.1                       |       | 113.9                           |       |
| Interest payable                                                                                                                                                                                       |       | 27.3                        |       | 28.9                            |       |
| Deferred income tax liability                                                                                                                                                                          |       | 0.5                         |       | 0.5                             |       |
|                                                                                                                                                                                                   |       |                        |       |                            |       |
| TOTAL CURRENT LIABILITIES                                                                                                                                                                              |       | 397.6                       |       | 527.5                           |       |
| LONG-TERM DEBT                                                                                                                                                                                         |       | 1,909.4                     |       | 1,718.2                         |       |
| LEASE FINANCING ARRANGEMENTS                                                                                                                                                                           |       | 79.6                        |       | 81.8                            |       |
| CAPITAL LEASE OBLIGATIONS                                                                                                                                                                              |       | 17.8                        |       | 19.0                            |       |
| NON-CURRENT DEFERRED REVENUE                                                                                                                                                                           |       | 341.3                       |       | 279.8                           |       |
| OTHER NON-CURRENT LIABILITIES                                                                                                                                                                          |       | 156.1                       |       | 127.4                           |       |
|                                                                                                                                                                                                   |       |                        |       |                            |       |
| TOTAL LIABILITIES                                                                                                                                                                                      |       | 2,901.8                     |       | 2,753.7                         |       |
| MINORITY INTEREST                                                                                                                                                                                      |       | (0.1                        | )          | 0.5                             |       |
| STOCKHOLDERS’ DEFICIT:                                                                                                                                                                            |       |                        |       |                            |       |
| Class A common stock, $0.001 par value; 500,000,000 shares  authorized, 129,796,512 and 129,518,587 shares issued and outstanding at  June 26, 2008 and December 27, 2007, respectively |       | 0.1                         |       | 0.1                             |       |
| Class B common stock, $0.001 par value; 200,000,000 shares  authorized, 23,708,639 shares issued and outstanding at June 26, 2008  and December 27, 2007                                |       | —                      |       | —                          |       |
| Preferred stock, $0.001 par value; 50,000,000 shares authorized; none  issued and outstanding                                                                                                          |       | —                      |       | —                          |       |
| Additional paid-in capital (deficit)                                                                                                                                                                   |       | (165.5                      | )          | (160.4                          | )          |
| Retained earnings (accumulated deficit)                                                                                                                                                                |       | (38.6                       | )          | 42.6                            |       |
| Accumulated other comprehensive loss, net                                                                                                                                                              |       | (9.7                        | )          | (1.6                            | )          |
|                                                                                                                                                                                                   |       |                        |       |                            |       |
| TOTAL STOCKHOLDERS’ DEFICIT                                                                                                                                                                       |       | (213.7                      | )          | (119.3                          | )          |
|                                                                                                                                                                                                   |       |                        |       |                            |       |
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT                                                                                                                                                       |       | $                           | 2,688.0    |                            | $          | 2,634.9 |   |

 

See accompanying notes to unaudited condensed consolidated financialstatements.

 

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Table ofContents

 

**REGAL ENTERTAINMENT GROUP**

 

**UNAUDITED CONDENSED CONSOLIDATEDSTATEMENTS OF INCOME**

**(in millions, except per sharedata)**

 
| ** **                                                                                                                                                                                                                                                                        | ** ** | **Quarter Ended  June 26, 2008** | ** ** | **Quarter Ended  June 28, 2007** | ** ** | **Two Quarters  Ended  June 26, 2008** | ** ** | **Two Quarters  Ended  June 28, 2007** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|-------------------------------------------------|------------|-------------------------------------------------------|------------|-------------------------------------------------------|------------|
| REVENUES:                                                                                                                                                                                                                                                                         |       |                                            |       |                                            |       |                                                  |       |                                                  |       |
| Admissions                                                                                                                                                                                                                                                                        |       | $                                               | 455.7      |                                            | $          | 457.9                                                 |       | $                                                     | 887.7      |   | $ | 884.6 |   |
| Concessions                                                                                                                                                                                                                                                                       |       | 188.9                                           |       | 197.4                                           |       | 355.0                                                 |       | 365.7                                                 |       |
| Other operating revenue                                                                                                                                                                                                                                                           |       | 31.2                                            |       | 28.1                                            |       | 59.9                                                  |       | 58.1                                                  |       |
| TOTAL REVENUES                                                                                                                                                                                                                                                                    |       | 675.8                                           |       | 683.4                                           |       | 1,302.6                                               |       | 1,308.4                                               |       |
| OPERATING EXPENSES:                                                                                                                                                                                                                                                               |       |                                            |       |                                            |       |                                                  |       |                                                  |       |
| Film rental and advertising costs                                                                                                                                                                                                                                                 |       | 247.0                                           |       | 252.4                                           |       | 462.9                                                 |       | 470.4                                                 |       |
| Cost of concessions                                                                                                                                                                                                                                                               |       | 25.5                                            |       | 27.9                                            |       | 48.2                                                  |       | 52.9                                                  |       |
| Rent expense                                                                                                                                                                                                                                                                      |       | 90.0                                            |       | 83.3                                            |       | 173.3                                                 |       | 164.3                                                 |       |
| Other operating expenses                                                                                                                                                                                                                                                          |       | 180.5                                           |       | 176.2                                           |       | 349.1                                                 |       | 341.1                                                 |       |
| General and administrative expenses (including share-based  compensation of $1.5 and $1.4 for the quarters ended June 26, 2008 and  June 28, 2007, respectively, and $2.9 and $3.5 for the two quarters  ended June 26, 2008 and June 28, 2007, respectively) |       | 15.8                                            |       | 16.8                                            |       | 30.8                                                  |       | 32.8                                                  |       |
| Depreciation and amortization                                                                                                                                                                                                                                                     |       | 49.9                                            |       | 46.1                                            |       | 96.2                                                  |       | 92.4                                                  |       |
| Net loss (gain) on disposal and impairment of operating assets                                                                                                                                                                                                                    |       | 2.3                                             |       | (2.6                                            | )          | 4.5                                                   |       | 2.8                                                   |       |
| Equity in earnings of joint venture including former employee compensation                                                                                                                                                                                                        |       | 0.1                                             |       | 0.3                                             |       | 0.3                                                   |       | 3.7                                                   |       |
| TOTAL OPERATING EXPENSES                                                                                                                                                                                                                                                          |       | 611.1                                           |       | 600.4                                           |       | 1,165.3                                               |       | 1,160.4                                               |       |
| INCOME FROM OPERATIONS                                                                                                                                                                                                                                                            |       | 64.7                                            |       | 83.0                                            |       | 137.3                                                 |       | 148.0                                                 |       |
| OTHER EXPENSE (INCOME):                                                                                                                                                                                                                                                           |       |                                            |       |                                            |       |                                                  |       |                                                  |       |
| Interest expense, net                                                                                                                                                                                                                                                             |       | 30.0                                            |       | 25.5                                            |       | 59.7                                                  |       | 56.5                                                  |       |
| Earnings recognized from NCM                                                                                                                                                                                                                                                      |       | (5.9                                            | )          | (2.2                                            | )          | (14.3                                                 | )          | (2.2                                                  | )          |
| Loss on extinguishment of debt                                                                                                                                                                                                                                                    |       | 17.7                                            |       | —                                          |       | 70.5                                                  |       | —                                                |       |
| Gain on NCM transaction                                                                                                                                                                                                                                                           |       | —                                          |       | —                                          |       | —                                                |       | (350.7                                                | )          |
| Gain on sale of Fandango interest                                                                                                                                                                                                                                                 |       | —                                          |       | (28.3                                           | )          | —                                                |       | (28.3                                                 | )          |
| Minority interest in earnings of consolidated subsidiaries and other                                                                                                                                                                                                              |       | 0.6                                             |       | 0.2                                             |       | 1.2                                                   |       | 0.2                                                   |       |
| TOTAL OTHER EXPENSE (INCOME), NET                                                                                                                                                                                                                                                 |       | 42.4                                            |       | (4.8                                            | )          | 117.1                                                 |       | (324.5                                                | )          |
| INCOME BEFORE INCOME TAXES                                                                                                                                                                                                                                                        |       | 22.3                                            |       | 87.8                                            |       | 20.2                                                  |       | 472.5                                                 |       |
| PROVISION FOR INCOME TAXES                                                                                                                                                                                                                                                        |       | 8.5                                             |       | 35.1                                            |       | 9.4                                                   |       | 190.7                                                 |       |
| NET INCOME                                                                                                                                                                                                                                                                        |       | $                                               | 13.8       |                                            | $          | 52.7                                                  |       | $                                                     | 10.8       |   | $ | 281.8 |   |
| EARNINGS PER SHARE OF CLASS A AND CLASS B COMMON STOCK  (Note 9):                                                                                                                                                                                                       |       |                                            |       |                                            |       |                                                  |       |                                                  |       |
| Basic                                                                                                                                                                                                                                                                             |       | $                                               | 0.09       |                                            | $          | 0.35                                                  |       | $                                                     | 0.07       |   | $ | 1.87 |   |
| Diluted                                                                                                                                                                                                                                                                           |       | $                                               | 0.09       |                                            | $          | 0.33                                                  |       | $                                                     | 0.07       |   | $ | 1.78 |   |
| DIVIDENDS DECLARED PER COMMON SHARE                                                                                                                                                                                                                                               |       | $                                               | 0.30       |                                            | $          | 0.30                                                  |       | $                                                     | 0.60       |   | $ | 2.60 |   |

 

See accompanying notes to unaudited condensed consolidated financialstatements.

 

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**REGAL ENTERTAINMENT GROUP**

 

**UNAUDITED CONDENSED CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**(in millions)**

 
| ** **                                                                              | ** ** | **Two Quarters  Ended  June 26, 2008** | ** ** | **Two Quarters  Ended  June 28, 2007** | ** ** |
|-----------------------------------------------------------------------------------------|------------|-------------------------------------------------------|------------|-------------------------------------------------------|------------|
| CASH FLOWS FROM OPERATING ACTIVITIES:                                                   |       |                                                  |       |                                                  |       |
| Net income                                                                              |       | $                                                     | 10.8       |                                                  | $          | 281.8 |   |
| Adjustments to reconcile net income to net cash provided by operating  activities:      |       |                                                  |       |                                                  |       |
| Depreciation and amortization                                                           |       | 96.2                                                  |       | 92.4                                                  |       |
| Share-based compensation expense                                                        |       | 2.9                                                   |       | 3.5                                                   |       |
| Deferred income tax benefit                                                             |       | (26.2                                                 | )          | (46.8                                                 | )          |
| Net loss on disposal and impairment of operating assets                                 |       | 4.5                                                   |       | 2.8                                                   |       |
| Equity in earnings of non-consolidated entities                                         |       | 0.8                                                   |       | —                                                |       |
| Equity in earnings of joint venture including former employee compensation              |       | 0.3                                                   |       | 3.7                                                   |       |
| Gain on sale of Fandango interest                                                       |       | —                                                |       | (28.3                                                 | )          |
| Non-cash gain on NCM transaction                                                        |       | —                                                |       | (3.4                                                  | )          |
| Loss on extinguishment of debt                                                          |       | 70.5                                                  |       | —                                                |       |
| Non-cash rent expense                                                                   |       | 3.7                                                   |       | 4.7                                                   |       |
| Changes in operating assets and liabilities, excluding the impact of  acquisitions:     |       |                                                  |       |                                                  |       |
| Trade and other receivables                                                             |       | 22.1                                                  |       | 36.9                                                  |       |
| Inventories                                                                             |       | (1.4                                                  | )          | (1.8                                                  | )          |
| Intangible assets                                                                       |       | 0.5                                                   |       | —                                                |       |
| Prepaid expenses and other current assets                                               |       | 1.3                                                   |       | (3.9                                                  | )          |
| Accounts payable                                                                        |       | (18.2                                                 | )          | (32.5                                                 | )          |
| Income taxes payable                                                                    |       | 0.2                                                   |       | 41.5                                                  |       |
| Deferred revenue                                                                        |       | (9.3                                                  | )          | 294.3                                                 |       |
| Accrued expenses and other liabilities                                                  |       | (2.2                                                  | )          | (1.6                                                  | )          |
| NET CASH PROVIDED BY OPERATING ACTIVITIES                                               |       | 156.5                                                 |       | 643.3                                                 |       |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                                   |       |                                                  |       |                                                  |       |
| Capital expenditures                                                                    |       | (70.6                                                 | )          | (57.8                                                 | )          |
| Proceeds from disposition of assets                                                     |       | 3.3                                                   |       | 10.8                                                  |       |
| Purchase of Consolidated Theatres, L.L.C., net of cash acquired                         |       | (209.3                                                | )          | —                                                |       |
| Investment in DCIP                                                                      |       | (1.0                                                  | )          | (1.5                                                  | )          |
| Distributions to partnership                                                            |       | (0.4                                                  | )          | —                                                |       |
| Proceeds from sale of Fandango interest                                                 |       | —                                                |       | 28.3                                                  |       |
| NET CASH USED IN INVESTING ACTIVITIES                                                   |       | (278.0                                                | )          | (20.2                                                 | )          |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                                   |       |                                                  |       |                                                  |       |
| Cash used to pay dividends                                                              |       | (92.1                                                 | )          | (393.2                                                | )          |
| Proceeds from stock option exercises                                                    |       | 0.5                                                   |       | 14.8                                                  |       |
| Proceeds from issuance of 61⁄4% Convertible Senior Notes                             |       | 200.0                                                 |       | —                                                |       |
| Net cash paid for 61⁄4% Convertible Senior Notes convertible note hedge  and warrant |       | (6.6                                                  | )          | —                                                |       |
| Net payments on long-term obligations                                                   |       | (11.6                                                 | )          | (11.6                                                 | )          |
| Cash used to redeem 33⁄4% Convertible Senior Notes                                   |       | (194.1                                                | )          | (0.1                                                  | )          |
| Net proceeds from 33⁄4% Convertible Senior Notes convertible note hedge  and warrant |       | 18.9                                                  |       | —                                                |       |
| Excess tax benefits from share-based payment arrangements                               |       | 0.2                                                   |       | 14.3                                                  |       |
| Payment of debt acquisition costs and other                                             |       | (5.1                                                  | )          | (2.6                                                  | )          |
| NET CASH USED IN FINANCING ACTIVITIES                                                   |       | (89.9                                                 | )          | (378.4                                                | )          |
| NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                                    |       | (211.4                                                | )          | 244.7                                                 |       |
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                        |       | 435.2                                                 |       | 162.2                                                 |       |
| CASH AND CASH EQUIVALENTS AT END OF PERIOD                                              |       | $                                                     | 223.8      |                                                  | $          | 406.9 |   |
| SUPPLEMENTAL CASH FLOW INFORMATION:                                                     |       |                                                  |       |                                                  |       |
| Cash paid for income taxes, net of refunds received                                     |       | $                                                     | 35.9       |                                                  | $          | 176.8 |   |
| Cash paid for interest                                                                  |       | $                                                     | 62.6       |                                                  | $          | 64.6 |   |
| SUPPLEMENTAL NON-CASH FINANCING ACTIVITIES:                                             |       |                                                  |       |                                                  |       |
| Additional investment in NCM (Note 3)                                                   |       | $                                                     | 73.4       |                                                  | $          | — |   |

 

See accompanying notes to unaudited condensed consolidated financialstatements.

 

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**REGAL ENTERTAINMENT GROUP**

 

**NOTES TO UNAUDITED CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS**

 

**JUNE 26, 2008**

 

**1. THECOMPANY AND BASIS OF PRESENTATION**

 

RegalEntertainment Group (the “Company,” “Regal,” “we” or “us”) is the parentcompany of Regal Entertainment Holdings, Inc. (“REH”), which is the parentcompany of Regal Cinemas Corporation (“Regal Cinemas”) and its subsidiaries.Regal Cinemas’ subsidiaries include Regal Cinemas, Inc. (“RCI”) and itssubsidiaries, which include Edwards Theatres, Inc. (“Edwards”), RegalCineMedia Corporation (“Regal CineMedia” or “RCM”), Hoyts Cinemas Corporation (“Hoyts”)and United Artists Theatre Company (“United Artists”). The terms Regal or theCompany, REH, Regal Cinemas, RCI, Edwards, Regal CineMedia or RCM, Hoyts andUnited Artists shall be deemed to include the respective subsidiaries of such entitieswhen used in discussions included herein regarding the current operations orassets of such entities.

 

Regal operates thelargest theatre circuit in the United States, consisting of 6,776 screens in551 theatres in 39 states and the District of Columbia as of June 26,2008.  The Company formally operates on a 52-week fiscal year with eachquarter generally consisting of 13 weeks, unless otherwise noted. The Company’sfiscal year ends on the first Thursday after December 25, which incertain years (such as fiscal 2008) results in a 53-week fiscalyear.  As of June 26, 2008, the Company managed its business underone reportable segment: theatre exhibition operations.

 

In March 2005,Regal and AMC Entertainment Inc. (“AMC”) announced the combination of theoperations of RCM and AMC’s subsidiary, National Cinema Network, Inc. (“NCN”),into a new joint venture company known as National CineMedia, LLC (“NationalCineMedia”). In July 2005, Cinemark, Inc. (“Cinemark”), through awholly owned subsidiary, acquired an interest in National CineMedia. On February 13,2007, National CineMedia, Inc. (“NCM, Inc.”), a newly formed entitythat serves as the sole manager of National CineMedia, completed an initialpublic offering, or IPO, of its common stock. In connection with the IPO of NCM, Inc.,RCM, through its wholly owned subsidiary Regal CineMedia Holdings, LLC (“RCH”),AMC and Cinemark amended and restated the operating agreement of NationalCineMedia and other ancillary agreements. In connection with the series oftransactions completed in connection with the IPO, Regal received gross cashproceeds totaling approximately $628.3 million and retained a 22.6%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 discussed further in Note 3—“Investment in NationalCineMedia, LLC,” as a result of the transactions completed in connectionwith the IPO, the Company recognized a gain of approximately$350.7 million during the quarter ended March 29, 2007.

 

On February 12,2007, we, along with AMC and Cinemark, formed a joint venture company known asDigital Cinema Implementation Partners, LLC, a Delaware limited liabilitycompany (“DCIP”), to explore the possibility of implementing digital cinema inour theatres and to create a financing model and establish agreements withmajor motion picture studios for the implementation of digital cinema. TheCompany’s cash investment in DCIP totaled approximately $2.5 million as ofJune 26, 2008. We account for our investment in DCIP following the equitymethod of accounting.  For the two quarters ended June 26, 2008, theCompany recorded a loss of $1.3 million representing its share of the netloss of DCIP. Such loss is presented as a component of “Minority interest inearnings of consolidated subsidiaries and other.”

 

During the quarterended June 28, 2007, the Company sold its equity interest in Fandango, Inc.(“Fandango”) for proceeds of $28.3 million. As a result of this transaction, the Company recognized a gain 

 

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on the sale ofapproximately $28.3 million ($17.0 million after tax).  In connection with the sale, the Companyagreed to amend its existing contract with Fandango in exchange for anamendment fee totaling $5.5 million. This amount has been recorded as deferredrevenue and will be amortized to revenue on a straight-line basis over the sixyear term of the amendment.

 

For a discussionof the series of events leading to the formation of the Company and othersignificant transactions which have occurred through December 27, 2007,please refer to Note 1 to the consolidated financial statements includedin Part II, Item 8 of our annual report on Form 10-K filed on February 26,2008 with the Securities and Exchange Commission (the “Commission”) (File No. 001-31315)for the fiscal year ended December 27, 2007.

 

On March 10,2008, Regal issued $200.0 million aggregate principal amount of 61⁄4%Convertible Senior Notes due March 15, 2011 (the “61⁄4% Convertible SeniorNotes”). Concurrent with the issuance of the 61⁄4% Convertible Senior Notes, weentered into simultaneous convertible note hedge and warrant transactions withrespect to our Class A common stock in order to reduce the potentialdilution from conversion of the 61⁄4% Convertible Senior Notes into shares of ourClass A common stock. The net cost of the convertible note hedge andwarrant transactions was approximately $6.6 million and is included as acomponent of equity in the accompanying unaudited condensed consolidated balancesheet as of June 26, 2008. See Note 4—“Debt Obligations” forfurther description of the 61⁄4% Convertible Senior Notes and the relatedconvertible note hedge and warrant transactions. The Company used cash on handand a portion of the net proceeds from the issuance of the 61⁄4% ConvertibleSenior Notes to redeem approximately $90.0 million principal amount of Regal’s33⁄4% Convertible Senior Notes due May 15, 2008 (the “33⁄4% Convertible SeniorNotes”), in a series of privately negotiated transactions.  As a result ofthe early redemption, the Company recorded a $52.8 million loss on debtextinguishment during the quarter ended March 27, 2008.  Inconnection with the early redemption, the Company received net proceeds ofapproximately $13.7 million from Credit Suisse International (“Credit Suisse”)attributable to the convertible note hedge and warrant transactions associatedwith the 33⁄4% Convertible Senior Notes described further in Note 4—“DebtObligations.” Such proceeds were recorded as an increase to additional paid-incapital. In connection with the final maturity of the 33⁄4% ConvertibleSenior Notes on May 15, 2008, holders of the remaining $33.7 million inprincipal amount exercised their conversion rights. The Company elected tosettle these conversions entirely in cash for approximately $51.4 millionusing the remaining proceeds from the issuance of the 61⁄4% Convertible SeniorNotes. As a result of these conversions, the Company recorded a$17.7 million loss on debt extinguishment during the quarter ended June 26,2008.  In connection with theseconversions, the Company received net proceeds of approximately$5.2 million from Credit Suisse attributable to the convertible note hedgeand warrant transactions associated with the 33⁄4% Convertible Senior Notes. Suchproceeds were also recorded as an increase to additional paid-incapital. See Note 4—”Debt Obligations” for further discussion of thistransaction.

 

On April 30,2008, the Company consummated a transaction to acquire Consolidated Theatres,L.L.C. (“Consolidated Theatres”), consisting of a total of 28 theatres with 400screens in Georgia, Maryland, North Carolina, South Carolina, Tennessee andVirginia.  The total net cash purchaseprice for the acquisition was approximately $209.3 million, subject to post-closingadjustments. The results of operations of the acquired theatre operations havebeen included in the Company’s consolidated financial statements for periodssubsequent to the acquisition date. In conjunction with the closing, we enteredinto a final judgment with the Antitrust Division of the United StatesDepartment of Justice, which requires us to hold separate and divest ourselvesof four theaters comprising 52 screens in North Carolina. See Note 2—”RecentAcquisitions” for further discussion of this transaction.

 

As described morefully in Note 3—“Investment in National CineMedia, LLC,” on April 9,2008, we received approximately 0.8 million additional common units of NationalCineMedia in accordance with the annual adjustment provisions of the CommonUnit Adjustment Agreement dated as of February 13, 2007, by and amongNational CineMedia, NCM, Inc., RCH, RCI and other parties thereto (the “CommonUnit Adjustment Agreement”).  On May 29,2008, we received an additional 2.9 million common units of National CineMediain accordance with the adjustment provisions of the Common Unit AdjustmentAgreement for our acquisition of Consolidated Theatres.  These adjustments increased the number ofNational CineMedia common units held by us to approximately 24.9 million and asa result, on a fully 

 

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diluted basis, we own a25.1% interest in NCM, Inc. as of June 26, 2008.

 

During the twoquarters ended June 26, 2008, Regal paid two quarterly cash dividends of$0.30 on each outstanding share of the Company’s Class A and Class Bcommon stock, or approximately $92.1 million in the aggregate.

 

Totalcomprehensive income for the quarter ended June 26, 2008 and June 28,2007 was $17.8 million and $55.0 million, respectively. Totalcomprehensive income for the two quarters ended June 26, 2008 and June 28,2007 was $2.7 million and $281.0 million, respectively. Total comprehensiveincome consists of net income and other comprehensive income (loss), net oftax, related to the change in the aggregate unrealized gain (loss) on theCompany’s interest rate swap arrangements during each of the quarters and twoquarters ended June 26, 2008 and June 28, 2007. The Company’sinterest rate swap arrangements are further described in Note 4—“DebtObligations.”

 

The Company hasprepared the unaudited condensed consolidated balance sheet as of June 26,2008 and the unaudited condensed consolidated statements of income and cashflows in accordance with U.S. generally accepted accounting principles forinterim financial information and the rules and regulations of theCommission. Accordingly, certain information and footnote disclosures typicallyincluded in an annual report have been condensed or omitted for this quarterlyreport. In the opinion of management, all adjustments (which include onlynormal recurring adjustments) necessary to present fairly in all materialrespects the financial position, results of operations and cash flows for allperiods presented have been made. The December 27, 2007 unauditedcondensed consolidated balance sheet information is derived from the auditedconsolidated financial statements of the Company included in its annual reporton Form 10-K for the fiscal year ended December 27, 2007. Theseunaudited condensed consolidated financial statements should be read inconjunction with the audited consolidated financial statements and notesthereto. The results of operations for the quarter and two quarters ended June 26,2008 are not necessarily indicative of the operating results that may beachieved for the full 2008 fiscal year.

 

Certainreclassifications have been made to the 2007 financial statements to conform tothe 2008 presentation.

 

**2. RECENTACQUISITIONS**

 

***Acquisitionof Consolidated Theatres, L.L.C.***

 

On April 30,2008, the Company consummated a transaction to acquire Consolidated Theatresconsisting of a total of 28 theatres with 400 screens in Georgia, Maryland, NorthCarolina, South Carolina, Tennessee and Virginia.  The total net cash purchase price for theacquisition was approximately $209.3 million, subject to post-closingadjustments. In conjunction with the closing, we entered into a final judgmentwith the Antitrust Division of the United States Department of Justice, whichrequires us to hold separate and divest ourselves of four theaters comprising52 screens in North Carolina.

 

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

 

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

 
| Current assets              |   | $      | 1.4    |   |
|-----------------------------|--------|--------|--------|--------|
| Property and equipment, net |   | 210.1  |   |
| Intangible assets           |   | 18.1   |   |
| Current liabilities         |   | (11.2  | )      |
| Long-term liabilities       |   | (9.1   | )      |
|                        |   |   |   |
| Total purchase price        |   | $      | 209.3  |   |

 

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The transaction includedthe acquisition of certain identifiable intangible assets, including $9.9million related to favorable leases with a weighted average amortization periodof 13.1 years and approximately $8.2 million related to an on-screenadvertising contract which will be amortized on a straight-line basis through January 2011.  During the quarter ended June 26, 2008,the Company recognized $0.5 million of amortization related to these intangibleassets.

 

The followingunaudited pro forma results of operations for the quarters and two quartersended June 26, 2008 and June 28, 2007, respectively, assume the aboveacquisition occurred as of the beginning of fiscal 2007. The pro forma resultshave been prepared for comparative purposes only and do not purport to indicatethe results of operations which would actually have occurred had thecombination been in effect on the dates indicated, or which may occur in thefuture.

 
| ** **                                                       | ** ** | **Quarter Ended  June 26, 2008** | ** ** | **Quarter Ended  June 28, 2007** | ** ** | **Two Quarters  Ended  June 26, 2008** | ** ** | **Two Quarters  Ended  June 28, 2007** | ** ** |
|------------------------------------------------------------------|------------|-------------------------------------------------|------------|-------------------------------------------------|------------|-------------------------------------------------------|------------|-------------------------------------------------------|------------|
| ** **                                                       | ** ** | **(in  millions except per share amounts)**     | ** ** |
| ** **                                                       | ** ** | ** **                                      | ** ** |
| Revenues                                                         |       | $                                               | 683.9      |                                            | $          | 719.4                                                 |       | $                                                     | 1,343.8    |   | $ | 1,373.7 |   |
| Income from operations                                           |       | 62.9                                            |       | 83.9                                            |       | 135.3                                                 |       | 148.2                                                 |       |
| Net income                                                       |       | 12.7                                            |       | 53.2                                            |       | 9.6                                                   |       | 281.9                                                 |       |
| Earnings per share of Class A and Class B common stock |       |                                            |       |                                            |       |                                                  |       |                                                  |       |
| Basic:                                                           |       | 0.08                                            |       | 0.35                                            |       | 0.06                                                  |       | 1.87                                                  |       |
| Diluted:                                                         |       | 0.08                                            |       | 0.33                                            |       | 0.06                                                  |       | 1.78                                                  |       |
|                                                                  |            |                                                 |            |                                                 |            |                                                       |            |                                                       |            |  |  |  |  |

 

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

 

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

 

In March 2005,Regal and AMC announced the combination of the operations of RCM and AMC’ssubsidiary, NCN, into a new joint venture company known as National CineMedia.In July 2005, Cinemark, through a wholly owned subsidiary, acquired aninterest in National CineMedia. National CineMedia focuses on the expansion ofin-theatre advertising and the creation of complementary business lines thatleverage the existing operating personnel, asset and customer bases of itstheatrical exhibition partners, which includes us, AMC and Cinemark. NationalCineMedia is, subject to limited exceptions, the exclusive provider ofadvertising and event services to Regal, AMC and Cinemark.

 

As part of the March 2005joint venture transaction, RCM and NCN entered into a Contribution and UnitHolders Agreement with National CineMedia pursuant to which, among otherthings, RCM and NCN agreed to contribute assets to National CineMedia andNational CineMedia agreed to assume specified liabilities of RCM and NCN inconsideration for the issuance of equity units by National CineMedia to RCM’swholly-owned subsidiary, RCH and NCN, respectively. The assets contributed toNational CineMedia by RCM included fixed assets and agreements as well asapproximately $1.3 million in cash. The Company accounts for itsinvestment in National CineMedia using the equity method of accounting and didnot recognize any gain or loss resulting from the initial formation of NationalCineMedia due to the Company’s continued involvement in the operations ofNational CineMedia.

 

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

 

On February 13,2007, NCM, Inc., a newly formed entity that serves as the sole manager ofNational CineMedia, completed an IPO of its common stock. NCM, Inc. sold38.0 million shares of its common stock for $21 per share in the IPO, lessunderwriting discounts and expenses. NCM, Inc. used a portion of the netcash proceeds from the IPO to acquire newly issued common units from NationalCineMedia. As a result of the NCM, Inc.’s acquisition of common units inNational CineMedia, the Company recognized a change in interest gain ofapproximately $182.7 million along with a corresponding increase in theCompany’s equity investment in National CineMedia.

 

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

 

The amount wereceived for agreeing to the ESA modification was approximately$281.0 million, which represents the estimated fair value of the ESAmodification payment. We estimated the fair value of the ESA payment based upona valuation performed by the Company with the assistance of third partyspecialists. This amount has been recorded as deferred revenue and will be amortizedto advertising revenue over the 30 year term of the agreement followingthe units of revenue method. Under the units of revenue method, amortizationfor a period is calculated by computing a ratio of the proceeds received fromthe ESA modification payment to the total expected decrease in revenues due toentry into the new ESA over the 30 year term of the agreement and thenapplying that ratio to the current period’s expected decrease in revenues dueto entry into the new ESA.

 

At the closing ofthe IPO, the underwriters exercised their over-allotment option to purchase anadditional 4.0 million shares of common stock of NCM, Inc. at theinitial offering price of $21 per share, less underwriting discounts andcommissions. In connection with this over-allotment option exercise, Regal, AMCand Cinemark each sold to NCM, Inc. common units of National CineMedia ona pro rata basis at the initial offering price of $21 per share, lessunderwriting discounts and expenses. Regal sold approximately 1.6 millioncommon units to NCM, Inc. for proceeds of approximately $32.2 millionand recognized a gain on the sale of such units of approximately$19.3 million. Upon completion of this sale of common units, Regal heldapproximately 21.2 million common units of National CineMedia. Such commonunits are immediately redeemable on a one-to-one basis for shares of NCM, Inc.Common Stock.  We account for ourinvestment in National CineMedia following the equity method of accounting.

 

Upon the closingof the IPO, National CineMedia entered into a $725.0 million term loanfacility, the net cash proceeds of which were used to redeem preferred unitsissued to each of Regal, AMC and Cinemark on a pro rata basis pursuant to arecapitalization of National CineMedia prior to completion of the IPO. Wereceived approximately $315.1 million as a result of the preferred unitredemption. The Company recognized such cash distributions from NationalCineMedia by (1) reducing its equity investment in National CineMedia fromapproximately $166.4 million to zero and (2) recording distributionsin excess of the investment balance in National CineMedia of approximately$148.7 million as a gain. Because the investment (and net advances) inNational CineMedia has been reduced to zero, we will 

 

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not provide for anyadditional losses as we have not guaranteed obligations of National CineMediaand we are not otherwise committed to provide further financial support forNational CineMedia. In addition, during future periods, the Company will notrecognize its share of any undistributed equity in the earnings of NationalCineMedia from the Company’s initial investment in National CineMedia untilNational CineMedia’s future net earnings equal or exceed the amount of theabove excess distribution. Until such time, equity earnings related to theCompany’s initial investment in National CineMedia will be recognized only tothe extent that the Company receives cash distributions from NationalCineMedia.  During the quarters ended June 26,2008 and June 28, 2007, the Company received $5.4 million and $2.2million, respectively, in cash distributions from National CineMedia. Duringthe two quarters ended June 26, 2008 and June 28, 2007, the Companyreceived $13.8 million and $2.2 million, respectively, in cashdistributions from National CineMedia. Such amounts were recognized in equityearnings during each of these periods and have been included as component of “Earningsrecognized from NCM” in the accompanying unaudited condensed consolidatedfinancial statements.

 

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

 

On April 9,2008, we received approximately 0.8 million additional common units of NationalCineMedia in accordance with the annual adjustment provisions of the CommonUnit Adjustment Agreement.  On May 29,2008, we received an additional 2.9 million common units of National CineMediain accordance with the adjustment provisions of the Common Unit AdjustmentAgreement for our acquisition of Consolidated Theatres.  These adjustments increased the number ofNational CineMedia common units held by us to approximately 24.9 million and asa result, on a fully diluted basis, we own a 25.1% interest in NCM, Inc.as of June 26, 2008.   The Companyrecorded the additional units at fair value using the available closing stockprices of NCM, Inc. as of the dates at which the units were received.  Since the additional common units received donot represent the funding of prior losses of National CineMedia, the fair valueof such units were recorded as separate investment tranches in NationalCineMedia.  Accordingly, the Companyrecorded a $73.4 million increase in its investment in National CineMediaduring the quarter ended June 26, 2008. Since Consolidated Theatres maintains an existing agreement with anon-screen advertising provider which will not expire until January 2011,National CineMedia will not be provided access to such theatre locations untilexpiration of the related advertising contract. In accordance with the Common Unit Adjustment Agreement, Regal agreed topay National CineMedia an amount that approximates the earnings beforeinterest, taxes, depreciation and amortization that would have been generatedby National CineMedia if it were able to sell on-screen advertising in theacquired theatre locations on an exclusive basis.  The fair value of such payment wasapproximately $8.0 million and was accrued by the Company during the quarterended June 26, 2008.  Such amountwas determined by the present value of the ultimate amount estimated to be paidto National CineMedia (approximately $8.9 million) through expiration of theon-screen advertising contract.  Theaccretion associated with this obligation will be reflected in interest expenseover the life of the related obligation. The Company recorded the remaining $65.4 million as an increase todeferred revenue. This amount will be amortized to advertising revenue over theremaining term of the ESA (approximately 29 years) following the units ofrevenue method.

 

Since theadditional common units received represent separate investment tranches inNational CineMedia, any undistributed equity in the earnings of NationalCineMedia pertaining to these tranches will be recognized under the equitymethod of accounting.  As a result, theCompany’s share in the net income of National CineMedia with respect to thesetranches totaled $0.5 million during the quarter and two quarters ended June 26,2008.  Such amount has been included as acomponent of “Earnings recognized from NCM” in the accompanying unauditedcondensed consolidated financial statements.

 

As a result of theESA amendment and related modification payment, for the quarters ended June 26,2008 and June 28, 2007, theatre access fees and other revenues receivedfrom National CineMedia, net of payments for on-screen advertising timeprovided to our beverage concessionaire, totaled approximately 

 

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$2.8 million and$1.5 million, respectively.  For thetwo quarters ended June 26, 2008 and for the period from February 13,2007 through June 28, 2007, such amounts totaled approximately$5.6 million and $2.6 million, respectively. These amounts arepresented as a component of other operating revenues in the Company’s financialstatements.  During the quarters ended June 26,2008 and June 28, 2007, the Company recognized $0.8 million and$0.6 million, respectively, of advertising revenue utilizing the units ofrevenue amortization method. During the two quarters ended June 26, 2008and the period from February 13, 2007 through June 28, 2007, theCompany recognized $1.4 million and $0.9 million, respectively, ofadvertising revenue utilizing the units of revenue amortization method.** **As of June 26, 2008, approximately$2.9 million and $2.0 million due from/to National CineMedia wereincluded in “Trade and other receivables, net” and “Accounts payable,”respectively.  As of December 27, 2007, approximately$2.0 million and $2.2 million due from/to National CineMedia wereincluded in “Trade and other receivables, net” and “Accounts payable,”respectively.

 

**4. DEBTOBLIGATIONS**

 

Debt obligationsat June 26, 2008 and December 27, 2007 consist of the following (inmillions):

 
| ** **                                                                                                                          | ** ** | **June 26, 2008** | ** ** | **December 27, 2007** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|---------------------------------|------------|
| Regal 61⁄4% Convertible Senior Notes                                                                                             |       | $                           | 200.0      |                            | $          | — |   |
| Regal 33⁄4% Convertible Senior Notes                                                                                             |       | —                      |       | 123.7                           |       |
| Regal Cinemas Senior  Credit Facility                                                                                               |       | 1,674.5                     |       | 1,683.0                         |       |
| Regal Cinemas 93/8% Senior Subordinated  Notes                                                                                      |       | 51.5                        |       | 51.5                            |       |
| Lease financing arrangements, weighted average interest rate of 11.18%,  maturing in various installments through January 2021 |       | 83.9                        |       | 85.8                            |       |
| Capital lease obligations, 8.5% to 10.3%, maturing in various  installments through December 2017                              |       | 19.5                        |       | 20.6                            |       |
| Other                                                                                                                               |       | 0.4                         |       | 0.9                             |       |
|                                                                                                                                |       |                        |       |                            |       |
| Total debt obligations                                                                                                              |       | 2,029.8                     |       | 1,965.5                         |       |
| Less current portion                                                                                                                |       | 23.0                        |       | 146.5                           |       |
|                                                                                                                                |       |                        |       |                            |       |
| Total debt obligations, net of current maturities                                                                                   |       | $                           | 2,006.8    |                            | $          | 1,819.0 |   |

 

***Regal 61⁄4% Convertible Senior Notes—*** On March 10, 2008, Regal issued$200.0 million aggregate principal amount of the 61⁄4% Convertible SeniorNotes. Interest on the 61⁄4% Convertible Senior Notes is payable semi-annually inarrears on March 15 and September 15 of each year, beginning September 15,2008. The 61⁄4% Convertible Senior Notes are senior unsecured obligations ofRegal and rank on parity with all of our existing and future senior unsecuredindebtedness and prior to all of our subordinated indebtedness. The 61⁄4%Convertible Senior Notes are effectively subordinated to all of our futuresecured indebtedness to the extent of the assets securing that indebtedness andto any indebtedness and other liabilities of our subsidiaries. None of oursubsidiaries have guaranteed any of our obligations with respect to the 61⁄4%Convertible Senior Notes. On or after December 15, 2010, our note holderswill have the option to convert their 61⁄4% Convertible Senior Notes, in whole orin part, into shares of our Class A common stock at any time prior to maturity,subject to certain limitations, unless previously purchased by us at the noteholder’s option upon a fundamental change (as defined in the indenture to the61⁄4% Convertible Senior Notes dated March 10, 2008) at the then-existingconversion price per share.  Prior to December 15, 2010, our noteholders have the right, at their option, to convert their 61⁄4% ConvertibleSenior Notes, in whole or in part, into shares of our Class A commonstock, subject to certain limitations, unless previously purchased by us at thenote holder’s option upon a fundamental change, at the then existing conversionprice per share, subject to further 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 

 

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stock for the 61⁄4%Convertible Senior Notes on the last trading day of such immediately precedingcalendar quarter;

 

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

 

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

 

·                  a fundamental change (as defined in 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 effective date (incertain circumstances) until the latter of: (i) the day before thefundamental change repurchase date and (ii) 30 days following theeffective date of such transaction (but in any event prior to the close ofbusiness on the business day prior to the maturity date), in which case we willincrease the conversion rate for the notes 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 June 26,2008, at the then-current conversion price of $23.0336 per share (whichconversion price may be adjusted pursuant to the certain events describedfurther in the 61⁄4% Convertible Senior Notes indenture), each $1,000 ofaggregate principal amount of 61⁄4% Convertible Senior Notes is convertible intoapproximately 43.4148 shares of our Class A common stock. Upon conversion,we may elect to deliver cash in lieu of shares of Class A common stock ora combination of cash and shares of Class A common stock. The conversionprice and the number of shares delivered on conversion are subject toadjustment upon certain events.

 

In connection withthe issuance of the 61⁄4% Convertible Senior Notes, we used approximately$6.6 million of the net proceeds of the offering to enter into convertiblenote hedge and warrant transactions with respect to our Class A commonstock to reduce the potential dilution from conversion of the 61⁄4% ConvertibleSenior Notes. Under the terms of the convertible note hedge arrangement (the “2008Convertible Note Hedge”) with Credit Suisse, we paid $12.6 million for aforward purchase option contract under which we are entitled to purchase fromCredit Suisse a fixed number of shares of our Class A common stock (at June 26,2008, at a price per share of $23.0336). In the event of the conversion of the61⁄4% Convertible Senior Notes, this forward purchase option contract allows usto purchase, at a fixed price equal to the implicit conversion price of sharesissued under the 61⁄4% Convertible Senior Notes, a number of shares of Class ACommon stock equal to the shares that we issue to a note holder uponconversion. Settlement terms of this forward purchase option allow the Companyto elect cash or share settlement based on the settlement option it chooses insettling the conversion feature of the 61⁄4% Convertible Senior Notes. Weaccounted for the 2008 Convertible Note Hedge pursuant to the guidance inEmerging Issues Task Force (“EITF”) 00-19, “Accounting for DerivativeFinancial Instruments Indexed to, and Potentially Settled in a Company’s OwnStock.” Accordingly, the $12.6 million purchase price of the forward stockpurchase option contract was recorded as an increase to consolidatedstockholders’ deficit.

 

We also sold toCredit Suisse a warrant (the “2008 Warrant”) to purchase shares of our Class Acommon stock. The 2008 Warrant is currently exercisable for approximately8.7 million shares of our Class A common stock at a June 26,2008 exercise price of $25.376 per share (which exercise price may be 

 

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adjusted pursuant to theprovisions of the 2008 Warrant). We received $6.0 million in cash fromCredit Suisse in return for the sale of this forward share purchase optioncontract. Credit Suisse cannot exercise the 2008 Warrant unless and until aconversion event occurs. We have the option of settling the 2008 Warrant incash or shares of our Class A common stock. We accounted for the sale ofthe 2008 Warrant as the sale of a permanent equity instrument pursuant to theguidance in EITF 00-19. Accordingly, the $6.0 million sales price ofthe forward stock purchase option contract was recorded as a debit toconsolidated stockholders’ deficit.

 

The 2008Convertible Note Hedge and the 2008 Warrant allow us to acquire sufficient Class Acommon shares from Credit Suisse to meet our obligation to deliver Class Acommon shares upon conversion by the note holder, unless the Class Acommon share price exceeds $25.376 (as of June 26, 2008). When the fairvalue of our Class A common shares exceeds such price, the equitycontracts no longer have an offsetting economic impact, and accordingly will nolonger be effective as a share-for-share hedge of the dilutive impact ofpossible conversion.

 

The 61⁄4%Convertible Senior Notes allow us to settle any conversion by remitting to thenote holder the accreted value of the note in cash plus the conversion spread(the excess conversion value over the accreted value) in either cash, shares ofour Class A common stock or a combination of stock and cash. Theaccounting for convertible debt with such settlement features is addressed inthe consensus reached by the EITF with respect to the accounting for Instrument Bas set forth in EITF 90-19, “Convertible Bonds with Issuer Option toSettle for Cash upon Conversion.”  Because the accreted value of the 61⁄4%Convertible Senior Notes may be settled in cash, shares of our Class Acommon stock or a combination of stock and cash, the accreted value of the 61⁄4%Convertible Senior Notes is assumed to be settled in shares and will result indilution in our earnings per share computations using the if-converted method,if the effect is dilutive.

 

***Regal 33⁄4% Convertible Senior Notes***—As further described in Note 5 to theconsolidated financial statements included in our annual report on Form 10-Kfor the fiscal year ended December 27, 2007, on May 28, 2003, Regalissued $240.0 million aggregate principal amount of the 33⁄4% ConvertibleSenior Notes.

 

In connection withthe issuance of the 61⁄4% Convertible Senior Notes described above, on March 5,2008 and March 10, 2008, we redeemed a total of approximately $90.0million principal amount of the 33⁄4% Convertible Senior Notes, in a series ofprivately negotiated transactions.  As a result of the early redemption,the Company recorded a $52.8 million loss on debt extinguishment during thequarter ended March 27, 2008.  In connection with the earlyredemption, the Company received net proceeds of approximately $13.7 millionfrom Credit Suisse attributable to the convertible note hedge (the “2003Convertible Note Hedge”) and the warrant (the “2003 Warrant”) associated withthe 33⁄4% Convertible Senior Notes.  Such proceeds were recorded as an increaseto additional paid-in capital. In connection with the final maturity of the 33⁄4%Convertible Senior Notes on May 15, 2008, holders of the remaining $33.7million in principal amount exercised their conversion rights. The Companyelected to settle these conversions entirely in cash for approximately$51.4 million using the remaining proceeds from the issuance of the 61⁄4%Convertible Senior Notes. As a result of these conversions, the Companyrecorded a $17.7 million loss on debt extinguishment during the quarterended June 26, 2008.  In connectionwith these conversions, the Company received net proceeds of approximately$5.2 million from Credit Suisse attributable to the convertible note hedgeand warrant transactions associated with the 33⁄4% Convertible Senior Notes. Suchproceeds were also recorded as an increase to additional paid-in capital.

 

***Regal Cinemas Fifth Amended and Restated Credit Agreement***— On October 27, 2006, Regal Cinemasentered into a fifth amended and restated credit agreement (the “Amended SeniorCredit Facility”) with Credit Suisse, Cayman Islands Branch (as successor toCredit Suisse First Boston), as Administrative Agent and the other lendersparty thereto, which consists of a term loan facility (the “Term Facility”) inan aggregate original principal amount of $1,700.0 million and a revolvingcredit facility (the “Revolving Facility”) in an aggregate principal amount ofup to $100.0 million. The Revolving Facility has a separate sublimit of$10.0 million for short-term loans and a sublimit of $30.0 millionfor letters of credit.

 

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The Term Facilitywill mature on October 27, 2013 and the Revolving Facility will mature on October 27,2011. Interest is payable (a) in the case of base rate loans, quarterly inarrears, and (b) in the case of Eurodollar rate loans, at the end of eachinterest period, but in no event less often than every three months. TheTerm Facility amortizes in equal quarterly installments in an aggregate annualamount equal to 1.0% of the original principal amount of the Term Facilityduring the first six years thereof, with the balance payable in two equalinstallments, the first on June 30, 2013 and the second on October 27,2013.

 

Borrowings underthe Amended Senior Credit Facility bear interest, at Regal Cinemas’ option, ateither a base rate or an Adjusted Eurodollar Rate (as defined in the AmendedSenior Credit Facility) plus, in each case, an applicable margin. As of June 26,2008 and December 27, 2007, borrowings of $1,674.5 million and$1,683.0 million, respectively, were outstanding under the Term Facilityat an effective interest rate of 5.22% (as of June 26, 2008) and 6.09% (asof December 27, 2007), after the  impact of the interest rate swapsdescribed below is taken into account.

 

Under the AmendedSenior Credit Facility, Regal Cinemas also established an additional term loanfacility (“Incremental Term Facility”) solely to fund, or reimburse RegalCinemas for funding, distributions to the Company for the purpose of redeeming,repurchasing, acquiring or otherwise settling the conversion of all or aportion of the 33⁄4% Convertible Senior Notes.  The Incremental TermFacility expired on May 15, 2008, the date at which the 33⁄4% ConvertibleSenior Notes matured.

 

The Amended SeniorCredit Facility is further described in Note 5 to the consolidatedfinancial statements included in our annual report on Form 10-K for thefiscal year ended December 27, 2007.

 

***Interest Rate Swaps***—As described in Note 5 to the consolidated financialstatements included in our annual report on Form 10-K for the fiscal yearended December 27, 2007, on July 13, 2004, Regal Cinemas entered intofour hedging relationships via four distinct interest rate swap agreements withfinal maturity terms ranging from three to five years each. On September 8,2005, Regal Cinemas entered into an additional hedging relationship via adistinct interest rate swap agreement with a maturity term of four years. Theseinterest rate swaps were designated to hedge approximately$1,100.0 million of variable rate debt obligations. On June 30, 2007,one of our interest rate swaps designated to hedge approximately$200.0 million of variable rate debt obligations matured. On August 9,2007, Regal Cinemas entered into two additional hedging relationships via twodistinct interest rate swap agreements with maturity terms of two years each.These interest rate swaps were designated to hedge approximately$200.0 million of variable rate debt obligations. On June 30, 2008,two of our interest rate swaps designated to hedge $300.0 million of variablerate debt obligations matured.

 

As of June 26,2008, the aggregate fair value of the interest rate swaps was determined to beapproximately ($15.9 million), which has been recorded as a component of “OtherNon-Current Liabilities” with a corresponding amount of ($9.7 million),net of tax, recorded to “Accumulated Other Comprehensive Loss.” The interestrate swaps exhibited no ineffectiveness for the quarters and two quarters endedJune 26, 2008 and June 28, 2007.

 

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

 

**5.INCOME TAXES**

 

The provision forincome taxes of $8.5 million and $35.1 million for the quarters ended June 26,2008 and June 28, 2007, respectively, reflect effective tax rates ofapproximately 38.1% and 40.0%, respectively.  The provision for incometaxes of $9.4 million and $190.7 million for the two quarters ended June 26,2008 and June 28, 2007, respectively, reflect effective tax rates ofapproximately 46.5% and 40.4%, respectively.  The effective tax rates forthe quarters and two quarters ended June 26, 2008 and 

 

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June 28, 2007reflect the impact of certain non-deductible expenses.  The decrease inthe effective tax rate for the quarter ended June 26, 2008 is primarilyattributable to the settlement of an uncertain tax position with state taxingauthorities during the quarter ended June 26, 2008. The increase in theeffective tax rate for the two quarters ended June 26, 2008 is primarilyattributable to the state tax effects of the $70.5 million loss ($44.1 millionafter related tax effects) on debt extinguishment recorded in the two quartersended June 26, 2008 in connection with the redemption of approximately$123.7 million principal amount of the 33⁄4% Convertible Senior Notes and, to alesser extent, other state tax matters.

 

In assessing therealizable value of deferred tax assets, management considers whether it ismore likely than not that some portion or all of the deferred tax assets willnot be realized. The ultimaterealization of deferred tax assets is dependent uponthe generation of future taxable income during the periods in which thesetemporary differences become deductible. The Company has recorded a valuationallowance against deferred tax assets at June 26, 2008 and December 27,2007 totaling $10.5 million, as management believes it is more likely thannot that certain deferred tax assets will not be realized in future taxperiods. As of June 26, 2008 and December 27, 2007, approximately$8.0 million of the valuation allowance relates to pre-acquisitiondeferred tax assets of Edwards and United Artists. Accordingly, futurereductions in the valuation allowance associated with a change in management’sdetermination of the Company’s ability to realize these deferred tax assetswill reduce recorded goodwill related to such acquisitions.

 

During the quarterended June 26, 2008, the Company reached an agreement with certain statetaxing authorities regarding an uncertain tax position.  Settlements of the uncertain tax positionresulted in payments to the taxing authorities totaling approximately $0.5million, a reduction in the gross unrecognized tax benefits of approximately$1.6 million and a reduction in the total net unrecognized tax benefits thatwould affect the effective tax rate if recognized of $0.4 million.  As of June 26, 2008 and December 27,2007, gross unrecognized tax benefits were $36.3 million and $37.9 million,respectively, and the total net unrecognized tax benefits that would affect theeffective tax rate if recognized were $5.3 million and $5.7 million,respectively.

 

In conjunctionwith the settlements of the uncertain tax position, the Company reduced accruedgross interest and penalties by approximately $2.0 million during the twoquarters ended June 26, 2008. Coupled with a $0.5 million accrual of interest on other uncertain taxpositions, the reduction in interest and penalties for the settlements hasresulted in accrued gross interest and penalties of approximately $2.3 millionas of June 26, 2008.  As of December 27,2007, accrued gross interest and penalties totaled approximately $3.8 million.

 

The Company andits subsidiaries collectively file income tax returns in the U.S. federaljurisdiction and various state jurisdictions.  In June 2005, theCompany was notified that the Internal Revenue Service (“IRS”) would examineits 2002 and 2003 federal income tax returns. During October 2005, the IRScompleted its examination of the Company’s federal tax returns for such yearsand the Company and the IRS agreed to certain adjustments to the Company’s 2002and 2003 federal tax returns. Such adjustments did not have a material impacton the Company’s provision for income taxes.  With certain limitedexceptions, the Company is no longer subject to U.S. federal or state incometax examinations by tax authorities for years before 2003.  However, thetaxing authorities still have the ability to review the propriety of taxattributes created in closed tax years if such tax attributes are utilized inan open tax year.

 

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

 

***Capital Stock***

 

As of June 26,2008, the Company’s authorized capital stock consisted of:

 

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

 

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

 

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

 

Of the authorizedshares of Class A common stock, 18.0 million shares were sold inconnection with the Company’s initial public offering in May 2002. TheCompany’s Class A common stock is listed on the New York Stock Exchangeunder the trading symbol “RGC.” As of June 26, 2008, 129,796,512 shares ofClass A common stock were outstanding. Of the authorized shares of Class Bcommon stock, 23,708,639 shares were outstanding as of June 26, 2008, allof which are held by Anschutz Company (“Anschutz”). Each share of Class Bcommon stock converts into one share of Class A common stock at the optionof the holder or upon certain transfers of a holder’s Class B commonstock. Each holder of Class B common stock is entitled to ten votes foreach outstanding share of Class B common stock owned by that stockholderon every matter properly submitted to the stockholders for their vote. Of theauthorized shares of the preferred stock, no shares were issued and outstandingas of June 26, 2008. The Class A common stock is entitled to one votefor each outstanding share of Class A common stock on every matterproperly submitted to the stockholders for a vote. Except as required by law,the Class A and Class B common stock vote together as a single classon all matters submitted to the stockholders. The material terms and provisionsof the Company’s certificate of incorporation affecting the relative rights ofthe Class A common stock and the Class B common stock are describedin Note 10 to the financial statements included in our annual report on Form 10-Kfor the fiscal year ended December 27, 2007.

 

***Share Repurchase Program***

 

During 2004, theCompany’s board of directors authorized a share repurchase program, which providedfor the authorization to repurchase up to $50.0 million of the Company’soutstanding Class A common stock within a twelve month period. During thequarter ended June 30, 2005, the Company repurchased 520,386 shares of itsoutstanding Class A common stock at an aggregate cost of approximately$10.0 million. The Company’s board of directors extended the sharerepurchase program during the fiscal year ended December 27, 2007 for anadditional twelve month period. Accordingly, the Company can repurchase up toan additional $40.0 million under the share repurchase program through September 2008.The Company made no repurchases of its outstanding Class A common stockduring the quarters and two quarters ended June 26, 2008 and June 28,2007. Repurchases can be made from time to time as market conditions warrant,through open market purchases, negotiated transactions, or in such a mannerdeemed appropriate by the Company. Treasury shares are retired upon repurchase.At retirement, the Company records treasury stock purchases at cost with anyexcess of cost over par value recorded as a reduction of additional paid-incapital.

 

***Warrants***

 

Other thandisclosed in Note 4—“Debt Obligations” and Note 9—“Earnings PerShare,” no warrants to acquire the Company’s Class A or Class Bcommon stock were outstanding as of June 26, 2008.

 

***Share-Based Compensation***

 

In 2002, theCompany established the 2002 Stock Incentive Plan (the “Incentive Plan”) for atotal of 11,194,354 authorized shares, which provides for the granting ofincentive stock options and non-qualified stock options to officers, employeesand consultants of the Company. As described below under “Restricted Stock” and“Performance Share Units,” the Incentive Plan also provides for grants ofrestricted stock and performance shares that are subject to restrictions andrisks of forfeiture. Readers should refer to Note 10 to the financial statementsincluded in our annual report on Form 10-K for the fiscal year ended December 27,2007 for additional information related to these awards and the Incentive Plan.

 

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*StockOptions*

 

In connection withthe July 1, 2003, June 2, 2004 and April 13, 2007 extraordinarycash dividends and pursuant to the antidilution adjustment terms of theIncentive Plan, the exercise price and the number of shares of Class Acommon stock subject to options held by the Company’s option holders wereadjusted to prevent dilution and restore their economic position to thatexisting immediately before the extraordinary dividends. The antidilutionadjustments made with respect to such options resulted in a decrease in therange of exercise prices, from $2.4407 to $16.1768 per share, an increase inthe aggregate number of shares issuable upon exercise of such options by5,185,100, and an increase in the total number of authorized shares under theIncentive Plan to 18,269,213 (after giving effect to the May 11, 2005amendment to the Incentive Plan, which increased the total number of shares of Class Acommon stock authorized for issuance under the Incentive Plan by 1,889,759shares). As of June 26, 2008 and after giving effect to the antidilutionadjustments and the May 11, 2005 amendment to the Incentive Plan, optionsto purchase a total of 598,358 shares of Class A common stock were outstandingunder the Incentive Plan, and 2,626,589 shares remain available for futureissuance under the Incentive Plan. Stock option information presented hereinhas been adjusted to give effect to the extraordinary dividends. There were noaccounting consequences for changes made to reduce the exercise prices andincrease the number of shares underlying options as a result of theextraordinary cash dividends because (1) the aggregate intrinsic value ofthe awards immediately after the extraordinary dividends was not greater thanthe aggregate intrinsic value of the awards immediately before theextraordinary dividends and (2) the ratio of the exercise price per shareto the market value per share was not reduced.

 

There were nostock options granted during the quarters and two quarters ended June 26,2008 and June 28, 2007.  During the quarters ended June 26, 2008and June 28, 2007, the Company recognized approximately $0.1 million and$0.3 million, respectively, of share-based compensation expense related to stockoptions.  During the two quarters ended June 26, 2008 and June 28,2007, the Company recognized approximately $0.1 million and $1.2 million,respectively, of share-based compensation expense related to stockoptions. Such expense is presented as a component of general andadministrative expenses for the quarters and two quarters ended June 26,2008 and June 28, 2007.  At June 26, 2008, there was$0.3 million of unrecognized compensation cost related to share-basedpayments.

 

We receive a taxdeduction for certain stock option exercises during the period the options areexercised, generally for the excess of the price at which the stock is soldover the exercise price of the options.  In accordance with Statement ofFinancial Accounting Standards (“SFAS”) No. 123R (revised), “Shared-BasedPayment” (“SFAS 123R”), we are required to report excess tax benefits from theaward of equity instruments as financing cash flows.  Excess tax benefitsare recorded 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 two quarters ended June 26,2008, our unaudited condensed consolidated statement of cash flows reflects$0.2 million of excess tax benefits as financing cash flows. Net cashproceeds from the exercise of stock options were $0.5 million for the twoquarters ended June 26, 2008. The actual income tax benefit realizedfrom stock option exercises was $0.2 million for the same period.  For thetwo quarters ended June 28, 2007, our unaudited condensed consolidatedstatement of cash flows reflects $14.3 million of excess tax benefits asfinancing cash flows. Net cash proceeds from the exercise of stock optionswere $14.8 million for the two quarters ended June 28, 2007. Theactual income tax benefit realized from stock option exercises is $16.8 millionfor the same period.

 

The followingtable represents stock option activity for the two quarters ended June 26,2008:

 
| ** **                                 | ** ** | **Number of  Shares** | ** ** | **Weighted Average  Exercise Price** | ** ** | **Weighted Average  Contract Life (Yrs.)** | ** ** |
|--------------------------------------------|------------|----------------------------|------------|-------------------------------------------|------------|-----------------------------------------------------------|------------|
| Outstanding options at beginning of period |       | 655,965                    |       | $                                         | 9.30       |                                                      | 4.78       |   |
| Granted                                    |       | —                     |       | —                                    |       |                                                      |       |
| Exercised                                  |       | (53,801                    | )          | 8.57                                      |       |                                                      |       |
| Forfeited                                  |       | (3,806                     | )          | 16.18                                     |       |                                                      |       |
| Outstanding options at end of period       |       | 598,358                    |       | 9.33                                      |       | 4.29                                                      |       |
| Exercisable options at end of period       |       | 547,487                    |       | 8.78                                      |       | 4.17                                                      |       |
|                                            |            |                            |            |                                           |            |                                                           |            |  |

 

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*RestrictedStock*

 

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

 

During thequarters ended June 26, 2008 and June 28, 2007, the Companyrecognized approximately $0.9 million and $0.7 million, respectively, ofshare-based compensation expense related to restricted share grants. During the two quarters ended June 26, 2008 and June 28, 2007, theCompany recognized approximately $1.9 million and $1.5 million, respectively,of share-based compensation expense related to restricted sharegrants. Such expense is presented as a component of general andadministrative expenses. The compensation expense for these awards was determinedbased on the market price of our stock at the date of grant applied to thetotal numbers of shares that were anticipated to fully vest.  As of June 26,2008, we have unrecognized compensation expense of $7.2 million associated withrestricted stock awards.

 

The followingtable represents the restricted stock activity for the two quarters ended June 26,2008:

 
| ** **                      | ** ** | **Two Quarters  Ended  June 26, 2008** | ** ** |
|---------------------------------|------------|-------------------------------------------------------|------------|
| Unvested at beginning of period |       | 459,848                                               |       |
| Granted during the period       |       | 229,572                                               |       |
| Vested during the period        |       | (27,417                                               | )          |
| Forfeited during the period     |       | (5,448                                                | )          |
|                            |       |                                                  |       |
| Unvested at end of period       |       | 656,555                                               |       |

 

During the twoquarters ended June 26, 2008, the Company paid two cash dividends of $0.30on each share of outstanding restricted stock totaling approximately$0.4 million.  During the two quarters ended June 28, 2007, theCompany paid two cash dividends of $0.30 on each share of outstandingrestricted stock totaling approximately $0.3 million. In addition, onMarch 5, 2007, Regal declared an extraordinary cash dividend of $2.00 pershare on each outstanding restricted share. Restricted stockholders of recordat the close of business on March 28, 2007 were paid this dividend on April 13,2007.  The restricted stock dividend was recorded as a $1.0 millionincrease to stockholders’ deficit upon declaration.

 

*PerformanceShare Units*

 

As described inNote 9 to the financial statements included in our annual report on Form 10-Kfor the fiscal year ended December 27, 2007, the Incentive Plan alsoprovides for grants in the form of performance share units to officers,directors and key employees. Performance share agreements are entered intobetween the Company and each grantee of performance share units (each a “PerformanceAgreement”). Pursuant to the terms and conditions of the Performance Agreement,grantees will be issued shares of restricted common stock of the Company in anamount determined by the attainment of Company performance criteria set forthin the Performance Agreement. The shares of restricted common stock receivedupon attainment of the performance criteria will be subject to further vestingover a period of time, provided the grantee remains a service provider to theCompany during such period.

 

On January 16,2008, 252,721 performance shares were granted under the Incentive Plan atnominal cost to officers and key employees.  The closing price of our Class Acommon stock on the date of

 

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grant was $17.07 pershare. Each performance share represents the right to receive from 0% to 175%of the target numbers of shares of restricted common stock. The number ofshares of restricted common stock earned will be determined by comparing theactual average annual total shareholder return (stock price appreciation plusdividend yield) attained (“TSRA”) on Regal’s Class A common stock on January 16,2011 (the third anniversary of the grant date) to the target TSRA set forth inthe Performance Agreement. A target number of shares of restricted common stockto be earned by each eligible grantee has been established with respect to the2008 performance share grants and is primarily based on the grantee’s employeeclassification and base compensation, referred to as “target long-termincentive” (“Target LTI”) below. In addition, these awards are subject to anadditional one-year vesting requirement. The Company has developed aperformance range around the target TSRA and the number of shares of restrictedstock that will be issued will be based on actual TSRA, according to thefollowing schedule:

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

 

Since theperformance shares contain a market condition which should be reflected in thegrant date fair value of an award in accordance with the provisions of SFAS123R, the performance shares were measured on the date of grant using a MonteCarlo simulation model. The Monte Carlo simulation model utilizes multipleinput variables that determine the probability of satisfying the marketcondition stipulated in the award grant and calculates the fair market valuefor the performance shares granted. On January 16, 2008, the aggregatefair value of the 2008 performance share awards was determined to be$1.6 million, which includes related dividends on shares ultimately earnedand paid on January 16, 2011. The fair value of the performance shareawards will be amortized as compensation expense over the expected term of theawards. The key assumptions used for valuing the 2008 performance share awardsfollow:

 

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

 

Expectedvolatility is based on historical volatility of the Company’s dividend adjustedcommon stock price measured daily over a three year period ending on January 16,2008.  The risk-free interest rate is set equal to the yield on three-year(constant maturity) U.S. Government bonds as of January 16, 2008. Theexpected dividend yield assumption is based on the Company’s history andexpectation of future dividend payouts. The dividend yield is included in thecalculation of returns for measurement against the performance goals definedabove.

 

During thequarters ended June 26, 2008 and June 28, 2007, the Companyrecognized approximately $0.5 million and $0.4 million, respectively, ofshare-based compensation expense related to performance share grants. During the two quarters ended June 26, 2008 and June 28, 2007, theCompany recognized approximately $0.9 million and $0.8 million, respectively,of share-based compensation expense related to performance share grants. Such expense is presented as a component of general and administrativeexpenses.

 

The followingtable summarizes information about the Company’s number of performance sharesfor the two quarters ended June 26, 2008:

 

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| ** **                      | ** ** | **Two Quarters  Ended  June 26, 2008** | ** ** |
|---------------------------------|------------|-------------------------------------------------------|------------|
| Unvested at beginning of period |       | 567,632                                               |       |
| Granted (based on target TSRA)  |       | 252,721                                               |       |
| Forfeited                       |       | (12,775                                               | )          |
|                            |       |                                                  |       |
| Unvested at end of period       |       | 807,578                                               |       |

 

The above tabledoes not reflect the maximum or minimum number of shares of restricted stockcontingently issuable. An additional 605,683 shares of restricted stock couldbe issued providing the maximum TSRA is met.

 

**7.COMMITMENTS AND CONTINGENCIES**

 

***Acquisition of Consolidated Theatres, L.L.C.***

 

As described in Note 2—”RecentAcquisitions,” in conjunction with the closing of Consolidated Theatres, weentered into a final judgment with the Antitrust Division of the United StatesDepartment of Justice, which requires us to hold separate and divest ourselvesof four theaters comprising 52 screens in North Carolina.

 

***Sale-Leaseback Transactions***

 

The Company’ssale-leaseback transactions are described in Note 6 to the consolidatedfinancial statements included in our annual report on Form 10-K for thefiscal year ended December 27, 2007.

 

***Other***

 

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

 

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

 

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

 

We believe that weare in substantial compliance with all current applicable regulations relatingto accommodations for the disabled. We intend to comply with future regulationsin this regard, and except as set forth above, we do not currently anticipate thatcompliance will require us to expend substantial funds.

 

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Ourtheatre operations are also subject to federal, state and local laws governingsuch matters as wages, working conditions, citizenship and health and sanitationrequirements. We believe that we are in substantial compliance with all of suchlaws.

 

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

 

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

 

**8. RELATED PARTY TRANSACTIONS**

 

During the quarter ended June 26, 2008, Regal Cinemas incurredcapitalized costs of $9.8 million to an Anschutz affiliate, QwestCommunications and its subsidiaries, for network infrastructure upgrades.  During the quarters ended June 26, 2008and June 28, 2007, Regal Cinemas incurred approximately $1.6 millionand $1.0 million, respectively, of expenses payable to Qwest Communications andits subsidiaries for telecommunication and network monitoring services. Inaddition, Regal Cinemas incurred approximately $0.1 million of expensespayable to Anschutz affiliates for certain advertising services during thequarters ended June 26, 2008 and June 28, 2007. Also during thequarters ended June 26, 2008 and June 28, 2007, Regal Cinemasreceived less than $0.1 million from an Anschutz affiliate for rent andother expenses related to a theatre facility.

 

During the two quarters ended June 26, 2008, Regal Cinemasincurred capitalized costs of $12.1 million to Qwest Communications and itssubsidiaries for network infrastructure upgrades. Regal Cinemas incurredapproximately $2.7 million and $2.1 million, respectively, of expensespayable to Qwest Communications and its subsidiaries for telecommunication andnetwork monitoring services during the two quarters ended June 26, 2008and June 28, 2007.  In addition,Regal Cinemas incurred approximately $0.1 million of expenses payable toAnschutz affiliates for certain advertising services during the two quartersended June 26, 2008 and June 28, 2007. Also during the two quartersended June 26, 2008 and June 28, 2007, Regal Cinemas received lessthan $0.1 million from an Anschutz affiliate for rent and other expensesrelated to a theatre facility.

 

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

 

**9. EARNINGS PER SHARE**

 

We compute net income per share of Class A and Class B commonstock in accordance with SFAS No. 128, “Earnings per Share” (“SFAS 128”)using the two class method. Under the provisions of SFAS 128, basic net incomeper share is computed using the weighted average number of common sharesoutstanding during the period.  Diluted net income per share is computedusing the weighted average number of common shares and, if dilutive, commonstock equivalents outstanding during the period. Potential common stockequivalents consist of the incremental common shares issuable upon the exercise

 

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of common stock options,restricted stock and performance shares, the conversion spread on the 33⁄4%Convertible Senior Notes, the 2003 Warrant, the assumed conversion of the 61⁄4%Convertible SeniorNotesand the 2008 Warrant issued in connection with the 61⁄4% Convertible SeniorNotes.   The dilutive effect of outstanding stock options, restrictedshares and performance shares, the conversion spread on the 33⁄4% ConvertibleSenior Notes, the 2003 Warrant 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, thecomputation of the diluted net income per share of Class A common stockassumes the conversion of Class B common stock, while the diluted netincome per share of Class B common stock does not assume the conversion ofthose shares.

 

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

 

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

 
| ** **                                                                                                | ** ** | **Quarter ended  June 26, 2008** | ** ** | **Quarter ended  June 28, 2007** | ** ** | **Two Quarters  Ended  June 26, 2008** | ** ** | **Two Quarters  Ended  June 28, 2007** | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|-------------------------------------------------|------------|-------------------------------------------------------|------------|-------------------------------------------------------|------------|
| ** **                                                                                                | ** ** | **Class A**                                | ** ** | **Class B**                                | ** ** | **Class A**                                      | ** ** | **Class B**                                      | ** ** | **Class A** | ** ** | **Class B** | ** ** | **Class A** | ** ** | **Class B** | ** ** |
| Basic net income  per share:                                                                              |       |                                            |       |                                            |       |                                                  |       |                                                  |       |   |   |   |   |   |   |   |   |
| Numerator:                                                                                                |       |                                            |       |                                            |       |                                                  |       |                                                  |       |   |   |   |   |   |   |   |   |
| Allocation of  undistributed earnings                                                                     |       | $                                               | 11.7       |                                            | $          | 2.1                                                   |       | $                                                     | 44.5       |   | $ | 8.2 |   | $ | 9.1 |   | $ | 1.7 |   | $ | 237.4 |   | $ | 44.4 |   |
|                                                                                                      |       |                                            |       |                                            |       |                                                  |       |                                                  |       |   |   |   |   |   |   |   |   |
| Denominator:                                                                                              |       |                                            |       |                                            |       |                                                  |       |                                                  |       |   |   |   |   |   |   |   |   |
| Weighted average  common shares outstanding (in thousands)                                                |       | 129,121                                         |       | 23,709                                          |       | 128,082                                               |       | 23,709                                                |       | 129,108 |   | 23,709 |   | 127,257 |   | 23,786 |   |
|                                                                                                      |       |                                            |       |                                            |       |                                                  |       |                                                  |       |   |   |   |   |   |   |   |   |
| Basic net income  per share                                                                               |       | $                                               | 0.09       |                                            | $          | 0.09                                                  |       | $                                                     | 0.35       |   | $ | 0.35 |   | $ | 0.07 |   | $ | 0.07 |   | $ | 1.87 |   | $ | 1.87 |   |
|                                                                                                      |       |                                            |       |                                            |       |                                                  |       |                                                  |       |   |   |   |   |   |   |   |   |
| Diluted net  income per share:                                                                            |       |                                            |       |                                            |       |                                                  |       |                                                  |       |   |   |   |   |   |   |   |   |
| Numerator:                                                                                                |       |                                            |       |                                            |       |                                                  |       |                                                  |       |   |   |   |   |   |   |   |   |
| Allocation of  undistributed earnings for basic computation                                               |       | $                                               | 11.7       |                                            | $          | 2.1                                                   |       | $                                                     | 44.5       |   | $ | 8.2 |   | $ | 9.1 |   | $ | 1.7 |   | $ | 237.4 |   | $ | 44.4 |   |
|                                                                                                      |       |                                            |       |                                            |       |                                                  |       |                                                  |       |   |   |   |   |   |   |   |   |
| Reallocation of  undistributed earnings as a result of conversion of Class B to  Class A shares |       | 2.1                                             |       | —                                          |       | 8.2                                                   |       | —                                                |       | 1.7 |   | — |   | 44.4 |   | — |   |
| Reallocation of  undistributed earnings to Class B shares for effect of other dilutive  securities   |       | —                                          |       | —                                          |       | —                                                |       | (0.4                                                  | )          | — |   | — |   | — |   | (2.1 | ) |
| Interest expense  on 61⁄4% Convertible Senior Notes                                                    |       | —                                          | (1)        | —                                          |       | —                                                |       | —                                                |       | — | (1) | — |   | — |   | — |   |
|                                                                                                      |       |                                            |       |                                            |       |                                                  |       |                                                  |       |   |   |   |   |   |   |   |   |
| Allocation of  undistributed earnings                                                                     |       | $                                               | 13.8       |                                            | $          | 2.1                                                   |       | $                                                     | 52.7       |   | $ | 7.8 |   | $ | 10.8 |   | $ | 1.7 |   | $ | 281.8 |   | $ | 42.3 |   |
| Denominator:                                                                                              |       |                                            |       |                                            |       |                                                  |       |                                                  |       |   |   |   |   |   |   |   |   |
| Number of shares  used in basic computation (in thousands)                                                |       | 129,121                                         |       | 23,709                                          |       | 128,082                                               |       | 23,709                                                |       | 129,108 |   | 23,709 |   | 127,257 |   | 23,786 |   |
| Weighted average  effect of dilutive securities (in thousands)                                            |       |                                            |       |                                            |       |                                                  |       |                                                  |       |   |   |   |   |   |   |   |   |
| Add:                                                                                                      |       |                                            |       |                                            |       |                                                  |       |                                                  |       |   |   |   |   |   |   |   |   |
| Conversion of  Class B to Class A common shares outstanding                                     |       | 23,709                                          |       | —                                          |       | 23,709                                                |       | —                                                |       | 23,709 |   | — |   | 23,786 |   | — |   |
| Stock options                                                                                             |       | 213                                             |       | —                                          |       | 922                                                   |       | —                                                |       | 106 |   | — |   | 1,104 |   | — |   |
| Restricted stock  and performance shares                                                                  |       | 812                                             |       | —                                          |       | 555                                                   |       | —                                                |       | 406 |   | — |   | 650 |   | — |   |
| Conversion spread  on 33⁄4% Convertible Senior Notes and the 2003 Warrant                              |       | 873                                             |       | —                                          |       | 6,888                                                 |       | —                                                |       | 436 |   | — |   | 5,882 |   | — |   |
| Conversion of 61⁄4%  Convertible Senior Notes                                                          |       | —                                          | (1)        | —                                          |       | —                                                |       | —                                                |       | — | (1) | — |   | — |   | — |   |
|                                                                                                      |       |                                            |       |                                            |       |                                                  |       |                                                  |       |   |   |   |   |   |   |   |   |
| Number of shares  used in per share computations (in thousands)                                           |       | 154,728                                         |       | 23,709                                          |       | 160,156                                               |       | 23,709                                                |       | 153,765 |   | 23,709 |   | 158,679 |   | 23,786 |   |
|                                                                                                      |       |                                            |       |                                            |       |                                                  |       |                                                  |       |   |   |   |   |   |   |   |   |
| Diluted net  income per share                                                                             |       | $                                               | 0.09       |                                            | $          | 0.09                                                  |       | $                                                     | 0.33       |   | $ | 0.33 |   | $ | 0.07 |   | $ | 0.07 |   | $ | 1.78 |   | $ | 1.78 |   |

 

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(1)                                  No amount reported as the impact on net incomeper share of Class A common stock would have been antidilutive.  There were no antidilutive common stockequivalents outstanding as of June 28, 2007.

 

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**10. RECENT ACCOUNTING PRONOUNCEMENTS**

 

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

 

In February 2007, the FASB issued SFAS No. 159, “The FairValue Option for Financial Assets and Financial Liabilities” (“SFAS 159”).SFAS 159 permits entities to choose to measure certain financialinstruments and other eligible items at fair value when the items are nototherwise currently required to be measured at fair value. Under SFAS 159,the decision to measure items at fair value is made at specified election dateson an irrevocable instrument-by-instrument basis. Entities electing the fairvalue option would be required to recognize changes in fair value in earningsand to expense upfront cost and fees associated with the item for which thefair value option is elected. Entities electing the fair value option arerequired to distinguish, on the face of the statement of financial position,the fair value of assets and liabilities for which the fair value option hasbeen elected and similar assets and liabilities measured using anothermeasurement attribute. The adoption of SFAS 159 did not have a materialimpact on the Company’s consolidated financial position, cash flows and resultsof operations.

 

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

 

In December 2007, the FASB issued SFAS No. 160, “NoncontrollingInterest in Consolidated Financial Statements” (“SFAS 160”). SFAS 160establishes new accounting and reporting standards for the noncontrollinginterest in a subsidiary and for the deconsolidation of a subsidiary.Specifically, this statement requires the recognition of a noncontrollinginterest (minority interest) as equity in the consolidated financial statementsand separate from the parent’s equity. The amount of net income attributable tothe noncontrolling interest will be included in consolidated net income on theface of the income statement. SFAS 160 clarifies that changes in a parent’sownership interest in a subsidiary that do

 

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notresult in deconsolidation are equity transactions if the parent retains itcontrolling financial interest. In addition, this statement requires that aparent recognize a gain or loss in net income when a subsidiary isdeconsolidated. Such gain or loss will be measured using the fair value of thenoncontrolling equity investment on the deconsolidation date. SFAS 160also includes expanded disclosure requirements regarding the interests of theparent and its noncontrolling interest. SFAS 160 is effective for fiscalyears, and interim periods within those fiscal years, beginning on or after December 15,2008. Earlier adoption is prohibited. The Company is evaluating the adoption ofSFAS 160 and its impact on the Company’s consolidated financial position,cash flows and results of operations.

 

InMay 2008, the FASB issued FASB Staff Position APB 14-a, “Accounting forConvertible Debt Instruments That May Be Settled in Cash Upon Conversion(Including Partial Cash Settlement)” (“FSP 14-a”).  FSP 14-a specifies that issuers of suchinstruments should separately account for the liability and equity componentsin a manner that will reflect the entity’s nonconvertible debt borrowing rateon the instrument’s issuance date when interest cost is recognized insubsequent periods. The 61⁄4% Convertible Senior Notes and the 33⁄4% ConvertibleSenior Notes are within the scope of FSP 14-a; therefore, we will be requiredto record the debt portions of the 61⁄4% Convertible Senior Notes and the 33⁄4%Convertible Senior Notes at their fair values as of the dates of issuance andamortize the discount into interest expense over the life of the debt duringthe periods in which the debt instruments are outstanding.  However, there will be no effect on our cashinterest payments. A cumulative effect of a change in accounting principle onperiods prior to those presented shall be recognized as of the beginning of thefirst period presented with an offsetting adjustment to retained earnings. FSP14-a is effective for financial statements issued for fiscal years beginningafter December 15, 2008, and interim periods within those fiscal years,and will be applied retrospectively to all periods presented. Accordingly, theadoption of FSP 14-a will be reflected in our consolidated financial statementsbeginning with the first fiscal quarter of 2009.  The Company is currently evaluating the adoptionof FSP 14-a and its impact on its consolidated financial position, cash flowsand results of operations.

 

**11. SUBSEQUENT EVENTS**

 

On July 24, 2008, the Company declared a cash dividend of $0.30per share on each share of the Company’s Class A and Class B commonstock (including outstanding restricted stock), payable on September 19,2008, to stockholders of record on September 11, 2008.

 

Subsequentto the quarter ended June 26, 2008, the Company invested an additional$1.5 million in DCIP.

 

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

 

*Some of the information in this Quarterly Report on Form 10-Qincludes “forward-looking statements” within the meaning of Section 27A ofthe Securities Act of 1933, as amended, and Section 21E of the SecuritiesExchange Act of 1934, as amended. All statements other than statements ofhistorical facts included in this Form 10-Q, including, withoutlimitation, certain statements under “Management’s Discussion and Analysis of FinancialCondition and Results of Operations”, may constitute forward-lookingstatements. In some cases you can identify these “forward-looking statements”by words like “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,”“estimates,” “predicts,” “potential” or “continue” or the negative of thosewords and other comparable words. These forward-looking statements involverisks and uncertainties. Our actual results could differ materially from thoseindicated in these statements as a result of certain factors as more fullydiscussed under the heading “Risk Factors” contained in our annual report on Form 10-Kfiled on February 26, 2008 with the Commission (File No. 001-31315)for the Company’s fiscal year ended December 27, 2007. The followingdiscussion**and analysis should be read in conjunction with theunaudited condensed consolidated financial statements and notes theretoincluded herein.*

 

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**The Company**

 

Weconduct our operations through our wholly owned subsidiaries. We operate thelargest and most geographically diverse theatre circuit in the UnitedStates, consisting of 6,776 screens in 551 theatres in 39 states and theDistrict of Columbia as of June 26, 2008. We believe the size, reach andquality of our theatre circuit provide an exceptional platform to realizeeconomies of scale from our theatre operations. We also maintain an investmentin National CineMedia, which has primarily concentrated its efforts on theexpansion of in-theatre advertising and the creation of complementary businesslines that leverage the existing operating personnel, asset and customer basesof its theatrical exhibition partners, which includes us, AMC and Cinemark. TheCompany manages its business under one reportable segment: theatre exhibitionoperations.

 

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

 

On February 12, 2007, we, along with AMC and Cinemark, formed ajoint venture company DCIP, to explore the possibility of implementing digitalcinema in our theatres and to create a financing model and establish agreementswith major motion picture studios for the implementation of digital cinema.Future digital cinema developments will be managed by DCIP, subject to theapproval of us, AMC and Cinemark. Each of Regal, AMC and Cinemark has an equalownership interest in DCIP. We expect to begin converting our existing theatresfrom 35 mm film projection to digital projection during late 2008 and intend tocomplete the conversion of our entire circuit in approximately three to fouryears. DCIP is continuing to work with film studios and financial institutionsto negotiate and finalize the related financing plans that would provide for astudio-financed conversion to digital projection.

 

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

 

During the quarter ended June 28, 2007, the Company sold itsequity interest in Fandango for proceeds of $28.3 million.  As a result of this transaction, the Companyrecognized a gain on the sale of approximately $28.3 million ($17.0 millionafter tax).  In connection with the sale,the Company agreed to amend its existing contract with Fandango in exchange foran amendment fee totaling $5.5 million. This amount has been recorded as deferred revenue and will be amortizedto revenue on a straight-line basis over the six year term of the amendment.

 

On March 10, 2008, Regal issued $200.0 million aggregateprincipal amount of the 61⁄4% Convertible Senior Notes. Concurrent with theissuance of the 61⁄4% Convertible Senior Notes, we entered into simultaneousconvertible note hedge and warrant transactions with respect to our Class Acommon stock in order to reduce the potential dilution from conversion of the61⁄4% Convertible Senior Notes into shares of our Class A common stock. Thenet cost of the convertible note hedge and warrant transactions wasapproximately $6.6 million and is included as a component of equity in theaccompanying unaudited condensed consolidated balance sheet as of June 26,2008. See Note 4—“Debt Obligations” for further 

 

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description of the 61⁄4%Convertible Senior Notes and the related convertible note hedge and warranttransactions. The Company used cash on hand and a portion of the net proceedsfrom the issuance of the 61⁄4% Convertible Senior Notes to redeem approximately$90.0 million principal amount of the 33⁄4% Convertible Senior Notes, in a seriesof privately negotiated transactions.  As a result of the earlyredemption, the Company recorded a $52.8 million loss on debt extinguishmentduring the quarter ended March 27, 2008.  In connection with theearly redemption, the Company received net proceeds of approximately $13.7million from Credit Suisse attributable to the convertible note hedge andwarrant transactions associated with the 33⁄4% Convertible Senior Notes describedfurther in Note 4—“Debt Obligations.”  Such proceeds were recorded asan increase to additional paid-in capital.  In connection with the finalmaturity of the 33⁄4% Convertible Senior Notes on May 15, 2008, holders ofthe remaining $33.7 million in principal amount exercised their conversionrights. The Company elected to settle these conversions entirely in cash forapproximately $51.4 million using the remaining proceeds from the issuanceof the 61⁄4% Convertible Senior Notes. As a result of these conversions, theCompany recorded a $17.7 million loss on debt extinguishment during thequarter ended June 26, 2008.  Inconnection with these conversions, the Company received net proceeds ofapproximately $5.2 million from Credit Suisse attributable to the convertiblenote hedge and warrant transactions associated with the 33⁄4% Convertible SeniorNotes. Such proceeds were also recorded as an increase to additional paid-incapital. See Note 4—”Debt Obligations” for further discussion of thistransaction.

 

On April 30, 2008, the Company consummated a transaction toacquire Consolidated Theatres, consisting of a total of 28 theatres with 400screens in Georgia, Maryland, North Carolina, South Carolina, Tennessee andVirginia.  The total net cash purchaseprice for the acquisition was approximately $209.3 million, subject topost-closing adjustments. The results of operations of the acquired theatreoperations have been included in the Company’s consolidated financialstatements for periods subsequent to the acquisition date. In conjunction withthe closing, we entered into a final judgment with the Antitrust Division ofthe United States Department of Justice, which requires us to hold separate anddivest ourselves of four theaters comprising 52 screens in North Carolina. SeeNote 2—”Recent Acquisitions” for further discussion of this transaction.

 

As described more fully in Note 3—“Investment in NationalCineMedia, LLC,” on April 9, 2008, we received approximately 0.8million additional common units of National CineMedia in accordance with theannual adjustment provisions of the Common Unit Adjustment Agreement.  On May 29, 2008, we received anadditional 2.9 million common units of National CineMedia in accordance withthe adjustment provisions of the Common Unit Adjustment Agreement for ouracquisition of Consolidated Theatres. These adjustments increased the number ofNational CineMedia common units held by us to approximately 24.9 million and asa result, on a fully diluted basis, we own a 25.1% interest in NCM, Inc.as of June 26, 2008.

 

During the two quarters ended June 26, 2008, Regal paid twoquarterly cash dividends of $0.30 on each outstanding share of the Company’s Class Aand Class B common stock, or approximately $92.1 million in theaggregate.

 

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

 

**Results of Operations**

 

The second fiscal quarter of 2008 was a solid quarter for both theindustry and the Company in a period of difficult box office comparisonsrelative to the same period in 2007. Based on our review of industry sources, national box office revenuesfor the time period that corresponds to Regal’s second fiscal quarter of 2008were estimated to have decreased by approximately 2-3% in comparison to thesecond 

 

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fiscal quarter of2007.  The industry’s box office results were negatively impacted bydifficult comparisons generated by high profile films released in the secondquarter of 2007, including *Spider-Man 3, Shrek theThird*and*Pirates of the Caribbean:At World’s End,* partially offset by ticket price increases and solidperformances from the second quarter 2008 film slate.

 

Our total revenues for the quarter ended June 26, 2008 (“Q2 2008Period”) were $675.8 million and consisted of $455.7 million ofadmissions revenues, $188.9 million of concessions revenues and $31.2million of other operating revenues, and decreased slightly from total revenuesof $683.4 million for the quarter ended June 28, 2007 (“Q2 2007Period”).

 

Our Q2 2008 Period admissions revenues decreased 0.5% from the Q2 2007Period. An attendance decrease of 3.2%, partially offset by a 2.8% increase inour average ticket price, led to the net decrease in the Q2 2008 Periodadmissions revenues.  We believe that theoverall decrease in attendance during the Q2 2008 Period was primarily a resultof the decline in attendance among the top tier films exhibited during theperiod. Attendance for the Q2 2008 Period was bolstered by the addition of 558new screens added since the end of the Q2 2007 Period, including the 400screens acquired from Consolidated Theatres on April 30, 2008, partiallyoffset by the closure of 150****underperformingscreens subsequent to the end of the Q2 2007 period.   Price increases identified during our ongoingperiodic pricing reviews (which include analysis of various factors includinggeneral inflationary trends and local market conditions) along with the mix offilm product exhibited during the Q2 2008 Period were the primary drivers ofthe increase in our Q2 2008 Period average ticket price.

 

In addition, during the Q2 2008 Period, we experienced a slight declinein concessions revenues and an increase in other operating revenues. The decreasein concessions revenues during the Q2 2008 Period was due to a slight declinein average concessions revenues per patron, coupled with the aforementioned Q22008 Period decrease in attendance. Average concessions revenues per patron during the Q2 2008 Period werenegatively impacted by a decrease in attendance from fewer concession-friendlyfilms exhibited in a challenging economic environment in comparison to the Q22007 Period.* *The increase in other operating revenues during the Q2 2008Period was primarily attributable to an increase in other theatre revenues.

 

Income from operations totaled $64.7 million during the Q2 2008Period, which represents a decrease of $18.3 million, or 22.0%, from$83.0 million in the Q2 2007 Period. The decrease in income from operations during the Q2 2008 Period wasprimarily attributable to a reduction in admissions and concessions revenuesdescribed above, coupled with increases in certain operating expense itemsdescribed in further detail below, partially offset by an increase in otheroperating revenues.  The Company reportednet income of $13.8 million in the Q2 2008 Period compared to net incomeof $52.7 million in the Q2 2007 Period. Diluted earnings per share of Class Aand Class B common stock was $0.09 in the Q2 2008 Period compared to $0.33during the Q2 2007 Period. The decreases in net income and diluted earnings pershare of Class A and Class B common stock were primarily due to thedecline in operating income described above, the impact of a $11.1 millionafter-tax loss on debt extinguishment recorded in the Q2 2008 Period inconnection with the redemption of approximately $33.7 million principal amountof the 33⁄4% Convertible Senior Notes, the impact of the $17.0 million gain, netof related tax effects, recorded in connection with the sale of the Company’sequity interest in Fandango during the Q2 2007 Period, partially offset by theimpact of incremental earnings recognized from National CineMedia described infurther detail below.

 

During the Q2 2008 Period and the two quarters ended June 26, 2008(the “Fiscal 2008 Period”), we continued to make progress with respect to thefollowing strategic initiatives:

 
| · |   | We  demonstrated our commitment to providing incremental value to our  stockholders. Total cash dividends distributed to our stockholders during the  Fiscal 2008 Period totaled approximately $92.1 million. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                               |
| · |   | On  April 30, 3008, the Company consummated the acquisition of Consolidated  Theatres consisting of a total of 28 theatres with 400 screens in Georgia,  Maryland, North Carolina,                            |

 

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|   |   | South  Carolina, Tennessee and Virginia, for a total net cash purchase price of  $209.3 million, subject to post-closing adjustments.                                                                                                                                                                                                                                                                                                               |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| · |   | In  addition to the acquisition of Consolidated Theatres during the Fiscal 2008  Period, we opened 3 new theatres with 45 screens, added 8 screens through  expansion and closed 7 underperforming theatres with 65 screens, ending the  Fiscal 2008 Period with 551 theaters and 6,776 screens.                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| · |   | Finally,  we entered into an agreement to expand our IMAX presence by agreeing to  install 31 additional IMAX digital projection systems by the end of  2010.  We continue to remain optimistic regarding the benefits of  digital cinema primarily as it relates to future growth potential associated  with 3D film product and other 3D content and are pleased to see continued  support of 3D and IMAX film product by the major studios. |

 

Thefollowing table sets forth the percentage of total revenues represented bycertain items included in our consolidated statements of income for the Q2 2008Period, the Q2 2007 Period, the Fiscal 2008 Period and the two quarters ended June 28,2007 (the “Fiscal 2007 Period”) (dollars and attendance in millions, exceptaverage ticket prices and average concession per patron):

 
| ** **                                                                                                                                                                                                                     | ** ** | **Q2 2008 Period** | ** ** | **Q2 2007 Period** | ** ** | **Fiscal 2008  Period** | ** ** | **Fiscal 2007  Period** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|------------------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **                                                                                                                                                                                                                     | ** ** | **$**                        | ** ** | **% of  Revenue**       | ** ** | **$**                        | ** ** | **% of  Revenue**       | ** ** | **$** | ** ** | **% of  Revenue** | ** ** | **$** | ** ** | **% of  Revenue** | ** ** |
| Revenues:                                                                                                                                                                                                                      |       |                         |       |                         |       |                         |       |                         |       |   |   |   |   |   |   |   |   |
| Admissions                                                                                                                                                                                                                     |       | $                            | 455.7      |                         | 67.4       | %                            | $          | 457.9                        |       | 67.0 | % | $ | 887.7 |   | 68.1 | % | $ | 884.6 |   | 67.6 | % |
| Concessions                                                                                                                                                                                                                    |       | 188.9                        |       | 28.0                         |       | 197.4                        |       | 28.9                         |       | 355.0 |   | 27.3 |   | 365.7 |   | 28.0 |   |
| Other operating  revenues                                                                                                                                                                                                      |       | 31.2                         |       | 4.6                          |       | 28.1                         |       | 4.1                          |       | 59.9 |   | 4.6 |   | 58.1 |   | 4.4 |   |
|                                                                                                                                                                                                                           |       |                         |       |                         |       |                         |       |                         |       |   |   |   |   |   |   |   |   |
| Total revenues                                                                                                                                                                                                                 |       | 675.8                        |       | 100.0                        |       | 683.4                        |       | 100.0                        |       | 1,302.6 |   | 100.0 |   | 1,308.4 |   | 100.0 |   |
| Operating  expenses:                                                                                                                                                                                                           |       |                         |       |                         |       |                         |       |                         |       |   |   |   |   |   |   |   |   |
| Film rental and  advertising costs(1)                                                                                                                                                                                          |       | 247.0                        |       | 54.2                         |       | 252.4                        |       | 55.1                         |       | 462.9 |   | 52.1 |   | 470.4 |   | 53.2 |   |
| Cost of  concessions(2)                                                                                                                                                                                                        |       | 25.5                         |       | 13.5                         |       | 27.9                         |       | 14.1                         |       | 48.2 |   | 13.6 |   | 52.9 |   | 14.5 |   |
| Rent expense(3)                                                                                                                                                                                                                |       | 90.0                         |       | 13.3                         |       | 83.3                         |       | 12.2                         |       | 173.3 |   | 13.3 |   | 164.3 |   | 12.6 |   |
| Other operating  expenses(3)                                                                                                                                                                                                   |       | 180.5                        |       | 26.7                         |       | 176.2                        |       | 25.8                         |       | 349.1 |   | 26.8 |   | 341.1 |   | 26.1 |   |
| General and  administrative expenses (including share-based compensation expense of $1.5  and $1.4 for the Q2 2008 Period and the Q2 2007 Period, and $2.9 and $3.5 for  the Fiscal 2008 Period and the Fiscal 2007 Period)(3) |       | 15.8                         |       | 2.3                          |       | 16.8                         |       | 2.5                          |       | 30.8 |   | 2.4 |   | 32.8 |   | 2.5 |   |
| Depreciation and  amortization(3)                                                                                                                                                                                              |       | 49.9                         |       | 7.4                          |       | 46.1                         |       | 6.7                          |       | 96.2 |   | 7.4 |   | 92.4 |   | 7.1 |   |
| Net loss (gain)  on disposal and impairment of operating assets(3)                                                                                                                                                             |       | 2.3                          |       | 0.3                          |       | (2.6                         | )          | (0.4                         | )          | 4.5 |   | 0.3 |   | 2.8 |   | 0.2 |   |
| Equity in  earnings of joint venture including former employee compensation(3)                                                                                                                                                 |       | 0.1                          |       | —                       |       | 0.3                          |       | —                       |       | 0.3 |   | — |   | 3.7 |   | 0.3 |   |
|                                                                                                                                                                                                                           |       |                         |       |                         |       |                         |       |                         |       |   |   |   |   |   |   |   |   |
| Total operating  expenses(3)                                                                                                                                                                                                   |       | 611.1                        |       | 90.4                         |       | 600.4                        |       | 87.9                         |       | 1,165.3 |   | 89.5 |   | 1,160.4 |   | 88.7 |   |
|                                                                                                                                                                                                                           |       |                         |       |                         |       |                         |       |                         |       |   |   |   |   |   |   |   |   |
| Income from  operations(3)                                                                                                                                                                                                     |       | 64.7                         |       | 9.6                          |       | 83.0                         |       | 12.1                         |       | 137.3 |   | 10.5 |   | 148.0 |   | 11.3 |   |
| Interest expense,  net(3)                                                                                                                                                                                                      |       | 30.0                         |       | 4.4                          |       | 25.5                         |       | 3.7                          |       | 59.7 |   | 4.6 |   | 56.5 |   | 4.3 |   |
| Earnings  recognized from NCM(3)                                                                                                                                                                                               |       | 5.9                          |       | 0.9                          |       | 2.2                          |       | 0.3                          |       | 14.3 |   | 1.1 |   | 2.2 |   | 0.2 |   |
| Loss on debt  extinguishment(3)                                                                                                                                                                                                |       | 17.7                         |       | 2.6                          |       | —                       |       | —                       |       | 70.5 |   | 5.4 |   | — |   | — |   |
| Gain on NCM  transaction(3)                                                                                                                                                                                                    |       | —                       |       | —                       |       | —                       |       | —                       |       | — |   | — |   | 350.7 |   | 26.8 |   |
| Gain on sale of  Fandango interest (3)                                                                                                                                                                                         |       | —                       |       | —                       |       | 28.3                         |       | 4.1                          |       | — |   | — |   | 28.3 |   | 2.2 |   |
| Provision for  income taxes(3)                                                                                                                                                                                                 |       | 8.5                          |       | 1.3                          |       | 35.1                         |       | 5.1                          |       | 9.4 |   | 0.7 |   | 190.7 |   | 14.6 |   |
| Net income(3)                                                                                                                                                                                                                  |       | 13.8                         |       | 2.0                          |       | 52.7                         |       | 7.7                          |       | 10.8 |   | 0.8 |   | 281.8 |   | 21.5 |   |
| Attendance                                                                                                                                                                                                                     |       | 59.7                         |       |                         | *          | 61.7                         |       |                         | *          | 116.6 |   |   | * | 120.3 |   |   | * |
| Average ticket  price(4)                                                                                                                                                                                                       |       | $                            | 7.63       |                         |       | *                            | $          | 7.42                         |       |   | * | $ | 7.61 |   |   | * | $ | 7.32 |   |   | * |
| Average  concessions per patron(5)                                                                                                                                                                                             |       | $                            | 3.16       |                         |       | *                            | $          | 3.20                         |       |   | * | $ | 3.04 |   |   | * | $ | 3.04 |   |   | * |

 

----

*  *Not meaningful*

 

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

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

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

(4) Calculatedas admissions revenues/attendance.

(5) Calculatedas concessions revenues/attendance.

 

***Q2 2008 Period Compared to Q2 2007 Periodand Fiscal 2008 Period Compared to Fiscal 2007 Period***

 

***Admissions***

 

Total admissions revenues decreased $2.2 million during the Q22008 Period, or 0.5%, to $455.7 million, from $457.9 million for theQ2 2007 Period.  During the Fiscal 2008Period, total admissions revenues increased $3.1 million, or 0.4%, to$887.7 million, from $884.6 million for the Fiscal 2007 Period.   An attendance decrease of 3.2%, partiallyoffset by a 2.8% increase in our average ticket price led to the net decreasein the Q2 2008 Period admissions revenues. Our Fiscal 2008 Period admissions revenues were favorably impacted by a4.0% increase in average ticket prices, partially offset by a 3.1% decline inattendance.  We believe that the overalldecrease in attendance during the Q2 2008 Period and the Fiscal 2008 Period wasprimarily a result of the decline in attendance among the top tier filmsexhibited during these periods. Attendance for the Q2 2008 Period and Fiscal2008 Period was bolstered by the addition of 558 new screens added since theend of the Q2 2007 Period, including the 400 screens acquired from ConsolidatedTheatres on April 30, 2008, partially offset by the closure of 150****underperforming screens subsequent to theend of the Q2 2007 Period. Price increases identified during our ongoingperiodic pricing reviews (which include analysis of various factors includinggeneral inflationary trends and local market conditions) along with the mix offilm product exhibited during the Q2 2008 Period and the Fiscal 2008 Periodwere the primary drivers of the increase in our Q2 2008 Period and Fiscal 2008Period average ticket prices. Based on our review of certain industry sources,the decrease in our admissions revenues on a per screen basis was slightly greaterthan the industry’s results for the Q2 2008 Period and Fiscal 2008 Period ascompared to the Q2 2007 Period and the Fiscal 2007 Period. This decline wasprimarily attributable to higher estimated box office per screen growthexperienced by the Company relative to the industry during the Q2 2007 Period andthe Fiscal 2007 Period associated with the performance of top tier films andpremium priced films exhibited in the prior year periods.

 

***Concessions***

 

During the Q2 2008 Period, total concessions revenues decreased$8.5 million, or 4.3%, to $188.9 million, from $197.4 millionfor the Q2 2007 Period.  During theFiscal 2008 Period, total concessions revenues decreased $10.7 million, or2.9%, to $355.0 million, from $365.7 million for the Fiscal 2007Period.  The decrease in totalconcessions revenues during the Q2 2008 Period and the Fiscal 2008 Period wasdue to a lack of growth in average concessions revenues per patron, coupledwith the aforementioned Q2 2008 Period and Fiscal 2008 Period decrease inattendance.  Average concessions revenuesper patron during the Q2 2008 Period was negatively impacted by a decrease inattendance from fewer concession-friendly films exhibited in a challengingeconomic environment in comparison to the Q2 2007 Period.  Average concessions revenues per patronduring the Fiscal 2008 Period was consistent with that of the Fiscal 2007Period.

 

***Other Operating Revenues***

 

Total other operating revenues increased $3.1 million, or 11.0%,to $31.2 million for the Q2 2008 Period, from $28.1 million for theQ2 2007 Period.  During the Fiscal 2008Period, total other operating revenues increased $1.8 million, or 3.1%, to$59.9 million, from $58.1 million for the Fiscal 2007 Period. Included in otheroperating revenues are the theatre access fees paid by National CineMedia (netof payments for on-screen advertising time provided to our beverageconcessionaire), marketing revenues from our vendor marketing programs andother theatre revenues, including revenue related to unredeemed giftcertificates and discount tickets. The increase in other operating revenues inthe Q2 2008 Period was primarily attributable to an increase in other theatrerevenues.  The increase in otheroperating revenues during the Fiscal 2008 Period was primarily attributable toan increase in other theatre revenues, partially offset by a modification ofthe payment arrangement with National CineMedia (effective upon consummation ofthe IPO of NCM, Inc. on February 13, 2007) described in furtherdetail under Note 3—“Investment in National CineMedia, LLC.”

 

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***Film Rental and Advertising Costs***

 

During the Q2 2008 Period, film rental and advertising costs as apercentage of admissions revenues decreased to 54.2% as compared to 55.1% inthe Q2 2007 Period.  Film rental and advertising costs as a percentage ofadmissions revenues decreased to 52.1% during the Fiscal 2008 Period ascompared to 53.2% in the Fiscal 2007 Period. The decrease in film rental and advertising costs as a percentage of boxoffice revenues during the Q2 2008 Period and the Fiscal 2008 Period wasprimarily the result of a lower percentage of box office revenues generated bythe top tier films exhibited during the Q2 2008 Period and the Fiscal 2008 Periodand a decline in advertising expense during such periods.

 

***Cost of Concessions***

 

During the Q2 2008 Period, cost of concessions declined $2.4 million,or 8.6%, from the Q2 2007 Period. Cost of concessions declined $4.7 million, or8.9%, during the Fiscal 2008 Period as compared to Fiscal 2007 Period. Cost ofconcessions as a percentage of concessions revenues decreased 60 basis pointsto 13.5% during the Q2 2008 Period as compared to 14.1% in the Q2 2007Period.  During the Fiscal 2008 Period,cost of concessions as a percentage of concessions revenues decreased 90 basispoints to 13.6% from 14.5% in the Fiscal 2007 Period.  The decrease in cost of concessions and incost of concessions as a percentage of concessions revenues during the Q2 2008Period and the Fiscal 2008 Period was primarily related to a change in a vendormarketing program, which resulted in a reduction of cost of concessions duringsuch periods, partially offset by slightly higher food costs.

 

***Rent Expense***

 

Rent expense increased $6.7 million, or 8.0%, to$90.0 million in the Q2 2008 Period, from $83.3 million in the Q22007 Period. During the Fiscal 2008 Period, rent expense increased $9.0million, or 5.5%, to $173.3 million, from $164.3 million in the Fiscal 2007Period.  The increase in rent expense inthe Q2 2008 Period and the Fiscal 2008 Period was primarily attributable toincremental rent from the inclusion of 558 new screens added since the end ofthe Q2 2007 Period, including the 400 screens acquired from ConsolidatedTheatres, partially offset by the closure of 150****underperforming screens subsequent to the end of the Q2 2007period.

 

***Other Operating Expenses***

 

Other operating expenses increased $4.3 million, or 2.4%, to$180.5 million in the Q2 2008 Period, from $176.2 million in the Q22007 Period.  During the Fiscal 2008Period, other operating expenses increased $8.0 million, or 2.3%, to $349.1million, from $341.1 million in the Fiscal 2007 Period.  The increase in other operating expensesduring the Q2 2008 Period and the Fiscal 2008 Period was primarily attributableto increases in non-rent occupancy costs due to the inclusion of 558 newscreens added since the end of the Q2 2007 Period, including the 400 screensacquired from Consolidated Theatres, partially offset by the closure of 150****underperforming screens subsequent to theend of the Q2 2007 period.

 

***General and Administrative Expenses***

 

During the Q2 2008 Period, general and administrative expensesdecreased $1.0 million, or 6.0%, to $15.8 million, from$16.8 million in the Q2 2007 Period.  General and administrative expenses decreased $2.0 million, or 6.1%, to$30.8 million during the Fiscal 2008 Period as compared to $32.8 million in theFiscal 2007 Period.  As a percentage oftotal revenues, general and administrative expenses decreased to 2.3% in the Q22008 Period from 2.5% in the Q2 2007 Period and to 2.4% in the Fiscal 2008Period from 2.5% in the Fiscal 2007 Period. The decrease in general and administrative expenses during the Q2 2008Period and the Fiscal 2008 Period was primarily attributable to a reduction oflegal and professional fees and share-based compensation expense during suchperiods.

 

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***Depreciation and Amortization***

*** ***

For the Q2 2008 Period, depreciation and amortization increased$3.8 million, or 8.2%, to $49.9 million, from $46.1 million inthe Q2 2007 Period.  Depreciation and amortization increased $3.8 million,or 4.1%, to $96.2 million during the Fiscal 2008 Period, from$92.4 million in the Fiscal 2007 Period.  The increase indepreciation and amortization expense during the Q2 2008 Period and the Fiscal2008 Period was primarily related to incremental depreciation and amortizationfrom the inclusion of 558 new screens added since the end of the Q2 2007Period, including the 400 screens acquired from Consolidated Theatres,partially offset by the closure of 150****underperformingscreens subsequent to the end of the Q2 2007 Period.

 

***Income from Operations***

 

Income from operations totaled $64.7 million during the Q2 2008Period, which represents a decrease of $18.3 million, or 22.0%, from$83.0 million in the Q2 2007 Period. During the Fiscal 2008 Period, incomefrom operations decreased $10.7 million, or 7.2%, to $137.3 million, from$148.0 million for the Fiscal 2007 Period. The decrease in income from operations during the Q2 2008 Period and theFiscal 2008 Period was primarily attributable to a reduction in concessionsrevenues, coupled with increases in certain operating expense items such asrent expense, other operating expenses, depreciation and amortization and netloss on disposal and impairment of operating assets, partially offset byincreases in other operating revenues and decreases in film rental andadvertising costs and cost of concessions.

 

***Interest Expense, net***

 

Net interest expense increased $4.5 million, or 17.6%, to$30.0 million in the Q2 2008 Period, from $25.5 million in the Q22007 Period. During the Fiscal 2008 Period, net interest expense increased $3.2million, or 5.7%, to $59.7 million, from $56.5 million in the Fiscal 2007Period.  The increase in net interestexpense during the Q2 2008 Period and Fiscal 2008 Period was principally due toless interest income ($1.7 million and $7.4 million, respectively,for the Q2 2008 Period and the Q2 2007 Period and $4.7 million and $9.9million, respectively, for the Fiscal 2008 Period and Fiscal 2007 Period) froma lower average cash balance outstanding as a result of the $209.3 millionacquisition of Consolidated Theatres and incremental interest expense from theissuance of the $200.0 million 61⁄4% Convertible Senior Notes, partiallyoffset by a lower effective interest rate on our Term Facility during the Q22008 Period and Fiscal 2008 Period.

 

***Income Taxes***

*** ***

The provision for income taxes of $8.5 million and $35.1 million forthe Q2 2008 Period and the Q2 2007 Period, respectively, reflect effective taxrates of approximately 38.1% and 40.0%, respectively.  The provision forincome taxes of $9.4 million and $190.7 million for the Fiscal 2008 Period andthe Fiscal 2007 Period, respectively, reflect effective tax rates ofapproximately 46.5% and 40.4%, respectively.  The decrease in the effectivetax rate for the Q2 2008 Period is primarily attributable to the settlement ofan uncertain tax position with state taxing authorities during the Q2 2008Period. The increase in the effective tax rate for the Fiscal 2008 Period isprimarily attributable to the state tax effects of the $70.5 million loss($44.1 million after related tax effects) on debt extinguishment recorded inthe Fiscal 2008 Period in connection with the redemption of approximately$123.7 million principal amount of the 33⁄4% Convertible Senior Notes and, to alesser extent, other state tax matters. The effective tax rates for the Q2 2008 Period, the Q2 2007 Period, theFiscal 2008 Period and the Fiscal 2007 Period also reflect the impact ofcertain non-deductible expenses.

** **

***Earnings Recognized from NCM***

 

During the Q2 2008 Period and the Q2 2007 Period, the Company received$5.4 million and $2.2 million, respectively, in cash distributions fromNational CineMedia.  The Company received$13.8 million and $2.2 million, respectively, in cash distributions fromNational CineMedia during the Fiscal 2008 Period and Fiscal 2007 Period.  In addition, during the Q2 2008 Period, theCompany recorded an additional $0.5

 

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million of equity earningswith respect to additional investments in National CineMedia during suchperiod.  As a result, during the Q2 2008Period, the Q2 2007 Period, the Fiscal 2008 Period and the Fiscal 2007 Period,the Company recognized $5.9 million, $2.2 million, $14.3 million and $2.2million, respectively, of earnings from National CineMedia.  Such amounts are presented as “Earningsrecognized from NCM” in the unaudited condensed consolidated financialstatements.

 

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

 

***Net Income***

 

Duringthe Q2 2008 Period, net income totaled $13.8 million, which represents adecrease of $38.9 million, from net income of $52.7 million in the Q22007 Period.  Net income decreased $271.0million to $10.8 million during the Fiscal 2008 Period, from $281.8 million forthe Fiscal 2007 Period.  The decrease innet income for the Q2 2008 Period as compared to the Q2 2007 Period isprimarily attributable to the decline in operating income described above, theimpact of a $17.7 million loss ($11.1 million after related taxeffects) on debt extinguishment recorded in the Q2 2008 Period in connectionwith the redemption of approximately $33.7 million principal amount of the 33⁄4%Convertible Senior Notes, the impact of the $28.3 million gain ($17.0 millionafter related tax effects) recorded in connection with the sale of the Company’sequity interest in Fandango during the Q2 2007 Period, partially offset by theimpact of incremental earnings recognized from National CineMedia describedabove.  The decrease in net income forthe Fiscal 2008 Period as compared to the Fiscal 2007 Period was primarilyattributable to a $350.7 million gain ($209.0 million after relatedtax effects) resulting from transactions completed in connection with theFiscal 2007 Period IPO of NCM, Inc., the impact of a $70.5 millionloss ($44.1 million after related tax effects) on debt extinguishmentrecorded in the Fiscal 2008 Period in connection with the redemption ofapproximately $123.7 million principal amount of the 33⁄4% Convertible SeniorNotes, the $28.3 million gain ($17.0 million after related tax effects)recorded in connection with the sale of the Company’s equity interest inFandango during the Fiscal 2007 Period and a decrease in operating income,partially offset by the impact of incremental earnings recognized from NationalCineMedia described above.

 

***Cash Flows***

 

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

 
| ** **                                            | ** ** | **Fiscal 2008 Period** | ** ** | **Fiscal 2007 Period** | ** ** |
|-------------------------------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| Net cash provided by operating activities             |       | $                                | 156.5      |                             | $          | 643.3 |   |
| Net cash used in investing activities                 |       | (278.0                           | )          | (20.2                            | )          |
| Net cash used in financing activities                 |       | (89.9                            | )          | (378.4                           | )          |
|                                                  |       |                             |       |                             |       |
| Net (decrease) increase in cash and cash  equivalents |       | $                                | (211.4     | )                                | $          | 244.7 |   |

 

*Fiscal 2008 Period Compared to Fiscal 2007 Period*

 

Net cash flows provided by operating activities decreased byapproximately $486.8 million to approximately $156.5 million for theFiscal 2008 Period from approximately $643.3 million for the Fiscal 2007Period. The decrease in net cash flows generated from operating activities forthe Fiscal 2008 Period was primarily attributable to the transactions completedin the Fiscal 2007 Period in connection with the IPO of NCM, Inc.(Note 3—“Investment in National CineMedia, LLC” for furtherdiscussion). These transactions resulted in approximately $535.9 million of netcash provided by operating activities in the Fiscal 2007 Period.  Inaddition to the changes in cash flows related to the IPO of NCM, Inc., thetiming of other Fiscal 2008 Period vendor payments positively impacted cashflows from operating activities and resulted in a $486.8 million decreasein net cash provided by operating activities for the Fiscal 2008 Period.

 

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Net cash flows used in investing activities totaled approximately$278.0 million for the Fiscal 2008 Period compared to cash flows used ininvesting activities of approximately $20.2 million for the Fiscal 2007Period. Contributing to the increase in cash flows used in investing activitieswas the $209.3 million acquisition of Consolidated Theatres during the Fiscal2008 Period, incremental capital expenditures of approximately$12.8 million coupled with fewer proceeds from the disposition of assetsof approximately $7.5 million during the Fiscal 2008 Period as compared tothe Fiscal 2007 Period and the impact of the $28.3 million of proceeds receivedin connection with the sale of the Company’s equity interest in Fandango duringthe Fiscal 2007 Period.

 

Net cash flows used in financing activities were approximately$89.9 million for the Fiscal 2008 Period compared to cash flows used infinancing activities of approximately $378.4 million for the Fiscal 2007Period. The net increase in cash flows from financing activities during the Fiscal2008 Period was primarily attributable to a $301.1 million reduction ofdividends paid to shareholders during the Fiscal 2008 Period as compared to theFiscal 2007 Period, the proceeds received in connection with the issuance of$200.0 million 61⁄4% Convertible Senior Notes during the Fiscal 2008 Period,partially offset by net cash used to redeem approximately $123.7 millionprincipal amount of the 33⁄4% Convertible Senior Notes, net cash used inconnection with the 2008 Convertible Note Hedge and 2008 Warrant transactionsduring the Fiscal 2008 Period, fewer proceeds from stock option exercises andfewer excess tax benefits from share-based payment arrangements during theFiscal 2008 Period as compared to the Fiscal 2007 Period.

 

**Liquidity and Capital Resources**

 

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

 

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

 

We fund the cost of capital expenditures through internally generatedcash flows, cash on hand, proceeds from disposition of assets and financingactivities. Our capital requirements have historically arisen principally inconnection with acquisitions of theatres, new theatre construction, adding newscreens to existing theatres, upgrading the Company’s theatre facilities(including digital 3D and IMAX screens) and replacing equipment. Should theconversion process to digital cinema rapidly accelerate and the major studiosnot cover the cost of the conversion as expected, we may have to incuradditional capital expenditures associated with this potential change. Weintend to continue to grow our theatre circuit through selective expansion andacquisition opportunities. The Company has a formal and intensive reviewprocedure for the authorization of capital projects, with the most importantfinancial measure of acceptability for a discretionary non-maintenance capitalproject being whether its projected discounted cash flow return on investmentmeets or exceeds the Company’s internal rate of return targets. We currentlyexpect capital expenditures for theatre development, replacement, expansion,upgrading and replacements to be in the range of approximately$120.0 million to $140.0 million in fiscal year 2008,

 

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exclusive of acquisitions.Such capital expenditures are expected to be partially funded through assetdispositions conducted during the normal course of our business. During theFiscal 2008 Period, we invested approximately $70.6 million in capitalexpenditures.

 

As described more fully in Note 3—“Investment in NationalCineMedia, LLC,” on February 13, 2007, NCM, Inc., a newly formedentity that serves as the sole manager of National CineMedia, completed aninitial public offering, or IPO, of its common stock. In connection with theIPO of NCM, Inc., RCH, AMC and Cinemark amended and restated the operatingagreement of National CineMedia and other ancillary agreements. In connectionwith the series of transactions completed in connection with the IPO, Regalreceived gross cash proceeds totaling approximately $628.3 million andretained a 22.6% interest in NCM, Inc. After the payment of current taxes,net cash proceeds from these transactions totaled approximately$447.4 million. The Company used a portion of the net cash proceeds tofund an extraordinary cash dividend of $2.00 per share on each outstandingshare of its Class A and Class B common stock, or approximately$302.0 million in the aggregate. Stockholders of record at the close ofbusiness on March 28, 2007 were paid this dividend on April 13, 2007.The Company used the remaining net cash proceeds along with additional cash onhand for the acquisition of Consolidated Theatres as more fully described belowand in Note 2—“Recent Acquisitions.”

 

Duringthe quarter ended June 28, 2007, the Company sold its equity interest inFandango for proceeds of $28.3 million. As a result of this transaction, the Company recognized a gain on thesale of approximately $28.3 million ($17.0 million after tax).  In connection with the sale, the Companyagreed to amend its existing contract with Fandango in exchange for anamendment fee totaling $5.5 million. This amount has been recorded as deferred revenue and will be amortizedto revenue on a straight-line basis over the six year term of the amendment.

 

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

 

OnMarch 10, 2008, Regal issued $200.0 million aggregate principalamount of the 61⁄4% Convertible Senior Notes. Concurrent with the issuance of the61⁄4% Convertible Senior Notes, we entered into simultaneous convertible notehedge and warrant transactions with respect to our Class A common stock inorder to reduce the potential dilution from conversion of the 61⁄4% ConvertibleSenior Notes into shares of our Class A common stock. The net cost of theconvertible note hedge and warrant transactions was approximately$6.6 million and is included as a component of equity in the accompanyingunaudited condensed consolidated balance sheet as of June 26,2008. See Note 4—“Debt Obligations” for further description of the61⁄4% Convertible Senior Notes and the related convertible note hedge and warranttransactions. The Company used cash on hand and a portion of the net proceedsfrom the issuance of the 61⁄4% Convertible Senior Notes to redeem approximately$90.0 million principal amount of the 33⁄4% Convertible Senior Notes in a seriesof privately negotiated transactions.  As a result of the earlyredemption, the Company recorded a $52.8 million loss on debt extinguishmentduring the quarter ended March 27, 2008.  In connection with theearly redemption, the Company received net proceeds of approximately $13.7million from Credit Suisse attributable to the convertible note hedge andwarrant transactions associated with the 33⁄4% Convertible Senior Notes describedfurther in Note 4—“Debt Obligations.” Such proceeds were recorded asan increase to additional paid-in capital.  In connection with the finalmaturity of the 33⁄4% Convertible Senior Notes on May 15, 2008, holders ofthe remaining $33.7 million in principal amount exercised their conversionrights. The Company elected to settle these conversions entirely in cash forapproximately $51.4 million using the remaining proceeds from the issuanceof the 61⁄4% Convertible Senior Notes. As a result of these conversions, theCompany recorded a $17.7 million loss on debt extinguishment during thequarter ended June 26, 2008.  Inconnection with these conversions, the Company received net proceeds ofapproximately $5.2 million from Credit Suisse attributable to theconvertible note hedge and warrant transactions associated with the 33⁄4%Convertible Senior Notes. Such proceeds were also recorded as an increase toadditional paid-in capital. See Note 4—”Debt Obligations” for furtherdiscussion of this transaction.

 

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On April 30, 2008, the Company consummated a transaction toacquire Consolidated Theatres, consisting of a total of 28 theatres with 400screens in Georgia, Maryland, North Carolina, South Carolina, Tennessee andVirginia.  The total net cash purchaseprice for the acquisition was approximately $209.3 million, subject topost-closing adjustments. The results of operations of the acquired theatreoperations have been included in the Company’s consolidated financialstatements for periods subsequent to the acquisition date. In conjunction withthe closing, we entered into a final judgment with the Antitrust Division ofthe United States Department of Justice, which requires us to hold separate anddivest ourselves of four theaters comprising 52 screens in North Carolina. SeeNote 2—”Recent Acquisitions” for further discussion of this transaction.

 

As described more fully in Note 3—“Investment in NationalCineMedia, LLC,” on April 9, 2008, we received approximately 0.8million additional common units of National CineMedia in accordance with theannual adjustment provisions of the Common Unit Adjustment Agreement.  On May 29, 2008, we received anadditional 2.9 million common units of National CineMedia in accordance withthe adjustment provisions of the Common Unit Adjustment Agreement for ouracquisition of Consolidated Theatres. These adjustments increased the number of National CineMedia commonunits held by us to approximately 24.9 million and as a result, on a fullydiluted basis, we own a 25.1% interest in NCM, Inc. as of June 26,2008.

 

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

 

As of June 26, 2008, we had approximately $1,674.5 millionaggregate principal amount outstanding under the Term Facility, $200.0 millionaggregate principal amount outstanding under the 61⁄4% Convertible Senior Notes,and $51.5 million aggregate principal amount outstanding under the Regal Cinemas93/8 % Senior Subordinated Notes. As of June 26,2008, we had approximately $2.5 million outstanding in letters of credit,leaving approximately $97.5 million available for drawing under the RevolvingFacility.

 

As described in Note 5 to the consolidated financial statementsincluded in our annual report on Form 10-K for the fiscal year ended December 27,2007, on July 13, 2004, Regal Cinemas entered into four hedgingrelationships via four distinct interest rate swap agreements with finalmaturity terms ranging from three to five years each. On September 8,2005, Regal Cinemas entered into an additional hedging relationship via adistinct interest rate swap agreement with a maturity term of four years. Theseinterest rate swaps were designated to hedge approximately$1,100.0 million of variable rate debt obligations. On June 30, 2007,one of our interest rate swaps designated to hedge approximately$200.0 million of variable rate debt obligations matured. On August 9,2007, Regal Cinemas entered into two additional hedging relationships via twodistinct interest rate swap agreements with maturity terms of two years each.These interest rate swaps were designated to hedge approximately$200.0 million of variable rate debt obligations. On June 30, 2008,two of our interest rate swaps designated to hedge $300.0 million of variablerate debt obligations matured. For a further description of the swapagreements, see Note 5 to the consolidated financial statements included in Part II,Item 8 of our annual report on Form 10-K for the fiscal year ended December 27,2007.

 

Regal paid two quarterly cash dividends of $0.30 per share on eachoutstanding share of the Company’s Class A and Class B common stock,or approximately $92.1 million in the aggregate, during the Fiscal 2008Period.  Further, on July 24, 2008, the Company declared a cashdividend of $0.30 per share on each share of the Company’s Class A and Class Bcommon stock (including outstanding restricted stock), payable on September 19,2008, to stockholders of record on September 11, 2008.  Thesedividends have been or will be funded through cash flow from operations andavailable cash on hand. We, at the discretion of the board of directors andsubject to applicable law, anticipate paying regular quarterly dividends on ourClass A and Class B common stock for the foreseeable future. Theamount, if any, of the dividends to be paid in the future will depend upon ourthen available cash, anticipated cash needs, overall

 

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financial condition, loanagreement restrictions, future prospects for earnings and cash flows, as wellas other relevant factors.

 

EBITDA (earnings before interest, taxes,depreciation, and amortization) was approximately $102.2 million, or 15.1%of total revenues, for the Q2 2008 Period and $159.4 million, or 23.3% oftotal revenues, for the Q2 2007 Period. EBITDA was approximately$176.1 million, or 13.5% of total revenues, for the Fiscal 2008 Period and$621.4 million, or 47.5% of total revenues, for the Fiscal 2007Period.  The net decrease in EBITDA inthe Q2 2008 Period from the Q2 2007 Period was primarily attributable to a$17.7 million loss on debt extinguishment recorded in the Q2 2008 Periodin connection with the redemption of approximately $33.7 million principalamount of the 33⁄4% Convertible Senior Notes, the impact of the $28.3 milliongain recorded in connection with the sale of the Company’s equity interest inFandango during the Q2 2007 Period and a decline in operating income during theQ2 2008 Period, partially offset by incremental earnings recognized fromNational CineMedia.  The net decrease inEBITDA from the Fiscal 2007 Period was primarily attributable to the$350.7 million gain recorded in the Fiscal 2007 Period resulting fromtransactions completed in connection with the IPO of NCM, Inc. (seeNote 3—“Investment in National CineMedia, LLC,” for furtherdiscussion), the impact of a $70.5 million loss on debt extinguishmentrecorded in the Fiscal 2008 Period in connection with the redemption ofapproximately $123.7 million principal amount of the 33⁄4% Convertible SeniorNotes, the $28.3 million gain in connection with the sale of the Company’sequity interest in Fandango during the Fiscal 2007 Period and a decline inoperating income during the Fiscal 2008 Period, partially offset by theincremental earnings recognized from National CineMedia. The Company usesEBITDA as a supplemental liquidity measure because we find it useful tounderstand and evaluate our capacity, excluding the impact of interest, taxes,and non-cash depreciation and amortization charges, for servicing our debt,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 balancesheet items (such as long-term loss accruals and deferred items). BecauseEBITDA excludes depreciation and amortization, EBITDA does not reflect any cashrequirements for the replacement of the assets being depreciated and amortized,which assets will often have to be replaced in the future. Further, EBITDA,because it also does not reflect the impact of debt service, income taxes, cashdividends, capital expenditures and other cash commitments from time to time asdescribed in more detail elsewhere in this quarterly report on Form10-Q, does not represent how much discretionary cash we have available forother purposes. Nonetheless, EBITDA is a key measure expected by and useful toour fixed income investors, rating agencies and the banking community all ofwhom believe, and we concur, that these measures are critical to the capital markets’analysis of our ability to service debt, fund capital expenditures, paydividends and otherwise meet cash needs, respectively. We also evaluate EBITDAbecause it is clear that movements in these non-GAAP measures impact ourability to attract financing and pay dividends. EBITDA, as calculated, may notbe comparable to similarly titled measures reported by other companies. Areconciliation of EBITDA to net cash provided by (used in) operating activitiesis calculated as follows (in millions):

 
| ** **                                           | ** ** | **Q2 2008 Period** | ** ** | **Q2 2007 Period** | ** ** | **Fiscal 2008  Period** | ** ** | **Fiscal 2007  Period** | ** ** |
|------------------------------------------------------|------------|------------------------------|------------|------------------------------|------------|------------------------------|------------|------------------------------|------------|
| EBITDA                                               |       | $                            | 102.2      |                         | $          | 159.4                        |       | $                            | 176.1      |   | $ | 621.4 |   |
| Interest expense, net                                |       | (30.0                        | )          | (25.5                        | )          | (59.7                        | )          | (56.5                        | )          |
| Provision for income taxes                           |       | (8.5                         | )          | (35.1                        | )          | (9.4                         | )          | (190.7                       | )          |
| Deferred income taxes                                |       | (27.6                        | )          | (2.0                         | )          | (26.2                        | )          | (46.8                        | )          |
| Changes in operating assets and liabilities          |       | 25.3                         |       | (136.6                       | )          | (7.0                         | )          | 332.9                        |       |
| Loss on debt extinguishment                          |       | 17.7                         |       | —                       |       | 70.5                         |       | —                       |       |
| Gain on sale of Fandango interest                    |       | —                       |       | (28.3                        | )          | —                       |       | (28.3                        | )          |
| Other items, net                                     |       | 6.2                          |       | 1.4                          |       | 12.2                         |       | 11.3                         |       |
| Net cash provided by (used in) operating  activities |       | $                            | 85.3       |                         | $          | (66.7                        | )          | $                            | 156.5      |   | $ | 643.3 |   |

 

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**Contractual Cash Obligations and Commitments**

 

The Company has assumed long-term contractual obligations andcommitments in the normal course of business, primarily debt obligations andnon-cancelable operating leases. Other than operating leases which are detailedbelow, the Company does not utilize variable interest entities or any otherform of off-balance sheet financing. As of June 26, 2008, the Company’sestimated contractual cash obligations and commercial commitments over the nextseveral periods are as follows (in millions):

 
| ** **                                           | ** ** | **Payments Due By Period ** | ** ** |
|------------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                           | ** ** | **Total**                                       | ** ** | **Current** | ** ** | **13-36 months** | ** ** | **37-60 months** | ** ** | **After 60 months** | ** ** |
| Contractual Cash Obligations:                        |       |                                            |       |   |   |   |   |   |   |   |   |
| Debt obligations(1)                                  |       | $                                               | 1,926.4    |   | $ | 17.1 |   | $ | 234.2 |   | $ | 81.4 |   | $ | 1,593.7 |   |
| Future interest on debt obligations(2)               |       | 427.2                                           |       | 101.2 |   | 175.0 |   | 123.4 |   | 27.6 |   |
| Capital lease obligations, including  interest(3)    |       | 28.4                                            |       | 3.4 |   | 6.9 |   | 6.8 |   | 11.3 |   |
| Lease financing arrangements, including  interest(3) |       | 147.4                                           |       | 13.5 |   | 27.5 |   | 27.7 |   | 78.7 |   |
| Bankruptcy claims and liabilities(4)                 |       | 0.7                                             |       | 0.7 |   | — |   | — |   | — |   |
| Operating leases(5)                                  |       | 4,113.8                                         |       | 344.8 |   | 691.3 |   | 666.1 |   | 2,411.6 |   |
| FIN 48 liabilities (6)                          |       | 0.5                                             |       | — |   | 0.5 |   | — |   | — |   |
| Other long term liabilities                          |       | 11.2                                            |       | 4.7 |   | 5.6 |   | 0.6 |   | 0.3 |   |
|                                                 |       |                                            |       |   |   |   |   |   |   |   |   |
| Total                                                |       | $                                               | 6,655.6    |   | $ | 485.4 |   | $ | 1,141.0 |   | $ | 906.0 |   | $ | 4,123.2 |   |

 
| ** **                      |   | **Amount  of Commitment Expiration per Period** |   |
|---------------------------------|--------|-------------------------------------------------|--------|
| ** **                      |   | **Total  Amounts  Available**                   |   | **Current** | ** ** | **13-36 months** | ** ** | **37-60 months** | ** ** | **After  60 months** |   |
| Other Commercial Commitments(7) |   | $                                               | 100.0  |   | $ | — |   | $ | — |   | $ | 100.0 |   | $ | — |   |
|                                 |        |                                                 |        |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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(1)                                  These amounts are included on our unauditedcondensed consolidated balance sheet as of June 26, 2008. Our AmendedSenior Credit Facility provides for mandatory prepayments under certainscenarios. See Note 5 to the consolidated financial statements included inPart II, Item 8 of our annual report on Form 10-K for the fiscalyear ended December 27, 2007 for additional information about ourlong-term debt obligations and related matters.

 

(2)                                  Future interest payments on the Company’sunhedged debt obligations (consisting of approximately $574.5 million ofvariable interest rate borrowings under the Term Facility, $200.0 millionoutstanding under the 6 1⁄4% Convertible Senior Notes, approximately$51.5 million due under the Senior Subordinated Notes and approximately$0.4 million of other debt obligations) are based on the stated fixedrates or in the case of the $574.5 million of variable interest rateborrowings under the Term Facility, the current interest rate as of June 26,2008 (4.2%). Future interest payments on the Company’s hedged indebtedness asof June 26, 2008 (the remaining $1,100.0 million of borrowings underthe Term Facility) are based on (1) the applicable margin (as defined inNote 5 to the consolidated financial statements included in Part II,Item 8 of our annual report on Form 10-K for the fiscal year ended December 27,2007) as of June 26, 2008 (1.50%) and (2) the expected fixed interestpayments under the Company’s interest rate swap agreements, which are describedin further detail under Note 5 to the consolidated financial statementsincluded in Part II, Item 8 of our annual report on Form 10-Kfor the fiscal year ended December 27, 2007.

 

(3)                                  The present value of these obligations,excluding interest, is included on our unaudited condensed consolidated balancesheet as of June 26, 2008. Future interest payments are calculated basedon interest rates implicit in the underlying leases, which have a weightedaverage interest rate of 11.18%, maturing in various installments through 2021.Refer to Note 5 to the consolidated financial statements included in Part II,Item 8 of our annual report on Form 10-K for the fiscal year ended December 27,2007 for additional information about our capital lease obligations and leasefinancing arrangements.

 

(4)                                  These amounts are included on our unauditedcondensed consolidated balance sheet as of June 26, 2008. Refer toNote 8 to the consolidated financial statements included in Part II,Item 8 of our annual report on Form 10-K for the fiscal year ended December 27,2007 for additional information about our bankruptcy related matters.

 

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

 

(6)           These amounts are included on our unauditedcondensed consolidated balance sheet as of June 26, 2008 and representliabilities associated with unrecognized tax benefits. The table does notinclude approximately $23.2 million of recorded liabilities associatedwith unrecognized tax benefits for which we do not believe that the amount andtiming of the payments are reasonably estimable.

 

(7)           As of June 26, 2008, Regal Cinemas hadapproximately $97.5 million available for drawing under the $100.0 millionRevolving Facility. Regal Cinemas also maintains a sublimit within theRevolving Facility of $10.0 million for short-term loans and$30.0 million for letters of credit.

 

Webelieve that the amount of cash and cash equivalents on hand, cash flowexpected from operations and availability under our Revolving Facility will beadequate for the Company to execute its business strategy and meet anticipatedrequirements for lease obligations, capital expenditures, working capital anddebt service for the next 12 months.

 

**Critical Accounting Estimates**

** **

For a discussion of accounting policies that we consider critical toour business operations and the understanding of our results of operations andaffect the more significant judgments and estimates used in the preparation ofour unaudited condensed consolidated financial statements, please refer to Item7, “Management’s Discussion and Analysis of Financial Condition and Results ofOperations—Critical Accounting Estimates” contained in our annual report on Form 10-Kfor the fiscal year ended December 27, 2007 and incorporated by referenceherein.  As of June 26, 2008, there were no significant changes inour critical accounting policies or estimation procedures.

 

**Recent Accounting Pronouncements**

 

For a discussion of the recent accounting pronouncements relevant toour operations, please refer to the information provided under Note 10—“RecentAccounting Pronouncements” to the accompanying unaudited condensed consolidatedfinancial statements, which information is incorporated by reference herein.

 

**Seasonality**

 

The Company’s revenues are usually seasonal, coinciding with the timingof releases of motion pictures by the major distributors. Generally, studiosrelease the most marketable motion pictures during the summer and the holidayseasons. The unexpected emergence of a “hit” film during other periods can alterthe traditional pattern. The timing of movie releases can have a significanteffect on the Company’s results of operations, and the results of one quarterare not necessarily indicative of the results for the next or any otherquarter. The seasonality of motion picture exhibition, however, has become lesspronounced as studios are releasing motion pictures somewhat more evenlythroughout the year.

 

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

 

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

 

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During 2004 and 2005, Regal Cinemas entered into five distinct hedgingrelationships via five separate interest rate swap agreements with finalmaturity terms ranging from three to five years for the purpose of hedging anaggregate of approximately $1,100.0 million of its variable rate debtobligations. Under the terms of the interest rate swap agreements, RegalCinemas pays interest at various fixed rates ranging from 3.49%—4.337% andreceives interest at a variable rate based on the 3-month LIBOR. On June 30,2007, one of our interest rate swaps designated to hedge approximately$200.0 million of variable rate debt obligations matured. On August 9,2007, Regal Cinemas entered into two additional hedging relationships via twodistinct interest rate swap agreements with maturity terms of two years eachand require Regal Cinemas to pay interest at a fixed rate of 4.944% and receiveinterest at a variable rate. These interest rate swaps were designated to hedgeapproximately $200.0 million of variable rate debt obligations. On June 30,2008, two of our interest rate swaps designated to hedge $300.0 million ofvariable rate debt obligations matured. For a further description of the swapagreements, see Note 5 to the consolidated financial statements included in Part II,Item 8 of our annual report on Form 10-K for the fiscal year ended December 27,2007.

 

As of June 26, 2008 and December 27, 2007, borrowings of$1,674.5 million  and$1,683.0 million, respectively, were outstanding under the Term Facilityand the prior term facility, respectively, at an effective interest rate of5.22% (as of June 26, 2008) and 6.09% (as of December 27, 2007),after the impact of the interest rate swaps is taken into account. Ahypothetical change of 10% in the Company’s effective interest rate under theTerm Facility as of June 26, 2008, would increase or decrease interestexpense by $2.2 million for the quarter ended June 26, 2008.

 

**Item 4. CONTROLS AND PROCEDURES**

 

We maintain disclosure controls and procedures that are designed toensure that information required to be disclosed by us in the reports that wefile or submit to the Commission under the Securities Exchange Act of 1934, asamended (the “Exchange Act”), is recorded, processed, summarized and reportedwithin the time periods specified by the Commission’s rules and forms, andthat information is accumulated and communicated to our management, includingour principal executive, principal financial and principal accounting officers(whom we refer to in this periodic report as our Certifying Officers), asappropriate to allow timely decisions regarding required disclosure. Ourmanagement evaluated, with the participation of our Certifying Officers, theeffectiveness of our disclosure controls and procedures as of June 26,2008, pursuant to Rule 13a-15(b) under the Exchange Act. Based uponthat evaluation, our Certifying Officers concluded that, as of June 26,2008, our disclosure controls and procedures were effective.

 

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

 

**PART II—OTHERINFORMATION**

 

**Item 1. LEGAL PROCEEDINGS**

 

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

 

**Item 1A. RISK FACTORS**

 

There have been no material changes from risk factors as previouslydisclosed in our annual report

 

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onForm 10-K filed on February 26, 2008 with the Commission (File No. 001-31315)for the fiscal year ended December 27, 2007.

 

**Item4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

 

Our 2008 annual meeting ofstockholders was held on May 7, 2008 in Knoxville, Tennessee. The matterssubmitted for a vote at the meeting and the related election results were asfollows:

 

1.  Election of three Class IIIdirectors to serve for three-year terms on our board of directors:

 
| ** **                  | ** ** | **For**     | ** ** | **Withheld** | ** ** |
|-----------------------------|------------|-------------|------------|--------------|------------|
|                        |       |        |       |         |       |
| Stephen A. Kaplan           |       | 318,831,533 |       | 38,897,827   |       |
| Jack Tyrrell                |       | 357,660,389 |       | 68,972       |       |
| Nestor R. Weigand, Jr. |       | 357,642,991 |       | 86,370       |       |

 

Those Directors whose termsof office continued after the meeting were as follows: Thomas D. Bell, Jr.,Charles E. Brymer, Michael L. Campbell, David E. Keyte, Lee M. Thomas and AlexYemenidjian.

 

2. To approve the materialterms for payment of the Company’s executive incentive compensation:

 
| **For**     | ** ** | **Against** | ** ** | **Abstain** | ** ** | **Broker  Non-Vote** | ** ** |
|-------------|------------|-------------|------------|-------------|------------|----------------------|------------|
|        |       |        |       |        |       |                 |       |
| 355,618,693 |       | 736,546     |       | 1,374,121   |       | —               |       |

 

3.  Ratification of theAudit Committees’ selection of KPMG LLP as our independent registered publicaccounting firm for the fiscal year ending January 1, 2009:

 
| **For**     | ** ** | **Against** | ** ** | **Abstain** | ** ** | **Broker  Non-Vote** | ** ** |
|-------------|------------|-------------|------------|-------------|------------|----------------------|------------|
|        |       |        |       |        |       |                 |       |
| 357,739,078 |       | 27,214      |       | 17,497      |       | —               |       |

 

**Item 6. EXHIBITS**

 

**EXHIBIT INDEX**

 
| **Exhibit  Number** | ** ** | **Description**                                                                                                                                                                                                                                                |
|---------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1                |       | Summary  of Regal Entertainment Group’s Annual Executive Incentive Program (filed as  exhibit 10.1 to Registrant’s Current Report on Form 8-K (Commission File  No. 001-31315) on May 13, 2008 and incorporated herein by  reference) |
| 31.1                |       | Rule 13a-14(a) Certification  of Chief Executive Officer of Regal                                                                                                                                                                                    |
| 31.2                |       | Rule 13a-14(a) Certification  of Chief Financial Officer of Regal                                                                                                                                                                                    |
| 32                  |       | Section 1350  Certifications                                                                                                                                                                                                                              |

 

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**SIGNATURES**

 

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

 

 
| ** **                 | **REGAL ENTERTAINMENT GROUP** |
|----------------------------|-------------------------------|
|                       |                          |
| Date:  August 5, 2008 | By:                           | /s/  MICHAEL  L. CAMPBELL |
|                       |                          | Michael  L. Campbell |
|                       |                          | *Chief Executive Officer (Principal* |
|                       |                          | *Executive Officer)* |
|                       |                          |   |
| Date:  August 5, 2008 | By:                           | /s/  AMY  E. MILES |
|                       |                          | Amy  E. Miles |
|                       |                          | *Executive Vice President and Chief* |
|                       |                          | *Financial Officer (Principal Financial* |
|                       |                          | *Officer)* |
|                       |                          |   |
| Date:  August 5, 2008 | By:                           | /s/  DAVID  H. OWNBY |
|                       |                          | David  H. Ownby |
|                       |                          | *Senior Vice President and Chief* |
|                       |                          | *Accounting Officer (Principal Accounting* |
|                       |                          | *Officer)* |

 

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**EXHIBIT INDEX**

 
| **Exhibit  Number** | ** ** | **Description**                                                                                                                                                                                                                                               |
|---------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1                |       | Summary  of Regal Entertainment Group’s Annual Executive Incentive Program (filed as  exhibit 10.1 to Registrant’s Current Report on Form 8-K (Commission File  No. 001-31315) on May 13, 2008 and incorporated herein by reference) |
| 31.1                |       | Rule 13a-14(a) Certification  of Chief Executive Officer of Regal                                                                                                                                                                                   |
| 31.2                |       | Rule 13a-14(a) Certification  of Chief Financial Officer of Regal                                                                                                                                                                                   |
| 32                  |       | Section 1350  Certifications                                                                                                                                                                                                                             |

 

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