Table ofContents

 

 

 

**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

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**FORM 10-Q**

 

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

 

**Forthe quarterly period ended October 1, 2009**

 

**Commissionfile number: 001-31315**

 

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**Regal Entertainment Group**

(Exact name ofRegistrant 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’sTelephone Number, Including Area Code: **865-922-1123**

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required tofile such reports), and (2) has been subject to such filing requirementsfor the past 90 days.  Yes x No o

 

Indicate by check markwhether the registrant has submitted electronically and posted on its corporateWeb site, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T during the preceding12 months (or for such shorter period that the registrant was required tosubmit and post such files).  Yes o No o

 

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

 

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

 

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

 

Class A CommonStock—130,291,458 shares outstanding at November  6, 2009

 

Class B CommonStock—23,708,639 shares outstanding at November  6, 2009

 

 

 

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Table ofContents

 

**TABLE OFCONTENTS**

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

 

2

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Table ofContents

 

**PART I—FINANCIAL INFORMATION**

 

**Item1.    FINANCIAL STATEMENTS**

 

**REGALENTERTAINMENT GROUP**

 

**UNAUDITED CONDENSED CONSOLIDATEDBALANCE SHEETS**

**(inmillions, except share data)**

 
| ** **                                                                                                                                                                                              | ** ** | **October 1,  2009** | ** ** | **January 1,  2009** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------|------------|---------------------------|------------|
| **ASSETS**                                                                                                                                                                                              |       |                      |       |                      |       |
| CURRENT  ASSETS:                                                                                                                                                                                        |       |                      |       |                      |       |
| Cash  and cash equivalents                                                                                                                                                                              |       | $                         | 192.3      |                      | $          | 170.2 |   |
| Trade  and other receivables                                                                                                                                                                            |       | 32.6                      |       | 73.2                      |       |
| Inventories                                                                                                                                                                                             |       | 10.6                      |       | 8.3                       |       |
| Prepaid  expenses and other current assets                                                                                                                                                              |       | 16.5                      |       | 6.1                       |       |
| Assets  held for sale                                                                                                                                                                                   |       | 0.6                       |       | 0.9                       |       |
| Deferred  income tax asset                                                                                                                                                                              |       | 11.1                      |       | 14.8                      |       |
| TOTAL  CURRENT ASSETS                                                                                                                                                                                   |       | 263.7                     |       | 273.5                     |       |
| PROPERTY  AND EQUIPMENT:                                                                                                                                                                                |       |                      |       |                      |       |
| Land                                                                                                                                                                                                    |       | 118.6                     |       | 118.6                     |       |
| Buildings  and leasehold improvements                                                                                                                                                                   |       | 1,922.3                   |       | 1,911.5                   |       |
| Equipment                                                                                                                                                                                               |       | 1,019.1                   |       | 974.5                     |       |
| Construction  in progress                                                                                                                                                                               |       | 9.1                       |       | 14.1                      |       |
| Total  property and equipment                                                                                                                                                                           |       | 3,069.1                   |       | 3,018.7                   |       |
| Accumulated  depreciation and amortization                                                                                                                                                              |       | (1,211.6                  | )          | (1,082.2                  | )          |
| TOTAL  PROPERTY AND EQUIPMENT, NET                                                                                                                                                                      |       | 1,857.5                   |       | 1,936.5                   |       |
| GOODWILL                                                                                                                                                                                                |       | 178.8                     |       | 178.8                     |       |
| INTANGIBLE  ASSETS, NET                                                                                                                                                                                 |       | 12.6                      |       | 15.5                      |       |
| DEFERRED  INCOME TAX ASSET                                                                                                                                                                              |       | 77.9                      |       | 78.2                      |       |
| OTHER  NON-CURRENT ASSETS                                                                                                                                                                               |       | 122.0                     |       | 113.3                     |       |
| TOTAL  ASSETS                                                                                                                                                                                           |       | $                         | 2,512.5    |                      | $          | 2,595.8 |   |
| **LIABILITIES AND DEFICIT**                                                                                                                                                                             |       |                      |       |                      |       |
| CURRENT  LIABILITIES:                                                                                                                                                                                   |       |                      |       |                      |       |
| Current  portion of debt obligations                                                                                                                                                                    |       | $                         | 20.2       |                      | $          | 23.4 |   |
| Accounts  payable                                                                                                                                                                                       |       | 116.3                     |       | 162.0                     |       |
| Accrued  expenses                                                                                                                                                                                       |       | 58.5                      |       | 77.8                      |       |
| Deferred  revenue                                                                                                                                                                                       |       | 72.8                      |       | 95.6                      |       |
| Interest  payable                                                                                                                                                                                       |       | 9.5                       |       | 7.4                       |       |
| TOTAL  CURRENT LIABILITIES                                                                                                                                                                              |       | 277.3                     |       | 366.2                     |       |
| LONG-TERM  DEBT, LESS CURRENT PORTION                                                                                                                                                                   |       | 1,891.3                   |       | 1,887.0                   |       |
| LEASE  FINANCING ARRANGEMENTS, LESS CURRENT PORTION                                                                                                                                                     |       | 73.4                      |       | 77.2                      |       |
| CAPITAL  LEASE OBLIGATIONS, LESS CURRENT PORTION                                                                                                                                                        |       | 15.7                      |       | 17.3                      |       |
| NON-CURRENT  DEFERRED REVENUE                                                                                                                                                                           |       | 342.7                     |       | 339.9                     |       |
| OTHER  NON-CURRENT LIABILITIES                                                                                                                                                                          |       | 170.6                     |       | 144.1                     |       |
| TOTAL  LIABILITIES                                                                                                                                                                                      |       | 2,771.0                   |       | 2,831.7                   |       |
| DEFICIT:                                                                                                                                                                                                |       |                      |       |                      |       |
| Class A  common stock, $0.001 par value; 500,000,000 shares authorized, 130,291,408  and 129,801,284 shares issued and outstanding at October 1, 2009 and  January 1, 2009, respectively |       | 0.1                       |       | 0.1                       |       |
| Class B  common stock, $0.001 par value; 200,000,000 shares authorized, 23,708,639  shares issued and outstanding at October 1, 2009 and January 1,  2009                                |       | —                    |       | —                    |       |
| Preferred  stock, $0.001 par value; 50,000,000 shares authorized; none issued and  outstanding                                                                                                          |       | —                    |       | —                    |       |
| Additional  paid-in capital (deficit)                                                                                                                                                                   |       | (263.4                    | )          | (265.8                    | )          |
| Retained  earnings                                                                                                                                                                                      |       | 17.9                      |       | 40.1                      |       |
| Accumulated  other comprehensive loss, net                                                                                                                                                              |       | (12.5                     | )          | (9.9                      | )          |
| TOTAL  STOCKHOLDERS’ DEFICIT OF REGAL ENTERTAINMENT GROUP                                                                                                                                          |       | (257.9                    | )          | (235.5                    | )          |
| Noncontrolling  interest                                                                                                                                                                                |       | (0.6                      | )          | (0.4                      | )          |
| TOTAL  DEFICIT                                                                                                                                                                                          |       | (258.5                    | )          | (235.9                    | )          |
| TOTAL  LIABILITIES AND DEFICIT                                                                                                                                                                          |       | $                         | 2,512.5    |                      | $          | 2,595.8 |   |

 

See accompanyingnotes to unaudited condensed consolidated financial statements.

 

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**REGALENTERTAINMENT GROUP**

**UNAUDITED CONDENSED CONSOLIDATEDSTATEMENTS OF INCOME (LOSS)**

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

** **
| ** **                                                                                                                                                                                                                                                                 | ** ** | **Quarter  Ended  October 1, 2009** | ** ** | **Quarter  Ended  September 25, 2008** | ** ** | **Three  Quarters  Ended  October 1, 2009** | ** ** | **Three  Quarters  Ended  September 25, 2008** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------|------------|---------------------------------------------|------------|--------------------------------------------------|------------|-----------------------------------------------------|------------|
| REVENUES:                                                                                                                                                                                                                                                                  |       |                                     |       |                                        |       |                                             |       |                                                |       |
| Admissions                                                                                                                                                                                                                                                                 |       | $                                        | 463.4      |                                        | $          | 516.8                                            |       | $                                                   | 1,464.6    |   | $ | 1,404.5 |   |
| Concessions                                                                                                                                                                                                                                                                |       | 182.6                                    |       | 209.6                                       |       | 576.9                                            |       | 564.6                                               |       |
| Other operating revenues                                                                                                                                                                                                                                                   |       | 27.5                                     |       | 31.2                                        |       | 86.8                                             |       | 91.1                                                |       |
| TOTAL REVENUES                                                                                                                                                                                                                                                             |       | 673.5                                    |       | 757.6                                       |       | 2,128.3                                          |       | 2,060.2                                             |       |
| OPERATING EXPENSES:                                                                                                                                                                                                                                                        |       |                                     |       |                                        |       |                                             |       |                                                |       |
| Film rental and advertising costs                                                                                                                                                                                                                                          |       | 244.6                                    |       | 282.0                                       |       | 767.7                                            |       | 744.9                                               |       |
| Cost of concessions                                                                                                                                                                                                                                                        |       | 27.1                                     |       | 30.4                                        |       | 82.8                                             |       | 78.6                                                |       |
| Rent expense                                                                                                                                                                                                                                                               |       | 93.7                                     |       | 94.1                                        |       | 282.2                                            |       | 267.4                                               |       |
| Other operating expenses                                                                                                                                                                                                                                                   |       | 194.2                                    |       | 197.2                                       |       | 575.9                                            |       | 546.3                                               |       |
| General and administrative expenses (including  share-based compensation of $1.7 and $1.4 for the quarters ended  October 1, 2009 and September 25, 2008, respectively, and $4.3 for  the three quarters ended October 1, 2009 and September 25, 2008) |       | 17.1                                     |       | 15.5                                        |       | 47.8                                             |       | 46.3                                                |       |
| Depreciation and amortization                                                                                                                                                                                                                                              |       | 51.2                                     |       | 51.1                                        |       | 151.6                                            |       | 147.3                                               |       |
| Net loss on disposal and impairment of operating  assets                                                                                                                                                                                                                   |       | 7.2                                      |       | 11.5                                        |       | 23.1                                             |       | 16.0                                                |       |
| Joint venture employee compensation                                                                                                                                                                                                                                        |       | —                                   |       | 0.1                                         |       | —                                           |       | 0.4                                                 |       |
| TOTAL OPERATING EXPENSES                                                                                                                                                                                                                                                   |       | 635.1                                    |       | 681.9                                       |       | 1,931.1                                          |       | 1,847.2                                             |       |
| INCOME FROM OPERATIONS                                                                                                                                                                                                                                                     |       | 38.4                                     |       | 75.7                                        |       | 197.2                                            |       | 213.0                                               |       |
| OTHER EXPENSE (INCOME):                                                                                                                                                                                                                                                    |       |                                     |       |                                        |       |                                             |       |                                                |       |
| Interest expense, net                                                                                                                                                                                                                                                      |       | 40.3                                     |       | 29.9                                        |       | 114.5                                            |       | 91.7                                                |       |
| Loss on extinguishment of debt                                                                                                                                                                                                                                             |       | 7.4                                      |       | —                                      |       | 7.4                                              |       | 3.0                                                 |       |
| Earnings recognized from NCM                                                                                                                                                                                                                                               |       | (7.4                                     | )          | (7.1                                        | )          | (26.8                                            | )          | (21.4                                               | )          |
| Other, net                                                                                                                                                                                                                                                                 |       | 1.0                                      |       | 0.6                                         |       | 2.0                                              |       | 1.9                                                 |       |
| TOTAL OTHER EXPENSE, NET                                                                                                                                                                                                                                                   |       | 41.3                                     |       | 23.4                                        |       | 97.1                                             |       | 75.2                                                |       |
| INCOME (LOSS) BEFORE INCOME TAXES                                                                                                                                                                                                                                          |       | (2.9                                     | )          | 52.3                                        |       | 100.1                                            |       | 137.8                                               |       |
| PROVISION FOR (BENEFIT FROM) INCOME TAXES                                                                                                                                                                                                                                  |       | (1.0                                     | )          | 21.3                                        |       | 40.3                                             |       | 55.1                                                |       |
| NET INCOME (LOSS)                                                                                                                                                                                                                                                          |       | (1.9                                     | )          | 31.0                                        |       | 59.8                                             |       | 82.7                                                |       |
| NONCONTROLLING INTEREST, NET OF TAX                                                                                                                                                                                                                                        |       | 0.1                                      |       | —                                      |       | 0.2                                              |       | 0.1                                                 |       |
| NET INCOME (LOSS) ATTRIBUTABLE TO CONTROLLING  INTEREST                                                                                                                                                                                                                    |       | $                                        | (1.8       | )                                           | $          | 31.0                                             |       | $                                                   | 60.0       |   | $ | 82.8 |   |
| EARNINGS (LOSS) PER SHARE OF CLASS A AND  CLASS B COMMON STOCK:                                                                                                                                                                                                  |       |                                     |       |                                        |       |                                             |       |                                                |       |
| Basic                                                                                                                                                                                                                                                                      |       | $                                        | (0.01      | )                                           | $          | 0.20                                             |       | $                                                   | 0.39       |   | $ | 0.54 |   |
| Diluted                                                                                                                                                                                                                                                                    |       | $                                        | (0.01      | )                                           | $          | 0.20                                             |       | $                                                   | 0.39       |   | $ | 0.53 |   |
| AVERAGE SHARES OUTSTANDING (in thousands):                                                                                                                                                                                                                                 |       |                                     |       |                                        |       |                                             |       |                                                |       |
| Basic                                                                                                                                                                                                                                                                      |       | 153,053                                  |       | 152,864                                     |       | 153,050                                          |       | 152,841                                             |       |
| Diluted                                                                                                                                                                                                                                                                    |       | 153,053                                  |       | 153,839                                     |       | 154,061                                          |       | 155,709                                             |       |
| Dividends declared per common share                                                                                                                                                                                                                                        |       | $                                        | 0.18       |                                        | $          | 0.30                                             |       | $                                                   | 0.54       |   | $ | 0.90 |   |

 

See accompanyingnotes to unaudited condensed consolidated financial statements.

 

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**REGALENTERTAINMENT GROUP**

 

**UNAUDITED CONDENSED CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**(inmillions)**

 
| ** **                                                                              | ** ** | **Three  Quarters  Ended  October 1, 2009** | ** ** | **Three  Quarters  Ended  September 25, 2008** | ** ** |
|-----------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|-----------------------------------------------------|------------|
| CASH  FLOWS FROM OPERATING ACTIVITIES:                                                  |       |                                             |       |                                                |       |
| Net  income                                                                             |       | $                                                | 59.8       |                                                | $          | 82.7 |   |
| Adjustments  to reconcile net income to net cash provided by operating activities:      |       |                                             |       |                                                |       |
| Depreciation  and amortization                                                          |       | 151.6                                            |       | 147.3                                               |       |
| Amortization  of debt discount                                                          |       | 3.3                                              |       | 3.2                                                 |       |
| Amortization  of debt acquisition costs                                                 |       | 6.8                                              |       | 5.2                                                 |       |
| Change  in fair value of interest rate swap                                             |       | —                                           |       | (0.5                                                | )          |
| Share-based  compensation expense                                                       |       | 4.3                                              |       | 4.3                                                 |       |
| Deferred  income tax benefit                                                            |       | (1.7                                             | )          | (29.3                                               | )          |
| Net  loss on disposal and impairment of operating assets                                |       | 23.1                                             |       | 16.0                                                |       |
| Equity  in earnings of non-consolidated entities and other                              |       | 1.0                                              |       | 0.7                                                 |       |
| Excess  cash distribution on additional shares in NCM                                   |       | 4.6                                              |       | 1.0                                                 |       |
| Loss  on extinguishment of debt                                                         |       | 7.4                                              |       | 3.0                                                 |       |
| Non-cash  rent expense                                                                  |       | 4.8                                              |       | 6.1                                                 |       |
| Changes  in operating assets and liabilities (excluding effects of acquisitions):       |       |                                             |       |                                                |       |
| Trade  and other receivables                                                            |       | 40.6                                             |       | 10.4                                                |       |
| Inventories                                                                             |       | (2.3                                             | )          | 0.9                                                 |       |
| Prepaid  expenses and other assets                                                      |       | (8.4                                             | )          | (5.6                                                | )          |
| Accounts  payable                                                                       |       | (45.7                                            | )          | (82.0                                               | )          |
| Income  taxes payable                                                                   |       | 6.6                                              |       | 20.3                                                |       |
| Deferred  revenue                                                                       |       | (27.1                                            | )          | (37.7                                               | )          |
| Accrued  expenses and other liabilities                                                 |       | (8.7                                             | )          | (18.9                                               | )          |
| NET  CASH PROVIDED BY OPERATING ACTIVITIES                                              |       | 220.0                                            |       | 127.1                                               |       |
| CASH  FLOWS FROM INVESTING ACTIVITIES:                                                  |       |                                             |       |                                                |       |
| Capital  expenditures                                                                   |       | (86.3                                            | )          | (99.1                                               | )          |
| Proceeds  from disposition of assets                                                    |       | 0.4                                              |       | 3.6                                                 |       |
| Purchase  of Consolidated Theatres, L.L.C., net of cash acquired                        |       | —                                           |       | (209.3                                              | )          |
| Distributions  to partnership                                                           |       | —                                           |       | (0.4                                                | )          |
| Investment  in DCIP                                                                     |       | (2.5                                             | )          | (2.5                                                | )          |
| NET  CASH USED IN INVESTING ACTIVITIES                                                  |       | (88.4                                            | )          | (307.7                                              | )          |
| CASH  FLOWS FROM FINANCING ACTIVITIES:                                                  |       |                                             |       |                                                |       |
| Cash  used to pay dividends                                                             |       | (83.1                                            | )          | (138.1                                              | )          |
| Net  proceeds from issuance of Regal Cinemas 85/8% Senior  Notes                        |       | 390.2                                            |       | —                                              |       |
| Net  payments on long-term obligations                                                  |       | (397.9                                           | )          | (17.2                                               | )          |
| Cash  used to purchase treasury shares and other                                        |       | (0.4                                             | )          | —                                              |       |
| Proceeds  from stock option exercises                                                   |       | 0.1                                              |       | 0.5                                                 |       |
| Payment  of debt acquisition costs and other                                            |       | (18.4                                            | )          | (5.1                                                | )          |
| Excess  tax benefits from share-based payment arrangements                              |       | —                                           |       | 0.2                                                 |       |
| Net  proceeds from 33⁄4% Convertible Senior Notes hedge and warrant                  |       | —                                           |       | 18.9                                                |       |
| Proceeds  from issuance of 61⁄4% Convertible Senior Notes                            |       | —                                           |       | 200.0                                               |       |
| Net  cash paid for 61⁄4% Convertible Senior Notes convertible note hedge and warrant |       | —                                           |       | (6.6                                                | )          |
| Cash  used to redeem 33⁄4% Convertible Senior Notes                                  |       | —                                           |       | (194.1                                              | )          |
| NET  CASH USED IN FINANCING ACTIVITIES                                                  |       | (109.5                                           | )          | (141.5                                              | )          |
| NET  INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                   |       | 22.1                                             |       | (322.1                                              | )          |
| CASH  AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                       |       | 170.2                                            |       | 435.2                                               |       |
| CASH  AND CASH EQUIVALENTS AT END OF PERIOD                                             |       | $                                                | 192.3      |                                                | $          | 113.1 |   |
| SUPPLEMENTAL  CASH FLOW INFORMATION:                                                    |       |                                             |       |                                                |       |
| Cash  paid for income taxes, net of refunds received                                    |       | $                                                | 39.0       |                                                | $          | 90.1 |   |
| Cash  paid for interest                                                                 |       | $                                                | 103.5      |                                                | $          | 96.6 |   |
| SUPPLEMENTAL  NON-CASH INVESTING ACTIVITIES:                                            |       |                                             |       |                                                |       |
| Additional  investment in NCM                                                           |       | $                                                | 7.0        |                                                | $          | 73.4 |   |

 

See accompanyingnotes to unaudited condensed consolidated financial statements.

 

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**REGALENTERTAINMENT GROUP**

 

**NOTES TO UNAUDITED CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS**

 

**OCTOBER1, 2009 AND SEPTEMBER 25, 2008**

 

**1. THECOMPANY AND BASIS OF PRESENTATION**

 

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

 

Regal operates thelargest theatre circuit in the United States, consisting of 6,775 screens in548 theatres in 39 states and the District of Columbia as of October 1,2009.  The Company formally operates on a 52-week fiscal year with eachquarter generally consisting of 13 weeks, unless otherwise noted. The Company’sfiscal year ends on the first Thursday after December 25, which incertain years (such as fiscal 2008) results in a 53-week fiscalyear.  As of October 1, 2009, the Company managed its business underone reportable segment: theatre exhibition operations.

 

On February 12,2007, we, along with AMC Entertainment, Inc. (“AMC”) and Cinemark, Inc.(“Cinemark”) formed a joint venture company known as Digital CinemaImplementation Partners, LLC, a Delaware limited liability company (“DCIP”),to create a financing model and establish agreements with major motion picture studiosfor the implementation of digital cinema. The Company’s cumulative cashinvestment in DCIP totaled approximately $8.0 million as of October 1,2009. Such investment is included as a component of “Other Non-current Assets”in the accompanying unaudited condensed consolidated balance sheets. We accountfor our investment in DCIP following the equity method of accounting. During the three quarters ended October 1, 2009 and September 25,2008, the Company recorded losses of $2.5 million and $2.3 million,respectively, representing its share of the net loss of DCIP.  Suchamounts are presented as a component of “Other, net” in the accompanyingunaudited condensed consolidated statements of income (loss).

 

On March 10, 2008,Regal issued $200.0 million aggregate principal amount of 61⁄4% ConvertibleSenior Notes due March 15, 2011 (the “61⁄4% Convertible Senior Notes”).Concurrent with the issuance of the 61⁄4% Convertible Senior Notes, we enteredinto simultaneous convertible note hedge and warrant transactions with respectto our Class A common stock in order to reduce the potential dilution fromconversion of the 61⁄4% Convertible Senior Notes into shares of our Class Acommon stock. The net cost of the convertible note hedge and warranttransactions was approximately $6.6 million and is included as a componentof equity in the accompanying unaudited condensed consolidated balancesheets. 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 Regal’s 33⁄4% Convertible Senior Notes due May 15,2008 (the “33⁄4% Convertible Senior Notes”), in a series of privately negotiatedtransactions.  As a result of the early redemption, the Company recorded a$3.0 million loss on debt extinguishment (as retrospectively adjusted for theadoption of certain provisions of FASB Accounting Standards Codification (“ASC”)Subtopic 470-20, *Debt—Debt with Conversion and other Options*related to the accounting for convertible debt instruments that may be settledin cash upon conversion (including partial cash settlements), described belowand in Note 4—“Debt Obligations”) during the quarter ended March 27,2008.  In connection with the early redemption, the Company received net 

 

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proceeds of approximately$13.7 million from Credit Suisse International (“Credit Suisse”) attributableto the convertible note hedge and warrant transactions associated with the 33⁄4%Convertible Senior Notes described further in Note 4—“Debt Obligations.”Such proceeds were recorded as an increase to additional paid-incapital. In connection with the final maturity of the 33⁄4% ConvertibleSenior Notes on May 15, 2008, holders of the remaining $33.7 million in principalamount exercised their conversion rights. The Company elected to settle theseconversions entirely in cash for approximately $51.4 million using theremaining proceeds from the issuance of the 61⁄4% Convertible Senior Notes. In connection 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.

 

On April 30, 2008,the Company acquired Consolidated Theatres Holdings, G.P. (“ConsolidatedTheatres”), which held a total of 28 theatres with 400 screens in Georgia,Maryland, North Carolina, South Carolina, Tennessee and Virginia. The total netcash purchase price for the acquisition was approximately $209.3 million.The results of operations of the acquired theatres have been included in theCompany’s consolidated financial statements for periods subsequent to theacquisition date. In conjunction with the closing, we entered into a finaljudgment with the Antitrust Division of the United States Department of Justice(“DOJ”), which required us to hold separate and divest ourselves of fourtheaters comprising 52 screens in North Carolina. During the quarter ended September 25,2008, the Company entered into an agreement to sell three of the four theatresand recorded impairment charges of approximately $7.9 million related tothese theatres. On October 23, 2008, the Company completed its divestitureof the three theatres.  On April 30, 2009, the Company completed itsdivestiture of the last of the four theatres.  See Note 2—“Acquisition”for further discussion of this transaction.

 

For a discussion of othersignificant transactions which have occurred through January 1, 2009,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 March 2,2009 with the Securities and Exchange Commission (the “Commission”) (File No. 001-31315)for the fiscal year ended January 1, 2009, as amended and restated within Exhibit 99.4to our current report on Form 8-K filed with the Commission on October 13,2009 (the “2008 Audited Financial Statements”).

 

As described more fullyin Note 4—“Debt Obligations,” effective January 2, 2009, the Companyretrospectively adopted certain provisions of ASC Subtopic 470-20.  Our61⁄4% Convertible Senior Notes and the 33⁄4% Convertible Senior Notes described inNote 4 are within the scope of ASC Subtopic 470-20; therefore, weretrospectively recorded the debt portions of the 61⁄4% Convertible Senior Notesand the 33⁄4% Convertible Senior Notes at their fair values as of the respectivedates of issuance and amortize the related debt discount into interest expenseover the life of each debt instrument during the periods in which the debtinstruments are outstanding.  A cumulative effect of a change in accountingprinciple in the amount of $(9.1) million was recorded as of the beginning offiscal 2006 (December 30, 2005) with a corresponding reduction to retainedearnings.  The accompanying unaudited condensed consolidated balance sheetas of January 1, 2009 and the unaudited condensed consolidated statementsof income for the quarter and three quarters ended September 25, 2008presented herein have been retrospectively adjusted to give effect to theapplication of ASC Subtopic 470-20.  Please refer to Note 4—“DebtObligations” for further discussion of the application of ASC Subtopic 470-20.

 

As discussed further inNote 3—“Investment in National CineMedia, LLC,” as a result of theannual adjustment provisions of the Common Unit Adjustment Agreement withNational CineMedia, LLC (“National CineMedia”), on March 17, 2009, wereceived from National CineMedia approximately 0.5 million newly issuedcommon units of National CineMedia.  This adjustment increased the numberof National CineMedia common units held by us to approximately25.4 million and as a result, on a fully diluted basis, we own a 25.0%interest in National CineMedia, Inc. (“NCM, Inc.”) as of October 1,2009.

 

On July 15, 2009,Regal Cinemas issued $400.0 million in aggregate principal amount of 85/8% Senior Notesdue 2019 (the “85/8%Senior Notes”) at a price equal to 97.561% of their face value in a transactionexempt from registration under the Securities Act of 1933, as amended (the “SecuritiesAct”). The net proceeds from the offering, after deducting the initial purchasediscount and offering expenses paid by the Company, were approximately $381.3million. The Company used all of the net proceeds to repay a portion of theAmended Senior Credit Facility (as defined herein). As a result of thisrepayment, the Company recorded a loss on debt

 

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extinguishmentof approximately $7.4 million, representing the pro-rata write off ofunamortized debt issue costs under the Amended Senior Credit Facility.  See Note 4—“Debt Obligations” for furtherdiscussion of this transaction.

 

During the three quartersended October 1, 2009, Regal paid three quarterly cash dividends of $0.18on eachoutstanding share of the Company’s Class A and Class B common stock,or approximately $83.1 million in the aggregate.

 

Total comprehensiveincome (loss) for the quarters ended October 1, 2009 and September 25,2008 was $(3.9) million and $33.9 million, respectively.  Totalcomprehensive income for the three quarters ended October 1, 2009 and September 25,2008 was $57.4 million and $77.6 million, respectively. Totalcomprehensive income (loss) consists of net income (loss) attributable tocontrolling interest and other comprehensive income (loss), net of tax, relatedto the change in the aggregate unrealized loss on the Company’s interest rateswap arrangements during each of the quarters and three quarters ended October 1,2009 and September 25, 2008. The Company’s interest rate swap arrangementsare further described in Note 4—“Debt Obligations.”

 

The Company has preparedthe unaudited condensed consolidated balance sheet as of October 1, 2009and the unaudited condensed consolidated statements of income (loss) and cashflows for the quarters and three quarters ended October 1, 2009 and September 25,2008 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 January 1, 2009 unaudited condensedconsolidated balance sheet information is derived from the 2008 AuditedFinancial Statements. These unaudited condensed consolidated financial statementsshould be read in conjunction with the audited consolidated financialstatements and notes thereto. The results of operations for the quarter andthree quarters ended October 1, 2009 are not necessarily indicative of theoperating results that may be achieved for the full 2009 fiscal year.

 

**2.ACQUISITION**

 

***Acquisition of Consolidated Theatres***

 

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

 

The acquisition has beenaccounted for using the purchase method of accounting and, accordingly, thepurchase price has been allocated to the assets acquired and liabilitiesassumed for each of the respective theatre locations based on their estimatedfair values at the date of acquisition. The allocation of the purchase price isbased on management’s judgment after evaluating several factors, including anindependent third party valuation. The results of operations of the acquiredtheatres have been included in the Company’s consolidated financial statementsfor periods subsequent to the acquisition date.

 

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The following is asummary of the final allocation of the cash purchase price to the estimatedfair values of the assets acquired and liabilities assumed at the date ofacquisition (in millions):

 

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

 

The transaction includedthe acquisition of certain identifiable intangible assets, including$9.9 million related to favorable leases with a weighted averageamortization period of 13.1 years and approximately $8.2 millionrelated to an on-screen advertising contract which will be amortized on astraight-line basis through January 2011.  During the quarter andthree quarters ended October 1, 2009, the Company recognized$1.0 million and $2.9 million, respectively, of amortization related tothese intangible assets.  During the quarter and three quarters ended September 25,2008, the Company recognized $1.1 million and $1.6 million,****respectively, of amortization related to these intangibleassets.

 

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

 

 

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

 

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

 

On February 13,2007, NCM, Inc., a newly formed entity that serves as the sole manager ofNational CineMedia, completed an initial public offering, or IPO, of its commonstock. In connection with the IPO of NCM, Inc., RCM, through its whollyowned subsidiary RCH, AMC and Cinemark amended and restated the operatingagreement of National CineMedia and other ancillary agreements. In connectionwith the series of transactions completed in connection with the IPO, Regalreceived gross cash proceeds totaling approximately $628.3 million andretained a 22.6% interest in NCM, Inc. After the payment of current taxes,net cash proceeds from these transactions totaled approximately$447.4 million. The Company used a portion of the net cash proceeds tofund an extraordinary cash dividend of $2.00 per share on each outstandingshare of its Class A and Class B common stock, including outstandingrestricted stock, or approximately $302.0 million in the aggregate.Stockholders of record at the close of business on March 28, 2007 werepaid this $302.0 million dividend on April 13, 2007.  As a resultof the transactions completed in connection with the IPO, the Companyrecognized a gain of approximately $350.7 million during fiscal2007.  The formation of National CineMedia and related IPO of NCM, Inc.are further described in Note 4 to the 2008 Audited Financial Statements.

 

As further described inNote 4 to the 2008 Audited Financial Statements, in connection with theIPO, the joint venture partners entered into a Common Unit Adjustment Agreementwith National CineMedia. The Common 

 

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Unit Adjustment Agreementwas created to account for changes in the number of theatre screens operated byeach of the joint venture partners. Pursuant to our Common Unit AdjustmentAgreement, from time to time, common units of National CineMedia held by thejoint venture partners will be adjusted up or down through a formula (“commonunit adjustment”) primarily based on increases or decreases in the number oftheatre screens operated and theatre attendance generated by each joint venturepartner. The common unit adjustment is computed annually, except that anearlier common unit adjustment will occur for a joint venture partner if itsacquisition or disposition of theatres, in a single transaction or cumulativelysince the most recent common unit adjustment, will cause a change of twopercent or more in the total annual attendance of all of the joint venturepartners.

 

As a result of the annualadjustment provisions of the Common Unit Adjustment Agreement, on April 9,2008, we received from National CineMedia approximately 0.8 million newlyissued common units of National CineMedia.  On May 29, 2008, wereceived from National CineMedia approximately 2.9 million newly issuedcommon units of National CineMedia in accordance with the adjustment provisionsof the Common Unit Adjustment Agreement in connection with our acquisition ofConsolidated Theatres. Finally, on March 17, 2009, we received fromNational CineMedia approximately 0.5 million newly issued common units ofNational CineMedia in accordance with the annual adjustment provisions of theCommon Unit Adjustment Agreement.  These adjustments increased the numberof National CineMedia common units held by us to approximately25.4 million and as a result, on a fully diluted basis, we own a 25.0%interest in NCM, Inc. as of October 1, 2009.  The Companyrecorded the additional units at fair value using the available closing stock pricesof NCM, Inc. as of the dates on which the units were received. Since theadditional common units received do not represent the funding of prior lossesof National CineMedia, the fair value of such units were recorded as separateinvestment tranches in National CineMedia. As a result, the Company recorded a$7.0 million increase in its investment in National CineMedia and acorresponding increase to deferred revenue during the three quarters ended October 1,2009.  This amount is being amortized to advertising revenue over theremaining term of the exhibitor services agreements (“ESA”) following the unitsof revenue method.

 

Since the additionalcommon units received represent separate investment tranches in NationalCineMedia, any undistributed equity in the earnings of National CineMediapertaining to these tranches will be recognized under the equity method ofaccounting. As a result, the Company’s share in the net income of NationalCineMedia with respect to these tranches totaled $0.7 million and $1.5 million,respectively, during the quarter and the three quarters ended October 1,2009.  In addition, the Company’s share in the net income of NationalCineMedia with respect to these tranches totaled $1.3 million and $1.8 million,respectively, during the quarter and three quarters ended September 25,2008. Such amount has been included as a component of “Earnings recognized fromNCM” in the unaudited condensed consolidated financial statements.

 

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 three quarters ended October 1, 2009 and September 25,2008, the Company received $29.9 million and $20.6 million, respectively,in cash distributions from National CineMedia. Approximately $4.6 millionand $1.0 million, respectively, of these cash distributions received during thethree quarters ended October 1, 2009 and September 25, 2008, wererecognized as a reduction in our investment in National CineMedia. Theremaining amounts were recognized in equity earnings during each of theseperiods and have been included as component of “Earnings recognized from NCM”in the accompanying unaudited condensed consolidated financialstatements.  As of October 1, 2009 and January 1, 2009, ourinvestment in National CineMedia totaled approximately $77.0 million and$73.1 million, respectively.

 

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

 

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| ** **                                       | ** ** | **Quarter  Ended  October 1, 2009** | ** ** | **Quarter  Ended  September 25,  2008** | ** ** | **Three  Quarters  Ended  October 1, 2009** | ** ** | **Three  Quarters  Ended  September 25,  2008** | ** ** |
|--------------------------------------------------|------------|------------------------------------------|------------|----------------------------------------------|------------|--------------------------------------------------|------------|------------------------------------------------------|------------|
| Theatre access fees per patron                   |       | $                                        | 3.7        |                                         | $          | 4.3                                              |       | $                                                    | 11.8       |   | $ | 12.3 |   |
| Theatre access fees per digital screen           |       | 1.3                                      |       | 1.2                                          |       | 3.9                                              |       | 3.7                                                  |       |
| Other NCM revenue                                |       | 0.6                                      |       | 0.8                                          |       | 1.9                                              |       | 2.5                                                  |       |
| Amortization of ESA modification fees            |       | 1.0                                      |       | 0.9                                          |       | 3.0                                              |       | 2.3                                                  |       |
| Payments for beverage concessionaire advertising |       | (3.4                                     | )          | (3.7                                         | )          | (10.8                                            | )          | (10.2                                                | )          |
| Total                                            |       | $                                        | 3.2        |                                         | $          | 3.5                                              |       | $                                                    | 9.8        |   | $ | 10.6 |   |

 

As of October 1,2009, approximately $1.4 million and $1.1 million due from/toNational CineMedia were included in “Trade and other receivables, net” and “Accountspayable,” respectively.  As of January 1, 2009, approximately$2.3 million and $2.2 million due from/to National CineMedia wereincluded in “Trade and other receivables, net” and “Accounts payable,”respectively.

 

Summarized unauditedcondensed consolidated statement of income information for National CineMediafor the quarter and two quarters ended July 2, 2009 is as follows (inmillions):

* *
| ** **              | ** ** | **Quarter Ended  July 2, 2009** | ** ** | **Two  Quarters Ended  July 2, 2009** | ** ** |
|-------------------------|------------|-------------------------------------------|------------|--------------------------------------------|------------|
| Revenues                |       | $                                         | 92.9       |                                       | $          | 166.4 |   |
| Income  from operations |       | 40.0                                      |       | 62.1                                       |       |
| Net  income             |       | 32.5                                      |       | 44.4                                       |       |
|                         |            |                                           |            |                                            |            |  |  |

 

As of the date of thisquarterly report on Form 10-Q, no summarized financial information forNational CineMedia was available for the quarter and three quarters ended October 1,2009.

 

**4. DEBTOBLIGATIONS**

 

Debt obligations at October 1,2009 and January 1, 2009 consist of the following (in millions):

 
| ** **                                                                                                                           | ** ** | **October 1,  2009** | ** ** | **January 1,  2009** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------|------------|---------------------------|------------|
| Regal  Cinemas 85/8% Senior Notes, net of debt discount                                                                              |       | $                         | 390.5      |                      | $          | — |   |
| Regal  61⁄4% Convertible Senior Notes, net of debt discount                                                                       |       | 193.5                     |       | 190.5                     |       |
| Regal  Cinemas Amended Senior Credit Facility                                                                                        |       | 1,268.7                   |       | 1,661.8                   |       |
| Regal  Cinemas 93/8% Senior Subordinated Notes                                                                                       |       | 51.5                      |       | 51.5                      |       |
| Lease  financing arrangements, weighted average interest rate of 11.21%, maturing in  various installments through January 2021 |       | 78.5                      |       | 81.8                      |       |
| Capital  lease obligations, 8.5% to 10.3%, maturing in various installments through  December 2017                              |       | 17.6                      |       | 19.0                      |       |
| Other                                                                                                                                |       | 0.3                       |       | 0.3                       |       |
| Total  debt obligations                                                                                                              |       | 2,000.6                   |       | 2,004.9                   |       |
| Less  current portion                                                                                                                |       | 20.2                      |       | 23.4                      |       |
| Total  debt obligations, net of current portion                                                                                      |       | $                         | 1,980.4    |                      | $          | 1,981.5 |   |

 

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

 

The net proceeds from theoffering, after deducting the initial purchase discount (approximately $9.8million) and offering expenses paid by the Company, were approximately $381.3million. The Company used all of the net proceeds of the offering to repay aportion of the Amended Senior Credit Facility as described further below.

 

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The 85/8% SeniorNotes are Regal Cinemas’ general senior unsecured obligations and rank equallyin right of payment with all of its existing and future senior unsecuredindebtedness; and senior in right of payment to all of Regal Cinemas’ existingand future subordinated indebtedness, including its existing 93/8% SeniorSubordinated Notes. The 85/8% Senior Notes are effectively subordinated to all ofRegal Cinemas’ existing and future secured indebtedness, including allborrowings under the Amended Senior Credit Facility, to the extent of the valueof the collateral securing such indebtedness, and are structurally subordinatedto all existing and future indebtedness and other liabilities of any of RegalCinemas’ subsidiaries that are not guarantors of the 85/8% SeniorNotes.

 

The 85/8% SeniorNotes are fully and unconditionally guaranteed on a joint and several seniorunsecured basis by Regal and all of Regal Cinemas’ existing and future domesticrestricted subsidiaries that guarantee its other indebtedness (collectively,with Regal, the “Guarantors”). The guarantees of the 85/8% SeniorNotes are the Guarantors’ general senior unsecured obligations and rank equallyin right of payment with all of the Guarantors’ existing and future seniorunsecured indebtedness, including Regal’s 61⁄4% Convertible Senior Notes, andrank senior in right of payment to all of the Guarantors’ existing and futuresubordinated indebtedness, including the guarantees of Regal Cinemas’ existing93/8%Senior Subordinated Notes.   The 85/8% SeniorNotes are effectively subordinated to all of the Guarantors’ existing andfuture secured indebtedness, including the guarantees under the Amended SeniorCredit Facility, to the extent of the value of the collateral securing suchindebtedness, and are structurally subordinated to all existing and futureindebtedness and other liabilities of any of the Guarantors’ subsidiaries thatis not a guarantor of the 85/8% Senior Notes.

 

***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, note holders willhave the option to convert their 61⁄4% Convertible Senior Notes, in whole or inpart, 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, note holders havethe right, at their option, to convert their 61⁄4% Convertible Senior Notes, inwhole or in part, into shares of our Class A common stock, subject tocertain limitations, unless previously purchased by us at the note holder’soption upon a fundamental change, at the then existing conversion price pershare, subject to further adjustments described below, if:

 

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

 

·                  during the five consecutive business days immediatelyafter any ten consecutive trading day period (such 10 consecutive trading dayperiod, the “Note Measurement Period”) in which the trading price (calculatedusing the trading price for each of the trading days in the Note MeasurementPeriod) per $1,000 principal amount of the 61⁄4% Convertible Senior Notes wasless than 95% of the product of the last reported sale price per share of Class Acommon stock and the conversion rate for each day of the Note Measurement Periodas determined following a request by a holder of the notes in accordance withthe procedures described more fully in the 61⁄4% Convertible Senior Notesindenture;

 

·              during certain periods if specified corporatetransactions occur or specified distributions to holders of common stock aremade, each as set forth in the 61⁄4% Convertible Senior Notes indenture(excluding certain distributions and excluding quarterly dividends not inexcess of the base dividend amount (as

 

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defined in the 61⁄4%Convertible Senior Notes indenture)), in which case, the conversion price pershare will be adjusted as set forth in the 61⁄4% Convertible Senior Notesindenture; or

 

·                  a fundamental change (as defined in the 61⁄4%Convertible Senior Notes indenture) occurs, a note holder may elect to convertall or a portion of its notes at any time commencing on the effective date ofsuch transaction or 15 days prior to the anticipated effective date (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 October 1, 2009,at the then-current conversion price of $23.0336 per share (which conversionprice may be adjusted pursuant to the certain events described further in the61⁄4% Convertible Senior Notes indenture), each $1,000 of aggregate principalamount of 61⁄4% Convertible Senior Notes is convertible into approximately43.4148 shares of our Class A common stock. Upon conversion, we may electto deliver cash in lieu of shares of Class A common stock or a combinationof cash and shares of Class A common stock. The conversion price and thenumber of shares delivered on conversion are subject to adjustment upon certainevents.

 

In connection with theissuance 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 October 1,2009, 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 guidanceenumerated in ASC Subtopic 815-40, *Derivatives and Hedging—Contractsin Equity’s Own Equity*.  Accordingly, the $12.6 millionpurchase price of the forward stock purchase option contract was recorded as anincrease to consolidated deficit.

 

We also sold to CreditSuisse 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 the October 1,2009 exercise price of $25.376 per share (which exercise price may be adjustedpursuant to the provisions of the 2008 Warrant). We received $6.0 millionin cash from Credit Suisse in return for the sale of this forward sharepurchase option contract. Credit Suisse cannot exercise the 2008 Warrant unlessand until a conversion event occurs. We have the option of settling the 2008Warrant in cash or shares of our Class A common stock. We accounted forthe sale of the 2008 Warrant as the sale of a permanent equity instrumentpursuant to the guidance in ASC Subtopic 815-40. Accordingly, the$6.0 million sales price of the forward stock purchase option contract wasrecorded as a decrease to consolidated deficit.

 

The 2008 Convertible NoteHedge and the 2008 Warrant allow us to acquire sufficient Class A commonshares from Credit Suisse to meet our obligation to deliver Class A commonshares upon conversion by the note holder, unless the Class A common shareprice exceeds $25.376 (as of October 1, 2009). When the fair value of our Class Acommon shares exceeds such price, the equity contracts no longer have anoffsetting economic impact, and accordingly will no longer be effective as ashare-for-share hedge of the dilutive impact of possible conversion.

 

The 61⁄4% ConvertibleSenior Notes allow us to settle any conversion by remitting to the note holderthe accreted value of the note in cash plus the conversion spread (the excessconversion value over the accreted value) in either cash, shares of our Class Acommon stock or a combination of stock and cash. The accounting for convertibledebt with such settlement features is addressed in the consensus reached withrespect to the accounting for Instrument B as set forth in ASC Subtopic815-15, *Derivatives and Hedging—Embedded Derivatives*.   Because the 

 

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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 the2008 Audited Financial Statements, on May 28, 2003, Regal issued$240.0 million aggregate principal amount of the 33⁄4% Convertible SeniorNotes due May 15, 2008.

 

In connection with theissuance of the 61⁄4% Convertible Senior Notes described above, on March 5, 2008and March 10, 2008, we redeemed a total of approximately $90.0 millionprincipal amount of the 33⁄4% Convertible Senior Notes, in a series of privatelynegotiated transactions.  As a result of the early redemption, the Companyrecorded a $3.0 million loss on debt extinguishment (as retrospectivelyadjusted for the adoption of certain provision of ASC Subtopic 470-20****described below) during the quarter ended March 27,2008.  In connection with the early redemption, the Company received netproceeds of approximately $13.7 million from Credit Suisse attributable to theconvertible note hedge (the “2003 Convertible Note Hedge”) and the warrant (the“2003 Warrant”) associated with the 33⁄4% Convertible Senior Notes.  Suchproceeds were recorded as an increase to additional paid-in capital. Inconnection with the final maturity of the 33⁄4% Convertible Senior Notes on May 15,2008, holders of the remaining $33.7 million in principal amount exercisedtheir conversion rights. The Company elected to settle these conversionsentirely in cash for approximately $51.4 million using the remainingproceeds from the issuance of the 61⁄4% Convertible Senior Notes.  Inconnection with these conversions, the Company received net proceeds ofapproximately $5.2 million from Credit Suisse attributable to theconvertible note hedge and warrant transactions associated with the 33⁄4%Convertible Senior Notes. Such proceeds were also recorded as an increase toadditional paid-in capital.

 

***Application of******ASC Subtopic 470-20***

 

Effective January 2,2009, the Company retrospectively adopted certain provisions of ASC Subtopic470-20, related to the requirement that issuers of convertible debt instrumentsthat may be settled in cash upon conversion (including partial cash settlement)should separately account for the liability and equity (conversion feature)components of such instruments. As a result, interest expense should be imputedand recognized based upon the entity’s nonconvertible debt borrowing rate,which will result in incremental non-cash interest expense. Prior to theguidance in ASC Subtopic 470-20, U.S. generally accepted accounting principlesprovided that no portion of the proceeds from the issuance of the instrumentshould be attributable to the conversion feature.  Our 61⁄4% ConvertibleSenior Notes and our 33⁄4% Convertible Senior Notes are subject to ASC Subtopic470-20.

 

We have determined thatif the liability and equity components of the 61⁄4% Convertible Senior Notes andthe 33⁄4% Convertible Senior Notes had been separately valued at the time oftheir issuances on March 10, 2008 and May 28, 2003, respectively, theamounts allocated to long-term debt would have been $187.4 million (61⁄4%Convertible Senior Notes) and $203.8 million (33⁄4% Convertible Senior Notes),and the amounts allocated to equity would have been $12.6 million and $36.2million, respectively. The effective interest rates on the 61⁄4% ConvertibleSenior Notes and the 33⁄4% Convertible Senior Notes (based upon the Company’sestimated nonconvertible debt borrowing rate at the time of each respectiveissuance) would have been approximately 8.7% and 6.8%, respectively. Effective with the January 2, 2009 adoption of ASC Subtopic 470-20,interest expense (amortization of debt discount) for fiscal 2003, 2004, 2005,2006, 2007 and 2008 were increased by non-cash amounts of approximately $3.3million, $6.0 million, $6.7 million, $5.7 million, $4.6 million and $4.2million, respectively.  In addition, the Company retrospectively reducedthe previously recorded loss on debt extinguishment resulting from the earlyextinguishments of the 33⁄4% Convertible Senior Notes that occurred during fiscal2006 and fiscal 2008 by approximately $35.1 million and $67.5 million,respectively.  After giving effect to these adjustments and the applicationof the appropriate income tax benefits through the fiscal year ended December 29,2005, a cumulative effect adjustment of $(9.1) million was recorded as of thebeginning of fiscal 2006 (December 30, 2005) with a correspondingreduction to the opening balance of retained earnings.

 

During the quarter ended October 1,2009, the Company recorded approximately $1.0 million of non-cash interestexpense on the 61⁄4% Convertible Senior Notes. The amount of contractual couponinterest recognized on the 

 

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61⁄4% Convertible SeniorNotes during the same period was approximately $3.1 million.  During thequarter ended September 25, 2008, the Company retrospectively recordedapproximately $0.9 million of non-cash interest expense for the 61⁄4% ConvertibleSenior Notes. The amount of contractual coupon interest recognized on the 61⁄4%Convertible Senior Notes during the same period was approximately $3.1million.  After the related tax effects, the resulting decrease in netincome attributable to controlling interest from the adoption of ASC Subtopic470-20 was approximately $0.6 million for the quarter ended September 25,2008. During the three quarters ended October 1, 2009 and September 25,2008, the Company retrospectively recorded approximately $3.0 million and $3.1million, respectively, of non-cash interest expense for the 61⁄4% ConvertibleSenior Notes and the 33⁄4% Convertible Senior Notes. The amount of contractualcoupon interest recognized on the 61⁄4% Convertible Senior Notes and the 33⁄4%Convertible Senior Notes during the same periods were approximately $9.4million and $8.0 million, respectively.  In addition, for the three quartersended September 25, 2008, amounts previously recorded for loss on debtextinguishment and provision for income taxes were retrospectively (reduced)increased by $(67.5) million and $24.0 million, respectively.  Theresulting increase in net income attributable to controlling interest from theadoption of ASC Subtopic 470-20 was approximately $40.4 million for the threequarters ended September 25, 2008. The accompanying unaudited condensedconsolidated statements of income (loss) for the quarters and three quartersended September 25, 2008, presented herein has been retrospectivelyadjusted to give effect to these adjustments resulting from the adoption of ASCSubtopic 470-20. ** **Inaddition, the accompanying unaudited condensed consolidated balance sheet as ofJanuary 1, 2009 presented herein has been retrospectively adjusted to giveeffect to the adoption of ASC Subtopic 470-20 as follows (in millions):`

 
| ** **                             | ** ** | **As  of  January 1, 2009  (Previously Reported)** | ** ** | **Impact  of****ASC  Subtopic 470-20** | ** ** | **As  of  January 1, 2009  (As Revised for********ASC  Subtopic 470-20****)** | ** ** |
|----------------------------------------|------------|---------------------------------------------------------|------------|----------------------------------------|------------|------------------------------------------------------------------------------------|------------|
| Other  assets                          |       | $                                                       | 113.5      |                                   | $          | (0.2                                                                               | )          | $ | 113.3 |   |
| Non-current  deferred income tax asset |       | 81.7                                                    |       | (3.5                                   | )          | 78.2                                                                               |       |
| Long-term  debt, less current portion  |       | 1,896.5                                                 |       | (9.5                                   | )          | 1,887.0                                                                            |       |
| Additional  paid-in capital (deficit)  |       | (256.1                                                  | )          | (9.7                                   | )          | (265.8                                                                             | )          |
| Retained  earnings                     |       | 24.6                                                    |       | 15.5                                   |       | 40.1                                                                               |       |
|                                        |            |                                                         |            |                                        |            |                                                                                    |            |  |  |  |

 

As of October 1,2009 and January 1, 2009, the carrying amounts of the $200.0 million 61⁄4%Convertible Senior Notes were approximately $193.5 million and $190.5 million,respectively, and the carrying amount of the related equity component(conversion feature) was $12.6 million.  We anticipate recordingadditional non-cash interest expense on the 61⁄4% Convertible Senior Notes in theamount of $6.5 million (the unamortized discount as of October 1, 2009)through the March 2011 maturity date of the 61⁄4% Convertible Senior Notes,thereby increasing the carrying value to $200.0 million.  As of October 1,2009, the if-converted value of the 61⁄4% Convertible Senior Notes wasapproximately $200.0 million.

 

***Regal Cinemas Fifth Amended and Restated Credit Agreement***— On October 27, 2006, Regal Cinemasentered into a fifth amended and restated credit agreement (the “Amended SeniorCredit Facility”) with Credit Suisse, Cayman Islands Branch (as successor toCredit Suisse First Boston), as Administrative Agent and the other lendersparty thereto, which consists of a term loan facility (the “Term Facility”) inan aggregate original principal amount of $1,700.0 million and a revolvingcredit facility (the “Revolving Facility”) in an aggregate principal amount ofup to $100.0 million.  Due to the September 2008 bankruptcyfilings by Lehman Brothers Holdings Inc. (“Lehman”) and certain of itsaffiliates and the sudden deterioration in the credit standing of the Lehmanaffiliate party to our Revolving Facility, the aggregate principal amountavailable for drawing under the Revolving Facility was reduced by $5.0 millionto $95.0 million during the fiscal year ended January 1, 2009.  TheRevolving Facility has a separate sublimit of $10.0 million for short-termloans and a sublimit of $30.0 million for letters of credit.

 

The Term Facility willmature 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 

 

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first on June 30,2013 and the second on October 27, 2013. The Amended Senior CreditFacility is further described in Note 5 to the 2008 Audited FinancialStatements.

 

On January 20, 2009,Regal Cinemas entered into the First Amendment (the “Amendment”) to the AmendedSenior Credit Facility.  Under theAmendment, (i) the Applicable Margin, as defined in the Amendment, forRevolving Loans under the Revolving Facility and for Term Loans under the TermFacility (each of which are determined by reference to the then-applicableConsolidated Leverage Ratio) is increased by 2.0%, (ii) Regal Cinemas’ability to elect interest periods for LIBOR borrowings is limited to interestperiods of 2, 3, 6 or (if available to all lenders) 12 months, with1 month interest periods no longer being available, and (iii) RegalCinemas may exclude a minimum of $100.0 million, but not more than$200.0 million, of Subordinated Debt, as defined in the Amendment, that isused to repay amounts outstanding under the Term Loan from certain financialcovenant calculations.

 

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

 

·                  (i) extending the time period for which theMaximum Consolidated Adjusted Leverage Ratio, as defined in the Amendment, maynot exceed 5.75:1.00 until the 2nd fiscal quarter of 2011 and (ii) providingthat the Maximum Consolidated Adjusted Leverage Ratio may not exceed (x) 5.50:1.00from the 3rd fiscal quarter of 2011 through the 4th fiscal quarter of2011 and (y) 5.25:1.00 from the 1st fiscal quarter of 2012 andthereafter; and

 

·                  (i) extending the time period for which theMaximum Consolidated Leverage Ratio, as defined in the Amendment, may notexceed 3.75:1.00 until the 2nd fiscal quarter of 2011 and (ii) providingthat the Maximum Consolidated Leverage Ratio may not exceed (x) 3.50:1.00from the 3rd fiscal quarter of 2011 through the 4th fiscal quarter of2011 and (y) 3.25:1.00 from the 1st fiscal quarter of 2012 andthereafter.

 

Upon the execution of theAmendment to the Amended Senior Credit Facility, Regal recorded approximately$9.6 million of new debt acquisition costs and incurred approximately $0.8 millionof other third party costs.

 

In connection with theoffering of the Regal Cinemas 85/8% Senior Notes described above, on July 15,2009, the Company used all of the netproceeds (approximately $381.3 million) to repay a portion of the Amended SeniorCredit Facility.  As a result of thisrepayment, the Company recorded a loss on debt extinguishment of approximately$7.4 million, representing the pro-rata write off of unamortized debt issuecosts under the Amended Senior Credit Facility.

 

Borrowings under theAmended 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 October 1,2009 and January 1, 2009, borrowings of $1,268.7 million and$1,661.8  million, respectively, were outstanding under the Term Facilityat an effective interest rate of 5.64% (as of October 1, 2009) and 4.42%(as of January 1, 2009), after the impact of the interest rate swapsdescribed below is taken into account.

 

***Interest Rate Swaps***— As described in Note 5 to the 2008 AuditedFinancial Statements, Regal Cinemas had three interest rate swap agreementseffective as of January 1, 2009, which hedged an aggregate of approximately$700.0 million of variable rate debt obligations.  During the quarterended April 2, 2009, Regal Cinemas entered into four additional hedgingrelationships via four distinct interest rate swap agreements with maturityterms of two to three years each from the respective effective dates of theswaps, which require Regal Cinemas to pay interest at fixed rates ranging from2.15% to 2.53% and receive interest at a variable rate. These interest rateswaps were designated to hedge approximately $1,000.0 million of variable ratedebt obligations and became effective during the three quarters ended October 1,2009.  During the three quarters ended October 1, 2009, the threeinterest rate swaps effective as of January 1, 2009 matured. As a result,the Company’s four interest rate swap agreements effective as of October 1,2009 hedge an aggregate of approximately $1,000.0 million of variable rate debtobligations at an effective rate of approximately 6.07%.

 

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On September 15,2008, because of the sudden deterioration in the credit standing of the Lehmancounterparty to an interest rate swap agreement designated to hedgeapproximately $100.0 million of variable rate debt obligations, theCompany concluded that the hedging relationship was no longer expected to behighly effective in achieving offsetting cash flows. As a result, on September 15,2008, the hedging relationship ceased to qualify for hedge accounting. For theperiod from September 15, 2008 through September 25, 2008, theCompany recognized $0.5 million (the change in fair value of the formerhedging derivative) as a reduction of interest expense in the consolidatedfinancial statements. On October 3, 2008, the Lehman counterparty filedfor bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code. Asa result, an event of default occurred under the provisions of the interestrate swap agreement between us and the Lehman counterparty, which effectivelyterminated the interest rate swap on October 3, 2008, as indicated above.Accordingly, $1.6 million of accumulated other comprehensive loss as of October 3,2008 will be reclassified into earnings in the periods during which the hedgedforecasted transaction affects earnings (i.e., when interest payments aremade on the variable rate debt obligations) as an adjustment to interestexpense over the remaining life of the two-year original hedge as long as thevariable rate debt obligations remain outstanding. During the quarter ended October 1,2009, the Company released the final portion of the deferred loss inaccumulated other comprehensive loss by recording interest expense (net ofrelated tax effects) of approximately $0.4 million and a corresponding$0.4 million reduction of other comprehensive loss. In addition, duringthe three quarters ended October 1, 2009, the Company paid a finaltermination value of approximately $2.5 million (including accrued interest)associated with the interest rate swap.

 

Under the terms of theCompany’s effective interest rate swap agreements as of October 1, 2009,Regal Cinemas pays interest at various fixed rates ranging from 2.15% to 2.53%and receives interest at a variable rate based on the 3-month LIBOR. The3-month LIBOR rate on each reset date determines the variable portion of theinterest rate-swaps for the following three-month period. The interest rateswaps settle any accrued interest for cash on the last day of each calendarquarter, until expiration. At such dates, the differences to be paid orreceived on the interest rate swaps will be included in interest expense. Nopremium or discount was incurred upon the Company entering into the interestrate swaps, because the pay and receive rates on the interest rate swapsrepresented prevailing rates for each counterparty at the time the interestrate swaps were entered into. The interest rate swaps qualify for cash flowhedge accounting treatment and as such, the Company has effectively hedged itsexposure to variability in the future cash flows attributable to the 3-monthLIBOR on approximately $1,000.0 million of variable rate obligations. Thechange in the fair values of the interest rate swaps is recorded on the Company’sconsolidated balance sheet as an asset or liability with the effective portionof the interest rate swaps’ gains or losses reported as a component of othercomprehensive income (loss) and the ineffective portion reported in earnings(interest expense). As interest expense is accrued on the debt obligation,amounts in accumulated other comprehensive income (loss) related to thedesignated hedging instruments (the three interest rate swaps) will bereclassified into earnings to obtain a net cost on the debt obligation equal tothe effective yield of the fixed rate of each swap.

 

As of October 1,2009, the aggregate fair value of all of the Company’s four interest rate swapswas determined to be approximately $(20.5) million, which was recorded as a componentof “Other Non-Current Liabilities” with a corresponding amount of $(12.5)million, net of tax, recorded to “Accumulated Other Comprehensive Loss, Net” As of January 1, 2009, the aggregate fair value of effective interest rateswaps was determined to be approximately $(14.2) million, which was recorded asa component of “Accrued Expenses” with a corresponding amount of $(8.7)million, net of tax, recorded to “Accumulated Other Comprehensive Loss, Net” These interest rate swaps exhibited no ineffectiveness during the quarters andthree quarters ended October 1, 2009 and September 25, 2008 andaccordingly, the net losses on the swaps of $3.8 million and $5.2 million,respectively, were reported as a component of other comprehensive loss for thethree quarters ended October 1, 2009 and September 25, 2008. The fair value of the Company’s interest rate swaps is based on level 2 inputsas described in ASC Topic 820, *Fair Value Measurementsand Disclosures*, which include observable inputs such as dealerquoted prices for similar assets or liabilities, and represents the estimatedamount Regal Cinemas would receive or pay to terminate the agreements takinginto consideration various factors, including current interest rates, creditrisk and counterparty credit risk.  The counterparties to the Company’sinterest rate swaps are major financial institutions.  The Companyevaluates the bond ratings of the financial institutions and believes thatcredit risk is at an acceptably low level.

 

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***Other Long-Term Obligations—***All other long-term obligations(including the Regal Cinemas 93/8% Senior Subordinated Notes) not explicitly discussedherein are described in Note 5 to the 2008 Audited Financial Statementsand incorporated by reference herein.

 

**5. INCOME TAXES**

 

The provision for (benefit from) income taxes of$(1.0) million and $21.3 million for the quarters ended October 1, 2009and September 25, 2008, respectively, reflect effective tax rates ofapproximately 34.5% and 40.7%, respectively.  The provision for incometaxes of $40.3 million and $55.1 million for the three quarters ended October 1,2009 and September 25, 2008, respectively, reflect effective tax rates ofapproximately 40.3% and 40.0%, respectively.  The effective tax rates forthe quarters and three quarters ended October 1, 2009 and September 25,2008 reflect the impact of certain non-deductible expenses.  The decreasein the effective tax rate for the quarter ended October 1, 2009 isprimarily attributable to the accrual of interest on uncertain tax positionswith state taxing authorities during the quarter ended October 1, 2009.

 

In assessing the realizable value of deferred taxassets, management considers whether it is more likely than not that someportion or all of the deferred tax assets will not be realized. The ultimaterealization of deferred tax assets is dependent upon the generation of futuretaxable income during the periods in which these temporary differences becomedeductible. The Company has recorded a valuation allowance against deferred taxassets at October 1, 2009 and January 1, 2009 totaling$12.1 million, as management believes it is more likely than not thatcertain deferred tax assets will not be realized in future tax periods. Futurereductions in the valuation allowance associated with a change in management’sdetermination of the Company’s ability to realize these deferred tax assetswill result in a decrease in the provision for income taxes.

 

The Company recently received an assessment from astate taxing authority relative to the filing methodology utilized by theCompany in that state.  Based on this assessment and considering theexpiration of the statute of limitations relative to other uncertain taxpositions, management believes it is reasonably possible that unrecognized taxbenefits will decrease between $1.0 million and $3.0 million over the next 12months.

 

The Company and itssubsidiaries collectively file income tax returns in the U.S. federaljurisdiction and various state jurisdictions. The Company is not subject to U.S. federal examinations by taxauthorities for years before 2006, and with limited exceptions, is not subjectto state income tax examinations for years before 2005. However, the taxingauthorities still have the ability to review the propriety of tax attributescreated in closed tax years if such tax attributes are utilized in an open taxyear.

 

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

 

***Capital Stock***

 

As of October 1, 2009, the Company’s authorizedcapital stock consisted of:

 

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

 

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

 

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

 

Of the authorized shares of Class A common stock,18.0 million shares were sold in connection with the Company’s initialpublic offering in May 2002. The Company’s Class A common stock islisted on the New York Stock Exchange under the trading symbol “RGC.” As of October 1,2009, 130,291,408 shares of Class A common stock were outstanding. Of theauthorized shares of Class B common stock, 23,708,639 shares wereoutstanding as of October 1, 2009, all of which are held by AnschutzCompany (“Anschutz”). Each share of Class B common stock converts into oneshare of Class A common stock at the option of the holder or upon certaintransfers of a holder’sClass B common stock. Each holder of Class B common stock isentitled to ten votes for each outstanding share of 

 

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Class B common stock owned by that stockholder onevery matter properly submitted to the stockholders for their vote. Of theauthorized shares of the preferred stock, no shares were issued and outstandingas of October 1, 2009. The Class A common stock is entitled to onevote for 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 2008 Audited Financial Statements.

 

***Share Repurchase Program***

 

During 2004, the Company’s board of directorsauthorized a share repurchase program, which provided forthe authorization to repurchase up to$50.0 million of the Company’s outstanding Class A common stockwithin a twelve month period. During 2005, the Company repurchased 520,386shares of its outstanding Class A commonstock at an aggregate cost of approximately$10.0 million. The Company’s board of directors extended the sharerepurchase program during the fiscal year ended January 1, 2009 for anadditional twelve month period. Accordingly, the Company can repurchase up toan additional $40.0 million under the share repurchase program through November 2009. The Company made no repurchases of its outstanding Class A common stockunder the program during the quarters and three quarters ended October 1,2009 and September 25, 2008.  Repurchases can be made from time totime as market conditions warrant, through open market purchases, negotiatedtransactions, or in such a manner deemed appropriate by the Company. Treasuryshares are retired upon repurchase. At retirement, the Company records treasurystock purchases at cost with any excess of cost over par value recorded as areduction of additional paid-in capital.

 

***Warrants***

 

Other than disclosed in Note 4—“Debt Obligations”and Note 9—“Earnings Per Share,” no warrants to acquire the Company’s Class Aor Class B common stock were outstanding as of October 1, 2009.

 

***Share-Based Compensation***

 

In 2002, the Company established the 2002 StockIncentive Plan (the “Incentive Plan”) for a total of 11,194,354 authorizedshares, which provides for the granting of incentive stock options andnon-qualified stock options to officers, employees and consultants of theCompany. As described below under “Restricted Stock” and “Performance ShareUnits,” the Incentive Plan also provides for grants of restricted stock andperformance shares that are subject to restrictions and risks of forfeiture.Readers should refer to Note 10 to the 2008 Audited Financial Statementsfor additional information related to these awards and the Incentive Plan.

 

*Stock Options*

 

In connection with the July 1, 2003, June 2,2004 and April 13, 2007 extraordinary cash dividends andpursuant to the antidilution adjustmentterms of the Incentive Plan, the exercise price and the number of shares of Class Acommon stock subject to options held by the Company’s option holders wereadjusted to prevent dilution and restore their economic position to thatexisting immediately before the extraordinary dividends. The antidilutionadjustments made with respect to such options resulted in a decrease in therange of exercise prices, from $2.4407 to $16.1768 per share, an increase inthe aggregate number of shares issuable upon exercise of such options by5,185,100, and an increase in the total number of authorized shares under theIncentive Plan to 18,269,213 (after giving effect to the May 11, 2005amendment to the Incentive Plan, which increased the total number of shares of Class Acommon stock authorized for issuance under the Incentive Plan by 1,889,759shares). As of October 1, 2009 and after giving effect to the antidilutionadjustments and the May 11, 2005 amendment to the Incentive Plan, optionsto purchase a total of 574,193 shares of Class A common stock wereoutstanding under the Incentive Plan, and 2,080,243 shares remain available forfuture issuance under the Incentive Plan. Stock option information presentedherein has been adjusted to give effect to the extraordinary dividends. Therewere no accounting consequences for changes made to reduce the exercise pricesand increase 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

 

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the extraordinary dividends and (2) the ratio ofthe exercise price per share to the market value per share was not reduced.

 

There were no stock options granted during thequarters and three quarters ended October 1, 2009 andSeptember 25, 2008.  During thequarter ended September 25, 2008, the Company recognized approximately$0.1 million of share-based compensation expense related to stockoptions.  During the three quarters ended October 1, 2009 and September 25,2008, the Company recognized approximately $0.1 million and $0.2 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 three quarters ended October 1,2009 and September 25, 2008.

 

We receive a tax deduction for certain stock optionexercises during the period the options are exercised, generally for the excessof the price at which the stock is sold over the exercise price of theoptions.  We are required to report excess tax benefits from the award ofequity instruments as financing cash flows.  Excess tax benefits arerecorded when a deduction reported for tax return purposes for an award ofequity instruments exceeds the cumulative compensation cost for the instrumentsrecognized for financial reporting purposes. For the three quarters ended October 1,2009, our unaudited condensed consolidated statement of cash flows reflectsless than $0.1 million of excess tax benefits as financing cashflows. Net cash proceeds from the exercise of stock options were$0.1 million for the three quarters ended October 1, 2009. The actualincome tax benefit realized from stock option exercises was less than$0.1 million for the same period.  For the three quarters ended September 25,2008, 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 thethree quarters ended September 25, 2008. The actual income tax benefitrealized from stock option exercises was $0.2 million for the same period.

 

The following table represents stock option activityfor the three quarters ended October 1, 2009:

 
| ** **                                 | ** ** | **Number of  Shares** | ** ** | **Weighted Average  Exercise Price** | ** ** | **Weighted Average  Contract Life (Yrs.)** | ** ** |
|--------------------------------------------|------------|----------------------------|------------|------------------------------------------------|------------|-----------------------------------------------------------|------------|
| Outstanding options at beginning of period |       | 584,482                    |       | $                                              | 9.37       |                                                      | 3.78       |   |
| Granted                                    |       | —                     |       | —                                         |       |                                                      |       |
| Exercised                                  |       | 10,289                     |       | 7.34                                           |       |                                                      |       |
| Forfeited                                  |       | —                     |       | —                                         |       |                                                      |       |
| Outstanding options at end of period       |       | 574,193                    |       | 9.40                                           |       | 3.03                                                      |       |
| Exercisable options at end of period       |       | 574,193                    |       | 9.40                                           |       | 3.03                                                      |       |
|                                            |            |                            |            |                                                |            |                                                           |            |  |

 

*Restricted Stock*

 

As described in Note 9 to the 2008 Audited FinancialStatements, the Company maintains the Incentive Plan which provides forrestricted stock awards to officers, directors and key employees. Under theIncentive Plan, shares of Class A common stock of the Company may begranted at nominal cost to officers, directors and key employees, subject to acontinued employment restriction.  On January 14, 2009, 371,129restricted shares were granted under the Incentive Plan at nominal cost toofficers, directors and key employees. These awards vest 25% at the end of eachyear for four years in the case of officers and key employees and vest 100% atthe end of one year in the case of directors. The closing price of our Class Acommon stock on the date of this grant was $10.01 per share.  In addition,on June 30, 2009, 150,489 shares were granted under the Incentive Plan atnominal cost to the Company’s Chief Executive Officer. The closing price of ourClass A common stock on the date of grant was $13.29 per share.  Allof the restricted shares subject to this award vest on June 30, 2013.

 

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

 

During each of the quarters ended October 1, 2009and September 25, 2008, the Company recognized approximately $1.1 millionand $0.9 million, respectively, of share-based compensation expense related torestricted share grants. During the three quarters ended October 1,2009 and September 25, 2008, the Company recognized approximately $2.9million of share-based compensation expense related to restricted sharegrants.  Such expense is

 

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presented as a component of general and administrativeexpenses. The compensation expense for these awards was determined basedon the market price of our stock at the date of grant applied to the totalnumbers of shares that were anticipated to fully vest.  As of October 1,2009, we have unrecognized compensation expense of $8.3 million associated withrestricted stock awards.

 

The following table represents the restricted stockactivity for the three quarters ended October 1, 2009:

 

| ** **                      | ** ** | **Three  Quarters Ended  October 1, 2009** | ** ** |
|---------------------------------|------------|-------------------------------------------------|------------|
| Unvested at beginning of period |       | 637,615                                         |       |
| Granted during the period       |       | 521,618                                         |       |
| Vested during the period        |       | (172,872                                        | )          |
| Forfeited during the period     |       | (4,207                                          | )          |
| Unvested at end of period       |       | 982,154                                         |       |

 

During the three quarters ended October 1, 2009,the Company paid three cash dividends of $0.18 on each share of outstandingrestricted stock totaling approximately $0.5 million.  During thethree quarters ended September 25, 2008, the Company paid three cashdividends of $0.30 on each share of outstanding restricted stock totalingapproximately $0.6 million.

 

*Performance Share Units*

 

The Incentive Plan also provides for grants in theform of performance share units to officers, directors and key employees.Performance share agreements are entered into between the Company and eachgrantee of performance share units (each a “Performance Agreement”).  Our2006 Performance Agreement covered performance share grants in the fiscal yearsended December 28, 2006, December 27, 2007 and January 1, 2009,and is described in Note 9 to the 2008 Audited Financial Statements.

 

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

 

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

 

During the quarters ended October 1, 2009 and September 25,2008, the Company recognized approximately $0.6 million and $0.5 million,respectively, of share-based compensation expense related to performance sharegrants. During the quarter ended July 2, 2009, 175,860 shares wereeffectively cancelled as a result of performance criteria not being met forcertain performance share awards granted on June 1, 2006. During the threequarters ended October 1, 2009 and September 25, 2008, the Companyrecognized approximately $1.4 million and $1.3 million, respectively, ofshare-based compensation expense related to performance share grants. Such expense is presented as a component of general and administrativeexpenses.

 

The following table summarizes information about theCompany’s number of performance shares for the three quarters ended October 1,2009:

 

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| ** **                      | ** ** | **Three  Quarters Ended  October 1, 2009** | ** ** |
|---------------------------------|------------|-------------------------------------------------|------------|
| Unvested at beginning of period |       | 793,005                                         |       |
| Granted (based on target)       |       | 401,907                                         |       |
| Cancelled/forfeited             |       | (184,332                                        | )          |
| Unvested at end of period       |       | 1,010,580                                       |       |

 

The above table does not reflect the maximum orminimum number of shares of restricted stock contingently issuable. Anadditional 0.7 million shares of restricted stock could be issued providing theperformance criteria maximums are met.

 

**7. COMMITMENTS AND CONTINGENCIES**

 

***Acquisition of Consolidated Theatres***

 

As described in Note 2—“Acquisition,” in conjunctionwith the closing of Consolidated Theatres, we entered into a final judgmentwith the DOJ, which required us to hold separate and divest ourselves of fourtheaters comprising 52 screens in North Carolina. During the fiscal year ended January 1,2009, the Company entered into an agreement to sell three of the four theatres.On October 23, 2008, the Company completed its divestiture of the threetheatres.  On April 30, 2009, the Company completed its divestitureof the last of the four theatres.

 

***Other***

 

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

 

In prior years, private litigants and the DOJ hadfiled claims against us or our subsidiaries alleging that a number of ourtheatres with stadium seating violated the ADA because these theatres allegedlyfailed to provide wheelchair-bound patrons with lines of sight comparable 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 lettersfrom the attorneys general of states in which we operate theatres regardinginvestigation into the accessibility of our theatres to persons with visual orhearing impairments. We believe we provide the members of the visually andhearing impaired communities with reasonable access to the movie-goingexperience.

 

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

 

On or about January 3, 2007, suit was initiated againstthe Company in Federal Court, Central District of California, styled, *Bateman, individually and on behalf of all otherssimilarly situated, v. Regal Cinemas, Inc. and United Artists TheatreCircuit, Inc., et al.,* alleging violations of the Fair andAccurate Transaction Act, for allegedly printing expiration dates and creditcard numbers on customer receipts. The plaintiff sought to represent a class of

 

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individuals allegedly harmed by this alleged practice.The complaint sought actual damages and/or statutory damages of at least onehundred dollars or up to one thousand dollars per violation, and attorney feesand costs. We believe we are in substantial compliance with all applicablefederal and state laws governing these trade practices. On November 21,2008, the court entered an order of dismissal of the complaint in its entirety,without prejudice, with each party to bear their own costs.

 

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

 

**8. RELATED PARTY TRANSACTIONS**

 

Regal Cinemas incurred approximately $1.0 millionand $1.3 million, respectively, of expenses payable to Qwest Communications (anaffiliate of Anschutz) and its subsidiaries for telecommunication and networkmonitoring services during the quarters ended October 1, 2009 and September 25,2008.  During the quarter ended September 25, 2008, Regal Cinemasincurred capitalized costs of $0.1 million to Qwest Communications and itssubsidiaries for network infrastructure upgrades.  In addition, Regal Cinemas incurred less than$0.1 million of expenses payable to Anschutz affiliates for certainadvertising services during each of the quarters ended October 1, 2009 andSeptember 25, 2008.  Also, during the quarters ended October 1,2009 and September 25, 2008, Regal Cinemas received less than$0.1 million from an Anschutz affiliate for rent and other expensesrelated to a theatre facility.

 

During the three quarters ended October 1, 2009 andSeptember 25, 2008, Regal Cinemas incurred capitalized costs of$0.1 million and $12.2 million, respectively, to Qwest Communications andits subsidiaries for network infrastructure upgrades. Regal Cinemas incurredapproximately $4.6 million and $4.1 million, respectively, of expensespayable to Qwest Communications and its subsidiaries for telecommunication andnetwork monitoring services during the three quarters ended October 1,2009 and September 25, 2008.  In addition, Regal Cinemas incurredapproximately $0.1 million and $0.2 million, respectively, of expensespayable to Anschutz affiliates for certain advertising services during thethree quarters ended October 1, 2009 and September 25, 2008. Also, during the three quarters ended October 1, 2009 and September 25,2008, Regal Cinemas received less than $0.1 million from an Anschutzaffiliate for rent and other expenses related to a theatre facility.

 

Regal entered into a management agreement with anAnschutz affiliate to manage a Los Angeles, California theatre site on theirbehalf. The ultimate financial terms of the management agreement were approvedby the Company’s board of directors, and the management fee payable to Regalwill be based on a percentage of revenues generated by the theatre, subject toa minimum annual fee payable to Regal regardless of revenues generated. Thetheatre opened in October 2009.

 

**9. EARNINGS****(LOSS)****PER SHARE**

 

We compute earnings (loss) per share of Class Aand Class B common stock using the two-class method. Basic earnings pershare is computed using the weighted average number of common sharesoutstanding during the period. Diluted earnings (loss) per share is computedusing the weighted average number of common shares and, if dilutive, commonstock equivalents outstanding during the period. Potential common stockequivalents consist of the incremental common shares issuable upon the exerciseof common stock options, restricted stock and performance shares, theconversion spread on the 33⁄4% Convertible Senior Notes, the 2003 Warrant, theassumed conversion of the 61⁄4% Convertible Senior Notes and the 2008 Warrantissued in connection with the 61⁄4% Convertible Senior Notes. The dilutive effectof outstanding stock options, restricted shares and performance shares, theconversion spread on the 33⁄4% Convertible Senior Notes, the 2003 Warrant and the2008 Warrant issued in connection with the 61⁄4% Convertible Senior Notes isreflected in diluted earnings (loss) per share by application of thetreasury-stock method. The dilutive effect of assumed conversion of the 61⁄4%Convertible Senior Notes is reflected in diluted earnings per share byapplication of the if-converted method. In addition, the computation of thediluted earnings (loss) per share of Class A common stock assumes the conversionof Class B common stock, while 

 

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the diluted earnings (loss) per share of Class Bcommon stock does not assume the conversion of those shares.  Since the Company reported a net loss of $1.8million for the quarter ended October 1, 2009, the impact of potentialcommon stock equivalents described above were not included in the computationof diluted net loss per common share because the effect would have beenantidilutive.

 

The rights, including the liquidation and dividendrights, of the holders of our Class A and Class B common stock areidentical, except with respect to voting. The undistributed earnings (loss) forthe periods presented are allocated based on the contractual participationrights of the Class A and Class B common shares as if the earnings(loss) for the periods presented had been distributed. As the liquidation anddividend rights are identical, the undistributed earnings (loss) are allocatedon a proportionate basis. Further, as we assume the conversion of Class Bcommon stock in the computation of the diluted earnings (loss) per share of Class Acommon stock, the undistributed earnings (loss) are equal to net income (loss)attributable to controlling interest for that computation.

 

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

 

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| ** **                                                                                                      | ** ** | **Quarter ended  October 1, 2009** | ** ** | **Quarter ended  September 25, 2008** | ** ** | **Three  Quarters ended  October 1, 2009** | ** ** | **Three  Quarters ended  September 25, 2008** | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------|------------|------------------------------------------------------|------------|------------------------------------------------------|------------|--------------------------------------------------------------|------------|
| ** **                                                                                                      | ** ** | **Class A**                             | ** ** | **Class B**                                     | ** ** | **Class A**                                     | ** ** | **Class B**                                             | ** ** | **Class A** | ** ** | **Class B** | ** ** | **Class A** | ** ** | **Class B** | ** ** |
| Basic earnings (loss) per share:                                                                                |       |                                         |       |                                                 |       |                                                 |       |                                                         |       |   |   |   |   |   |   |   |   |
| Numerator:                                                                                                      |       |                                         |       |                                                 |       |                                                 |       |                                                         |       |   |   |   |   |   |   |   |   |
| Allocation of undistributed earnings (loss)                                                                     |       | $                                            | (1.5       | )                                                    | $          | (0.3                                                 | )          | $                                                            | 26.2       |   | $ | 4.8 |   | $ | 50.7 |   | $ | 9.3 |   | $ | 70.0 |   | $ | 12.8 |   |
|                                                                                                            |       |                                         |       |                                                 |       |                                                 |       |                                                         |       |   |   |   |   |   |   |   |   |
| Denominator:                                                                                                    |       |                                         |       |                                                 |       |                                                 |       |                                                         |       |   |   |   |   |   |   |   |   |
| Weighted average common shares outstanding (in  thousands)                                                      |       | 129,344                                      |       | 23,709                                               |       | 129,155                                              |       | 23,709                                                       |       | 129,341 |   | 23,709 |   | 129,132 |   | 23,709 |   |
|                                                                                                            |       |                                         |       |                                                 |       |                                                 |       |                                                         |       |   |   |   |   |   |   |   |   |
| Basic earnings (loss) per share                                                                                 |       | $                                            | (0.01      | )                                                    | $          | (0.01                                                | )          | $                                                            | 0.20       |   | $ | 0.20 |   | $ | 0.39 |   | $ | 0.39 |   | $ | 0.54 |   | $ | 0.54 |   |
| Diluted earnings (loss) per share:                                                                              |       |                                         |       |                                                 |       |                                                 |       |                                                         |       |   |   |   |   |   |   |   |   |
| Numerator:                                                                                                      |       |                                         |       |                                                 |       |                                                 |       |                                                         |       |   |   |   |   |   |   |   |   |
| Allocation of undistributed earnings (loss) for  basic computation                                              |       | $                                            | (1.5       | )                                                    | $          | (0.3                                                 | )          | $                                                            | 26.2       |   | $ | 4.8 |   | $ | 50.7 |   | $ | 9.3 |   | $ | 70.0 |   | $ | 12.8 |   |
| Reallocation of undistributed earnings (loss) as a  result of conversion of Class B to Class A shares |       | (0.3                                         | )          | —                                               |       | 4.8                                                  |       | —                                                       |       | 9.3 |   | — |   | 12.8 |   | — |   |
| Reallocation of undistributed earnings (loss) to  Class B shares for effect of other dilutive securities   |       | —                                       |       | —                                               |       | —                                               |       | —                                                       |       | — |   | — |   | — |   | (0.2 | ) |
| Interest expense on 61⁄4% Convertible Senior Notes                                                           |       | —                                       | (1)        | —                                               |       | —                                               | (1)        | —                                                       |       | — | (1) | — |   | — | (1) | — |   |
| Allocation of undistributed earnings                                                                            |       | $                                            | (1.8       | )                                                    | $          | (0.3                                                 | )          | $                                                            | 31.0       |   | $ | 4.8 |   | $ | 60.0 |   | $ | 9.3 |   | $ | 82.8 |   | $ | 12.6 |   |
| Denominator:                                                                                                    |       |                                         |       |                                                 |       |                                                 |       |                                                         |       |   |   |   |   |   |   |   |   |
| Number of shares used in basic computation (in  thousands)                                                      |       | 129,344                                      |       | 23,709                                               |       | 129,155                                              |       | 23,709                                                       |       | 129,341 |   | 23,709 |   | 129,132 |   | 23,709 |   |
| Weighted average effect of dilutive securities (in  thousands)                                                  |       |                                         |       |                                                 |       |                                                 |       |                                                         |       |   |   |   |   |   |   |   |   |
| Add:                                                                                                            |       |                                         |       |                                                 |       |                                                 |       |                                                         |       |   |   |   |   |   |   |   |   |
| Conversion of Class B to Class A common  shares outstanding                                           |       | 23,709                                       |       | —                                               |       | 23,709                                               |       | —                                                       |       | 23,709 |   | — |   | 23,709 |   | — |   |
| Stock options                                                                                                   |       | —                                       | (1)        | —                                               |       | 185                                                  |       | —                                                       |       | 140 |   | — |   | 208 |   | — |   |
| Restricted stock and performance shares                                                                         |       | —                                       | (1)        | —                                               |       | 790                                                  |       | —                                                       |       | 871 |   | — |   | 842 |   | — |   |
| Conversion spread on 33⁄4% Convertible Senior Notes  and the 2003 Warrant                                    |       | —                                       |       | —                                               |       | —                                               |       | —                                                       |       | — |   | — |   | 1,818 |   | — |   |
| Conversion of 61⁄4% Convertible Senior Notes                                                                 |       | —                                       | (1)        | —                                               |       | —                                               | (1)        | —                                                       |       | — | (1) | — |   | — | (1) | — |   |
|                                                                                                            |       |                                         |       |                                                 |       |                                                 |       |                                                         |       |   |   |   |   |   |   |   |   |
| Number of shares used in per share computations (in  thousands)                                                 |       | 153,053                                      |       | 23,709                                               |       | 153,839                                              |       | 23,709                                                       |       | 154,061 |   | 23,709 |   | 155,709 |   | 23,709 |   |
| Diluted earnings (loss) per share                                                                               |       | $                                            | (0.01      | )                                                    | $          | (0.01                                                | )          | $                                                            | 0.20       |   | $ | 0.20 |   | $ | 0.39 |   | $ | 0.39 |   | $ | 0.53 |   | $ | 0.53 |   |

 

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(1)           No amount reported as the impact on earnings per share of Class Acommon stock would have been antidilutive.

 

**10. RECENT ACCOUNTING PRONOUNCEMENTS**

 

In December 2007, the FASB issued SFAS No. 141(R),*Business Combinations*. SFAS No. 141(R) requiresall business combinations completed after the effective date to be accountedfor by applying the acquisition method (previously referred to as the purchasemethod). SFAS No. 141(R) expands the definition of transactions andevents that qualify as business combinations; requires that the acquired assetsand liabilities, including contingencies, be recorded at the fair valuedetermined on the acquisition date and changes thereafter reflected in revenue,not goodwill; changes the recognition timing for restructuring costs; andrequires acquisition costs to be expensed as incurred. Future reductions in thevaluation allowance recorded relative to pre-acquisition periods will result ina decrease in the provision for income taxes. In addition, with respect touncertain tax positions, changes in the amount of tax benefit recognizedrelative to pre-acquisition periods will result in an increase/decrease in theprovision for income taxes (see Note 5—“Income Taxes” for furtherdiscussion).  The adoption of SFAS No. 141(R) did not have amaterial impact on the Company’s consolidated financial position, cash flows orresults of operations.

 

In December 2007, the FASB issued SFAS No. 160,*Noncontrolling Interest in ConsolidatedFinancial Statements*. SFAS No. 160 establishes new accountingand reporting standards for the noncontrolling interest in a subsidiary and forthe deconsolidation of a subsidiary. Specifically, this statement requires therecognition of a noncontrolling interest (minority interest) as equity in theconsolidated financial statements and separate from the parent’s equity. Theamount of net income (loss) attributable to the noncontrolling interest will beincluded in consolidated net income (loss) on the face of the income statement.SFAS No. 160 clarifies that changes in a parent’s ownership interest in asubsidiary that do not result in deconsolidation are equity transactions if theparent retains its controlling financial interest. In addition, this statementrequires that a parent recognize a gain or loss in net income when a subsidiaryis deconsolidated. Such gain or loss will be measured using the fair value ofthe noncontrolling equity investment on the deconsolidation date. SFAS No. 160also includes expanded disclosure requirements regarding the interests of theparent and its noncontrolling interest. SFAS No. 160 is effective forfiscal years, and interim periods within those fiscal years, beginning on or afterDecember 15, 2008. Earlier adoption is prohibited. The Company adoptedSFAS No. 160 during the quarter ended April 2, 2009.  Theadoption had the effect of reclassifying amounts previously classified under “minorityinterest” (approximately $(0.4) million as of January 1, 2009) to acomponent of equity under “noncontrolling interest” in the accompanyingunaudited condensed consolidated balance sheets.  Amounts previouslyclassified under “minority interest in earnings of consolidated subsidiaries”are now classified as “noncontrolling interest” and presented net of tax below “netincome (loss)” to arrive at “net income (loss) attributable to controllinginterest” in the accompanying unaudited condensed statements of income (loss).

 

In March 2008, the FASB issued SFAS No. 161,*Disclosures about Derivative Instruments andHedging Activities* which amends SFAS No. 133, and requirescompanies with derivative instruments to disclose information about how and whya company uses derivative instruments, how derivative instruments and relatedhedged items are accounted for under SFAS No. 133, and how derivativeinstruments and related hedged items affect a company’s financial position,financial performance, and cash flows. The required disclosures include thefair value of derivative instruments and their gains or losses in tabularformat, information about credit-risk-related contingent features in derivativeagreements, counterparty credit risk, and the company’s strategies andobjectives for using derivative instruments. The Statement expands the currentdisclosure framework in SFAS No. 133.  The Company adopted SFAS No. 161during the quarter ended April 2, 2009.  The adoption of SFAS No. 161had no impact on the Company’s consolidated financial position, cash flows orresults of operations.

 

In May 2009, the FASB issued SFAS 165, *Subsequent Events*, which establishesreporting and disclosure requirements based on the existence of conditions atthe date of the balance sheet for events or transactions that occurred afterthe balance sheet date but before the financial statements are issued or areavailable to be issued. Companies are required to disclose the date throughwhich subsequent events have been evaluated and whether that date is the datethe financial statements were issued or were available to be issued. Effective July 2,2009, the Company adopted SFAS No. 165 as of and has included certaindisclosures in Note 12 — “Subsequent Events.”

 

During June 2009, the FASB issued SFAS No. 167,*Amendments to FASB Interpretation No. 46(R) *whichis to be adopted as of the beginning of its first annual reporting period thatbegins after November 15, 2009, and

 

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interim and annual reporting periods thereafter. SFAS No. 167 amends FASB Interpretation No. 46(R), *Consolidation of Variable Interest Entities aninterpretation of ARB No. 51* (“FIN 46(R)”) to require anenterprise to perform an analysis to determine whether the enterprise’svariable interest or interests give it a controlling financial interest in avariable interest entity. This analysis identifies the primary beneficiary of avariable interest entity as the enterprise that has both of the followingcharacteristics:

 

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

 

b.              The obligation to absorb losses of theentity that could potentially be significant to the variable interest entity orthe right to receive benefits from the entity that could potentially besignificant to the variable interest entity.

 

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

 

In June 2009, the FASB issued SFAS No. 168, *The FASB Accounting Standards Codification and theHierarchy of Generally Accepted Accounting Principles.*  SFAS No. 168will become the single source of authoritative nongovernmental U.S. generallyaccepted accounting principles (GAAP), superseding existing FASB, AmericanInstitute of Certified Public Accountants, Emerging Issues Task Force, andrelated accounting literature. SFAS No. 168 reorganizes the thousands ofGAAP pronouncements into roughly 90 accounting topics and displays them using aconsistent structure. Also included is relevant Commission guidance organizedusing the same topical structure in separate sections. SFAS No. 168 willbe effective for financial statements issued for reporting periods that endafter September 15, 2009. The Company adopted the provisions of thisguidance as of October 1, 2009.  Theadoption did not have an impact on the Company’s consolidated financialposition, cash flows or results of operations.

 

**11. FAIR VALUE OF FINANCIALINSTRUMENTS**

 

The methods andassumptions used to estimate the fair value of each class of financialinstrument are as follows:

 

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

 

The carrying amountsapproximate fair value because of the short maturity of these instruments.

 

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

 

The fair value of the Amended Senior Credit Facilitydescribed in Note 4—“Debt Obligations,” which consists of the TermFacility and the Revolving Facility, is estimated based on quoted market pricesas of October 1, 2009 and January 1, 2009. The associated interestrates are based on floating rates identified by reference to market rates andare assumed to approximate fair value. The fair values of the 61⁄4% ConvertibleSenior Notes, the 33⁄4% Convertible Senior Notes and Senior Subordinated Notesare estimated based on quoted market prices for these issuances as of October 1,2009 and January 1, 2009. The fair value of the Company’s other debtobligations were based on recent financing transactions for similar debtissuances and carrying value approximates fair value. The

 

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aggregate carrying amounts and fair values oflong-term debt at October 1, 2009 and January 1, 2009 consist of thefollowing:

 

| ** **      | ** ** | **October 1,  2009** | ** ** | **January 1,  2009** | ** ** |
|-----------------|------------|---------------------------|------------|---------------------------|------------|
| ** **      | ** ** | **(In  millions)**        | ** ** |
| Carrying amount |       | $                         | 1,904.5    |                      | $          | 1,904.1 |   |
| Fair value      |       | $                         | 1,909.9    |                      | $          | 1,497.3 |   |

 

**12. SUBSEQUENT EVENTS**

 

Subsequent events have been evaluated through November 10,2009, which is the date the financial statements were issued.

 

***Other***

 

On October 29, 2009, the Company declared a cashdividend of $0.18 per share on each share of the Company’s Class A and Class Bcommon stock (including outstanding restricted stock), payable on December 17,2009, to stockholders of record on December 9, 2009.

 

**13. CONDENSED CONSOLIDATING FINANCIALINFORMATION**

 

On July 15, 2009, Regal Cinemas issued $400.0million in aggregate principal amount of the 85/8% Senior Notes. The 85/8%Senior Notes are fully and unconditionally guaranteed on a joint and severalsenior unsecured basis by Regal and all of Regal Cinemas’ existing and futuredomestic restricted subsidiaries that guarantee Regal Cinemas’ otherindebtedness (the “Subsidiary Guarantors”).

 

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

 

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

 

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

 

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

 

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

 

(v)                   Consolidating entries and eliminations representingadjustments to (a) eliminate intercompany transactions between or amongRegal, Regal Cinemas, the Subsidiary Guarantors and the non-guarantorsubsidiaries, (b) eliminate the investments in our subsidiaries and (c) recordconsolidating entries; and

 

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

 

28

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**CONDENSEDCONSOLIDATING BALANCE SHEET INFORMATION**

**OCTOBER1, 2009**

**(inmillions)**

 
| ** **                                                        | ** ** | **Regal** | ** **   | **Regal  Cinemas** | ** ** | **Subsidiary  Guarantors** | ** ** | **Non-  Guarantor   Subsidiaries** | ** **    | **Consolidating  Adjustments** | ** ** | **Consolidated** | ** ** |
|-------------------------------------------------------------------|------------|-----------|--------------|--------------------|------------|----------------------------|------------|------------------------------------|---------------|--------------------------------|------------|------------------|------------|
| **ASSETS**                                                        |       |      |         |               |       |                       |       |                               |          |                           |       |             |       |
| CURRENT ASSETS:                                                   |       |      |         |               |       |                       |       |                               |          |                           |       |             |       |
| Cash and cash equivalents                                         |       | $         |  — |               | $          |  —               |       | $                                  |  141.9   |                           | $          |  50.4       |       | $ |  — |   | $ |  192.3 |   |
| Trade and other receivables, net                                  |       | —    |         | —             |       | 32.0                       |       | 0.6                                |          | —                         |       | 32.6             |       |
| Other current assets                                              |       | 0.4       |         | 8.2                |       | 21.8                       |       | 5.3                                |          | 3.1                            |       | 38.8             |       |
| TOTAL CURRENT ASSETS                                              |       | 0.4       |         | 8.2                |       | 195.7                      |       | 56.3                               |          | 3.1                            |       | 263.7            |       |
| Property and equipment, net                                       |       | —    |         | —             |       | 1,815.4                    |       | 54.4                               |          | (12.3                          | )          | 1,857.5          |       |
| Goodwill                                                          |       | —    |         | —             |       | 171.7                      |       | 7.1                                |          | —                         |       | 178.8            |       |
| Intangible assets, net                                            |       | —    |         | —             |       | 12.6                       |       | —                             |          | —                         |       | 12.6             |       |
| Deferred income tax asset                                         |       | 1.2       |         | —             |       | 100.0                      |       | —                             |          | (23.3                          | )          | 77.9             |       |
| Other non-current assets                                          |       | 2.3       |         | 1,632.3            |       | 228.6                      |       | 60.0                               |          | (1,801.2                       | )          | 122.0            |       |
| TOTAL ASSETS                                                      |       | $         |  3.9    |               | $          |  1,640.5              |       | $                                  |  2,524.0 |                           | $          |  177.8      |       | $ |  (1,833.7 | ) | $ |  2,512.5 |   |
|                                                              |       |      |         |               |       |                       |       |                               |          |                           |       |             |       |
| **LIABILITIES AND EQUITY (DEFICIT)**                              |       |      |         |               |       |                       |       |                               |          |                           |       |             |       |
| CURRENT LIABILITIES:                                              |       |      |         |               |       |                       |       |                               |          |                           |       |             |       |
| Current portion of debt obligations                               |       | $         |  — |               | $          |  13.1                 |       | $                                  |  1.8     |                           | $          |  12.0       |       | $ |  (6.7 | ) | $ |  20.2 |   |
| Accounts payable                                                  |       | 0.3       |         | —             |       | 107.3                      |       | 8.7                                |          | —                         |       | 116.3            |       |
| Accrued expenses and other liabilities                            |       | 68.0      |         | 8.7                |       | 126.1                      |       | 5.3                                |          | (67.3                          | )          | 140.8            |       |
| TOTAL CURRENT LIABILITIES                                         |       | 68.3      |         | 21.8               |       | 235.2                      |       | 26.0                               |          | (74.0                          | )          | 277.3            |       |
| Long-term debt, less current portion                              |       | 193.5     |         | 1,697.6            |       | 0.2                        |       | —                             |          | —                         |       | 1,891.3          |       |
| Lease financing arrangements, less current portion                |       | —    |         | —             |       | 73.4                       |       | —                             |          | —                         |       | 73.4             |       |
| Capital lease obligations, less current portion                   |       | —    |         | —             |       | 14.2                       |       | 1.5                                |          | —                         |       | 15.7             |       |
| Deferred income tax liability                                     |       | —    |         | —             |       | —                     |       | 20.2                               |          | (20.2                          | )          | —           |       |
| Other non-current liabilities                                     |       | —    |         | 20.7               |       | 463.3                      |       | 29.3                               |          | —                         |       | 513.3            |       |
| TOTAL LIABILITIES                                                 |       | 261.8     |         | 1,740.1            |       | 786.3                      |       | 77.0                               |          | (94.2                          | )          | 2,771.0          |       |
| EQUITY (DEFICIT):                                                 |       |      |         |               |       |                       |       |                               |          |                           |       |             |       |
| Stockholders’ equity (deficit) of Regal  Entertainment Group |       | (257.9    | )            | (99.6              | )          | 1,738.6                    |       | 100.5                              |          | (1,739.5                       | )          | (257.9           | )          |
| Noncontrolling interest                                           |       | —    |         | —             |       | (0.9                       | )          | 0.3                                |          | —                         |       | (0.6             | )          |
| TOTAL EQUITY (DEFICIT)                                            |       | (257.9    | )            | (99.6              | )          | 1,737.7                    |       | 100.8                              |          | (1,739.5                       | )          | (258.5           | )          |
| TOTAL LIABILITIES AND  EQUITY (DEFICIT)                      |       | $         |  3.9    |               | $          |  1,640.5              |       | $                                  |  2,524.0 |                           | $          |  177.8      |       | $ |  (1,833.7 | ) | $ |  2,512.5 |   |

 

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**CONDENSEDCONSOLIDATING BALANCE SHEET INFORMATION**

**JANUARY1, 2009**

**(inmillions)**

 
| ** **                                                        | ** ** | **Regal** | ** **   | **Regal   Cinemas** | ** ** | **Subsidiary  Guarantors** | ** ** | **Non-  Guarantor Subsidiaries** | ** **    | **Consolidating  Adjustments** | ** ** | **Consolidated** | ** ** |
|-------------------------------------------------------------------|------------|-----------|--------------|---------------------|------------|----------------------------|------------|----------------------------------|---------------|--------------------------------|------------|------------------|------------|
| **ASSETS**                                                        |       |      |         |                |       |                       |       |                             |          |                           |       |             |       |
| CURRENT ASSETS:                                                   |       |      |         |                |       |                       |       |                             |          |                           |       |             |       |
| Cash and cash equivalents                                         |       | $         |  — |                | $          |  —               |       | $                                |  117.1   |                           | $          |  53.1       |       | $ |  — |   | $ |  170.2 |   |
| Trade and other receivables, net                                  |       | —    |         | —              |       | 71.3                       |       | 1.9                              |          | —                         |       | 73.2             |       |
| Other current assets                                              |       | 3.5       |         | 7.5                 |       | 14.9                       |       | 1.3                              |          | 2.9                            |       | 30.1             |       |
| TOTAL CURRENT ASSETS                                              |       | 3.5       |         | 7.5                 |       | 203.3                      |       | 56.3                             |          | 2.9                            |       | 273.5            |       |
| Property and equipment, net                                       |       | —    |         | —              |       | 1,892.8                    |       | 56.0                             |          | (12.3                          | )          | 1,936.5          |       |
| Goodwill and other intangible assets                              |       | —    |         | —              |       | 187.2                      |       | 7.1                              |          | —                         |       | 194.3            |       |
| Deferred income tax asset                                         |       | —    |         | —              |       | 103.7                      |       | —                           |          | (25.5                          | )          | 78.2             |       |
| Other non-current assets                                          |       | 3.6       |         | 1,645.7             |       | 172.6                      |       | 53.8                             |          | (1,762.4                       | )          | 113.3            |       |
| TOTAL ASSETS                                                      |       | $         |  7.1    |                | $          |  1,653.2              |       | $                                |  2,559.6 |                           | $          |  173.2      |       | $ |  (1,797.3 | ) | $ |  2,595.8 |   |
|                                                              |       |      |         |                |       |                       |       |                             |          |                           |       |             |       |
| **LIABILITIES AND EQUITY (DEFICIT)**                              |       |      |         |                |       |                       |       |                             |          |                           |       |             |       |
| CURRENT LIABILITIES:                                              |       |      |         |                |       |                       |       |                             |          |                           |       |             |       |
| Current portion of debt obligations                               |       | $         |  — |                | $          |  17.0                 |       | $                                |  —  |                           | $          |  6.4        |       | $ |  — |   | $ |  23.4 |   |
| Accounts payable                                                  |       | 0.3       |         | —              |       | 151.0                      |       | 10.7                             |          | —                         |       | 162.0            |       |
| Accrued expenses and other liabilities                            |       | 49.7      |         | 19.6                |       | 151.8                      |       | 5.6                              |          | (45.9                          | )          | 180.8            |       |
| TOTAL CURRENT LIABILITIES                                         |       | 50.0      |         | 36.6                |       | 302.8                      |       | 22.7                             |          | (45.9                          | )          | 366.2            |       |
| Long-term debt, less current portion                              |       | 190.5     |         | 1,696.2             |       | 0.3                        |       | —                           |          | —                         |       | 1,887.0          |       |
| Lease financing arrangements, less current portion                |       | —    |         | —              |       | 77.2                       |       | —                           |          | —                         |       | 77.2             |       |
| Capital lease obligations, less current portion                   |       | —    |         | —              |       | 15.6                       |       | 1.7                              |          | —                         |       | 17.3             |       |
| Deferred income tax liability                                     |       | 2.1       |         | —              |       | —                     |       | 20.4                             |          | (22.5                          | )          | —           |       |
| Other liabilities                                                 |       | —    |         | 0.2                 |       | 456.6                      |       | 27.2                             |          | —                         |       | 484.0            |       |
| TOTAL LIABILITIES                                                 |       | 242.6     |         | 1,733.0             |       | 852.5                      |       | 72.0                             |          | (68.4                          | )          | 2,831.7          |       |
| EQUITY (DEFICIT):                                                 |       |      |         |                |       |                       |       |                             |          |                           |       |             |       |
| Stockholders’ equity (deficit) of Regal  Entertainment Group |       | (235.5    | )            | (79.8               | )          | 1,707.7                    |       | 101.0                            |          | (1,728.9                       | )          | (235.5           | )          |
| Noncontrolling interest                                           |       | —    |         | —              |       | (0.6                       | )          | 0.2                              |          | —                         |       | (0.4             | )          |
| TOTAL EQUITY (DEFICIT)                                            |       | (235.5    | )            | (79.8               | )          | 1,707.1                    |       | 101.2                            |          | (1,728.9                       | )          | (235.9           | )          |
| TOTAL LIABILITIES AND  EQUITY (DEFICIT)                      |       | $         |  7.1    |                | $          |  1,653.2              |       | $                                |  2,559.6 |                           | $          |  173.2      |       | $ |  (1,797.3 | ) | $ |  2,595.8 |   |

 

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**CONDENSEDCONSOLIDATING STATEMENT OF INCOME (LOSS) INFORMATION**

**QUARTERENDED OCTOBER 1, 2009**

**(inmillions)**

 
| ** **                                                      | ** ** | **Regal** | ** **   | **Regal  Cinemas** | ** ** | **Subsidiary  Guarantors** | ** ** | **Non-Guarantor  Subsidiaries** | ** **  | **Consolidating  Adjustments** | ** ** | **Consolidated** | ** ** |
|-----------------------------------------------------------------|------------|-----------|--------------|-------------------------|------------|----------------------------|------------|---------------------------------|-------------|--------------------------------|------------|------------------|------------|
| REVENUES                                                        |       | $         |  — |                    | $          |  —               |       | $                               |  617.9 |                           | $          |  57.1       |       | $ |  (1.5 | ) | $ |  673.5 |   |
| OPERATING EXPENSES:                                             |       |      |         |                    |       |                       |       |                            |        |                           |       |             |       |
| Film rental and advertising costs                               |       | —    |         | —                  |       | 224.7                      |       | 19.9                            |        | —                         |       | 244.6            |       |
| Cost of concessions                                             |       | —    |         | —                  |       | 24.6                       |       | 2.5                             |        | —                         |       | 27.1             |       |
| Rent expense                                                    |       | —    |         | —                  |       | 83.9                       |       | 9.8                             |        | —                         |       | 93.7             |       |
| Other operating expenses                                        |       | —    |         | —                  |       | 175.3                      |       | 18.9                            |        | —                         |       | 194.2            |       |
| General and administrative expenses                             |       | 0.1       |         | —                  |       | 16.7                       |       | 1.8                             |        | (1.5                           | )          | 17.1             |       |
| Depreciation and amortization                                   |       | —    |         | —                  |       | 48.3                       |       | 2.9                             |        | —                         |       | 51.2             |       |
| Net loss (gain) on disposal and impairment of  operating assets |       | —    |         | —                  |       | 7.1                        |       | 0.1                             |        | —                         |       | 7.2              |       |
| TOTAL OPERATING EXPENSES                                        |       | 0.1       |         | —                  |       | 580.6                      |       | 55.9                            |        | (1.5                           | )          | 635.1            |       |
| INCOME (LOSS) FROM OPERATIONS                                   |       | (0.1      | )            | —                  |       | 37.3                       |       | 1.2                             |        | —                         |       | 38.4             |       |
| OTHER EXPENSE (INCOME):                                         |       |      |         |                    |       |                       |       |                            |        |                           |       |             |       |
| Interest expense, net                                           |       | 4.6       |         | 33.5                    |       | 2.2                        |       | —                          |        | —                         |       | 40.3             |       |
| Earnings recognized from NCM                                    |       | —    |         | —                  |       | (7.4                       | )          | —                          |        | —                         |       | (7.4             | )          |
| Other, net                                                      |       | (0.8      | )            | (34.5                   | )          | 46.6                       |       | —                          |        | (2.9                           | )          | 8.4              |       |
| TOTAL OTHER EXPENSE (INCOME), NET                               |       | 3.8       |         | (1.0                    | )          | 41.4                       |       | —                          |        | (2.9                           | )          | 41.3             |       |
| INCOME (LOSS) BEFORE INCOME TAXES                               |       | (3.9      | )            | 1.0                     |       | (4.1                       | )          | 1.2                             |        | 2.9                            |       | (2.9             | )          |
| PROVISION FOR (BENEFIT FROM) INCOME TAXES                       |       | (2.0      | )            | —                  |       | 0.2                        |       | 0.8                             |        | —                         |       | (1.0             | )          |
| NET INCOME (LOSS)                                               |       | (1.9      | )            | 1.0                     |       | (4.3                       | )          | 0.4                             |        | 2.9                            |       | (1.9             | )          |
| NONCONTROLLING INTEREST, NET OF TAX                             |       | —    |         | —                  |       | 0.2                        |       | (0.1                            | )           | —                         |       | 0.1              |       |
| NET INCOME (LOSS) ATTRIBUTABLE TO CONTROLLING  INTEREST         |       | $         |  (1.9   | )                       | $          |  1.0                  |       | $                               |  (4.1  | )                              | $          |  0.3        |       | $ |  2.9 |   | $ |  (1.8 | ) |

 

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 **CONDENSED CONSOLIDATING STATEMENT OF INCOMEINFORMATION**

**THREEQUARTERS ENDED OCTOBER 1, 2009**

**(inmillions)**

 
| ** **                                                      | ** ** | **Regal** | ** **   | **Regal  Cinemas** | ** ** | **Subsidiary  Guarantors** | ** ** | **Non-Guarantor  Subsidiaries** | ** **    | **Consolidating  Adjustments** | ** ** | **Consolidated** | ** ** |
|-----------------------------------------------------------------|------------|-----------|--------------|--------------------|------------|----------------------------|------------|---------------------------------|---------------|--------------------------------|------------|------------------|------------|
| REVENUES                                                        |       | $         |  — |               | $          |  —               |       | $                               |  1,957.1 |                           | $          |  176.1      |       | $ |  (4.9 | ) | $ |  2,128.3 |   |
| OPERATING EXPENSES:                                             |       |      |         |               |       |                       |       |                            |          |                           |       |             |       |
| Film rental and advertising costs                               |       | —    |         | —             |       | 706.4                      |       | 61.3                            |          | —                         |       | 767.7            |       |
| Cost of concessions                                             |       | —    |         | —             |       | 75.3                       |       | 7.5                             |          | —                         |       | 82.8             |       |
| Rent expense                                                    |       | —    |         | —             |       | 252.8                      |       | 29.4                            |          | —                         |       | 282.2            |       |
| Other operating expenses                                        |       | —    |         | —             |       | 521.0                      |       | 54.9                            |          | —                         |       | 575.9            |       |
| General and administrative expenses                             |       | 0.3       |         | —             |       | 46.8                       |       | 5.6                             |          | (4.9                           | )          | 47.8             |       |
| Depreciation and amortization                                   |       | —    |         | —             |       | 142.9                      |       | 8.7                             |          | —                         |       | 151.6            |       |
| Net loss (gain) on disposal and impairment of  operating assets |       | —    |         | —             |       | 17.2                       |       | 5.9                             |          | —                         |       | 23.1             |       |
| TOTAL OPERATING EXPENSES                                        |       | 0.3       |         | —             |       | 1,762.4                    |       | 173.3                           |          | (4.9                           | )          | 1,931.1          |       |
| INCOME (LOSS) FROM OPERATIONS                                   |       | (0.3      | )            | —             |       | 194.7                      |       | 2.8                             |          | —                         |       | 197.2            |       |
| OTHER EXPENSE (INCOME):                                         |       |      |         |               |       |                       |       |                            |          |                           |       |             |       |
| Interest expense, net                                           |       | 14.0      |         | 93.3               |       | 7.1                        |       | 0.1                             |          | —                         |       | 114.5            |       |
| Earnings recognized from NCM                                    |       | —    |         | —             |       | (26.8                      | )          | —                          |          | —                         |       | (26.8            | )          |
| Other, net                                                      |       | (68.1     | )            | (162.0             | )          | 9.4                        |       | —                          |          | 230.1                          |       | 9.4              |       |
| TOTAL OTHER EXPENSE (INCOME), NET                               |       | (54.1     | )            | (68.7              | )          | (10.3                      | )          | 0.1                             |          | 230.1                          |       | 97.1             |       |
| INCOME BEFORE INCOME TAXES                                      |       | 53.8      |         | 68.7               |       | 205.0                      |       | 2.7                             |          | (230.1                         | )          | 100.1            |       |
| PROVISION FOR (BENEFIT FROM) INCOME TAXES                       |       | (6.0      | )            | —             |       | 44.2                       |       | 2.1                             |          | —                         |       | 40.3             |       |
| NET INCOME                                                      |       | 59.8      |         | 68.7               |       | 160.8                      |       | 0.6                             |          | (230.1                         | )          | 59.8             |       |
| NONCONTROLLING INTEREST, NET OF TAX                             |       | —    |         | —             |       | 0.3                        |       | (0.1                            | )             | —                         |       | 0.2              |       |
| NET INCOME ATTRIBUTABLE TO CONTROLLING INTEREST                 |       | $         |  59.8   |               | $          |  68.7                 |       | $                               |  161.1   |                           | $          |  0.5        |       | $ |  (230.1 | ) | $ |  60.0 |   |

 

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**CONDENSEDCONSOLIDATING STATEMENT OF INCOME INFORMATION**

**QUARTERENDED SEPTEMEBER 25, 2008**

**(inmillions)**

 
| ** **                                                      | ** ** | **Regal** | ** **   | **Regal  Cinemas** | ** ** | **Subsidiary  Guarantors** | ** ** | **Non-Guarantor  Subsidiaries** | ** **  | **Consolidating  Adjustments** | ** ** | **Consolidated** | ** ** |
|-----------------------------------------------------------------|------------|-----------|--------------|--------------------|------------|----------------------------|------------|---------------------------------|-------------|--------------------------------|------------|------------------|------------|
| REVENUES                                                        |       | $         |  — |               | $          |  —               |       | $                               |  694.4 |                           | $          |  65.1       |       | $ |  (1.9 | ) | $ |  757.6 |   |
| OPERATING EXPENSES:                                             |       |      |         |               |       |                       |       |                            |        |                           |       |             |       |
| Film rental and advertising costs                               |       | —    |         | —             |       | 258.3                      |       | 23.7                            |        | —                         |       | 282.0            |       |
| Cost of concessions                                             |       | —    |         | —             |       | 27.7                       |       | 2.7                             |        | —                         |       | 30.4             |       |
| Rent expense                                                    |       | —    |         | —             |       | 84.0                       |       | 10.1                            |        | —                         |       | 94.1             |       |
| Other operating expenses                                        |       | —    |         | —             |       | 177.7                      |       | 19.5                            |        | —                         |       | 197.2            |       |
| General and administrative expenses                             |       | 0.1       |         | —             |       | 15.3                       |       | 2.0                             |        | (1.9                           | )          | 15.5             |       |
| Depreciation and amortization                                   |       | —    |         | —             |       | 48.0                       |       | 3.1                             |        | —                         |       | 51.1             |       |
| Net loss (gain) on disposal and impairment of  operating assets |       | —    |         | —             |       | 11.5                       |       | —                          |        | —                         |       | 11.5             |       |
| Joint venture employee compensation                             |       | —    |         | —             |       | 0.1                        |       | —                          |        | —                         |       | 0.1              |       |
| TOTAL OPERATING EXPENSES                                        |       | 0.1       |         | —             |       | 622.6                      |       | 61.1                            |        | (1.9                           | )          | 681.9            |       |
| INCOME (LOSS) FROM OPERATIONS                                   |       | (0.1      | )            | —             |       | 71.8                       |       | 4.0                             |        | —                         |       | 75.7             |       |
| OTHER EXPENSE (INCOME):                                         |       |      |         |               |       |                       |       |                            |        |                           |       |             |       |
| Interest expense, net                                           |       | 4.4       |         | 23.7               |       | 2.0                        |       | (0.2                            | )           | —                         |       | 29.9             |       |
| Earnings recognized from NCM                                    |       | —    |         | —             |       | (7.1                       | )          | —                          |        | —                         |       | (7.1             | )          |
| Other, net                                                      |       | (33.9     | )            | (57.5              | )          | 19.7                       |       | —                          |        | 72.3                           |       | 0.6              |       |
| TOTAL OTHER EXPENSE (INCOME), NET                               |       | (29.5     | )            | (33.8              | )          | 14.6                       |       | (0.2                            | )           | 72.3                           |       | 23.4             |       |
| INCOME BEFORE INCOME TAXES                                      |       | 29.4      |         | 33.8               |       | 57.2                       |       | 4.2                             |        | (72.3                          | )          | 52.3             |       |
| PROVISION FOR INCOME TAXES                                      |       | (1.6      | )            | —             |       | 21.0                       |       | 1.9                             |        | —                         |       | 21.3             |       |
| NET INCOME                                                      |       | 31.0      |         | 33.8               |       | 36.2                       |       | 2.3                             |        | (72.3                          | )          | 31.0             |       |
| NONCONTROLLING INTEREST, NET OF TAX                             |       | —    |         | —             |       | —                     |       | —                          |        | —                         |       | —           |       |
| NET INCOME ATTRIBUTABLE TO CONTROLLING INTEREST                 |       | $         |  31.0   |               | $          |  33.8                 |       | $                               |  36.2  |                           | $          |  2.3        |       | $ |  (72.3 | ) | $ |  31.0 |   |

 

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**CONDENSED CONSOLIDATING STATEMENT OF INCOMEINFORMATION**

**THREE QUARTERS ENDED SEPTEMBER 25, 2008**

**(in millions)**

 
| ** **                                                      | ** ** | **Regal** | ** ** | **Regal  Cinemas** | ** ** | **Subsidiary  Guarantors** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Consolidating  Adjustments** | ** ** | **Consolidated** | ** ** |
|-----------------------------------------------------------------|------------|-----------|------------|--------------------|------------|----------------------------|------------|---------------------------------|------------|--------------------------------|------------|------------------|------------|
| REVENUES                                                        |       | $         | —     |               | $          | —                     |       | $                               | 1,891.0    |                           | $          | 174.3            |       | $ | (5.1 | ) | $ | 2,060.2 |   |
| OPERATING EXPENSES:                                             |       |      |       |               |       |                       |       |                            |       |                           |       |             |       |
| Film rental and advertising costs                               |       | —    |       | —             |       | 683.0                      |       | 61.9                            |       | —                         |       | 744.9            |       |
| Cost of concessions                                             |       | —    |       | —             |       | 71.7                       |       | 6.9                             |       | —                         |       | 78.6             |       |
| Rent expense                                                    |       | —    |       | —             |       | 237.6                      |       | 29.8                            |       | —                         |       | 267.4            |       |
| Other operating expenses                                        |       | —    |       | —             |       | 492.8                      |       | 53.5                            |       | —                         |       | 546.3            |       |
| General and administrative expenses                             |       | 0.3       |       | —             |       | 45.5                       |       | 5.6                             |       | (5.1                           | )          | 46.3             |       |
| Depreciation and amortization                                   |       | —    |       | —             |       | 138.6                      |       | 8.7                             |       | —                         |       | 147.3            |       |
| Net loss (gain) on disposal and impairment of  operating assets |       | —    |       | —             |       | 16.0                       |       | —                          |       | —                         |       | 16.0             |       |
| Joint venture employee compensation                             |       | —    |       | —             |       | 0.4                        |       | —                          |       | —                         |       | 0.4              |       |
| TOTAL OPERATING EXPENSES                                        |       | 0.3       |       | —             |       | 1,685.6                    |       | 166.4                           |       | (5.1                           | )          | 1,847.2          |       |
| INCOME (LOSS) FROM OPERATIONS                                   |       | (0.3      | )          | —             |       | 205.4                      |       | 7.9                             |       | —                         |       | 213.0            |       |
| OTHER EXPENSE (INCOME):                                         |       |      |       |               |       |                       |       |                            |       |                           |       |             |       |
| Interest expense, net                                           |       | 12.5      |       | 76.7               |       | 3.1                        |       | (0.6                            | )          | —                         |       | 91.7             |       |
| Earnings recognized from NCM                                    |       | —    |       | —             |       | (21.4                      | )          | —                          |       | —                         |       | (21.4            | )          |
| Other, net                                                      |       | (89.2     | )          | (169.4             | )          | 2.0                        |       | —                          |       | 261.5                          |       | 4.9              |       |
| TOTAL OTHER EXPENSE (INCOME), NET                               |       | (76.7     | )          | (92.7              | )          | (16.3                      | )          | (0.6                            | )          | 261.5                          |       | 75.2             |       |
| INCOME BEFORE INCOME TAXES                                      |       | 76.4      |       | 92.7               |       | 221.7                      |       | 8.5                             |       | (261.5                         | )          | 137.8            |       |
| PROVISION FOR (BENEFIT FROM) INCOME TAXES                       |       | (6.3      | )          | —             |       | 57.3                       |       | 4.1                             |       | —                         |       | 55.1             |       |
| NET INCOME                                                      |       | 82.7      |       | 92.7               |       | 164.4                      |       | 4.4                             |       | (261.5                         | )          | 82.7             |       |
| NONCONTROLLING INTEREST, NET OF TAX                             |       | —    |       | —             |       | 0.1                        |       | —                          |       | —                         |       | 0.1              |       |
| NET INCOME ATTRIBUTABLE TO CONTROLLING INTEREST                 |       | $         | 82.7       |               | $          | 92.7                       |       | $                               | 164.5      |                           | $          | 4.4              |       | $ | (261.5 | ) | $ | 82.8 |   |

 

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**CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWSINFORMATION**

**THREE QUARTERS ENDED OCTOBER 1, 2009**

**(in millions)**

 
| ** **                                                     | ** ** | **Regal** | ** ** | **Regal  Cinemas** | ** ** | **Subsidiary  Guarantors** | ** ** | **Non-  Guarantor  Subsidiaries** | ** ** | **Consolidating  Adjustments** | ** ** | **Consolidated** | ** ** |
|----------------------------------------------------------------|------------|-----------|------------|--------------------|------------|----------------------------|------------|-----------------------------------|------------|--------------------------------|------------|------------------|------------|
| NET CASH PROVIDED BY (USED IN) OPERATING  ACTIVITIES           |       | $         | (6.4       | )                  | $          | —                     |       | $                                 | 221.1      |                           | $          | 5.3              |       | $ | — |   | $ | 220.0 |   |
| Cash Flows from Investing Activities:                          |       |      |       |               |       |                       |       |                              |       |                           |       |             |       |
| Capital expenditures                                           |       | —    |       | —             |       | (78.2                      | )          | (8.1                              | )          | —                         |       | (86.3            | )          |
| Proceeds from disposition of assets                            |       | —    |       | —             |       | 0.2                        |       | 0.2                               |       | —                         |       | 0.4              |       |
| Other                                                          |       | —    |       | —             |       | (2.5                       | )          | —                            |       | —                         |       | (2.5             | )          |
| NET CASH USED IN INVESTING ACTIVITIES                          |       | —    |       | —             |       | (80.5                      | )          | (7.9                              | )          | —                         |       | (88.4            | )          |
| Cash Flows from Financing Activities:                          |       |      |       |               |       |                       |       |                              |       |                           |       |             |       |
| Cash used to pay dividends                                     |       | (83.1     | )          | —             |       | —                     |       | —                            |       | —                         |       | (83.1            | )          |
| Cash received (paid) to/from REG Parent Company                |       | 89.8      |       | (89.8              | )          | —                     |       | —                            |       | —                         |       | —           |       |
| Cash received (paid) to/from subsidiary                        |       | —    |       | (300.4             | )          | 300.4                      |       | —                            |       | —                         |       | —           |       |
| Net proceeds from issuance of Regal Cinemas 85/8% Senior Notes |       | —    |       | 390.2              |       | —                     |       | —                            |       | —                         |       | 390.2            |       |
| Net payments on long-term obligations                          |       | —    |       | —             |       | (397.8                     | )          | (0.1                              | )          | —                         |       | (397.9           | )          |
| Cash used to purchase treasury shares and other                |       | (0.4      | )          | —             |       | —                     |       | —                            |       | —                         |       | (0.4             | )          |
| Proceeds from stock option exercises                           |       | 0.1       |       | —             |       | —                     |       | —                            |       | —                         |       | 0.1              |       |
| Payment of debt acquisition costs and other                    |       | —    |       | —             |       | (18.4                      | )          | —                            |       | —                         |       | (18.4            | )          |
| NET CASH PROVIDED BY (USED IN) FINANCING  ACTIVITIES           |       | 6.4       |       | —             |       | (115.8                     | )          | (0.1                              | )          | —                         |       | (109.5           | )          |
| NET INCREASE (DECREASE) IN CASH AND CASH  EQUIVALENTS          |       | —    |       | —             |       | 24.8                       |       | (2.7                              | )          | —                         |       | 22.1             |       |
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD               |       | —    |       | —             |       | 117.1                      |       | 53.1                              |       | —                         |       | 170.2            |       |
| CASH AND CASH EQUIVALENTS AT END OF PERIOD                     |       | $         | —     |               | $          | —                     |       | $                                 | 141.9      |                           | $          | 50.4             |       | $ | — |   | $ | 192.3 |   |

 

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**CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWSINFORMATION**

**THREE QUARTERS ENDED SEPTEMBER 25, 2008**

**(in millions)**

 
| ** **                                                                              | ** ** | **Regal** | ** ** | **Regal  Cinemas** | ** ** | **Subsidiary  Guarantors** | ** ** | **Non-  Guarantor  Subsidiaries** | ** ** | **Consolidating  Adjustments** | ** ** | **Consolidated** | ** ** |
|-----------------------------------------------------------------------------------------|------------|-----------|------------|--------------------|------------|----------------------------|------------|-----------------------------------|------------|--------------------------------|------------|------------------|------------|
| NET CASH PROVIDED BY (USED IN) OPERATING  ACTIVITIES                                    |       | $         | (1.5       | )                  | $          | —                     |       | $                                 | 129.4      |                           | $          | (0.8             | )          | $ | — |   | $ | 127.1 |   |
| Cash Flows from Investing Activities:                                                   |       |      |       |               |       |                       |       |                              |       |                           |       |             |       |
| Capital expenditures                                                                    |       | —    |       | —             |       | (91.9                      | )          | (7.2                              | )          | —                         |       | (99.1            | )          |
| Proceeds from disposition of assets                                                     |       | —    |       | —             |       | 3.3                        |       | 0.3                               |       | —                         |       | 3.6              |       |
| Cash used for acquisitions, net of cash acquired                                        |       | —    |       | —             |       | (209.3                     | )          | —                            |       | —                         |       | (209.3           | )          |
| Other                                                                                   |       | —    |       | —             |       | (2.5                       | )          | (0.4                              | )          | —                         |       | (2.9             | )          |
| NET CASH USED IN INVESTING ACTIVITIES                                                   |       | —    |       | —             |       | (300.4                     | )          | (7.3                              | )          | —                         |       | (307.7           | )          |
| Cash Flows from Financing Activities:                                                   |       |      |       |               |       |                       |       |                              |       |                           |       |             |       |
| Cash used to pay dividends                                                              |       | (138.1    | )          | —             |       | —                     |       | —                            |       | —                         |       | (138.1           | )          |
| Cash received (paid) to/from REG Parent Company                                         |       | 126.0     |       | (126.0             | )          | —                     |       | —                            |       | —                         |       | —           |       |
| Cash received (paid) to/from subsidiary                                                 |       | —    |       | 126.0              |       | (126.0                     | )          | —                            |       | —                         |       | —           |       |
| Net payments on long-term obligations                                                   |       | —    |       | —             |       | (17.1                      | )          | (0.1                              | )          | —                         |       | (17.2            | )          |
| Proceeds from stock option exercises                                                    |       | 0.5       |       | —             |       | —                     |       | —                            |       | —                         |       | 0.5              |       |
| Payment of debt acquisition costs and other                                             |       | (5.1      | )          | —             |       | 0.2                        |       | —                            |       | —                         |       | (4.9             | )          |
| Net proceeds from 33⁄4% Convertible Senior Notes  hedge and warrant                  |       | 18.9      |       | —             |       | —                     |       | —                            |       | —                         |       | 18.9             |       |
| Net Proceeds from issuance of 61⁄4% Convertible  Senior Notes                        |       | 200.0     |       | —             |       | —                     |       | —                            |       | —                         |       | 200.0            |       |
| Net cash paid for 61⁄4% Convertible Senior Notes  convertible note hedge and warrant |       | (6.6      | )          | —             |       | —                     |       | —                            |       | —                         |       | (6.6             | )          |
| Cash used to redeem 33⁄4% Convertible Senior Notes                                   |       | (194.1    | )          | —             |       | —                     |       | —                            |       | —                         |       | (194.1           | )          |
| NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                                     |       | 1.5       |       | —             |       | (142.9                     | )          | (0.1                              | )          | —                         |       | (141.5           | )          |
| NET INCREASE (DECREASE) IN CASH AND CASH  EQUIVALENTS                                   |       | —    |       | —             |       | (313.9                     | )          | (8.2                              | )          | —                         |       | (322.1           | )          |
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                        |       | 0.7       |       | —             |       | 384.3                      |       | 50.2                              |       | —                         |       | 435.2            |       |
| CASH AND CASH EQUIVALENTS AT END OF PERIOD                                              |       | $         | 0.7        |               | $          | —                     |       | $                                 | 70.4       |                           | $          | 42.0             |       | $ | — |   | $ | 113.1 |   |

 

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**Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL 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 27Aof the Securities and Section 21E of the Securities Exchange Act of 1934,as amended (the “Exchange Act”). All statements other than statements ofhistorical facts included in this Form 10-Q, including, withoutlimitation, certain statements under “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations”, may constitute forward-lookingstatements. In some cases you can identify these “forward-looking statements”by words like “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,”“estimates,” “predicts,” “potential” or “continue” or the negative of thosewords and other comparable words. These forward-looking statements involverisks and uncertainties. Our actual results could differ materially from thoseindicated in these statements as a result of certain factors as more fullydiscussed under the heading “Risk Factors” contained in our annual report on Form 10-Kfiled on March 2, 2009 with the Commission (File No. 001-31315) forthe Company’s fiscal year ended January 1, 2009. The following discussion**and analysis should be read in conjunction withthe unaudited condensed consolidated financial statements and notes theretoincluded herein.*

 

**The Company**

 

Weconduct our operations through our wholly owned subsidiaries. We operate thelargest and most geographically diverse theatre circuit in the UnitedStates, consisting of 6,775 screens in 548 theatres in 39 states and theDistrict of Columbia as of October 1, 2009. 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 concentrates on in-theatre advertising andcreating complementary business lines that leverage the operating personnel,asset and customer bases of its theatrical exhibition partners, which includeus, AMC and Cinemark. The Company manages its business under one reportablesegment: theatre exhibition operations.

 

Wegenerate revenues primarily from admissions and concession sales. Additionalrevenues are generated by our vendor marketing programs, our gift certificateand discount ticket programs and various other activities in our theatres. Inaddition, National CineMedia provides us with a theatre access fee associatedwith revenues generated from its sale of on-screen advertising, rental oftheatres for business meetings and concerts and other events. Film rental costsdepend on a variety of factors including the prospects of a film, thepopularity and box office revenues of a film, and such film rental costsgenerally increase as the admissions revenues generated by a film increase.Because we purchase certain concession items, such as fountain drinks andpopcorn, in bulk and not pre-packaged for individual servings, we are able toimprove our margins by negotiating volume discounts. Other operating expensesconsist primarily of theatre labor and occupancy costs.

 

OnFebruary 12, 2007, we, along with AMC and Cinemark, formed DCIP, to createa financing model and establish agreements with major motion picture studiosfor the implementation of digital cinema. Future digital cinema developmentswill be managed by DCIP, subject to the approval of us, AMC and Cinemark. Eachof Regal, AMC and Cinemark has an equal ownership and voting interest in DCIP.Recently, DCIP announced the execution of long-term deployment agreements withsix film studios. DCIP is continuing to work with film studios and financialinstitutions to negotiate and finalize the related financing plans that wouldprovide for a wide-scale studio-financed conversion to digital projection. Uponcompletion of the financing, we are prepared to begin converting our existingtheatres from 35 mm film projection to digital projection and intend tocomplete the conversion of our entire circuit in approximately three to fouryears.

 

Asdiscussed further in Note 3—“Investment in National CineMedia, LLC,”as a result of the annual adjustment provisions of the Common Unit AdjustmentAgreement with National CineMedia, on April 9, 2008, we received fromNational CineMedia approximately 0.8 million newly issued common units ofNational CineMedia. Further, on May 29, 2008, we received from NationalCineMedia approximately 2.9 million newly issued common units of NationalCineMedia in accordance with the adjustment provisions of the Common UnitAdjustment Agreement in connection with our acquisition of ConsolidatedTheatres. Finally, on March 17, 2009, we received 

 

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fromNational CineMedia approximately 0.5 million newly issued common units ofNational CineMedia in accordance with the annual adjustment provisions of theCommon Unit Adjustment Agreement.  These adjustments increased the numberof National CineMedia common units held by us to approximately25.4 million and as a result, on a fully diluted basis, we own a 25.0%interest in NCM, Inc. as of October 1, 2009.

 

OnMarch 10, 2008, Regal issued $200.0 million aggregate principalamount of 61⁄4% Convertible Senior Notes. Concurrent with the issuance of the 61⁄4%Convertible Senior Notes, we entered into simultaneous convertible note hedgeand warrant transactions with respect to our Class A common stock in orderto reduce the potential dilution from conversion of the 61⁄4% Convertible SeniorNotes 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 sheets. See Note 4—“DebtObligations” for further description of the 61⁄4% Convertible Senior Notes andthe related convertible note hedge and warrant transactions. The Company usedcash on hand and a portion of the net proceeds from the issuance of the 61⁄4%Convertible Senior Notes to redeem approximately $90.0 million principal amountof Regal’s 33⁄4% Convertible Senior Notes due May 15, 2008, in a series ofprivately negotiated transactions.  As a result of the early redemption,the Company recorded a $3.0 million loss on debt extinguishment (asretrospectively adjusted for the adoption of certain provisions of ASC Subtopic470-20 described in Note 4—“Debt Obligations”) during the quarter ended March 27,2008.  In connection with the early redemption, the Company received netproceeds of approximately $13.7 million from Credit Suisse attributable to theconvertible note hedge and warrant transactions associated with the 33⁄4%Convertible Senior Notes described further in Note 4—“Debt Obligations.”Such proceeds were recorded as an increase to additional paid-incapital. In connection with the final maturity of the 33⁄4% 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.  In connection with these conversions, the Company received netproceeds of approximately $5.2 million from Credit Suisse attributable tothe convertible note hedge and warrant transactions associated with the 33⁄4%Convertible Senior Notes. Such proceeds were also recorded as an increase toadditional paid-in capital. See Note 4—“Debt Obligations” for furtherdiscussion of this transaction.

 

OnApril 30, 2008, the Company acquired Consolidated Theatres, which held atotal of 28 theatres with 400 screens in Georgia, Maryland, North Carolina,South Carolina, Tennessee and Virginia. The total net cash purchase price forthe acquisition was approximately $209.3 million. The results ofoperations of the acquired theatres have been included in the Company’sconsolidated financial statements for periods subsequent to the acquisitiondate. In conjunction with the closing, we entered into a final judgment withthe DOJ, which required us to hold separate and divest ourselves of fourtheaters comprising 52 screens in North Carolina. During the quarter ended September 25,2008, the Company entered into an agreement to sell three of the four theatresand recorded impairment charges of approximately $7.9 million related tothese theatres. On October 23, 2008, the Company completed its divestitureof the three theatres.  On April 30, 2009, the Company completed itsdivestiture of the last of the four theatres. See Note 2 “Acquisition” forfurther discussion of this transaction.

 

OnJuly 15, 2009, Regal Cinemas issued $400.0 million in aggregate principalamount of the 85/8% Senior Notesat a price equal to 97.561% of their face value in a transaction exempt fromregistration under the Securities Act. Interest on the 85/8% Senior Notesis payable semi-annually in arrears on July 15 and January 15 of eachyear, beginning on January 15, 2010. The 85/8% Senior Noteswill mature on July 15, 2019. The net proceeds from the offering, afterdeducting the initial purchase discount (approximately $9.8 million) andoffering expenses paid by the Company, were approximately $381.3 million. TheCompany used all of the net proceeds of the offering to repay a portion of theAmended Senior Credit Facility. As a result of this repayment, the Companyrecorded a loss on debt extinguishment of approximately $7.4 million,representing the pro-rata write off of unamortized debt issue costs under theAmended Senior Credit Facility.  See Note4—“Debt Obligations” for further discussion of this transaction.

 

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

 

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**Results of Operations**

 

Basedon our review of industry sources, national box office revenues for the timeperiod that corresponds to Regal’s third fiscal quarter of 2009 were estimatedto have decreased by approximately 8% in comparison to the third fiscal quarterof 2008.  This decrease was primarily attributable to a shift in the 2009fiscal calendar, which resulted in the traditionally robust attendance weekleading up to July 4th being included in the third fiscal quarter of 2008,but not the third fiscal quarter of 2009 and, to a lesser extent, difficultcomparisons generated by high profile films released during the third fiscalquarter of 2008, such as *The Dark Knight*.

 

Ourtotal revenues for the quarter ended October 1, 2009 (“Q3 2009 Period”)were $673.5 million and consisted of $463.4 million of admissionsrevenues, $182.6 million of concessions revenues and $27.5 million ofother operating revenues, and decreased 11.1% from total revenues of$757.6 million for the quarter ended September 25, 2008 (“Q3 2008Period”).

 

Duringthe Q3 2009 Period, total admissions revenues decreased $53.4 million, or10.3%, to $463.4 million, from $516.8 million in the Q3 2008 Period primarilydue to a 14.5% decrease in attendance, partially offset by a 4.9% increase inaverage ticket prices.   We believe the overall decrease inattendance during the Q3 2009 Period was primarily a result of a shift in ourQ3 2009 Period fiscal calendar, which resulted in the traditionally robustattendance week leading up to July 4th being included in the Q3 2008Period, but not the Q3 2009 Period and strong attendance generated by the toptier films exhibited during the Q3 2008 Period, including *The Dark Knight*.  Price increasesidentified during our ongoing periodic pricing reviews (which include analysisof various factors such as general inflationary trends and local marketconditions) along with an increase in the percentage of our admissions revenuesgenerated by premium priced IMAX® and 3D films exhibited during the Q3 2009Period were the primary drivers of the increase in our Q3 2009 Period averageticket price. Based on our review of certain industry sources, the decrease inour admissions revenues on a per screen basis was approximately 200 basispoints greater than the industry’s results for the Q3 2009 Period as comparedto the Q3 2008 Period. We believe the greater than industry decrease inadmissions revenues on a per screen basis was attributable to various factorsincluding geographical differences and film product performance, incrementalscreens from regional theatre circuits and our allocation of capital duringsuch periods.

 

Duringthe three quarters ended October 1, 2009 (the “Fiscal 2009 Period”), wecontinued to make progress with respect to the following strategic initiatives:

 

·                  We demonstrated our commitment to providingincremental value to our stockholders. Total cash dividends distributed to ourstockholders during the Fiscal 2009 Period totaled approximately$83.1 million.

 

·                  We opened 5 theatres with 57 screens andclosed 9 underperforming theatres with 83 screens, ending the Fiscal 2009Period with 548 theaters and 6,775 screens.

 

·                  Finally, we continued to expand our use ofnew technologies to enhance the movie-going experience and broaden our contentofferings. As of October 1, 2009, we operated 40 IMAX® screens andoperated 392 additional screens outfitted with digital 3D projectionsystems.  In addition, we plan to add additional digital 3D projectionsystems and expect to have approximately 430 3D screens in operation for the2009 holiday season and ultimately expect to deploy approximately 1,500 digital3D screens.

 

Thefollowing table sets forth the percentage of total revenues represented bycertain items included in our unaudited condensed consolidated statements ofincome (loss) for the Q3 2009 Period, the Q3 2008 Period, the Fiscal 2009Period and the three quarters ended September 25, 2008 (the “Fiscal 2008Period”) (dollars and attendance in millions, except average ticket prices andaverage concessions revenues per patron):

 

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| ** **                                                                                                                                                                                                                          | ** ** | **Q3 2009 Period** | ** ** | **Q3 2008 Period** | ** ** | **Fiscal  2009 Period** | ** ** | **Fiscal  2008 Period** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|------------------------------|------------|-------------------------|------------|-------------------------|------------|
| ** **                                                                                                                                                                                                                          | ** ** | **$**                        | ** ** | **% of  Revenue**       | ** ** | **$**                   | ** ** | **% of  Revenue**  | ** ** | **$** | ** ** | **% of  Revenue** | ** ** | **$** | ** ** | **% of  Revenue** | ** ** |
| Revenues:                                                                                                                                                                                                                           |       |                         |       |                         |       |                    |       |                    |       |   |   |   |   |   |   |   |   |
| Admissions                                                                                                                                                                                                                          |       | $                            | 463.4      |                         | 68.8       | %                       | $          | 516.8                   |       | 68.2 | % | $ | 1,464.6 |   | 68.8 | % | $ | 1,404.5 |   | 68.2 | % |
| Concessions                                                                                                                                                                                                                         |       | 182.6                        |       | 27.1                         |       | 209.6                   |       | 27.7                    |       | 576.9 |   | 27.1 |   | 564.6 |   | 27.4 |   |
| Other operating revenues                                                                                                                                                                                                            |       | 27.5                         |       | 4.1                          |       | 31.2                    |       | 4.1                     |       | 86.8 |   | 4.1 |   | 91.1 |   | 4.4 |   |
| Total revenues                                                                                                                                                                                                                      |       | 673.5                        |       | 100.0                        |       | 757.6                   |       | 100.0                   |       | 2,128.3 |   | 100.0 |   | 2,060.2 |   | 100.0 |   |
| Operating expenses:                                                                                                                                                                                                                 |       |                         |       |                         |       |                    |       |                    |       |   |   |   |   |   |   |   |   |
| Film rental and advertising costs(1)                                                                                                                                                                                                |       | 244.6                        |       | 52.8                         |       | 282.0                   |       | 54.6                    |       | 767.7 |   | 52.4 |   | 744.9 |   | 53.0 |   |
| Cost of concessions(2)                                                                                                                                                                                                              |       | 27.1                         |       | 14.8                         |       | 30.4                    |       | 14.5                    |       | 82.8 |   | 14.4 |   | 78.6 |   | 13.9 |   |
| Rent expense(3)                                                                                                                                                                                                                     |       | 93.7                         |       | 13.9                         |       | 94.1                    |       | 12.4                    |       | 282.2 |   | 13.3 |   | 267.4 |   | 13.0 |   |
| Other operating expenses(3)                                                                                                                                                                                                         |       | 194.2                        |       | 28.8                         |       | 197.2                   |       | 26.0                    |       | 575.9 |   | 27.1 |   | 546.3 |   | 26.5 |   |
| General and administrative expenses (including  share-based compensation expense of $1.7 and $1.4 for the Q3 2009 Period and  the Q3 2008 Period, respectively, and $4.3 for the Fiscal 2009 Period and the  Fiscal 2008 Period)(3) |       | 17.1                         |       | 2.5                          |       | 15.5                    |       | 2.0                     |       | 47.8 |   | 2.2 |   | 46.3 |   | 2.2 |   |
| Depreciation and amortization(3)                                                                                                                                                                                                    |       | 51.2                         |       | 7.6                          |       | 51.1                    |       | 6.7                     |       | 151.6 |   | 7.1 |   | 147.3 |   | 7.1 |   |
| Net loss on disposal and impairment of operating  assets(3)                                                                                                                                                                         |       | 7.2                          |       | 1.1                          |       | 11.5                    |       | 1.5                     |       | 23.1 |   | 1.1 |   | 16.0 |   | 0.8 |   |
| Joint venture employee compensation(3)                                                                                                                                                                                              |       | —                       |       | —                       |       | 0.1                     |       | —                  |       | — |   | — |   | 0.4 |   | — |   |
| Total operating expenses(3)                                                                                                                                                                                                         |       | 635.1                        |       | 94.3                         |       | 681.9                   |       | 90.0                    |       | 1,931.1 |   | 90.7 |   | 1,847.2 |   | 89.7 |   |
| Income from operations(3)                                                                                                                                                                                                           |       | 38.4                         |       | 5.7                          |       | 75.7                    |       | 10.0                    |       | 197.2 |   | 9.3 |   | 213.0 |   | 10.3 |   |
| Interest expense, net(3)                                                                                                                                                                                                            |       | 40.3                         |       | 6.0                          |       | 29.9                    |       | 3.9                     |       | 114.5 |   | 5.4 |   | 91.7 |   | 4.5 |   |
| Earnings recognized from NCM(3)                                                                                                                                                                                                     |       | (7.4                         | )          | (1.1                         | )          | (7.1                    | )          | (0.9                    | )          | (26.8 | ) | (1.3 | ) | (21.4 | ) | (1.0 | ) |
| Loss on debt extinguishment(3)                                                                                                                                                                                                      |       | 7.4                          |       | 1.1                          |       | —                  |       | —                  |       | 7.4 |   | 0.3 |   | 3.0 |   | — |   |
| Provision for (benefit from) income taxes(3)                                                                                                                                                                                        |       | (1.0                         | )          | (0.1                         | )          | 21.3                    |       | 2.8                     |       | 40.3 |   | 1.9 |   | 55.1 |   | 2.7 |   |
| Net income (loss) attributable to controlling  interest(3)                                                                                                                                                                          |       | $                            | (1.8       | )                            | (0.3       | )                       | $          | 31.0                    |       | 4.1 |   | $ | 60.0 |   | 2.8 |   | $ | 82.8 |   | 4.0 |   |
| Attendance                                                                                                                                                                                                                          |       | 57.1                         |       | *                            |       | 66.8                    |       | *                       |       | 181.6 |   | * |   | 183.4 |   | * |   |
| Average ticket price(4)                                                                                                                                                                                                             |       | $                            | 8.12       |                         | *          |                    | $          | 7.74                    |       | * |   | $ | 8.06 |   | * |   | $ | 7.66 |   | * |   |
| Average concessions revenues per patron(5)                                                                                                                                                                                          |       | $                            | 3.20       |                         | *          |                    | $          | 3.14                    |       | * |   | $ | 3.18 |   | * |   | $ | 3.08 |   | * |   |

 

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*  *Not meaningful*

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

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

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

(4) Calculated as admissionsrevenues/attendance.

(5) Calculated as concessionsrevenues/attendance.

 

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***Q3 2009 PeriodCompared to Q3 2008 Period and Fiscal 2009 Period Compared to Fiscal 2008Period***

 

***Admissions***

 

Totaladmissions revenues decreased $53.4 million during the Q3 2009 Period, or10.3%, to $463.4 million, from $516.8 million in the Q3 2008 Period primarilydue to a 14.5% decrease in attendance, partially offset by a 4.9% increase inaverage ticket prices.  During the Fiscal 2009 Period, total admissionsrevenues increased $60.1 million, or 4.3%, to $1,464.6 million, from$1,404.5 million for the Fiscal 2008 Period.   A 5.2% increasein our average ticket price, partially offset by an attendance decrease of 1.0%led to the favorable increase in the Fiscal 2009 Period admissionsrevenues.  We believe the overall decrease in attendance during the Q3 2009Period was primarily a result of a shift in our Q3 2009 Period fiscal calendar,which resulted in the traditionally robust attendance week leading up to July 4thbeing included in the Q3 2008 Period, but not the Q3 2009 Period and strongattendance generated by the top tier films exhibited during the Q3 2008 Period,including *The Dark Knight*. In addition, the Fiscal 2009 Period’s attendance was negatively impactedby a shift in our Fiscal 2009 Period fiscal calendar, which resulted in thetraditionally high attendance week between Christmas and New Years Day beingincluded in the Fiscal 2008 Period, but not the Fiscal 2009 Period.  We believe that the overall decrease in theFiscal 2009 Period attendance was mitigated by incremental attendance from the breadthof key films exhibited during the Fiscal 2009 Period and the full benefit ofthe inclusion of 400 screens acquired from Consolidated Theatres on April 30,2008 (as compared to five months in the Fiscal 2008 Period).

 

Priceincreases identified during our ongoing periodic pricing reviews (which includeanalysis of various factors such as general inflationary trends and localmarket conditions) along with an increase in the percentage of our admissionsrevenues generated by premium priced IMAX® and 3D films exhibited during the Q32009 Period and the Fiscal 2009 Period were the primary drivers of the increasein our Q3 2009 Period and Fiscal 2009 Period average ticket prices. Based onour review of certain industry sources, the decrease in our admissions revenueson a per screen basis was approximately 200 basis points greater than theindustry’s results for the Q3 2009 Period and Fiscal 2009 Period as compared tothe Q3 2008 Period and the Fiscal 2008 Period. We believe the greater thanindustry decrease in admissions revenues on a per screen basis was attributableto various factors including geographical differences and film productperformance, incremental screens from regional theatre circuits and ourallocation of capital during such periods.

 

***Concessions***

 

Duringthe Q3 2009 Period, total concessions revenues decreased $27.0 million, or12.9%, to $182.6 million, from $209.6 million for the Q3 2008Period.  Total concessions revenues increased $12.3 million, or 2.2%, to$576.9 million in the Fiscal 2009 Period, from $564.6 million in the Fiscal2008 Period.   Average concessions revenues per patron during the Q3 2009Period increased 1.9%, to $3.20, from $3.14 for the Q3 2008 Period andincreased 3.2%, to $3.18 in the Fiscal 2009 Period, from $3.08 in the Fiscal2008 Period.  The decrease in total concessions revenues during the Q32009 Period was attributable to the aforementioned decrease in attendanceduring the period, partially offset by an increase in average concessionsrevenues per patron.  The increase in total concessions revenues duringthe Fiscal 2009 Period was attributable to an increase in average concessionsrevenues per patron, partially offset by a slight decrease in attendance duringthe period.  The increase in average concessions revenues per patron forthe Q3 2009 Period and the Fiscal 2009 Period were primarily a result of priceincreases and the concession friendly mix of film product exhibited during suchperiods.

 

***Other Operating Revenues***

 

Otheroperating revenues decreased $3.7 million, or 11.9%, to $27.5 millionfor the Q3 2009 Period, from $31.2 million for the Q3 2008 Period. During the Fiscal 2009 Period, other operating revenues decreased $4.3 million,or 4.7%, to $86.8 million, from $91.1 million in the Fiscal 2008 Period.  Included in other operating revenues are the theatre access fees paid byNational CineMedia (net of payments for on-screen advertising time provided toour beverage concessionaire), marketing revenues from our vendor marketingprograms and other theatre revenues, including revenue related to our giftcertificate and discount ticket programs. The decrease in other operatingrevenues during the Q3 2009 Period was primarily attributable to a decrease inmarketing revenues from

 

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ourvendor marketing programs, driven by the decrease in our Q3 2009 Periodattendance, and declines in other theatre revenues.  The decrease in other operating revenuesduring the Fiscal 2009 Period was primarily driven by decreases in revenuesrelated to our gift certificate and discount ticket programs and other theatrerevenues, partially offset by a slight increase in marketing revenues from ourvendor marketing programs.

 

***Film Rental and Advertising Costs***

 

Filmrental and advertising costs as a percentage of admissions revenues declined to52.8% during the  Q3 2009 Period from54.6% in the Q3 2008 Period.   During theFiscal 2009 Period, film rental and advertising costs as a percentage ofadmissions revenues declined to 52.4%, from 53.0% in the Fiscal 2008Period.  The decrease in film rental andadvertising costs as a percentage of box office revenues during the Q3 2009Period was primarily attributable to higher film costs associated with thesuccess of the top tier films exhibited during the Q3 2008 Period including *The Dark Knigh**t*,coupled with a reduction in advertising costs during the Q3 2009 Period.  The decrease in film rental and advertisingcosts as a percentage of box office revenues during the Fiscal 2009 Period wasprimarily the result of a higher percentage of box office revenues generated bythe top tier films exhibited during the Fiscal 2008 Period.

 

***Cost of Concessions***

 

Costof concessions decreased $3.3 million, or 10.9%, during the Q3 2009 Periodas compared to the Q3 2008 Period. During the Fiscal 2009 Period, cost ofconcessions increased $4.2 million, or 5.3% as compared to the Fiscal 2008Period.  Cost of concessions as a percentage of concessions revenues forthe Q3 2009 Period were approximately 14.8% compared to 14.5% for the Q3 2008Period and for the Fiscal 2009 Period, cost of concessions as a percentage ofconcessions revenues were approximately 14.4% compared to 13.9% for the Fiscal2008 Period.  The increase in cost of concessions as a percentage ofconcessions revenues during the Q3 2009 Period and the Fiscal 2009 Period wereprimarily related to the mix of products sold. In addition, for the Fiscal 2009 Period, this increase was alsoattributable to a decrease in the amount of vendor marketing revenue recordedas a reduction of cost of concessions.

 

***Rent Expense***

 

Duringthe Q3 2009 Period, rent expense decreased $0.4 million, or 0.4%, to$93.7 million, from $94.1 million in the Q3 2008 Period.  Rent expense increased by $14.8 million, or5.5% to $282.2 million in the Fiscal 2009 Period, from $267.4 million in theFiscal 2008 Period.  The increase in rentexpense during the Fiscal 2009 Period was primarily due to the full impact of ConsolidatedTheatres during the Fiscal 2009 Period and to a lesser extent, generalinflationary increases.

 

***Other Operating Expenses***

 

Otheroperating expenses decreased $3.0 million, or 1.5%, to $194.2 million inthe Q3 2009 Period, from $197.2 million in the Q3 2008 Period. During the Fiscal 2009 Period, other operating expenses increased $29.6million, or 5.4%, to $575.9 million, from $546.3 million in the Fiscal 2008Period.  The decrease in other operating expenses during the Q3 2009 Periodas compared to the Q3 2008 Period was primarily driven by decreased variablepayroll costs related to the decrease in attendance, partially offset byincreased costs associated with higher IMAX® and 3D film revenues and generalinflationary increases.  The increase inother operating expenses during the Fiscal 2009 Period as compared to theFiscal 2008 Period was attributable to increased costs associated with higherIMAX® and 3D film revenues, the full impact of Consolidated Theatres during theFiscal 2009 Period and general inflationary increases.

 

***General and Administrative Expenses***

 

Generaland administrative expenses increased $1.6 million, or 10.3%, to$17.1 million during the Q3 2009 Period as compared to $15.5 millionin the Q3 2008 Period. As a percentage of total revenues, general andadministrative expenses increased to 2.5% during the Q3 2009 Period as comparedto 2.0% in the Q3 2008 Period.  

 

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Forthe Fiscal 2009 Period, general and administrative expenses increased$1.5 million, or 3.2%, to $47.8 million as compared to$46.3 million in the Fiscal 2008 Period. As a percentage of totalrevenues, general and administrative expenses remained consistent, at 2.2%,during the Fiscal 2009 Period and the Fiscal 2008 Period.  The slight increase in general andadministrative expenses during the Q3 2009 Period and the Fiscal 2009 Periodwas primarily attributable to increases in legal and professional fees duringsuch periods.

 

***Depreciation and Amortization***

 

Forthe Q3 2009 Period, depreciation and amortization expense increased$0.1 million, or 0.2%, to $51.2 million, from $51.1 million in the Q32008 Period.  Depreciation and amortization expense increased $4.3million, or 2.9%, to $151.6 million for the Fiscal 2009 Period, from $147.3million in the Fiscal 2008 Period.  Theincrease in depreciation and amortization expense during the Fiscal 2009 Periodas compared to the Fiscal 2008 Period was primarily due to the full impact ofConsolidated Theatres during the Fiscal 2009 Period.

 

***Income from Operations***

 

Incomefrom operations totaled $38.4 million during the Q3 2009 Period, whichrepresents a decrease of $37.3 million, or 49.3%, from $75.7 million inthe Q3 2008 Period.  During the Fiscal 2009 Period, income from operationsdecreased $15.8 million, or 7.4%, to $197.2 million, from $213.0 million in theFiscal 2008 Period.  The decrease in income from operations during the Q32009 Period as compared to the Q3 2008 Period was primarily attributable to theaforementioned decreases in admissions, concessions and other operatingrevenues.  The overall decrease in income from operations during theFiscal 2009 Period as compared to the Fiscal 2008 Period was driven byincreases in various operating expense line items including film rental andadvertising costs, cost of concessions, rent expense, other operating expenses,general and administrative expenses, depreciation expense and net loss ondisposal and impairment of operating assets, partially offset by increases inadmissions and concessions revenues.

 

***Interest Expense, net***

 

Duringthe Q3 2009 Period, net interest expense increased $10.4 million, or34.8%, to $40.3 million, from $29.9 million in the Q3 2008 Period. Netinterest expense totaled $114.5 million for the Fiscal 2009 Period, whichrepresents an increase of $22.8 million, or 24.9%, from that of the Fiscal 2008Period.  The increase in net interest expense during the Q3 2009 Periodand the Fiscal 2009 Period was principally due to a higher effective interestrate on our Term Facility as a result of the Amendment to the Amended SeniorCredit Facility during the first quarter of fiscal 2009, incremental interestexpense from the Fiscal 2008 Period issuance of the $200.0 million 61⁄4%Convertible Senior Notes and less interest income ($0.7 million and$1.0 million, respectively, for the Q3 2009 Period and Q3 2008 Period and$1.3 million and $5.7 million, respectively, for the Fiscal 2009 Period and theFiscal 2008 Period) during such periods.

 

***Earnings Recognized from NCM***

 

The Companyrecorded $8.0 million and $6.8 million, respectively, in cashdistributions from National CineMedia during the Q3 2009 Period and Q3 2008Period. Approximately $1.3 million and $1.0 million, respectively, ofthese cash distributions received during the Q3 2009 Period and the Q3 2008Period were recognized as a reduction in our investment in National CineMedia.  The Company recorded $29.9 million and$20.6 million, respectively, in cash distributions from National CineMediaduring the Fiscal 2009 Period and Fiscal 2008 Period. Approximately$4.6 million and $1.0 million, respectively, of these cash distributionsreceived during the Fiscal 2009 Period and the Fiscal 2008 Period wererecognized as a reduction in our investment in National CineMedia.  In addition, during the Q3 2009 Period, theQ3 2008 Period, the Fiscal 2009 Period and the Fiscal 2008 Period, the Companyrecorded an additional $0.7 million, $1.3 million, $1.5 million and $1.8million, respectively, of equity earnings with respect to newly issued commonunits received from National CineMedia during such periods.  As a result,during the Q3 2009 Period, the Q3 2008 Period, the Fiscal 2009 Period and theFiscal 2008 Period, the Company recognized $7.4 million, $7.1 million,$26.8 million and $21.4 million, respectively, of earnings from NationalCineMedia.  Such amounts are presented as “Earnings recognized from NCM”in the unaudited condensed consolidated financial statements.

 

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***Income Taxes***

 

Theprovision for (benefit from) income taxes of $(1.0) million and $21.3 millionfor the Q3 2009 Period and the Q3 2008 Period, respectively, reflect effectivetax rates of approximately 34.5% and 40.7%, respectively.  The provisionfor income taxes of $40.3 million and $55.1 million for the Fiscal 2009 Periodand the Fiscal 2008 Period, respectively, reflect effective tax rates ofapproximately 40.3% and 40.0%, respectively. The decrease in the effective taxrate for the Q3 2009 Period was primarily attributable to the accrual ofinterest on uncertain tax positions with state taxing authorities during the Q32009 Period. The effective tax rates for the Q3 2009 Period, the Q3 2008Period, the Fiscal 2009 Period and the Fiscal 2008 Period also reflect theimpact of certain non-deductible expenses.

 

***Net Income (Loss) Attributable toControlling Interest***

 

Duringthe Q3 2009 Period, net income (loss) attributable to controlling interesttotaled $(1.8) million, which represents a decrease of $32.8 million,from net income (loss) attributable to controlling interest of$31.0 million in the Q3 2008 Period.  Net income attributable tocontrolling interest totaled $60.0 million for the Fiscal 2009 Period,which represents a decrease of $22.8 million, from net income attributableto controlling interest of $82.8 million for the Fiscal 2008 Period. The decrease in net income (loss) attributable to controlling interest for theQ3 2009 Period and the Fiscal 2009 Period was primarily attributable to adecrease in operating income coupled with incremental interest expense and losson debt extinguishment, partially offset by incremental earnings recognizedfrom National CineMedia described above.

 

***Cash Flows***

 

Thefollowing table summarizes certain cash flow data for the Fiscal 2009 Periodand the Fiscal 2008 Period (in millions):

 
| ** **                                            | ** ** | **Fiscal  2009  Period** | ** ** | **Fiscal  2008  Period** | ** ** |
|-------------------------------------------------------|------------|--------------------------|------------|--------------------------|------------|
| Net cash provided by operating activities             |       | $                        | 220.0      | ** **               | **$**      | 127.1 | ** ** |
| Net cash used in investing activities                 |       | (88.4                    | )          | (307.7                   | )          |
| Net cash used in financing activities                 |       | (109.5                   | )          | (141.5                   | )          |
| Net increase (decrease) in cash and cash  equivalents |       | $                        | 22.1       |                     | $          | (322.1 | ) |

 

*Fiscal 2009 Period Compared to Fiscal 2008 Period*

 

Netcash flows provided by operating activities increased by approximately$92.9 million to approximately $220.0 million for the Fiscal 2009Period from approximately $127.1 million for the Fiscal 2008 Period. Theincrease in net cash flows generated from operating activities for the Fiscal2009 Period was primarily attributable to an increase in working capital,primarily the timing of certain Fiscal 2009 Period vendor payments.

 

Netcash flows used in investing activities totaled approximately$88.4 million for the Fiscal 2009 Period compared to cash flows used ininvesting activities of approximately $307.7 million for the Fiscal 2008Period. Contributing to the decrease in cash flows used in investing activitiesduring the Fiscal 2009 Period was the impact of the $209.3 million acquisitionof Consolidated Theatres during the Fiscal 2008 Period coupled with lesscapital expenditures of approximately $12.8 million during the Fiscal 2009Period, partially offset by less proceeds from the disposition of assets ofapproximately $3.2 million during the Fiscal 2009 Period.

 

Netcash flows used in financing activities were approximately $109.5 millionfor the Fiscal 2009 Period compared to cash flows used in financing activitiesof approximately $141.5 million for the Fiscal 2008 Period. The netdecrease in cash flows used in financing activities during the Fiscal 2009Period was primarily attributable to a $55.0 million reduction of dividendspaid to shareholders during the Fiscal 2009 Period as compared to the Fiscal2008 Period, partially offset by the impact of the net cash proceeds associatedwith the 2008 Convertible Note Hedge and 2008 Warrant transactions during the Fiscal2008 Period and incremental debt acquisition costs incurred 

 

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duringthe Fiscal 2009 Period related to the issuance of the Regal Cinemas 85/8% Senior Notes and the Amendment to theAmended Senior Credit Facility.

 

**Liquidity and Capital Resources**

 

Ona consolidated basis, we expect our primary uses of cash to be for operatingexpenses, capital expenditures, general corporate purposes related to corporateoperations, debt service and the Company’s quarterly dividend payments. Theprincipal sources of liquidity are cash generated from operations, cash on handand borrowings under the Amended Senior Credit Facility described below. Underthe terms of the Amended Senior Credit Facility and the Regal Cinemas SeniorNotes issued during the quarter ended October 1, 2009, Regal Cinemas isrestricted as to how much it can advance or distribute to Regal, its indirectparent. Since Regal is a holding company with no significant assets other thanthe stock of subsidiaries, this restriction could impact Regal’s ability toeffect future debt or dividend payments, pay corporate expenses or redeem orconvert for cash its 61⁄4% Convertible Senior Notes.

 

Ourrevenues are generated principally through admissions and concessions saleswith proceeds received in cash or via credit cards at the point of sale. Ouroperating expenses are primarily related to film and advertising costs, rentand occupancy, and payroll. Film costs are ordinarily paid to distributorswithin 30 days following receipt of admissions revenues and the cost ofthe Company’s concessions are generally paid to vendors approximately 30 to35 days from purchase. Our current liabilities generally include itemsthat will become due within twelve months. In addition, from time to time, weuse cash from operations and borrowings to fund dividends in excess of netincome (loss) attributable to controlling interest and cash flows fromoperating activities less cash flows from investing and other financingactivities. As a result, at any given time, our balance sheet may reflect aworking capital deficit.

 

Wefund the cost of capital expenditures through internally generated cash flows,cash on hand, proceeds from disposition of assets and financing activities. Ourcapital requirements have historically arisen principally in connection withacquisitions of theatres, new theatre construction, adding new screens toexisting theatres, upgrading the Company’s theatre facilities (includingdigital 3D and IMAX® screens) and replacing equipment.

 

Thecosts of implementing digital projection in our theatres will be primarilyfunded by DCIP.  DCIP and its members have yet to execute definitiveagreements concerning the extent of such funding, but based on currentnegotiations, we expect DCIP to fund the implementation of digital projectionthrough virtual print fees from motion picture studios. We will bear operatingand maintenance costs with respect to digital projection systems in ourtheatres, which we expect to be similar to what we currently spend on ourconventional film projectors.  Since the digital cinema deployment hasprogressed at a slower rate than expected, we have made incremental investmentsin digital projectors and 3D projection technology to selectively add 3Dcapable digital projection systems to our circuit to capture incremental 3Dadmissions revenues.  To that end, we plan to add additional 3D projectionsystems during the remainder of fiscal 2009 and expect to have 430 3D systemsin operation for the upcoming holiday season with the ultimate goal ofcontributing these systems to DCIP once financing is secured.  Finally, weare also exploring with DCIP potential alternatives to the current DCIPfinancing plans.  Should the conversion process to digital cinema rapidlyaccelerate and the major studios not cover the cost of the conversion asexpected, we may have to incur additional capital expenditures associated withthis potential change.

 

Webelieve the installation of digital projection systems, when combined with 3Dtechnology or IMAX® theatre systems, will allow us to offer our patrons premium3D and large format movie experiences, which we believe will generate incrementalrevenue for the Company.  We remain optimistic regarding the benefits ofdigital cinema primarily as it relates to future growth potential associatedwith 3D film product and other 3D content and are pleased to see growingsupport of 3D and IMAX® film product by the major studios.

 

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 

 

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replacementsto be in the range of approximately $95.0 million to $110.0 millionin fiscal year 2009, exclusive of acquisitions. Such capital expenditures areexpected to be partially funded through asset dispositions conducted during thenormal course of our business. During the Fiscal 2009 Period, we investedapproximately $86.3 million in capital expenditures.

 

Fora discussion of other significant financing transactions which have occurredthrough January 1, 2009, 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 January 1, 2009, as amended and restated within Exhibit 99.2to our current report on Form 8-K filed with the Commission on October 13,2009.

 

OnMarch 10, 2008, Regal issued $200.0 million aggregate principalamount of 61⁄4% Convertible Senior Notes. Concurrent with the issuance of the 61⁄4%Convertible Senior Notes, we entered into simultaneous convertible note hedgeand warrant transactions with respect to our Class A common stock in orderto reduce the potential dilution from conversion of the 61⁄4% Convertible SeniorNotes 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 sheets. See Note 4—“DebtObligations” for further description of the 61⁄4% Convertible Senior Notes andthe related convertible note hedge and warrant transactions. The Company usedcash on hand and a portion of the net proceeds from the issuance of the 61⁄4%Convertible Senior Notes to redeem approximately $90.0 million principal amountof Regal’s 33⁄4% Convertible Senior Notes due May 15, 2008, in a series ofprivately negotiated transactions.  As a result of the early redemption,the Company recorded a $3.0 million loss on debt extinguishment (asretrospectively adjusted for the adoption of certain provisions of ASC Subtopic470-20 described in Note 4—“Debt Obligations”) during the quarter ended March 27,2008.  In connection with the early redemption, the Company received netproceeds of approximately $13.7 million from Credit Suisse attributable to theconvertible note hedge and warrant transactions associated with the 33⁄4%Convertible Senior Notes described further in Note 4—“Debt Obligations.”Such proceeds were recorded as an increase to additional paid-incapital. In connection with the final maturity of the 33⁄4% 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.  In connection with these conversions, the Company received netproceeds of approximately $5.2 million from Credit Suisse attributable tothe convertible note hedge and warrant transactions associated with the 33⁄4%Convertible Senior Notes. Such proceeds were also recorded as an increase toadditional paid-in capital. See Note 4—“Debt Obligations” for furtherdiscussion of this transaction.

 

OnApril 30, 2008, the Company acquired Consolidated Theatres, which held atotal of 28 theatres with 400 screens in Georgia, Maryland, North Carolina,South Carolina, Tennessee and Virginia. The total net cash purchase price forthe acquisition was approximately $209.3 million. The results of operationsof the acquired theatres have been included in the Company’s consolidatedfinancial statements for periods subsequent to the acquisition date. Inconjunction with the closing, we entered into a final judgment with the DOJ,which required us to hold separate and divest ourselves of four theaterscomprising 52 screens in North Carolina. During the quarter ended September 25,2008, the Company entered into an agreement to sell three of the four theatresand recorded impairment charges of approximately $7.9 million related tothese theatres. On October 23, 2008, the Company completed its divestitureof the three theatres.  On April 30, 2009, the Company completed itsdivestiture of the last of the four theatres.  See Note 2 “Acquisition”for further discussion of this transaction.

 

Asdescribed more fully in Note 3—“Investment in NationalCineMedia, LLC,” on April 9, 2008, we received from NationalCineMedia approximately 0.8 million newly issued common units of NationalCineMedia. On May 29, 2008, we received from National CineMediaapproximately 2.9 million newly issued common units of National CineMediain accordance with the adjustment provisions of the Common Unit AdjustmentAgreement for our increase in screens in connection with our acquisition of ConsolidatedTheatres. Finally, on March 17, 2009, we received from National CineMediaapproximately 0.5 million newly issued common units of National CineMediain accordance with the annual adjustment provisions of the Common UnitAdjustment Agreement.  These adjustments increased the number of NationalCineMedia common units held by us to approximately 25.4 million and as aresult, 

 

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ona fully diluted basis, we own a 25.0% interest in NCM, Inc. as of October 1,2009.

 

RegalCinemas maintains its Amended Senior Credit Facility, which consists of theTerm Facility in an aggregate original principal amount of $1,700.0 millionand the Revolving Facility in an aggregate principal amount of up to$100.0 million. Due to the bankruptcy filings by Lehman and certain of itsaffiliates and the sudden deterioration in the credit standing of the Lehmanaffiliate party to our Revolving Facility, the aggregate principal amountavailable for drawing under the Revolving Facility was reduced by$5.0 million to $95.0 million during fiscal 2008. The RevolvingFacility has a separate sublimit of $10.0 million for short-term loans anda sublimit of $30.0 million for letters of credit. The Term Facility willmature on October 27, 2013 and the Revolving Facility will mature on October 27,2011.

 

Asdescribed more fully Note 4—“Debt Obligations,” on January 20, 2009,Regal Cinemas entered into the First Amendment to the Amended Senior CreditFacility. Under the Amendment, (i) the Applicable Margin, as defined inthe Amendment, for Revolving Loans under the Revolving Facility and for TermLoans under the Term Facility (each of which are determined by reference to thethen-applicable Consolidated Leverage Ratio) is increased by 2.0%, (ii) RegalCinemas’ ability to elect interest periods for LIBOR borrowings is limited tointerest periods of 2, 3, 6 or (if available to all lenders) 12 months,with 1 month interest periods no longer being available, and (iii) RegalCinemas may exclude a minimum of $100.0 million, but not more than$200.0 million, of Subordinated Debt, as defined in the Amendment, that isused to repay amounts outstanding under the Term Loan from certain financialcovenant calculations.

 

OnJuly 15, 2009, Regal Cinemas issued $400.0 million in aggregate principalamount of the 85/8% Senior Notesat a price equal to 97.561% of their face value in a transaction exempt fromregistration under the Securities Act. Interest on the 85/8% Senior Notesis payable semi-annually in arrears on July 15 and January 15 of eachyear, beginning on January 15, 2010. The 85/8% Senior Noteswill mature on July 15, 2019. The net proceeds from the offering, afterdeducting the initial purchase discount (approximately $9.8 million) andoffering expenses paid by the Company, were approximately $381.3 million. TheCompany used all of the net proceeds of the offering to repay a portion of theAmended Senior Credit Facility. As a result of this repayment, the Companyrecorded a loss on debt extinguishment of approximately $7.4 million,representing the pro-rata write off of unamortized debt issue costs under theAmended Senior Credit Facility.  See Note4—“Debt Obligations” for further discussion of this transaction.

 

Asof October 1, 2009, we had approximately $1,268.7 million aggregateprincipal amount outstanding under the Term Facility, $390.5 million aggregateprincipal amount outstanding (net of debt discount) under the 85/8% Regal Cinemas Senior Notes,$193.5 million aggregate principal amount outstanding (net of debtdiscount) under the 61/4% ConvertibleSenior Notes, and $51.5 million aggregate principal amount outstandingunder the Regal Cinemas 93/8% Senior SubordinatedNotes. As of October 1, 2009, we had approximately $2.7 millionoutstanding in letters of credit, leaving approximately $92.3 millionavailable for drawing under the Revolving Facility.

 

Asdescribed in Note 5 to the 2008 Audited Financial Statements, RegalCinemas had three interest rate swap agreements effective as of January 1,2009, which hedged an aggregate of approximately $700.0 million ofvariable rate debt obligations.  During the quarter ended April 2,2009, Regal Cinemas entered into four additional hedging relationships via fourdistinct interest rate swap agreements with maturity terms of two to threeyears each from the respective effective dates of the swaps and require RegalCinemas to pay interest at fixed rates ranging from 2.15% to 2.53% and receiveinterest at a variable rate. These interest rate swaps were designated to hedgeapproximately $1,000.0 million of variable rate debt obligations and becameeffective during the three quarters ended October 1, 2009.  Duringthe three quarters ended October 1, 2009, the three interest rate swapseffective as of January 1, 2009, matured. As a result, the Company’s fourinterest rate swap agreements effective as of October 1, 2009 hedge anaggregate of approximately $1,000.0 million of variable rate debt obligationsat an effective rate of approximately 6.07%.

 

OnSeptember 15, 2008, because of the sudden deterioration in the creditstanding of the Lehman counterparty to an interest rate swap agreementdesignated to hedge approximately $100.0 million of variable rate debtobligations, the Company concluded that the hedging relationship was no longerexpected to be highly effective in achieving offsetting cash flows. As aresult, on September 15, 2008, the hedging relationship ceased to qualifyfor 

 

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hedgeaccounting. On October 3, 2008, the Lehman counterparty filed forbankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code. As aresult, an event of default occurred under the provisions of the interest rateswap agreement between us and the Lehman counterparty, which effectivelyterminated the interest rate swap on October 3, 2008.  During thethree quarters ended October 1, 2009, the Company paid a final terminationvalue of approximately $2.5 million (including accrued interest) associatedwith the interest rate swap.

 

Regalpaid three quarterly cash dividends of $0.18 per share on each outstandingshare of the Company’s Class A and Class B common stock, orapproximately $83.1 million in the aggregate, during the Fiscal 2009Period.  Further, on October 29, 2009, the Company declared a cashdividend of $0.18 per share on each share of the Company’s Class A and Class Bcommon stock (including outstanding restricted stock), payable on December 17,2009, to stockholders of record on December 9, 2009.  These dividendshave been or will be funded through cash flow from operations and available cashon hand. We, at the discretion of the board of directors and subject toapplicable law, anticipate paying regular quarterly dividends on our Class Aand Class B common stock for the foreseeable future. The amount, if any,of the dividends to be paid in the future will depend upon our then availablecash, anticipated cash needs, overall financial condition, loan agreementrestrictions, future prospects for earnings and cash flows, as well as otherrelevant factors.

 

EBITDA(earnings before interest, taxes, depreciation, and amortization) wasapproximately $88.7 million and $133.3 million for the Q3 2009 Period andthe Q3 2008 Period, respectively and approximately $366.4 million and $376.9million for the Fiscal 2009 Period and Fiscal 2008 Period, respectively. Thedecrease in EBITDA during the Q3 2009 Period and Fiscal 2009 Period wasprimarily attributable to decreases in operating income during suchperiods.  The Company uses EBITDA as a supplemental liquidity measurebecause we find it useful to understand and evaluate our capacity, excludingthe impact of interest, taxes, and non-cash depreciation and amortizationcharges, for servicing our debt, paying dividends and otherwise meeting ourcash needs, prior to our consideration of the impacts of other potentialsources and uses of cash, such as working capital items. We believe that EBITDAis useful to investors for these purposes as well. EBITDA should not beconsidered an alternative to, or more meaningful than, net cash provided byoperating activities, as determined in accordance with U.S. generally acceptedaccounting principles (“GAAP”), since it omits the impact of interest, taxesand changes in working capital that use or provide cash (such as receivables,payables and inventories) as well as the sources or uses of cash associatedwith changes in other balance sheet items (such as long-term loss accruals anddeferred items). Because EBITDA excludes depreciation and amortization, EBITDAdoes not reflect any cash requirements for the replacement of the assets beingdepreciated and amortized, which assets will often have to be replaced in thefuture. Further, EBITDA, because it also does not reflect the impact of debtservice, income taxes, cash dividends, capital expenditures and other cashcommitments from time to time as described in more detail elsewhere in thisquarterly report on Form 10-Q, does not represent how much discretionarycash we have available for other purposes. Nonetheless, EBITDA is a key measureexpected by and useful to our fixed income investors, rating agencies and thebanking community all of whom believe, and we concur, that these measures arecritical to the capital markets’ analysis of our ability to service debt, fundcapital expenditures, pay dividends and otherwise meet cash needs,respectively. We also evaluate EBITDA because it is clear that movements inthese non-GAAP measures impact our ability to attract financing and paydividends. EBITDA, as calculated, may not be comparable to similarly titledmeasures reported by other companies. A reconciliation of EBITDA to net cashprovided by (used in) operating activities is calculated as follows (inmillions):

 
| ** **                                           | ** ** | **Q3 2009 Period** | ** ** | **Q3 2008 Period** | ** ** | **Fiscal  2009  Period** | ** ** | **Fiscal  2008  Period** | ** ** |
|------------------------------------------------------|------------|------------------------------|------------|------------------------------|------------|--------------------------|------------|--------------------------|------------|
| EBITDA                                               |       | $                            | 88.7       |                         | $          | 133.3                    |       | $                        | 366.4      |   | $ | 376.9 |   |
| Interest expense, net                                |       | (40.3                        | )          | (29.9                        | )          | (114.5                   | )          | (91.7                    | )          |
| Benefit from (provision for) income taxes            |       | 1.0                          |       | (21.3                        | )          | (40.3                    | )          | (55.1                    | )          |
| Deferred income taxes                                |       | 2.6                          |       | (2.0                         | )          | (1.7                     | )          | (29.3                    | )          |
| Changes in operating assets and liabilities          |       | (91.3                        | )          | (127.6                       | )          | (45.0                    | )          | (112.6                   | )          |
| Loss on debt extinguishment                          |       | 7.4                          |       | —                       |       | 7.4                      |       | 3.0                      |       |
| Other items, net                                     |       | 15.1                         |       | 18.1                         |       | 47.7                     |       | 35.9                     |       |
| Net cash provided by (used in) operating  activities |       | $                            | (16.8      | )                            | $          | (29.4                    | )          | $                        | 220.0      |   | $ | 127.1 |   |

 

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**Contractual Cash Obligations and Commitments**

 

Fora summary of our contractual cash obligations and commitments and off-balancesheet arrangements as of January 1, 2009, please refer to Item 7, “Management’sDiscussion and Analysis of Financial Condition and Results ofOperations—Contractual Cash Obligations and Commitments” contained in ourannual report on Form 10-K for the fiscal year ended January 1, 2009,as amended and restated within Exhibit 99.2 to our current report on Form 8-Kfiled with the Commission on October 13, 2009.  Other than the $390.2million of debt (net of debt discount) incurred in connection with the issuanceof the Regal Cinemas 85/8% Senior Notesdue in 2019 and a $381.3 million repayment under the Term Facility maturing in2013 (described further in Note 4 —“Debt Obligations”), as of October 1,2009, there were no material changes outside the ordinary course of ourbusiness in our contractual cash obligations and commitments.  We believethat the amount of cash and cash equivalents on hand, cash flow expected fromoperations and availability under our Revolving Facility will be adequate forthe Company to execute its business strategy and meet anticipated requirementsfor lease obligations, capital expenditures, working capital and debt servicefor the next 12 months.

 

**Critical Accounting Estimates**

 

Fora discussion of accounting policies that we consider critical to our businessoperations and the understanding of our results of operations and affect themore significant judgments and estimates used in the preparation of ourunaudited condensed consolidated financial statements, please refer to Item 7, “Management’sDiscussion and Analysis of Financial Condition and Results ofOperations—Critical Accounting Estimates” contained in our annual report on Form 10-Kfor the fiscal year ended January 1, 2009 and incorporated by referenceherein, as amended and restated within Exhibit 99.2 to our current reporton Form 8-K filed with the Commission on October 13, 2009.  Asof October 1, 2009, there were no significant changes in our criticalaccounting policies or estimation procedures.

 

**Recent Accounting Pronouncements**

 

Fora discussion of the recent accounting pronouncements relevant to ouroperations, please refer to the information provided under Note 10—“RecentAccounting Pronouncements” 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, which information isincorporated by reference herein.

 

**Seasonality**

 

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

 

**Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUTMARKET RISK**

 

TheCompany’s market risk is confined to interest rate exposure of its and itswholly owned subsidiaries’ debt obligations that bear interest based onfloating rates. The Amended Senior Credit Facility provides variable rateinterest that could be adversely affected by an increase in interest rates.Borrowings under the Term Facility bear interest, at Regal Cinemas’ option, ateither an adjusted Eurodollar rate (as defined in the Amended Senior CreditFacility) or the base rate plus, in each case, an applicable margin.

 

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Underthe terms of the Company’s effective interest rate swap agreements (which hedgean aggregate of approximately $1,000.0 million of variable rate debtobligations as of October 1, 2009) described in Note 4—“Debt Obligations,”Regal Cinemas pays interest at various fixed rates ranging from 2.15% to 2.53%and receives interest at a variable rate based on the 3-month LIBOR.

 

Asof October 1, 2009 and January 1, 2009, borrowings of$1,268.7 million and $1,661.8 million, respectively, were outstandingunder the Term Facility and the prior term facility, respectively, at aneffective interest rate of 5.64% (as of October 1, 2009) and 4.42% (as of January 1,2009), after the impact of the interest rate swaps is taken into account. Ahypothetical change of 10% in the Company’s effective interest rate under theTerm Facility as of October 1, 2009, would increase or decrease interestexpense by $1.8 million****forthe quarter ended October 1, 2009.

 

**Item 4. CONTROLS AND PROCEDURES**

 

Wemaintain disclosure controls and procedures that are designed to ensure thatinformation required to be disclosed by us in the reports that we file orsubmit to the Commission under the Exchange Act, is recorded, processed,summarized and reported within the time periods specified by the Commission’s rules andforms, and that information is accumulated and communicated to our management,including our principal executive, principal financial and principal accountingofficers (whom we refer to in this periodic report as our Certifying Officers),as appropriate 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 October 1,2009, pursuant to Rule 13a-15(b) under the Exchange Act. Based uponthat evaluation, our Certifying Officers concluded that, as of October 1,2009, our disclosure controls and procedures were effective.

 

Therewere no changes in our internal control over financial reporting that occurredduring our most recently completed fiscal quarter that have materiallyaffected, or are reasonably likely to materially affect, our internal controlover financial reporting.

 

**PART II—OTHERINFORMATION**

 

**Item 1. LEGAL PROCEEDINGS**

 

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

 

**Item 1A. RISK FACTORS**

 

Therehave been no material changes from risk factors as previously disclosed in ourannual report on Form 10-K filed on March 2, 2009 with the Commission(File No. 001-31315) for the fiscal year ended January 1, 2009.

 

**Item 6. EXHIBITS**

 
| **Exhibit  Number** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|---------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 4.1                 |       | Indenture,  dated July 15, 2009, by and between Regal Cinemas Corporation, Regal  Entertainment Group, certain subsidiaries of Regal Cinemas Corporation listed  as guarantors on the signature pages thereto and U.S. Bank National  Association, including the form of 8.625% Senior Note due 2019 (included as  Exhibit A to the Indenture) (filed as exhibit 4.1 to our Current Report  on Form 8-K (Commission File No. 001-31315) on July 15, 2009,  and incorporated by reference herein) |

 

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| 4.2  |   | Registration  Rights Agreement, dated July 15, 2009, by and between Regal Cinemas  Corporation, Regal Entertainment Group, certain subsidiaries of Regal Cinemas  Corporation listed as on the signature pages thereto and the initial  purchasers listed therein (filed as exhibit 4.2 to our Current Report on  Form 8-K (Commission File No. 001-31315) on July 15, 2009, and  incorporated by reference herein)                                                                 |
|------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1 |   | Purchase  Agreement, dated July 9, 2009, among Regal Cinemas Corporation, Regal  Entertainment Group, certain subsidiaries of Regal Cinemas Corporation listed  as guarantors on the signature pages thereto and Credit Suisse  Securities (USA) LLC, as representatives of the initial purchasers listed on  Schedule A thereto (filed as exhibit 10.1 to our Current Report on  Form 8-K (Commission File No. 001-31315) on July 15, 2009, and  incorporated by reference herein) |
| 31.1 |   | Rule 13a-14(a) Certification  of Chief Executive Officer of Regal                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 31.2 |   | Rule 13a-14(a) Certification  of Chief Financial Officer of Regal                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 32   |   | Section 1350  Certifications                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |

 

**SIGNATURES**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 
| ** **                    | **REGAL ENTERTAINMENT GROUP** |
|-------------------------------|-------------------------------|
|                          |                          |   |
| Date:  November 10, 2009 | By:                           | /s/  AMY  E. MILES |
|                          |                          | Amy  E. Miles |
|                          |                          | *Chief Executive Officer (Principal Executive Officer)* |
|                          |                          |   |
| Date:  November 10, 2009 | By:                           | /s/  DAVID  H. OWNBY |
|                          |                          | David  H. Ownby |
|                          |                          | *Executive Vice President, Chief* |
|                          |                          | *Financial Officer and Treasurer (Principal Financial  Officer and Principal Accounting Officer)* |

 

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**EXHIBIT INDEX**

 
| **Exhibit  Number** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|---------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 4.1                 |       | Indenture,  dated July 15, 2009, by and between Regal Cinemas Corporation, Regal  Entertainment Group, certain subsidiaries of Regal Cinemas Corporation listed  as guarantors on the signature pages thereto and U.S. Bank National  Association, including the form of 8.625% Senior Note due 2019 (included as  Exhibit A to the Indenture) (filed as exhibit 4.1 to our Current Report  on Form 8-K (Commission File No. 001-31315) on July 15, 2009,  and incorporated by reference herein) |
| 4.2                 |       | Registration  Rights Agreement, dated July 15, 2009, by and between Regal Cinemas  Corporation, Regal Entertainment Group, certain subsidiaries of Regal Cinemas  Corporation listed as on the signature pages thereto and the initial  purchasers listed therein (filed as exhibit 4.2 to our Current Report on  Form 8-K (Commission File No. 001-31315) on July 15, 2009, and  incorporated by reference herein)                                                                                   |
| 10.1                |       | Purchase  Agreement, dated July 9, 2009, among Regal Cinemas Corporation, Regal  Entertainment Group, certain subsidiaries of Regal Cinemas Corporation listed  as guarantors on the signature pages thereto and Credit Suisse  Securities (USA) LLC, as representatives of the initial purchasers listed on  Schedule A thereto (filed as exhibit 10.1 to our Current Report on  Form 8-K (Commission File No. 001-31315) on July 15, 2009, and  incorporated by reference herein)                   |
| 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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